<PAGE>
As filed with the Securities and Exchange Commission on November 3, 1998
Registration No. 333-______
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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QUICKSILVER RESOURCES INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 1330 75-2756163
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
incorporation or organization) Classification No.)
</TABLE>
1619 PENNSYLVANIA AVENUE
FORT WORTH, TEXAS 76104
(817) 332-9133
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
GLENN M. DARDEN
VICE PRESIDENT
1619 PENNSYLVANIA AVENUE
FORT WORTH, TEXAS 76104
(817) 332-9133
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
SLOAN B. BLAIR, ESQ. COPIES TO: L. STEVEN LESHIN, ESQ.
CANTEY & HANGER, L.L.P. JENKENS & GILCHRIST,
2100 BURNETT PLAZA A PROFESSIONAL CORPORATION
801 CHERRY STREET 1445 ROSS AVENUE, SUITE 3200
FORT WORTH, TEXAS 76102 DALLAS, TEXAS 75202
(817) 877-2800 (214) 855-4500
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement and the
satisfaction or waiver of all other conditions to the merger of MSR Exploration
Ltd. ("MSR") with and into Quicksilver Resources Inc. ("Quicksilver") pursuant
to the Agreement and Plan of Merger and Reorganization dated September 1, 1998
among the Registrant and MSR, described in the enclosed Proxy
Statement/Prospectus.
If the securities being registered on this Form S-4 are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, other than securities offered only in connection with dividend
or interest reinvestment plans, check the following box [ ].
---------------------
CALCULATION OF REGISTRATION FEE
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Proposed maximum Proposed maximum
Title of each class of Amount to offering price aggregate Amount of
securities to be registered be registered per share (2) offering price registration fee
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Common Stock, $.01 par value..... 2,577,701 shares(1) $0.75 19,332,761(2) $5,374.51
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</TABLE>
(1) Based upon the estimated number of shares that may be issued in the
transaction described herein.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(f)(1) under the Securities Act of 1933, as amended
(the "Securities Act"). Based upon the market value as of October 9, 1998
of all shares of MSR common stock to be canceled in the merger (25,777,014
shares of MSR common stock) by the Registrant in the transaction described
herein.
--------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY
DETERMINE.
<PAGE>
MSR EXPLORATION, LTD
MERGER PROPOSED
YOUR VOTE IS VERY IMPORTANT
The Board of Directors of MSR Exploration, Ltd. has approved, with Messrs.
Frank, Thomas and Glenn Darden abstaining, and recommends to you a merger of MSR
with Quicksilver Resources Inc. in a transaction that they believe will create a
more efficient and profitable energy company and maximize the value of your
investment.
As a result of the merger, holders of common stock of MSR will receive .10
of one share of common stock of Quicksilver. As a result of the merger, MSR
stockholders will own 20% of the Quicksilver common stock and stockholders of
Quicksilver will own 80% of the common stock after the merger. The merger will
be tax-free to stockholders of MSR.
The merger cannot be completed unless you approve it and certain other
customary conditions are satisfied. We are asking you to approve the merger at
our special meeting of stockholders.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN AND
MAIL THE ENCLOSED PROXY CARD. IF YOU SIGN, DATE AND MAIL YOUR PROXY CARD
WITHOUT INDICATING HOW YOU WANT TO VOTE, YOUR PROXY WILL BE COUNTED AS A VOTE IN
FAVOR OF THE MERGER. IF YOU FAIL TO RETURN YOUR PROXY CARD OR TO VOTE IN PERSON
AT THE MEETING, THE EFFECT WILL BE A VOTE AGAINST THE MERGER.
Additional information regarding the special meeting follows:
Date/Time:
-----------------------------------------------------------------
-----------------------------------------------------------------
Place: Petroleum Club of Fort Worth
777 Main Street, 40th Floor
Fort Worth, Texas 76102
Record Date:
-----------------------------------------------------------------
The accompanying Proxy Statement/Prospectus provides additional information
about the proposed merger. Please read this entire document carefully. You may
also obtain information about our company from documents that we have filed with
the SEC.
MSR EXPLORATION LTD.
- --------------------------------------------------------------------------------
Thomas F. Darden
Chairman of the Board
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THESE SECURITIES OR DETERMINED IF THIS PROXY
STATEMENT/PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Proxy Statement/Prospectus is first being mailed to
stockholders on or about ____ __, 1998.
<PAGE>
TABLE OF CONTENTS
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PAGE
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QUESTIONS AND ANSWERS ABOUT THE MERGER . . . . . . . . . . . . . . . . . . .iv
SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
The Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
The Special Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Risk Factors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
The Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Recommendation of the Special Committee and Board of Directors of MSR . 2
Opinion of MSR's Financial Advisor. . . . . . . . . . . . . . . . . . . 2
MSR's Reasons for the Merger. . . . . . . . . . . . . . . . . . . . . . 2
The Merger Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . 3
Interests of Certain Persons in the Merger. . . . . . . . . . . . . . . 4
Management After the Merger . . . . . . . . . . . . . . . . . . . . . . 4
Accounting Treatment. . . . . . . . . . . . . . . . . . . . . . . . . . 4
Dissenters' Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Differences in Rights of Stockholders of MSR and Quicksilver. . . . . . 4
Certain Federal Income Tax Consequences . . . . . . . . . . . . . . . . 4
Summary Historical and Pro Forma Financial Information. . . . . . . . . 5
Selected Comparative Per Share Data . . . . . . . . . . . . . . . . . . 8
Comparative Market Data . . . . . . . . . . . . . . . . . . . . . . . . 9
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
Risks of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . .10
Risks Inherent in the Oil and Gas Business. . . . . . . . . . . . . . .12
Risks Relating to the Year 2000 . . . . . . . . . . . . . . . . . . . .17
THE MSR MEETING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
Time, Place and Date of the Special Meeting . . . . . . . . . . . . . .18
Purpose of the Meeting. . . . . . . . . . . . . . . . . . . . . . . . .18
Voting Rights of MSR Stockholders . . . . . . . . . . . . . . . . . . .18
Proxies, Solicitation and Revocation of Proxies . . . . . . . . . . . .19
THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
Background of the Merger. . . . . . . . . . . . . . . . . . . . . . . .19
MSR's Reasons for the Merger; Recommendation of the MSR Board . . . . .21
Opinion of MSR's Financial Advisor. . . . . . . . . . . . . . . . . . .22
General Information About The Merger. . . . . . . . . . . . . . . . . .24
Effective Time. . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
Conversion of Shares; Conversion. . . . . . . . . . . . . . . . . . . .25
The Merger Agreement. . . . . . . . . . . . . . . . . . . . . . . . . .25
Treatment of Outstanding Stock Options and Warrants . . . . . . . . . .29
Exchange of Stock Certificates. . . . . . . . . . . . . . . . . . . . .29
Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . .30
Accounting Treatment. . . . . . . . . . . . . . . . . . . . . . . . . .30
Consequences Under Federal Securities Laws. . . . . . . . . . . . . . .30
Dissenting Stockholders' Rights . . . . . . . . . . . . . . . . . . . .30
INTERESTS OF CERTAIN PERSONS IN THE MERGER . . . . . . . . . . . . . . . . .32
Transactions with Management. . . . . . . . . . . . . . . . . . . . . .33
Conflicts of Interest . . . . . . . . . . . . . . . . . . . . . . . . .33
Management after the Merger . . . . . . . . . . . . . . . . . . . . . .34
Formation Documents . . . . . . . . . . . . . . . . . . . . . . . . . .34
CERTAIN FEDERAL INCOME TAX CONSEQUENCES. . . . . . . . . . . . . . . . . . .37
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37
Taxation of U.S. Stockholders . . . . . . . . . . . . . . . . . . . . .37
Taxation of Non-U.S. Stockholders . . . . . . . . . . . . . . . . . . .38
Information Reporting and Backup Withholding. . . . . . . . . . . . . .39
SELECTED FINANCIAL DATA OF MSR . . . . . . . . . . . . . . . . . . . . . . .40
</TABLE>
i
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF MSR'S FINANCIAL CONDITION
AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . .41
Comparison of the Six Months Ended June 30, 1998 to Pro Forma
Six Months Ended June 30, 1997 . . . . . . . . . . . . . . . . . .41
Comparison of the Years Ended December 31, 1997 and 1996. . . . . . . .42
MSR Pro Forma Consolidated Statements of Operations . . . . . . . . . .42
Liquidity and Capital Resources . . . . . . . . . . . . . . . . . . . .44
Changes in Prices and Inflation . . . . . . . . . . . . . . . . . . . .45
Year 2000 Issue . . . . . . . . . . . . . . . . . . . . . . . . . . . .45
SELECTED FINANCIAL DATA OF QUICKSILVER . . . . . . . . . . . . . . . . . . .47
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF QUICKSILVER. . . . . . . . . . . . . . . .48
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .48
Business Combination. . . . . . . . . . . . . . . . . . . . . . . . . .48
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . .49
Liquidity and Capital Resources . . . . . . . . . . . . . . . . . . . .50
Issues Relating to the Year 2000. . . . . . . . . . . . . . . . . . . .51
SELECTED HISTORICAL FINANCIAL DATA OF QUICKSILVER PREDECESSORS - MERCURY
EXPLORATION COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . .52
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .53
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . .53
Liquidity and Capital Resources . . . . . . . . . . . . . . . . . . . .53
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS AND
BALANCE SHEET OF THE SURVIVING CORPORATION. . . . . . . . . . . . . . .54
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
AND BALANCE SHEET -- SURVIVING CORPORATION. . . . . . . . . . . . . . .58
QUICKSILVER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .61
Formation of Quicksilver. . . . . . . . . . . . . . . . . . . . . . . .61
Business of Quicksilver . . . . . . . . . . . . . . . . . . . . . . . .62
Business Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . .63
Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .64
Marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .64
Description of Oil and Gas Properties . . . . . . . . . . . . . . . . .64
Exploration Activities. . . . . . . . . . . . . . . . . . . . . . . . .66
Oil and Gas Reserves. . . . . . . . . . . . . . . . . . . . . . . . . .66
Volumes, Sales Prices and Oil and Gas Production Expense. . . . . . . .67
Development, Exploration and Acquisition Capital Expenditures . . . . .67
Productive Oil and Gas Wells. . . . . . . . . . . . . . . . . . . . . .68
Oil and Gas Acreage . . . . . . . . . . . . . . . . . . . . . . . . . .68
Drilling Activity . . . . . . . . . . . . . . . . . . . . . . . . . . .68
EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . .69
Certain Relationships and Related Party Transactions. . . . . . . . . .69
MANAGEMENT OF QUICKSILVER. . . . . . . . . . . . . . . . . . . . . . . . . .69
Directors and Executive Officers. . . . . . . . . . . . . . . . . . . .69
Director Compensation . . . . . . . . . . . . . . . . . . . . . . . . .71
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF
QUICKSILVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .71
DESCRIPTION OF QUICKSILVER'S CAPITAL STOCK . . . . . . . . . . . . . . . . .72
Descripton of Common Stock. . . . . . . . . . . . . . . . . . . . . . .72
Description of Preferred Stock. . . . . . . . . . . . . . . . . . . . .73
COMPARISON OF STOCKHOLDER RIGHTS . . . . . . . . . . . . . . . . . . . . . .74
WHERE YOU CAN GET INFORMATION. . . . . . . . . . . . . . . . . . . . . . . .74
NOTE ON FORWARD-LOOKING INFORMATION. . . . . . . . . . . . . . . . . . . . .74
</TABLE>
ii
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INFORMATION INCORPORATED BY REFERENCE. . . . . . . . . . . . . . . . . . . .74
OTHER MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .75
LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .75
EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .75
GLOSSARY OF CERTAIN TERMS. . . . . . . . . . . . . . . . . . . . . . . . . .76
INDEX TO FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . F-1
</TABLE>
APPENDIX A AGREEMENT AND PLAN OF MERGER
APPENDIX B OPINION OF EVEREN SECURITIES, INC.
APPENDIX C DISSENTERS' RIGHTS UNDER THE ALBERTA BUSINESS CORPORATION ACT
iii
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHY IS THE MERGER BEING A: The Board of Directors has determined
PROPOSED? that the merger is fair to and in the
best interest of its stockholders.
The Board determined that MSR and
Quicksilver will benefit from the
combined resources of the energy
entities because the combined entity
will be larger and, therefore, is
likely to be better able to obtain
financing and to pursue development
and acquisition projects than each
company could separately. In
addition, the merger of the two
companies would also eliminate
overlap in management and accounting
and streamline operations. We also
believe that investors, especially
institutional investors, are more
likely to invest in the combined
company than in MSR as a separate
entity.
Q: HOW DID MSR DECIDE TO ENTER A: Due to the interests that the Darden
INTO THE MERGER? family have in both MSR and
Quicksilver, the Board appointed a
special committee of disinterested
MSR directors to consider the merger.
The special committee retained EVEREN
Securities, Inc. to act as its
financial advisor. The special
committee has also determined that
the merger is fair to and in the best
interests of the MSR stockholders.
Q: HOW BIG WOULD THE COMBINED A: If the merger is completed, the
COMPANY BE? combined company would own interests
in 1,200 wells, with a lease
inventory of almost 600,000 gross
acres located in Michigan, Montana,
Wyoming, Texas and Canada. The
combined company's net proved
reserves would be in excess of 286
billion cubic feet of gas equivalent
having a present value discounted at
ten percent of approximately $148
million, based on reserve reports
dated January 1, 1998.
Q: WHEN DO YOU EXPECT THE A: If the merger is approved by the
MERGER TO OCCUR? stockholders of MSR, the merger will
occur as soon as practicable
thereafter. We expect this to occur
by the end of December 1998.
Q: WHAT WILL I RECEIVE IN THE A: If you own stock in MSR, you will
MERGER? receive one-tenth (.10) of one share
of Quicksilver common stock for each
share of MSR common stock you own at
the time of the merger. For example,
if you own 100 shares of stock in
MSR, you will receive 10 shares of
stock in Quicksilver.
Quicksilver will not issue fractional
shares of common stock, instead you
will receive a cash payment
calculated by multiplying the price
of the MSR common stock on the
American Stock Exchange on the day
preceding the closing date of the
merger by .10, and then multiplying
that number by the fractional
interest to which you are entitled.
For example, if the closing price of
MSR's stock was $1.00 and you had an
extra 1/2 of a share as a result of
the merger, you would receive: $1.00
x .10 x .5 or $0.05 for the 1/2
share.
iv
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Q: WHY AM I ONLY RECEIVING ONE A: During the merger negotiations, our
TENTH OF A SHARE OF companies discussed the possibility
QUICKSILVER STOCK FOR ONE of exchanging one share of Quicksilver
FULL SHARE OF MY MSR STOCK? stock for each share of MSR stock.
However, there are about 25 million
shares of MSR outstanding. A one-for-
one exchange would have resulted in
over 125 million shares of Quicksilver
stock to be outstanding after the
merger, based on the agreement that
MSR's stockholders would recieve 20% of
Quicksilver's shares in the merger.
This likely would result in a per share
price of less than $1.00 for the stock
of the surviving corporation.
Q: WHY WOULD THAT MATTER? A: A per share price of less than $1.00
is not desirable because:
- we could not list the Quicksilver
stock on the American Stock Exchange
or any other stock exchange; and
- a stock price of less than $1.00
deters institutional investors from
following and purchasing the stock.
It is our long-term goal to attract
more interest in the shares of the
surviving corporation among
institutional investors. Because a
higher stock price is more attractive
to institutional investors, this
possibly will assist us over time to
acquire more capital for our growth
and the development of our oil and gas
properties.
We considered that this exchange
ratio would reduce the number of shares
available for sale in the public market
after the merger, because the number of
shares in the hands of non-affiliates
would be reduced by 90% based on the
one-for-ten exchange. This will create
a "thin" trading market in the shares
of the surviving corporation, meaning
that after the merger, only about
1.2 million shares of the surviving
corporation (representing about 10% of
the shares of the surviving corporation
to be outstanding after merger) will
be held by non-affiliates. However,
we decided that the advantages of this
outweighed this disadvantage.
Q: WHAT ARE THE TAX A: The merger will be tax-free to
CONSEQUENCES OF THE MERGERS? stockholders of MSR. If you own
shares of stock of MSR you will not
recognize any gain or loss as a
result of the merger.
Q: WHAT DO I NEED TO DO NOW? A: Please mail your signed proxy card in
the enclosed return envelope as soon
as possible so that your shares of
MSR common stock may be represented
at the meeting. The meeting will be
held on _________, 1998.
Q: IF MY SHARES ARE HELD BY MY A: Your broker may vote your shares for
BROKER, WILL MY BROKER VOTE the merger only if you instruct your
MY SHARES FOR ME? broker on how to vote. You should
follow the directions provided by
your broker regarding how to instruct
your broker to vote your shares. If
you do not tell your broker how to
vote, your shares will not be voted.
Your failure to vote will have the
same effect as a vote AGAINST the
v
<PAGE>
merger.
Q: CAN I CHANGE MY VOTE AFTER I A: Yes. You may change your vote at any
HAVE MAILED MY SIGNED PROXY time before your proxy is voted at
CARD? the meeting. You may do this by
sending a written notice stating that
you would like to revoke your proxy
or by completing and submitting a new
proxy card. You may also attend the
meeting and vote in person. Simply
attending the meeting, however, will
not revoke your proxy. If you have
instructed a broker to vote your
shares, you must follow his
instructions regarding how to change
your vote.
Q: WHAT IF I DON'T WANT TO A. You can:
RECEIVE QUICKSILVER SHARES
IN THE MERGER? - sell your MSR shares before the
meeting; or
- dissent from the merger and
receive the fair market value of
your MSR shares by following the
procedure on page __.
Q: SHOULD I SEND IN MY A: No. After the merger is completed,
CERTIFICATES NOW? stockholders will receive written
instructions for exchanging MSR stock
for Quicksilver common stock.
Q: HOW DO I SELL MY SHARES OF A: If you are a registered stockholder
QUICKSILVER? (you hold your own certificate), you
will receive a letter of transmittal
after the close of the merger. You
will need to complete the letter of
transmittal and return your old stock
certificates for exchange. Once you
receive your new certificate, you can
sell your shares of Quicksilver
through any brokerage firm.
If your shares are held in a
brokerage account, you will need to
contact your broker to sell your
Quicksilver shares.
Shares of Quicksilver will trade on
the American Stock Exchange under the
ticker symbol "KWK."
Q: WHEN WILL SHARES OF A: It is anticipated that the shares of
QUICKSILVER BEGIN TRADING? Quicksilver will begin trading on the
day that the merger is completed.
Q: I'VE LOST MY CERTIFICATE. A: After the close of the merger, you
WHAT SHOULD I DO? will receive a letter of transmittal
with complete instructions.
vi
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Q: WHAT HAPPENS IF YOU DO NOT A: If we do not receive the required
RECEIVE A MAJORITY VOTE BY vote, it is expected that the merger
JANUARY 31ST? agreement will be terminated and the
merger will not occur. However,
members of the Darden family and
their affiliated companies own about
43.7% of the MSR shares, and they
have agreed to vote their shares in
favor of the merger. It is likely
that the merger will be approved
based on the agreement of the Darden
family to vote its MSR shares for the
merger.
Q: WHAT IS THE DIVIDEND POLICY A: The dividend policy of Quicksilver
OF QUICKSILVER GOING TO BE? will be the same as that of MSR--to
retain cash flow to reinvest in
Quicksilver's business. So, it is
not anticipated that dividends will
be paid on the Quicksilver stock for
the foreseeable future.
Q: WHAT WILL HAPPEN IF I DO NOT A: Once the merger is complete, MSR's
EXCHANGE MY MSR CERTIFICATE stock will no longer trade in any
FOR A QUICKSILVER market, and your shares will be
CERTIFICATE? converted into the right to receive
shares of Quicksilver. If you do not
return your old certificate in
exchange for a Quicksilver
certificate, your shares of
Quicksilver will eventually be
abandoned after a period of 5-7 years
in compliance with the escheatment
regulations of your state of
residence.
vii
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SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROXY
STATEMENT/PROSPECTUS. BECAUSE THIS IS A SUMMARY, IT DOES NOT CONTAIN ALL OF THE
INFORMATION THAT MAY BE IMPORTANT TO YOU. YOU SHOULD CAREFULLY READ THIS ENTIRE
PROXY STATEMENT/PROSPECTUS BEFORE DECIDING HOW TO VOTE. FOR EASE OF REFERENCE,
A GLOSSARY OF CERTAIN OIL AND GAS TERMS USED IN THIS PROXY STATEMENT/PROSPECTUS
IS INCLUDED UNDER "GLOSSARY OF CERTAIN TERMS."
THE PARTIES (See Page ___)
QUICKSILVER
Quicksilver engages in the acquisition, exploration, production and sale of
crude oil, condensate and natural gas and the gathering, processing and
transmission of natural gas. Quicksilver pursues its business through the
acquisition of oil and gas mineral leases, gas gathering systems and producing
oil and gas properties. Quicksilver currently has interests in oil and gas
mineral leases, gas gathering pipeline systems and wells producing hydrocarbons
that are located principally in the states of Michigan, Wyoming and Montana.
Quicksilver is presently a privately held company controlled by the Darden
family. Following the merger, Quicksilver's common stock will be traded on the
American Stock Exchange under the symbol "KWK." You can request information on
Quicksilver by calling or writing to 1619 Pennsylvania Avenue in Fort Worth,
Texas 76104, Attention: Secretary. The telephone number is (817) 332-9133.
MSR
MSR engages in the acquisition, exploration, production and sale of crude
oil, condensate and natural gas and the gathering, processing and transmission
of natural gas. MSR pursues its business through the acquisition of oil and gas
mineral leases, gas gathering systems and producing oil and gas properties. MSR
currently has interests in oil and gas mineral leases, gas gathering pipeline
systems and wells producing hydrocarbons that are located principally in the
states of Montana and Texas.
MSR's common stock is traded on the American Stock Exchange under the
symbol "MSR." You can request information on MSR by calling or writing to 612
8th Avenue in Fort Worth, Texas 76104, Attention: Secretary. The telephone
number is (817) 877-3151.
THE SPECIAL MEETING (See Page ___)
DATE, TIME AND PLACE. The Special Meeting of MSR stockholders will be held
on _______ __, 1998 at _____ (Fort Worth, Texas time) at the Petroleum Club of
Fort Worth, 777 Main Street, 40th Floor, Fort Worth, Texas.
MATTERS TO BE CONSIDERED. At the meeting, you will be asked to consider
and vote upon a proposal to approve the merger agreement and the merger.
RECORD DATE; QUORUM. Only holders of record on the close of business on
______ __, 1998 will be entitled to vote at the special meeting. There were
25,777,014 shares of MSR common stock outstanding and entitled to vote on that
date. The affirmative vote of a majority of the outstanding shares of MSR
common stock entitled to vote is required to approve the merger agreement. The
holders of a majority of MSR's common stock must be present or represented by
proxy at the special meeting in order for a quorum to be present and permit a
vote on the merger.
As of September 1, 1998, members of the Darden family (three of whom are
directors of MSR) and their affiliates, in the aggregate, held or had the right
to vote 11,280,000 shares of MSR common stock or approximately 43.7% of the
outstanding MSR common stock. As a condition to the merger, such persons have
agreed that they will vote in favor of the merger agreement and the merger. In
addition, other directors of MSR, in the aggregate, held or had the right to
vote, 2,063,822 shares of MSR Common Stock, which together with the MSR Common
Stock held by members of the Darden family and their affiliates, represents
approximately 51.7% of the outstanding MSR Common Stock. If these parties vote
as they are anticipated to do, the merger and merger agreement will be approved
at the Special Meeting of MSR stockholders.
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<PAGE>
RISK FACTORS (See Page ___)
Stockholders of MSR should carefully consider certain risk factors in
evaluating the merger.
THE MERGER (See Page ___)
GENERAL. If you approve the merger agreement and the merger, MSR will
merge with and into Quicksilver. Quicksilver will continue as the surviving
corporation in the merger. Your interest in MSR at that time will be
converted into the right to receive shares of stock of Quicksilver. As a
result of the merger, persons who formerly held stock of MSR will own
approximately 20% of the Quicksilver common stock.
EFFECTIVE TIME. The merger will be completed after the satisfaction or
waiver of all conditions contained in the merger agreement, which is expected to
be promptly after receiving the approval of the merger by the MSR stockholders.
WHAT YOU WILL RECEIVE IN THE MERGER. As a result of the merger, MSR
stockholders, other than dissenting stockholders of MSR, will receive one-tenth
(.10) of one share of Quicksilver common stock for each share of MSR common
stock that they own. No fractional shares of Quicksilver common stock will be
issued in the merger, but rather stockholders will receive cash in lieu of
fractional shares in an amount equal to the closing price of the MSR common
stock on the day preceding the closing date of the merger multiplied by .10, and
then multiplied by the fractional share you own.
STOCK OPTIONS; WARRANTS. Each outstanding stock option or warrant to
purchase shares of MSR common stock will be converted into the right to
purchase shares of Quicksilver common stock based on a mathematical formula.
As of September 30, 1998, options to purchase 248,570 shares of MSR common
stock were outstanding and warrants to purchase 11,340,000 shares of MSR
common stock were outstanding.
RECOMMENDATION OF THE SPECIAL COMMITTEE AND BOARD OF DIRECTORS OF MSR (See Page
___)
The Special Committee of the Board of Directors of MSR and the Board of
Directors of MSR, with Frank, Thomas and Glenn Darden abstaining have approved
the merger. The Board of Directors has determined that the terms of the
proposed merger are fair to, and in the best interests of, MSR's stockholders
and recommends that you vote "for" the merger.
Due to the interests that the Darden family have in both MSR and
Quicksilver, the Board of Directors of MSR appointed a special committee of
disinterested MSR directors to consider the merger. The Special Committee
retained EVEREN Securities, Inc. to act as its financial advisor. The Special
Committee has also determined that the merger is fair to and in the best
interests of the MSR stockholders.
OPINION OF MSR'S FINANCIAL ADVISOR (See Page ____)
EVEREN Securities, Inc. has rendered its opinion to the Special Committee
of the Board of Directors of MSR that the consideration to be received by MSR
stockholders in the merger is fair to MSR stockholders (other than members of
the Darden family and their affiliates) from a financial point of view. The
fairness opinion is attached as Exhibit B to this Proxy Statement/Prospectus and
we encourage you to read it carefully.
MSR'S REASONS FOR THE MERGER (See Page __)
The Special Committee of the MSR Board of Directors considered a variety of
factors in making its determination to recommend that you vote for the Merger.
These included:
- the overall strategic fit between MSR and Quicksilver, including the
balance created by adding MSR's Montana oil reserves to Quicksilver's
gas reserves;
- the diversified inventory of exploration prospects covering 273,000
gross acres resulting from combining the companies;
- greater cash flows generated by Quicksilver's properties, which would
provide resources to develop MSR's inventory of undeveloped
properties;
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<PAGE>
- greater financial strength and growth opportunities and greater
purchasing power with oil field service providers as a result of the
larger size of the combined company;
- the possibility that the larger, more diversified combined company
would benefit from better credit ratings, more flexible financing
terms and lower financing costs; and
- the likelihood that the combined company would have a larger market
presence and would likely receive greater attention from financial
analysts and institutional investors and the potential for market
valuations comparable to other larger independent oil and natural gas
producers.
THE MERGER AGREEMENT (See Page ___)
GENERAL. The merger agreement sets forth the principal terms by which the
merger will be completed, and the rights of holders of MSR common stock to
receive Quicksilver common stock in the merger. The merger agreement is
attached to this Proxy Statement/Prospectus as Appendix A and we urge you to
read it in its entirety.
CONDITIONS TO THE MERGER; TERMINATION OF THE MERGER AGREEMENT. The
completion of the merger is subject to certain conditions, including:
- approval of the merger agreement by the affirmative vote of the
majority of the stockholders of MSR and by the affirmative vote of the
stockholders of Quicksilver;
- approval by the American Stock Exchange of the listing of the
Quicksilver common stock to be issued in the merger; and
- the restructuring of Quicksilver's and MSR's debt.
The merger agreement may be terminated by either party at any time prior to
the effective time of the merger if, among other things:
- we do not receive stockholder approval of the merger;
- we do not complete the merger by January 31, 1999;
- either of us materially breaches the merger agreement;
- an injunction prevents the merger; or
- the Special Committee receives a proposal that is more beneficial to
MSR's stockholders than the merger and chooses to pursue it.
VOTING AGREEMENT
In connection with the merger agreement, the members of the Darden
family, Mercury Exploration Company and Quicksilver Energy LC, each an
affiliate of the Darden family, Joint Energy Development Investment Limited
Partnership and Trust Company of the West entered into a voting agreement
with MSR. According to the voting agreement, all of these parties have
agreed to vote their shares of Quicksilver common stock in favor of the
merger. The Darden family, Mercury Exploration Company and Quicksilver
Energy L.C., also agreed to vote their MSR common stock in favor of the
merger. The Darden family, Mercury Exploration Company and Quicksilver
Energy L.C. collectively own 43.7% of the outstanding MSR common stock
entitled to vote.
Although not a party to the voting agreement, other directors and officers
of MSR own approximately 8% of MSR's outstanding common stock and have indicated
that they will vote their shares in favor of the merger. Consequently, it is
likely that the merger agreement will be approved by the MSR stockholders.
In addition, the entities and individuals that collectively own 96.2% of
the Quicksilver common stock are parties to the voting agreement, and have
agreed to vote in favor of the merger. Therefore approval of the merger
agreement by Quicksilver's stockholders is also likely.
3
<PAGE>
INTERESTS OF CERTAIN PERSONS IN THE MERGER (See Page ___)
In considering the Board's recommendation that you vote for the merger, you
should be aware that certain members of MSR's management and MSR's Board have
certain interests in the merger that are different from, and in addition to,
yours. Messrs. Frank, Thomas and Glenn Darden are executive officers and/or
directors and substantial stockholders of both MSR and Quicksilver.
Furthermore, they and other members of the Darden family are directors and
stockholders of Mercury Exploration Company, a substantial stockholder of
Quicksilver, and of Quicksilver Energy L.C., which also owns Quicksilver stock.
In addition, these individuals, along with other officers of MSR, hold options
and warrants for MSR stock that will be converted into options and warrants for
Quicksilver stock in the merger.
ADMINISTRATIVE AGREEMENT (See Page __)
Quicksilver and two of its stockholders, Joint Energy Development
Investment Limited Partnership and Trust Company of the West, are also parties
to an agreement concerning certain administrative matters relating to the
merger. Under this agreement, Quicksilver must give the other parties certain
information and may not take certain actions, such as amending the merger
agreement or waiving its terms or conditions without the consent of these
companies, each of which own approximately 13% of Quicksilver's outstanding
common stock.
MANAGEMENT AFTER THE MERGER (See Page __)
After the merger, the officers and directors of MSR will become the
officers and directors of Quicksilver, except for Patrick M. Montalban, who will
resign as an officer and director of MSR when the merger is completed.
ACCOUNTING TREATMENT (See Page __)
We will treat our companies as if they had always been combined. Net
assets will be recorded at historical costs with the exception of minority
interests, which will be recorded at fair value.
DISSENTERS' RIGHTS (See Page __)
If you choose not to participate in the merger you will have dissenters'
rights of appraisal under provisions of MSR's Certificate of Incorporation and
the Alberta Business Corporation Act.
DIFFERENCES IN RIGHTS OF STOCKHOLDERS OF MSR AND QUICKSILVER (See Page ___)
Other than the availability of dissenter's rights to MSR's stockholders
under MSR's charter documents, which are not similarly available under
Quicksilver's charter documents, there are no significant differences between
the rights of MSR stockholders and those of Quicksilver stockholders.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES (See Page ___)
It is intended that the merger will be a tax-free transaction to MSR
stockholders who elect to receive Quicksilver stock in the merger. MSR
stockholders who choose to dissent from the merger and receive cash in exchange
for their MSR common stock will generally be required to recognize taxable
income (or a loss) as a result of the merger.
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<PAGE>
SUMMARY HISTORICAL AND PRO FORMA
FINANCIAL INFORMATION
The following tables set forth certain summary historical and pro forma
financial data for MSR and Quicksilver. The data presented below has been
derived from, and should be read together with the consolidated financial
statements of MSR and the financial statements of Quicksilver and Quicksilver
predecessors and the related notes set forth elsewhere or incorporated by
reference in this Proxy Statement/Prospectus. Summary financial data at June
30, 1998 and for the six months ended June 30, 1998 for MSR and Quicksilver
were derived from the unaudited financial statements and pro forma data of
MSR and Quicksilver. This includes all adjustments (consisting only of
normally recurring adjustments) that MSR and Quicksilver each considered
necessary for a fair presentation of operating results for these interim
periods. Results for interim periods do not necessarily indicate actual
results for the full year. See pages __ and __ for a discussion of matters
that affect the comparability of the information presented.
The summary historical and pro forma financial information should be
read in conjunction with the historical and pro forma consolidated financial
statements of MSR and historical and pro forma financial statements of
Quicksilver included elsewhere or incorporated by reference in this Proxy
Statement/Joint Prospectus. The pro forma information presented does not
necessarily indicate the combined financial results as they may be in the
future or as they might have been for the periods indicated had the merger
been consummated as of January 1, 1997.
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<PAGE>
SUMMARY CONSOLIDATED HISTORICAL FINANCIAL DATA OF MSR
(in thousands, except for per share amounts)
<TABLE>
<CAPTION>
FROM INCEPTION
MARCH 7, 1997 TO SIX MONTHS ENDED
DECEMBER 31, 1997 JUNE 30, 1998
----------------- ----------------
<S> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Total revenues $ 854 $ 2,103
Net income (loss) 30 (331)
Basic and diluted earnings (loss) per share 0.00 (0.01)
Basic weighted average number of shares
outstanding for the period 14,801 25,777
Diluted weighted average number of shares
outstanding for the period 14,838 25,805
BALANCE SHEET DATA:
Cash and cash equivalents $ 587 $ 339
Accounts receivable 507 439
Inventories 248 299
Total current assets 1,374 1,089
Property, plant and equipment - net ("full cost") 24,234 23,840
Total assets 25,963 25,273
Current liabilities, including current portion of
long-term debt 1,332 818
Long-term debt 10,560 10,885
Deferred income taxes 1,001 831
Stockholders' equity 13,070 12,739
CASH FLOW DATA:
Net cash from (used for) operating activities $ 326 $ (284)
Net cash from (used for) investing activities (272) (274)
Net cash from (used for) financing activities 474 306
</TABLE>
6
<PAGE>
PRO FORMA AND
HISTORICAL INFORMATION OF QUICKSILVER (Pre-Merger)
(in thousands, except for per share amount)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1997 JUNE 30, 1998
----------------- ----------------
STATEMENT OF OPERATIONS DATA:
<S> <C> <C>
Total revenues $ 40,001 $ 19,323
Net income 8,146 2,819
Basic and diluted
earnings per share $ 81.46 $ 28.19
Basic and diluted weighted
average number of shares
outstanding for the period 100 100
BALANCE SHEET DATA:
Cash and cash equivalents $ 56 $ 238
Working capital (deficit) 340 (1,974)
Total assets 113,979 120,490
Long-term debt (includes 74,169 70,531
current portion)
Total stockholder's equity 27,591 30,409
CASH FLOW DATA:
Net cash from (used for) $ 10,724
operating activities
Net cash from (used for) (6,904)
investing activities
Net cash from (used for) (3,638)
financing activities
</TABLE>
SUMMARY PRO FORMA FINANCIAL INFORMATION
OF THE SURVIVING CORPORATION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1997 1998
----------- ----------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues $ 46,595 $ 21,426
Net income 7,750 2,277
Basic and diluted earnings per share 0.60 0.18
Basic and diluted weighted average number of shares 12,888 12,888
outstanding for the period
<CAPTION>
At June 30,
1998
----------
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents $ 577
Accounts receivable 5,644
Inventories 707
Total current assets 6,940
Property, plant and equipment - net ("full cost") 145,074
Total assets 152,613
Current liabilities, including current portion of 9,043
long-term debt
Long-term debt 81,355
Deferred income taxes 12,990
Stockholders' equity 47,268
</TABLE>
7
<PAGE>
SELECTED COMPARATIVE PER SHARE DATA
The following table sets forth selected historical per share data for
MSR and selected unaudited pro forma per share data for Quicksilver giving
effect to the merger. The pro forma data does not necessarily indicate the
Quicksilver's actual financial position or future operating results or what
would have occurred or will occur upon completion of the merger.
The information shown below should be read together with the consolidated
financial statements of MSR and Quicksilver and the notes to those financial
statements included or incorporated by reference in this Proxy
Statement/Prospectus and the selected pro forma financial data included
elsewhere in this Proxy Statement/Prospectus.
COMPARATIVE PER SHARE INFORMATION
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, 1997 JUNE 30, 1998
----------------- -------------
<S> <C> <C>
MSR EXPLORATION LTD.
Book value per share(1) $ 0.51 $ 0.49
Net income (loss) per share 0.00 (0.01)
Market value per share 0.94 0.94
Average number of shares outstanding 25,777,014 25,777,014
QUICKSILVER RESOURCES INC.(2)
Book value per share $ 304.09
Net income (loss) per share 28.19
Average number of shares outstanding 100,000
SURVIVING CORPORATION PRO FORMA SHARE DATA:
Book value per share $ 3.44
Net income (loss) per share 0.18
Average number of shares outstanding 12,888,500
</TABLE>
- -----------------------
(1) Numbers do not reflect the conversion ratio for the merger of .10 share
of MSR for each share of Quicksilver.
(2) Numbers do not reflect a stock dividend, of 10,210,800 shares to be
declared prior to completion of the merger.
8
<PAGE>
COMPARATIVE MARKET DATA
MSR's common stock is traded on the American Stock Exchange under the
symbol "MSR". Quicksilver's common stock is not publicly traded.
The following table sets forth the quarterly high and low closing sales
prices of MSR's common stock for the periods indicated below.
<TABLE>
<CAPTION>
MSR COMMON STOCK
----------------
HIGH LOW
---- ---
<S> <C> <C>
1996
First Quarter $ 1 1/4 $ 13/16
Second Quarter 1 1/16 3/4
Third Quarter 1 3/4
Fourth Quarter 15/16 11/16
1997
First Quarter $ 1 $ 13/16
Second Quarter 1 1/8 15/16
Third Quarter 1 1/8 3/4
Fourth Quarter 1 3/8 15/16
1998
First Quarter $1 3/16 $ 7/8
Second Quarter 1 5/16 15/16
Third Quarter 1 1/8 3/4
</TABLE>
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<PAGE>
RISK FACTORS
THE FOLLOWING ARE CERTAIN RISK FACTORS THAT YOU SHOULD CAREFULLY CONSIDER
IN EVALUATING WHETHER YOU SHOULD VOTE FOR THE MERGER.
Throughout this Proxy Statement/Prospectus we use certain "forward-looking
statements" such as "anticipate," "believe," "expect," "plan," "intend,"
"estimate," "project," "will," "could," "may" and similar expressions. These
words are intended to identify forward-looking statements. These statements
include information about oil and natural gas reserves, future drilling and
operations, future production of oil and natural gas and future net cash flows.
These statements reflect our current views with respect to future events and
financial performance and involve risks and uncertainties, including, but not
limited to, the risks described below. If one or more of these occur, or should
our underlying assumptions prove incorrect, our actual results may vary
materially and adversely from those we anticipated, believed or estimated.
RISKS OF THE MERGER
LIMITED OPERATING HISTORY AND WORKING CAPITAL DEFICIT
Quicksilver, which began operations on January 1, 1998, has a limited
operating history upon which you may base your evaluation of Quicksilver's
performance. As a result of Quicksilver's recent formation and the brief
operating history of Quicksilver, the operating results from the properties
contributed by Mercury Exploration Company and others to Quicksilver when it was
formed may not indicate future results that may be obtained by the surviving
corporation. There can be no assurance that the surviving corporation will
maintain the current level of revenues, oil and natural gas reserves or
production currently attributable to the properties contributed to Quicksilver
when it was formed. Any future growth of the surviving corporation's oil and
natural gas reserves, production and operations could place significant demands
on its financial, operational and administrative resources. In addition, at
June 30, 1998, Quicksilver had a working capital deficit of $2.0 million and
will need to obtain additional external financing to meet its working capital
needs. There can be no assurance that this additional financing will be
available.
RESERVE REPLACEMENT RISK
In general, the volume of production from oil and gas properties declines
as reserves are depleted and the rate of decline depends on reservoir
characteristics. As a result, the surviving corporation's proved reserves will
generally decline as its reserves are depleted, unless the surviving corporation
conducts successful exploration or development activities or acquires other
properties containing proved reserves. The future success of the surviving
corporation will depend in large part upon its ability to find, develop or
acquire additional oil and natural gas reserves that are economically
recoverable. At December 31, 1997, approximately 37% of Quicksilver's total
proved reserves were undeveloped. In order to increase reserves and production,
the surviving corporation must continue development and exploitation drilling
programs or undertake other replacement activities. There can be no assurance
that planned development and exploitation projects will result in significant
additional reserves or that the surviving corporation will have success drilling
productive wells at acceptable costs. Furthermore, although the surviving
corporation's revenues could increase as a result of successful development
activities, its funding and development costs could also increase.
NO PRIOR PUBLIC MARKET; POSSIBLE STOCK PRICE VOLATILITY
Before the merger there will have been no public market for the Quicksilver
common stock that you will receive in the merger. Because of this, the price at
which the Quicksilver common stock will trade following the merger is uncertain
and may not necessarily correlate to the market prices of the MSR common stock
canceled in the merger. Although Quicksilver has applied to have its common
stock approved for trading on the American Stock Exchange and the listing of its
shares on the exchange is a condition to the merger, there can be no assurance
that even if the stock is approved for listing that it will be actively traded
on the market or that, if active trading does develop, it will be sustained. The
market price of the surviving corporation's common stock and the price at which
the surviving corporation may sell its securities in the future could be subject
to large fluctuations in response to changes and variations in the surviving
corporation's operating results, general market conditions, the prices of oil
and natural gas, the surviving corporation's ability to raise additional funds,
the number of analysts that follow the surviving corporation's common stock and
other factors. In the event that the surviving corporation's operating results
are below the expectations of public market analysts and investors in the
future, it is possible that the price of the stock could be materially adversely
affected. In addition, the stock market has recently experienced significant
price
10
<PAGE>
and volume fluctuations that have particularly affected the market prices of
equity securities of many energy companies and that often have been unrelated to
the operating performance of those companies. Changes in the price of oil and
gas and general market fluctuations may also adversely affect the market price
of the common stock that you will receive in the merger.
Although the MSR common stock has been listed on the American Stock
Exchange since 1983, there may be no correlation between the trading history and
historical prices of the MSR common stock and future trading characteristics and
prices of the common stock you will receive if the merger is completed.
CONFLICTS OF INTEREST
The determinations by the Board of Directors of MSR and Quicksilver to
participate in the merger are subject to conflicts of interest due to the
substantial stock ownership of the Darden family and their affiliates in both
Quicksilver and MSR and their positions as directors and officers of both
companies. Although both Boards have attempted to resolve all conflicts of
interest in a manner that would not adversely affect either the stockholders of
MSR or Quicksilver, if these conflicts did not exist it is possible that the
merger may not have been considered, been approved or may have been approved on
a basis that would be more favorable to the stockholders of MSR, Quicksilver or
both.
DEPENDANCE ON KEY PERSONNEL
Quicksilver has entered into a management agreement with Mercury
Exploration Company, whereby Mercury will provide certain property management
and accounting services to the surviving corporation. As a result, the
surviving corporation's success will be highly dependent on management of
Mercury, principally Mr. Frank Darden and a limited number of other senior
management and technical personnel. Loss of the services of any of these
individuals could have a material adverse effect on the surviving corporation's
operations. Quicksilver does intend to maintain key man life insurance policies
on any members of senior management.
CONTROL BY EXISTING STOCKHOLDERS
After the merger, members of the Darden family, together with Mercury and
Quicksilver Energy L.C. (companies primarily owned by the members of the Darden
family), will own approximately 65% of the surviving corporation's common stock.
Joint Energy Development Investment Limited Partnership will own approximately
10% and TCW Asset Management Company through its affiliate Trust Company of the
West on behalf of a single client will own approximately 10%. The members of
the Darden family, Mercury, and Quicksilver Energy L.C., may be considered a
"control group" of Quicksilver. In addition, certain stockholders, officers
and directors of Quicksilver and MSR are stockholders, officers or directors
of Mercury and Quicksilver Energy L.C., and therefore may affect how Mercury
and Quicksilver Energy L.C. vote their shares on corporate matters. As a
result, these entities and individuals would be able to control the outcome
of stockholder votes, including votes concerning the election of directors, the
adoption or amendment of provisions in the surviving corporation's charter or
bylaws and the approval of mergers and other significant corporate transactions.
CONCENTRATION IN CUT BANK FIELD COMPLEX
MSR's properties in the Cut Bank Field complex in northwest Montana
constitute the majority of MSR's existing inventory of producing properties and
drilling locations. There can be no assurance that the surviving corporation's
operations in Montana will yield positive economic returns. Failure of the Cut
Bank Field properties to yield significant quantities of economically attractive
reserves and production could have a material adverse impact on the surviving
corporation's future financial condition and results of operations.
RELIANCE ON CONTRACT WITH MONTANA POWER COMPANY
As a result of its merger with Mercury Montana, Inc. in October 1997, MSR
assumed rights and obligations under an agreement with Montana Power Company.
The surviving corporation will assume these rights and obligations in the
merger. The agreement covers the oil and gas development of an area of mutual
interest that presently contains approximately 304,000 acres in the Cut Bank
Field in Montana. Pursuant to the agreement, MSR holds (and, after the merger,
the surviving corporation will hold) 100 percent of the oil rights and 30
percent of the revenue from liquids produced by gas wells, while Montana Power
Company has all the rights to natural gas. The area of mutual interest and the
agreement were originally created in 1944 and will remain in effect until all
mutual oil and gas leases in the area have expired. Activities conducted
pursuant to the agreement by the surviving corporation
11
<PAGE>
and the revenues that result will account for a significant portion of the
activities and revenues of the surviving corporation. There can be no assurance
that the operations under the contract will be continued for any particular
period of time or that, if operations are continued, they will be conducted on a
profitable basis.
RISKS INHERENT IN THE OIL AND GAS BUSINESS
VOLATILITY OF OIL AND NATURAL GAS PRICES
The surviving corporation's revenues, cash flows, operating results,
profitability, future growth, ability to borrow funds or obtain additional
capital and the carrying value of its oil and natural gas properties are
substantially dependent upon the prevailing prices of oil and natural gas.
Prices for oil and gas are subject to wide fluctuation in response to relatively
minor changes in the supply of, and demand for, oil and gas, market uncertainty
and a variety of additional factors that are beyond the control of the surviving
corporation. Historically, the markets for oil and gas have been volatile and
such volatility may continue or recur in the future. Various factors beyond the
control of the surviving corporation will affect prices of oil and natural gas,
including political conditions in the Middle East. Other factors include:
- the worldwide and domestic supplies of oil and natural gas;
- the ability of the members of the Organization of Petroleum Exporting
Countries to agree to and maintain oil price and production controls;
- political instability or armed conflict in oil or natural gas
producing regions;
- the price and level of foreign imports;
- the level of consumer demand;
- the price, availability and acceptance of alternative fuels; and
- other factors such as the availability of pipeline capacity, weather
conditions, domestic and foreign governmental regulations and taxes
and the overall economic environment.
Any significant decline in the price of oil or natural gas may materially
affect the surviving corporation's:
- financial condition;
- liquidity;
- revenues and operating income;
- ability to finance capital expenditures; and
- results of operations.
Any such decline could require an impairment in the carrying value of the
surviving corporation's oil and natural gas properties. The surviving
corporation will periodically review the carrying value of its oil and gas
properties under the full cost accounting rules of the SEC. Under these rules,
capitalized costs of proved oil and gas properties may not exceed the
standardized value of discounted future net cash flows from proved reserves.
Application of this "ceiling" test generally requires pricing future revenues at
the unescalated prices in effect at the end of each fiscal quarter. The test
also requires a write down for accounting purposes if the ceiling is exceeded,
even if prices declined for only a short period of time. The surviving
corporation may be required to write down the carrying value of its oil and gas
properties when oil and natural gas prices are depressed or unusually volatile.
If a write down is required, it would result in a charge to earnings but would
not impact cash flow from operating activities.
UNCERTAINTY OF RESERVE INFORMATION AND FUTURE NET REVENUE ESTIMATES
The amount of common stock to be issued in the merger was determined to a
large extent by reference to the estimates of proved reserves of MSR and
Quicksilver. There are numerous uncertainties inherent in estimating oil and
gas reserves and their values. Although the companies believe the reserve
estimates contained in this Proxy Statement/Prospectus are reasonable, reserve
estimates are imprecise and are expected to change as additional information
becomes available.
Reservoir engineering is the subjective process of estimating underground
accumulation of oil and gas that cannot be measured in an exact manner.
Estimates of economically recoverable oil and gas reserves and of future net
cash flows necessarily depend upon a number of variable factors and assumptions,
such as historical production from the area compared with production from other
producing areas, the assumed effects of regulations by governmental agencies,
and assumptions concerning future oil and gas prices, future operating costs,
taxes, and development, workover and remedial costs, all of which may in fact
vary considerably from actual results. For these reasons,
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estimates of the economically recoverable quantities of oil and gas attributable
to any particular group of properties, classifications of those reserves based
on risk of recovery, and estimates of the future net cash flows expected from
those properties prepared by different engineers, or by the same engineers but
at different times, may vary substantially and the reserve estimates may be
subject to downward or upward adjustment accordingly. Actual production,
revenues and expenditures with respect to the surviving corporation's reserves
will likely vary from estimates and such variations may be material.
The standardized measure of discounted future net cash flows referred to in
this Proxy Statement/Prospectus should not be interpreted to be the current
market value of the estimated oil and gas reserves attributable to the surviving
corporation's properties. In accordance with applicable requirements of the
SEC, the estimated discounted future net cash flows from proved reserves are
generally based on prices and costs as of the date of the estimate, whereas
actual future prices and costs may be materially higher or lower. Actual future
net cash flows also will be affected by factors such as the amount and timing of
actual production, supply and demand for oil and gas, increases or decreases in
consumption of oil and gas, and changes in governmental regulations or taxation.
The timing of actual future net cash flows from proved reserves, and thus their
actual standardized measure of discounted future net cash flows, will be
affected by the timing of both the production and the expenses incurred in
connection with development and production of oil and gas properties. In
addition, the 10% discount factor that is required by the SEC to calculate
discounted future net cash flows for reporting purposes is not necessarily the
most appropriate discount factor based on interest rates in effect from time to
time and risks associated with the oil and gas industry in general.
SUBSTANTIAL CAPITAL REQUIREMENTS
The surviving corporation's development plans will require substantial
capital expenditures in connection with the exploration, development and
exploitation of oil and natural gas properties. The surviving corporation may
be able to fund its future capital expenditures from cash flow from operations
and availability of funds under credit arrangements, however, no assurance can
be given as to the availability or terms of any additional financing that may be
required or that financing will be available under new credit facilities. If
sufficient capital resources are not available to the surviving corporation, its
drilling and other activities may be curtailed. Quicksilver does not have any
arrangements with respect to, or sources of, additional financing other than its
existing bank arrangements. The existing credit line matures upon completion of
the merger and must be restructured. There can be no assurance that any
additional financing will be available to the surviving corporation on
acceptable terms or at all.
Future cash flows and the availability of financing will be subject to a
number of variables, such as the level of production from existing wells, prices
of oil and natural gas and success in locating and producing new reserves. To
the extent that future financing requirements are satisfied through the issuance
of equity securities of the surviving corporation, you may experience dilution
of your shares and that dilution could be substantial. Debt financing could
result in a substantial portion of operating cash flow being dedicated to the
payment of principal and interest on that debt, and could render the surviving
corporation more vulnerable to competitive pressures and economic downturns and
could impose restrictions on operations. If revenues were to decrease as a
result of lower oil and natural gas prices, decreased production or otherwise,
and the surviving corporation had no availability under bank arrangements or any
other credit facility, the surviving corporation's ability to execute current
development plans, replace reserves or to maintain production levels could be
eliminated or reduced. Any of these events could result in decreased production
and revenues over time and reduce the value of your shares.
DRILLING AND OPERATING HAZARDS AND UNINSURED RISKS
Oil and natural gas drilling activities are subject to many risks,
including the risk that no commercially productive reservoirs will be found.
There can be no assurance that wells drilled by the surviving corporation will
be productive or that the surviving corporation will recover all or any portion
of its drilling costs. Drilling for oil and natural gas may involve efforts that
are unprofitable, not only from dry wells, but from wells that are productive
but do not produce sufficient net revenues to return a profit after deducting
drilling, operating and other costs. The cost of drilling, completing and
operating wells is often uncertain. Drilling operations may be curtailed,
delayed or canceled as a result of numerous factors, many of which will be
beyond the surviving corporation's control. These include economic conditions,
title problems, weather conditions, compliance with governmental requirements
and shortages or delays in the delivery of equipment and services. Future
drilling activities may not be successful and, if unsuccessful, may have a
material adverse effect on future results of operations and financial condition
of the surviving corporation.
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Oil and natural gas operations are subject to hazards and risks inherent in
drilling for and producing and transporting oil and natural gas. These include
fires, natural disasters, explosions, formations with abnormal pressures,
blowouts, cratering, pipeline ruptures and oil spills. Any of these can result
in the loss of hydrocarbons, environmental pollution, personal injury claims and
other damage to properties. As a result, the surviving corporation could become
liable to third parties or governmental entities. Payment of these liabilities
could reduce or eliminate funds available for exploration, development or
acquisition or result in the loss of the surviving corporation's properties. It
is common in the oil and gas industry for a company not to elect to be fully
insured against these events, either because insurance is not available or
because premium costs are prohibitive. The surviving corporation may, however,
elect to self-insure in circumstances in which management believes that the cost
of insurance, although available, is excessive relative to the risks presented.
If an event that is not covered by insurance occurs or is not fully covered by
third-party insurance, it could have a material adverse effect on the surviving
corporation's business, financial condition and results of operations.
GOVERNMENT REGULATION
The availability of a ready market for oil and gas production depends upon
numerous factors beyond the surviving corporation's control. These factors
include:
- regulation of oil and gas production;
- federal and state regulations governing environmental quality and
pollution control;
- state limits on allowable rates of production by well or proration
unit;
- the amount of oil and gas available for sale;
- the availability of adequate pipeline and other transportation and
processing facilities; and
- the marketing of competitive fuels.
For example, a productive natural gas well may be "shut in" because of an
oversupply of natural gas or lack of an available natural gas pipeline in the
areas in which the surviving corporation may conduct operations. State and
federal regulations generally are intended to prevent waste of oil and gas,
protect rights to produce oil and gas between owners in a common reservoir,
control the amount of oil and gas produced by assigning allowable rates of
production, and control contamination of the environment. Pipelines are subject
to the jurisdiction of various federal, state and local agencies. The following
discussion summarizes the regulation of the United States oil and gas industry.
Quicksilver and MSR believe that they are in substantial compliance with these
statutes, rules, regulations and governmental orders, although there can be no
assurance that this will be the case in the future.
REGULATION OF OIL AND GAS EXPLORATION AND PRODUCTION
The surviving corporation's operations will be subject to various types of
regulation at the federal, state and local levels. These include:
- the requirement of permits for drilling;
- maintaining bonding requirements in order to drill or operate wells;
- regulations of the location of wells;
- the method of drilling and casing wells;
- surface use and restoration of properties upon which wells are
drilled;
- the plugging and abandoning of wells;
- and the disposal of fluids used in connection with operations.
Oil and gas operations are also subject to various conservation laws and
regulations. These include the regulation of the size of drilling and spacing
units or proration units, the density of wells that may be drilled and the
unitization or pooling of oil and gas properties. In this regard, some states
allow the forced pooling or integration of tracts to facilitate exploration,
while other states rely primarily or exclusively on voluntary pooling of lands
and leases. In areas where pooling is voluntary, it may be more difficult to
form units, and therefore more difficult to develop a project, if the operator
owns less than 100% of the leasehold. In addition, state conservation laws
establish maximum rates of production from oil and natural gas wells, generally
prohibit the venting or flaring of natural gas and impose certain requirements
regarding the ratability of production. The effect of these regulations may
limit the amount of oil and natural gas the surviving corporation can produce
from its wells and may limit the number of wells or the locations at which the
surviving corporation can drill. The regulatory burden on the oil and gas
industry increases costs of doing business and, consequently, affects its
profitability. As such laws and regulations are periodically
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expanded, amended and reinterpreted, it will be difficult to predict the future
cost or impact of complying with such regulations.
OIL PRICE CONTROLS AND TRANSPORTATION RATES
Sales of crude oil, condensate and gas liquids are not currently regulated
and are made at market prices. The FERC has issued a series of rules (Order
Nos. 561 and 561-A) establishing an indexing system under which oil pipelines
will be able to change their transportation rates, subject to prescribed ceiling
levels. The indexing system, which allows or may require pipelines to make rate
changes to track changes in the Producer Price Index for Finished Goods, minus
one percent, became effective January 1, 1995. It is not possible to predict
the effects of Order Nos. 561 and 561-A, if any, on the transportation costs
associated with oil production from oil-producing operations.
COMPLIANCE WITH ENVIRONMENTAL REGULATIONS AND POTENTIAL ENVIRONMENTAL
INDEMNITY OBLIGATIONS
Oil and gas operations are subject to numerous laws and regulations
governing the discharge of materials into the environment or otherwise relating
to environmental protection. Public interest in the protection of the
environment has increased dramatically in recent years. The trend toward more
expansive and stricter environmental legislation and regulations could continue.
To the extent laws are enacted or other governmental action is taken that
restricts drilling or imposes environmental protection requirements that result
in increased costs to the oil and gas industry in general, the business and
prospects of the surviving corporation could be adversely affected.
Oil and gas operations generate wastes, including hazardous wastes that are
subject to the Federal Resource Conservation and Recovery Act (the "RCRA") and
comparable state statutes. The Environmental Protection Agency and various state
agencies have limited the approved methods of disposal for certain hazardous and
nonhazardous wastes. Furthermore, certain wastes generated by oil and natural
gas operations that are currently exempt from regulation as "hazardous wastes"
may in the future be designated as "hazardous wastes" and therefore be subject
to more rigorous and costly operating and disposal requirements.
MSR and Quicksilver currently own or lease numerous properties that for
many years have been used for the exploration and production of oil and gas and
the surviving corporation will assume responsibility for these properties and
leases. Although Quicksilver and MSR believe that they have utilized acceptable
operating and waste disposal practices, prior owners and operators of these
properties may not have used similar practices, and hydrocarbons or other wastes
may have been disposed of or released on or under the properties owned or leased
by Quicksilver and MSR or on or under locations where such wastes have been
taken for disposal. In addition, many of these properties have been operated by
third parties whose treatment and disposal of hydrocarbons or other wastes was
not under the control of Quicksilver or MSR. These properties and the wastes
disposed on them may be subject to the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"), RCRA and analogous state laws. Under
those laws, the surviving corporation could be required to remove or remedy
previously disposed wastes (including wastes disposed of or released by prior
owners or operators) or property contamination (including groundwater
contamination) or to perform remedial plugging operations to prevent future
contamination.
The surviving corporation's operations may be subject to the Federal Clean
Air Act and comparable state and local requirements. Amendments to the Clean Air
Act were adopted in 1990 and contain provisions that may result in the gradual
imposition of certain pollution control requirements with respect to air
emissions from the operations of the surviving corporation. The Environmental
Protection Agency and states have been developing regulations to implement these
requirements. The surviving corporation may be required to incur certain
capital expenditures in the next several years for air pollution control
equipment in connection with maintaining or obtaining operating permits and
approvals addressing other air emission-related issues.
CERCLA, also known as the "Superfund" law, and similar state laws impose
liability, without regard to fault or the legality of the original conduct of
certain classes of persons that are associated with a release of a "hazardous
substance" into the environment. These persons include the owner or operator of
the disposal site or sites where the release occurred and companies that
disposed or arranged for the disposal of the hazardous substances found at the
site. Persons who are or were responsible for releases of hazardous substances
under CERCLA may be subject to joint and several liability for the costs of
cleaning up the hazardous substances that have been released into the
environment and for damages to natural resources, and it is not uncommon for
neighboring landowners and other third parties to file claims for personal
injury and property damage allegedly caused by the hazardous substances released
into the environment.
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Federal regulations require certain owners or operators of facilities that
store or otherwise handle oil to prepare and implement oil and hazardous
substance spill prevention, control and countermeasure plans relating to the
possible discharge of oil into surface waters. The Oil Pollution Act of 1990,
as amended ("OPA"), contains numerous requirements relating to the prevention of
and response to oil spills into waters of the United States. OPA subjects
owners of facilities to strict joint and several liability for all containment
and cleanup costs and certain other damages arising from a spill, including, but
not limited to, the costs of responding to a release of oil to waters of the
United States. OPA also requires owners and operators of offshore facilities
that could be the source of an oil spill into waters of the United States,
including wetlands, to post a bond, letter of credit or other form of financial
assurance in an amount ranging from $35 million to as much as $150 million, to
cover costs that could be incurred by governmental authorities in responding to
an oil spill. In addition to OPA, other federal and state laws for the control
of water pollution also provide varying civil and criminal penalties and
liabilities in the case of releases of petroleum or its derivatives into surface
waters or into the ground. Regulations are currently being developed under OPA
and state laws concerning oil pollution prevention and other matters that may
impose additional regulatory burdens on the surviving corporation. In addition,
the Federal Clean Water Act and similar state laws require permits to be
obtained to authorize discharge into surface waters or to construct facilities
in wetland areas. With respect to certain of its operations, the surviving
corporation will be required to maintain these permits or meet general permit
requirements. The Environmental Protection Agency also regulates discharges of
storm water runoff. This program requires covered facilities to obtain
individual permits, participate in a group permit or seek coverage under a
general permit. Management believes that the surviving corporation will be able
to obtain, or be included under, such permits, where necessary, with minor
modifications to existing facilities and operations that would not have a
material effect on the surviving corporation.
Management believes that MSR and Quicksilver are in substantial compliance
with current applicable environmental laws and regulations and that continued
compliance with existing requirements will not have a material adverse effect on
the surviving corporation.
COMPETITION
The surviving corporation will operate in the highly competitive areas of
oil and natural gas acquisition, exploration, exploitation and production with
other companies, many of which have substantially larger financial resources,
operations, staffs and facilities. Competitors will include major integrated
oil and gas companies, individuals and drilling and income programs. The
surviving corporation will face intense competition from both major and
independent oil and natural gas companies in seeking to acquire desirable
producing properties or new leases for future exploration and in marketing its
oil and natural gas production. Many of these competitors have financial and
other resources substantially greater than those of the surviving corporation as
well as substantially larger operating staffs and greater capital resources than
the surviving corporation. In many instances, these competitors have been
engaged in the oil and gas business for a much longer time than Quicksilver, MSR
or the surviving corporation. These companies may be able to pay more for
exploratory prospects and producing oil and gas properties, and may be able to
define, evaluate, bid for and purchase a greater number of properties and
prospects than the surviving corporation's financial or human resources will
permit. The effects of this highly competitive environment could have a
material adverse effect on the surviving corporation.
ACQUISITION RISKS
The surviving corporation may concentrate on growing its business through
the acquisition, development and exploitation of oil and natural gas properties
and may evaluate and pursue acquisitions in areas that provide attractive
investment opportunities for the addition of production and reserves and that
meet certain selection criteria. The successful acquisition of producing
properties and undeveloped acreage requires an assessment of recoverable
reserves, future oil and natural gas prices, operating costs, potential
environmental and other liabilities and other factors that will be beyond the
surviving corporation's control. These assessments are necessarily inexact and
their accuracy is inherently uncertain. In connection with these assessments,
the surviving corporation will perform reviews of the subject properties it
believes to be generally consistent with industry practices, which generally
includes on-site inspections and the review of reports filed with various
regulatory entities. These reviews, however, will not reveal all existing or
potential problems, and do not permit a buyer to become sufficiently familiar
with the properties to assess fully their deficiencies and capabilities.
Inspections may not be performed on every well, and structural and environmental
problems are not necessarily observable even when an inspection is undertaken.
Even when problems are identified, the seller may be unwilling or unable to
provide effective contractual protection against all or part of these problems.
The surviving corporation will generally assume preclosing liabilities,
including environmental liabilities, and will generally acquire interests in the
properties on an "as is" basis. There can be no
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assurance that any acquisitions will be successful. Any unsuccessful acquisition
could have a material adverse effect on the surviving corporation's future
results.
TITLE TO PROPERTIES
In making an acquisition, the surviving corporation will generally focus
most of its title and valuation efforts on the more significant properties. As
is customary in the industry, in the case of undeveloped properties, little
investigation of record title is made at the time of acquisition (other than a
preliminary review of local records). Investigations, including a title opinion
of local counsel, are generally made before commencement of drilling operations.
It is generally not feasible, however, to review in-depth every property to be
purchased and all records with respect to those properties. However, even an
in-depth review of properties and records might not necessarily reveal existing
or potential problems, nor would it permit the surviving corporation to become
familiar enough with the properties to assess fully their deficiencies and
capabilities. Evaluation of future recoverable reserves of oil and gas, which
is an integral part of the property selection process, is a process that depends
upon evaluation of existing geological, engineering and production data, some or
all of which may prove to be unreliable or not indicative of future performance.
To the extent the seller does not operate the properties, obtaining access to
properties and records may be more difficult. Even when problems are
identified, the seller may not be willing or financially able to give
contractual protection against such problems, and the surviving corporation may
decide to assume environmental and other liabilities in connection with acquired
properties.
RISKS RELATING TO THE YEAR 2000
As the Year 2000 approaches, there are uncertainties concerning whether
computer systems will properly recognize date-sensitive information when the
year changes to 2000. Systems that do not properly recognize such information
could generate erroneous data or fail.
Since 1995, MSR and its predecessors have replaced all of MSR's major
information systems with systems that are Year 2000 compliant as a criterion.
MSR is currently evaluating and assessing the business risks and exposure
related to the Year 2000. This evaluation and assessment should be
substantially completed during 1998. MSR has retained a consultant to advise
MSR in evaluation and assessment. The costs associated with MSR's plans to
address the problems posed by the Year 2000 are not currently expected to be
material. Until the evaluation and assessment is completed, however, MSR cannot
have a reasonable basis to conclude that the risks and exposures related to the
Year 2000 will not materially affect future financial results or cause reported
financial information not to reflect fairly the future operating results or
future financial condition of MSR.
With respect to the risks and exposures related to MSR's customers,
suppliers, financial institutions, and other constituencies and the resulting
potential impact on MSR's business operations and financial condition, MSR has
initiated formal communications with these entities and individuals to mitigate
or prevent these risks and exposures.
Quicksilver has developed an action plan and identified the resources
needed to convert the majority of its computer systems and software applications
to achieve a Year 2000 date conversion with minimal effect on customers or
disruption to business operations. Implementation of the plan has begun and
Quicksilver anticipates completion of testing of critical systems by the end of
1998. Quicksilver estimates that the cost to complete these efforts, which
primarily includes the purchase of software upgrades under normal maintenance
agreements with third party vendors, will not be material and will be expended
primarily in 1998. In addition, Quicksilver has discussed with its vendors and
customers the need to be Year 2000 compliant. Although Quicksilver has no
reason to believe that its vendors and customers will not be compliant by the
Year 2000, Quicksilver is unable to determine the extent to which Year 2000
issues will effect its vendors and customers, and Quicksilver continues to
discuss with its vendors and customers the need for implementing procedures to
address this issue.
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THE MSR MEETING
TIME, PLACE AND DATE OF THE SPECIAL MEETING
The Special Meeting of Stockholders (the "Meeting") of MSR Exploration Ltd.
("MSR") will be held on ____________, 1998, at the Petroleum Club of Fort Worth,
777 Main Street, 40th Floor, Fort Worth, Texas, at __________ (Fort Worth, Texas
time) and any adjournments thereof.
This Proxy Statement/Prospectus and the accompanying form of proxy are
first being mailed to stockholders of MSR on or about _____________, 1998.
PURPOSE OF THE MEETING
At the Meeting, stockholders of MSR will be asked to consider and vote upon
a proposal to approve the Agreement and Plan of Merger dated September 1, 1998
between MSR and Quicksilver Resources Inc. ("Quicksilver") providing for the
merger (the "Merger") of MSR with and into Quicksilver. From and after the
effective time of the merger (the "Effective Time"), Quicksilver will continue
as the surviving corporation. As a result of the Merger, each outstanding share
of MSR common stock (the "MSR Common Stock"), other than shares held by
dissenting stockholders of MSR, will be converted into the right to receive
shares of Quicksilver common stock (the "Quicksilver Common Stock") in the
manner described below on page ____. Approval of the Merger Agreement by MSR
stockholders at the Meeting is among the conditions to the completion of the
Merger under the terms of the Merger Agreement.
THE BOARD OF DIRECTORS OF MSR, AND THE SPECIAL COMMITTEE OF THE BOARD OF
DIRECTORS OF MSR RECOMMEND A VOTE "FOR" THE APPROVAL OF THE MERGER
AGREEMENT.
VOTING RIGHTS OF MSR STOCKHOLDERS
The Board of Directors of MSR (the "MSR Board') has fixed __________,
1998 as the record date (the "Record Date") for the determination of MSR
stockholders entitled to notice of and to vote at the Meeting. Only
stockholders at the close of business on the Record Date will be entitled to
vote at the Meeting. The presence at the Meeting, in person or by proxy, of
a majority of holders of MSR Common Stock will constitute a quorum. A quorum
is necessary for the meeting to be valid. The affirmative vote of a majority
of the outstanding MSR Common Stock entitled to vote is required to approve
the Merger Agreement.
At the close of business on the Record Date, there were 25,777,014 shares
of MSR Common Stock outstanding, each of which is entitled to one vote on each
matter properly submitted to a vote at the Meeting. Messrs. Frank, Thomas and
Glenn Darden, along with Anne Darden Self (the "Darden Family") collectively
directly own 18.6% of the outstanding MSR Common Stock. The Darden Family also
owns Mercury Exploration Company ("Mercury"), which in turn directly owns 25.1%
of the outstanding MSR Common Stock. Mercury and the Darden Family, which
collectively hold 43.7% of the MSR Common Stock, have agreed to vote their
shares in favor of the Merger according to the terms of a Consent and Voting
Agreement (the "Voting Agreement") entered into on September 1, 1998. In
addition, other members of the MSR Board collectively hold approximately 8% of
the MSR Common Stock, and they have indicated that they intend to vote in favor
of the Merger. If these individuals vote as indicated, then together with the
43.7% shares of MSR Common Stock held by the Darden Family and their affiliated
companies, approximately 51.7% of the MSR Common Stock will be voted in favor of
the Merger Agreement and the Merger will be approved by MSR.
Members of the Darden Family collectively own approximately 9.44% of the
outstanding Quicksilver Common Stock. Mercury (an affiliate of the Darden
Family) owns 31.5% of the Quicksilver Common Stock and Quicksilver Energy L.C.
("QELC") (an affiliate of the Darden Family) owns 29.39% of the Quicksilver
Common Stock. Collectively, the Darden Family and their affiliates (Mercury and
QELC) own 70.3% of the Quicksilver Common Stock. In addition, Joint Energy
Development Investment Limited Partnership ("JEDI"), a limited partnership, the
general partner of which is an affiliate of Enron Capital & Trade Resources
Corp. ("Enron"), and Trust Company of the West ("TCW") each own 13%. QELC,
JEDI and TCW are also parties to the Voting Agreement and have agreed to vote
their Quicksilver Common Stock in favor of the Merger along with Mercury and
the Darden Family according to the Voting Agreement. Therefore, it is assured
that the Merger will also be approved by Quicksilver.
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PROXIES, SOLICITATION AND REVOCATION OF PROXIES
MSR Common Stock represented by properly executed and unrevoked proxies
will be voted at the Meeting, in accordance with the directions contained in the
proxy. YOU SHOULD NOT SEND ANY CERTIFICATES WITH YOUR PROXY CARDS. If you do
not make any direction in a properly executed and unrevoked proxy, your MSR
Common Stock represented by that proxy will be voted FOR the adoption of the
Merger Agreement.
You may revoke your proxy at any time before its exercise. A proxy may be
revoked by filing with the Secretary of MSR a written revocation or a duly
signed proxy bearing a later date. Any written notice revoking a proxy for the
Meeting should be sent to MSR at: 1619 Pennsylvania Avenue, Fort Worth, Texas,
76104, Attention: Secretary, or hand delivered to the Secretary at or before the
taking of the vote at the Meeting. Any MSR stockholder may attend the Meeting
and vote in person, whether or not you have previously given a proxy.
MSR will bear its costs of soliciting proxies from stockholders. In
addition to soliciting proxies by mail, directors, officers and employees of MSR
may solicit proxies by telephone, in person or otherwise, each without receiving
additional compensation therefor. Arrangements will also be made with brokerage
firms and other custodians, nominees and fiduciaries to forward solicitation
materials to the beneficial owners or shares of MSR Common Stock held of record
by such persons, and arrangements may be made with reasonable out-of-pocket
expenses incurred by them in connection with the solicitation.
Shares of MSR Common Stock represented at the Meeting but not voted for or
against a proposal, such as abstentions or "broker non-votes," will be counted
in determining a quorum for purposes of determining the votes required for
adoption of the MSR Merger Agreement. A "broker non-vote" refers to shares
represented at the Meeting in person or by proxy by a broker or nominee where
such broker or nominee does not vote the shares because it (i) has not received
voting instructions on a particular matter from the beneficial owners or person
entitled to vote and (ii) does not have discretionary voting power on such
matter. Because the Merger requires approval of the holders of a majority of
the MSR Common Stock, an abstention or "broker non-vote" will have the same
effect as a vote against the Merger.
THE MERGER
THE FOLLOWING IS A BRIEF SUMMARY OF CERTAIN ASPECTS OF THE MERGER. THIS
SUMMARY DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE MERGER AGREEMENT, A COPY OF WHICH IS ATTACHED TO THIS PROXY
STATEMENT/PROSPECTUS AS APPENDIX A AND IS INCORPORATED HEREIN BY REFERENCE. YOU
ARE URGED TO READ THE MERGER AGREEMENT CAREFULLY.
BACKGROUND OF THE MERGER
At a meeting of the MSR Board on December 2, 1997, Mr. Thomas F. Darden,
Chairman of the Board, stated that the MSR Board had been looking for ways to
maximize MSR's growth. He indicated that members of the Darden Family and their
affiliated company, Mercury, were contemplating combining most of Mercury's and
QELC's producing properties into an entity to be called Quicksilver Resources
Inc. Mr. Darden discussed the possible size and financial attributes of
Quicksilver. He indicated that it was his belief that certain benefits could be
realized through a combination of MSR with Quicksilver and advised the MSR Board
that he intended to pursue these possibilities in depth. The MSR Board
encouraged Mr. Darden to continue with these efforts.
Mr. Darden stated that, due to the position of Messrs. Frank and Glenn
Darden as well as himself on the MSR Board, as well as their significant
beneficial interest in both MSR and Quicksilver, a committee of independent
board members of MSR would be needed to negotiate and approve any merger of the
two companies. It was indicated that director Mr. Steven M. Morris, an
independent outside director of MSR, would probably take a leadership position
on such a committee.
During February 1998, Mr. Keith Wright, Mercury's treasurer, provided the
MSR Board with preliminary financial information on Quicksilver and pro forma
combined preliminary financial statements of a combined company, which would be
comprised of MSR and Quicksilver. Discussions continued through the end of
February 1998, between members of the Darden Family on the MSR Board and the
other MSR Board members. It was decided that the independent board members
would retain the services of special legal counsel and an independent
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financial advisor to assist in the negotiations and evaluation of the two
companies to determine what type of transactions and what range of conversion
ratios would be fair to the MSR stockholders.
On March 31, 1998 at a regularly scheduled meeting of the MSR Board, Mr.
Thomas Darden reintroduced the possibility of a merger between MSR and
Quicksilver after the contribution by Mercury, Michigan Gas Partners and QELC of
certain oil and gas properties. Mr. Darden indicated that various benefits
would come from a merger between MSR and Quicksilver as proposed. Mr. Darden
reviewed the proposed Quicksilver assets and operations in Michigan and Wyoming.
Mr. Keith Wright, Mercury's treasurer, provided the MSR Board with a preliminary
financial review of the proposed Quicksilver and pro forma financial statements
of the combined companies, one including acquisition and development and one
excluding those features. The MSR Board discussed structural issues, reviewed
the financial impact of a merger, and considered the complementary strengths of
MSR and Quicksilver and what each of the companies could contribute to a
combined company.
A special committee (the "Special Committee") of the MSR Board was
officially formed to independently evaluate the proposed merger. The Special
Committee was to be composed of the independent MSR Directors: Messrs. D.
Randall Kent, Patrick M. Montalban, W. Yandell Rogers III and Steven M. Morris.
Mr. Morris was elected the Chairman of the Special Committee. No member of the
Special Committee had any prior business relationship with any of the owners or
stockholders of Quicksilver or had held any position as an officer or employee
of either company other than Mr. Montalban, who is a vice president and a
director of MSR. The Special Committee was given the full authority of the MSR
Board to act upon a merger proposal. The Special Committee approved the
engagement of the law firm of Jenkens & Gilchrist, a Professional Corporation,
as special counsel ("Special Counsel") to the Special Committee. This firm had
provided no prior representation of MSR or any member of the Darden Family or
their affiliated companies. The Special Committee also engaged the services of
the investment banking firm of EVEREN Securities, Inc. ("EVEREN") to act as its
financial advisor.
On April 23, 1998 the Special Committee met in Houston at the offices of
EVEREN. At this meeting, the Special Committee received a presentation from
EVEREN on a potential merger of MSR and Quicksilver and EVEREN explained the
analyses it performed on the valuation of the companies. Special Counsel
attended the meeting in order to advise the Special Committee on its fiduciary
duties.
Immediately following the Special Committee meeting, the Special Committee
and EVEREN met with representatives of Quicksilver. Messrs. Thomas and Glenn
Darden represented Mercury, QELC and the Darden Family. Representatives of JEDI
and TCW, significant investors in Quicksilver, were also present. EVEREN
reviewed its valuation analysis of the two companies. The various valuation
methods were discussed, and subsequently it was tentatively agreed that
Quicksilver had an average value, based on the different valuation methodologies
utilized, in the range of approximately four times that of MSR.
On May 5, 1998, the Special Committee and Quicksilver entered into a letter
of intent, which contemplated a proposed merger of MSR with and into
Quicksilver. The two parties agreed to proceed with a more in-depth review of
each other's properties and operations and to discuss various structural,
management and organization issues. Shortly thereafter, MSR issued a press
release describing the execution of the letter of intent and providing details
of the proposed merger.
On June 26, 1998 at a regular meeting of the MSR Board, Mr. Glenn Darden
indicated that due diligence and the negotiation of a definitive merger
agreement between the two companies was proceeding. It was anticipated that the
Darden Family would have three seats on the board of the surviving corporation.
Also, three MSR directors, Messrs. D. Randall Kent, W. Yandell Rogers III and
Steven M. Morris were designated by the board to continue as directors of the
surviving corporation. Mr. Darden indicated that, pursuant to the terms of
agreements with JEDI and TCW related to the formation of Quicksilver, JEDI and
TCW would each have the right to one board seat.
The Special Committee received the presentation of management at meetings
held on March 31, 1998, and June 26, 1998. On September 1, 1998, the Special
Committee (except for Mr. Kent, who was not in attendance) received the oral
presentation of EVEREN, and Special Counsel reviewed the Merger Agreement with
the Special Committee in detail. EVEREN provided its analysis of the possible
transaction, including reviews of, among other things: (1) certain publicly
available financial statements and reports filed with the Securities and
Exchange Commission (the "SEC"); (2) independently prepared oil and gas reserve
estimates for MSR and Quicksilver; (3) the financial terms, to the extent
publicly available, of acquisitions of oil and gas reserves and; (4) other
relevant information. The Special Committee members that were present
determined that the Merger would be fair to,
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advisable and in the best interests of MSR's stockholders, approved the Merger
and the Merger Agreement and voted to recommend the Merger to MSR's
stockholders.
Following the Special Committee's meeting on September 1, 1998, the full
MSR Board, except for Mr. Kent, met to consider approving the Merger Agreement
and to hear the Special Committees recommendation. By vote of the full MSR
Board, with Messrs. Thomas, Frank and Glenn Darden abstaining, the MSR Board
determined the Merger to be fair to, advisable and in the best interests of, MSR
and its stockholders, approved the Merger and the Merger Agreement and voted to
recommend the Merger to MSR's stockholders.
During this time, the Quicksilver Board received presentations of
management and its legal advisors, with respect to the proposed Merger,
including reviews of, among other things: historical information relating to the
business, financial condition and results of operations of MSR and Quicksilver;
information provided by MSR and Quicksilver management and reviewed and adjusted
by Quicksilver management regarding the reserves and operations of MSR and
Quicksilver; information regarding the management of MSR; historical data
relating to market prices and trading volumes of MSR Common Stock; the valuation
analysis of Quicksilver; market prices for MSR Common Stock as compared to those
of other comparable publicly traded companies and the possible enhancement
resulting from the Merger of the combined entity's ability to raise capital for
its exploration and development drilling activities.
By unanimous written consent on September 1, 1998, the Board of Directors
of Quicksilver (the "Quicksilver Board") determined the Merger to be in the best
interests of Quicksilver and its stockholders, approved the Merger and the
Merger Agreement and recommended to the stockholders of Quicksilver that they
approve the Merger and the Merger Agreement. The Quicksilver Board's decision
to approve the Merger and the Merger Agreement followed an extensive review of
the relative strengths and weaknesses of Quicksilver and MSR, including
Quicksilver's prospects for accessing the capital necessary to finance its
exploration and development drilling activities on a cost effective basis; the
anticipated benefits of combining Quicksilver with and into a publicly traded
company; the complementary nature of Quicksilver's and MSR's reserves and
properties and the ability of Quicksilver and MSR to combine their respective
management and technical teams without disrupting ongoing projects and
activities.
On September 9, 1998, MSR and Quicksilver jointly announced the execution
of the Merger Agreement.
MSR'S REASONS FOR THE MERGER; RECOMMENDATION OF THE MSR BOARD
The Special Committee and the MSR Board believe the Merger is in the best
interests of MSR's stockholders and each has approved the Merger Agreement and
the transactions contemplated thereby. THE SPECIAL COMMITTEE AND THE MSR BOARD
(WITH MEMBERS OF THE DARDEN FAMILY ABSTAINING) RECOMMEND THAT THE STOCKHOLDERS
OF MSR VOTE "FOR" ADOPTION AND APPROVAL OF THE MERGER AGREEMENT.
During the course of its deliberations, the Special Committee, with the
assistance of management, Special Counsel and EVEREN, considered a number of
factors including the following:
- The overall strategic fit between MSR and Quicksilver, including the
balance created by adding MSR's Montana oil reserves to Quicksilver's
gas reserves;
- Predictable cash flow and lower-risk growth opportunities provided by
a combined core group of activities;
- Greater cash flows generated by Quicksilver's properties, which would
provide resources to develop MSR's inventory of undeveloped
properties.
- The diversified inventory of exploration prospects covering 273,000
gross acres resulting from combining the companies.
- Greater financial strength and growth opportunities and greater
purchasing power with oil field service providers as a result of the
larger size of the combined company;
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- A larger pool of assets and substantial technical experience allowing
the combined entity more aggressively to exploit existing properties,
accelerate exploration and be more competitive with regard to pursuing
new opportunities;
- The diversification and expansion of Quicksilver's reserve and
exploration opportunities;
- The possibility that the larger, more diversified combined company
would benefit from better credit ratings, more flexible financing
terms and lower financing costs;
- The likelihood that the combined entity would have a larger and would
likely receive greater attention from financial analysts and
institutional investors and the potential for market valuations
comparable to other larger independent oil producers;
- The continued involvement of Quicksilver's management in the
management of the combined company thereby providing substantial depth
to the overall management team;
- The strategic and financial alternatives available to the combined
company;
- The preliminary pro forma financial condition, results of operations
and other financial information of the combined company, including an
analysis of the opportunities for costs savings and economies of
scale; and
- The presentation of EVEREN delivered to the Special Committee at its
meeting on September 1, 1998 and EVEREN's fairness opinion to the
effect that the proposed merger consideration is fair to MSR's
stockholders (other than Mercury and members of the Darden Family and
their affiliates) from a financial point of view.
The foregoing discussion of the information and factors considered and
given weight by the Special Committee is not intended to be exhaustive. In view
of the variety of factors considered in connection with its evaluation of the
Merger, the Special Committee did not find it practicable to and did not
quantify or otherwise assign relative weights to the specific factors considered
in reaching its determination. In addition, individual members of the Special
Committee may have given different weights to different factors.
OPINION OF MSR'S FINANCIAL ADVISOR
On September 1, 1998, EVEREN delivered its written opinion to the Special
Committee that, as of the date of the opinion and based upon and subject to
certain matters stated in the opinion, the consideration to be received by the
holders of MSR Common Stock (other than shares held by Mercury and shares held
by members of the Darden Family and their affiliates) was fair from a financial
point of view. THE FULL TEXT OF THE WRITTEN OPINION OF EVEREN, WHICH SETS FORTH
THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND QUALIFICATIONS AND LIMITATIONS ON
THE REVIEW UNDERTAKEN, IS ATTACHED AS APPENDIX B TO THIS PROXY
STATEMENT/PROSPECTUS AND IS INCORPORATED BY REFERENCE. WE URGE YOU TO, AND YOU
SHOULD, READ THIS OPINION IN ITS ENTIRETY.
In connection with its opinion, EVEREN, among other things,
- reviewed the draft of the Merger Agreement;
- reviewed historical financial results for MSR and Quicksilver, as well
as certain publicly available financial statements and reports as
filed with the Securities and Exchange Commission (the "SEC")
regarding MSR;
- reviewed independently prepared oil and gas reserve estimates for MSR
and Quicksilver and discussed those estimates with MSR's reserve
engineers;
- reviewed the financial terms, to the extent publicly available, of
acquisitions of oil and gas reserves;
- discussed with senior management of MSR the operations of and business
prospects for MSR; and
- considered such other information, financial data, analyses and
investigations as it deemed relevant under the circumstances.
As set forth in its opinion, and in connection with preparing and rendering
its opinion, EVEREN relied on the accuracy and completeness of the information
and financial data provided to it by MSR and Quicksilver, and its opinion is
based solely upon the information set forth in this Proxy Statement/Prospectus
as reviewed by it and
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circumstances existing as of the date of this Proxy Statement/Prospectus.
Events occurring after the date of EVEREN's opinion could materially affect the
assumptions used in both preparing its opinion and in the documents reviewed by
it. In connection with its review, EVEREN did not independently verify any of
the information concerning MSR or Quicksilver. EVEREN assumed that the pro
forma financial and reserve information reviewed by it has been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of MSR's management as to the future performance reflected in that
information. In addition, EVEREN did not make an independent evaluation or
appraisal of the assets of MSR or Quicksilver, nor was it furnished with any
independent evaluations or appraisals (other than certain reserve reports
prepared by independent petroleum engineers for MSR and Quicksilver.
For purposes of its opinion, EVEREN assumed, in all respects material to
its analysis, that the representations and warranties of MSR and all related
documents and instruments contained in those documents were true and correct,
that each party to those documents would perform all of the covenants and
agreements required to be performed by that party under those documents and that
all of the conditions to the completion of the Merger would be satisfied without
waiver of any condition.
EVEREN's opinion was necessarily based upon the securities markets and the
oil and natural gas market prevailing as of the date on its opinion and the
conditions and prospects, financial and otherwise, of MSR and Quicksilver as
they had been represented to EVEREN as of the date of the opinion or as they
were reflected in the materials and discussions described above. EVEREN's
opinion did not imply any conclusion as to the likely trading range for the
Quicksilver Common Stock following the completion of the Merger, which may vary
depending upon, among other factors, changes in oil and gas prices, market
conditions, general economic conditions and other factors, that generally
influence the price of securities. EVEREN's opinion did not address MSR's
underlying business decision to enter into the Merger Agreement, and EVEREN
expressed no view on the effect on MSR of the Merger. EVEREN's opinion was
directed only to the fairness, from a financial point of view, of the
consideration to be received by the holders of MSR Common Stock (other than
Mercury and members of the Darden Family and their affiliates), and did not
constitute a recommendation concerning how MSR stockholders should vote with
respect to the Merger. The Special Committee did not impose any limitations on
the scope of EVEREN's analysis nor was EVEREN asked to seek alternative
transactions or parties.
In performing its analysis, EVEREN made numerous assumptions with respect
to the industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond MSR's control. Any
information contained in this analysis does not necessarily indicate actual
values or predict future results or values, which may be significantly more or
less favorable than as set forth in the analysis. In addition, analyses and
estimates relating to the value of businesses or securities do not purport to be
appraisals or to reflect the prices at which businesses or securities actually
may trade, be acquired or sold. Accordingly, the analyses and estimates
inherently are subject to substantial uncertainty. In addition, the
requirements for the delivery of their fairness opinion was among several
factors taken into consideration by the Special Committee in making its
determination to approve the Merger. Consequently, EVEREN's analyses described
below should not be viewed as determinative of the decision of the Special
Committee with respect to the fairness of the consideration received in the
Merger.
In connection with its opinion, EVEREN used four methodologies: discounted
cash flow analysis, relative contribution analysis, market multiple analysis and
comparable reserve acquisitions analysis. These methodologies are discussed
below.
DISCOUNTED CASH FLOW ("DCF") ANALYSIS. EVEREN performed a DCF analysis
utilizing the present value of the future pre-tax cash flows of MSR and
Quicksilver's oil and gas reserves as of January 1, 1998, based on reserve
reports prepared by independent petroleum engineers for MSR and Quicksilver. In
addition, EVEREN discussed with management of MSR and Quicksilver the current
and projected operations for both companies. In developing its DCF analysis,
EVEREN discounted the pre-tax cash flows derived from MSR and Quicksilver's oil
and gas reserves (defined as net oil and gas revenues less severance and ad
valorem taxes, direct operating expenses and required capital expenditures) to a
present value using discount rates ranging from 10% to 40%. EVEREN then
adjusted the resulting values to account for certain assets and liabilities of
MSR and Quicksilver that were not part of the analysis. EVEREN also used the
DCF analysis with certain adjustments to examine the potential liquidation value
of MSR.
RELATIVE CONTRIBUTION ANALYSIS. EVEREN projected financial results for the
1998 through 2000 fiscal years using reserve reports prepared by independent
petroleum engineers for MSR and Quicksilver and certain assumptions
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provided by the management of MSR and Quicksilver. EVEREN then examined the
relative contribution of the projected revenues, operating cash flow, net income
and after-tax cash flow.
MARKET MULTIPLE ANALYSIS. EVEREN examined eight companies that MSR's
management believed to be comparable to MSR on various financial and operational
parameters. These companies included Cabot Oil and Gas, Callon Petroleum,
Comstock Resources, Costilla Energy, Lomak Petroleum, National Energy, Patina
Oil and Gas and Snyder Oil. With respect to these companies, EVEREN reviewed,
among other things, current market value multiples relative to operating cash
flow and after-tax cash flow. EVEREN then averaged the market value multiples
of the eight companies and applied the multiples to MSR and Quicksilver's
projected operating cash flows and after-tax cash flows for the 1998 and 1999
fiscal years. EVEREN then adjusted the resulting values to account for certain
assets and liabilities of MSR and Quicksilver that were not part of the
analysis.
COMPARABLE RESERVE ACQUISITIONS ANALYSIS. EVEREN reviewed 227 comparable
oil and gas reserve acquisition transactions that occurred during the 1996 and
1997 calendar years and the first six months of 1998 in the Mid-Continent and
Rocky Mountain regions of the United States, as well as Canada. EVEREN's review
of these transactions was based on information supplied by an independent
petroleum research company. EVEREN calculated the average price paid in these
transactions and applied the resulting per barrel of oil equivalent value to the
total proved reserve volumes of MSR and Quicksilver. EVEREN then adjusted the
resulting values to account for certain assets and liabilities of MSR and
Quicksilver that were not part of the analysis.
The preparation of the opinion involved performing complex analyses and
making numerous determinations as to the most appropriate and relevant methods
of financial analysis and the application of those methods to the particular
circumstances and, therefore, the opinion is not readily susceptible to partial
analysis or summary description. In arriving at its fairness opinion, EVEREN
did not attribute any particular weight to any analysis or factor considered by
it, but rather made qualitative judgments as to the significance and the
relevance of each analysis and factor. Accordingly, EVEREN believes that its
analyses must be considered as a whole and to select any portions of its
analyses and of the factors considered, without considering all analyses and
factors, would create an incomplete or misleading view of the process underlying
the opinion.
EVEREN is an investment banking firm, and, as part of its investment
banking activities, is regularly engaged in the valuation of businesses and
their securities in connection with mergers and acquisitions, underwritings,
private placements and valuations for corporate and other purposes. EVEREN, in
the normal course of its business, may trade the securities of MSR or
Quicksilver for its own account and for the account of its customers and,
accordingly, may hold a long or short position in those securities at any time.
EVEREN was selected on March 13, 1998 to serve as the Special Committee's
financial advisor in connection with the Merger on the basis of its experience
and expertise in transactions similar to the Merger, specifically in oil and gas
transactions, and its reputation in the banking and investment communities.
According to the terms of the engagement letter, MSR agreed to pay EVEREN a
financial advisory fee of $37,500 upon the execution of its engagement letter
and an additional $37,500 at the time EVEREN delivered the fairness opinion.
EVEREN is entitled to receive an additional $10,000 per month beginning on
September 1, 1998 and ending on December 31, 1998 in connection with its
performing financial advisory duties under the engagement letter. MSR has also
agreed to reimburse EVEREN for its reasonable out-of-pocket expenses and to
indemnify EVEREN against certain liabilities and expenses.
GENERAL INFORMATION ABOUT THE MERGER
When the Merger is completed, MSR will be merged with and into Quicksilver,
with Quicksilver as the surviving corporation (the "Surviving Corporation") in
the Merger. Except with respect to shares as to which dissenters' rights have
been exercised, if the Merger Agreement is approved and the Merger is completed,
each share of MSR Common Stock outstanding immediately prior to the Merger will
be automatically converted into and exchanged for the right to receive shares of
Quicksilver Common Stock based on the conversion ratio described below.
In order to meet the requirements of the Merger and give effect to the
relative percentage of the Surviving Corporation to be owned by the MSR
stockholders after the Merger, Quicksilver will issue an additional 10,210,800
shares in the form of a stock dividend to the current Quicksilver stockholders.
References in this Proxy Statement/Prospectus (other than in the attached
financial statements and related notes) to the number of shares or
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percentage interests of MSR and Quicksilver owned by certain entities and
individuals reflect the adjustment for the stock dividend (the "Stock
Dividend").
EFFECTIVE TIME
Quicksilver and MSR anticipate completing the Merger as promptly as
possible after the approval of the Merger Agreement by the stockholders of MSR
and when all of the conditions contained in the Merger Agreement are satisfied
or waived (the "Effective Time").
CONVERSION OF SHARES; CONVERSION
As a result of the Merger, MSR stockholders, other than MSR stockholders
who dissent to the Merger and properly exercise their dissenter's rights to
appraisal, will receive .10 of one fully paid nonassessable share (the
"Conversion Ratio") of Quicksilver Common Stock for each share of MSR common
stock that they own. The number of shares of Quicksilver Common Stock to be
received by each MSR stockholder will be determined by multiplying the number of
shares of MSR Common Stock held by each stockholder of MSR by the Conversion
Ratio. No fractional shares will be issued, but rather MSR stockholders will
receive cash in lieu of fractional shares.
After the Merger is completed, holders of MSR Common Stock prior to the
Effective Time of the Merger, in the aggregate, will own approximately 20% of
the outstanding Quicksilver Common Stock after giving effect to the Merger and
holders of Quicksilver Common Stock prior to the Effective Time of the Merger,
in the aggregate, will own approximately 80% of the outstanding Quicksilver
Common Stock after giving effect to the Merger.
THE MERGER AGREEMENT
THE FOLLOWING IS A SUMMARY THAT HIGHLIGHTS SOME OF THE SIGNIFICANT PROVISIONS OF
THE MERGER AGREEMENT. YOU MAY READ THE MERGER AGREEMENT, WHICH IS ATTACHED TO
THIS PROXY STATEMENT/PROSPECTUS AS APPENDIX A FOR MORE DETAIL. WE ENCOURAGE YOU
TO READ THE MERGER AGREEMENT IN ITS ENTIRETY.
REPRESENTATIONS AND WARRANTIES. The Merger Agreement contains
representations and warranties made by each of Quicksilver and MSR relating to,
among other things,
- the proper organization of the companies, their subsidiaries and
similar corporate matters;
- the capital structures of the companies and their subsidiaries;
- the authorization, performance and enforceability of the Merger
Agreement;
- the absence of violations of either company's governing instruments
and applicable laws and agreements, governmental filings,
authorizations and consents required to complete the Merger;
- compliance by each company and its subsidiaries with applicable laws;
- claims and litigation against the companies or their subsidiaries;
- employee benefit plans and ERISA matters;
- taxes and tax matters;
- the absence of material adverse changes and events relating to the
business and properties of Quicksilver and MSR;
- compliance by each company and its subsidiaries with applicable
environmental laws and regulations;
- the absence of undisclosed liabilities;
- interests in real property;
- insider interests and transactions with management;
- the absence of brokers and broker fees;
- that Quicksilver's and MSR's disclosures in the Merger Agreement are
not misleading; and
- material contracts.
CERTAIN COVENANTS OF QUICKSILVER AND MSR. MSR and Quicksilver have made
certain covenants or promises. These include covenants that they will:
- operate their businesses in the usual and ordinary course;
- preserve their business organizations intact, maintain rights and
franchises, retain the services of their respective officers and key
employees and maintain relationships with customers and suppliers;
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- maintain and keep their properties and assets in good repair and
condition and use their best efforts to maintain supplies and
inventories in quantities consistent with customary business
practices;
- maintain in full force and effect insurance and bonds comparable in
scope and coverage to that currently maintained;
- promptly notify the other of
- any material adverse change in the condition of its businesses,
properties, assets, liabilities or prospects;
- any material litigation or similar actions;
- the occurrence of any event that renders any of the
representations or warranties of the other party set forth in the
Merger Agreement materially inaccurate;
- the failure of either party to comply with or satisfy any of the
covenants or agreements of that party set forth in the Merger
Agreement; and
- any other event that could reasonably result in a material
adverse effect;
In addition MSR and Quicksilver will :
- file all tax returns required to be filed on or before the closing of
the Merger;
- give the other party and its attorneys and other representatives
access at all reasonable times to such parties and records;
- operate their properties in conformity with all required documents,
and all applicable rules, regulations and orders of all governmental
authorities having jurisdiction; and
- maintain the machinery, improvements, equipment and other personal
property and fixtures forming a part of their properties.
Quicksilver has also agreed, among other things, to file an application
with the American Stock Exchange ("AMEX") to list the shares of Quicksilver
Common Stock to be issued pursuant to the Merger and will use all reasonable
efforts to cause the application to be approved prior to the Effective Time and
to comply in all material respects with the requirements of AMEX.
NEGATIVE COVENANTS OF MSR. MSR has also agreed that it will not, and will
not permit any of its subsidiaries to, among other things:
- increase the compensation payable to any director or increase the
compensation payable or pay bonuses to officers or employees of MSR or
any of its subsidiaries;
- establish, adopt or enter into any employee benefit plan or
arrangement;
- make any loans to any stockholders, officers, directors or employees
or make any change in its borrowing arrangements; or
- declare or pay any dividend on its shares of capital stock or other
equity interests other than the Stock Dividend;
- reorganize or recapitalize MSR or any of its subsidiaries;
- split, combine or reclassify any of its or its subsidiaries' capital
stock;
- issue any shares of any class of its or its subsidiaries' capital
stock, any securities convertible into or exercisable or exchangeable
for any such shares, or any rights, warrants or options to acquire any
such shares.
MSR has also made certain negative covenants regarding the operation of its
business and relating to its oil and gas properties. For a description of these
negative covenants, please see the Merger Agreement, which is attached to this
Proxy Statement/Prospectus as Exhibit A.
NEGATIVE COVENANTS OF QUICKSILVER. Quicksilver has also agreed that it
will not, among other things:
- amend or modify any one or more of the Formation Documents (see page
____ for a description of these documents);
- adopt any amendments to its Certificate of Incorporation or its Bylaws
that could reasonably be expected to delay or have an adverse effect
on completing the Merger;
- change any of its significant accounting policies;
- declare or pay any dividend on shares of its or its subsidiaries'
capital stock or other equity interests;
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- take or permit any action that would adversely affect or delay the
ability of either MSR or Quicksilver to obtain any necessary approvals
of any governmental entities required for the transactions
contemplated by the Merger Agreement or to perform its covenants and
agreements under the Merger Agreement;
- issue any securities convertible into or exercisable or exchangeable
for its common stock, or grant any rights, warrants or options to
acquire any common stock;
- solicit, initiate or participate in any discussions or negotiations
with any person (other than MSR), regarding any merger, consolidation,
sale of assets, tender offer, sale of shares of capital stock or
similar transaction involving Quicksilver; or
- disclose to any person preparing to make or considering any of the
above actions confidential information regarding Quicksilver.
Quicksilver has also made negative covenants regarding its oil and gas
properties similar to those made by MSR. For a description of these negative
covenants, please see the Merger Agreement, which is attached to this Proxy
Statement/Prospectus as Exhibit A.
NO SOLICITATION BY MSR. During the term of the Merger Agreement, MSR has
agreed that it will not initiate, solicit or encourage any of the following
"Alternative Transactions":
- any purchase, lease, exchange, transfer or other acquisition of all or
a material portion of MSR's assets and its subsidiaries;
- any merger (other than with Quicksilver), consolidation, share
exchange, business combination or similar transaction involving MSR or
any of its subsidiaries;
- a purchase or other acquisition of securities representing 20% or more
of the outstanding voting stock of MSR; or
- enter into discussions or negotiate with any person or entity
regarding an Alternative Transaction.
At any time prior to the approval of the Merger Agreement by MSR's
stockholders, however, if the Special Committee receives an unsolicited proposal
for an Alternative Transaction and determines that the proposal is more
beneficial to the stockholders of MSR than the Merger, it may, in the exercise
of its duty, cause MSR to furnish information to, and may participate in
discussions or negotiations with, the person who submitted the proposal and
enter into such an Alternative Transaction if it would be in the best interests
of MSR's stockholders. If the Special Committee completes an Alternative
Transaction, MSR must pay Quicksilver a $500,000 fee to compensate Quicksilver
for MSR's failure to complete the Merger. (See page __)
CONDITIONS TO THE MERGER. Completion of the Merger is subject to certain
conditions, including:
- the approval of the Merger Agreement by the affirmative vote of the
holders of a majority of the Quicksilver Common Stock and by the
affirmative vote of the holders of a majority of the MSR Common Stock;
- approval by AMEX of the listing of the Quicksilver Common Stock to be
issued in the Merger;
- receipt of customary legal opinions;
- receipt by MSR on the closing date of the Merger of EVEREN's fairness
opinion;
- the absence of third party actions that would prohibit or restrict the
completion of the Merger or would have a material adverse effect on
either MSR or Quicksilver;
- the restructuring of the debt owed by Quicksilver to NationsBank of
Texas, N.A. ("NationsBank") and MSR's debt to Banque Paribas; and
- certain other customary closing conditions.
There can be no assurance as to when and if the conditions to completion of
the Merger will be satisfied (or, where permissible, waived) or that the Merger
will be completed. In addition, according to the terms of certain documents
associated with Quicksilver's formation, each of Mercury, JEDI and TCW must
approve the terms of the Merger Agreement and the Merger as well as any
modifications or amendments to the Merger Agreement or the waiver of any
provision of the Merger Agreement. According to the terms of the Voting
Agreement signed and delivered by JEDI and TCW at the time the Merger Agreement
was signed, JEDI and TCW have agreed and consented to the Merger Agreement and
the Merger. However, Quicksilver has entered into a separate agreement with
JEDI and TCW in which Quicksilver has agreed that it will not amend the Merger
Agreement or waive any terms or conditions without the prior written consent of
JEDI and TCW.
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AMENDMENT OF MERGER AGREEMENT. The parties may modify or amend the Merger
Agreement by written agreement prior to the completion of the Merger, subject to
the applicable provisions of the Delaware General Corporation Law (the "DGCL").
WAIVER AND TERMINATION. The Merger Agreement permits the parties to waive
any of the conditions to the Merger that are in favor of that party. However,
as described above, Quicksilver has agreed that it will not waive any conditions
in its favor without the prior written consent of JEDI and TCW. If the parties
elect to waive any material condition to the Merger, they will amend or
supplement this Proxy Statement/Prospectus as appropriate and recirculate it to
the affected stockholders if the waiver occurs prior to approval of the Merger
by the stockholders of MSR and Quicksilver. If a material condition to the
Merger is waived after the stockholders approve it, the stockholders of the
party adversely affected by the waiver will be resolicited to reapprove the
Merger.
The Merger Agreement is subject to termination by one or more of the
parties at any time prior to the Effective Time if, among other things:
- we do not receive our stockholders' approval of the Merger;
- we do not complete the Merger by January 31, 1999;
- either of us materially breaches the Merger Agreement;
- an injunction prevents the Merger;
- the Special Committee receives a proposal that is more beneficial to
MSR's stockholders than the Merger that it chooses to pursue; or
- we mutually agree to terminate the Merger.
- - The Merger Agreement requires MSR to pay Quicksilver a $500,000 break-up
fee in cash should MSR terminate the Merger Agreement in order to pursue a
merger or acquisition transaction with a party other than Quicksilver or if
MSR or Quicksilver terminates the Merger Agreement and within one year MSR
completes a merger transaction with another party, subject to some specific
requirements pertaining to the timing and manner of the termination.
- - The Merger Agreement also requires MSR to pay Quicksilver $100,000 as
reimbursement of its estimate expenses, if:
- either party terminates the Merger Agreement because MSR's
stockholders fail to approve the Merger;
- Quicksilver terminates the Merger Agreement because of a material
breach of the Merger Agreement by MSR; or
- Quicksilver terminates the Merger Agreement after its expiration on
January 31, 1999 if the expiration resulted from the failure of the
condition that EVEREN confirm the fairness opinion on the closing date
of the Merger.
Any $100,000 required expense reimbursement does not offset any amount
payable by MSR if it also owes Quicksilver the $500,000 break-up fee
described above.
- - Similarly, the Merger Agreement requires Quicksilver to pay to MSR $100,000
as reimbursement of its estimated expenses if:
- either party terminates the Merger Agreement because Quicksilver's
stockholders fail to approve the Merger; or
- of MSR terminates the Merger Agreement because of a material breach of
the Merger Agreement by Quicksilver.
The Merger Agreement provides that the sole remedy that MSR and Quicksilver
have against the other based on the other's material breach of the Merger
Agreement is recovery of the $100,000 expense reimbursement described
above and, the $500,000 break-up fee that might be due by MSR if the
conditions to payment of that fee are met unless the breach was willful or
intentional. This means that neither party has
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any liability beyond these amounts for any other damages incurred by reason
of a breach of the Merger Agreement, unless the breach or willful or
intentional.
LISTING. Quicksilver will use all reasonable efforts to cause the
Quicksilver Common Stock to be issued in the Merger to be approved for listing
and quotation on AMEX prior to the completion of the Merger. This listing is
also a condition to completion of the Merger. Quicksilver anticipates that it
will file a listing application with AMEX relating to the issuance by
Quicksilver of the Quicksilver Common Stock prior to the date of the Meeting.
ADDITIONAL AGREEMENTS. Both MSR and Quicksilver have made certain
agreements relating to the filing of the Registration Statement of which this
Proxy Statement/Prospectus forms a part and the accuracy of the information
contained within it. They have also agreed to take all appropriate action, and
do all things necessary, proper or advisable under applicable law to complete
the transactions contemplated by the Merger Agreement and to use all reasonable
efforts to cooperate with each other in connection with the making of all
required filings.
TREATMENT OF OUTSTANDING STOCK OPTIONS AND WARRANTS
At September 30, 1998, a total of 248,570 shares of MSR Common Stock were
the subject of options under MSR's 1997 Stock Option Plan, all of which were
held by Messrs. Glenn and Thomas Darden and Mr. Howard N. Boals, Vice-President,
Finance of MSR. All options granted were at an exercise price as determined by
a committee. The price was not less than the fair market value of the shares
(which was the closing price of the shares on the business day preceding the day
the option was granted). All outstanding stock options are fully vested and
immediately exercisable.
In addition to holding options, members of the Darden Family, along with
Mercury and two other Mercury stockholders hold warrants to purchase shares of
MSR Common Stock. These warrants will be converted into warrants to purchase
Quicksilver Common Stock, as described below. The Darden Family holds warrants
to purchase a total of 4,400,000 shares of MSR Common Stock. Mercury, an
affiliate of the Darden Family, holds warrants for 5,940,000 shares. Mr. Jack
Thurber owns warrants to purchase 550,000 shares and Mr. Jeff Cook holds
warrants for 110,000 shares.
Pursuant to the Merger Agreement, at the Effective Time, each option or
warrant that is outstanding and unexercised will be converted automatically into
an option or warrant to purchase shares of Quicksilver Common Stock in an amount
and at an exercise price determined as follows: (1) the number of shares of
Quicksilver Common Stock to be subject to the new option or warrant will be
equal to the product of the number of shares of MSR Common Stock subject to the
original option or warrant multiplied by the Conversion Ratio, provided that any
resulting fractional share of Quicksilver Common Stock will be rounded to the
nearest whole share; and (2) the exercise price per share of Quicksilver Common
Stock under the new option or warrant will be equal to the exercise price per
share of MSR Common Stock under the original option or warrant, divided by the
Conversion Ratio, provided that the exercise price will be rounded down to the
nearest whole cent.
EXCHANGE OF STOCK CERTIFICATES
At the completion of the Merger, all shares of MSR Common Stock will cease
to be outstanding and will automatically be canceled and retired. Each
certificate formerly representing MSR Common Stock, other than shares held by
dissenting stockholders of MSR, will represent ownership of the right to receive
the Quicksilver Common Stock issuable pursuant to the Merger Agreement until
those certificates are surrendered to an exchange agent (the "Exchange Agent").
As soon as practicable after the completion of the Merger, the Exchange
Agent will mail you a form of letter of transmittal (a "Letter of Transmittal")
and instructions for use in effecting the surrender of your certificates. When
you surrender your certificates, together with a signed Letter of Transmittal,
you will receive in exchange certificate(s) representing whole shares of
Quicksilver Common Stock to which you are entitled, based on the Conversion
Ratio.
DO NOT SEND IN YOUR STOCK CERTIFICATES NOW. YOU SHOULD NOT SEND YOUR STOCK
CERTIFICATES TO THE EXCHANGE AGENT UNTIL YOU RECEIVE A LETTER OF TRANSMITTAL.
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FRACTIONAL SHARES
You will not receive any fractional shares of Quicksilver Common Stock as a
result of the Merger. In lieu of fractional shares, you will receive, upon
surrender of your certificate(s) to the Exchange Agent along with the Letter of
Transmittal, an amount in cash (without interest), rounded to the nearest cent,
calculated by multiplying (A) the closing price of the MSR Common Stock on AMEX
on the day preceding the closing date of the Merger multiplied by the Conversion
Ratio (.10) and (B) the fractional interest to which you would otherwise be
entitled after giving effect to the Merger.
ACCOUNTING TREATMENT
Accounting Principles Board Opinion Number 16 ("ABP 16") Accounting for
Business Combinations provides that exchanges or transfers of net assets between
companies under common control must be accounted for at historical cost in a
manner similar to that of pooling of interest accounting, which means we will
treat our companies as if they had always been combined for purposes of
accounting and financial reporting. Furthermore, APB 16 indicates that the
purchase method of accounting should be used if the effect of a transfer or
exchange is to acquire all of outstanding shares held by minority interests.
Mercury and the principal stockholders of Mercury comprised of the Darden
Family, Mr. Jack Thurber and Mr. Jeff Cook (the "Mercury Group") presently
control Quicksilver through their approximate 70.3 percent ownership of
Quicksilver. The Mercury Group is considered to control MSR because the Mercury
Group owns approximately 46.5 percent of the MSR Common Stock, controls MSR's
executive committee of its Board of Directors and holds warrants to purchase 11
million shares of MSR common stock. Accordingly, Quicksilver will be considered
the "accounting acquiror" and will transfer approximately 47 percent of MSR's
net assets to Quicksilver at historical cost. The remainder of MSR's net
assets, approximately 53 percent, that relate to minority interests, will be
valued and recorded based on the purchase method of accounting.
CONSEQUENCES UNDER FEDERAL SECURITIES LAWS
The Quicksilver Common Stock issuable in connection with the Merger has
been registered under the Securities Act. Accordingly, there will be no
restrictions upon the resale or transfer of such shares by Quicksilver
stockholders except for those Stockholders who are deemed "affiliates" of
Quicksilver, as that term is defined in Rule 144 and Rule 145 adopted under the
Securities Act. The shares of Quicksilver Common Stock issuable to stockholders
of MSR upon the Merger becoming effective have been registered under the
Securities Act. These shares may be traded freely and without restriction by
those stockholders not deemed to be "affiliates" of MSR as that term is defined
in the rules under the Securities Act. Quicksilver Common Stock received by
those stockholders of MSR who are deemed to be "affiliates" of MSR may be resold
without registration only as provided for by Rule 145 or as otherwise permitted
under the Securities Act. Persons who may be deemed to be affiliates of MSR
generally include individuals or entities that control, are controlled by or are
under common control with, MSR and may include the executive officers and
directors of MSR as well as certain principal stockholders of MSR. In the
Merger Agreement, MSR has agreed to use its best efforts to cause each
stockholder who, in the opinion of MSR, is an affiliate of MSR to enter into an
agreement with Quicksilver providing that (1) the affiliate will not sell,
transfer or otherwise dispose of the shares of Quicksilver Common Stock to be
received by that person in the Merger except in compliance with the applicable
provisions of the Securities Act and the rules and regulations promulgated
thereunder; (2) counsel representing the affiliate, satisfactory to
Quicksilver, must advise Quicksilver in a written opinion letter satisfactory to
Quicksilver and Quicksilver's counsel that no registration under the Securities
Act would be required in connection with the proposed sale, transfer or other
disposition of the affiliate's shares; (3) a registration statement under the
Securities Act covering the Quicksilver Common Stock proposed to be sold,
transferred or otherwise disposed of, describing the manner and terms of the
proposed sale, transfer or other disposition, and containing a current
prospectus under the Securities Act that is effective under the Securities Act;
or (4) an authorized representative of the SEC has rendered written advice to
the affiliate to the effect that the SEC would take no action with respect to
the proposed sale, transfer or other disposition if consummated. This Proxy
Statement/Prospectus does not cover any resales of Quicksilver Common Stock
received by affiliates of MSR.
DISSENTING STOCKHOLDERS' RIGHTS
Stockholders of MSR will have no dissenters' rights under the DGCL,
however, MSR's Certificate of Incorporation provides for dissenters' rights
under Section 184 of the Alberta Business Corporation Act (the "ABCA"), a copy
of which is attached to this Proxy Statement/Prospectus as Exhibit C. We urge
you to read it in its entirety.
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Section 184 of the ABCA entitles the holders of shares of MSR Common Stock
to dissent and be paid the fair value of that stockholder's shares if the
stockholder objects to the Merger and the Merger becomes effective. A
stockholder may dissent only with respect to all of the shares held by the
stockholder on behalf of any one beneficial owner and registered in the
stockholder's name. A stockholder is not entitled to dissent with respect to
any shares beneficially owned by one owner if the stockholder votes any shares
beneficially owned by that owner in favor of the Merger. In order to dissent, a
stockholder must send, on or before the date of the Meeting, a written objection
(an "Objection Notice") to the Merger in which the stockholder proposes to
dissent to MSR at 1619 Pennsylvania Avenue, Fort Worth, Texas 76104, Attention:
Secretary. A refusal to deliver a proxy for the Meeting does not constitute an
Objection Notice, but a stockholder need not vote his shares against the Merger
in order to dissent to the Merger. Within 10 days following the date of the
Meeting, the Surviving Corporation will deliver to each stockholder who has
filed an Objection Notice a notice stating that the resolutions adopting and
approving the Merger and the Merger Agreement have been adopted pursuant to the
stockholder vote.
PERSONS WHO ARE A BENEFICIAL OWNERS OF MSR COMMON STOCK THAT IS REGISTERED
IN THE NAME OF A BROKER, CUSTODIAN, NOMINEE OR OTHER INTERMEDIARY AND YOU WISH
TO DISSENT TO THE MERGER, YOU SHOULD BE AWARE THAT ONLY THE REGISTERED OWNER OF
THOSE SHARES IS ENTITLED TO DISSENT. A REGISTERED HOLDER, SUCH AS A BROKER WHO
HOLDS SHARES AS NOMINEE FOR BENEFICIAL OWNERS, SOME OF WHOM DESIRE TO DISSENT,
MUST EXERCISE DISSENTER'S RIGHTS ON BEHALF OF THOSE BENEFICIAL OWNERS WITH
RESPECT TO THE SHARES HELD FOR THEM. IN THAT CASE, THE OBJECTION NOTICE SHOULD
SET FORTH THE NUMBER OF SHARES OF MSR COMMON STOCK TO WHICH IT RELATES.
After the Merger has been approved, an application may be made to the Court
of Queen's Bench of Alberta (the "Court") by the Surviving Corporation or by any
dissenting stockholder to fix the fair value of the shares of MSR Common Stock
held by the dissenting stockholder. It is unlikely that MSR will make such an
application, therefore, any dissenting stockholder who intends to use the
appraisal provisions available in MSR's Certificate of Incorporation should make
application to the Court. If an application is made to the Court, the Surviving
Corporation shall, unless the Court otherwise orders, send to each dissenting
stockholder a written offer (the "Offer to Purchase") to pay an amount
considered by the Board of Directors of the Surviving Corporation to be the fair
value of those shares and a statement showing how the fair value was determined.
The Offer to Purchase must be sent to each dissenting stockholder within 10 days
after MSR is served with notice that a dissenting stockholder has applied to the
Court to fix the fair value of the shares of MSR Common Stock. If the Surviving
Corporation is the applicant, then the Offer to Purchase must be sent at least
10 days prior to the date the Surviving Corporation has fixed in its application
to hold a hearing before the Court for the purpose of fixing the fair value of
such shares. Every Offer to Purchase shares of MSR Common Stock made to a
holder of the MSR Common Stock who dissents to the Merger will be on the same
terms as every other Offer to Purchase made to other holders of MSR Common Stock
who dissent to the Merger.
A dissenting stockholder may make an agreement with the Surviving
Corporation for the purchase of his shares by the Surviving Corporation in the
amount of the Surviving Corporation's Offer to Purchase or otherwise at any time
before the Court fixes the fair value of the shares. If a settlement cannot be
reached, the parties will proceed to the Court. All dissenting stockholders
whose shares have not been purchased by the Surviving Corporation will be joined
as parties to the application and will be bound by the decision of the Court.
The Court order will fix the fair value of the shares of all dissenting
stockholders who are parties to the application, give judgment in that amount
against the Surviving Corporation in favor of each of the dissenting
stockholders and fix the time within which the Surviving Corporation must pay
the amount to the dissenting stockholders. Stockholders generally will not be
liable for costs of application to the Court or for the costs of appraisal of
shares.
On the earlier of: (1) the effectiveness of the Merger; (2) the Surviving
Corporation and the dissenting stockholder entering into a settlement agreement;
or (3) the pronouncement of the Court order giving judgment against the
Surviving Corporation for the fair value of the shares of the dissenting
stockholder, a dissenting stockholder ceases to have any rights as a stockholder
of the Surviving Corporation other than the right to be paid the fair value of
his shares. The Surviving Corporation will not make a payment to a dissenting
stockholder if there are reasonable grounds for believing that (a) the Surviving
Corporation is, or would after the payment, be unable to pay its liabilities as
they become due; or (b) the realizable value of the Surviving Corporation's
assets would be less than the aggregate amount of its liabilities as a result of
the payment. If either of these tests cannot be met, the Surviving Corporation
will within 10 days of the Court order or reaching its settlement with a
dissenting stockholder, send a notice to each dissenting stockholder that the
Surviving Corporation cannot lawfully make the payment for the shares. Once
this notice is received, a dissenting stockholder may, by written notice
delivered to the Surviving Corporation within 30 days after receiving the
Surviving Corporation's notice, withdraw his Objection Notice, in which case the
dissenting stockholder is returned his full rights as a stockholder. If the
dissenting stockholder does not withdraw his
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Objection Notice, he retains his status as a claimant against the Surviving
Corporation to be paid as soon as the Surviving Corporation is lawfully able to
do so or, in liquidation, to be ranked subordinate to the rights of the
creditors of the Surviving Corporation but in priority to its stockholders.
THE ABOVE DISCUSSION IS ONLY A SUMMARY OF YOUR RIGHT TO DISSENT TO THE
MERGER UNDER MSR'S CERTIFICATE OF INCORPORATION AND IS QUALIFIED IN ITS ENTIRETY
BY THE PROVISIONS OF THE CERTIFICATE OF INCORPORATION. IF YOU WISH TO EXERCISE
YOUR RIGHT TO DISSENT, YOU SHOULD SEEK LEGAL ADVICE AND YOUR FAILURE STRICTLY TO
COMPLY WITH THE PROVISIONS OF THE CERTIFICATE OF INCORPORATION MAY PREJUDICE
THAT RIGHT. YOUR RIGHT TO DISSENT IS NOT EXCLUSIVE OF ANY OTHER RIGHTS
AVAILABLE TO STOCKHOLDERS GENERALLY.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the MSR Board with respect to the
Merger, you should be aware that certain directors, officers and employees of
MSR have interests in the completion of the Merger that are different from, or
in addition to yours. The Special Committee and the MSR Board were aware of
these interests and considered them, among other matters, in approving the
Merger Agreement and the Merger.
Messrs. Thomas and Glenn Darden are each an officer and director of both
MSR and Quicksilver. Frank Darden is a director of both MSR and Quicksilver,
and an officer of Quicksilver. All three gentlemen will continue as officers
and directors of the Surviving Corporation. The Darden Family collectively
owns, directly or indirectly, substantially all of the outstanding stock of
Mercury and its parent, Mercury Production Company. The Darden Family and
Mercury in turn own all of the membership interests of QELC. The Darden Family,
Mercury and QELC together own approximately 70.3% of the outstanding stock of
Quicksilver.
The Darden Family and its affiliated companies own approximately 43.7% of
the outstanding MSR Common Stock. In addition, Thomas and Glenn Darden
collectively own options to purchase 248,570 shares of MSR Common Stock at an
exercise price of $0.875 per share, which will be converted into options to
purchase 24,857 shares of Common Stock in the Surviving Corporation at a
purchase price of $8.75 per share. Messrs. Frank, Thomas and Glenn Darden, Ann
Darden Self, Mercury, Mr. Jack Thurber and Mr. Jeff Cook collectively own
immediately exercisable warrants to acquire an aggregate of 5,500,000 shares of
MSR Common Stock at an exercise price of $1.25 per share, as well as warrants
for an aggregate of 5,500,000 shares of MSR Common Stock at an exercise price of
$2.00 per share. All of the warrants will be converted into warrants to acquire
a number of shares of the Surviving Corporation equal to the number of shares of
MSR Common Stock subject to those warrants multiplied by the Conversion Ratio,
at an exercise price equal to the exercise price of the warrants for the MSR
Common Stock, divided by the Conversion Ratio.
The following table illustrates the ownership interests of the Darden
Family, Mercury and QELC in MSR and Quicksilver before the Merger and in the
Surviving Corporation after the Merger. For a complete description of these
interests, please see page ______.
BENEFICIAL OWNERSHIP INTERESTS OF THE DARDEN FAMILY AND ITS AFFILIATES
<TABLE>
<CAPTION>
MSR Quicksilver Surviving
MSR Ownership Quicksilver Ownership Corporation Ownership Percentage
Stockholder Shares Percentage Shares (1) Percentage Shares (2) After the Merger
- ----------------- ------------- ---------- ------------ ------------ ----------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Mercury 6,480,000 25.1% 3,251,820 31.5% 4,493,820 33.3%
QELC 0 3,030,860 29.4% 3,030,860 23.5%
Darden Family
Interests 11,280,000 (3) 43.7% 7,254,368(4) 70.3% 9,439,224(5) 67.7%
</TABLE>
- --------
(1) Adjusted to reflect the Stock Dividend.
(2) Includes options and warrants for MSR Common Stock to be converted into
options and warrants for Quicksilver Common Stock in the Merger. Numbers
are adjusted for the Conversion Ratio.
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(3) Includes 6,480,000 shares of MSR Common Stock owned by Mercury, an
affiliate of the Darden Family, and 4,800,000 (18.6%) owned directly by the
Darden Family.
(4) Includes 3,251,820 shares held by Mercury, 3,030,688 shares owned by QELC
and 971,688 (9.4%) shares held directly by the Darden Family.
(5) Includes 4,493,820 shares of stock of the Surviving Corporation to be owned
by Mercury, 3,030,860 shares of stock of the Surviving Corporation that
will be owned by QELC, and 1,914,544 shares (11%) of the common stock of
the Surviving Corporation that will be held directly by the Darden Family.
Quicksilver's bank debt is guaranteed by Mercury, Mercury Production
Company, and QELC. The bank debt is secured by pledges of the MSR stock and the
Quicksilver stock that is owned by the Darden Family, Mercury and QELC and is
also secured by Quicksilver's oil and gas properties. It is a condition to the
Merger that the bank debt be restructured in such manner as not to require those
guarantees and pledges.
In addition, if the Merger is not consummated by December 31, 1998, TCW has
the right to require Mercury to purchase TCW's Shares of Quicksilver Common
Stock at a specified price. (See page __).
Because of the interests in the Merger that are described above, Messrs.
Frank, Thomas and Glenn Darden abstained from voting on the Merger as members of
the MSR Board. They, along with Mercury and QELC, have agreed to vote their
shares of MSR stock and their shares of Quicksilver stock in favor of the Merger
according to the Voting Agreement.
TRANSACTIONS WITH MANAGEMENT
Mr. Patrick Montalban, a director of MSR, is party to an employment
agreement with MSR. Pursuant to a severance agreement, Mr. Montalban will
resign as a director of MSR when the Merger is completed, however, he will
continue to receive compensation of $7,779 per month under his employment
agreement through December 31, 1998. Mr. Montalban has agreed to vote his
shares of MSR Common Stock in favor of the Merger.
Quicksilver does not have any direct employees other than its top manager
and officers. Instead, Quicksilver's businesses are managed under a management
agreement (the "Management Agreement") entered into with Mercury in April 1998.
According to the Management Agreement, Mercury is responsible for the
supervision and management of Quicksilver's day-to-day operations. These
services include administrative and management activities. In addition, Mercury
acts as the operator of Quicksilver's oil and gas properties in Michigan,
Wyoming and Montana. Quicksilver pays Mercury a fee based on the number of
hours each Mercury employee spends on activities relating to Quicksilver, less
overhead expenses paid by MSR under any joint operating agreements. In
addition, Quicksilver reimburses Mercury for specified out of pocket expenses.
Through September 30, 1998, Quicksilver had paid Mercury a total of
approximately $1 million under the Management Agreement.
Upon completion of the Merger, the existing Management Agreement will
terminate. Quicksilver and Mercury have entered into a new agreement, which
will replace the Management Agreement. Under this new agreement, Mercury will
provide certain accounting services to the Surviving Corporation and will
operate its oil and natural gas properties, including the daily activities of
producing oil and/or gas from an individual wells and leases, and will continue
to provide services as an operator under existing operating agreements.
Mercury's compensation will consist of payments and overhead reimbursements to
which it or Quicksilver is entitled as operator under existing and future
operating agreements for the properties. Mercury, which is owned by the Darden
Family, anticipates receiving fees from the Surviving Corporation under the
Management Agreement in the amount of approximately $2.2 million for 1999.
CONFLICTS OF INTEREST
The determinations by the MSR Board and the Quicksilver Board to
participate in the Merger were subject to potential conflicts of interest.
Messrs. Frank, Glenn and Thomas Darden are directors and officers of both MSR
and Quicksilver and are therefore under a fiduciary duty to act in the best
interest of the stockholders of both MSR and Quicksilver. These duties may be
in conflict with each other. The entire MSR Board and the entire Quicksilver
Board considered and approved the Merger. To address the fiduciary duty of the
MSR Board to its stockholders, the MSR Board authorized the Special Committee,
consisting solely of the independent directors (1) to engage special counsel for
independent legal advice; (2) to engage EVEREN, an independent investment
banking firm to consider and provide an opinion on the fairness of the Merger to
the stockholders of MSR from a financial standpoint, and (3) to consider whether
MSR should participate in the Merger. The decision by the full MSR Board to
recommend
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the Merger to the stockholders was made by the vote of only the independent
directors, with the members of the Darden Family abstaining.
Although the MSR Board and the Quicksilver Board have attempted to resolve
all conflicts of interest in a manner that would not adversely effect either the
stockholders of MSR or the stockholders of Quicksilver, if these conflicts did
not exist, it is possible that the Merger may not have been considered, been
approved or may have been approved on a basis that would be more favorable to
the stockholders of MSR.
MANAGEMENT AFTER THE MERGER
The Board of Directors of the Surviving Corporation will consist of the
current directors of MSR, with the exception of Mr. Patrick Montalban, who will
not become a director of Quicksilver. The directors of Quicksilver will be
Messrs. Frank, Thomas and Glenn Darden, Mr. D. Randall Kent, Mr. Steven M.
Morris and Mr. Yandell Rogers, III. Mr. Mark Warner will become a director of
Quicksilver as a representative of JEDI. The officers of MSR, other than Mr.
Montalban, will continue as the officers of Quicksilver after the Merger. Mr.
Thomas Darden will serve as Chief Executive Officer and Chairman of the Board.
Mr. Glenn Darden will be President and Chief Operating Officer. Mr. Howard
Boals will be Vice President-Finance and Administration.
FORMATION DOCUMENTS
In addition to the Management Agreement described on page __, Mercury,
Quicksilver, JEDI and TCW entered into several other agreements in connection
with the formation (the "Formation") of Quicksilver. The Management Agreement
and these other agreements, which are identified and described below, we refer
to them collectively in this Proxy Statement/Prospectus as the "Formation
Documents."
STOCK TRANSFER AGREEMENT
To preserve certain of the economic consequences of the Michigan Gas
Partners Limited Partnership ("Michigan Gas Partners") partnership agreement,
which would have allowed Mercury's interest in Michigan Gas Partners to increase
under certain circumstances, Mercury and JEDI are parties to a Stock Transfer
Agreement, dated April 9, 1998 (the "Stock Transfer Agreement"), which, subject
to certain conditions, provides Mercury with the right to require JEDI to
transfer a portion of the 13,000 shares of Quicksilver Common Stock that JEDI
received in the formation of Quicksilver to Mercury as consideration for the
merger of Michigan Gas Partners into Quicksilver. This portion is a percentage
of the excess of the market value of JEDI's shares of Quicksilver Common Stock
over the amount of $20,995,205. An amendment to the Stock Transfer Agreement
extended this right to the full 1,340,404 shares that JEDI will own after giving
effect to the Stock Dividend. Mercury may request the transfer (the "Transfer
Election") on only one occasion prior to the first anniversary of the date on
which the Quicksilver Common Stock becomes publicly traded.
STOCKHOLDERS AGREEMENT
Quicksilver, Mercury, QELC, the Darden Family, Jeff Cook, Jack Thurber,
TCW, JEDI and Mercury Production Company (a Texas corporation and the owner of
substantially all of the outstanding shares of common stock of Mercury) are
parties to a Stockholders Agreement, dated April 9, 1998 (the "Stockholders
Agreement"), as amended on September 1, 1998. The Stockholders Agreement
contains the agreement of all of the Quicksilver stockholders, other than TCW,
not to transfer their shares of Quicksilver Common Stock that they received in
the Formation, except for certain permitted transfers, until the "Termination
Date," which is defined as the first anniversary date of the Stockholders
Agreement or, if the shares of Quicksilver Common Stock are publicly traded, on
the first anniversary of the Stockholders Agreement, the earlier of the first
anniversary of the date on which the Quicksilver Common Stock became publicly
traded or the date on which Mercury makes the Transfer Election under the Stock
Transfer Agreement. As to JEDI, the Termination Date could also be the date on
which TCW makes a transfer of its Quicksilver Common Stock that is more than 25%
of the shares of Quicksilver Common Stock owned by TCW on the date of the
Stockholders Agreement. By reason of the Merger, these stock restrictions will
lapse.
The Stockholders Agreement also contains the agreement of each of the
Quicksilver stockholders to provide Quicksilver and the other stockholders with
a right of first refusal on any transfers of their Quicksilver Common Stock from
and after the Termination Date and until such time as the Quicksilver Common
Stock becomes publicly traded (the "Expiration Date"). Mercury, QELC and the
Darden Family (collectively, the "Darden Stockholders") have an obligation
continuing past the Expiration Date to provide a similar right of first refusal
to JEDI and TCW.
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<PAGE>
The Darden Stockholders are further required to provide JEDI and TCW with a
proportionate right to join in any transfers of shares of Quicksilver Common
Stock by Mercury, QELC or a member of the Darden Family. In addition, until the
Expiration Date, without the written consent of JEDI and TCW, the Darden
Stockholders are prohibited from transferring their shares of Quicksilver Common
Stock if the transfer would result in the Darden Stockholders owning
beneficially or of record in the aggregate less than a majority of the
outstanding shares of Quicksilver Common Stock or any one Darden Stockholder
owning beneficially or of record less than a majority of the shares of
Quicksilver Common Stock owned by the Darden Stockholders on the date of the
Stockholders Agreement. Finally, the Darden Stockholders and Mercury Production
Company are restricted from permitting or causing there to be any change in the
ownership of Mercury, MPC and QELC until the Expiration Date.
The Stockholders Agreement provides each of JEDI and TCW with the
preemptive right to acquire its proportionate share of any additional
Quicksilver Common Stock issued by Quicksilver until the Expiration Date
However, according to the terms of the Voting Agreement, each of JEDI and TCW
have waived their preemptive rights with respect to the Quicksilver Common Stock
to be issued in the Merger. In addition, each of JEDI and TCW, so long as it is
a holder of Quicksilver Common Stock, has the right to elect a number of members
of the Board of Directors of Quicksilver representing a percentage of the entire
Board of Directors as close as possible to the percentage of outstanding shares
of Quicksilver Common Stock held by JEDI or TCW, as applicable, but in no case
less than one.
The Stockholders Agreement, as amended, does not apply to any transfer by
Mercury to its employees, independent consultants or directors of options to
purchase from Mercury either 1) shares of MSR Common Stock or, if MSR has merged
into Quicksilver, shares of Quicksilver Common Stock; or 2) to transfers by
Mercury if the number of shares transferred does not exceed 2,000,000 shares of
MSR Common Stock, or the number of shares of Quicksilver Common Stock into which
2,000,000 shares of MSR Common Stock are converted upon completion of the
Merger. That number of Quicksilver shares will be 200,000 under the Conversion
Ratio.
Quicksilver and Quicksilver's stockholders, other than JEDI and TCW, are
bound by certain covenants contained in the Stockholders Agreement, including a
requirement to deliver specified information concerning Quicksilver to JEDI and
TCW so long as they are the owners of Quicksilver Common Stock. In addition,
until the expiration date of the Merger Agreement, they are not to take major
corporate actions without the prior written consent of JEDI and TCW, including
amending Quicksilver's Certificate of Incorporation, issuing of capital stock,
the merger of Quicksilver into any other corporation or a sale of all or
substantially all of Quicksilver's assets. Quicksilver is obligated by one such
covenant in the Stockholders Agreement to use its reasonable best efforts to
engage as soon as practicable in a transaction that results in the Quicksilver
Common Stock becoming publicly traded.
PUT-CALL AGREEMENT
Mercury and TCW are parties to a Put-Call Agreement, dated April 9, 1998
(the "Put-Call Agreement"), providing TCW with the right to cause Mercury to
purchase from TCW all of the 1,340,404 (as adjusted after the Stock Dividend)
shares of Quicksilver Common Stock acquired by TCW in the Formation. If
Quicksilver does not complete the Merger with MSR on or before December 31,
1998, TCW's right to cause Mercury to purchase TCW's shares of Quicksilver
Common Stock is exercisable at any time from and after January 1, 1999 through
July 10, 1999 and the price Mercury will be required to pay is $10,000,000 plus
an amount equal to interest accruing on $10,000,000 at the rate of 12.25% per
annum compounded quarterly from April 9, 1998 to and including the date of
payment of the amount to TCW. The second put right of TCW is available to TCW
on and after April 9, 2006 through October 9, 2008. In three annual increments
during this period, TCW has the ability to force Mercury to purchase TCW's
shares of Quicksilver Common Stock at the price paid for the shares by TCW.
The Put-Call Agreement also provides Mercury the right, at its option,
during the period commencing September 4, 1998, and ending on the earlier of the
sixth anniversary of the closing date of the Merger or December 31, 2005, to
purchase from TCW all of TCW's shares of Quicksilver Common Stock that have not
been sold by TCW for a cash purchase price equal to an amount necessary to cause
TCW to receive on the date of purchase a nominal 25% cash-on-cash internal rate
of return on $10,000,000 from the date of the Put-Call Agreement to the date of
receipt of the cash payment if the call right is exercised after October 9,
1999. If Mercury exercises its call right before October 9, 1999, the cash
price per share equal to: $10.58 MINUS A) 50% TIMES (1) the amounts of
royalty proceeds received by TCW PLUS (2) projected royalty amounts from the
date of the call through October 9, 1999 and then B) DIVIDED by $130,000.
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As amended September 1, 1998, the Put Call Agreement also gives TCW a third
put right. TCW may cause Mercury to purchase TCW's shares of Quicksilver Common
Stock if any holder of certain warrants to purchase MSR Common Stock currently
held by Mercury and members of the Darden Family exercises that warrant while
TCW still holds its Quicksilver Common Stock.
AGREEMENT REGARDING WARRANTS
Mercury and the Darden Family also entered into an Agreement Regarding
Warrants (the "Warrant Agreement") with JEDI and TCW. Mercury and the Darden
Family have agreed that they will not exercise certain warrants to purchase
MSR Common Stock at $1.25 (which will be converted into warrants to purchase
Quicksilver Common Stock in the Merger at a purchase price of $12.50 per
share) until (a) either (1) the market value of JEDI's Quicksilver Common
Stock exceeds $20,995,200; (2) JEDI no longer owns any Quicksilver Common
Stock; or (3) JEDI consents to the exercise in writing; AND (b) either (1)
TCW no longer owns its Quicksilver Common Stock; or (2) TCW consents to the
exercise in writing. If any holder of the warrants exercises any of those
warrants while TCW holds any Quicksilver Common Stock, the amendment to the
Put-Call Agreement gives TCW the put right discussed above.
REGISTRATION RIGHTS AGREEMENT
Quicksilver, JEDI and TCW are parties to a Registration Rights Agreement,
dated as of April 9, 1998 (the "Registration Rights Agreement"). The
Registration Rights Agreement provides each of JEDI and TCW with demand
registration rights exercisable at any time after the Quicksilver Common Stock
is publicly traded, and with "piggyback" registration rights. No more than
three demands may be made by either JEDI or TCW. In connection with
registration of JEDI's or TCW's shares of Quicksilver Common Stock under the
Registration Rights Agreement, Quicksilver is responsible for all registration
expenses such as registration and filing fees and fees and disbursements of
counsel to Quicksilver. JEDI or TCW, as applicable, is responsible for selling
expenses, including underwriting fees, discounts and selling commissions. On
the second and third occasions of the exercise of demand registration rights by
JEDI, JEDI is also responsible for registration expenses.
ADMINISTRATIVE AGREEMENT
In connection with the Merger Agreement, Quicksilver, Mercury, JEDI and TCW
entered into an agreement according to which Quicksilver has agreed to provide
each of JEDI and TCW with copies of:
- notices and other communications made, given or received by
Quicksilver under the Merger Agreement;
- press releases or other public announcements regarding the Merger or
the Merger Agreement; and
- the Registration Statement and any amendments to it.
Quicksilver must give JEDI and TCW a reasonable amount of time to review
and comment on any press releases or public announcement and must give them an
opportunity to review the Registration Statement and any amendments prior to
their being filed.
In addition, without JEDI's and TCW's prior written consent, Quicksilver
may not, among other things:
- consent to or approve any act that requires consent or approval under
the Merger Agreement;
- waive any inaccuracy in any representation or warranty made in the
Merger Agreement;
- waive compliance with or extend the time for the performance of any
covenant or condition in the Merger Agreement;
- agree to terminate the Merger Agreement; or
- exercise or fail to exercise any other rights or modify any
obligations specified in the Merger Agreement.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
In the opinion of Jenkens & Gilchrist, a Professional Corporation, and
United States counsel to MSR ("U.S. Counsel"), the following are the material
United States federal income tax considerations arising from and relating to the
Merger that generally apply to stockholders of MSR that are United States
citizens or residents, domestic corporations, domestic partnerships, or estates
subject to United States federal income tax on their income regardless of the
source, of the income. These tax consequences also apply to trusts if a court
within the United States is able to exercise primary supervision over the
administration of that trust and one or more United States fiduciaries have the
authority to control all substantial decisions of the trust. We refer to the
individuals or entities listed above as "U.S. Stockholders" in this discussion.
These tax consequences also apply to certain stockholders of the MSR that are
not U.S. Shareholders ("non-U.S. Stockholders"). This opinion does not discuss
all aspects of United States federal income taxation that may be relevant to a
particular U.S. Shareholder (including, without limitation, the potential
application of the alternative minimum tax), to a particular non-U.S.
Shareholder, to the holder of an option or warrant to purchase MSR Common Stock,
or to certain types of investors subject to special treatment under the United
States federal income tax laws such as banks, life insurance companies,
tax-exempt organizations, broker-dealers or holders who received their MSR
Common Stock as compensation, nor does it discuss any aspect of state, local or
foreign tax laws.
This opinion is based on United States Internal Revenue Code of 1986, as
amended (the"Code"), existing and proposed regulations under the Code, United
States Internal Revenue Service (the "IRS") rulings and pronouncements, reports
of congressional committees, judicial decisions and current administrative
rulings and practice, all as currently in effect. This discussion is based on
current law, which is subject to change. Any such change could be retroactive
and, accordingly, could modify the tax consequences contained in this
discussion. No advance income tax ruling has been sought or obtained from the
IRS regarding the tax consequences of any of the transactions described in this
Proxy Statement/Prospectus. Accordingly, it is possible that the United States
federal income tax consequences of the Merger may differ from those described
below.
The following opinion does not discuss all aspects of federal income
taxation that may be relevant to you in light of your particular circumstances
and income tax situation. We urge you to consult your own tax advisors as to
the particular tax consequences to you of the transactions described in this
Proxy Statement/Prospectus including the application of state, local and foreign
tax laws and possible future changes in federal tax laws.
TAXATION OF U.S. STOCKHOLDERS
The following opinion is limited to U.S. Stockholders (1) who hold MSR
Common Stock as a "capital asset" within the meaning of Section 1221 of the
Code, (2) whose ownership, receipt or disposition of MSR Common Stock is not
attributable to a permanent establishment in a country other than the United
States for purposes of an income tax treaty to which the United States is a
party and (3) who are not residents of a country other than the United States
for purposes of an income tax treaty to which the United States is a party. If
you are a U.S. Stockholder who does not meet one or more of these criterion, you
are urged to consult your tax advisors regarding your particular United States
federal income tax consequences.
THE MERGER
Although the issue is not free from doubt, U.S. Counsel is of the opinion
that the Merger should qualify as a reorganization within the meaning of Section
368(a) of the Code. This conclusion is based on certain factual assumptions and
reliance on the representations of MSR and Quicksilver. These assumptions and
representations include, but are not limited to the assumption that, (1)
Quicksilver has no plan or intention to sell or otherwise dispose of any of the
assets of Quicksilver acquired in the Merger, except for dispositions made in
the ordinary course of business; (2) Quicksilver will continue to use MSR's
historic business assets or use a significant portion of MSR's historic business
assets in a business; (3) neither Quicksilver nor any related person of
Quicksilver (as that term is defined in United States Treasury Regulation
Section 1.368-1(e)(3)) has any current plan or intention to repurchase or redeem
any of the Quicksilver Common Stock to be issued to the MSR stockholders in
connection with the Merger or make any extraordinary distribution (within the
meaning of United States Treasury Regulation Section 1.368-1T(e)) with respect
to that stock; (4) neither Quicksilver nor any related person of Quicksilver
(within the meaning of United States Treasury Regulation Section 1.368-1(e)(3))
has transferred or will transfer cash or other property to MSR or any subsidiary
of MSR in anticipation of the Merger or has made or will make any loan to MSR or
any subsidiary of
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MSR in anticipation of the Merger; and (5) the fair market value of the
Quicksilver Common Stock received by each MSR stockholder will be approximately
equal to the fair market value of the shares of MSR Common Stock surrendered in
the exchange.
RECEIPT OF QUICKSILVER COMMON STOCK IN EXCHANGE FOR MSR COMMON STOCK
Based upon the conclusion described above that the Merger should qualify as
a reorganization under Section 368(a) of the Code, the following will be the
material United States federal income tax consequences to you if you are a U.S.
Stockholder:
(1) You will recognize no gain or loss upon the exchange in the
Merger of your MSR Common Stock solely for Quicksilver Common Stock;
(2) The basis of the shares of Quicksilver Common Stock you receive
in the Merger will be the same as your basis in the MSR Common Stock you
surrendered in exchange the Quicksilver Common Stock;
(3) Your holding period in the shares of Quicksilver Common Stock you
receive as a result of the Merger will include the period for which you
held the shares of MSR Common Stock that are converted into shares of
Quicksilver Common Stock;
(4) Cash payments received by a U.S. Stockholder in lieu of
fractional shares of Quicksilver Common Stock will be treated as if those
fractional shares had been issued in the Merger and then redeemed by
Quicksilver. If you are a U.S. Stockholder and receive cash in lieu of
fractional shares of Quicksilver Common Stock, you will recognize gain or
loss upon that payment, measured by the difference (if any) between the
amount of cash received and the tax basis allocated to that fractional
share. Your gain or loss should be capital gain or loss, provided that you
held the fractional share of MSR Common Stock as a capital asset at the
Effective Time of the Merger; and
(5) If you exercise your dissenters' rights with respect to shares of
MSR Common Stock and receive a cash payment for those shares you should
generally recognize capital gain or loss (if you held each share as a
capital asset at the Effective Time of the Merger) measured by the
difference between your tax basis in the shares and the amount of cash
received, provided that the payment is not "essentially equivalent to a
dividend" within the meaning of Section 302 of the Code after giving effect
to the constructive ownership rules of the Code (collectively, a "Dividend
Equivalent Transaction"). A sale of shares pursuant to an exercise of
dissenters' rights generally will not be a Dividend Equivalent Transaction
if, as a result of the exercise, the stockholder exercising the dissenters'
rights owns no shares of capital stock of Quicksilver (either actually or
constructively within the meaning of Section 318 of the Code) immediately
after the Merger.
TAXATION OF NON-U.S. STOCKHOLDERS
The following opinion is applicable to non-U.S. Stockholders (1) who hold
MSR Common Stock as a "capital asset" within the meaning of Section 1221 of the
Code, (2) who do not actually or constructively own (and have not at any time in
the preceding five-year period actually or constructively owned) five percent or
more (by vote or value) of the stock of MSR; (3) whose ownership, receipt or
disposition of MSR Common Stock is not attributable either to the conduct of a
trade or business in the United States or to a permanent establishment in the
United States; and (iv) who are not residents of the United States for purposes
of United States federal income tax law or an income tax treaty to which the
United States is a party. If you are a non-U.S. Stockholder who does not meet
one or more of these criterion you are urged to consult your tax advisors
regarding your particular United States federal income tax consequences.
THE MERGER. If, as expected, the Merger qualifies as a reorganization, a
non-U.S. Stockholder generally should have the same United States federal income
tax consequences as those described above for a U.S. Stockholder regarding
nonrecognition of gain or loss, tax basis and holding period. If you are a
dissenting non-U.S. Stockholder, generally you should not be subject to United
States federal income tax on your gain, if any, recognized on the receipt of
cash in exchange for your shares of MSR Common Stock. Nevertheless, you may be
subject to United States federal income tax under the principles described in
this section or if the redemption fails to qualify for exchange treatment under
Section 302(b) of the Code because your interest in MSR is a Dividend Equivalent
Transaction.
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If the shares of MSR Common Stock are a "United States real property
interest" (a "USRPI") within the meaning of Section 897(c) of the Code, the gain
or loss realized by a non-U.S. Stockholder in the Merger may be treated as
effectively connected with a United States trade or business subject to United
States federal income tax, and MSR may be required to withhold the tax. Based
on representations obtained from MSR and Quicksilver, U.S. Counsel has concluded
that the MSR Common Stock is a "United States real property holding corporation"
as that term is defined in Section 897(c) of the Code and, absent an exception,
the Quicksilver Common Stock will be a USRPI. One such exception is for certain
publicly traded stock. If any class of stock of a corporation is regularly
traded on an established securities market, the stock of that class shall be
treated as a USRPI only in the case of a "five-percent owner," that is, a person
who held more than five percent of that class of stock at some time during the
shorter of (a) the period during which the taxpayer held the interest or (b) the
five-year period ending on the date of the disposition of that interest. For
purposes of determining whether a corporation's stock is regularly traded, a
class of interests that is traded on an established securities market (such as a
national securities exchange that is registered under Section 6 of the
Securities Exchange Act of 1934 (15 U.S.C. Section 78f)) and is located in the
United States is considered to be regularly traded for any calendar quarter
during which it is regularly quoted by brokers or dealers making a market in
these interests. Brokers or dealers are considered market makers with respect
to a class of interests only if they hold themselves out to buy or sell
interests in that class at the quoted price. Based on representations obtained
from MSR. U.S. Counsel has concluded that the MSR Common Stock will be
considered to be "regularly traded on an established securities market,"
therefore, the Merger should not be treated as the sale or exchange of a USRPI
with respect to a non-U.S. Stockholder that is not a five-percent owner.
The amount withheld pursuant to these USRPI rules, if any, will be
creditable against that non-U.S. Stockholder's United States federal income tax
liability and may entitle the non-U.S. Stockholder to a refund upon furnishing
the required information to the IRS. Non-U.S. Stockholders should consult
applicable income tax treaties, which may provide different rules.
If gain or loss recognized by a non-U.S. Stockholder on the Merger is
effectively connected with a United States trade or business or is attributable
to a permanent establishment in the United States, then the non-U.S. Stockholder
would be subject to United States federal income tax at the graduated rates that
apply to United States citizens, resident aliens or domestic corporations, as
applicable, and may be subject to withholding in certain circumstances.
Non-U.S. Stockholders may be entitled to a limited foreign tax credit on
non-United States source income that is effectively connected with a United
States trade or business. In addition, if the non-U.S. Stockholder is a
corporation, the United States branch profits tax also may apply.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Quicksilver must report to the IRS the amount of cash proceeds paid as a
result of the Merger and the tax withheld with respect to each stockholder of
MSR. These reporting requirements apply regardless of whether withholding has
been reduced or eliminated by an applicable treaty. Copies of these information
returns may also be made available under the provisions of a specific treaty or
agreement with the tax authorities in the country in which a non-U.S.
Stockholder is established.
Under current United States Treasury regulations (the "Current
Regulations"), backup withholding and information reporting generally will apply
to amounts paid for shares of MSR Common Stock to a non-U.S. Stockholder at an
address in the United States, if that holder fails to establish an exemption or
to provide certain other information to the payor. Under the Current
Regulations, the payment of proceeds from the disposition of MSR Common Stock to
or through a United States office of a broker will be subject to information
reporting and backup withholding unless the beneficial owner, under penalties of
perjury, certifies, among other things, its status as a non-U.S. Stockholder or
otherwise establishes an exemption. The payment of proceeds from the
disposition of MSR Common Stock to or through a non-U.S. office of a non-U.S.
broker generally will not be subject to backup withholding and information
reporting except as noted below. In the case of proceeds from a disposition of
MSR Common Stock paid to or through a non-U.S. office of a broker that is (1) a
United States person, (2) a "controlled foreign corporation" for United States
federal income tax purposes, or (3) a foreign person, 50% or more of whose gross
income from certain periods is effectively connected with a United States trade
or business, information reporting (but not backup withholding) will apply
unless the broker has documentary evidence in its files that the owner is a
non-U.S. Stockholder (and the broker has no actual knowledge to the contrary).
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules from a payment to a non-U.S. Stockholder will be
refunded or credited against the non-U.S. Stockholder's United States federal
income tax liability, if any, provided that the required information is
furnished to the IRS in a timely manner.
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SELECTED FINANCIAL DATA OF MSR
The following sets forth certain historical consolidated financial data
relating to MSR. The selected financial data for the period from inception
March 7, 1997 to December 31, 1997 is derived from the audited consolidated
financial statements of MSR. The selected financial data for the six month
period ended June 30, 1998 is derived from the unaudited consolidated financial
statements of MSR incorporated by reference in this Proxy Statement/Prospectus
and includes all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of such data. The selected financial data
should be read in conjunction with the information set forth in MSR's annual
report on Form 10-K for the year ended December 31, 1997 under the caption
"Management's Discussion and Analysis of MSR's Financial Condition and Results
of Operations," which is incorporated in this Proxy Statement/Prospectus by
reference. Operating results for the six month period ended June 30, 1998 do
not necessarily indicate actual future results or trends.
<TABLE>
<CAPTION>
From Inception Six Months
March 7, 1997 to Ended
CONSOLIDATED STATEMENT OF OPERATIONS DATA: December 31, 1997 June 30, 1998
----------------- ---------------
Revenues (In thousands, except per share data)
<S> <C> <C>
Oil sales $ 257 $ 1,230
Gas sales 570 839
Interest and other income 27 34
------- -------
Total revenues 854 2,103
------- -------
Expenses
Operating expenses 228 826
Production taxes 68 185
Depletion and depreciation 220 668
General and administrative 146 499
Interest 147 426
------- -------
Total expenses 809 2,604
------- -------
Income (loss) before income taxes 45 (501)
Income tax benefit (expense) (15) 170
------- -------
Net income (loss) $ 30 $ (331)
------- -------
------- -------
Basic weighted average number of shares
outstanding for the period 14,801 25,777
Basic and diluted earnings (loss) per share $ 0.00 (0.01)
CONSOLIDATED STATEMENT OF CASH FLOWS DATA:
Net cash provided by (used in):
Operating activities $ 326 $ (284)
Investing activities (272) (274)
Financing activities 474 306
OTHER CONSOLIDATED FINANCIAL DATA:
Capital expenditures $ 592 $ 274
EBITDA (1) 412 593
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents $ 587 $ 276
Working capital 42 271
Total assets 25,963 25,273
Long-term debt (includes current portion) 10,648 10,954
Total stockholder's equity 13,070 12,739
</TABLE>
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- -------------------
1) EBITDA (as used in this financial data) is calculated by adding interest,
income taxes, and depreciation, depletion and amortization to net income
(loss). Interest includes interest expense accrued and amortization of
deferred financing costs. EBITDA is presented here not as a measure of
operating results, but rather as a measure of MSR's operating performance
and ability to service debt. EBITDA should not be considered as an
alternative to earnings (loss), or operating earnings (loss), as defined by
generally accepted accounting principles, as an indicator of MSR's
financial performance, as an alternative to cash flow, as a measure of
liquidity or as being comparable to other similarly titled measures of
other companies.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF MSR'S FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
MSR's consolidated financial statements and the notes associated with them
contained elsewhere in this Proxy Statement/Prospectus. This discussion should
not be construed to imply that the results discussed herein will necessarily
continue into the future or that any conclusion reached herein will necessarily
be indicative of actual operating results in the future. Such discussion
represents only the best present assessment of management of MSR.
On March 7, 1997, MSR was organized to explore, develop and operate oil and
natural gas properties. In exchange for MSR common stock and common stock
warrants the founders of MSR (Mercury and the members of the Darden Family)
contributed approximately 75 crude oil producing wells in northwest Montana,
constituting the "Mercury Properties." These properties were subject to a
forward sale of oil production and consequently the cash flow from the
properties did not begin to accrue to MSR until January 1, 1998.
On March 26, 1997, MSR's predecessor, MSR Exploration Ltd., an Alberta,
Canada corporation, ("Old MSR") entered into an agreement to merge with MSR,
then known as Mercury Montana, Inc., and Mercury, its majority stockholder at
that time. The agreement contemplated combining all of MSR's oil and gas assets
in Montana with all the oil and gas assets of Old MSR by way of a merger. MSR
was the surviving corporation in that merger and changed its name to MSR
Exploration Ltd. on October 31, 1997. The merger was accounted for under the
purchase method of accounting.
Due to MSR's limited existence in its present form, the discussion and
analysis of results of operations will be centered on the unaudited pro forma
consolidated statements of operation for the year ended December 31, 1997
compared to December 31, 1996 set forth below. MSR's unaudited statement of
operations for the six months ended June 30, 1998 will be compared to the
unaudited pro forma statement of operations for the six months ended June 30,
1997, which are presented after the analysis. These pro forma statements of
operations are presented to provide comparative information about MSR for 1998
and beyond.
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1998 TO PRO FORMA SIX MONTHS ENDED
JUNE 30, 1997.
Pro Forma statements of operations of MSR, including production payment
adjustments, for the six months ended June 30, 1997 are presented immediately
after the following comparisons.
REVENUES. Revenues for the first half of 1998 were $2,103,000, a 38%
decrease compared to pro forma revenues for the same period in 1997, due
primarily to the lower price from oil and gas production. Oil sales for the
1998 period were $1,230,000, 45% lower than the 1997 pro forma oil sales of
$2,237,000. During the 1998 period MSR sold its crude oil for an average price
of $11.43 per barrel compared to a 1997 average of $18.23, a decrease of 37%.
Oil sales volumes were 107,600 barrels for the first six months of 1998, a
decrease of 12% due to natural production declines and the result of shutting-in
uneconomic wells. Gas sales for the first half of 1998 were $839,000 or
$235,000 (22%) less than 1997 pro forma sales of $1,074,000. The average price
per mcf sold was $2.15 in 1998 compared to $2.30 in 1997. Gas volumes decreased
from 466,300 pro forma Mcf of sales in 1997 to 391,000 mcf in 1998.
EXPENSES. Total expenses for the six months ended June 30, 1998, were
$2,604,000, a decrease of 27% over the pro forma for 1997 of $3,579,000. As
stated previously, management believes the overall reduction in expenses is the
result of efficiencies gained from the merger of MSR and Old MSR. Operating
expenses of $826,000 in 1998 decreased $586,000 or 42%. The 1997 operating
expenses were higher, in part, due to additional cost incurred to increase
production and operating efficiencies. Production taxes were $185,000 in 1998,
a decrease of
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<PAGE>
24% due primarily to reductions in product sales. Depletion and depreciation
expense in the 1998 period was $668,000 or 22% less than pro forma 1997 of
$861,000 primarily due to reduced sales volumes and a lower depletion rate.
General and administrative expenses for the 1998 period were $499,000 a decrease
of 2% compared to $509,000 in 1997. If merger costs totaling $85,000 had not
been included, G&A expenses would have decreased 19%. Interest expense
decreased 23% primarily due to a reduction of interest rates on long-term debt.
NET LOSS. The first half of 1998 results of operations shows a net loss of
$331,000 compared to pro forma net loss for the same period in 1997 of $141,000.
During 1998 MSR reduced expenses 27%, which was not sufficient to overcome the
sharp decline in crude oil prices and a decrease in production.
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1997 AND 1996.
Pro Forma statements of operations, including production payment
adjustments, for the year ended December 31, 1997 and the year ended December
31, 1996 are presented immediately after the following comparisons.
REVENUE. Total pro forma revenues for the year ended December 31, 1997
were $6,577,000, an eight percent decrease compared to pro forma revenues of
$7,135,000 for 1996. Oil sales were $4,151,000 in 1997, a 15% decrease compared
to $4,908,000 in 1996. This decrease was attributable to a 10 percent decrease
in average price per barrel sold from $19.25 in 1996 to $17.34 in 1997. Sale
volumes decreased six percent from 255,000 barrels sold in 1996 to 239,000
barrels in 1997. The decrease in sales volumes was due primarily to natural
production declines. Pro forma gas sales in 1997 were $2,331,000, an eight
percent increase compared to $2,168,000 in 1996. An average gas sales price of
$2.21 per Mcf was approximately the same for both periods. Gas sales volumes in
1997 were 1,054,000 Mcf, an increase of eight percent compared to 977,000 Mcf in
1996. This increase in gas sales volumes was in part due to increased sales
from gas plants.
EXPENSES. Total pro forma expenses for 1997 were $6,928,000, a decrease of
three percent compared to $7,108,000 for 1996. Operating expenses increased
three percent from 1996 to 1997 primarily due to an increase in gas plant
operating expenses. Production taxes and depletion and depreciation expenses
were down three percent and six percent, respectively, due to the reduction in
sales revenues. General and administrative expenses for 1997 were $937,000, an
8 percent decrease compared to $1,018,000 for 1996. This decrease was the
result of cost cutting efforts, which were begun during the fourth quarter of
1997. Interest expense declined 6 percent in 1997 to $1,042,000 compared to
$1,107,000 in 1996. The reduction in interest expense was due to reduced
interest rates in the fourth quarter of 1997 and reduction of debt throughout
1997.
NET INCOME (LOSS). For 1997 the pro forma net loss was $232,000 compared
to a net income of $18,000 for 1996. The 1997 loss was primarily due to lower
crude oil prices.
MSR PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
The following pro forma consolidated statements of operations for the years
ended December 31, 1997 and 1996 and the six months ended June 30, 1997, combine
the historical information of MSR and Old MSR adjusted to give effect to the
merger of MSR and Old MSR (the "MSR 1997 Merger") and the related pro forma
adjustments. The pro forma statements of operations for the years ended
December 31, 1996 and 1997, and six months ended June 30, 1997 reflect the
consolidated operations of MSR and Old MSR as if the MSR 1997 Merger had been
consummated as of January 1, 1996.
The pro forma statements of operations are provided for comparative
purposes only and should be read in conjunction with the historical consolidated
financial statements of MSR incorporated by reference in this Proxy
Statement/Prospectus. The pro forma information presented is not necessarily
indicative of the combined financial results as they may be in the future or as
they might have been for the periods indicated had the Merger been completed as
of January 1, 1996. The MSR 1997 Merger was accounted for under the purchase
method of accounting, with MSR considered the accounting acquiror.
MSR's oil revenues and associated operating expenses from the Mercury
Properties included in the pro forma statements of operations were subject to a
prior production payment/forward sales agreement between Mercury and a third
party for the period of October 1996 through December 31, 1997. The Mercury
Property oil revenues and associated expenses were excluded from MSR's
statements of operations for the year ended December 31, 1997, however the
revenues and expenses are included in these pro forma statements of operations
to provide comparative
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<PAGE>
information about MSR for 1998 and beyond. The pro forma statements of
operations for the years ended December 31, 1997 and 1996 and the six months
ended June 30, 1997 include oil revenues of $2,180,000, $689,000 and
$1,124,000 respectively, operating expenses and production tax of $1,536,000,
$308,000 and $734,000 respectively, and adjustment to depletion of $438,000,
$153,000 and $261,000 respectively, associated with the Mercury Properties.
The oil revenues and associated expenses of the Mercury Properties began
accruing to MSR on January 1, 1998.
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<PAGE>
MSR EXPLORATION LTD. AND SUBSIDIARIES
Unaudited Pro Forma Consolidated Statement of Operations
In thousands, except for per share amounts
<TABLE>
<CAPTION>
Six Months
Ended Twelve Months Ended
June 30, December 31,
1997 1997 1996
-------- -------- --------
<S> <C> <C> <C>
REVENUE
Oil sales $ 2,237 $ 4,151 $ 4,908
Gas sales 1,074 2,331 2,168
Interest and other income 54 95 59
-------- -------- --------
Total revenues 3,365 6,577 7,135
-------- -------- --------
EXPENSES
Operating expenses 1,412 2,809 2,732
Production taxes 244 561 576
Depletion and depreciation 861 1,579 1,675
General and administrative 509 937 1,018
Interest 553 1,042 1,107
-------- -------- --------
Total expenses 3,579 6,928 7,108
-------- -------- --------
Income (loss) before income taxes (214) (351) 27
Income tax (expense) benefit 73 119 (9)
-------- -------- --------
Net income (loss) $ (141) $ (232) $ 18
-------- -------- --------
-------- -------- --------
Basic diluted loss per share $ (0.01) $ (0.01) $ 0.00
-------- -------- --------
-------- -------- --------
Basic and diluted weighted average
number of shares outstanding for
the periods 25,777 25,777 25,777
-------- -------- --------
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
MSR's current ratio at December 31, 1997 was 1.1 to 1 with positive working
capital of $42,000. At June 30, 1998 MSR's current ratio was 1.3 to 1 and
showed positive working capital of $271,000. MSR finances its operations
primarily through a third party credit facility and cash from operations. Net
cash used in operations was $284,000 for the six months ended June 30, 1998.
For the period from inception, March 7, 1997 to December 31, 1997 net cash from
operating activities was $326,000. MSR believes that its cash from operations
and funds available under its existing credit facility will be sufficient to
fund foreseeable working capital requirements of its operations. However, MSR's
capital expenditure programs, principally the drilling of development wells,
will be dependent on crude oil pricing in the coming months.
On October 31, 1997 MSR restructured the Old MSR revolving credit facility
and entered into a new credit agreement with a bank. Proceeds from the new
facility were used to repay the $4.0 million of debt of Mercury guaranteed by
MSR and to repay $6.0 million of debt owed by Old MSR. The closing of the loan
was subject to the successful completion of MSR's merger with Old MSR. The new
agreement was for a $25 million senior secured revolving credit facility with an
initial borrowing base of $12 million, which matures in five years. MSR can
designate the interest rate on amounts outstanding at either the London
Interbank Offered Rate (LIBOR) + 1.75%, or bank prime plus one percent. At
June 30, 1998 there was a total of $10,848,000 outstanding under the credit
agreement, all of which constituted long-term debt. The collateral for this
loan agreement consists of substantially all of the existing assets of MSR and
any future reserves acquired. The loan agreement contains certain restrictive
covenants, which, among other things, require the maintenance of a minimum
current ratio, net worth, debt service ratio and certain dividend restrictions.
For the period ended June 30, 1998, MSR is in compliance with all of the
covenants except for the interest coverage ratio set at two to one. The bank
has waived the requirement for the remainder of 1998.
Discretionary cash flow, a measure of performance for exploration and
production companies, is determined by adjusting net income to eliminate
depletion and depreciation expense, deferred income tax, gain (loss) on sale of
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<PAGE>
assets and non-cash amortization of debt financing costs. The effects of
working capital changes are not taken into account. This measure reflects an
amount that is available for capital expenditures and debt repayment. MSR
generated discretionary cash flow for the six months ended June 30, 1998 of
approximately $593,000 compared to approximately $1,200,000 of pro forma
discretionary cash flow for the six months ended June 30, 1997. The pro forma
combined entities with the production payment properties would have generated
discretionary cash flow of approximately $1.3 million and $1.7 million in 1997
and 1996, respectively.
MSR requires capital primarily for the exploration, exploitation and
acquisition of oil and natural gas properties, the repayment of indebtedness and
general working capital purposes. During 1997 MSR incurred approximately
$530,000 on 3-D seismic to evaluate a portion of the Cut Bank field in northwest
Montana and approximately $62,000 for other development expenditures. During
the first six months of 1998, MSR has expended approximately $274,000 for the
acquisitions and purchase of property and equipment.
MSR's combined NOL carry forward is subject to certain limitations. Under
Section 382 of the Code, the taxable income of MSR available for offset by
pre-ownership change NOL carry forwards and certain built-in losses is subject
to an annual limitation (the "382 Limitation") if an "ownership change" occurs.
MSR has determined that an ownership change occurred for purposes of Section 382
in 1997. As a result of this ownership change, the NOL carryforward will not be
affected, but the annual 382 Limitation will equal the fair market value of MSR
immediately before the ownership change multiplied by the long-term tax exempt
interest rate. To the extent the 382 Limitation exceeds the federal taxable
income of the post-merger entity for a given year, the 382 Limitation for the
subsequent year will be increased by such excess. NOL carryforwards of MSR will
be disallowed entirely if certain continuity of business enterprise requirements
are not met. It is expected these requirements will be met. The effect of the
382 Limitation may be to defer the use of MSR's existing NOL carryforwards.
Changes in the supply and demand for oil, natural gas liquids, hydrocarbon
price volatility, inflation, timing of production, reserve revisions and other
factors make these estimates inherently imprecise and subject to substantial
revision. As a result, these measures are not necessarily accurate estimates of
future cash flows nor do these measures serve as precise determinations of
current market value.
CHANGES IN PRICES AND INFLATION
MSR's revenues and the value of its oil and natural gas properties have
been, and will continue to be, affected by changes in oil and natural gas
prices. MSR's ability to maintain current borrowing capacity and to obtain
additional capital on attractive terms is also substantially dependent on oil
and natural gas prices. Oil and natural gas prices are subject to significant
seasonal and other fluctuations that are beyond MSR's ability to control or
predict. Although certain of MSR's costs and expenses are affected by the level
of inflation, inflation did not have a significant effect on MSR's results of
operations during 1997.
YEAR 2000 ISSUE
MSR has adopted a Year 2000 readiness program (the "Year 2000 Readiness
Program") and an implementation plan. MSR is in the process of conducting a
comprehensive evaluation and assessment of the business risks and potential
exposures related to the coming change in the century. These business risks and
exposures relate to the problem present in certain software and embedded logic
control devices that makes it difficult for computers to recognize the change in
the century. If not corrected, such software and devices could fail or create
erroneous results by or at the Year 2000.
Since 1995, MSR and its predecessors have replaced all major information
systems with Year 2000 compliance as a criterion, therefore, MSR does not
currently expect to incur any material amount of expense associated with the
remediation of its major information systems.
MSR is currently evaluating and assessing the business risks and exposures
related to the Year 2000. This evaluation and assessment of the extent of the
risks and exposures related to MSR's information systems, including embedded
logic devices, and related to MSR's customers, suppliers, financial
institutions, and other constituencies should be substantially completed during
1998. MSR has retained a consultant to advise MSR in the evaluation and
assessment phase of the implementation plan. The costs associated with the Year
2000 Readiness Program and its implementation are not currently expected to be
material. Until the evaluation and assessment is completed, however, MSR cannot
have a reasonable basis to conclude that the risks and exposures related to the
Year 2000 will not
45
<PAGE>
materially affect future financial results or cause reported financial
information not to reflect fairly the future operating results or future
financial condition of MSR.
With respect to the risks and exposures related to MSR's customers, partners,
suppliers, financial institutions, and other constituencies and the resulting
potential impact on MSR's business operations and financial condition, MSR has
initiated formal communications with its customers, suppliers, financial
institutions and other constituencies to mitigate or prevent such risks and
exposures.
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<PAGE>
SELECTED FINANCIAL DATA OF QUICKSILVER
The following sets forth certain historical and pro forma financial data
relating to Quicksilver. The selected financial data for the year ended
December 31, 1997 is derived from the unaudited pro forma statements of
operation included elsewhere in this Proxy Statement/Prospectus. The balance
sheet data at January 1, 1998 is taken from the audited balance sheet which
is included elsewhere in this Proxy Statement/Prospectus. The selected
financial data for the six month periods ended June 30, 1998 and 1997 is
derived from the unaudited financial data attributable to Quicksilver
included elsewhere in this Proxy Statement/Prospectus. The selected
financial data should be read in conjunction with the information set forth
on page __. Operating results for the six month period ended June 30, 1998 do
not necessarily indicate actual future results or trends.
SUMMARY OF HISTORICAL INFORMATION OF THE QUICKSILVER RESOURCES INC.
<TABLE>
<CAPTION>
Pro Forma
Twelve Months Six Months Pro Forma
Ended Ended Six Months
December 31, June 30, Ended
1997 1998 June 30, 1997
----------- ---------- -------------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues
Oil sales $ 29,113 $ 15,418 $14,629
Gas sales 10,888 2,564 5,664
Interest and other income 17 1,341 0
-------- -------- -------
Total revenues 40,018 19,323 20,293
-------- -------- -------
Expenses
Operating expenses 10,290 5,433 5,161
Production taxes 2,229 954 1,145
Depletion and depreciation 8,643 5,375 4,330
General and administrative 950 49 425
Interest 5,563 3,234 2,782
-------- -------- -------
Total expenses 27,675 15,045 13,843
-------- -------- -------
Income before income taxes 12,343 4,278 6,451
Income tax benefit (expense) (4,197) (1,459) (2,193)
-------- -------- -------
Net income $ 8,146 $ 2,819 4,257
-------- -------- -------
-------- -------- -------
Basic weighted average number of shares
outstanding for the periods 100 100 100
Basic and diluted earnings per share $ 81.46 $ 28.19 $ 42.57
CONSOLIDATED STATEMENT OF CASH FLOWS DATA:
Net cash provided by (used in):
Operating activities $ 10,724
Investing activities (6,904)
Financing activities (3,638)
OTHER CONSOLIDATED FINANCIAL DATA:
Capital expenditures $ 6,904
EBITDA(1) $ 26,549 12,887
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents $ 56 $ 238
Working capital 340 (1,947)
Total assets 113,979 120,490
Long-term debt (includes current portion) 74,169 70,531
Total stockholders' equity 27,591 30,409
</TABLE>
(1) EBITDA (as used in this financial data) is calculated by adding interest,
income taxes, and depreciation, depletion and amortization to net income.
Interest includes interest expense accrued and amortization
47
<PAGE>
of deferred financing costs. EBITDA is presented here not as a measure
of operating results, but rather as a measure of Quicksilver's operating
performance and ability to service debt. EBITDA should not be considered
as an alternative to earnings or operating earnings, as defined by
generally accepted accounting principles, as an indicator of the
Quicksilver's financial performance, as an alternative to cash flow,
as a measure of liquidity or as being comparable to other similarly
titled measures of other companies.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF QUICKSILVER
GENERAL
Quicksilver is an independent energy company engaged in the exploration,
development, and sale of natural gas and crude oil from properties located
primarily in Michigan and Wyoming. Quicksilver's strategy is to increase oil
and natural gas reserves, production and cash flow through (i) the exploitation
of its existing acreage position in Michigan, Wyoming and Montana, (ii) the
acquisition of additional properties in producing areas that provide significant
development and exploratory drilling potential, (iii) the exploration for oil
and natural gas reserves and (iv) the maintenance of a low operating and
overhead structure.
BUSINESS COMBINATION
Quicksilver began operations on January 1, 1998. Mercury, QELC, Michigan
Gas Partners, TCW, JEDI, and Quicksilver entered into an Agreement and Plan
of Reorganization and Merger, (the "Formation") to combine certain oil and
gas properties owned by Mercury, QELC, and Michigan Gas Partners by causing
Michigan Gas Partners to be merged with Quicksilver and by causing certain
assets and liabilities of Mercury and QELC to be transferred to and assumed
by Quicksilver. Quicksilver was the surviving corporation of the merger.
In the Formation, Quicksilver, the surviving corporation, issued to JEDI
common stock for all JEDI partnership interests in Michigan Gas Partners.
Mercury did not receive consideration for its partnership interests in Michigan
Gas Partners. Quicksilver issued common stock to Mercury in exchange for
certain Mercury oil and gas properties in Michigan, Montana and Wyoming and
Quicksilver assumed debts related to the oil and gas properties transferred from
Mercury. Quicksilver also issued Quicksilver common stock to QELC in exchange
for all of QELC's and Mercury's oil and gas properties in Michigan and Wyoming.
In addition, Quicksilver assumed debts related to QELC's oil and gas producing
properties. Quicksilver issued common stock to certain individuals for their
interests in the assets of Mercury and QELC to be transferred to Quicksilver in
the Formation. Quicksilver satisfied the assumed QELC debt owed to TCW under a
credit agreement dated November 14, 1996 by paying $17,075,000 in cash to TCW
and issuing 13,000 shares (1,340,404 shares as adjusted for the Stock
Dividend) of Quicksilver Common to TCW in exchange for a $10,000,000 credit.
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<PAGE>
The following table sets forth certain operating data regarding
Quicksilver for the periods indicated:
<TABLE>
<CAPTION>
Pro Forma
Twelve Months Ended Six Months Ended
December 31, 1997 June 30, 1998
------------------- -----------------
<S> <C> <C>
Production:
Natural gas (MMcf - Millions of cubic feet) 12,646 7,350
Oil (Thousands of Barrels) 629 263
Total (MMcfE - Millions of cubic feet, Equivalent) 16,420 8,928
Average Sales Price Per Unit (1):
Natural gas (per Mcf - Thousands of cubic feet) $ 2.30 $ 2.10
Oil (per barrel) $ 17.31 $ 9.75
Cost Per Unit (McfE)
Production costs $ 0.63 $ 0.61
Production taxes and ad valorem taxes $ 0.14 $ 0.11
</TABLE>
Quicksilver's revenue, profitability and future rate of growth are
substantially dependent upon prevailing prices for oil and natural gas, which
are dependent upon numerous factors beyond control, such as economic, political
and regulatory developments and competition from other sources of energy. The
energy markets have historically been highly volatile, and future decreases in
oil or natural gas prices could have a material adverse effect on Quicksilver's
financial position, results of operations, quantities of oil and natural gas
reserves that may be economically produced, and access to capital.
Quicksilver uses the full cost method of accounting for its investments in
oil and natural gas properties. Under this methodology, all costs of
exploration, development and acquisition of oil and natural gas reserves are
capitalized into separate country by country "full cost pool" as incurred.
Properties in each pool are depleted and charged to operations using the
unit-of-production method, based on a ratio of current production to total
proved oil and natural gas reserves. To the extent that such capitalized costs
(net of accumulated depreciation, depletion and amortization) less deferred
taxes, exceed the present value (using a 10% discount rate) of estimated future
net cash flows from proved oil and natural gas reserves and the lower of cost or
fair value of unproved properties, such excess costs are charged to operations.
If a write-down were required, it would result in a non-cash charge to earnings
but would not have an impact on cash flows.
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
Quicksilver's statement of operations for the six months ended June 30, 1998,
and the pro forma statement of operations for the six months ended June 30,
1997 and 1996 which are contained elsewhere in this Proxy Statement/Prospectus.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED WITH PRO FORMA SIX MONTHS ENDED
JUNE 30, 1997
REVENUE. Total oil and gas revenues for the six months ended June 30,
1998 were $17,982,000, an 11 percent decrease compared to pro forma revenues
of $20,293,000 for the same period in 1997. Gas sales were $15,418,000 for
the first six months of 1998, an increase of five percent compared to a pro
forma of $14,629,000 for the 1997 period. Average natural gas prices
Quicksilver received from gas sales for the 1998 and pro forma for the 1997
periods were $2.10 and $2.30 per Mcf, respectively. Gas sales volumes for
the 1998 period were 7,350,000 Mcf, a 16 percent increase compared to pro
forma 6,360,000 Mcf for 1997. Oil sales were $2,564,000 for the six months
ended June 30, 1998, a 55% decrease compared to $5,664,000 in 1997. The
primary reason for this decrease was due to the sharp decline in average oil
prices. For 1998 the average sales price was $9.75 per barrel, a 46 percent
decrease compared to the pro forma 1997 price of $18.21. Oil sales volumes
were 263,000 barrels for the 1998 six-month period compared to 311,000 pro
forma barrels in 1997. The reduction in sales volumes was due in part of
natural production declines and in part to the shut-in of wells due to the
lower crude oil prices.
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<PAGE>
EXPENSES. Operating expenses for the first six months of 1998 were
$5,433,000, a five percent increase compared to pro forma $5,161,000 for the
1997 period. Production taxes for the six months ended June 30, 1998 were
$954,000, down 17 percent compared to the same pro forma amounts in 1997.
The decline in production taxes was primarily attributable to reduced sales
revenues. Depletion and depreciation expense for the period was $5,375,000,
which equates to a per cost unit of approximately $0.56 per Mcfe.
NET INCOME. Net Income for the six months ended June 30, 1998 was
$2,819,000 which is approximately 15% of total revenues. This percentage is
lower than expected principally due to the sharp decline in crude oil prices.
PRO FORMA YEAR ENDED DECEMBER 31, 1997 COMPARED WITH PRO FORMA YEAR ENDED
DECEMBER 31, 1996
REVENUES. Total oil and gas revenues for pro forma 1997 were
$40,001,000, a decrease of 22 percent compared to pro forma $51,368,000 for
1996. Most of the decrease was attributed to a product sales volume decline
of 19 percent from wells principally operated by other oil and gas operators.
Pro forma gas sales were $29,113,000 for 1997, down 21 percent compared to
$37,084,000 for 1996. Gas sales prices for both 1997 and 1996 average
approximately $2.30 per Mcf. Pro forma gas sales volumes in 1997 were
12,646,000 Mcf, a decrease of 21% compared to 16,062,000 Mcf in 1996. Most
of the decrease in gas sales volumes was from sales from outside operated
properties. Pro forma oil sales for 1997 were $10,888,000, a 24 percent
decline compared to $14,284,000 in 1996. Approximately ten percent of the
decline was due to natural producing declines and 14 percent of the decline
was due to lower crude oil prices. The average pro forma sale price of crude
oil in 1997 and 1996 was $17.31 and $20.15, respectively.
EXPENSES. Pro forma direct operating expenses for 1997 were
$10,290,000, a decrease of two percent compared to $10,472,000 in 1996. Pro
forma production taxes for 1997 were $2,229,000, which was 17 percent or
$443,000 less than 1996. The reduction was primarily due to reduced sales.
Pro forma depreciation and depletion for 1997 was $8,643,000 or approximately
$0.50 per Mcfe.
NET INCOME. Pro forma net income for 1997 was $8,146,000 or
approximately 20% of total revenues.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL. The following discussion compares Quicksilver's financial
condition at June 30, 1998 to its financial condition at December 31, 1997. At
June 30, 1998, Quicksilver had total assets of $120 million and debt of $ 70
million.
CASH FLOW. Quicksilver's net cash flow provided by operations for the six
months ended June 30, 1998 was $10.7 million. Quicksilver's principal operating
sources of cash are from the sale of oil and natural gas. Quicksilver's cash
flow is highly dependent upon oil and gas prices. Decreases in the market price
of oil or gas could result in reductions of both cash flow and the borrowing
base under the bank facility (described below) which would result in decreased
funds available, including funds intended for planned capital expenditures.
Quicksilver's net cash used in investing for the six months ended June 30,
1998 was $6.9 million. Investing activities for this period was comprised
primarily of additions to oil and gas properties through acquisitions and
development and, to a lesser extent, exploration and additions of field service
assets. Quicksilver's activities have been financed through a combination of
operating cash flow and bank borrowings. Quicksilver's net cash used for
financing activities for the six months ended June 30, 1998 was $3.6 million.
Sources of financing used by Quicksilver have been primarily borrowings under
its bank facility (described below).
CAPITAL REQUIREMENTS. During the first six months of 1998 $6.9 million of
capital was expended on acquisitions, development and exploration activities.
Although these expenditures are principally discretionary, Quicksilver is
currently anticipating that it will spend approximately $11 million on
development and exploration activities during the second half of 1998. The
development and exploration expenditures are currently expected to consume a
large portion of internally generated cash flow. The remaining cash flow will
be available for debt repayment, acquisitions, or other capital expenditures.
BANK FACILITY. In connection with the Formation, Quicksilver expanded its
existing bank credit facility (the "Bank Facility") with NationsBank. The Bank
Facility permits Quicksilver to obtain revolving credit loans and to
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<PAGE>
issue letters of credit for the account of Quicksilver from time to time in an
aggregate amount not to exceed the lesser of the borrowing base or $100 million.
The borrowing base is currently $75 million and is subject to semi-annual
determination and certain other redeterminations based upon a variety of
factors, including the discounted present value of estimated future net cash
flow from oil and gas production. At June 30, 1998, Quicksilver had $4.7
million available under the Bank Facility. Loans may be prepaid at
Quicksilver's option, and revolving credit commitments may be reduced, in whole
or in part at any time in certain minimum amounts. At Quicksilver's option, the
applicable interest rate per annum is the LIBOR plus a margin ranging from 1.0%
to 1.75%. The facility contains other alternative rate options, which have never
been utilized by Quicksilver. Based on levels of debt outstanding as of June
30, 1998, the margin was 1.75%. At June 30, 1998, long term debt to total book
capitalization was 72%. Quicksilver's capital expenditure budget for 1998 was
approximately $15 million for exploration and development. Expected capital
expenditures and investments reflect changes due to current oil prices, which
impact acquisition and exploration and development activities. Actual levels of
capital expenditures may vary significantly due to a variety of factors,
including drilling results, oil and gas prices, industry conditions and future
acquisitions. Quicksilver expects to selectively pursue acquisition
opportunities for proved reserves where it believes significant operating
improvement or exploration and exploitation potential exists. As a condition
to the completion of the Merger, Quicksilver expects to enter into a new
credit facility with NationsBank. Quicksilver has obtained a commitment
letter from the bank to refinance the debt.
Quicksilver 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. Based upon Quicksilver's current level of
operations and anticipated growth, management believes that available cash,
together with borrowings under the existing revolving credit facilities and cash
provided by operating activities, will be adequate to meet Quicksilver'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 Quicksilver's
business will generate sufficient cash flow from operations or that future
borrowings will be available in an amount sufficient to enable Quicksilver to
service its indebtedness or make necessary capital expenditures.
HEDGING ACTIVITIES. Quicksilver intends to use certain financial
instruments, such as futures contracts, options and collars to manage its
commodity price risk. Under these financial instrument contracts, Quicksilver
may still be at risk for basis differential, which is the difference in the
quoted financial price for contract settlement and the actual physical point of
delivery price. Quicksilver will, from time to time, attempt to mitigate basis
differential risk by entering into basis swap contracts. Quicksilver limits its
open positions under these contracts so that they will not exceed the volume of
production controlled by Quicksilver. Quicksilver has established internal
controls to monitor these positions against established limits. However, to the
extent that Quicksilver has an open position, Quicksilver may be exposed to risk
from fluctuating market prices.
ISSUES RELATING TO THE YEAR 2000
Quicksilver has developed an action plan and identified the resources
needed to convert the majority of its computer systems and software applications
to achieve a Year 2000 date conversion with minimal effect on customers or
disruption to business operations. Implementation of the plan has begun and
Quicksilver anticipates completion of testing of critical systems by the end of
1998. Quicksilver estimates that the cost to complete these efforts, which
primarily includes the purchase of software upgrades under normal maintenance
agreements with third party vendors, will not be material and will be expended
primarily in 1998. In addition, Quicksilver has discussed with its vendors and
customers the need to be Year 2000 compliant. Although Quicksilver has no
reason to believe that its vendors and customers will not be compliant by the
Year 2000, Quicksilver is unable to determine the extent to which Year 2000
issues will effect its vendors and customers, and Quicksilver continues to
discuss with its vendors and customers the need for implementing procedures to
address this issue.
51
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF QUICKSILVER PREDECESSORS
MERCURY EXPLORATION COMPANY
(Includes Quicksilver Energy, LC)
(In thousands, except for per share data)
<TABLE>
<CAPTION>
Year ended September 30,
---------------------------------
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues $ 41,328 $17,388 $ 6,703
Net income (loss) 5,115 2,248 1,463
Net income (loss) per common share 20.38 8.96 5.83
Weighted average shares outstanding 251 251 251
Cash dividends 0 0 0
OTHER INFORMATION:
Capital expenditures $ 54,231 $19,779 $ 2,227
BALANCE SHEET DATA:
Working capital (deficit) $(13,133) $ 5,813 $(4,076)
Total assets 102,880 50,186 31,272
Long-term debt 47,174 19,560 2,150
Stockholders' equity 15,316 10,427 8,179
</TABLE>
MICHIGAN GAS PARTNERS LIMITED PARTNERSHIP
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues $ 3,021 $ 3,368 $ 1,930
Net income (loss) 19 (617) (613)
OTHER INFORMATION:
Capital expenditures $ 13 $ 132 $ 4,837
BALANCE SHEET DATA:
Working capital (deficit) $ 343 $ 261 $ 324
Total assets 9,835 10,551 12,348
Long-term debt 0 0 0
Partners' equity 9,453 10,313 12,212
</TABLE>
Financial data for the years ended 1994 and 1993 are not presented because
the operations and net assets contained in the predecessor entities for these
periods are not material to the formation of Quicksilver.
52
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF
MERCURY EXPLORATION COMPANY
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
Mercury's statements of operation contained elsewhere in this Proxy
Statement/Prospectus.
Year ended September 30, 1997 compared with the year ended September 30, 1996.
REVENUES. Total oil and gas revenues for the 1997 period were $41,328,000,
an increase of 138 percent compared to the $17,388,000 for the 1996 period.
In 1997, $32,714,000 of the revenues related to the sale of oil and natural
gas compared to $11,771,000 for the 1996 period. Sales volumes for 1997 were
2,144,000 barrels of oil equivalent and sold at an average price of $15.26
per barrel, compared to 722,000 barrels of oil equivalent sold in the 1996
period at an average price of $16.31 per barrel. This increase in oil and gas
sales was principally due to the purchase of the Shell Michigan properties.
The remainder of the revenue for 1997 of approximately $8,614,000 and
$5,617,000 in 1996 was from oil and gas operations income providing services
such as operations, supervision, maintenance and gas marketing.
EXPENSES. Total cost and expenses for the 1997 period were $24,166,000, an
86 percent increase compared to $12,348,000 for the 1996 period. Interest
expense increased from $1,620,000 in 1996 to $5,414,000 in 1997. Most of the
increases in costs and expenses are attributable to the purchase of the Shell
Michigan properties.
INCOME. Income before minority interest and income taxes was $13,496,000 for
the 1997 period compared to $3,495,000 for 1996. These amounts include 100
percent of the results of operations of Quicksilver Energy LC, a 52
percent-owned subsidiary of Mercury. The minority interest in income of
subsidiaries principally applies to Quicksilver Energy LC.
EARNINGS. Net income was $5,115,000 ($20.38 per share) for the 1997 period
compared to $2,248,000 ($8.96 per share) for 1996. Most of the increase
relates to the acquisition of the Shell Michigan properties.
LIQUIDITY AND CAPITAL RESOURCES.
CASH FLOW FROM OPERATING ACTIVITIES. Mercury's net cash flow from operations
for the year ended September 30, 1997 was $15,356,000 compared to $3,951,000
for the same period in 1996. The increase was principally attributable to the
Shell acquisition properties.
CASH FLOW FROM INVESTING ACTIVITIES. Mercury used $53,578,000 for investing
activities during the twelve months ended September 30, 1997. Of this amount,
$54,231,000 was for capital expenditures, which were principally used for the
acquisition of the Shell Michigan properties.
CASH FLOW FROM FINANCING ACTIVITIES. For the year ended September 30, 1997,
cash provided by financing activities, totaled $39,794,000. Mercury borrowed
$94,323,000 and repaid $54,529,000 of debt.
On October 9, 1997, Mercury completed the acquisition of the Destec
properties in Michigan from ECT Enocene Enterprises II, Inc. The properties
consist of 143 wells with combined proved reserves of approximately 30.8
Bcfe. The purchase price was approximately $23.5 million, which was paid in
cash principally from bank borrowings.
Effective January 1, 1998, Mercury exchanged most of its oil and gas
producing properties and most of its long-term debt for Quicksilver common
shares.
53
<PAGE>
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS AND
BALANCE SHEET OF THE SURVIVING CORPORATION
The following pro forma consolidated statements of operations for the
year ended December 31, 1997 and six months ended June 30, 1998 combine the
pro forma information of Quicksilver and MSR adjusted to give effect to the
Merger and the related pro forma adjustments, which are based on estimates
and assumptions explained in further detail in Note 1 to these statements.
The pro forma statements of operations for the year ended December 31, 1997
and for the six months ended June 30, 1998 reflect the consolidated
operations of MSR and Quicksilver as if the Merger had been consummated as of
January 1, 1997. The pro forma balance sheet as of June 30, 1998 is
presented as if the Merger had been consummated on that date.
The pro forma consolidated statements of operations and balance sheet
are provided for comparative purposes only and should be read in conjunction
with the historical consolidated financial statements of MSR and historical
and pro forma financial statements of Quicksilver included elsewhere or
incorporated by reference in this Proxy Statement/Prospectus. The pro forma
information presented does not necessarily indicate the combined financial
results as they may be in the future or as they might have been for the
periods indicated had the Merger been consummated as of January 1, 1997.
54
<PAGE>
QUICKSILVER RESOURCES INC.
Unaudited Pro Forma Consolidated Statement of Operations
For the Six Months Ended June 30, 1998
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Company
Quicksilver (b) MSR (a) Adjustments Pro Forma
--------------- --------- ----------- ---------
<S> <C> <C> <C> <C>
REVENUES
Gas sales $15,418 $ 839 $16,257
Oil sales 2,564 1,230 3,794
Interest and other income 1,341 34 1,375
------- -------- ----- -------
Total revenues 19,323 2,103 0 21,426
------- -------- ----- -------
EXPENSES
Operating expenses 5,433 826 6,259
Production taxes 954 185 1,139
Depletion and depreciation 5,375 668 $ 169 (c) 6,212
General and administrative 49 499 150 (d) 698
Interest 3,234 426 0 3,660
------- -------- ----- -------
Total expenses 15,045 2,604 319 17,968
------- -------- ----- -------
Income (loss) before income taxes 4,278 (501) (319) 3,458
Income tax benefit (expense) (1,459) 170 108 (e) (1,181)
------- -------- ----- -------
Net income (loss) $ 2,819 ($331) $ (211) 2,277
------- -------- ----- -------
------- -------- ----- -------
Basic and diluted per share net income (loss) $ 28.19 ($0.01) $ 0.18
------- -------- -------
------- -------- -------
Weighted average number of shares
outstanding 100 25,777 (i) 12,888
------- -------- -------
------- -------- -------
</TABLE>
The accompanying notes are an integral part of these financial statements.
55
<PAGE>
QUICKSILVER RESOURCES INC.
Unaudited Pro Forma Consolidated Statement of Operations
For the Year Ended December 31, 1997
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
MSR (a) Company
Quicksilver(b) Pro Forma Adjustments Pro Forma
-------------- --------- ----------- ---------
<S> <C> <C> <C> <C>
REVENUES
Gas sales $29,113 $2,331 $31,444
Oil sales 10,888 4,151 15,039
Interest and other income 17 95 112
------- ------ -------- -------
Total revenues 40,018 6,577 46,595
------- ------ -------- -------
EXPENSES
Operating expenses 10,290 2,809 13,099
Production taxes 2,229 561 2,790
Depletion and depreciation 8,643 1,579 $ 250 (c) 10,472
General and administrative 950 937 1,887
Interest 5,563 1,042 6,605
------- ------ -------- -------
Total expenses 27,675 6,928 250 34,853
------- ------ -------- -------
Income (loss) before income taxes 12,343 (351) (250) 11,742
Income tax benefit (expense) (4,197) 119 86 (e) (3,992)
------- ------ -------- -------
Net income (loss) $ 8,146 ($232) ($164) $ 7,750
------- ------ -------- -------
------- ------ -------- -------
Per share net income (loss) $ 81.46 ($0.01) $ 0.60
------- ------ -------
------- ------ -------
Weighted average number of shares
outstanding 100 25,777 12,888
------- ------ -------
------- ------ -------
</TABLE>
The accompanying notes are an integral part of these financial statements.
56
<PAGE>
QUICKSILVER RESOURCES INC.
Unaudited Pro Forma Condensed Consolidated Balance Sheet
June 30,1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
Company
Pro
ASSETS Quicksilver(f) MSR(f) Adjustments Forma
-------------- --------- ----------- ----------
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash, cash equivalents and time deposits $ 238 $ 339 $ 577
Accounts receivable 5,205 439 5,644
Inventories 408 299 707
Prepaid expenses 0 12 12
--------- --------- --------
Total current assets 5,851 1,089 6,940
PROPERTIES, PLANT AND EQUIPMENT-NET 114,384 23,840 $ 6,850 (f) 145,074
("full cost")
OTHER ASSETS 255 344 599
--------- --------- --------- --------
$ 120,490 $ 25,273 $ 6,850 $152,613
--------- --------- --------- --------
--------- --------- --------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 61 $ 69 $ 130
Accounts payable 5,852 458 $ 400 (h) 6,710
Accrued liabilities 1,912 291 2,203
--------- --------- --------
Total current liabilities 7,825 818 9,043
--------- --------- --------
LONG-TERM DEBT 70,470 10,885 81,355
--------- --------- --------
UNEARNED REVENUES 1,957 0 1,957
--------- --------- --------
DEFERRED INCOME TAXES 9,829 831 2,330 (f) 12,990
--------- --------- --------
STOCKHOLDERS' EQUITY
Preferred stock, par value $0.01
Authorized 10,000,000 shares
Issued and outstanding - none 0 0 0
Common stock, without par value
Authorized 40,000,000 shares,
Issued and outstanding 100,000
12,888,500 pro forma 1 128 (i) 129
Common stock, par value $0.01
Authorized 50,000,000 shares,
Issued and outstanding 25,777,014 258 (258)(g) 0
Additional paid in capital 27,589 12,812 3,919 (f)(g)(h) 44,320
Foreign currency translation adjustment (30) 30 (g) 0
Retained earnings (deficit) 2,819 (301) 301 (g) 2,819
--------- --------- --------- --------
Total stockholder's equity 30,409 12,739 4,120 47,268
--------- --------- --------- --------
$ 120,490 $ 25,273 $ 6,850 $152,613
--------- --------- --------- --------
--------- --------- --------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
57
<PAGE>
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
AND BALANCE SHEET - SURVIVING CORPORATION
1. PRO FORMA ADJUSTMENT
The accompanying unaudited pro forma consolidated statements of operations
reflect the following adjustments:
(a) The information reflected as "MSR" for the six months ended June
30,1998 is historical information of MSR. The pro forma data for the
year ended December 31, 1997 combines the historical information of
MSR and Old MSR adjusted to give effect to their merger as if that
merger had been consummated as of January 1, 1997. The pro forma data
also includes adjustments to oil revenues and associated operating
expenses from the Mercury Properties that were subject to a prior
production payment/forward sales agreement between Mercury and a third
party for the period of October 1, 1996 through December 31, 1997.
The Mercury Property oil revenues and associated expenses were
excluded from MSR's statements of operations for the year ended
December 31, 1997, however, the revenues and expenses are included in
the pro forma statements of operations to provide comparative
information about MSR for 1998 and beyond. The pro forma statements
of operations for the year ended December 31, 1997 include oil
revenues of $2,180,000, operating expenses of $1,536,000 and an
adjustment to depletion of $438,000 associated with the Mercury
Properties. The oil revenues and associated expenses of the Mercury
Properties began accruing to MSR on January 1, 1998.
(b) The information reflected as "Quicksilver" for the six months ended
June 30, 1998 is the historical information of Quicksilver. The
statement of operations for the year ended December 31, 1997 is
pro forma data of Quicksilver's predecessors adjusted for (1) the
exclusion of operations not included in the Formation and (2) pro
forma revenues and direct operating expenses from the acquisition of
the Destec properties. On October 9, 1997 Mercury acquired the
Destec Properties from Enocene Enterprises II, Inc. (See
Acquisitions by Predecessor, page F- )
(c) Depreciation, depletion and amortization expense ("DD&A") for
MSR has been recomputed based on the revaluation of MSR's properties
(see (g) below). MSR's DD&A expense was increased $169,000 for 1997
and $250,000 for the six months ended June 30, 1998.
(d) The general and administrative expenses ("G&A") of the combined
entities are anticipated to increase as Quicksilver continues to add
personnel to its management team. G&A expenses for the combined
companies is estimated to have been approximately the same or less.
There are anticipated personnel changes that might have occurred if
the merger had been completed at the beginning of the period
presented.
(e) Income taxes were computed on a pro forma basis using an effective tax
rate of 34 percent.
The accompanying unaudited pro forma balance sheet reflects the following
adjustments.
(f) The information reflected as MSR and Quicksilver are the companies'
historical balance sheets at June 30, 1998. Under provisions of APB
16, the portion of MSR under common control will be accounted for at
historical cost. The remainder will be accounted for using the
purchase method. Accordingly, Quicksilver, considered the "accounting
acquiror," will transfer approximately 47 percent of MSR's net assets
to Quicksilver at historical cost. The remainder of MSR's net assets,
approximately 53 percent that relate to minority interests, will be
transferred to Quicksilver based on their market value. The market
value used in the valuation was based on the average closing price for
MSR's common stock for the three days prior to the date the Merger
Agreement was announced, that date and the three trading days after
that date. As a result of the revaluation of a
58
<PAGE>
portion of MSR's net assets, the carrying value of MSR's property,
plant and equipment and associated deferred income taxes have been
adjusted. Pro forma income taxes have been determined based on the
difference between the book and tax bases of net assets that are
revalued. The revaluation of that portion of MSR's assets has
resulted in an increase in the book basis of its assets and,
accordingly, an increase in the deferred tax liability relating to the
basis differences.
(g) To eliminate the common stock and retained earnings of MSR and reflect
the adjusted value of Quicksilver's shares.
(h) To record the estimated additional cost of registering the Quicksilver
Common Stock.
(i) The Conversion Ratio for the Merger is one share of Quicksilver Common
Stock for each 10 shares of MSR Common Stock. To effect the
Conversion Ratio, the present stockholders of Quicksilver will be
issued an additional 10,210,800 shares in the form of the Stock
Dividend. Upon completion of the Merger the present stockholders
of Quicksilver will own approximately 10,310,800 (80%) of the shares
of Quicksilver and former MSR stockholders will own approximately
2,577,700 (20%) of the common shares of Quicksilver. After the Merger
there will be approximately 12,888,500 shares of Quicksilver Common
Stock outstanding.
2. OIL AND GAS RESERVES INFORMATION (UNAUDITED)
The following pro forma information summarizes the MSR's and Quicksilver's
estimated net quantities of proved and proved-developed oil and gas reserves.
The December 31, 1997 reserves of MSR are based on estimates of Citadel
Engineering Ltd., petroleum consultants, contained in a report dated March 1,
1998. Quicksilver's estimated reserves at December 31, 1997 were prepared by
Mercury's petroleum engineers.
<TABLE>
<CAPTION>
December 31, 1997
-------------------------------------------------
Proved Reserves Quicksilver MSR Pro Forma
----------- ---------- ------------
<S> <C> <C> <C>
Oil Mbbls (in thousand of barrels) 15,066 9,470 24,536
----------- ---------- -----------
----------- ---------- -----------
Natural Gas (Mmcf - millions of cubic feet of gas) 117,615 21,219 138,834
----------- ---------- -----------
----------- ---------- -----------
Mmcf of gas equivalent (Mmcfe) (Mbbls on a 1:6 basis) 208,011 78,039 286,050
----------- ---------- -----------
----------- ---------- -----------
Proved Developed reserves
Oil Mbbls (in thousand of barrels) 4,520 4,412 8,932
----------- ---------- -----------
----------- ---------- -----------
Natural Gas (Mmcf - millions of cubic fee of gas) 103,200 16,484 119,684
----------- ---------- -----------
----------- ---------- -----------
Mmcf of gas equivalent (Mmcfe) (Mbbls on a 1:6 basis) 130,320 42,956 173,276
----------- ---------- -----------
----------- ---------- -----------
</TABLE>
The following pro forma standardized measure of discounted future net cash
flows relating to proved oil and gas reserves has been computed using year-end
prices, except where contractual arrangements in place at year-end provide for
future price changes and costs.
<TABLE>
<CAPTION>
-------------------------------------------------
December 31, 1997
Quicksilver MSR Pro Forma
------------ --------- ---------
(amounts in thousands)
<S> <C> <C> <C>
Future cash flows $ 450,827 $178,672 $ 629,499
Future production and development costs (230,031) (70,242) (300,273)
Future income tax expense (21,259) (25,474) (46,733)
--------- -------- ---------
Future net cash flows 199,537 82,956 282,493
- ----------------------------------------------------------------------------------------------------------------------------------
59
<PAGE>
10% annual discount for estimated timing of cash flows (90,267) (44,581) (134,848)
-------- -------- ---------
Standardized measure of discounted future net cash flows $109,270 $ 38,375 $ 147,645
-------- -------- ---------
-------- -------- ---------
</TABLE>
Changes in the supply and demand for oil, natural gas liquids, hydrocarbon
price volatility, inflation, timing of production, reserve revisions and other
factors make these estimates inherently imprecise and subject to substantial
revision. As a result, these measures are not MSR's estimate for future cash
flows nor do these measures serve as an estimate of current market value.
3. STOCK OPTIONS AND WARRANTS
MSR issued a warrant to Banque Paribas to acquire 280,000 shares of MSR
Common Stock at an exercise price of $3.375 per share under a January 1995
agreement in connection with MSR obtaining financing from that lender and under
an agreement in October 1997, additional warrants to acquire 60,000 shares of
MSR Common Stock at an exercise price of $0.01 per share. MSR has granted to
officers and employees options to purchase an aggregate of 248,570 shares of
Common Stock at an exercise price of $0.875 per share, which expire on March 31,
2002. MSR has also issued warrants to certain stockholders, officers, directors
and a consultant to acquire (i) an aggregate of 5,500,000 shares of MSR Common
Stock at an exercise price of $1.25 per share and (ii) an aggregate of 5,500,000
shares of MSR common stock at an exercise price of $2.00 per share. These
warrants also will expire on March 31, 2002. As of the Effective Time, each
option and each warrant to purchase MSR Common Stock, and each of MSR's warrants
that remain unexercised in whole or in part will become options and warrants to
acquire Quicksilver Common Stock. Accordingly, each option and warrant for MSR
Common Stock will be deemed to remain outstanding as an option to purchase and
will be converted into the right to purchase Quicksilver Common Stock at the
Conversion Ratio of ten shares of MSR Common Stock for one share of Quicksilver
Common Stock. The exercise prices per share will be adjusted using the same
Conversion Ratio.
60
<PAGE>
QUICKSILVER
FORMATION OF QUICKSILVER
Quicksilver was organized on December 18, 1997 under the laws of the State
of Delaware for the purpose of combining certain oil and natural gas properties
(the "Quicksilver Properties") located in Michigan, Wyoming and Montana and
owned by Michigan Gas Partners, Mercury and QELC, and thereafter exploring,
developing, and operating the Quicksilver Properties. At the time of formation
of Quicksilver, Mercury was the sole general partner of Michigan Gas Partners
and JEDI was the sole limited partner. The membership interests in QELC are
owned by Mercury and members of the Darden Family. The Darden Family also owns,
directly or indirectly, substantially all of the stock of Mercury.
Pursuant to an Agreement and Plan of Reorganization and Merger by and
among Quicksilver, QELC, Michigan Gas Partners, Mercury, TCW and JEDI,
effective January 1, 1998 (the "Quicksilver Merger Agreement"), Michigan Gas
Partners was merged with and into Quicksilver and certain assets and
liabilities of Mercury and QELC were transferred to and assumed by
Quicksilver. Certain debt owed by QELC to TCW and by Mercury and QELC to
NationsBank was also assumed by Quicksilver and restructured as part of the
Formation.
As a result of the merger of Michigan Gas Partners with and into
Quicksilver, the separate existence of Michigan Gas Partners ceased and
Quicksilver became the owner of Michigan Gas Partners' Michigan oil and natural
gas properties. All of the partnership interests of JEDI in Michigan Gas
Partners were converted into the right to receive 1,340,404 shares of
Quicksilver Common Stock. The interests of Mercury in Michigan Gas Partners
were canceled without payment of any consideration and all shares of Quicksilver
Common Stock outstanding prior to the Formation, consisting of 1,000 shares held
by QELC, were canceled without payment of any consideration.
In the Formation, Mercury transferred to Quicksilver all of its oil and gas
properties in the states of Michigan, Montana and Wyoming, except for certain
excluded Michigan properties. Mercury acquired the Montana properties from
QELC. As consideration for the transfer, Quicksilver assumed certain
liabilities of Mercury relating to the transferred properties, including debt in
the amount of $34.6 million owed by Mercury to NationsBank under a Credit
Agreement dated January 31, 1997. Quicksilver also issued 3,251,820 shares of
Quicksilver Common Stock to Mercury. In addition, at Mercury's request, 74,135
shares of Quicksilver Common Stock to which Mercury was entitled under the
Quicksilver Merger Agreement were issued to Mercury's employee, Jeff Cook, as
part of his agreed compensation.
QELC also transferred all of its oil and gas properties in the states of
Michigan and Montana to Quicksilver as part of the Formation. As consideration
for this transfer, Quicksilver assumed certain liabilities of QELC relating to
the transferred properties and debt in the amount of approximately $39.6 million
owed by QELC to TCW and NationsBank under a Credit Agreement dated November 14,
1996. Quicksilver issued an additional 3,030,860 shares of Quicksilver Common
Stock to QELC.
Messrs. Frank, Thomas and Glenn Darden, Anne Darden Self and Jack L.
Thurber transferred to Quicksilver certain contractual after payout or net
profits interests owned by those individuals in some of the assets of Mercury or
QELC that were transferred to Quicksilver in the Formation. As consideration
for those transfers of contractual rights, Quicksilver issued 242,922 shares of
Quicksilver Common Stock to each of Frank Darden, Thomas F. Darden, Glenn M.
Darden and Anne Darden Self and 301,488 shares of Quicksilver Common Stock to
Mr. Thurber.
Quicksilver satisfied debt owed to TCW under a credit agreement dated
November 14, 1996 by paying $17,075,000 in cash to TCW and issuing 13,000
shares (1,340,404 shares as adjusted for the Stock Dividend) of Quicksilver
Common Stock to TCW, in exchange for a $10,000,000 credit. NationsBank
financed the prepayment of the debt to TCW pursuant to the terms of a Credit
Agreement (the "Quicksilver Credit Agreement"), dated April 9, 1998, between
Quicksilver, NationsBank, as Agent, and certain financial institutions named
in the Quicksilver Credit Agreement. Mercury's and QELC's debt to
NationsBank that was assumed by Quicksilver was restructured under the
Quicksilver Credit Agreement.
The restructured debt of Quicksilver to NationsBank is guaranteed by
Mercury, QELC, and Mercury Production Company. In addition to being secured by
the Quicksilver properties, the debt is also secured by pledges of all of the
MSR Common Stock owned by Mercury and the Darden Family and all of the
Quicksilver Common Stock owned by them and by QELC. It is a condition to the
Merger that the debt be restructured in such a manner as to eliminate those
guarantees and pledges.
61
<PAGE>
The number of shares of Quicksilver referred to in the above discussion
have been adjusted to reflect the Stock Dividend.
BUSINESS OF QUICKSILVER
Quicksilver engages in the acquisition, exploration, production and sale of
crude oil, condensate and natural gas and the gathering, processing and
transmission of natural gas. Quicksilver pursues its business through the
acquisition of oil and gas mineral leases, gas gathering systems and producing
oil and gas properties. Based upon the specifics of each mineral lease, as well
as geological and engineering interpretations, Quicksilver either develops its
inventory of leases through the drilling of oil and/or gas wells, or re-drills
or re-completes existing wells located on those leases for the recovery of oil
and/or gas reserves located there. Quicksilver currently has an interest in oil
and gas mineral leases, gas gathering pipeline systems and wells producing
hydrocarbons that are located principally in the states of Michigan, Wyoming and
Montana. Quicksilver evaluates other opportunities for the development of oil
and gas reserves and related assets as they become available and, under certain
circumstances, may explore opportunities in regions other than those in which
Quicksilver is currently involved.
As part of the Formation, Quicksilver entered into the Management Agreement
with Mercury to act as operator of Quicksilver's oil and gas properties in
Michigan, Wyoming and Montana. In this capacity, Mercury is responsible for the
daily activities of producing oil and/or gas from individual wells and leases
located within those states. Mercury supervises its field employees, as well as
focusing on the management of Quicksilver's oil and gas properties in order to
maximize profitability. For some wells, Mercury also contracts with individuals
doing business in proximity to the wells (who are more commonly referred to as
"pumpers") for performance of various tasks that are required to maintain
production of oil and/or gas from the wells. Upon completion of the Merger, the
existing Management Agreement will terminate. Quicksilver and Mercury have
entered into a new agreement, which will replace the current agreement. Under
this new agreement, Mercury will provide administrative and accounting services
and will continue to provide operations services under the existing operating
agreements.
Quicksilver is not a user or refiner of the oil and/or gas produced, except
as it may relate to the operation of wells that may produce gas. Once extracted
from the ground, Quicksilver either connects the production to a pipeline
gathering system, in the case of gas, or stores the crude oil in storage tanks
located close to the producing field for collection by oil purchasers.
Quicksilver owns or holds working interests in over 800 producing oil and
gas wells. Quicksilver also holds or has acquired interests in oil and gas
properties that contain proved undeveloped reserves that require additional
drilling, work overs, water flooding or other forms of enhancement in order to
become productive.
Quicksilver presently employs only its officers and top managers. Mercury
presently manages substantially all of Quicksilver's business through Mercury
employees under the Management Agreement. At June 30, 1998, Mercury operated
over 635 wells on behalf of Quicksilver. After the Management Agreement
terminates and the new agreement takes effect, these services will be provided
by employees of Quicksilver.
As operator, Mercury is able to exert greater control over the cost and
timing of all field activities. Mercury strives to manage Quicksilver's
producing properties to maximize economic production over the life of the
properties through a combination of development well drilling, existing well
recompletions and workovers and enhanced recovery operations. Mercury uses
advanced drilling technologies to minimize costs and frequently performs
operational reviews to minimize operating expenses.
Quicksilver has an active exploration program targeting a wide variety of
reserve creation opportunities. In its exploration and development projects,
geoscientists integrate 3-D seismic, 2-D seismic and all available subsurface
well control data on geologic and geophysical interpretation workstations.
Substantially all of Quicksilver's undeveloped acreage is the subject of active
exploration efforts. Additional undeveloped acreage is regularly added as
existing exploration plays are expanded and new plays are pursued.
Quicksilver continually evaluates acquisition opportunities and may
increase its total annual capital expenditures depending upon its success in
identifying and completing attractive acquisitions.
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<PAGE>
BUSINESS STRATEGY
Quicksilver's objective is to enhance stockholder value through sustained
growth in its reserve base, production levels and resulting cash flow from
operations. To further this strategy, Quicksilver (and the Surviving
Corporation) expects to (1) acquire properties with exploration and development
potential; (2) balance lower risk, shallow target exploration in the Northern
Michigan Antrim trend and similar geologic areas with higher risk, large target
exploration; and (3) acquire properties that provide it with the ability to
control or significantly influence operations.
DEVELOPMENT ACTIVITIES. Quicksilver currently conducts its exploration and
development activities in three areas. Quicksilver conducts exploration and
development activities in Michigan, where it seeks principally gas deposits
located near existing production facilities at vertical depths of between 500
and 2000 feet. Relatively low exploration and development costs and long life
successful wells exist in this area. Quicksilver conducts operations in the
Prairie du Chien ("PdC") sands located in central to southern Michigan. PdC
wells produce natural gas and condensate from an average depth of 11,000 feet
with higher exploration and development cost, a relatively high production rate
and quicker return on investment.
During the first six months of 1998, Quicksilver or its predecessors in the
Formation completed two PdC wells that were drilled in 1997, drilled 18 gross
(10.6 net) successful development wells and 9 gross (9 net) successful
exploratory wells in Michigan for a drilling success rate of 100 %. Primarily
as a result of these wells, Quicksilver's average daily production at June 30,
1998 increased to 48.1 Mmcfe/day, a 16% increase over December 1997 rates for
the same properties.
Quicksilver has 194 wells in the Rocky Mountain Region producing
principally low gravity crude, making up the highest potential oil reserves of
Quicksilver. The South Casper Creek Steamflood Project has estimated oil in
place of 49 million barrels of oil and, with improved oil prices and a reliable
source of gas to fire steamers, Quicksilver believes 20% of these reserves are
recoverable.
EXPLORATION FOR NEW RESERVES. Quicksilver is placing increasing emphasis on
exploration as a source of future growth and has an active exploration program
targeting a wide variety of reserve creation opportunities in its core areas of
operations and in select new areas. Quicksilver pursues a balanced portfolio of
exploration prospects where it believes multiple additional new reserve
opportunities could result if a significant discovery were made. At June 30,
1998, Quicksilver had approximately 170,000 gross (128,000 net) undeveloped
acres on which it was actively conducting exploration activities.
Mercury's exploration team, working on behalf of Quicksilver, includes
geologists, engineers, geophysicists and petrophysicists who have developed
in-depth knowledge and expertise in each of Quicksilver's core operating areas
and related exploration projects areas. Joint venture and contract technical
personnel and consultants who have demonstrated experience and expertise in
select areas of interest to Quicksilver provide supplemental support as needed.
The technical staff uses in-house 3-D seismic evaluation software as well as
other modern techniques in its exploration effort.
UTILIZATION OF RISK MANAGEMENT TECHNIQUES. Quicksilver uses a variety of
techniques to reduce Quicksilver's exposure to the risks involved in its oil and
gas activities. Quicksilver conducts operations in distinct geographic areas to
gain diversification benefits from geologic settings, local commodity price
differences and local operating characteristics. Quicksilver seeks to reduce
risks normally associated with exploration through the use of advanced
technologies, such as 3-D seismic surveys, by spreading projects over various
geologic settings and geographic areas, by balancing exposure to crude oil and
natural gas projects, by balancing potential rewards against evaluated risks and
by participating in projects with other experienced industry partners at working
interest levels appropriate for Quicksilver. Quicksilver intends to reduce its
exposure to short-term fluctuations in the price of oil and natural gas and
interest rates by entering into various hedging arrangements.
MAINTENANCE OF LOW-COST OPERATING STRUCTURE. Quicksilver implements and
maintains a low-cost operating structure through Mercury. As operator, Mercury
manages all field activities and thereby exercises greater control over the cost
and timing of exploration, drilling and development activities in order to help
improve project returns. Quicksilver focuses on reducing lease operating
expenses (on a per unit of production basis), general and administrative
expenses and drilling and recompletion costs in order to improve project
returns.
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<PAGE>
ACQUISITION OF SELECT PROPERTIES. Quicksilver actively seeks to acquire oil
and gas properties that are either complementary to existing production
operations or that it believes will provide significant exploration
opportunities beyond any proved reserves acquired. Mercury provides Quicksilver
an experienced management team, which employs a comprehensive interdisciplinary
approach encompassing technical, financial, legal and strategic considerations
in evaluating potential acquisitions of oil and gas properties.
ORGANIZATION
The majority of Quicksilver's oil and gas properties are managed and
operated by Mercury under the Management Agreement in accordance with a joint
operating agreement to which Mercury or Quicksilver are parties. Since
Quicksilver presently has no operating employees, Mercury performs all
operations on behalf of Quicksilver. In its present capacity as operator,
Mercury pays all costs and expenses of operations and distributes all net
revenues associated with Quicksilver's properties. Quicksilver reimburses
Mercury for its actual cost for direct and indirect expenses incurred by Mercury
for the benefit of Quicksilver and its properties. The indirect expenses for
which Mercury is reimbursed include employee compensation, office rent, office
supplies and employee benefits. Mercury does not receive any fees for its
services.
MARKETING
The oil and gas produced from Quicksilver properties has typically been
marketed through normal channels for such products. Quicksilver generally sells
its oil at local field prices paid by the principal purchasers of crude oil. The
majority of Quicksilver natural gas production is sold under long-term contracts
of one to 10 years, and is transported in intrastate pipelines.
Both oil and gas are purchased by refineries, major oil companies, public
utilities, industrial customers and other users and processors of petroleum
products. Quicksilver is not confined to, nor dependent upon, any one purchaser
or small group of purchasers. Accordingly, the loss of a single purchaser, or a
few purchasers, would not materially affect Quicksilver business because there
are numerous purchasers in the areas in which Quicksilver sells its production.
For the six months ended June 30, 1998, however, purchases by the following
companies exceeded 10% of the total oil and gas revenues of Quicksilver;
Consumers Power Company, Howard Energy, Inc. and Unocal.
DESCRIPTION OF OIL AND GAS PROPERTIES
Quicksilver owns significant interests in the following properties by
region:
MICHIGAN
Quicksilver's Michigan properties consist of principally natural gas wells
producing primarily from two different reservoirs, the first being the Antrim
Shale located in Antrim, Crawford, Montmorency and Otsego Counties and the
second being the Prairie du Chien ("PdC") reservoir located in Arenac, Bay,
Clare, Crawford, Kalkaska, Iosco, Mecosta, Newaygo, Ogemaw, and Osceola
Counties.
The Antrim shale is a fractured shale reservoir producing from depths
ranging from 500 feet to 2000 feet. As water is produced, the gas is released
from the rock very similarly to coalbed methane production. As of June 30,
1998, Quicksilver had 713 gross (186-net) wells producing in the Antrim shale
with net production of 14.0 Mmcf/day. Quicksilver drilled 16 development and
nine exploratory Antrim wells in the first half of 1998 and plans to drill 52
vertical wells and three horizontal development wells in the second half of 1998
at an estimated cost of $10.4 million.
The Prairie du Chien wells (the "Prairie du Chien Group") produce from
several Ordovician age reservoirs with the majority being in the massive Prairie
du Chien Group that has three major sands: the Lower PdC, Middle PdC and Upper
PdC. Many of these wells also have pay in the Zone of Unconformity (ZOU), or
St. Peter sandstone, and the Glenwood formations, which lie directly above the
PdC. Some of the wells are producing from two or more of these zones.
Depending upon the area and the particular zone, the PdC will produce dry gas,
gas and condensate or oil with associated gas. The average depths of these
wells are from 10,000 feet to 12,000 feet.
Two new PdC wells, the State Garfield 2-8 and State Garfield 8-9, were
drilled in the Garfield 8 field operated by Spirit Energy, a division of Unocal,
in late 1997 and early 1998 as acceleration wells to recover PdC reserves.
First production occurred in early 1998. These two wells are currently flowing
at a combined rate of 13.4
64
<PAGE>
Mmcf/day, which has increased total Garfield 8 production to 25 Mmcf/day.
Quicksilver has a 54% working interest in the field.
At June 30, 1998, Quicksilver had 41 gross (25 net) wells producing in the
PdC with net production of 24.7 Mmcf/day and 400 Bopd. Many of the PdC wells
have behind pipe reserves within the Prairie du Chien Group as well as in the
ZOU and Glenwood. Quicksilver has a capital budget of approximately $400,000
for the remainder of 1998 to be used principally for recompletions and workovers
in this area.
ROCKY MOUNTAIN REGION
Quicksilver's properties in the Rocky Mountain Region consist of wells in
five fields within the state of Wyoming and a steamflood project, also in
Wyoming. Production is primarily oil obtained from depths of ranging from 1,000
feet to 9,000 feet.
The Dallas Dome Field is located in Fremont County, Wyoming. This field is
the site of the first oil well drilled in the State of Wyoming in 1884.
Production is from the Tensleep sandstone at a depth of 1050 to 1200 feet and
the Phosphoria carbonate from a depth of 750 to 900 feet. Average production
for the month of December 1997 was 210 barrels of oil per day from 63 wells, and
for the month of June 1998, was 210 barrels of oil per day from 52 wells. No
exploratory or development wells were drilled in 1997 or 1998, or are planned
for the remainder of 1998.
The Derby Dome Field is also located in Fremont County, Wyoming.
Production is also from the Tensleep sandstone and Phosphoria carbonate.
Average production in this field was 81 barrels of oil per day from 29 wells for
the month of December 1997 and 90 barrels of oil per day from 22 wells for the
month of June 1998. No development wells were drilled in 1997 or 1998, nor are
there any planned for the remainder of 1998. One exploratory well, the Gypsum
Bluff # 1, located approximately one mile southeast of the Derby Dome field, was
drilled in 1998 and was plugged and abandoned after testing wet in the
Phosphoria and Tensleep. Total depth of the well was 2,200 feet. No
exploratory drilling is planned for 1998.
The Am-Kirk Field is located in Campbell County, Wyoming. Production is
from the Minnelusa formation, which is unitized and under waterflood, at depth
of 10,000 feet. There is also production from the Muddy/Mowry zones in one well
at a depth of 8,400 feet to 8,900 feet. Production from the Am-Kirk Unit
Minnelusa waterflood averaged 226 barrels of oil per day for the month of
December 1997 and 261 barrels of oil per day for the month of June 1998.
Production is from three producing wells with one water injection well. One
development well #A4-7 was completed and put on production in early January
1997. No other development wells were drilled or are planned for the remainder
of 1998. Production from the Muddy/Mowry zone averaged 12 barrels of oil per
day and 22 Mcf per day of gas for the month of December 1997 and 15 barrels of
oil per day and 50 Mcf per day of gas for the month of June 1998. No
exploratory wells were drilled or are planned.
The South Casper Creek Field is located in Natrona County, Wyoming.
Production is from the Tensleep sandstone from a depth of 2,500 feet to 3,000
feet and averaged 490 barrels of oil per day for the month of December 1997,
from 63 producing wells, and 417 barrels of oil per day for the month of June
1998 from 43 producing wells. No development or exploratory wells were drilled
in 1997 or 1998 and none are planned for the remainder of 1998.
South Casper Creek Steamflood Project is in Natrona County, Wyoming.
Unocal, the previous owner of the property, had conducted several steamflood
pilots during the 1970s and 1980s in the Tensleep formation. The steamflood
pilots had mixed results due to poor design until the late 1980s when two
five-spot pilots verified the technical viability of steaming operations. Based
on these pilot results, Unocal proceeded to drill new injection wells and in
1991 initiated a full-scale steamflood employing four 50 mmbtu/hour generators
providing 14,400 barrels of water per day as 80% steam to eleven injectors.
The full-scale steamflood proved technically successful with a production
peak in early 1992 at 1,500 barrels of oil per day compared to a pre-steam
production high of about 800 barrels of oil per day. At this point the field
performance was exceeding Unocal's simulation forecast. Despite this success,
Unocal decided to cut costs by discontinuing the operation of two generators and
three injectors. This resulted in a flattening of the production. After one
year of this partial operation, Unocal shut down the project to reduce costs,
citing internal economic pressure.
Quicksilver believes the steamflood potential in this area has been proven.
The project has all of the necessary wells, steam generators and operational
infrastructure in place, and constitutes a proved developed reserve.
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<PAGE>
Quicksilver's delay in re-initiating steaming operations is due to the lack of
sufficient available gas reserves for fueling the steam generators and the
present low prices of crude oil.
The West Poison Spider Field is located in Natrona County, Wyoming.
Production in the field is from five producing horizons from depths of 9,000 to
16,000 feet. Oil production averaged 147 barrels of oil per day for the month
of December 1997 from 23 oil wells, and 140 barrels of oil per day for the month
of June 1998 from 23 oil wells. Total gas production averaged 1,503 Mcf per day
for the month of December 1997 from seven producing gas wells, and 1,012 Mcf per
day for the month of June 1998 from eight producing gas wells. One development
well was drilled in 1997 to a total depth of 10,232 feet with the completion
running into early 1998. The well was completed in the Teapot "A" zone and shut
in. A completion of the Cody zone is being evaluated. No other development or
exploratory wells were drilled in 1997 or 1998 and none are planned for the
remainder of 1998.
EXPLORATION ACTIVITIES
Quicksilver has interests in 19 exploratory prospects located in Montana
and Wyoming. Eleven are oil prospects and the remaining eight are gas prospects.
These prospects are located in the Big Horn Basin, the Crazy Mountain Basin and
the Montana Thrust Belt. Quicksilver's interest in these prospects ranges from
25% to 50%, with 50% being the most common Quicksilver interest. The target
depths of these prospects range from 3,000 feet to 19,500 feet, with 7,000 feet
being the median depth. The potential impact of these prospects is considerable
to Quicksilver with several of the gas prospects having reserve potential in the
one Tcf range. The shallow depths of many of these prospects will allow
Quicksilver to test all of them at a relatively low cost.
CRAZY MOUNTAIN BASIN. The Crazy Mountain basin is located in south central
Montana and is an extension of the Big Horn Basin. Quicksilver's prospects are
approximately 30 miles from production and consist of two Fort Union coal bed
methane prospects and a deep Frontier prospect. The two Fort Union prospects
are less than 4000 feet deep and are set up by a well drilled on Quicksilver
acreage in 1996, which encountered numerous thin gassy coal beds between 500
feet and 4500 feet. The deep prospect, which is at a depth of 14,600 feet, is
designed to test the Big Elk member of the Frontier Formation on a seismically
defined structural closure.
BIG HORN BASIN. The Big Horn Basin is located in northern Wyoming and
southern Montana. Several of the prospects in the Big Horn are known to contain
oil. However, the oil is a low gravity, high viscous crude. Due to the heavy
nature of the oil, drawdown pressures are high, resulting in early water
encroachment. Quicksilver believes that the less concentrated pressure drawdown
associated with horizontal wells would reduce early water encroachment. A
producing horizontal well on one of these prospects is currently being
evaluated, and the other prospects will be developed based on the results of
this well. Other projects in the Big Horn consist of seismically defined
structural and stratigraphic traps. Quicksilver believes that some of these
prospects will yield gas and others will yield high gravity oil.
MONTANA THRUST BELT. The Montana Thrust Belt is located in western
Montana. These prospects target fractured rocks of the Mississippian Madison
Formation, which has been over-thrust from the west by older Pre-Cambrian rocks.
The structural style is believed to be similar to the Alberta Foothills area
where the Waterton Field has reserves of over 2.3 Tcf gas. Quicksilver has five
prospects in the Thrust Belt area.
OIL AND GAS RESERVES
The following reserve quantity and future net cash flow information for
Quicksilver represents proved reserves that are located in the United States.
The reserves have been estimated by Mercury's petroleum engineers. The
determination of oil and gas reserves is based on estimates that are highly
complex and interpretive. The estimates are subject to continuing change as
additional information becomes available. Under the guidelines set forth by the
SEC, the calculation is performed using year-end prices held constant (unless a
contract provides otherwise) and is based on a 10% discount rate. Future
production costs are based on year-end costs and include severance taxes. This
standardized measure of discounted future net cash flows is not necessarily
representative of the market value of Quicksilver properties.
There are numerous uncertainties inherent in estimating oil and gas
reserves and their estimated values, including many factors beyond Quicksilver's
control. The reserve data set forth in this document represents only estimates.
Although Quicksilver believes the reserve estimates contained in this document
are reasonable, reserve estimates are imprecise and are expected to change as
additional information becomes available.
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<PAGE>
The following table summarizes Quicksilver proved reserves, the estimated
future net revenues from such proved reserves and the standardized measure of
discounted future net cash flows attributable thereto at January 1, 1998.
<TABLE>
<S> <C>
PROVED RESERVES:
Proved reserves:
Oil (Bbl) 15,066,000
Natural gas (Mcf) 117,615,000
-------------
Total (Mcfe) 208,011,000
Estimated future net cash flows $199,537,000
Standardized measure of discounted
future net cash flows $109,300,000
Proved developed reserves:
Oil (Bbl) 4,520,000
Natural gas (Mcf) 103,200,000
-------------
Total (Mcfe) 130,320,000
</TABLE>
VOLUMES, SALES PRICES AND OIL AND GAS PRODUCTION EXPENSE
The following table sets forth certain information regarding the production
volumes and weighted average sales prices received for and average production
costs associated with Quicksilver's sale of oil and gas for the periods
indicated.
FOR THE SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<S> <C>
Production:
Oil (Bbl) 263,000
Natural gas (Mmcf) 7,350,000
Total (Mcfe) 8,928,000
Weighted average sales price:
Oil (per Bbl) $ 9.75
Natural gas (per Mcf) $ 2.10
Production operating expense
(per Mcfe)(1) $ 0.72
</TABLE>
(1) Includes production taxes.
DEVELOPMENT, EXPLORATION AND ACQUISITION CAPITAL EXPENDITURES
The following table sets forth certain information regarding the
approximate costs incurred by Quicksilver in its development and exploration
activities and purchase of oil in place.
For the six months ended June 30, 1998
<TABLE>
<S> <C>
Development costs $ 4,486,000
Exploration costs 470,000
Acquisition of producing properties 2,048,000
------------
Total $ 6,904,000
</TABLE>
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<PAGE>
PRODUCTIVE OIL AND GAS WELLS
The following table summarizes the productive oil and gas wells as of
December 31, 1997, attributable to Quicksilver's direct interests.
<TABLE>
<CAPTION>
GROSS NET
----- ---
<S> <C> <C>
Productive Wells
Oil 155 150.3
Natural gas 752 212.9
--- -----
Total 907 363.2
--- -----
--- -----
</TABLE>
OIL AND GAS ACREAGE
The following table sets forth the developed and undeveloped leasehold
acreage held directly by Quicksilver as of June 30, 1998. Developed acres are
acres that are spaced or assignable to productive wells. Undeveloped acres are
acres on which wells have not been drilled or completed to a point that would
permit the production of commercial quantities of oil or gas, regardless of
whether or not such acreage contains proved reserves. Gross acres are the total
number of acres in which Quicksilver has a working interest. Net acres are the
sum of Quicksilver's fractional interests owned in the gross acres. States in
which Quicksilver holds undeveloped acreage include Michigan, Montana and
Wyoming.
<TABLE>
<CAPTION>
GROSS NET
----- ---
<S> <C> <C>
Developed acreage 127,700 44,700
Undeveloped acreage 319,400 170,300
------- -------
Total 447,100 215,000
------- -------
------- -------
</TABLE>
DRILLING ACTIVITY
The following table sets forth the number of wells attributable to
Quicksilver direct interest drilled during and for the six months ended June 30,
1998.
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1998
-------------
GROSS NET
----- ---
<S> <C> <C>
DEVELOPMENT WELLS:
Productive 16 8.4
Dry 0 0
----- -----
Total 16 8.4
----- -----
----- -----
EXPLORATORY WELLS:
Productive 9 9
Dry 0 0
----- -----
Total 9 9
----- -----
----- -----
</TABLE>
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<PAGE>
EXECUTIVE COMPENSATION
Quicksilver began operations on January 1, 1998 and to date has not paid
any compensation to its executive officers. As of the date of this Proxy
Statement/Prospectus there are no arrangements or understandings related to
executive compensation and there have been no contracts entered into with
respect to executive compensation.
Quicksilver has no employees other than its executive officers.
Quicksilver compensates Mercury for its services under the existing Management
Agreement. Quicksilver will continue to compensate Mercury for those services
under the new management agreement to be entered into upon completion of the
Merger. Mercury's compensation will consist of payments and overhead
reimbursements to which Mercury or Quicksilver are entitled as operator under
existing and future operating agreements. We estimate that payments to Mercury
under the new agreement will be approximately $1.35 million for fiscal 1999.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
In considering the recommendations of the MSR Board and the Special
Committee with respect to the Merger, stockholders are advised members of the
Darden Family and Mercury have interests in the Merger. See page ____.
In addition, Quicksilver, TCW and Enron and NationsBank are parties to
an Agreement Regarding Future Financings, dated April 9, 1998. According to
the agreement, if Quicksilver seeks to obtain financing of any type in
excess of $5,000,000, it must notify the other parties and provide them with
information regarding the financing. Enron, TCW or NationsBank or their
affiliates may then make a proposal to Quicksilver regarding the structure
and terms of the proposed financing. Quicksilver may then, at its sole
discretion, negotiate with any or all of the other parties in order to
finalize the financing.
If Quicksilver receives an unsolicited proposal for financing from a
third party, it must notify the other parties that it has received the
proposal. Quicksilver may then negotiate with any or all of the other parties
in order to finalize the financing.
MANAGEMENT OF QUICKSILVER
DIRECTORS AND EXECUTIVE OFFICERS
The Quicksilver Board currently consists of three members, Messrs. Thomas,
Glenn and Frank Darden each of whom is also a director of MSR. Directors of
Quicksilver serve one-year terms. The directors are elected annually at each
annual meeting of stockholders.
The following table sets forth certain information regarding the directors
of MSR and Quicksilver. With the exception of Mr. Montalban, these individuals
will be directors of the Surviving Corporation.
<TABLE>
<CAPTION>
Positions(s) Term
Name Held With MSR Age Director Since Expires
- ------------------------- ----------------- --- -------------- --------
<S> <C> <C> <C> <C>
Thomas F. Darden (1) Chairman of the Board and Chief 45 1997 1999
Executive Officer
Glenn M. Darden (1) President, Chief Operating Officer 43 1997 1999
and Director
Frank Darden (1) Director 71 1997 1999
Patrick M. Montalban (2) Director 41 1997 1999
Steven M. Morris Director 46 1997 1999
D. Randall Kent Director 72 1997 1999
W. Yandell Rogers Director 35 1997 1999
Mark Warner (3) Director 35
</TABLE>
- ---------------
(1) Members of both the MSR Board and the Quicksilver Board.
(2) Mr. Montalban will resign as a director of MSR effective upon completion of
the Merger.
(3) Mr. Warner will be elected to the Quicksilver Board upon completion of the
Merger.
The business experience of each director is set forth below.
THOMAS F. DARDEN has served on the Board of Quicksilver since December
1997. He has served as President of Mercury since 1993. During that time,
Mercury developed and acquired interests in over 1,200 producing wells in
Michigan, Indiana, Kentucky, Wyoming, Montana, New Mexico and Texas. A graduate
of Tulane University with a BA in Economics in 1975, Mr. Darden has been
employed by Mercury or its parent corporation, Mercury Production Company, for
22 years. Mr. Darden became a director and the President of MSR
69
<PAGE>
upon its formation on March 7, 1997. On January 1, 1998, Mr. Darden was named
Chairman of the Board and Chief Executive Officer of MSR.
GLENN M. DARDEN has served on the Board of Quicksilver since December
1997. He also served with Mercury for 14 years, and for the last five years
as the Executive Vice President of that company. Prior to working for
Mercury, Mr. Darden worked as a geologist for Mitchell Energy Corporation.
Mr. Darden graduated from Tulane University in 1979 with a BA in Earth
Sciences. Mr. Darden became a director and Vice President of MSR upon its
formation on March 7, 1997. Effective January 1, 1998, he was named
President and Chief Operating Officer of MSR.
FRANK DARDEN is a registered professional engineer and Chairman of the
Board of Mercury, a family owned private oil and gas company in Fort Worth,
Texas. Mr. Darden founded the parent corporation of Mercury, Mercury Production
Company, and has served as its Chairman since 1965 and as chairman of Mercury
since its founding in 1978. Mr. Darden commenced his career in the oil and gas
business with Humble Oil and Refining Company in 1948. From 1954 through 1955,
he was retained by Empresa Colombiana de Petroleos to organize an engineering
department and guide the company's planning for the secondary recovery program
in the La Cira Field in the Magdelena Valley of Colombia. From 1956 through
1964, Mr. Darden served as Manager of Operations for Newmont Oil Company, the
energy subsidiary of Newmont Mining Corporation, and as Executive Vice President
and director of Yucca Water Company. Mr. Darden became a director of MSR upon
its formation on March 7, 1997.
PATRICK M. MONTALBAN is a petroleum geologist who graduated from the
University of Montana in 1981. He joined Old MSR as a Staff Geologist in 1983
and became Vice President of Exploration and Production in October 1986. In
December 1990, he was named Executive Vice President and was elected director in
1991. Upon closing the merger between Old MSR and Mercury Montana on October
31, 1997, Mr. Montalban became a Director of the Company and was named Vice
President. Mr. Montalban will resign as a director upon completion of the
Merger.
STEVEN M. MORRIS is a certified public accountant and President of Morris &
Co., a private investment firm in Houston, Texas. From 1988 to 1991 he was Vice
President of Finance for ITEX Enterprises, Inc. From 1981 to 1988, Mr. Morris
was the Financial Vice President of Hanson Minerals Company, a Houston based oil
and gas exploration company. From 1978 to 1981 Mr. Morris was a partner in the
certified public accounting firm of Haley & Morris. He served as Senior
Accountant with the Houston office of Arthur Young and Company from 1974 to
1977. Mr. Morris was elected director of Old MSR in October, 1994. Upon
closing of the merger between Old MSR and Mercury Montana on October 31, 1997,
Mr. Morris became a director of MSR.
D. RANDALL KENT is a retired Vice President of the General Dynamics
Corporation. He joined General Dynamics/Ft. Worth division in 1949 and served
in various engineering management positions, including Vice President and Chief
Engineer of the F-16 Fighter Program. Following his retirement in 1991, Mr.
Kent has served as a consultant to the Lockheed-Martin Corporation. Mr. Kent
graduated from Louisiana State University in 1947 with a BS in mechanical
engineering, and from Cornell University in 1949 with an MS in engineering. Mr.
Kent was elected as a Director of Old MSR in 1997, and upon closing the merger
between Old MSR and Mercury Montana on October 31, 1997, became a director of
MSR.
W. YANDELL ROGERS, III has served as Vice President and General Manager of
Ridgway's, Inc. since July 1997. For more than five years prior to that date he
served as Regional Manager for Ridgway's, Inc. based in Houston, Texas.
Ridgway's, Inc. is the largest privately held reprographics firm in the U.S.
with more than 60 locations nationwide. Mr. Rogers graduated from Southern
Methodist University in 1986 with a B.B.A. in finance. Mr. Rogers was elected
as a Director of Old MSR and upon closing the merger between Old MSR and Mercury
Montana on October 31, 1997, became a Director of MSR.
MARK WARNER is currently a Manager of Domestic Energy Finance for Enron
Capital & Trade Resources in Houston, Texas where he has worked since 1995.
He received a Bachelor's degree in Geological Engineering from the University of
Missouri-Rolla in 1985 and a Master's Degree in Petroleum Engineering from the
University of Oklahoma in 1987. From 1987-1989 he was a reservoir engineer with
Marathon Oil Company in Lafayette, Louisiana working in the offshore Gulf of
Mexico. From 1989 to 1993 he served as Manager of Petroleum Engineering for
Remington Oil Company (formerly Box Energy) in Dallas, Texas. In 1995 he
received an MBA from the Edwin L. Cox School of Business at Southern Methodist
University in Dallas. Mr. Warner currently serves as a member of the board of
directors of HV Marine Services, Inc., an integrated marine transportation
company in New Orleans, Louisiana and as an observer to the board of directors
of Lyco Energy Corporation of Dallas.
70
<PAGE>
DIRECTOR COMPENSATION
All directors of Quicksilver currently receive fees of approximately $_____
per meeting.
Certain agreements and plans under which the foregoing persons currently
receive benefits and may continue to receive benefits in connection with the
Merger are described on page ____.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT OF QUICKSILVER
As of September 30, 1998, there were 10 holders of record of Quicksilver
Common Stock.
The following table presents information to the best knowledge of
management as to each beneficial owner of the outstanding Quicksilver Common
Stock before and after the Merger and as to the shares of Quicksilver Common
Stock beneficially owned by each director of Quicksilver before and after the
Merger. Except as otherwise described, all shares are held with sole voting and
investment power.
Before the Merger, Quicksilver will have a total of approximately
10,310,800 shares outstanding. After the Merger, there will be approximately
12,888,500 shares of Quicksilver Common Stock outstanding. Ownership of the
outstanding shares of Quicksilver Common Stock before and after the Merger is
as follows:
<TABLE>
<CAPTION>
Common Stock Beneficially Common Stock Beneficially
Owned Before the Merger(1) Owned After the Merger(2)
------------------------------------ -----------------------------------------
Name of Beneficial Owner Number of Percent of Number of Percent of
------------------------ Shares Class Shares Class
-------------------- ------------- --------------------- ----------
<S> <C> <C> <C> <C>
Mercury Exploration Company (3) 3,251,820 31.5% 4,493,820(9) 33.3%
Quicksilver Energy L.C. (4) 3,030,860 29.4% 3,030,860 23.5%
JEDI 1,340,404 13% 1,304,404 10.4%
The TCW Group, Inc. (5) 1,340,404 13% 1,304,404 10.4%
The Darden Family Interests 7,254,368(6) 70.3% 9,439,226(10) 67.7%
Jack Thurber (7) 301,488 * 416,488(11) *
Jeff Cook (8) 74,135 * 97,135 (12) *
All officers and directors as a group (8 728,766(13) 7.1% 1,622,844(14) 12.5%
persons)
</TABLE>
- ---------------
* Less than 5%
(1) As adjusted to reflect the Stock Dividend required to facilitate the
Merger.
(2) After giving effect to conversion of options and warrants for MSR Common
Stock to warrants or options for Quicksilver Common Stock.
(3) Members of the Darden Family are directors, officers and shareholders of
Mercury and share voting and investment power with respect to the 3,251,820
shares of the Quicksilver Common Stock owned by Mercury.
71
<PAGE>
(4) Members of the Darden Family hold substantially all the membership
interests of QELC and share voting and investment power with respect to the
3,030,860 shares of the Quicksilver Common Stock owned by QELC.
(5) The shares are held by a subsidiary on behalf of a third party client.
Robert A. Day may be deemed to beneficially control The TCW Group, Inc.
(6) Includes 3,251,820 shares of Quicksilver Common Stock owned by Mercury,
3,030,000 shares owned by QELC and 971,688 shares (9.4%) owned directly by
Frank, Thomas and Glenn Darden and Anne Darden Self.
(7) Mr. Thurber is a consultant to Mercury, an affiliate of the Darden Family.
(8) Mr. Cook is an officer of Mercury, an affiliate of the Darden Family.
(9) Includes warrants to purchase 297,000 shares of Quicksilver Common Stock at
a purchase price of $12.50 per share and warrants to purchase 297,000
shares of Quicksilver Common Stock at a purchase price of $20.00 per share.
(10) Includes 1,914,544 shares of MSR Common Stock owned directly by the Darden
Family, 4,493,820 shares (including warrants) beneficially owned by Mercury
and 3,030,860 shares owned by QELC. Includes warrants to purchase 55,000
shares of Quicksilver Common Stock at a purchase price of $12.50 per share
and warrants to purchase 55,000 shares of Quicksilver Common Stock at a
purchase price of $20.00 per share owned by each of Frank, Thomas and Glenn
Darden and Anne Darden Self. According to the terms of the Warrant
Agreement, these individuals have agreed not to exercise their warrants
unless certain conditions are met.
(11) Includes warrants to purchase 27,500 shares of Quicksilver Common Stock at
a purchase price of $12.50 per share and warrants to purchase 27,500 shares
of Quicksilver Common Stock at a purchase price of $20.00 per share.
(12) Includes warrants to purchase 5,500 shares of Quicksilver Common Stock at a
purchase price of $12.50 per share and warrants to purchase 5,500 shares of
Quicksilver Common Stock at a purchase price of $20.00 per share.
(13) Includes 242,922 shares owned by each of Frank, Thomas and Glenn Darden.
Does not include 4,493,820 shares (including warrants) beneficially owned
by Mercury and 3,030,860 shares owned by QELC.
(14) Includes 472,922 shares beneficially owned by Frank Darden, 484,350 shares
beneficially owned by each of Thomas and Glenn Darden, 172,222 shares owned
by Steven M. Morris, 3,000 shares owned by D. Randall Kent, 3,500 shares
owned by W. Yandell Rogers, III, and currently exercisable options for
2,500 shares of Quicksilver Common Stock held by Howard N. Boals. Does not
include 4,493,820 shares beneficially owned by Mercury and 3,030,860 shares
owned by QELC.
DESCRIPTION OF QUICKSILVER'S CAPITAL STOCK
The description of Quicksilver's capital stock set forth below is only a
summary and is not intended to be complete. For a complete description of
Quicksilver's capital stock, we urge you to read Quicksilver's Restated
Certificate of Incorporation and Bylaws which are were filed as exhibits to
the Registration Statement of which this Proxy Statement/Prospectus forms a
part.
DESCRIPTION OF COMMON STOCK
Under its charter, Quicksilver has the authority to issue up to 1 million
shares of Quicksilver Common Stock. Prior to completion of the Merger,
Quicksilver intends to amend its Certificate of Incorporation to authorize 40
million shares of Quicksilver Common Stock and 10 million shares of preferred
stock. Quicksilver will issue 10,210,800 shares in the form of a Stock
Dividend. At September 30, 1998, there were 10,310,798 shares of Quicksilver
Common Stock outstanding, as adjusted to give effect to the Stock Dividend.
72
<PAGE>
TERMS
Subject to the preferential rights of any outstanding series of
Preferred Stock, the holders of Quicksilver Common Stock are entitled to one
vote per share on all matters voted on by stockholders, including in the
election of directors. Quicksilver's Certificate of Incorporation does not
provide for cumulative voting in the election of directors or grant
preemptive rights with respect to future issuances of Quicksilver Common
Stock. Quicksilver may, however, enter into contracts with certain
stockholders to grant holders preemptive rights.
Subject to any preferential rights of any series of preferred stock
outstanding, the holders of Quicksilver Common Stock are entitled to such
dividends, if any, as may be declared from time to time by the Quicksilver
Board from funds legally available to pay dividends and, upon liquidation,
are entitled to receive a pro rata share of all the assets of Quicksilver
that are available for distribution to such holders. All Quicksilver Common
Stock will, when issued, be fully paid and nonassessable.
EXCHANGE LISTING
The Quicksilver Common Stock is listed on AMEX under the symbol "KWK."
TRANSFER AGENT
The transfer agent and registrar for the Quicksilver Common Stock is
ChaseMellon Shareholder Services.
DESCRIPTION OF PREFERRED STOCK
The Quicksilver preferred stock may be issued from time to time in one
or more series without stockholder approval and with such preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications and terms and conditions of redemption thereof as
may be established by the Quicksilver Board. As a result, without
stockholder approval, the Quicksilver Board could authorize the issuance of
preferred stock with voting, conversion and other rights that could dilute
the voting power and other rights of the holders of Common Stock. The
Quicksilver Board has not authorized any shares of preferred stock pursuant
to this authority.
73
<PAGE>
COMPARISON OF STOCKHOLDER RIGHTS
The rights of MSR stockholders are currently governed by the MSR's
Certificate of Incorporation (the "MSR Certificate"), the Bylaws of MSR (the
"MSR Bylaws"), and the DGCL. The rights of Quicksilver stockholders are
governed by the Quicksilver Certificate of Incorporation (the "Quicksilver
Certificate"), the Bylaws of Quicksilver (the "Quicksilver Bylaws"), and the
DGCL. After the Effective Time, the rights of MSR stockholders who become
stockholders of Quicksilver will by governed by the Quicksilver Certificate, the
Quicksilver Bylaws and the DGCL. In most respects, the rights of MSR
stockholders are similar to those of Quicksilver stockholders.
Other than the provisions in the MSR Certificate related to dissenters'
rights under the ABCA, there are no material differences between the Quicksilver
Certificate and the MSR Certificate. If the Merger is completed, stockholders
of the Surviving Corporation will not have dissenters' rights under the DGCL so
long as the Quicksilver Common Stock is listed on AMEX. There are also no
material differences between the Quicksilver Bylaws and the MSR Bylaws.
Consequently, the rights of former MSR stockholders who receive shares of
Quicksilver Common Stock in the Merger will not be materially different than
their rights before the Merger.
WHERE YOU CAN GET INFORMATION
MSR files reports, proxy statements and other information with the SEC.
You may read and copy these reports, proxy statements and other information
that we file with the SEC's public reference facilities maintained in
Washington, D.C., at Chicago, Illinois 60661 and New York, New York. Please
call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. In addition, these materials and other information
concerning MSR can be inspected at the offices of the American Stock
Exchange, 86 Trinity Place, New York, New York, 10006-1881. In addition, the
SEC maintains a World Wide Web site that contains reports, proxy and
information statements and other information filed electronically with the
SEC. The address of the site is http://www.sec.gov. Upon completion of the
Merger, the Surviving Corporation will become subject to the SEC's
informational requirements.
Quicksilver has filed with the SEC under the Securities Act, a Registration
Statement on Form S-4 with respect to the shares of Quicksilver Common Stock
issuable in connection with the Merger. This Proxy Statement/Prospectus does not
contain all the information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
SEC.
NOTE ON FORWARD-LOOKING INFORMATION
THROUGHOUT THIS PROXY STATEMENT/PROSPECTUS WE USE "FORWARD-LOOKING
STATEMENTS", WHICH CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING WORDS SUCH AS
"MAY," "WILL," "EXPECT," "ANTICIPATE," "ESTIMATE," OR "CONTINUE" OR THEIR
NEGATIVES OR COMPARABLE TERMS. OUR STATEMENTS IN "RISK FACTORS" CONTAINED IN
THIS PROXY STATEMENT/PROSPECTUS CONSTITUTE CAUTIONARY STATEMENTS IDENTIFYING
IMPORTANT FACTORS, INCLUDING CERTAIN RISKS AND UNCERTAINTIES, WITH RESPECT TO
OUR FORWARD-LOOKING STATEMENTS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE REFLECTED IN OUR FORWARD-LOOKING STATEMENTS.
INFORMATION INCORPORATED BY REFERENCE
THE SEC ALLOWS US TO "INCORPORATE BY REFERENCE" CERTAIN INFORMATION. YOU
CAN RECEIVE COPIES OF ANY OF THIS INFORMATION WITHOUT CHARGE BY CALLING OR
WRITING TO MSR EXPLORATION LTD., 1619 PENNSYLVANIA AVENUE, FORT WORTH, TEXAS,
76104, (817-877-3151), ATTN: SECRETARY.
IN ORDER TO ENSURE TIMELY DELIVERY OF SUCH DOCUMENTS, A REQUEST MUST BE
RECEIVED NO LATER THAN __________, 1998.
The following documents filed by MSR are incorporated by reference in this
Proxy Statement/Prospectus:
74
<PAGE>
MSR EXPLORATION LTD.
(1) Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1997
(2) Quarterly Reports on Form 10-QSB for the quarters ended March 31
and June 30, 1998
(3) Description of the MSR Common Stock set forth in MSR's
Certificate of Incorporation, as amended, included as Appendix
"F" to the Proxy Statement/Prospectus filed as an exhibit to the
Registration Statement on Form S-4 (File No. 333-29769) filed by
MSR and as an exhibit to the Registration Statement on Form S-4
(File No. 333-29783) filed by Mercury Montana, Inc., including
any amendment or report filed for the purpose of updating such
description
All documents filed with the SEC by MSR pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of effectiveness of the
Registration Statement of which this Proxy Statement/Prospectus forms a part and
prior to the date of the Meeting are incorporated herein by reference and such
documents will be deemed to be a part hereof from the date of filing of such
documents. Any statement contained in this Proxy Statement/Prospectus or in a
document incorporated or deemed to be incorporated by reference will be deemed
to be modified or superseded for purposes of this Proxy Statement/Prospectus to
the extent that a statement contained in this Proxy Statement/Prospectus or in
any other subsequently filed document that also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded will not be deemed, except as so modified or
superseded, to constitute a part of this Joint Proxy Statement/Prospectus.
OTHER MATTERS
The MSR Board and the Quicksilver Board are not aware of any matter not set
forth herein that may come before the Meeting. If, however, further business
properly comes before the meeting, the persons named in the proxies will vote
the shares represented thereby in accordance with their judgment.
LEGAL MATTERS
The validity of the Quicksilver Common Stock to be issued in connection
with the Merger has been passed upon for Quicksilver by Cantey & Hanger, L.L.P.,
Fort Worth, Texas. An opinion regarding certain federal income tax consequences
of the Merger has been rendered by Jenkens & Gilchrist, a Professional
Corporation, Dallas, Texas. Jenkens & Gilchrist has also acted as special
counsel to the MSR Special Committee in connection with the Merger.
EXPERTS
Certain information with respect to the gas and oil reserves owned by
MSR derived from the reports of Citadel Engineering, independent petroleum
engineers, has been incorporated by reference in this Proxy
Statement/Prospectus in reliance upon that firm as experts with respect to the
matters contained in those reports.
Certain information with respect to the oil and gas reserves owned by
Quicksilver derived from the reports of Mercury's petroleum engineers has
been included in this Proxy Statement/Prospectus in reliance upon those
engineers as experts with respect to the matters contained in those reports.
The information included and incorporated by reference in this Proxy
Statement/Prospectus regarding the total proved reserves of MSR was prepared
Citadel Engineering. Citadel Engineering's reserve review letter is filed as an
exhibit to the Registration Statement of which this Proxy Statement/Prospectus
is a part in reliance upon the authority of that firm as experts with respect
to the matters covered by its report and the giving of its report.
The consolidated financial statements of MSR incorporated by reference
from MSR's Annual Report on Form 10-KSB for the year ended December 31, 1997
have been incorporated by reference in this Proxy Statement/Prospectus in
reliance on the reports of Deloitte and Touche LLP, independent auditors
given on the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of Mercury for the years ended
September 30, 1997, 1996 and 1995 and the financial statements of Michigan
Gas Partners were audited by Weaver and Tidwell LLP. The audited statement of
revenues and direct operating expenses of Mercury and the report relating to
them presented in this Proxy Statement/Prospectus were audited by Weaver and
Tidwell LLP.
You should rely only on the information contained in this Proxy
Statement/Statement Prospectus or other information we have referred you to.
We have not authorized anyone to provide you with any information that is
different.
75
<PAGE>
GLOSSARY OF CERTAIN TERMS
The definitions set forth below apply to the indicated terms as used in
this Proxy Statement/Prospectus. All volumes of natural gas referred to are
stated at the legal pressure base of the state or area where the reserves exist
and at 60 degrees Fahrenheit and in most instances are rounded to the nearest
major multiple.
BBL. One stock tank barrel, or 42 U.S. gallons liquid volume, used herein
in reference to crude oil or other liquid hydrocarbons.
BOPD. Barrel of oil per day.
COMPLETION. The installation of permanent equipment for the production of
oil or gas or, in the case of a dry hole, the reporting of abandonment to the
appropriate agency.
DEVELOPED ACREAGE. The number of acres which are allocated or assignable
to producing wells or wells capable of production.
DEVELOPMENT WELL. A well drilled within the proved area of an oil or gas
reservoir to the depth of a stratigraphic horizon known to be productive.
EXPLORATORY WELL. A well drilled to find and produce oil or gas reserves
not classified as proved, to find a new reservoir in a field previously found to
be productive of oil or gas in another reservoir or to extend a known reservoir.
FIELD. An area consisting of a single reservoir or multiple reservoirs all
grouped on or related to the same individual geological structural feature
and/or stratigraphic condition.
GROSS ACRES OR GROSS WELLS. The total acres or wells, as the case may be,
in which a working interest is owned.
MBBLS. One thousand barrels of crude oil or other liquid hydrocarbons.
MCF. One thousand cubic feet.
MCF/DAY. One thousand cubic feet per day.
MCFE. One thousand cubic feet equivalent, determined using the ratio of
six Mcf of natural gas to one Bbl of crude oil, condensate or natural gas
liquids, which approximates the relative energy content of crude oil, condensate
and natural gas liquids as compared to natural gas. Prices have historically
been higher or substantially higher for crude oil than natural gas on an energy
equivalent basis.
MMBTU. One million British Thermal Units, which is the English system unit
of heat used to measure the heat content of natural gas.
MMCF. One million cubic feet.
MMCF/DAY. One million cubic feet per day.
MMCFE. One million cubic feet equivalent, determined using the ratio of
six Mcf of natural gas to one Bbl of crude oil, condensate or natural gas
liquids.
NET ACRES OR NET WELLS. The sum of the fractional working interests owned
in gross acres or gross wells.
PRESENT VALUE. When used with respect to oil and gas reserves, the
estimated future gross revenue to be generated from the production of proved
reserves, net of estimated production and future development costs, using prices
and costs in effect as of the date indicated, without giving effect to
nonproperty-related expenses such as general and administrative expenses, debt
service and future income tax expense or to depreciation, depletion and
amortization, discounted using an annual discount rate of 10%.
76
<PAGE>
PRODUCTIVE WELL. A well that is found to be capable of producing
hydrocarbons in sufficient quantities such that proceeds from the sale of such
production exceed production expenses and taxes.
PROVED DEVELOPED RESERVES. Proved reserves that can be expected to be
recovered from existing wells with existing equipment and operating methods.
PROVED RESERVES. The estimated quantities of crude oil, natural gas and
natural gas liquids that geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions.
PROVED UNDEVELOPED RESERVES. Proved reserves that are expected to be
recovered from new wells on undrilled acreage or from existing wells where a
relatively major expenditure is required for recompletion.
RECOMPLETION. The completion for production of an existing well bore in
another formation from that in which the well has been previously completed.
RESERVOIR. A porous and permeable underground formation containing a
natural accumulation of producible oil and/or gas that is confined by
impermeable rock or water barriers and is individual and separate from other
reservoirs.
SUCCESSFUL WELL. A well for which production casing has been run for a
completion attempt.
3-D SEISMIC. Advanced technology method of detecting accumulations of
hydrocarbons identified through a three-dimensional picture of the subsurface
created by the collection and measurement of the intensity and timing of sound
waves transmitted into the earth as they reflect back to the surface.
TCF. One trillion cubic feet.
UNDEVELOPED ACREAGE. Lease acreage on which wells have not been drilled or
completed to a point that would permit the production of commercial quantities
of oil and gas regardless of whether such acreage contains proved reserves.
WORKING INTEREST. The operating interest that gives the owner the right to
drill, produce and conduct operating activities on the property and a share of
production.
WORKOVER. Major remedial operations required to maintain, restore or
increase production rates.
77
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
QUICKSILVER RESOURCES INC.
Independent Auditors' Report...................................................... F-3
Balance Sheet January 1, 1998..................................................... F-4
Notes to Financial Statements..................................................... F-5
Balance Sheet June 30, 1998 (unaudited)........................................... F-11
Statement of Operations for the Six Months ended
June 30, 1998 (unaudited)................................................ F-12
Condensed Statement of Cash Flow for the Six Months ended
June 30, 1998 (unaudited)................................................ F-13
PREDECESSOR FINANCIAL STATEMENTS
QUICKSILVER RESOURCES INC.--Pre MSR merger
Unaudited Pro Forma Consolidated Balance Sheet December 31, 1997.................. F-14
Unaudited Pro Forma Consolidated Statement of Operations
for the Twelve Months Ended December 31, 1997............................ F-15
Notes to Pro Forma Consolidated Statements of Operations and Balance Sheet........ F-16
MERCURY EXPLORATION COMPANY
Independent Auditors' Report...................................................... F-17
Consolidated Balance Sheet at September 30, 1997 and 1996......................... F-18
Consolidated Statement of Income for the years
ended September 30, 1997, 1996 and 1995.................................. F-20
Consolidated Statements of Stockholders' Equity for the years
ended September 30, 1997, 1996 and 1995.................................. F-21
Consolidated Statements of Cash Flows for the years
ended September 30, 1997, 1996 and 1995.................................. F-22
Notes to Consolidated Financial Statements........................................ F-24
MERCURY EXPLORATION COMPANY-TRANSITION REPORTS
Consolidated Balance Sheet at December 31, 1997 (unaudited)....................... F-35
Consolidated Statement of Operations for the Three Months
ended December 31, 1997 (unaudited)...................................... F-36
F-1
<PAGE>
<S> <C>
Consolidated Statement of Cash Flows for the Three Months
ended December 31, 1997 (unaudited)...................................... F-37
MICHIGAN GAS PARTNERS LIMITED PARTNERSHIP
Independent Auditors' Report...................................................... F-38
Balance Sheets at December 31, 1997 and 1996 ..................................... F-39
Statements of Operations for the years ended
December 31, 1997, 1996 and 1995......................................... F-40
Statements of Partner's Capital for the years ended
December 31, 1997, 1996 and 1995......................................... F-41
Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995......................................... F-42
Notes to Financial Statements..................................................... F-43
ACQUISITIONS BY PREDECESSOR
Independent Auditors Report--Shell Michigan Properties acquired years
ended September 30, 1996 and 1995........................................ F-48
Statements of Revenues and Direct Operating Expenses--acquired years
ended September 30, 1996 and 1995 Shell Michigan Properties.............. F-49
Notes to Financial Statements..................................................... F-50
Independent Auditors' Report--Destec Michigan Properties acquired years
ended September 30, 1996 and 1995........................................ F-51
Statements of Revenues and Direct Operating Expenses--Destec Michigan Properties
acquired years ended September 30, 1997 and 1996......................... F-52
Notes to Financial Statements..................................................... F-53
</TABLE>
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Quicksilver Resources, Inc.
Fort Worth, Texas
We have audited the accompanying balance sheet of Quicksilver Resources, Inc.
as of January 1, 1998. This financial statement is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit of the balance sheet provides a reasonable basis for our
opinion.
In our opinion, such balance sheet presents fairly, in all material respects,
the financial position of the Company at January 1, 1998 in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
October 2, 1998
F-3
<PAGE>
QUICKSILVER RESOURCES INC.
Balance Sheet
January 1, 1998
In thousands
<TABLE>
<CAPTION>
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 56
Accounts receivable 660
Inventories 407
------------
Total current assets 1,123
------------
PROPERTIES, PLANT AND EQUIPMENT - NET ("full cost") 112,856
$ 113,979
------------
------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 73
Accounts payable 710
Accrued liabilities 0
------------
Total current liabilities 783
------------
LONG-TERM DEBT 74,096
------------
UNEARNED REVENUES 2,680
------------
DEFERRED INCOME TAXES 8,829
------------
STOCKHOLDERS' EQUITY
Preferred stock, par value $0.01
Authorized 10,000,000 shares
Issued and outstanding - none 0
Common stock, par value $0.01
Authorized 40,000,000 shares,
Issued and outstanding 100,000 1
Additional paid in capital 27,590
Retained earnings 0
------------
Total stockholders' equity 27,591
------------
$ 113,979
------------
------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
QUICKSILVER RESOURCES INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. BUSINESS COMBINATION
On January 1, 1998, Mercury Exploration Company (Mercury), Quicksilver
Energy, L.C. (QELC), Michigan Gas Partners Limited Partnership (Michigan Gas
Partners), Trust Company of the West (TCW), Joint Energy Development Investments
Limited Partnership (JED]), and Quicksilver Resources, Inc.(Quicksilver) entered
into an agreement and plan of reorganization and merger to combine certain oil
and gas properties owned by Mercury, QELC, and Michigan Gas Partners by causing
Michigan Gas Partners to be merged with Quicksilver and by causing certain
assets and liabilities of Mercury and QELC to be transferred to and assumed by
Quicksilver. Quicksilver was the surviving corporation of the merger.
In the business combination, the surviving corporation issued 13,000
shares of common stock, $.01 par value, for all JEDI partnership interests in
Michigan Gas Partners. Mercury did not receive consideration for its partnership
interests in Michigan Gas Partners. Quicksilver issued 32,257 shares of common
stock to Mercury in exchange for certain Mercury oil and gas properties in
Michigan and Wyoming, and Quicksilver assumed debts related to the oil and gas
properties transferred from Mercury. Quicksilver also issued 29,395 shares of
Quicksilver common stock to QELC in exchange for all of QELC's oil and gas
properties in Michigan and Wyoming. In addition, Quicksilver assumed debts
related to QELC's oil and gas producing properties. Quicksilver issued 12,348
shares of common stock to individuals for their interests in the assets of
Mercury and QELC to be transferred to Quicksilver in the business combination.
Quicksilver satisfied debt owed to TCW under a credit agreement dated November
14, 1996, by paying $17,075,000 in cash to TCW and by issuing common stock to
TCW in exchange for a $10,000,000 credit on the debt.
In negotiating the number of Quicksilver common shares to be issued to
the entities mentioned above, consideration was given to the value of the assets
transferred by each respective entity,
2. SIGNIFICANT ACCOUNTING POLICIES
The accounting policy relative to the carrying value of property and equipment
is indicated in the caption on the balance sheets. The nature of operations and
other significant accounting policies are as follows:
NATURE OF OPERATIONS
Quicksilver Resources Inc. was formed to own various oil and gas properties in
the states of Michigan and Wyoming. Substantially all of the Company's revenue
is derived from the production and sale of natural gas, condensate, and plant
products.
ACCOUNTS RECEIVABLE
The Company's customers are large oil and natural gas purchasers. The Company
does not require collateral and receivables are generally due in 30-60 days.
Management considers all accounts receivable current and collectible;
accordingly, no allowance for doubtful accounts has been established.
MAJOR CUSTOMERS
At January 1, 1998, three purchasers: Consumers Power, Howard Energy, and
Unocal, accounted for approximately 20%, 30% and 20% respectively of the
Company's total consolidated oil and gas sales. The Company does not anticipate
that the loss of any of its present purchasers would adversely effect the
Company's consolidated business. The Company also believes that, in the event of
a loss of a present purchaser, other oil and gas purchasers located in the
Company's areas of production would offer competitive prices for such
production.
F-5
<PAGE>
INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out method) or
market and consist of crude oil in tanks and well equipment spares and supplies.
PROPERTIES, PLANT AND EQUIPMENT
The Company follows the "full cost" method of accounting for oil and gas
properties whereby all costs associated with acquiring, exploring for, and
developing oil and gas reserves are capitalized and accumulated in cost centers
established on a country-by-country basis. Such costs include land acquisition
costs, geological and geophysical expenses, carrying charges on non-producing
properties, costs of drilling both productive and non-productive wells, and
overhead charges directly related to acquisition, exploration and development
activities.
The capitalized costs related to each cost center, including the estimated
future costs to develop proved reserves and the costs of production equipment,
are amortized using the unit-of-production method based on the estimated net
proved reserves as determined by independent petroleum engineers. Investments in
unproved properties are not amortized until proven reserves associated with them
can be determined or until impairment occurs. Oil and natural gas reserves and
production are converted into equivalent units based upon estimated relative
energy content.
The capitalized costs less accumulated depletion and depreciation in each cost
center are limited to an amount equal to the estimated future net revenue from
proved reserves discounted at a ten percent interest rate (based on prices and
costs at the balance sheet date) plus the lower of cost (net of impairments) or
fair market value of unproved properties.
Proceeds from the sale of oil and gas properties are applied against capitalized
costs, with no gain or loss recognized, unless such a sale would significantly
alter the relationship between capitalized costs and proved reserves of oil and
gas, in which case the gain or loss is recognized in income.
Other plant and equipment are depreciated on the straight-line basis as follows:
Gas processing plants and gathering systems - over eight years
Other equipment - over three to seven years
Potential impairment of producing properties and significant unproved properties
and other plant and equipment are assessed annually (unless economic events
warrant more frequent reviews). In addition, a quarterly impairment analysis of
aggregated properties is performed by the Company using discounted future net
cash flows determined based upon current prices and costs.
REVENUE RECOGNITION
The Company recognizes revenue as quantities of oil and gas sold or volumes of
gas transported, and utilizes the entitlement method of accounting for oil and
gas imbalances. Under this method, the Company recognizes revenue for its
proportionate share of volumes sold. Any over-produced amount is recorded as
deferred revenue and any underproduced amount is recorded as current revenue and
revenue receivable. The Company had no significant over or underproduced
positions as of January 1, 1998.
ENVIRONMENTAL COMPLIANCE AND REMEDIATION
Environmental compliance costs, including on going maintenance and monitoring,
are expensed as incurred. Environmental remediation costs, which improve the
condition of a property, are capitalized.
DEFERRED CHARGES
Financing charges related to the acquisition of debt are deferred and amortized
over the term of that debt using the effective interest method.
F-6
<PAGE>
JOINT VENTURE OPERATIONS
Certain of the Company's exploration and development activities relating to oil
and gas are conducted jointly with others. The accompanying financial statements
reflect only the Company's proportionate interest in such activities.
INCOME TAXES
Income taxes provide for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes
related primarily to differences between the basis of properties, plant and
equipment for financial and income tax reporting. The deferred tax assets and
liabilities represent the future tax return consequences of those differences,
which will either be taxable or deductible when the assets and liabilities are
recovered or settled.
CASH EQUIVALENTS AND TIME DEPOSITS
The Company considers all highly liquid investments purchased with a maturity of
three months or less to be cash equivalents. Investments with an original
maturity in excess of three months are considered to be time deposits.
DISCLOSURE OF FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments include cash, time deposits, accounts
receivable, and notes payable, accounts payable and long-term debt. The Company
estimates that the carrying amount of these items is a reasonable estimate of
their fair value.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements, as
well as the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income,"
which establishes standards for reporting comprehensive income and its
components (revenues, expenses, gains and losses) in a full set of
general-purpose statements. It requires (a) classification of items of other
comprehensive income by their nature in a financial statement and (b) display of
the accumulated balance of other comprehensive income separate from retained
earnings and additional paid-in surplus in the equity section of the statement
of financial position. The Company plans to adopt SFAS No. 130 effective January
1, 1998.
3. PROPERTIES, PLANT AND EQUIPMENT
Capitalized costs are shown below in thousands.
<TABLE>
<CAPTION>
January 1, 1998 June 30, 1998
--------------- -------------
(unaudited)
<S> <C> <C>
Proved oil and gas properties $ 108,127 $ 115,030
Unproved oil and gas interests 3,790 3,790
Accumulated depletion and depreciation (0) (5,328)
--------------- -------------
111,917 113,492
Other equipment 939 939
Accumulated depreciation 0 (47)
--------------- -------------
$ 112,856 $ 114,384
</TABLE>
F-7
<PAGE>
4. NOTE PAYABLE AND LONG-TERM DEBT
<TABLE>
<CAPTION>
January 1, 1998 June 30, 1998
--------------- -------------
(unaudited)
<S> <C> <C>
Long-term debt, in thousands, consists of:
Note payable to a bank
(7.6% at January 1, 1998) $73,955 $70,350
Various equipment loans 214 181
--------------- -------------
74,169 70,531
Less current maturities (73) (61)
--------------- -------------
$74,096 $70,470
</TABLE>
Long-term debt maturities are as follows, in thousands of dollars:
<TABLE>
<CAPTION>
Periods Ending December 31, 1997 June 30, 1998
-------------- ----------------- -------------
(unaudited)
<S> <C> <C>
1998 $73 $61
1999 73 61
2000 68 59
2001 None None
2002 73,955 70,350
Thereafter None None
------- -------
$74,169 $70,531
</TABLE>
As part of the reorganization and merger by and among the Company,
Quicksilver Energy L.C., Michigan Gas Partners, Limited Partnership, Mercury
Exploration Company, Trust Company of the West and Joint Energy Development
Investments Limited Partnership; a new credit agreement was established by
the Company. Existing debt of $27,000,000 and $40,268,000 from Quicksilver
Energy L.C. and Mercury Exploration Company was transferred into the new
credit agreement. The new agreement is for a $100,000,000 senior secured
revolving credit facility with an initial borrowing base of $75,000,000. The
credit facility matures on the earlier of January 31, 1999 or the completion
of the merger. The Company has obtained a commitment letter from the bank to
refinance the debt. The Company can designate the interest rate on amounts
outstanding at either the London Interbank Offered Rate (LIBOR) + 1.75%, or
bank prime. The collateral for this loan agreement consists of substantially
all of the existing assets of the Company and any future reserves acquired.
The loan agreement contains certain restrictive covenants, which, among other
things, require the maintenance of a minimum current ratio, net worth, debt
service ratio and contains restrictions on dividends.
The terms of the credit agreement allow the amortization of the principal to be
determined after the QRI's merger with MSR. QRI can select any portion of the
loan principal to amortized over five years with the remaining balance due at
the end of the five-year term.
5. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The significant
components of the Company's deferred tax liabilities of $8,829,000 as of
January 1, 1998 were $7,301,000 for property, plant and equipment and $1,528,000
for unearned revenue.
6. UNEARNED REVENUES
The Quicksilver Properties include certain properties, which carry IRS Code
Section 29 income tax benefits. IRS Code Section 29 allows a credit against
regular federal income tax liability for certain eligible gas production.
During 1997 these credits were conveyed through the sale of the working
interests to a bank. The agreement with the bank provided
F-8
<PAGE>
that the Company would receive cash, payment for future production on the
properties and payment for a portion of tax credits taken by the bank. The
agreement included a fixed payment note which provides for the Company to
receive a minimum of approximately $7 million plus interest for the future
production on the properties. A portion of the initial cash payment represented
advance payment for the first eighteen months of tax benefits. At January 1,
1998 and June 30, 1998, a balance of $2,680,000 and $1,957,000 respectively, in
unearned revenues existed as a result of the cash consideration received in
excess of the tax benefit earned. The amount of $2,005,000 represents the
advance payment on tax benefits, which will be recognized as earned during 1998
and 1999. The balance of $675,000 will remain unearned until the tax benefits
of the IRS Code Section 29 expire on December 31, 2002.
7. STOCKHOLDER'S EQUITY
The Company is authorized to issue 40 million shares of common stock with a par
value of one cent ($0.01) and 10 million shares of preferred stock with a par
value of one cent ($0.01). The Company currently has 100,000 shares of common
stock outstanding.
As part of the proposed merger with MSR Exploration Ltd., the Company has
agreed to exchange one share of its common stock for each 10 shares of MSR
common stock. To effect the exchange ratio, the present stockholders of the
Company will be issued an additional 10,210,800 shares in the form of a stock
dividend. Upon completion of the merger the present stockholders will own
10,310,800 (80%) of the shares of the Company and former MSR stockholders will
own approximately 2,577,700 (20%) of the common shares of the Company.
8. RELATED PARTY TRANSACTIONS
When the Company was formed on January 1, 1998 it entered into a Management
Agreement (the Management Agreement) with Mercury Exploration Company (Mercury)
to act as operator of the Company's oil and gas properties in Michigan, Wyoming
and Montana under a joint operating agreement. The Company presently has no
operating employees, Mercury performs all operations on behalf of the Company.
In its capacity as operator, Mercury pays all costs and expenses of operations
and distributes all net revenues associated with the Company's properties. The
Company reimburses Mercury for its actual cost for direct and indirect expenses
incurred by Mercury for the benefit of the Company and its properties. The
indirect expenses for which Mercury is reimbursed include employee
compensation, office rent, office supplies and employee benefits. Mercury does
not receive any fees for its services.
Mercury generally allocates its expenses among the Company and other entities
for which Mercury's services are provided by multiplying the aggregate amount
of the indirect expenses incurred by Mercury by the time that the employees o
Mercury spend on managing the Quicksilver Properties and dividing by the
aggregate time that the employees of Mercury spend on all the entities for
which Mercury provides similar services.
Mercury owns 31,538 (31.5%) shares of the Company's common stock and three of
Mercury's directors and officers Frank Darden, Thomas Darden and Glenn Darden
- -are also directors and officers of the Company.
9. OIL AND GAS RESERVES INFORMATION (UNAUDITED)
Unaudited reserve information related to the Quicksilver properties is
presented in the tables below and is based on a report prepared by Mercury's
petroleum engineers as of December 31, 1997.
ESTIMATED QUANTITIES OF PROVED RESERVES
<TABLE>
<CAPTION>
Oil Gas
(MBbl) (MMcf)
<S> <C> <C>
Proved Reserves
As of December 31, 1997 15,066 117,615
Proved Developed Reserves
As of December 31, 1997 4,520 103,185
</TABLE>
F-9
<PAGE>
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED OIL
AND GAS RESERVES
The standardized measure of discounted future net cash flows ("Standardized
Measure") is a disclosure required by the Financial Accounting Standards Board.
The Standardized Measure does not purport to present the fair market value of
the proved oil and gas reserves. This would require consideration of expected
future economic and operating conditions, which are not taken into account in
calculating the Standardized Measure.
Under the Standardized Measure, future cash inflows were estimated by applying
December 31, 1997 prices to the estimated future production of proved reserves.
Future cash inflows were reduced by estimated future production and development
costs based on December 31, 1997 costs to determine pre-tax cash inflows.
Future net cash inflows were discounted using a 10% annual discount rate to
arrive at the Standardized Measure. The following Standardized Measure is based
on the reserve estimate prepared by Mercury's petroleum engineers as of
December 31, 1997. Year to year changes in the Standardized Measure are not
presented due to insufficient technical data available to estimate reserves at
December 31, 1996.
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED
RESERVES
<TABLE>
<S> <C>
Future cash flows $450,827
Future production and development costs (230,031)
Future income tax expense (21,259)
-----------
Future net cash flows 199,537
10% annual discount for estimated timing of cash flows (90,267)
-----------
Standardized measure of discounted future net cash flows $109,270
-----------
-----------
</TABLE>
Changes in the supply and demand for oil, natural gas and natural gas liquids,
hydrocarbon price volatility, inflation, timing of production, reserve
revisions and other factors make these estimates inherently imprecise and
subject to substantial revision. As a result, these measures are not the
Company's estimate of future cash flows nor do these measures serve as an
estimate of current market value.
F-10
<PAGE>
QUICKSILVER RESOURCES INC.
Balance Sheet
June 30, 1998
In thousands
(Unaudited)
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 238
Accounts receivable 5,205
Inventories 408
------------
Total current assets 5,851
------------
PROPERTIES, PLANT AND EQUIPMENT - NET ("full cost") 114,384
OTHER ASSETS 255
------------
$ 120,490
------------
------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 61
Accounts payable 5,852
Accrued liabilities 1,912
------------
Total current liabilities 7,825
------------
LONG-TERM DEBT 70,470
------------
UNEARNED REVENUES 1,957
------------
DEFERRED INCOME TAXES 9,829
------------
STOCKHOLDERS' EQUITY
Preferred stock, par value $0.01
Authorized 10,000,000 shares
Issued and outstanding - none 0
Common stock, par value $0.01
Authorized 40,000,000 shares,
Issued and outstanding 100,000 1
Additional paid in capital 27,589
Retained earnings 2,819
------------
Total stockholders' equity 30,409
------------
$ 120,490
------------
------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-11
<PAGE>
QUICKSILVER RESOURCES INC.
Statement of Operations
For the Six Months Ended June 30, 1998
In thousands of Dollars except for per share amounts
(Unaudited)
<TABLE>
<S> <C>
REVENUES
Gas sales $ 15,418
Oil sales 2,564
Interest and other income 1,341
------------
Total revenues 19,323
------------
EXPENSES
Operating expenses 5,433
Production taxes 954
Depletion and depreciation 5,375
General and administrative 49
Interest 3,234
------------
Total expenses 15,045
------------
Income before income taxes 4,278
Income tax (1,459)
------------
Net income $ 2,819
------------
------------
Basic and diluted per share net income $ 28.19
------------
------------
Weighted average number of shares outstanding 100
------------
------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-12
<PAGE>
QUICKSILVER RESOURCES INC.
Statement of Cash Flow
Six Months Ended June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
In thousands
<S> <C>
OPERATING ACTIVITIES
Net income $ 2,819
Charges and credits to net loss not affecting cash
Depletion and depreciation 5,375
Deferred income taxes 999
Deferred unearned revenues (723)
Changes in assets and liabilities
Accounts receivable (4,545)
Accounts payable, accrued liabilities and other assets 6,799
----------
NET CASH FROM (USED FOR) OPERATING ACTIVITIES 10,724
----------
INVESTING ACTIVITIES
Acquisition of properties and equipment (6,904)
----------
NET CASH FROM (USED FOR) OPERATING ACTIVITIES (6,904)
----------
FINANCING ACTIVITIES
Notes payable, bank proceeds 6,500
Principal payments on long-term debt (10,138)
----------
NET CASH FROM (USED FOR) FINANCING ACTIVITIES (3,638)
----------
NET INCREASE (DECREASE) IN CASH 182
CASH AT BEGINNING OF PERIOD 56
----------
CASH AT END OF PERIOD $ 238
----------
----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash payments for interest expense $ 2,028
----------
----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-13
<PAGE>
QUICKSILVER RESOURCES INC.
Unaudited Pro Forma Consolidated Balance Sheet
December 31, 1997
In thousands
<TABLE>
<CAPTION>
ADJUSTMENTS
---------------------------
MERCURY MICHIGAN
AND GAS EXCLUDED IN QUICKSILVER
QELC(a) PARTNERS(b) FORMATION(c) OTHER PRO FORMA
---------------- ------------- --------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash, cash equivalents and time deposits $ 6,844 $ 56 $ (6,844) $ 56
Securities available for sale 27 (27) 0
accounts receivable 19,635 669 (19,644) 660
Inventories 899 0 (492) 407
Notes receivable - current portion 81 0 (81) 0
---------------- ------------- --------------- ----------- --------------
Total current assets 27,486 725 (27,088) 0 1,123
PROPERTIES, PLANT AND EQUIPMENT
Oil and gas properties ("successful efforts") 109,591 13,668 (11,889) 547 (h) 111,917
Land, buildings and leasehold
improvements 1,407 (1,407)
Furniture and equipment 683 (683)
Field equipment 745 194 939
---------------- ------------- -------------- ----------- --------------
112,426 13,668 (13,785) 547 112,856
Less accumulated depreciation and
depletion 10,157 4,558 (14,715) 0
---------------- ------------- --------------- ----------- --------------
102,269 9,110 930 547 112,856
OTHER ASSETS 302 0 (302) 0
INVESTMENT IN PARTNERSHIPS AND MSR 6,675 0 (6,675) 0
---------------- ------------- --------------- ----------- --------------
$ 136,732 $ 9,835 $ (33,135) $ 547 $ 113,979
---------------- ------------- --------------- ----------- --------------
---------------- ------------- --------------- ----------- --------------
LIABILITIES AND STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 13,335 $ 0 $ (13,262) $ 73
Accounts payable 6,744 150 (6,184) 710
Accrued liabilities 6,731 0 (6,731) 0
---------------- ------------- --------------- --------------
Total current liabilities 26,810 150 (26,177) 783
---------------- ------------- --------------- --------------
LONG-TERM DEBT 75,275 0 (1,179) 74,096
---------------- ------------- --------------- --------------
UNEARNED REVENUES 2,567 232 (119) 2,680
---------------- ------------- --------------- --------------
DEFERRED INCOME TAXES 7,070 0 1,760 8,829
---------------- ------------- -------------- --------------
MINORITY INTEREST IN SUBSIDIARIES 7,494 (7,494) 0
---------------- ------------- --------------- --------------
STOCKHOLDERS' EQUITY
Preferred stock, par value $0.01
Authorized 10,000,000 shares
Issued and outstanding - none 0 0
Common stock, without par value
Authorized 40,000,000 shares,
Issued and outstanding 100,000 0 1 (h) 1
Common stock, no par value
Authorized 1,000,000 shares,
Issued and outstanding 250,950 1,087 (1,087) (h) 0
Additional paid in capital 0 27,042 547 (h)(i) 27,590
Partners' capital
0 9,453 (9,453) (h)(i) 0
Retained earnings (deficit) 16,429 (16,429) (h) 0
---------------- ------------- --------------- ----------- --------------
Total stockholders' equity 17,516 9,453 74 547 27,591
---------------- ------------- -------------- ----------- --------------
$ 136,732 $ 9,835 $ (33,135) $ 547 $ 113,979
---------------- ------------- --------------- ----------- --------------
---------------- ------------- --------------- ----------- --------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-14
<PAGE>
QUICKSILVER RESOURCES INC.
Unaudited Pro Forma Consolidated Statement of Operations
For the Year Ended December 31, 1997
In thousands
<TABLE>
<CAPTION>
ADJUSTMENTS
-----------------------------
MERCURY MICHIGAN
AND GAS EXCLUDED IN QUICKSILVER
QELC(a) PARTNERS(b) FORMATION(c) OTHER PRO FORMA
--------------- --------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
OIL AND GAS REVENUES $ 42,315 $ 3,004 $ (12,575) $ 7,257 (d) $ 40,001
COST AND EXPENSES
Operating expenses 17,077 2,036 (8,186) 1,592 (d) 12,519
Depletion and depreciation 6,904 955 (529) 1,313 (d)(e) 8,643
General and administrative 1,870 11 (931) (f) 950
--------------- --------------- --------------- ------------- ---------------
Income from operations 16,464 2 (2,929) 4,352 17,889
OTHER INCOME (EXPENSE)
Gain on sale of assets - - 0 -
Interest expense (5,939) - 376 (5,563)
Interest income 75 - (75) -
Equity in partnerships 626 - (626) -
Management fee income 207 - (207) -
Rental income 198 - (198) -
Income from litigation settlement 2,781 (2,781) -
Miscellaneous income 480 17 (480) 17
--------------- --------------- --------------- ------------- ---------------
Income before income taxes
and minority interests 14,892 19 (6,920) 4,352 12,343
MINORITY INTEREST IN INCOME OF
SUBSIDIARY 5,923 - (5,923) - -
--------------- --------------- --------------- ------------- ---------------
Income before income taxes 8,969 19 (997) 4,352 12,343
INCOME TAXES 3,259 - - 938 (g) 4,197
--------------- --------------- --------------- ------------- ---------------
NET INCOME $ 5,710 $ 19 $ (997) $ 3,414 $ 8,146
--------------- --------------- --------------- ------------- ---------------
--------------- --------------- --------------- ------------- ---------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-15
<PAGE>
NOTES TO PROFORMA CONSOLIDATED STATEMENT OF
OPERATIONS AND BALANCE SHEET
1. Pro Forma Adjustments
The accompanying unaudited pro forma consolidated statements of operations
reflect the following adjustments.
(a) The information reflected as "Mercury and QELC" is historical
information from Mercury Exploration Company's consolidated financial
statements, which includes QELC. The information has been adjusted for
a change in fiscal year to a December 31, year-end. For the statement
of operations, data for three months ended December 31, 1997, was added
to 12 months ended September 30, 1997, and data for three months ended
December 31, 1996 was then subtracted.
(b) The information reflected as "Michigan Gas Partners" is historical
information for Michigan Gas Partners Limited Partnership.
(c) All of the amounts included in the adjustment column "Excluded in
Formation" are for the assets and liabilities and associated revenues
and expenses, which were excluded in the Formation of Quicksilver.
(d) Pro forma revenues, operating expenses and depreciation and depletion
expenses relating to producing properties acquired from Destec are
included in the adjustment column. The pro forma amounts are for the
period from January 1, 1997 to date of purchase October 1, 1997.
Subsequent to October 1, 1997, the results of operations from the
Destec properties were included in historical financial statements.
(e) Depreciation, depletion and amortization expense ("DD&A") has been
computed using the units of production method.
(f) General and administrative expenses were allocated to the remaining
operating units of Mercury and to Quicksilver.
(g) Income taxes were computed on a pro forma basis using an effective rate
of 34 percent.
The accompanying unaudited pro forma balance sheet reflects the following
adjustment.
(h) Michigan Gas Partners' net assets were revalued based on their market
value. MGP's owner, principally JEDI, received 13 percent of
Quicksilver's common stock. TCW exchanged $10,000,000 of debt for 13
percent of Quicksilver's common stock, which sets the value for MPG net
assets at $10,000,000. Mercury and QELC were companies under common
control and under provisions of APB 16; the net assets of these
entities were recorded at historical cost.
(i) To eliminate the common stock of Mercury and equity of MGP and adjust
for the issuance of 100,000 shares of Quicksilver common stock.
F-16
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Stockholders
Mercury Exploration Company
Fort Worth, Texas
We have audited the accompanying consolidated balance sheets of Mercury
Exploration Company as of September 30, 1997 and 1996 and the related
consolidated statements of income, stockholders' equity and cash flows for
each of the three years in the period ended September 30, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Mercury
Exploration Company as of September 30, 1997 and 1996, and the results of its
operations and its cash flows for each of the three years in the period ended
September 30, 1997, in conformity with generally accepted accounting
principles.
As described in Note 13, the Company has changed its accounting policy for
accounting for oil and gas properties from the successful efforts method to
the full cost method.
WEAVER AND TIDWELL, L.L.P.
Fort Worth, Texas
October 26, 1998
3134
F-17
<PAGE>
MERCURY EXPLORATION COMPANY
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
-------- --------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash $ 4,530 $ 2,958
Securities available for sale 30 40
Trade accounts receivable 9,226 6,494
Other accounts receivable 110 -
Inventory, at lower of average cost or market 754 887
Notes receivable - current portion 27 40
-------- --------
Total current assets 14,677 10,419
INVESTMENT IN PARTNERSHIPS 6,937 6,200
PROPERTY AND EQUIPMENT
Oil and gas properties
Proven 85,665 25,979
Unproven 1,305 1,710
Land, buildings and leasehold improvements 1,579 1,174
Furniture and equipment 594 478
Transportation equipment 582 502
-------- --------
89,725 29,843
Less accumulated depreciation and depletion 8,621 2,720
-------- --------
81,104 27,123
OTHER ASSETS
Drilling bonds 162 274
Deposit on property acquisition - 6,170
-------- --------
162 6,444
-------- --------
TOTAL ASSETS $102,880 $50,186
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-18
<PAGE>
<TABLE>
<CAPTION>
1997 1996
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Current maturities of long-term debt $ 13,534 $ 3,415
Accounts payable 6,055 4,655
Accrued liabilities 1,698 3,635
Advances payable 2,360 2,839
Royalties payable 1,984 1,483
Accounts payable - related partnerships 107 168
Income taxes payable - 37
Unearned income 2,072 -
-------- --------
Total current liabilities 27,810 16,232
DEFERRED INCOME TAXES 6,650 3,939
LONG-TERM LIABILITIES
Long-term debt 47,174 19,560
MINORITY INTEREST IN SUBSIDIARIES 5,930 28
STOCKHOLDERS' EQUITY
Common shares, no par value,
1,000,000 shares authorized;
250,950 shares issued and outstanding 1,087 1,087
Retained earnings 14,229 9,340
-------- --------
15,316 10,427
-------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $102,880 $50,186
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE>
MERCURY EXPLORATION COMPANY
CONSOLIDATED STATEMENTS OF INCOME
SEPTEMBER 30, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
OIL AND GAS REVENUE $ 41,328 $ 17,388 $ 6,703
COSTS AND EXPENSES
Production 16,454 11,907 3,849
General and administrative expenses 1,784 1,372 1,234
Depreciation, depletion and amortization 5,918 986 349
---------- ---------- ----------
Income from operations 17,172 3,123 1,271
OTHER INCOME (EXPENSE)
Gain on sale of assets - - 5
Interest expense (5,414) (1,620) ( 324)
Interest income 196 200 239
Equity in partnership income 731 1,010 884
Management fee income 204 176 162
Rental income 221 189 99
Miscellaneous income (expense) 386 417 (189)
---------- ---------- ----------
Income before minority interest
and income taxes 13,496 3,495 2,147
MINORITY INTEREST IN INCOME OF SUBSIDIARIES 5,687 28 -
---------- ---------- ----------
Income before income taxes 7,809 3,467 2,147
INCOME TAXES 2,694 1,219 684
---------- ---------- ----------
NET INCOME $ 5,115 $ 2,248 $ 1,463
---------- ---------- ----------
---------- ---------- ----------
WEIGHTED AVERAGE SHARES OUTSTANDING 250,950 250,950 250,950
---------- ---------- ----------
---------- ---------- ----------
EARNINGS PER SHARE $ 20.38 $ 8.96 $ 5.83
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE>
MERCURY EXPLORATION COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
SEPTEMBER 30, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
Common Retained
Shares Earnings Total
------------ ------------ ------------
<S> <C> <C> <C>
BALANCE,
September 30, 1994 1,087 5,629 6,716
Net income - 1,463 1,463
------------ ------------ ------------
BALANCE,
September 30, 1995 1,087 7,092 8,179
Net income - 2,248 2,248
------------ ------------ ------------
BALANCE,
September 30, 1996 1,087 9,340 10,427
Distribution to shareholders - ( 226) ( 226)
Net income - 5,115 5,115
------------ ------------ ------------
BALANCE,
September 30, 1997 $ 1,087 $ 14,229 $ 15,316
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE>
MERCURY EXPLORATION COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
SEPTEMBER 30, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $39,687 $15,568 $ 7,111
Rent received 221 188 99
Interest received 196 200 239
Cash paid to suppliers and employees ( 19,204) ( 10,290) ( 5,002)
Interest paid ( 5,414) ( 1,620) ( 295)
Income tax paid ( 130) ( 95) ( 49)
---------- ---------- ----------
Net cash provided by operating activities 15,356 3,951 2,103
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of marketable equity securities 14 3 9
Proceeds from sale of assets 586 560 -
Redemption of bonds 112 - 58
Repayment of advance from affiliates - 313 854
Distribution received from partnerships 1,194 1,192 225
Purchases of bonds - ( 71) 90
Payments received on notes receivable 12 60 ( 156)
Advance from affiliates ( 61) - ( 16)
Purchases of marketable equity securities ( 4) ( 14) ( 27)
Deposits paid on property acquisitions - ( 4,370) ( 1,800)
Investments in partnerships ( 1,200) - ( 2,838)
Capital expenditures ( 54,231) ( 19,779) ( 2,227)
---------- ---------- ----------
Net cash used in investing activities ( 53,578) ( 22,106) ( 5,828)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 89,052 17,888 5,950
Payment on advance from stockholders - - ( 47)
Proceeds from production loans 5,271 - -
Payments on production loans ( 3,199) - -
Distributions to minority interest ( 11) - -
Principal paid on long-term debt ( 51,319) ( 1,093) ( 52)
---------- ---------- ----------
Net cash provided by financing activities 39,794 16,795 5,851
---------- ---------- ----------
Net increase (decrease) in cash 1,572 ( 1,360) 2,126
CASH, beginning of period 2,958 4,318 2,192
---------- ---------- ----------
CASH, end of period $ 4,530 $ 2,958 $ 4,318
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE>
MERCURY EXPLORATION COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
SEPTEMBER 30, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
RECONCILIATION OF NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
Net income $ 5,115 $ 2,248 $ 1,463
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and depletion 5,918 986 349
Minority interest in income 5,687 28 -
Gain on sale of assets - - ( 5)
Partnership income ( 731) ( 1,010) ( 884)
Deferred income taxes 2,710 1,114 622
Changes in operating assets and liabilities
Accounts receivable ( 2,732) 2,322 ( 731)
Inventory 134 ( 499) ( 388)
Prepaid expenses - - 2,094
Accounts payable 1,400 261 931
Accrued liabilities ( 1,937) 2,434 ( 87)
Advances payable ( 479) 891 ( 3,440)
Royalties payable 501 ( 4,735) 1,866
Income taxes payable ( 147) 10 12
Other ( 83) ( 99) 301
---------- ---------- ----------
Net cash provided by operating activities $ 15,356 $ 3,951 $ 2,103
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
During 1997, notes payables were issued in exchange for assets of
approximately $152,000.
In 1997, stockholders' equity was reduced by approximately $226,000 as
a result of transfer of property to shareholders.
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE>
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The nature of operations and significant accounting policies are as
follows:
NATURE OF OPERATIONS
Mercury Exploration Company's (the Company) operations consist
primarily of oil and gas development and production in Texas, New
Mexico, Montana, Wyoming, Michigan, Indiana, Kansas, Oklahoma, Kentucky
and North Dakota.
CONSOLIDATION POLICY
The accompanying consolidated financial statements include the accounts
of the Company, its wholly-owned subsidiary, Mercury Michigan, Inc.,
Quicksilver Pipeline, L.L.C. (organized in 1996) of which the Company
owns 52%, Quicksilver Energy, L.C. (organized in 1996) of which the
Company owns 52%, and Mercury Montana, Inc. (organized in 1997) of
which the Company owns 54%. As a result of the consolidation,
intercompany transactions have been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
FINANCIAL INSTRUMENTS
Financial instruments of the Company consist of cash, marketable equity
securities, accounts receivable, notes receivable, investments in
partnerships, accounts payable and debt. Recorded values of cash,
accounts receivable, notes receivable and accounts payable approximate
fair values due to the short maturities of the instruments. Investments
in partnerships consist of ownership interests in privately held
entities with no quoted market prices. An estimate of fair value cannot
be made without incurring excessive costs. Investments in marketable
equity securities were determined by quoted prices. Recorded values of
notes payable approximate fair values based upon current interest
rates.
INVENTORY
Inventory consists of oil and gas equipment available for use in
production.
OIL AND GAS PROPERTY AND EQUIPMENT
The Company follows the "full cost" method of accounting for oil and
gas properties whereby all costs associated with acquiring, exploring
for, and developing oil and gas reserves are capitalized and
accumulated in cost centers established on a country-by-country basis.
Such costs include land acquisition costs, geological and geophysical
expenses, carrying charges on non-producing properties, costs of
drilling both productive and non-productive wells, and overhead charges
directly related to acquisition, exploration and development
activities.
F-24
<PAGE>
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
OIL AND GAS PROPERTY AND EQUIPMENT
The capitalized costs related to each cost center, including the
estimated future costs to develop proved reserves and the costs of
production equipment, are amortized using the unit-of-production method
based on the estimated net proved reserves as determined by independent
petroleum engineers. Investments in unproved properties are not
amortized until proven reserves associated with them can be determined
or until impairment occurs. Oil and natural gas reserves and production
are converted into equivalent units based upon estimated relative
energy content.
The capitalized costs less accumulated depletion and depreciation in
each cost center are limited to an amount equal to the estimated future
net revenue from proved reserves discounted at a ten percent interest
rate (based on prices and costs at the balance sheet date) plus the
lower of cost (net of impairments) or fair market value of unproved
properties.
Proceeds from the sale of oil and gas properties are applied against
capitalized costs, with no gain or loss recognized, unless such a sale
would significantly alter the relationship between capitalized costs
and proved reserves of oil and gas, in which case the gain or loss is
recognized in income.
OTHER PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is provided for
using the straight-line and accelerated methods. Depreciation methods
are designed to amortize the cost of assets over their estimated useful
lives. Estimated useful lives of major categories of property and
equipment are as follows:
<TABLE>
<CAPTION>
<S> <C>
Land, buildings and leasehold improvements 40 years
Furniture and equipment 5 - 10 years
Transportation equipment 5 years
</TABLE>
Maintenance, repairs, renewals and betterments, which do not enhance
the value or increase the basic productive capacity of assets are
charged to expense as incurred.
INVESTMENTS IN SECURITIES
The Company has adopted Statement No. 115, ACCOUNTING FOR CERTAIN
INVESTMENTS IN DEBT AND EQUITY SECURITIES, issued by the Financial
Accounting Standards Board. In accordance with Statement No. 115, the
Company's investments in securities are classified as follows:
TRADING SECURITIES - Investments in debt and equity securities
held principally for resale in the near term are classified as
trading securities and recorded at their fair values. Unrealized
gains and losses on trading securities are included in other
income. The Company does not, nor does it intend to, trade
investments that it owns.
F-25
<PAGE>
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
SECURITIES TO BE HELD TO MATURITY - Debt securities for which the
Company has the positive intent and ability to hold to maturity
are reported at cost, adjusted for amortization of premiums and
accretion of discounts which are recognized in interest income
using the interest method over the period to maturity.
SECURITIES AVAILABLE FOR SALE - Securities available for sale
consist of its debt and equity securities not classified as
trading securities nor as securities to be held to maturity.
Unrealized holding gains and losses on securities available for sale if
material, are reported as a net amount in a separate component of
stockholders' equity until realized.
Gains and losses on the sale of securities available for sale are
determined using the specific identification method.
ACCOUNTS RECEIVABLE
The Company has not provided an allowance for doubtful accounts. All
receivables considered doubtful have been charged to current operations
and it is management's opinion that no additional material amounts are
doubtful of collection.
CASH FLOW PRESENTATION
For purposes of the statement of cash flows, time deposits that mature
in three months or less, certificates of deposit and restricted cash
are considered cash and cash equivalents.
EARNINGS PER COMMON SHARE
The Company has adopted Statement No. 128, EARNINGS PER SHARE, issued
by the Financial Standards Accounting Board. Adoption of Statement No.
128 had no effect upon 1997, 1996 or 1995 earnings per share
computations.
Basic earnings per common share was computed based on the weighted
average number of common shares outstanding for the period. Diluted
earnings per share have not been presented since the Company has no
outstanding options or warrants to purchase its common stock.
CONCENTRATION OF CREDIT RISK
The Company regularly maintains cash in bank deposit accounts, which
exceed FDIC insured limits. The Company has not experienced any losses
in such accounts and believes it is not exposed to any significant
credit risk on cash and cash equivalents.
F-26
<PAGE>
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Accounting Changes
The Financial Accounting Standards Board has issued the following
Statements of Financial Accounting Standards effective for fiscal years
beginning after December 15, 1997:
No. 130 - Reporting Comprehensive Income
Requires that all items are required to be recognized under
accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the
same prominence as other financial statements.
NO. 131 - DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION
Requires disclosure of operating segments based upon
information used internally for evaluating segment performance
and allocating resources.
No. 132 - Employers' Disclosures About Pensions
and other Post-retirement Benefits
Revises employers' disclosures about pensions and other
post-retirement plans.
The Company will adopt the above standards effective January 1, 1998.
Adoption is not expected to have a significant effect upon current
financial statements.
NOTE 2. SECURITIES AVAILABLE FOR SALE
Securities available for sale consist of equity securities and are
carried at cost, which approximates market at September 30, 1997 and
1996. Market value was determined by quoted prices.
Included in net income for the years ended September 30, 1997 and 1996
is a $241 gain and $161 loss, respectively, from sales of marketable
equity securities. The cost of the securities sold was determined by
the specific identity method.
NOTE 3. TRADE ACCOUNTS RECEIVABLE
Trade accounts receivable at September 30 consist of the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
(in thousands)
<S> <C> <C>
Oil and gas revenue receivable $8,235 $6,188
Joint interest billings receivable 991 306
------ ------
$9,226 $6,494
------ ------
------ ------
</TABLE>
F-27
<PAGE>
NOTE 4. INVESTMENT IN PARTNERSHIPS
Investment in partnerships is stated at cost plus the proportionate share of
invested accumulated income. The Company's investment in partnerships consists
of a 10% interest in Michigan Gas Partners, Ltd., a 6% interest in Frederic HOF
Limited Partnership, and a 50% interest in Wilderness Energy, L.C. The following
is a summary of the combined financial position and combined results of
operations of the Company's investments in partnerships as of and for the years
ended September 30:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Current assets $ 5,127 $ 7,311 $ 8,085
Property, plant and equipment 40,102 44,392 45,916
Other assets 25 274 299
------- ------- -------
Total assets $45,254 $51,977 $54,300
------- ------- -------
------- ------- -------
Current liabilities $ 200 $ 3,502 $ 4,358
Partnership equity 45,054 48,475 49,942
------- ------- -------
Total liabilities and partnership equity $45,254 $51,977 $54,300
------- ------- -------
------- ------- -------
Oil and gas revenue $ 9,830 $ 9,973 $ 8,116
------- ------- -------
------- ------- -------
Net income $ 2,857 $ 3,840 $ 3,889
------- ------- -------
------- ------- -------
Company's investment $ 6,937 $ 6,200 $ 6,285
------- ------- -------
------- ------- -------
</TABLE>
NOTE 5. LONG-TERM DEBT
Long-term debt at September 30 consists of the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
(in thousands)
<S> <C> <C>
Note payable to bank with interest at prime,
due in monthly payments of $82,750, with final payment
due December 31, 2002, retired in 1997, secured by
investment in Wilderness Energy, L.C. and Frederic
HOF Limited Partnership. $ -- $3,000
Notes payable to various entities, due in monthly payments
ranging from $186 to $3,895, including interest ranging
from 7% to 10.63%, secured by land, buildings and equipment. 673 615
Note payable to bank, interest at 8.75%, unsecured,
due on October 17, 1998, retired in 1997. -- 8,800
</TABLE>
F-28
<PAGE>
NOTE 5. LONG-TERM DEBT - CONTINUED
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
(in thousands)
Note payable to bank, due in monthly installments
of $210,000 in 1997, including interest at 8.18%,
secured by the assets of Mercury Exploration, Inc.
in Wyoming and Montana, retired in 1997. -- 10,560
Note payable to bank, due in monthly payments ranging
from $165,000 to $88,333, including interest
at 7.655%, secured by producing oil and gas properties. 8,680 --
Line of credit to bank, due on January 1, 2002,
including interest at Libor + 1.125%, secured by
producing oil and gas properties. 4,900 --
Note payable to bank, due in monthly payments of
$82,750, with interest at prime + .25%, with final
payment due January 1, 2003, secured by oil and gas
producing properties 4,255 --
Note payable to bank, due in monthly payments of
$866,667, including interest at 7.59% (based on rate swap),
with final payment due on December 27, 2000, secured by
oil and gas producing properties and investment in
Quicksilver Energy, L.C. 15,200
Note payable to bank, due in quarterly payments ranging
from $1,400,000 to $600,000, beginning in August 1999,
including interest at 9%, with final payment due on
March 31, 2007, secured by oil and gas producing
properties and investment in Quicksilver Energy, L.C. 27,000 --
------- -------
60,708 22,975
Less current maturities 13,534 3,415
------- -------
$47,174 $19,560
------- -------
------- -------
</TABLE>
Aggregate maturities of long-term debt as follows:
<TABLE>
<CAPTION>
<S> <C>
1998 $13,534
1999 10,335
2000 7,170
2001 6,220
2002 10,353
Thereafter 13,096
-------
$60,708
-------
-------
</TABLE>
F-29
<PAGE>
NOTE 6. INCOME TAXES
The Company provides for deferred income taxes resulting from temporary
differences between the tax basis of assets and liabilities, and their reported
amounts in the financial statements that will result in taxable or deductible
amounts in future years. Temporary differences result primarily from intangible
development costs being capitalized and amortized for financial reporting
purposes but expensed for tax reporting purposes and different income
recognition criteria for debt extinguishments. Also included in income taxes is
the portion of state taxes based on income.
The Company's income tax provision is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Current $ (16) $ 105 $ 62
Deferred 2,710 1,114 622
------ ------ ----
$2,694 $1,219 $684
------ ------ ----
------ ------ ----
</TABLE>
The tax effects of net operating loss carryforwards and temporary
differences at September 30, 1997 and 1996 that give rise to significant
portions of deferred tax assets and deferred tax liabilities are as
follows:
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Deferred tax assets
Net operating loss carry-forwards $ 539 $ 128
Tax credits carry-forwards 253 322
------ ------
792 450
------ ------
Deferred tax liabilities
Property and equipment $5,458 $2,114
Long term debt 1,198 1,559
Investments 786 716
------ ------
7,442 4,389
------ ------
Total deferred taxes, net $6,650 $3,939
</TABLE>
There is no material difference between the statutory tax rate and the
provision for taxes used in the accompanying financial statements.
The Company has U.S. net operating loss carry-forwards of approximately
$1,600,000 available to reduce future U.S. taxable income subject to
certain limitations. These U.S. net operating loss carry-forwards will
expire in 2012.
NOTE 7. PROFIT SHARING AND SAVINGS PLAN
The Company sponsors a defined contribution pension plan. All full-time
employees are eligible for participation upon completion of one year's service.
Employee contributions to the plan for the year ended September 30, 1997, 1996
and 1995 were $199,000, $162,000 and $106,000, respectively. The Company made
contributions of $200,000, $117,000 and $78,000 in 1997, 1996 and 1995,
respectively.
NOTE 8. OPERATING LEASES
The Company's leasing operations consist principally of the leasing of
automobiles under operating leases that expire over the next three years.
F-30
<PAGE>
The future minimum annual rentals on noncancellable leases in effect at
September 30, 1997, which have initial or remaining terms of more than one year,
are as follows:
<TABLE>
<CAPTION>
<S> <C>
1998 $87,000
1999 70,000
2000 17,000
</TABLE>
Total rental expense under operating leases was $129,000, $115,000 and
$162,000 in 1997, 1996 and 1995, respectively.
NOTE 9. FUTURES CONTRACT
The Company has entered into an agreement for the future delivery of
approximately 128,900 barrels of oil. The contract qualifies as a hedge for
financial reporting purposes. Accordingly, changes in the value of the
contract are recognized in income when the effects of changes in oil prices
are recognized.
NOTE 10. CONTINGENCIES
The Company is a defendant in a lawsuit filed by a former employee with
potential exposure of $500,000. The Company believes the lawsuit is without
merit and is vigorously defending its position, and does not expect the
ultimate outcome to materially affect the Company's financial position.
NOTE 11. SUBSEQUENT EVENTS
The Company settled a lawsuit in December of 1997, which resulted in a
gain of approximately $2,781,000.
In October 1997, Mercury Montana, Inc. merged with MSR Exploration, Inc.
As a result of the merger, Mercury Exploration Company obtained an
approximate 25% ownership interest in MSR Exploration, Inc.
Effective January 1, 1998, Mercury transferred substantially all
producing oil and gas properties to a newly formed related company,
Quicksilver Resources Inc. in exchange for common stock of Quicksilver.
Subsequently on September 1, 1998, Quicksilver Resources Inc. entered
into a merger agreement with MSR Exploration Ltd.
NOTE 12. ACQUISITIONS
On November 14, 1996 Quicksilver Energy L.C., a 52 percent owned subsidiary
of Mercury, consummated the acquisition of certain property interests from
Shell Western Exploration & Production, Inc. (the Shell Properties). Such
interests are primarily located in Michigan and, as of January 1, 1998, had
combined proved reserves of approximately 42.5 Bcfe. The aggregate purchase
price for the interests was approximately $57.7 million, which was paid in
cash principally with bank debt.
The following unaudited pro forma summary presents the consolidated results
of operations of Mercury for the years ended September 30, 1996 and 1995 as
if the acquisition had occurred at the beginning of each fiscal year.
<TABLE>
<CAPTION>
Year Ended Year Ended
September 30, 1996 September 30, 1995
------------------ ------------------
(In thousands, except for per share data)
<S> <C> <C>
Revenues $47,802 $26,783
Net income 10,152 5,832
Earnings per share 40.45 23.24
</TABLE>
F-31
<PAGE>
On October 9, 1997, Mercury consummated the acquisition of certain
property interests from ECT Enocene Enterprises II, (the Destec
Properties). Such interests are primarily located in Michigan and, as of
January 1, 1998, had combined proved reserves of approximately 25.4
Bcfe. The aggregate purchase price for the interests was approximately
$23.5 million, which was paid in cash principally with debt from
Mercury's credit facility.
The following unaudited pro forma summary presents the consolidated
results of operations of Mercury for the years ended September 30, 1997
and 1996 as if the acquisition had occurred at the beginning of each
fiscal year. The 1996 pro forma amounts also give effect to the Shell
Properties acquisition discussed above.
<TABLE>
<CAPTION>
Year Ended Year Ended
September 30, 1997 September 30, 1996
------------------ ------------------
(In thousands, except for per share data)
<S> <C> <C>
Revenues $7,257 $54,026
Net income 2,873 12,646
Earnings per share 11.45 50.38
</TABLE>
NOTE 13. CHANGE IN METHOD OF ACCOUNTING FOR OIL AND GAS PROPERTIES
Pursuant to the merger agreement with MSR Exploration LTD. dated
September 1, 1998, the Company has changed its accounting policy for oil
and gas properties from the successful efforts method to the full cost
method. Accordingly, the Company's financial statements have been
restated to apply the change retroactively. The effect of the
accounting change on income as previously reported for 1997, 1996 and
1995 is:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Effect on:
Income before extraordinary
item and net income $4,219 $1,169 $ 200
Earnings per common share $16.81 $ 4.66 $0.80
</TABLE>
NOTE 14. SUPPLEMENTAL OIL AND GAS RESERVE DATA (UNAUDITED)
The Company's proved oil and gas reserves at September 30, 1997 have
been estimated by the Company's petroleum engineers in accordance with
guidelines established by the Securities and Exchange Commission
("SEC"). Accordingly, the following reserve estimates are based upon
existing economic and operating conditions.
F-32
<PAGE>
NOTE 14. SUPPLEMENTAL OIL AND GAS RESERVE DATA (UNAUDITED) - CONTINUED
There are numerous uncertainties inherent in establishing quantities of proved
reserves. The following reserve data represent estimates only and should not be
construed as being exact. In addition, the present values should not be
construed as the current market value of the Company's oil and gas properties or
the cost that would be incurred to obtain equivalent reserves.
Estimated Reserves
Changes in the estimated net quantities of crude oil and natural gas
reserves, all of which are located in the continental United States, are as
follows:
Reserve Quantities
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Proved reserves:
Crude Oil (MBbls)
Beginning of period 20,473 21,038 118
Purchase of reserves in place 1,436 20,936
Production (835) (565) (16)
------ ------ ------
End of period 21,074 20,473 21,038
------ ------ ------
------ ------ ------
Minority interest end of period 374 0 0
Natural Gas (MMcf):
Beginning of period 19,690 22,473 21,234
Revisions of previous estimates (1,843)
Purchase of reserves in place 66,114
Production (7,852) (940) (604)
------ ------ ------
End of period 77,952 19,690 20,630
------ ------ ------
------ ------ ------
Minority interest end of period 21,401 0 0
Proved developed reserves
Crude Oil (MBbls)
Beginning of period 5,955 113 130
End of period 6,873 5,955 113
Minority interest end of period 374 0 0
Natural Gas (MMcf)
Beginning of period 21,121 22,061 22,665
End of period 69,883 21,121 22,061
Minority interest end of period 21,401 0 0
</TABLE>
F-33
<PAGE>
Standardized Measure
The following tables present the Company's standardized measure of discounted
future net cash flows and changes therein relating to proved oil and gas
reserves and were computed using reserve valuations based on regulations
prescribed by the SEC. These regulations provide that the oil, condensate and
gas price structure utilized to project future net cash flows reflects current
prices at each date presented and have been escalated only when known and
determinable price changes are provided by contract. Future production,
development and net abandonment costs are based on current costs without
escalation. The resulting net future cash flows have been discounted to their
present values based on a 10% annual discount factor.
<TABLE>
<CAPTION>
Standardized Measure (in thousands): Year Ended September 30,
---------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Future cash flows $457,196 $375,012 $56,067
Future production and development costs (255,999) (231,817) (30,418)
Future income tax expense (48,301) (41,985) (6,675)
-------- -------- -------
152,896 101,210 18,974
10% annual discount for timing of cash flows (70,805) (51,810) (10,556)
-------- -------- -------
Standardized measure of discounted
Cash flows $ 82,091 $ 49,400 $ 8,418
-------- -------- -------
-------- -------- -------
</TABLE>
Costs incurred in oil and gas property acquisition, exploration and
development activities (in thousands):
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Property acquisition costs $53,162 $14,631 $ 0
Exploration costs $ 3,027 $ 778 $ 550
Development costs $ 0 $ 0 $2,095
</TABLE>
Results of operations from producing activities (in thousands):
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Oil and gas sales $34,440 $12,169 $2,106
Operating expenses (17,312) (11,945) (4,321)
Production taxes (2,169) (739) (78)
Depletion and depreciation (5,361) (796) (271)
-------- -------- -------
9,598 (1,311) (2,564)
Income taxes (3,263) 0 0
-------- -------- -------
Results of operations from
producing activities (excluding corporate
overhead and interest costs) $ 6,335 ($1,311) ($2,564)
-------- -------- -------
-------- -------- -------
Minority interest in results of
operations $ 5,667 $ 0 $ 0
-------- -------- -------
-------- -------- -------
</TABLE>
F-34
<PAGE>
MERCURY EXPLORATION COMPANY
Consolidated Balance Sheet
December 31, 1997
In thousands
(Unaudited)
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS
Cash $ 6,844
Securities available for sale 27
Trade accounts receivable 19,635
Inventory, at lower of average cost or market 899
Notes receivable - current portion 81
------------
Total current assets 27,486
INVESTMENT IN MSR EXPLORATION, LTD. 119
INVESTMENT IN PARTNERSHIPS 6,556
PROPERTY AND EQUIPMENT
Oil and gas properties 109,591
Land, buildings and leasehold improvements 1,407
Furniture and equipment 683
Transportation equipment 745
------------
112,426
Less accumulated depreciation and depletion 10,157
------------
102,269
OTHER ASSETS 302
------------
TOTAL ASSETS $ 136,732
------------
------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 13,335
Accounts payable 6,744
Accrued liabilities 826
Advances payable 3,420
Royalties payable 1,631
Income taxes payable 854
------------
Total current liabilities 26,810
------------
UNEARNED REVENUES 2,567
DEFERRED INCOME TAXES 7,070
LONG-TERM DEBT 75,275
MINORITY INTEREST IN SUBSIDIARIES 7,494
STOCKHOLDERS'S EQUITY
Capital stock, no par value
1,000,000 shares authorized;
250,950 shares issued and outstanding 1,087
Retained earnings 16,429
------------
17,516
------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY
$ 136,732
------------
------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-35
<PAGE>
MERCURY EXPLORATION COMPANY
Consolidated Statements of Operations
For the Three Months Ended December 31, 1997
In thousands
(Unaudited)
<TABLE>
<S> <C>
OIL AND GAS REVENUES $ 11,049
-------------
COSTS AND EXPENSES
Operating expenses 4,736
Depletion and depreciation 2,466
General and administrative 532
-------------
Income from operations 3,315
-------------
OTHER INCOME (EXPENSE)
Interest expense (1,879)
Interest income 27
Equity in partnerships 78
Manage fee income 54
Rental income 32
Miscellaneous income 461
Income from litigation settlement 2,781
-------------
Income before income taxes
and minority interest 4,869
MINORITY INTEREST IN INCOME
OF SUBSIDIARY 1,657
-------------
Income before income taxes 3,212
INCOME TAXES 1,238
-------------
NET INCOME $ 1,974
-------------
-------------
Weighted average shares outstanding 250,950
Earnings per share $ 7.87
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-36
<PAGE>
MERCURY EXPLORATION COMPANY
Consolidated Statements of Cash Flows
For the Three Months Ended December 31, 1997
In thousands
(Unaudited)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 1,974
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and depletion 2,466
Minority interest in undistributed subsidiary earnings 1,657
Partnership income (77)
Reduction of unearned revenues (1,594)
Deferred income taxes 421
Changes in operating assets and liabilities
Accounts receivable (10,298)
Inventory (146)
Accounts payable 583
Accrued liabilities (19)
Advances payable 1,059
Royalties payable (353)
Other (73)
---------------
Net cash provided by operating activities (4,400)
---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (23,630)
Proceeds from sale of marketable equity securities 4
Proceeds from bond maturities 65
Distribution received from partnerships 458
Advances on notes receivable (54)
Investments in common stock not held for resale (119)
---------------
Net cash used in investing activities (23,276)
---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 31,435
Receipt of unearned revenues 2,088
Principal paid on long-term debt (3,533)
---------------
Net cash provided by financing activities 29,990
---------------
Net increase (decrease) in cash 2,314
CASH, beginning of period 4,530
---------------
CASH, end of period $ 6,844
---------------
---------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-37
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Partners
Michigan Gas Partners Limited Partnership
We have audited the accompanying balance sheets of Michigan Gas Partners
Limited Partnership as of December 31, 1997 and 1996 and the related
statements of operations, partners' capital and cash flows for each of the
three years in the period ended December 31, 1997. These financial statements
are the responsibility of the Partnership's management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Michigan Gas Partners
Limited Partnership as of December 31, 1997 and 1996 and the results of its
operations and its cash flows for each of the three years ended December 31,
1997, in conformity with generally accepted accounting principles.
As described in Note 8, the Company has changed its accounting policy for
accounting for oil and gas properties from the successful efforts method to
the full cost method.
WEAVER AND TIDWELL, L.L.P.
Fort Worth, Texas
October 26, 1998
F-38
<PAGE>
MICHIGAN GAS PARTNERS LIMITED PARTNERSHIP
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
--------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 56 $ 55
Oil and gas revenue receivable 669 444
--------- --------
Total current assets 725 499
PROPERTY AND EQUIPMENT
Producing oil and gas leases 13,668 13,655
Less accumulated depletion,
depreciation and amortization 4,558 3,603
--------- ---------
9,110 10,052
--------- --------
TOTAL ASSETS $ 9,835 $10,551
--------- --------
--------- --------
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES
Accounts payable $ 150 $ 238
Deferred revenues 232 -
--------- --------
Total liabilities 382 238
PARTNERS' CAPITAL 9,453 10,313
---------- --------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 9,835 $10,551
--------- --------
--------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-39
<PAGE>
MICHIGAN GAS PARTNERS LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES
Oil and gas sales $ 2,894 $ 3,212 $ 1,732
Gas compressor reimbursement 110 156 198
Other income 17 - -
---------- ---------- ----------
Total revenues 3,021 3,368 1,930
COSTS AND EXPENSES
Lease operating expenses 1,922 1,853 1,183
Production taxes 114 133 70
Depletion, depreciation and amortization 955 1,067 839
Impairment of oil and gas properties - 902 423
General and administrative 11 30 28
---------- ---------- ----------
Total cost and expenses 3,002 3,985 2,543
---------- ---------- ----------
NET INCOME (LOSS) $ 19 $ (617) $ (613)
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
CORPDAL:116097.1 40280-00001
F-40
<PAGE>
MICHIGAN GAS PARTNERS LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' CAPITAL
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<S> <C>
BALANCE, DECEMBER 31, 1994 $ 8,482
Distributions (494)
Capital contributed 4,838
Net loss (613)
--------
BALANCE, DECEMBER 31, 1995 12,213
Distributions (1,283)
Net loss (617)
--------
BALANCE, DECEMBER 31, 1996 10,313
Distributions (879)
Net income 19
--------
BALANCE, DECEMBER 31, 1997 $ 9,453
--------
--------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-41
<PAGE>
MICHIGAN GAS PARTNERS LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from oil and gas sales $ 2,938 $ 3,211 $ 1,561
Cash received from gas compressor reimbursement 90 74 173
Cash paid to suppliers and employees ( 2,135) ( 1,913) ( 1,148)
--------- --------- ---------
Net cash provided by operating activities 893 1,372 586
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ( 13) ( 132) ( 4,837)
--------- --------- ---------
Net cash used in investing activities ( 13) ( 132) ( 4,837)
CASH FLOWS FROM FINANCING ACTIVITIES:
Partnership distributions ( 879) ( 1,283) ( 494)
Capital contributions - - 4,838
--------- --------- ---------
Net cash provided by
(used in) financing activities ( 879) ( 1,283) 4,344
--------- --------- ---------
Net increase (decrease) in cash 1 ( 43) 93
CASH, beginning of period 55 98 5
--------- --------- ---------
CASH, end of period $ 56 $ 55 $ 98
--------- --------- ---------
--------- --------- ---------
RECONCILIATION OF NET INCOME (LOSS) TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
Net income (loss) $ 19 $ (617) $ (613)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation, depletion and amortization 955 1,067 839
Impairment of oil and gas properties - 902 423
Changes in operating assets and liabilities
Oil and gas revenue receivable ( 225) ( 83) ( 196)
Accounts payable ( 88) 103 133
Deferred liabilities 232 - -
--------- --------- ---------
Net cash provided by operating activities $ 893 $ 1,372 $ 586
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-42
<PAGE>
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
The accounting policy relative to the carrying value of property and
equipment is indicated in the caption on the balance sheets. The
nature of operations and other significant accounting policies are as
follows:
NATURE OF OPERATIONS
Michigan Gas Partners Limited Partnership was formed to own and operate
various oil and gas properties in the state of Michigan. Substantially
all of the Company's revenue is derived from the production and sale of
natural gas.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
OIL AND GAS PROPERTY AND EQUIPMENT
The Partnership follows the "full cost" method of accounting for oil
and gas properties whereby all costs associated with acquiring,
exploring for, and developing oil and gas reserves are capitalized and
accumulated in cost centers established on a country-by-country basis.
Such costs include land acquisition costs, geological and geophysical
expenses, carrying charges on non-producing properties, costs of
drilling both productive and non-productive wells, and overhead charges
directly related to acquisition, exploration and development
activities.
The capitalized costs related to each cost center, including the
estimated future costs to develop proved reserves and the costs of
production equipment, are amortized using the unit-of-production method
based on the estimated net proved reserves as determined by independent
petroleum engineers. Investments in unproved properties are not
amortized until proven reserves associated with them can be determined
or until impairment occurs. Oil and natural gas reserves and production
are converted into equivalent units based upon estimated relative
energy content.
The capitalized costs less accumulated depletion and depreciation in
each cost center are limited to an amount equal to the estimated future
net revenue from proved reserves discounted at a ten percent interest
rate (based on prices and costs at the balance sheet date) plus the
lower of cost (net of impairments) or fair market value of unproved
properties.
Proceeds from the sale of oil and gas properties are applied against
capitalized costs, with no gain or loss recognized, unless such a sale
would significantly alter the relationship between capitalized costs
and proved reserves of oil and gas, in which case the gain or loss is
recognized in income.
STATEMENT OF CASH FLOWS
For purposes of the statement of cash flows, the Partnership
considers all highly liquid investments with an original
maturity of ninety days or less to be cash equivalents.
FEDERAL INCOME TAXES
Federal income taxes are not recorded, as the results of
operations are not taxable to the Partnership, but are
includable in the respective income tax returns of the
partners.
F-43
<PAGE>
NOTE 2. RELATED PARTY TRANSACTIONS
In accordance with the partnership agreement, the Partnership contracts
with a partner for all property exploration costs and continuing costs
of operations. In addition, approximately $220,000 and $209,000,
respectively, of oil and gas receivables at December 31, 1997 and 1996
are due from the partner and substantially all accounts payable for
1997 and 1996 are due to the partner.
NOTE 3. SALE OF PROPERTIES
In December 1997, the Partnership transferred certain properties with a
cost of $6,195,000 to an unrelated party and received consideration as
follows:
a. Initial payment of $232,000
b. Fixed payment note of $2,017,000
c. Credit payment note with a maximum amount of
$4,000,000
d. Production payment
For accounting purposes, the transfer does not qualify for sale or gain
recognition. Accordingly, the accompanying financial statements
continue to include the partnership's costs, revenues and expenses
associated with the assets transferred. Any gain on the properties
transferred will be recognized based upon
future production of the properties.
NOTE 4. ALLOCATION OF NET INCOME OR LOSSES
AND DISTRIBUTION OF CASH FLOWS
Net income equal to adjusted federal taxable income, as defined, is
allocated to the partners' capital accounts to the extent of cash
flows, so distributable, as defined. Remaining net income and net loss,
as defined, are allocated to the partners' capital accounts in
proportion to their prospective capital accounts and partnership
interests in a manner specified in the partnership agreement.
NOTE 5. IMPAIRMENT OF PROPERTY AND EQUIPMENT
In 1996, and 1995 the Partnership recognized an impairment loss for
certain oil and gas properties based upon revision of the properties'
reserves by independent petroleum engineers. The impairment loss
recognized in the accompanying 1996 and 1995 financial statements was
measured as the amount by which the carrying amount of the oil and gas
properties exceeded their fair value. Fair value was determined based
upon estimated future cash flows for the properties, discounted at a ten
percent annual rate.
NOTE 6. SUBSEQUENT EVENTS
Effective January 1, 1998, Michigan Gas Partners transferred
substantially all producing oil and gas properties to a newly-formed
related company, Quicksilver Resources Inc. in exchange for common stock
in Quicksilver.
F-44
<PAGE>
NOTE 7. SUPPLEMENTARY INFORMATION RELATED TO OIL AND GAS ACTIVITIES-
UNAUDITED
Quantities of Oil and Gas Reserves
The following table presents estimates of the Partnership's proved
reserves, all of which have been prepared by the engineers of the
Partnership's General Partner. Substantially all of the Partnership's crude
oil and natural gas
activities are conducted in the United States.
Reserve Quantities for the years ended December 31, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Proved reserves:
Natural Gas (MMcf):
Beginning of period 17,014 26,405 30,487
Production (1,199) (1,306) (915)
Revisions of previous estimates (2,288) (8,085) (3,167)
------ ------ ------
End of period 13,527 17,014 26,405
------ ------ ------
------ ------ ------
Proved developed reserves
Natural Gas (MMcf):
Beginning of year 15,956 25,667 24,190
End of year 12,600 15,956 25,667
</TABLE>
Standardized Measure of Discounted Future Net Cash Flows and Changes
Therein Relating to Proved Reserves.
The following standardized measure of discounted future net cash flows was
computed in accordance with the rules and regulations of the Securities and
Exchange Commission and Financial Accounting Standards Board Statement No.
69 using year-end prices and costs. No values are given to unproved
properties or to probable reserves that may be recovered from proved
properties.
The inexactness associated with estimating reserve quantities, future
production and revenue streams and future development and production
expenditures, together with the assumptions applied in valuing future
production, substantially diminishes the reliability of this data. The
values so derived are not considered to be an estimate of fair market
value. The Partnership therefore cautions against its simplistic use.
F-45
<PAGE>
NOTE 7. SUPPLEMENTARY INFORMATION RELATED TO OIL AND GAS ACTIVITIES-
UNAUDITED - CONTINUED
The following tabulation reflects the Partnership's estimated discounted future
cash flows from natural gas production: For the year ended December 31, 1997,
1996 and 1995, in thousand of dollars.
<TABLE>
<CAPTION>
1997 1996 1995
---------------- ---------------- ----------------
<S> <C> <C> <C>
Future cash flows $39,203 $42,342 $55,715
Future production and development costs (23,680) (27,266) (34,926)
Future income tax expense - - -
---------------- ---------------- ----------------
15,523 15,076 20,789
10% annual discount for timing of cash flows (4,509) (4,600) (8,900)
---------------- ---------------- ----------------
Standardized measure of discounted
cash flows $11,014 $10,476 $11,889
---------------- ---------------- ----------------
---------------- ---------------- ----------------
</TABLE>
Primary changes in the standardized measure of discounted future net cash flows,
in thousands:
<TABLE>
<CAPTION>
1997 1996 1995
---------------- ---------------- ----------------
<S> <C> <C> <C>
Sales of oil and gas produced, net of
production costs $ (858) $ (326) $ (479)
Net changes in price and production costs 3,164 1,848 (6,354)
Change in estimated future development costs 468 445 5,539
Revisions of previous quantity estimates (2,254) (5,535) (1,648)
Development costs incurred during the year (13) (132) (4,837)
Accretion of discount 1,047 1,189 1,768
Other (1,016) 1,098 217
---------------- ---------------- ----------------
Net increase (decrease) 538 (1,413) (5,794)
Balance at beginning of year 10,476 11,889 17,683
---------------- ---------------- ----------------
Balance at end of year $11,014 $10,476 $11,889
---------------- ---------------- ----------------
---------------- ---------------- ----------------
</TABLE>
Changes in the supply and demand for oil, natural gas liquids, hydrocarbon
price volatility, inflation, timing of production, reserve revisions and
other factors make these estimates inherently imprecise and subject to
substantial revision. As a result, these measures are not Partnership's
estimates for future cash flows nor do these measures serve as an estimate of
current market value.
F-46
<PAGE>
NOTE 8. CHANGE IN METHOD OF ACCOUNTING FOR OIL AND GAS PROPERTIES
Pursuant to the merger agreement with MSR Exploration LTD. dated
September 1, 1998, the Partnership has changed its accounting policy for
oil and gas properties from the successful efforts method to the full
cost method. Accordingly, the Partnership's financial statements have
been restated to apply the change retroactively. The effect of the
accounting change on income as previously reported for 1997, 1996 and
1995 is:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Effect on:
Income before extraordinary
item and net income $1,738 ($659) ($812)
</TABLE>
F-47
<PAGE>
To the Stockholders
Mercury Exploration Company
Fort Worth, Texas
We have audited the accompanying statements of revenues and direct operating
expenses/Shell Michigan properties acquired of Mercury Exploration Company
for the years ended September 30, 1996 and 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
The accompanying statements of revenues and direct operating expenses/Shell
Michigan properties acquired reflect the revenues and direct operating
expenses attributable to Mercury Exploration Company described in Note 2 to
the financial statements and is not intended to be a complete presentation of
the revenues and expenses of Mercury Exploration Company.
In our opinion, the accompany financial statements referred to above present
fairly, in all material respects, the revenues and direct operating
expenses/Shell Michigan properties acquired of Mercury Exploration Company
for the years ended September 30, 1996 and 1995 in conformity with generally
accepted accounting principles.
/s/ Weaver and Tidwell, L.L.P.
WEAVER AND TIDWELL, L.L.P.
Fort Worth, Texas
October 23, 1998
F-48
<PAGE>
MERCURY EXPLORATION COMPANY
STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
SHELL MICHIGAN PROPERTIES ACQUIRED
YEARS ENDED SEPTEMBER 30,1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
REVENUES
Gas revenues $25,543 $16,539
Oil revenues 1,152 892
Condensate revenues 3,719 2,649
------- -------
Total revenues 30,414 20,080
DIRECT OPERATING EXPENSES
Operating expenses 3,147 2,902
Production taxes 1,648 1,390
------- -------
Total direct operating expenses 4,795 4,292
------- -------
EXCESS OF REVENUES OVER DIRECT OPERATING
Expenses/Shell Michigan Properties Acquired $25,619 $15,788
</TABLE>
The accompanying notes are an integral part of these statements.
F-49
<PAGE>
MERCURY EXPLORATION COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 1. BUSINESS COMBINATION
On November 14, 1996 Mercury Exploration Company consummated the Shell
acquisition from Shell Western E & P, Inc. The acquisition consisted of
64 wells located in Michigan with combined proved reserves of approximately
75 Bcfe at the effective date of July 1, 1996. The aggregate purchase price
for the interests was approximately $57.7 million, which was paid in cash
with bank debt.
NOTE 2. BASIS OF PRESENTATION
Historical financial statements reflecting financial position, results of
operations and cash flows required by generally accepted accounting
principles are not presented, as such information is neither readily
available on an individual property basis nor meaningful for the properties
included in the business combination. Accordingly, these statements of
revenues and direct operating expenses/properties acquired are presented in
lieu of the financial statements required under Rule 3-05 of Securities and
Exchange Commission Regulation S-X. The accompanying financial statements
include the direct revenues and expenses of properties acquired by Mercury
Exploration Company in the business combination referred to in Note 1. All of
the statements and disclosures are stated in U.S. dollars.
The accompanying statements of revenues and direct operating expenses/
properties acquired represent Mercury's net ownership interest in the
properties included in the business combination and are presented on the full
cost accrual basis of accounting. Depreciation, depletion and amortization,
allocated general and administrative expenses, interest expense, and income
taxes have been excluded because the property interests included in the
business combination are from a newly formed business and the expenses
incurred are not necessarily indicative of the expenses to be incurred by
Mercury.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
F-50
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Stockholders
Mercury Exploration Company
Fort Worth, Texas
We have audited the accompanying statements of revenues and direct operating
expenses/Destec Michigan properties acquired of Mercury Exploration Company
for the years ended September 30, 1997 and 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
The accompanying statements of revenues and direct operating expenses/Destec
Michigan properties acquired reflect the revenues and direct operating
expenses attributable to Mercury Exploration Company described in Note 2 to
the financial statements and is not intended to be a complete presentation of
the revenues and expenses of Mercury Exploration Company.
In our opinion, the accompany financial statements referred to above present
fairly, in all material respects, the revenues and direct operating
expenses/Destec Michigan properties acquired of Mercury Exploration Company
for the years ended September 30, 1997 and 1996 in conformity with generally
accepted accounting principles.
/s/ Weaver and Tidwell, L.L.P.
WEAVER AND TIDWELL, L.L.P.
Fort Worth, Texas
October 23, 1998
F-51
<PAGE>
MERCURY EXPLORATION COMPANY
STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
DESTEC MICHIGAN PROPERTIES ACQUIRED
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
REVENUES
Gas revenues $7,257 $6,224
Oil revenues 0 0
Condensate revenues 0 0
------ ------
Total revenues 7,257 6,224
DIRECT OPERATING EXPENSES
Operating expenses 1,289 1,689
Production taxes 303 262
Total direct operating expenses 1,592 1,951
------ ------
EXCESS OF REVENUES OVER DIRECT OPERATING
EXPENSES/DESTEC MICHIGAN PROPERTIES ACQUIRED $5,665 $4,273
------ ------
------ ------
</TABLE>
The accompanying notes are an integral part of these statements.
F-52
<PAGE>
MERCURY EXPLORATION COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 1. BUSINESS COMBINATION
On October 9, 1997 Mercury Exploration Company consummated the Destec
acquisition from ECT Enocene Enterprises II, Inc. Such properties consist of
143 wells located in Michigan with combined proved reserves of approximately
30.8 Bcfe as of the effective date of August 1, 1997. The aggregate purchase
price for the interests was approximately $23.5 million, which was paid in
cash with bank debt.
NOTE 2. BASIS OF PRESENTATION
Historical financial statements reflecting financial position, results of
operations and cash flows required by generally accepted accounting
principles are not presented, as such information is neither readily
available on an individual property basis nor meaningful for the properties
included in the business combination. Accordingly, these statements of
revenues and direct operating expenses/properties acquired are presented in
lieu of the financial statements required under Rule 3-05 of Securities and
Exchange Commission Regulation S-X. The accompanying financial statements
include the direct revenues and expenses of properties acquired by Mercury
Exploration Company in the business combination referred to in Note 1. All of
the statements and disclosures are stated in U.S. dollars.
The accompanying statements of revenues and direct operating expenses/
properties acquired represent Mercury's net ownership interest in the
properties included in the business combination and are presented on the full
cost accrual basis of accounting. Depreciation, depletion and amortization,
allocated general and administrative expenses, interest expense, and income
taxes have been excluded because the property interests included in the
business combination are from a newly formed business and the expenses
incurred are not necessarily indicative of the expenses to be incurred by
Mercury.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
F-53
<PAGE>
AGREEMENT AND PLAN OF MERGER
AND REORGANIZATION
BY AND AMONG
QUICKSILVER RESOURCES INC.
AND
MSR EXPLORATION LTD.
DATED AS OF SEPTEMBER 1, 1998
<PAGE>
TABLE OF CONTENTS
ARTICLE I - THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.01. The Merger. . . . . . . . . . . . . . . . . . . . . . 2
Section 1.02. The Closing.. . . . . . . . . . . . . . . . . . . . . 2
Section 1.03. Effective Time. . . . . . . . . . . . . . . . . . . . 2
Section 1.04. Effect of the Merger. . . . . . . . . . . . . . . . . 2
Section 1.05. Certificate of Incorporation. . . . . . . . . . . . . 2
Section 1.06. Bylaws. . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.07. Directors and Officers. . . . . . . . . . . . . . . . 3
Section 1.08. Tax Consequences. . . . . . . . . . . . . . . . . . . 3
ARTICLE II - CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES. . . . . . . . 3
Section 2.01. Merger Consideration: Conversion and Cancellation
of Securities. . . . . . . . . . . . . . . . . . . 3
Section 2.02. Exchange Agency; Surrender of Certificates. . . . . . 4
Section 2.03. Stock Transfer Books. . . . . . . . . . . . . . . . . 6
Section 2.04. Dissenters' Rights. . . . . . . . . . . . . . . . . . 7
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE COMPANY. . . . . . . . . . 8
Section 3.01. Organization and Qualification: Subsidiaries. . . . . 8
Section 3.02. Certificate of Incorporation and Bylaws.. . . . . . . 8
Section 3.03. Capitalization. . . . . . . . . . . . . . . . . . . . 8
Section 3.04. Authority.. . . . . . . . . . . . . . . . . . . . . .10
Section 3.05. No Conflict: Required Filings and Consents. . . . . .10
Section 3.06. Permits; Compliance.. . . . . . . . . . . . . . . . .11
Section 3.07. Reports; Financial Statements; Undisclosed
Liabilities . . . . . . . . . . . . . . . . . . . .12
Section 3.08. Absence of Certain Changes or Events. . . . . . . . .13
Section 3.09. Absence of Litigation.. . . . . . . . . . . . . . . .13
Section 3.10. Employee Benefit Plans; Labor Matters.. . . . . . . .14
Section 3.11. Taxes.. . . . . . . . . . . . . . . . . . . . . . . .16
Section 3.12. Affiliates. . . . . . . . . . . . . . . . . . . . .17
Section 3.13. Environmental Matters . . . . . . . . . . . . . . . .17
Section 3.14. Properties. . . . . . . . . . . . . . . . . . . . . .18
Section 3.15. Real Property. . . . . . . . . . . . . . . . . . . .23
Section 3.16. Insider Interests; Transactions with Management.. . .23
Section 3.17. Contracts and Agreements. . . . . . . . . . . . . . .24
Section 3.18. Vote Required.. . . . . . . . . . . . . . . . . . . .24
Section 3.19. Brokers.. . . . . . . . . . . . . . . . . . . . . . .24
Section 3.20. Opinion of Financial Advisor. . . . . . . . . . . . .24
Section 3.21. Special Committee Recommendations. . . . . . . . . .24
Section 3.22. Disclosure. . . . . . . . . . . . . . . . . . . . . .25
i
<PAGE>
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF QRI . . . . . . . . . . . . . .25
Section 4.01. Organization and Qualification. . . . . . . . . . .25
Section 4.02. Certificate of Incorporation and Bylaws;
Formation Documents . . . . . . . . . . . . . . . .25
Section 4.03. Capitalization. . . . . . . . . . . . . . . . . . . .25
Section 4.04. Authority.. . . . . . . . . . . . . . . . . . . . . .26
Section 4.05. No Conflict; Required Filings and Consents. . . . . .27
Section 4.06. Permits; Compliance.. . . . . . . . . . . . . . . . .27
Section 4.07. Reports; Financial Statements.. . . . . . . . . . . .28
Section 4.08. Absence of Certain Changes or Events. . . . . . . . .28
Section 4.09. Absence of Litigation.. . . . . . . . . . . . . . . .28
Section 4.10. Employee Benefit Plans; Labor Matters . . . . . . . .29
Section 4.11. Taxes.. . . . . . . . . . . . . . . . . . . . . . . .31
Section 4.12. Environmental Matters . . . . . . . . . . . . . . . .32
Section 4.13. Properties. . . . . . . . . . . . . . . . . . . . .33
Section 4.14. Insider Interests; Transactions with Management . . .37
Section 4.15. Vote Required . . . . . . . . . . . . . . . . . . . .38
Section 4.16. Brokers . . . . . . . . . . . . . . . . . . . . . . .38
Section 4.17. Board Recommendations . . . . . . . . . . . . . . . .38
Section 4.18. Disclosure. . . . . . . . . . . . . . . . . . . . . .38
ARTICLE V - COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . .38
Section 5.01. Affirmative Covenants of the Company. . . . . . . . .38
Section 5.02. Affirmative Covenants of QRI. . . . . . . . . . . . .40
Section 5.03. Negative Covenants of the Company. . . . . . . . . .42
Section 5.04. Negative Covenants of QRI.. . . . . . . . . . . . . .45
Section 5.05. Access and Information. . . . . . . . . . . . . . . .46
ARTICLE VI - ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . . .47
Section 6.01. Presentation to Stockholders. . . . . . . . . . . . .47
Section 6.02. Registration Statement; Proxy
Statement/Prospectus. . . . . . . . . . . . . . . .47
Section 6.03. Appropriate Action: Consents; Filings.. . . . . . . .49
Section 6.04. Affiliates; Tax Treatment.. . . . . . . . . . . . . .50
Section 6.05. Public Announcements. . . . . . . . . . . . . . . . .51
Section 6.06. AMEX Listing. . . . . . . . . . . . . . . . . . . . .51
Section 6.07. State Takeover Statutes.. . . . . . . . . . . . . . .51
Section 6.08. Board Seat. . . . . . . . . . . . . . . . . . . . . .51
Section 6.09. Options . . . . . . . . . . . . . . . . . . . . . . .51
Section 6.10. Common Stock Warrants.. . . . . . . . . . . . . . . .52
Section 6.11. Indemnification.. . . . . . . . . . . . . . . . . . .52
Section 6.12. Employment Contracts. . . . . . . . . . . . . . . .55
Section 6.13. Comfort Letters.. . . . . . . . . . . . . . . . . . .55
Section 6.14. Sales Under Rule 145 if Applicable. . . . . . . . . .55
ii
<PAGE>
ARTICLE VII - CLOSING CONDITIONS . . . . . . . . . . . . . . . . . . . . . . .56
Section 7.02. Additional Conditions to Obligations of QRI.. . . . .57
Section 7.03. Additional Conditions to Obligations of the
Company . . . . . . . . . . . . . . . . . . . . . .58
ARTICLE VIII - TERMINATION, AMENDMENT AND WAIVER . . . . . . . . . . . . . . .60
Section 8.01. Termination.. . . . . . . . . . . . . . . . . . . . .60
Section 8.02. Effect of Termination; Remedies. . . . . . . . . . .61
Section 8.03. Amendment.. . . . . . . . . . . . . . . . . . . . . .61
Section 8.04. Waiver. . . . . . . . . . . . . . . . . . . . . . .61
Section 8.05. Fees, Expenses and Other Payments.. . . . . . . . . .62
ARTICLE IX - GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . .63
Section 9.01. Effectiveness of Representations, Warranties and
Agreements. . . . . . . . . . . . . . . . . . . . .63
Section 9.02. Notices.. . . . . . . . . . . . . . . . . . . . . . .63
Section 9.03. Certain Definitions.. . . . . . . . . . . . . . . . .64
Section 9.04. Headings. . . . . . . . . . . . . . . . . . . . . . .66
Section 9.05. Severability. . . . . . . . . . . . . . . . . . . . .66
Section 9.06. Entire Agreement. . . . . . . . . . . . . . . . . . .66
Section 9.07. Assignment. . . . . . . . . . . . . . . . . . . . . .66
Section 9.08. Parties in Interest.. . . . . . . . . . . . . . . . .66
Section 9.09. Failure or Indulgence Not Waiver; Remedies
Cumulative. . . . . . . . . . . . . . . . . . . . .66
Section 9.10. Governing Law.. . . . . . . . . . . . . . . . . . . .67
Section 9.11. Counterparts. . . . . . . . . . . . . . . . . . . . .67
Section 9.12. Specific Performance. . . . . . . . . . . . . . . . .67
Section 9.14. Limitation on Liability . . . . . . . . . . . . . . .68
Section 9.15. Dispute Resolution. . . . . . . . . . . . . . . . . .68
iii
<PAGE>
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION, dated as of
September 1, 1998 (this "AGREEMENT"), is by and between QUICKSILVER RESOURCES
INC., a Delaware corporation ("QRI"), and MSR EXPLORATION LTD., a Delaware
corporation (the "COMPANY").
WHEREAS, the Company, upon the terms and subject to the conditions of
this Agreement and in accordance with the General Corporation Law of the
State of Delaware ("DGCL"), will merge with and into QRI (the "MERGER");
WHEREAS, the Special Committee (as herein defined) of the Board of
Directors of the Company, and the Board of Directors of the Company (with the
members of the Darden family abstaining), have determined that the Merger is
advisable and is fair to, and in the best interests of, the Company and its
stockholders, have approved and adopted this Agreement and the transactions
contemplated hereby, and have recommended approval and adoption of this
Agreement by the stockholders of the Company;
WHEREAS, the Board of Directors of QRI has determined that the Merger is
advisable and is fair to, and in the best interests of, QRI and its
stockholders, has approved and adopted this Agreement and the transactions
contemplated hereby, and has recommended approval and adoption of this
Agreement by the stockholders of QRI;
WHEREAS, for federal income tax purposes, it is intended that the Merger
will qualify as a tax-free reorganization under the provisions of Section
368(a)(1)(a) of the United States Internal Revenue Code of 1986, as amended
(the "CODE") and it is also intended that the Merger will be accounted for as
a purchase;
WHEREAS, QRI consummated a series of transactions (the "FORMATION
TRANSACTION") whereby (i) Quicksilver Energy, L.C., a Michigan limited
liability company ("QELC"), Mercury Exploration Company, a Texas corporation
("MERCURY"), and certain affiliates and employees of Mercury (the "MERCURY
AFFILIATES") contributed certain assets or interests therein to QRI in
exchange for shares of common stock, par value $.01 per share of QRI ("QRI
COMMON STOCK"), (ii) Michigan Gas Partners, Limited Partnership, a Texas
limited partnership ("MGP"), merged with and into QRI, with the sole limited
partner of MGP, Joint Energy Development Investments Limited Partnership, a
Delaware limited partnership ("JEDI"), receiving shares of QRI Common Stock
in the merger, and (iii) certain indebtedness of QELC to Trust Company of the
West, a California trust company ("TCW"), was repaid by the issuance of
shares of QRI Common Stock to TCW (QELC, Mercury, the Mercury Affiliates,
JEDI and TCW are referred to herein as the "CONTRIBUTING ENTITIES") (any
agreement, document or instrument entered into in connection with the
Formation Transactions are collectively referred to herein as the "FORMATION
DOCUMENTS" and individually as a "FORMATION DOCUMENT").
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, the parties hereto agree as follows:
1
<PAGE>
ARTICLE I
THE MERGER
Section 1.01. THE MERGER. Upon the terms and subject to the
conditions set forth in this Agreement, and in accordance with the DGCL, at
the Effective Time (as defined in SECTION 1.03 of this Agreement), the
Company shall be merged with and into QRI. As a result of the Merger, the
separate corporate existence of the Company shall cease and QRI shall
continue as the surviving corporation of the Merger (the "SURVIVING
CORPORATION").
Section 1.02. THE CLOSING. Subject to the terms and conditions of this
Agreement, the closing of the Merger (the "CLOSING") shall take place (a) at
the offices of Jenkens & Gilchrist, a Professional Corporation, 1445 Ross
Avenue, Suite 3200, Dallas, Texas, at 9:00 am., local time, on the second
business day immediately following the day on which the last to be fulfilled
or waived of the conditions set forth in ARTICLE VII shall be fulfilled or
waived in accordance herewith (other than conditions with respect to actions
the respective parties hereto will take at the Closing), or (b) at such other
time, date or place as QRI and the Company may agree. The date on which the
Closing occurs is hereinafter referred to as the "CLOSING DATE."
Section 1.03. EFFECTIVE TIME. On the Closing Date, the parties hereto
shall cause the Merger to be consummated by filing a Certificate of Merger
with the Secretary of State of the State of Delaware, in such form as is
required by, and executed in accordance with the relevant provisions of, the
DGCL (the date and time of the completion of such filing or such later date
and time as may be specified in the Certificate of Merger as the effective
time of the Merger being the "EFFECTIVE TIME").
Section 1.04. EFFECT OF THE MERGER. At the Effective Time, the effect
of the Merger shall be as provided in Section 259 of the DGCL. Without
limiting the generality of the foregoing, and subject thereto, at the
Effective Time all the property, rights, privileges, powers and franchises of
QRI and the Company shall vest in the Surviving Corporation, and all debts,
obligations, liabilities and duties of each of QRI and the Company shall
become the debts, obligations, liabilities and duties of the Surviving
Corporation.
Section 1.05. CERTIFICATE OF INCORPORATION. At the Effective Time, the
Certificate of Incorporation of the Surviving Corporation, which shall be in
the form of EXHIBIT "A" hereto, shall be the Certificate of Incorporation of
QRI as in effect immediately prior to the Effective Time and shall continue
to be its Certificate of Incorporation until amended as provided therein and
under the DGCL. Prior to the Effective Time, QRI shall take all necessary
corporate action to amend its certificate of incorporation so as to conform
with the form of Certificate of Incorporation attached hereto as EXHIBIT "A".
Section 1.06. BYLAWS. At the Effective Time and without further action
on the part of the Company or QRI, the Bylaws of the Surviving Corporation,
which shall be in the form of EXHIBIT "B" hereto, shall be the Bylaws of QRI
in effect as of the Effective Time and thereafter shall continue to be its
Bylaws until amended as provided therein and under the DGCL. Prior to the
Effective Time,
2
<PAGE>
QRI shall take all necessary corporate action to amend and restate its bylaws
to conform with the form of Bylaws attached hereto as EXHIBIT "B".
Section 1.07. DIRECTORS AND OFFICERS. Frank Darden, Thomas F. Darden,
Glenn M. Darden, Mark Warner, Steven M. Morris, D. Randall Kent and W.
Yandell Rogers III shall be the directors of the Surviving Corporation, each
to hold office in accordance with the Certificate of Incorporation and Bylaws
of the Surviving Corporation, and the officers of the Company immediately
prior to the Effective Time shall be the officers of the Surviving
Corporation, in each case until their respective successors are duly elected
or appointed and qualified.
Section 1.08. TAX CONSEQUENCES. It is intended that the Merger shall
constitute a tax-free reorganization within the meaning of Section
368(a)(1)(a) of the Code, and that this Agreement shall constitute a "plan of
reorganization" for the purposes of Section 368 of the Code.
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
Section 2.01. MERGER CONSIDERATION: CONVERSION AND CANCELLATION OF
SECURITIES. At the Effective Time, by virtue of the Merger and without any
action on the part of QRI, the Company or the holders of any of the Company's
securities:
(a) Subject to the other provisions of this ARTICLE II, each share
of common stock, par value $.01 per share, of the Company ("COMPANY
COMMON STOCK") issued and outstanding immediately prior to the Effective
Time (excluding any Dissenting Shares and any Company Common Stock
described in SECTION 2.01(d) of this Agreement) shall be converted into
the right to receive one-tenth (0.10) of one fully paid and
nonassessable share of common stock, par value $.0l per share, of QRI
("QRI COMMON STOCK") (the "CONVERSION RATIO").
(b) Notwithstanding the foregoing, if between the date of this
Agreement and the Effective Time the outstanding shares of QRI 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 Conversion Ratio shall be correspondingly
adjusted to reflect such stock dividend, subdivision, reclassification,
recapitalization, split, combination or exchange of shares; PROVIDED,
THAT HOWEVER, no adjustment shall be made with regard to the 100,000
shares of QRI Common Stock currently outstanding pursuant to a stock
split in connection with the Merger that results in an increase in the
number of outstanding shares of QRI Common Stock to 10,310,806 shares.
(c) As a result of their conversion pursuant to SECTION 2.01(a),
all shares of Company Common Stock shall cease to be outstanding and
shall automatically be canceled and retired. Each certificate
previously evidencing Company Common Stock outstanding immediately prior
to the Effective Time (other than Company Common Stock described in
SECTION 2.01(d) of this Agreement and any Dissenting Shares) ("CONVERTED
COMMON STOCK") shall thereafter represent, subject to SECTION 2.02(d) of
this Agreement, the right to receive
3
<PAGE>
that number of shares of QRI Common Stock determined pursuant to the
Conversion Ratio and, if applicable, the right to receive cash pursuant
to SECTION 2.02(d) of this Agreement ("MERGER CONSIDERATION"). The
holders of certificates previously evidencing Converted Common Stock
shall cease to have any rights with respect to such Converted Common
Stock except the right to receive the Merger Consideration applicable
thereto and as otherwise provided herein or by law. Such certificates
previously evidencing Converted Common Stock shall be exchanged for
certificates evidencing whole shares of QRI Common Stock issued in
consideration therefor upon the surrender of such certificates in
accordance with the provisions of SECTION 2.02 of this Agreement. No
fractional shares of QRI Common Stock shall be issued and, in lieu
thereof, a cash payment shall be made pursuant to SECTION 2.02(d) of
this Agreement.
(d) Notwithstanding any provision of this Agreement to the
contrary, each share of Company Common Stock held in the treasury of the
Company immediately prior to the Effective Time shall be canceled and
extinguished without any conversion thereof and no payment shall be made
with respect thereto.
(e) Each share of common stock, par value $.0l per share, of QRI
issued and outstanding immediately prior to the Effective Time shall
remain issued and outstanding and shall thereafter represent one validly
issued, fully paid and nonassessable share of common stock of the
Surviving Corporation, and shall not be converted or affected by virtue
of the Merger.
Section 2.2. EXCHANGE AGENCY; SURRENDER OF CERTIFICATES.
(a) EXCHANGE FUND. At or prior to the Effective Time, QRI shall
deposit, or cause to be deposited, with a bank or trust company
designated by QRI (the "EXCHANGE AGENT"), for the benefit of the holders
of Converted Common Stock, for exchange in accordance with this ARTICLE
II, through the Exchange Agent (i) certificates evidencing a number of
shares of QRI Common Stock equal to the product of the Conversion Ratio
multiplied by the number of Converted Common Stock issued and
outstanding, and (ii) cash in an amount sufficient to provide for the
payments to be made in lieu of issuing any fractional shares of QRI
Common Stock as provided in SECTION 2.02(d) of this Agreement.
Additionally, subject to the provisions of subsection (e) of this
SECTION 2.02, QRI shall, if and when a payment date has occurred with
respect to a dividend or distribution that has been declared subsequent
to the Effective Time, deposit with the Exchange Agent an amount in cash
(or property of like kind to that which is the subject of such dividend
or distribution) equal to the dividend or distribution per share of QRI
Common Stock times the number of shares of QRI Common Stock evidenced by
certificates theretofore representing Converted Common Stock that have
not theretofore been surrendered for exchange in accordance with this
SECTION 2.02. The certificates and cash (and property, if any)
deposited with the Exchange Agent in accordance with this SECTION
2.02(a) are hereinafter referred to as the "EXCHANGE FUND." The
Exchange Agent shall, pursuant to irrevocable instructions, deliver QRI
Common Stock (and any dividends or distribution related thereto) and/or
cash, as described above, in exchange for surrendered certificates
pursuant to the terms of this Agreement out of the Exchange Fund.
4
<PAGE>
(b) EXCHANGE PROCEDURES. As soon as practicable after the
Effective Time, QRI shall cause the Exchange Agent to send to each
record holder of Company Common Stock at the Effective Time (i) a letter
of transmittal (which shall specify that delivery shall be effected, and
risk of loss and title to the certificates theretofore representing
Company Common Stock (the "CERTIFICATES") shall pass, only upon delivery
of the Certificates to the Exchange Agent and shall be in such form and
contain such other provisions as QRI and the Company shall reasonably
determine), and (ii) instructions for use in effecting the surrender of
the Certificates in exchange for certificates representing shares of QRI
Common Stock, and any cash in lieu of fractional shares, into which the
shares of Company Common Stock represented by such Certificate or
Certificates shall have been converted pursuant to this Agreement. Upon
surrender of a Certificate for cancellation to the Exchange Agent,
together with such letter of transmittal, duly executed, the holder of
such Certificate shall be entitled to receive in exchange therefor, as
applicable, a certificate representing that number of whole shares of
QRI Common Stock that such holder has the right to receive pursuant to
the provisions of this ARTICLE II and cash in the amount such holder has
the right to receive pursuant to such provisions, and the Certificate so
surrendered shall forthwith be canceled. In the event of a transfer of
ownership of Company Common Stock that is not registered in the transfer
records of the Company, a certificate evidencing the proper number of
shares of QRI Common Stock may be issued to the transferee if the
Certificate evidencing the Company Common Stock shall be surrendered to
the Exchange Agent, accompanied by all documents required to evidence
and effect such transfer and by evidence that any applicable stock
transfer taxes have been paid. Until surrendered for exchange in
accordance with the provisions of SECTION 2.02 of this Agreement, each
Certificate theretofore representing Converted Common Stock shall from
and after the Effective Time represent for all purposes only the right
to receive the applicable Merger Consideration as set forth in this
Agreement. If any holder of Converted Common Stock shall be unable to
surrender such holder's Certificates because such Certificates have been
lost or destroyed, such holder may deliver in lieu thereof an affidavit
and indemnity bond in form and substance and with surety reasonably
satisfactory to QRI. No interest shall be paid on any Merger
Consideration payable to former holders of Converted Common Stock.
(c) DISTRIBUTIONS WITH RESPECT TO QRI COMMON STOCK. No dividends
or other distributions declared or made after the Effective Time with
respect to QRI Common Stock with a record date after the Effective Time
shall be paid to the holder of any unsurrendered Certificate previously
representing shares of Company Common Stock with respect to any shares
of QRI Common Stock evidenced thereby, and no Merger Consideration shall
be paid to any such holders until the holder of such Certificate shall
surrender such Certificate theretofore representing shares of Company
Common Stock. Subject to applicable laws, following surrender of any
such Certificate, there shall be paid to the holder of the certificates
evidencing whole shares of QRI Common Stock issued in exchange therefor,
without interest, (i) promptly following the surrender of such
Certificate and in addition to the amount of any cash payable with
respect to a fractional share of QRI Common Stock to which such holder
is entitled pursuant to SECTION 2.02(d) of this Agreement, the amount of
dividends or other distributions with a record date after the Effective
Time theretofore paid with respect to such whole shares of QRI Common
Stock and (ii) at the appropriate payment date, the amount of dividends
or other distributions with a record date after the Effective Time but
prior to
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surrender and a payment date occurring after surrender payable with
respect to such whole shares of QRI Common Stock.
(d) NO FRACTIONAL SHARES. No certificates or scrip evidencing
fractional shares of QRI Common Stock shall be issued upon the surrender
for exchange of Certificates, and such fractional share interests shall not
entitle the owner thereof to any rights of a stockholder of QRI. In lieu
of any such fractional shares, (i) each holder of a Certificate previously
evidencing Company Common Stock, upon surrender of such Certificate for
exchange pursuant to this ARTICLE II, shall be paid an amount in cash
(without interest), rounded to the nearest cent, determined by multiplying
(A) the Closing Price multiplied by the Conversion Ratio by (B) the
fractional interest to which such holder would otherwise be entitled (after
taking into account all shares of Company Common Stock held of record by
such holder at the Effective Time). "CLOSING PRICE" means the closing
sales price of the MSR Common Stock on the American Stock Exchange ("AMEX")
(or such other quotation system or securities exchange on which the MSR
Common Stock is then quoted or listed) as reported by the WALL STREET
JOURNAL on the day preceding the Closing Date as provided in SECTION 1.02
hereof.
(e) TERMINATION OF EXCHANGE FUND. Any portion of the Exchange Fund
that remains unclaimed by the former holders of Converted Common Stock on
the second anniversary of the Closing Date shall be delivered to QRI, upon
demand, and any former holders of Converted Common Stock who have not
theretofore complied with this ARTICLE II shall thereafter look only to QRI
for the Merger Consideration and dividends or distributions to which they
are entitled, without any interest thereon. Neither QRI nor the Company
shall be liable to any former holder of Converted Common Stock for any
Merger Consideration (or dividends or distributions with respect thereto)
or cash delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law.
(f) WITHHOLDING. QRI (or any affiliate thereof) shall be entitled to
deduct and withhold from the consideration otherwise payable pursuant to
this Agreement to any former holder of Converted Common Stock such amounts
as QRI (or any affiliate thereof) is required to deduct and withhold with
respect to the making of such payment under the Code or any other provision
of federal, state, local or foreign tax law and QRI agrees to remit to the
proper taxing authority such amounts so withheld. To the extent that
amounts are so withheld by QRI, such withheld amounts shall be treated for
all purposes of this Agreement as having been paid to the former holder of
the Converted Common Stock in respect of which such deduction and
withholding was made by QRI.
Section 2.03. STOCK TRANSFER BOOKS. At the Effective Time, the stock
transfer books of the Company shall be closed and there shall be no further
registration of transfers of shares of Company Common Stock thereafter on the
records of the Company. If, after the Effective Time, Certificates are
presented to the Surviving Corporation, they shall be canceled and exchanged for
the Merger Consideration, deliverable in respect thereof pursuant to this
Agreement in accordance with the procedures set forth in this ARTICLE II.
Certificates surrendered for exchange by any person constituting an "affiliate"
of the Company for purposes of Rule 145(c) under the Securities Act of
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1933, as amended (the "Securities Act"), shall not be exchanged until QRI has
received a written agreement from such person as provided in SECTION 6.04.
Section 2.04. DISSENTERS' RIGHTS.
(a) Notwithstanding the provision of SECTION 2.01 or any other
provision in this Agreement to the contrary, each share of Company Common
Stock issued and outstanding immediately prior to the Effective Time and
held by stockholders who have not voted such shares in favor of the Merger
or consented thereto in writing and qualify under and have complied with
all of the provisions of Article 11, Section 3, entitled RIGHT TO DISSENT,
of the Certificate of Incorporation of the Company and Section 184 of the
BUSINESS CORPORATIONS ACT (Alberta) as in effect on July 31, 1997 (the
"Appraisal Provisions") ("DISSENTING SHARES") shall not, by virtue of the
Merger, be converted into the right to receive the Merger Consideration but
such stockholder shall be entitled to receive payment of the appraised
value of such shares of Company Common Stock or held by them in accordance
with the provisions of the Company's Certificate of Incorporation and the
Appraisal Provisions; PROVIDED, HOWEVER, that if any holder of Dissenting
Shares (i) subsequently delivers a written withdrawal of his demand for
appraisal rights (with the written consent of QRI if such written
withdrawal is not made after the Effective Time within the time periods
required by the provisions of the Company's Certificate of Incorporation or
the Appraisal Provisions), or (ii) fails to perfect dissenter's rights as
provided in the Company's Certificate of Incorporation and the Appraisal
Provisions, or (iii) if neither any holder of Dissenting Shares nor the
Surviving Corporation has filed a petition demanding a determination of the
value of Dissenting Shares within the time provided in the Company's
Certificate of Incorporation and the Appraisal Provisions, the Dissenting
Shares held by such holder or holders (as the case may be) shall thereupon
be deemed to have been converted into and to have become exchangeable for,
as of the Effective Time, the right to receive the Merger Consideration as
provided in this Agreement without any interest thereon and shall be
treated for all purposes as Converted Common Stock.
(b) The Company shall give QRI (i) prompt notice of any written
demands for appraisal, withdrawal of demands for appraisal and any other
instruments served pursuant to the Company's Certificate of Incorporation
and the Appraisal Provisions and (ii) the opportunity to direct all
negotiations and proceedings with respect to demands for appraisal under
the Company's Certificate of Incorporation and the Appraisal Provisions.
The Company agrees that prior to the Effective Time, it will not, without
the prior written consent of QRI, voluntarily make or agree to make any
payment with respect to, or settle or offer to settle, any such demands.
(c) Each holder of Dissenting Shares who becomes entitled, pursuant
to the provisions of the Company's Certificate of Incorporation and the
Appraisal Provisions, to payment for his or its Dissenting Shares shall
receive payment therefor after the Effective Time from the Surviving
Corporation (but only after the amount thereof shall have been agreed upon
or finally determined pursuant to such provisions) and such shares shall
be canceled.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to QRI that:
Section 3.01. ORGANIZATION AND QUALIFICATION: SUBSIDIARIES. The Company
is a corporation, and each of the Company's subsidiaries (as such term in
defined in SECTION 9.03 herein) is a corporation or partnership, duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation or organization, and each of the Company and its subsidiaries has
all requisite power and authority to own, lease and operate its properties and
to conduct its business as it is now being conducted and is qualified to do
business and is in good standing in each jurisdiction in which the nature of the
business conducted by it or the ownership or leasing of its properties makes
such qualification necessary, other than where the failure to be so qualified
and in good standing could not reasonably be expected to have a Company Material
Adverse Effect. The term "COMPANY MATERIAL ADVERSE EFFECT" as used in this
Agreement shall mean any change or effect that would be materially adverse to
the financial condition, results of operations, business, or prospects of the
Company and its subsidiaries, taken as a whole, at the time of such change or
effect; provided, however, no Company Material Adverse Effect shall be deemed to
have occurred hereunder as a result of changes in oil or gas prices. SECTION
3.01 of the Disclosure Schedule delivered by the Company to QRI concurrently
with the execution of this Agreement (the "COMPANY DISCLOSURE SCHEDULE") sets
forth, as of the date of this Agreement, a true and complete list of all the
Company's directly or indirectly owned subsidiaries, together with (a) the
jurisdiction of incorporation or organization of each such subsidiary and the
percentage of each such subsidiary's outstanding capital stock or other equity
interests owned by the Company or another subsidiary of the Company and (b) an
indication of whether each such subsidiary is a "SIGNIFICANT SUBSIDIARY" as
defined in SECTION 9.03 of this Agreement.
Section 3.02. CERTIFICATE OF INCORPORATION AND BYLAWS. The Company has
heretofore furnished or made available to QRI complete and correct copies of the
Certificate of Incorporation and the Bylaws or the equivalent organizational
documents, in each case as amended or restated to the date hereof, of the
Company and each of its Significant Subsidiaries. Neither the Company nor any
of its subsidiaries is in violation of any of the provisions of its Certificate
of Incorporation or Bylaws (or equivalent organizational documents).
Section 3.03. CAPITALIZATION.
(a) The authorized capital stock of the Company consists of
50,000,000 shares of Company Common Stock, par value $.01 per share, and
10,000,000 shares of Preferred Stock, par value $0.01 per share. At the
date hereof, 25,777,014 shares of Company Common Stock were issued and
outstanding, no shares of Company Common Stock were held by the Company in
its treasury or by the Company's subsidiaries and 12,840,000 shares of
Company Common Stock were reserved for issuance as follows: (i) 250,000
shares were reserved for issuance upon exercise of stock options heretofore
granted or available for grant pursuant to the Company's 1997 Stock Option
Plan (the "Company Option Plan"), of which options to purchase 248,570
shares were granted as of December 31, 1997; and (ii)
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12,590,000 shares were reserved for issuance upon the exercise of the
warrants (the "COMMON STOCK WARRANTS") listed and described in
SECTION 3.03(a) of the Company Disclosure Schedule. Except as
described in this SECTION 3.03 or in SECTION 3.03(a) of the Company
Disclosure Schedule, no shares of capital stock of the Company are
issued and outstanding or reserved for issuance for any other purpose.
Each of the issued shares of capital stock of each of the Company and
its subsidiaries is duly authorized, validly issued and fully paid
and nonassessable, and has not been issued in violation of (nor are
any of the authorized shares of capital stock of, or other equity
interests in, the Company or any of its subsidiaries subject to) any
preemptive or similar rights created by statute, the Certificate of
Incorporation or Bylaws (or the equivalent organizational documents) of the
Company or any of its subsidiaries, any agreement to which the Company or
any of its subsidiaries is a party or is bound or applicable federal or
state securities laws. Except as set forth in SECTION 3.03(a) of the
Company Disclosure Schedule, all issued shares or other equity interests in
the subsidiaries of the Company owned by the Company or a subsidiary of the
Company are owned free and clear of all security interests, liens, claims,
pledges, agreements, limitations on the Company's or such subsidiaries'
voting rights, charges or other encumbrances of any nature whatsoever.
(b) No bonds, debentures, notes or other indebtedness of the Company
or its subsidiaries having the right to vote (or convertible into or
exchangeable or exercisable for securities having the right to vote) on any
matters on which stockholders may vote ("COMPANY VOTING DEBT") are issued
or outstanding. All shares of Company Common Stock that may be issued upon
exercise of stock options granted pursuant to the Company Option Plan or
Common Stock Warrants will, when issued in accordance with the terms of
such stock options, warrants, and the related Company Option Plan, be
validly issued, fully paid and nonassessable and not subject to preemptive
rights and issued in compliance with applicable federal and state
securities laws.
(c) Except as set forth in SECTION 3.03(a) above or in SECTION
3.03(c) of the Company Disclosure Schedule, there are no options, warrants
or other rights (including registration rights), agreements, arrangements
or commitments of any character to which the Company or any of its
subsidiaries is a party relating to the issued or unissued capital stock of
the Company or any of its subsidiaries or obligating the Company or any of
its subsidiaries to grant, issue, sell or register under federal or state
securities laws any shares of capital stock, Company Voting Debt or other
equity interests of the Company or any of its subsidiaries. Except as set
forth in SECTION 3.03(c) of the Company Disclosure Schedule, there are no
obligations, contingent or otherwise, of the Company or any of its
subsidiaries (i) to repurchase, redeem or otherwise acquire any shares of
Company Common Stock or other capital stock of the Company or the capital
stock of any subsidiary of the Company or (ii) other than advances to
wholly owned subsidiaries in the ordinary course of business, to provide
funds to, or to make any investment in (in the form of a loan, capital
contribution or otherwise), or to provide any guarantee with respect to the
obligations of, any subsidiary of the Company or any other person. Except
(i) as set forth in SECTION 3.03(c) of the Company Disclosure Schedule or
(ii) for the subsidiaries of the Company set forth in SECTION 3.01 of the
Company Disclosure Schedule, neither the Company nor any of its
subsidiaries (x) directly or indirectly owns, (y) has agreed to purchase or
otherwise acquire or (z) holds any interest
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convertible into or exchangeable or exercisable for the capital stock
or any other equity interests of any corporation, partnership, joint
venture or other business association or entity. Except as set forth
in SECTION 3.03(c) of the Company Disclosure Schedule or for any
agreements, arrangements or commitments between the Company and its
wholly owned subsidiaries or between such wholly owned subsidiaries,
there are no agreements, arrangements or commitments of any character
(contingent or otherwise) pursuant to which any person is or may be
entitled to receive any payment based on, or calculated in accordance
with, the revenues or earnings of the Company or any of its
subsidiaries. Except as set forth in SECTION 3.03(c) of the Company
Disclosure Schedule, there are no voting trusts, proxies or other
agreements or understandings to which the Company or any of its
subsidiaries is a party or by which the Company or any of its subsidiaries
is bound with respect to the voting of any shares of capital stock or other
equity interests of the Company or any of its subsidiaries.
(d) SECTION 3.03(d) of the Company Disclosure Schedule sets forth a
complete and correct list as of the date hereof of (i) the number of
options to purchase Company Common Stock outstanding and the number of
shares of Company Common Stock issuable thereunder, (ii) the number of
Common Stock Warrants outstanding and the number of shares of Company
Common Stock issuable thereunder, (iii) the exercise price of each such
outstanding stock option and warrant, and (iv) the number of stock options
and warrants then exercisable. Complete and correct copies of the Company
Option Plan, all forms of stock options issued pursuant to the Company
Option Plan or otherwise, and all forms of Common Stock Warrants, including
all amendments thereto, have been made available to QRI.
Section 3.4. AUTHORITY. The Company has all requisite corporate power
and authority to execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby (subject to,
with respect to the Merger, the approval and adoption of this Agreement by the
stockholders of the Company as described in SECTION 6.01 of this Agreement).
The execution and delivery of this Agreement by the Company and the consummation
by the Company of the transactions contemplated hereby have been duly authorized
by all necessary corporate action and no other corporate proceedings on the part
of the Company are necessary to authorize this Agreement or to consummate the
transactions contemplated hereby (subject to, with respect to the Merger, the
approval and adoption of this Agreement by the stockholders of the Company as
described in SECTION 6.01 of this Agreement). This Agreement has been duly
executed and delivered by the Company and, assuming the due authorization,
execution and delivery hereof by QRI, constitutes the legal, valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms.
Section 3.5. NO CONFLICT: REQUIRED FILINGS AND CONSENTS.
(a) Except as disclosed in SECTION 3.05(a) of the Company Disclosure
Schedule, the execution and delivery of this Agreement by the Company does
not, and the performance by the Company of its obligations hereunder,
including consummation of the transactions contemplated hereby, will not
(i) conflict with or violate the Certificate of Incorporation or Bylaws, or
the equivalent organizational documents, in each case as amended or
restated, of the Company or any of its Significant Subsidiaries, (ii)
conflict with or violate any federal,
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state, foreign or local law, statute, ordinance, rule or regulation
(collectively, "LAWS") in effect as of the date of this Agreement or any
judgment, order or decree to which the Company or any of its
subsidiaries is a party or by or to which any of their respective
properties are bound or subject or (iii) result in any breach of or
constitute a default (or an event that with notice or lapse of time or
both would become a default) under, or impair any of the Company's or
any of its subsidiaries' rights or alter the rights or obligations of
any third party under, or give to others any rights of termination,
amendment, acceleration or cancellation of, or require payment under, or
result in the creation of a lien or encumbrance on any of the properties
or assets of the Company or any of its subsidiaries pursuant to, any
note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which the Company
or any of its subsidiaries is a party or by or to which the Company or
any of its subsidiaries or any of their respective properties are bound
or subject, excluding from the foregoing clause (iii) any such
conflicts, violations, breaches, defaults, events, rights of
termination, amendment, acceleration or cancellation, payment
obligations or liens or encumbrances that individually or in the
aggregate could not reasonably be expected to have a Company Material
Adverse Effect. The Board of Directors of the Company has approved the
Merger, this Agreement and the transactions contemplated hereby. The
provisions of Section 203 of the DGCL are inapplicable to the Merger,
this Agreement, and the transactions contemplated hereby. To the best
of the Company's knowledge, no other state takeover statute or similar
statute or regulation applies or purports to apply to the Merger, this
Agreement or any of the transactions contemplated hereby.
(b) The execution and delivery of this Agreement by the Company does
not, and the performance by the Company of its obligations hereunder,
including consummation of the transactions contemplated hereby, will not,
require the Company to obtain any consent, license, permit, waiver,
approval, authorization or order of, or to make any filing with or
notification to, any governmental or regulatory authority, federal, state,
local or foreign (collectively, "GOVERNMENTAL ENTITIES"), except (i) for
(A) applicable requirements, if any, of the Securities Act, the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and state securities
or blue sky laws ("BLUE SKY LAWS") and (B) the pre-merger notification
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended (the "HSR ACT") and (ii) the filing and recordation of
appropriate merger documents as required by the DGCL.
Section 3.06. PERMITS; COMPLIANCE. Except as disclosed in SECTION
3.06 of the Company Disclosure Schedule, each of the Company and its
subsidiaries is in possession of all franchises, grants, authorizations,
licenses, permits, easements, variances, exemptions, consents, certificates,
identification and registration numbers, approvals and orders (collectively,
the "PERMITS") necessary to own, lease and operate their properties and to
carry on their businesses as they are now being conducted, except where the
failure to possess such Permits could not reasonably be expected to have a
Company Material Adverse Effect. SECTION 3.06 of the Company Disclosure
Schedule sets forth, as of the date of this Agreement, all actions,
proceedings, or investigations, pending or, to the knowledge of the Company,
threatened against the Company or any of its subsidiaries that could
reasonably be expected to result in the loss, revocation, suspension or
cancellation of a Permit held by the Company or a subsidiary of the Company.
Except as set forth in SECTION 3.06 of the Company Disclosure Schedule, (i)
neither the Company nor any of its subsidiaries is in conflict with, in
default
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under or in violation of (a) any Law applicable to the Company or any of its
subsidiaries or by which any of their respective properties are bound or
subject or (b) any of the Permits held by the Company or a subsidiary of the
Company, except for any such conflicts, defaults or violations that
individually or in the aggregate could not reasonably be expected to have a
Company Material Adverse Effect; (ii) neither the Company nor any of its
subsidiaries is in conflict with, in default under or in violation of any
judgment, order or decree applicable to the Company of any of its
subsidiaries or any material Permits held by the Company or a subsidiary of
the Company; and (iii) neither the Company nor any of its subsidiaries has
received from any Governmental Entity any notice with respect to possible
conflicts with, defaults under or violations of (a) any Law applicable to the
Company or any of its subsidiaries or by which any of their respective
properties are bound or subject, (b) any judgment, order or decree applicable
to the Company or any of its subsidiaries, or (c) any of the Permits held by
the Company or a subsidiary of the Company.
Section 3.07. REPORTS; FINANCIAL STATEMENTS; UNDISCLOSED LIABILITIES.
(a) Since March 7, 1997, except as disclosed in SECTION 3.07 of the
Company Disclosure Schedule, the Company has filed all forms, reports,
statements and other documents required to be filed with the Securities and
Exchange Commission ("SEC"), including, without limitation, (i) all Annual
Reports on Form 10-KSB, (ii) all Quarterly Reports on Form 10-QSB, (iii)
all proxy statements relating to meetings of stockholders (whether annual
or special), (iv) all Current Reports on Form 8-K and (v) all other
reports, schedules, registration statements or other documents
(collectively referred to as the "COMPANY SEC REPORTS"). As of their
respective dates, the Company SEC Reports complied in all material respects
with the requirements of applicable Laws (including the Securities Act or
the Exchange Act, as the case may be, and the rules and regulations of the
SEC thereunder applicable to such Company SEC Reports) and the Company SEC
Reports, including, without limitation, any financial statements or
schedules included therein, did not at the time they were filed 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 the light of the circumstances under which they were made, not
misleading.
(b) The Company has heretofore delivered to QRI (i) a consolidated
balance sheet of the Company and its subsidiaries as of December 31, 1997
and (ii) a consolidated statement of income, stockholders' equity and cash
flows for the period from inception, March 7, 1997 to December 31, 1997,
certified by Deloitte and Touche LLP, whose report thereon is included
therewith. The Company has also delivered to QRI (i) an unaudited
consolidated balance sheet of the Company and its subsidiaries as of June
30, 1998 and (ii) unaudited consolidated statements of income,
stockholders' equity and cash flows for the six month period ended June 30,
1998. Such audited and unaudited consolidated financial statements,
including any such financial statements and schedules contained in the
Company SEC reports (or incorporated by reference therein) (i) are in
accordance with the books and records of the Company and its subsidiaries
in all material respects and were prepared in accordance with the published
rules and regulations of the SEC and generally accepted accounting
principles applied on a consistent basis throughout the periods involved
(except (A) to the extent disclosed therein or required by changes in
generally accepted accounting principles), and (B) with respect to Company
SEC Reports, as may be indicated in the notes
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thereto, and (ii) fairly present in all material respects the consolidated
financial position of the Company and its subsidiaries as of the respective
dates thereof and the consolidated results of operations and cash flows for
the periods indicated (except, in the case of unaudited consolidated
financial statements for interim periods, for the absence of footnotes and
subject to adjustments, consisting only of normal, recurring accruals,
necessary to present fairly such results of operations and cash flows).
(c) Except as and to the extent set forth on the consolidated balance
sheet of the Company and its subsidiaries as of December 31, 1997,
including the notes thereto, neither the Company or any of its subsidiaries
has any liabilities or obligations material to the Company and its
subsidiaries that are not referenced on such balance sheet. Except as set
forth in SECTION 3.07 of the Company Disclosure Schedule, since December
31, 1997, neither the Company nor any of its subsidiaries has incurred any
liabilities except for (i) liabilities or obligations incurred in the
ordinary course of business and consistent with past practice which do not
have a Company Material Adverse Effect, and (ii) for professional fees and
expenses incurred in connection with or as a result of the Merger.
Section 3.08. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth
in SECTION 3.08 of the Company Disclosure Schedule, since December 31, 1997, the
Company and its subsidiaries have conducted their respective businesses only in
the ordinary course and in a manner consistent with past practice and there has
not been (a) any damage, destruction or loss with respect to any assets of the
Company or any of its subsidiaries that, whether or not covered by insurance,
would constitute a Company Material Adverse Effect, (b) any change by the
Company or its subsidiaries in their significant accounting policies, (c) except
for dividends by a subsidiary of the Company to the Company or another wholly
owned subsidiary of the Company, any declaration, setting aside or payment of
any dividends or distributions in respect of shares of Company Common Stock or
the shares of stock of, or other equity interests in, any subsidiary of the
Company or any redemption, purchase or other acquisition of any of the Company's
securities or any of the securities of any subsidiary of the Company, (d) any
increase in the benefits under, or the establishment or amendment of, any bonus,
insurance, severance, deferred compensation, pension, retirement, profit
sharing, performance awards (including, without limitation, the granting of
stock appreciation rights or restricted stock awards), stock purchase or other
employee benefit plan, or any increase in the compensation payable or to become
payable to any of the directors or officers of the Company or the employees of
the Company or its subsidiaries as a group, except for (i) increases in salaries
or wages payable or to become payable in the ordinary course of business and
consistent with past practice or (ii) the granting of stock options in the
ordinary course of business to employees of the Company or its subsidiaries who
are not directors or executive officers of the Company, (e) a material reduction
in the rate of production of oil, gas or other hydrocarbons from the Company
Properties, viewed as a whole, other than changes in the ordinary course of
operation, changes that result from depletion in the ordinary course of
operation, and changes that result from variances in markets for the oil, gas
and other hydrocarbons, or (f) any other Company Material Adverse Effect.
Section 3.09. ABSENCE OF LITIGATION. Except as set forth in SECTION 3.09
of the Company Disclosure Schedule, there is no claim, action, suit, litigation,
proceeding, arbitration or, to the knowledge of the Company, investigation of
any kind, at law or in equity (including actions or proceedings seeking
injunctive relief), pending or, to the knowledge of the Company, threatened
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against the Company or any of its subsidiaries or any properties or rights of
the Company or any of its subsidiaries, and neither the Company nor any of its
subsidiaries is subject to any continuing order of, consent decree, settlement
agreement or other similar written agreement with, or, to the knowledge of the
Company, continuing investigation by, any Governmental Entity, or any judgment,
order, writ, injunction, decree or award of any Governmental Entity or
arbitrator, including, without limitation, cease-and-desist or other orders.
Section 3.10. EMPLOYEE BENEFIT PLANS; LABOR MATTERS.
(a) With respect to each employee benefit plan, program, arrangement,
contract, employment agreement, stock option, bonus, incentive or similar
plan (including, without limitation, any "employee benefit plan" as defined
in Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA")), maintained or contributed to presently or at any time
within the six (6) year period prior to the date of this Agreement by the
Company or any other entity that, together with the Company, would be
treated as a single employer under Code Section 414 ("ERISA AFFILIATE"), or
with respect to which the Company or any ERISA Affiliate could reasonably
be expected to incur liability under ERISA (the "COMPANY BENEFIT PLANS"),
the Company has delivered or made available to QRI a true and correct copy
of (i) such Company Benefit Plan, (ii) each trust agreement, if any,
relating to such Company Benefit Plan, (iii) the most recent summary plan
description of each Company Benefit Plan for which a summary plan
description is required, (iv) the most recent determination letter issued
by the IRS with respect to any Company Benefit Plan that is intended to be
qualified under Section 401 of the Code ("QUALIFIED PLANS"), (v) Internal
Revenue Service Forms 5500 for each Company Benefit Plan for each of the
three (3) most recent plan years, and (vi) the most recent actuarial
report, if any, for each Company Benefit Plan. SECTION 3.10 of the Company
Disclosure Schedule contains a complete list of all Company Benefit Plans.
(b) Each of the Company Benefit Plans is in compliance with its terms
and with all applicable laws, including, but not limited to, ERISA and the
Code, and except as set forth in SECTION 3.10 of the Company Disclosure
Schedule, no Company Benefit Plan has an accumulated or waived funding
deficiency within the meaning of Section 412 of the Code. Except as set
forth in SECTION 3.10 of the Company Disclosure Schedule, neither the
Company nor any ERISA Affiliate is or has contributed to a "multiemployer
plan," as defined in Section 3(37) of ERISA, and neither the Company nor
any ERISA Affiliate has any past, present or future obligation or liability
to contribute to any multiemployer plan. Neither the Company nor any ERISA
Affiliate has completely or partially withdrawn from any multiemployer plan
with respect to which there is any outstanding liability as of the date of
this Agreement. Neither the Company nor any ERISA Affiliate has incurred,
directly or indirectly, any material liability (including any material
contingent liability) to or on account of a Company Benefit Plan under
Sections 409 or 502 of ERISA or Section 4975 of the Code or pursuant to
Title IV of ERISA to which the Company or an ERISA Affiliate made, or was
required to make, contributions during the five (5) years ending on the
date of this Agreement. As of the date of this Agreement, no condition
exists that presents a material risk to the Company or an ERISA Affiliate
of incurring such a material liability. No proceedings have been
instituted to terminate any Company Benefit Plan that is subject to Title
IV of ERISA and the Pension
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Benefit Guaranty Corporation is not expected to institute any such
proceedings, and no "reportable event," as such term in defined in
Section 4043 of ERISA has occurred with respect to any Company
Benefit Plan.
(c) Except as set forth in SECTION 3.10 of the Company Disclosure
Schedule, the current value of the assets of each of the Company Benefit
Plans that are subject to Title IV of ERISA, based upon reasonable
actuarial assumptions, equals or exceeds the present value of the accrued
benefits under each such Company Benefit Plan and all contributions or
other amounts payable by the Company and each ERISA Affiliate as of the
date of this Agreement with respect to each Plan in respect of current or
prior plan years has been either paid or accrued on the latest balance
sheet included in the Company's most recent SEC Report on Form 10-KSB or
accrued since December 31, 1997. There are no pending, or, to the best
knowledge of the Company and each ERISA Affiliate, threatened or
anticipated claims (other than routine claims for benefits) by, on behalf
of or against any of the Company Benefit Plans or any trusts related
thereto.
(d) There are no collective bargaining or other labor union contracts
to which the Company or its subsidiaries is a party and no collective
bargaining agreement is being negotiated by the Company or any of its
subsidiaries. There is no pending or, to the best knowledge of the
Company, threatened labor dispute, strike or work stoppage against the
Company or any of its subsidiaries.
(e) No Company Benefit Plan provides retiree medical or other retiree
welfare benefits and neither the Company nor any of its subsidiaries is
contractually or otherwise obligated to provide medical or other welfare
benefits upon retirement or termination of employment of employees.
(f) Neither the Company nor any of its ERISA Affiliates contributes
to or has an obligation to contribute to, or has within six years prior to
the date of this Agreement contributed to or had an obligation to
contribute to, an employee benefit plan that is or was subject to Title IV
of ERISA or Section 412 of the Code.
(g) No transaction prohibited by ERISA Section 406 and no "prohibited
transaction" under Code Section 4975(c) has occurred with respect to any
Company Benefit Plan. All "fiduciaries," as defined in ERISA Section
3(21), with respect to the Company Benefit Plans have complied in all
respects with the requirements of ERISA Section 404. Neither the Company
nor any ERISA Affiliate has any liability to the Internal Revenue Service
or the PBGC with respect to any Company Benefit Plan.
(h) Each Company Benefit Plan provides that it may be amended or
terminated at any time except for benefits protected under Code Section
411(d).
(i) Each Qualified Plan is qualified in form and operation under Code
Section 401 (a) and each trust for each Qualified Plan is exempt from
federal income tax under Code Section 501(a). No event has occurred or
circumstances exist that will or could give rise to disqualification or
loss of tax-exempt status of any Qualified Plan or related trust.
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All determination letters with respect to Qualified Plans remain in
effect and have not been revoked.
(j) The Company and each ERISA Affiliate has complied with the
provisions of ERISA Section 601 et seq. and Code Section 4980B.
(k) No payment that is owed or may become due to any director,
officer, employee or agent of the Company or any of its subsidiaries will
be non-deductible to the Company or such subsidiary or subject to tax under
Code Sections 280G or 4999; nor will the Company or any of its subsidiaries
be required to "gross-up" or otherwise compensate any such person because
of the imposition of any excise tax on a payment to such person. The
consummation of the transaction contemplated under this Agreement will not
accelerate or increase any liability under any Company Benefit Plan because
of an acceleration or increase of any of the rights or benefits to which
employees may be entitled thereunder.
(l) The Company has no obligation or liability for benefits under any
"employee benefit plan" as defined in Section 3(3) of ERISA owing to
Mercury.
Section 3.11. TAXES. Except as set forth in SECTION 3.11 of the Company
Disclosure Schedule:
(a) (i) all returns and reports ("TAX RETURNS") of or with respect to
any Tax (as defined in SECTION 9.03 of this Agreement) that are required
to be filed on or before the date hereof by or with respect to the Company
or any of its subsidiaries have been duly and timely filed, (ii) Taxes that
have become due with respect to the period covered by each such Tax Return
have been paid, (iii) all withholding Tax requirements imposed on or with
respect to the Company or any of its subsidiaries have been satisfied in
all material respects, and (iv) no penalty, interest or other charge is due
with respect to the late filing of any such Tax Return or late payment of
any such Tax.
(b) There is no claim against the Company or any of its subsidiaries
for any amount of Taxes, no assessment, deficiency or adjustment has been
asserted or proposed with respect to any Tax Return of or with respect to
the Company or any of its subsidiaries, and no Tax Return of or with
respect to the Company or any of its subsidiaries has been, or is being,
audited by the Internal Revenue Service or any state, local or other taxing
authority other than those disclosed (and to which are attached copies of
all audit or similar reports) in SECTION 3.11 of the Company Disclosure
Schedule.
(c) The total amounts set up as liabilities for current and deferred
Taxes in the financial statements referred to in SECTION 3.07 of this
Agreement are sufficient to cover the payment of all Taxes, whether or not
assessed or disputed, with respect to the Company and any of its
subsidiaries up to and through the periods covered thereby.
(d) Except for statutory liens for current Taxes not yet due and for
Taxes being contested in good faith that have been disclosed in SECTION
3.11 of the Company Disclosure
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Schedule and for which adequate provisions have been made in the financial
statements referred to in SECTION 3.07, no liens for Taxes exist upon the
assets of any of the Company or any of its subsidiaries.
(e) Neither the Company nor any of its subsidiaries has waived any
statute of limitations in respect of Taxes or agreed to any extension of
time with respect to a Tax assessment or deficiency.
(f) Neither the Company nor any of its subsidiaries has made an
election under Section 341(f) of the Code. Except as disclosed in SECTION
3.11 of the Company Disclosure Schedule, neither the Company nor any of its
subsidiaries has made any payments, is obligated to make any payments, or
is a party to any agreement that under the circumstances could obligate it
to make any payments that will not be deductible under Sections 162(m) or
280G of the Code.
(g) The Company and its subsidiaries have not taken or agreed to take
any action that would create a material risk that the Merger would not
qualify as a tax free reorganization under the provisions of Section
368(a)(1)(A) of the Code.
(h) Neither the Company nor any of its subsidiaries (i) has ever been
a member of an Affiliated Group (as defined in Section 1504 of the Code)
other than a group the common parent of which was the Company or (ii) has
any liability for the Taxes of any person (other than the Company or any of
its subsidiaries) under Treas. Reg. Section 1.1502-6 (or any similar
provision under state, local, or foreign law), as a transferee or
successor, by contract, or otherwise.
Section 3.12. AFFILIATES. SECTION 3.12 of the Company Disclosure
Schedule identifies all persons who, to the knowledge of the Company, may be
deemed to be affiliates ("Affiliates") of the Company within the meaning of that
term as used in Rule 145 promulgated pursuant to the Securities Act, including,
without limitation, all directors and executive officers of the Company.
Section 3.13. ENVIRONMENTAL MATTERS. Except for matters disclosed in
SECTION 3.13 of the Company Disclosure Schedule:
(a) To the best knowledge of Company all of the properties,
operations and activities of the Company and its subsidiaries comply with
all applicable Environmental Laws (as defined in SECTION 9.03).
(b) None of the Company, its subsidiaries or their properties and
operations are subject to any existing, pending or, to the knowledge of the
Company, threatened action, suit, investigation, inquiry or proceeding by
or before any Governmental Authority or third party under any Environmental
Law.
(c) To the best knowledge of the Company all notices, permits,
licenses or similar authorizations, if any, required to be obtained or
filed by the Company or any its subsidiaries under any Environmental Law in
connection with any aspect of the business of the Company
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or its subsidiaries, including without limitation those relating to the
treatment, storage, disposal or release of a hazardous substance or
solid waste, have been duly obtained or filed and will remain valid and
in effect after the Merger, and the Company and its subsidiaries are in
compliance with the terms and conditions of all such notices, permits,
licenses and similar authorizations.
(d) To the best knowledge of the Company, the Company and its
subsidiaries have satisfied and are currently in compliance with all
financial responsibility requirements applicable to its operations and
imposed by any Governmental Authority under any Environmental Law, and
neither the Company nor any of its subsidiaries has received any notice of
noncompliance with any such financial responsibility requirements.
(e) To the best knowledge of the Company, there are no physical or
environmental conditions existing on any property of the Company or any of
its subsidiaries or resulting from the Company's or any of its
subsidiaries' operations or activities with respect to any of the Company
Properties, past or present, at any location, that would give rise to any
on-site or off-site investigative, remedial, response, contribution or
similar obligations under any Environmental Laws.
(f) To the best knowledge of the Company, since the effective date of
the relevant requirements of applicable Environmental Laws, all hazardous
substances or solid wastes generated by the Company or any of its
subsidiaries or used in connection with any of their properties or
operations have to the extent required by Environmental Laws been
transported only by carriers authorized under Environmental Laws to
transport such substances and wastes, and disposed of only at treatment,
storage and disposal facilities authorized under Environmental Laws to
treat, store or dispose of such substances and wastes, and, to the best
knowledge of the Company and with respect to such substances and wastes,
such carriers and facilities have been and are operating in compliance with
such authorizations, are not subject to any material unperformed
investigative, remedial, response, contribution or similar obligations
under, and are not the subject of any existing, pending or overtly
threatened action, investigation or inquiry by any Governmental Authority
or third party in connection with, any Environmental Laws.
(g) There has been no exposure of any person or property to hazardous
substances, solid waste or any pollutant or contaminant, nor has there been
any release of hazardous substances, solid waste or any pollutant or
contaminant into the environment by the Company or any of its subsidiaries
in connection with their properties or operations that could reasonably be
expected to have a Company Material Adverse Effect.
(h) The Company shall make available to QRI all internal and external
environmental audits and studies and all correspondence on substantial
environmental matters in the possession of the Company relating to any of
the current or former properties or operations of the Company or any of its
subsidiaries.
Section 3.14. PROPERTIES.
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(a) The oil, gas and/or mineral leases, and interests which comprise
part of the properties, rights and interests listed on SECTION 3.14 of the
Company Disclosure Schedule (the "Company Properties"), and all other
material contracts, agreements, licenses, permits and easements,
rights-of-way and other rights-of-surface use comprising any part of or
otherwise relating to the Company Properties (such leases and such material
contracts, agreements, licenses, permits, easements, rights-of-way and
other rights-of-surface use being herein called the "Company Basic
Documents"), are in full force and effect and constitute valid and binding
obligations of the parties thereto; all contracts and agreements that are
Company Basic Documents are disclosed in SECTION 3.14(a) of the Company
Disclosure Schedule. Neither the Company nor any subsidiary is in breach
or default (and no situation exists which with the passing of time or
giving of notice would create such a breach or default) of its obligations
under the Company Basic Documents, and no breach or default by any third
party (or situation which with the passage of time or giving of notice
would create such a breach or default) exists, to the extent such breach or
default (whether by the Company, any subsidiary or such a third party)
could materially adversely affect (after the date hereof) the ownership,
operation, value or use of any Company Properties. All payments (including,
without limitation, all delay rentals, royalties, excess royalties,
overriding royalty interests, shut-in royalties and valid calls for payment
or prepayment under operating agreements) owing under Company Basic
Documents have been and are being made (timely and properly, and before the
same became delinquent) by the Company or its subsidiaries in all material
respects and, where the non-payment of same by a third party could
materially adversely affect the ownership, operation, value or use of a
Company Property after the date hereof, have been and are being made, by
such third party in all material respects.
(b) Except as set forth in SECTION 3.14(b) of the Company Disclosure
Schedule, neither the Company nor any subsidiary has incurred any expenses,
or made commitments to make expenditures, in connection with (and no other
obligations or liabilities have been incurred) that would materially
adversely affect the ownership or operation of the Company Properties after
the date of this Agreement, other than routine expenses incurred in the
normal operation of existing wells on the Company Properties. All expenses
payable under the terms of the Company Basic Documents have been properly
and timely paid except for such expenses as are being currently paid prior
to delinquency in the ordinary course of business. Except as set forth in
Section 3.14(b) of the Company Disclosure Schedule, no proposals are
currently outstanding (whether made by the Company, any subsidiary or by
any other party) to drill additional wells, or to deepen, plug back,
abandon, or rework existing wells, or to conduct other operations for which
consent is required under the applicable operating agreement, or to conduct
any other material operations, other than normal operation of existing
wells on the Company Properties.
(c) There exist no agreements or arrangements for the sale,
gathering, transportation, compression, treating, processing or other
marketing of a material volume of production from the Company Properties
(including without limitation, calls on, or other rights to purchase,
production, whether or not the same are currently being exercised) other
than (A) the agreements set forth in SECTION 3.14(c) of the Company
Disclosure Schedule, and (B) agreements or arrangements that are cancelable
on 30 days notice or less without penalty or detriment. Any contracts or
other arrangements under which the Company or any
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subsidiary is processing, gathering, transporting or otherwise marketing
any material volume of oil, gas or other minerals (whether or not
attributable to the Company Properties) for the account of a third party
include terms that represent an arm's length, commercially reasonable
trade for the Company or any subsidiary. All of the proceeds from the
sale of production from the Company Properties are being properly and
timely paid to the Company by the purchasers of production without
suspension or indemnity other than standard division order indemnities.
(d) Except as set forth in SECTION 3.14(d) of the Company
Disclosure Schedule, neither the Company nor any subsidiary has received
prepayments (including, but not limited to, payments for oil and gas not
taken pursuant to "take-or-pay" arrangements) for any oil or gas
produced from the Company Properties as a result of which the obligation
does (or may) exist to deliver oil or gas produced from the Company
Properties after the date of this Agreement without then receiving
payment (or without then receiving full payment) therefor or to make
repayments in cash. For each Company Property listed in SECTION 3.14(d)
of the Company Disclosure Schedule, such section reflects (A) the total
amount of prepayment received as of the date hereof, (and the amount of
any recoupment thereof heretofore made), and (B) whether or not a cash
payment can be required in the event recoupment out of production proves
to be inadequate. Except as set forth in SECTION 3.14(d) of the Company
Disclosure Schedule, there is no Company Property with respect to which
the Company, any subsidiary, and/or their respective predecessors in
title, have collectively taken more (referred to herein as
"OVER-PRODUCED") or materially less (referred to herein as
"UNDER-PRODUCED") production from such Company Property (or on the units
in which such Company Property participates), or any product thereof,
than the ownership of the Company or any Company subsidiary and such
predecessors in such Company Property would entitle the Company or any
Company subsidiary and such predecessors (absent any balancing agreement
or arrangement) to receive, to the extent such Over-produced or
Under-produced position has not, as of the date hereof, been fully made
up or otherwise extinguished. For each Company Property listed in
SECTION 3.14 of the Company Disclosure Schedule, such section reflects,
on a well-by-well or any other basis as may be dictated by any
applicable balancing agreement, (A) whether the Company or any
subsidiary is in an Over-produced or Under-produced position, (B) the
amount of such over-production or under-production, (C) a description of
the written balancing agreement (if any) pertaining to such Company
Property (or a statement that no such agreement exists) and (D) a
statement as to whether royalties, overriding royalties or other burdens
against the Company's or any subsidiaries's net revenue interest in the
affected Company Properties were, during the period the subject
imbalance accrued, paid based upon receipts or entitlements. Except as
set forth in SECTION 3.14(d) of the Company Disclosure Schedule, there
are no pipeline imbalances that have arisen due to the failure of
nominations made by the Company or any subsidiary to match actual
deliveries of production from any one or more Company Properties.
Except as set forth on SECTION 13.14(d) of the Company Disclosure
Schedule, (i) none of the purchasers under any production sales
contracts has exercised any economic out provision; (ii) none of the
purchasers under any production sales contracts has curtailed its takes
of natural gas in violation of such contracts; and (iii) none of the
purchasers under any production sales contracts has given notice that it
desires to amend the production sales contracts with respect to price or
quantity of deliveries under take-or-pay provisions or otherwise. The
Company
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is not entitled to receive any portion of the interest of QRI in any
production or to receive cash or other payments to "balance" any
disproportionate allocation of production under any operating
agreement, gas balancing and storage agreement, gas processing or
dehydration agreement, gas transportation or other similar
agreements; and QRI is not obligated to pay any penalties or other
payments under any gas transportation or other agreement as a result
of the delivery of quantities of gas from the Company Properties.
(e) The Company and each subsidiary has all governmental
licenses and permits necessary to own and operate the Company
Properties as presently being owned and operated, and such licenses,
permits and filings are in full force and effect, and neither the
Company nor any subsidiary has received written notice of any
violations in respect of any such licenses or permits.
(f) Except as set forth in SECTION 3.14(f) of the Company
Disclosure Schedule, neither the Company, any subsidiary nor any
Company Property is subject to (A) any area of mutual interest
agreements or non-compete agreements, (B) any farm-out or farm-in
agreement under which any party thereto is entitled to receive
assignments not yet made, or could earn additional assignments after
the date hereof, (C) any tax partnership, or (D) any agreement,
contract or commitment relating to the disposition or acquisition of
the assets of, or any interest in, any business entity.
(g) All severance, production, ad valorem, windfall profit and
other similar taxes based on or measured by ownership or operation of
the Company Properties have been, and are being, paid (properly and
timely, and before the same become delinquent) by the Company and
each subsidiary in all respects.
(h) The ownership and operation of the Company Properties has,
to the extent that non-conformance could materially adversely affect
the ownership, operation, value or use thereof after the date hereof,
been in conformity with all applicable laws, and all applicable
rules, regulations and orders of all governmental agencies having
jurisdiction.
(i) Except as set forth in SECTION 3.14(i) of the Company
Disclosure Schedule, there are no Preferential Rights or Consents,
other than Routine Governmental Approvals (as defined below), that
affect any Company Property or Properties and that will be triggered
by the Merger. For purposes of this Agreement, "Preferential Right"
means any preferential right or option to purchase or otherwise to
acquire a thing; "Consent" means any consent to assign or transfer,
including a transfer occasioned by a merger, or any other restriction
or limitation on transferability; "Routine Governmental Approvals"
means approvals required to be obtained from any governmental or
tribal authority that are customarily obtained after consummation of
a transaction.
(j) Except as set forth in SECTION 3.14(j) of the Company
Disclosure Schedule, there exist no agreements or other arrangements
whereunder the Company or any subsidiary undertakes to perform
gathering, transportation, processing or other marketing services for
any third party, including without limitation the owner of a royalty
or overriding royalty interest burdening a lease included in the
Company Properties, for a fee or other consideration
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that is now, or may hereafter be, unrepresentative of commercial
rates being received by third parties in comparable, arm's length
transactions.
(k) Except as set forth in SECTION 3.14(k) of the Company
Disclosure Schedule, the Company and/or its subsidiaries have good
and defensible title to the Company Properties, free and clear of all
liens, security interests, and encumbrances except for (a) the
contracts, agreements, burdens, encumbrances and other matters set
forth in the descriptions of certain of the Company Properties in
SECTION 3.14 of the Company Disclosure Schedule, (b) statutory liens
for taxes which are not yet delinquent, (c) liens under operating
agreements, pooling orders and unitization agreements, and mechanics'
materialmen's liens, with respect to obligations which are not yet
due, and (d) minor defects and irregularities in title to any Company
Property, so long as such defects and irregularities do not
materially impair the value of such Company Property or the use
thereof for the purposes for which such Company Property is held.
With respect to each Company Property described in SECTION 3.14 of
the Company Disclosure Schedule, the ownership of the Company and/or
the subsidiaries in such Company Property does and will, (A) with
respect to each tract of land described in SECTION 3.14 of the
Company Disclosure Schedule (whether described directly in such
section or described by reference to another instrument) in
connection with such Company Property, (1) entitle the Company and/or
a subsidiary to receive a decimal or percentage share of the oil, gas
and other hydrocarbons produced from, or allocated to, such tract
equal to or not less than the decimal or percentage share set forth
in SECTION 3.14 of the Company Disclosure Schedule in connection with
such tract opposite the words "Net Revenue Interest" (or words of
similar import), (2) cause the Company or any subsidiary to be
obligated to bear a decimal or percentage share of the cost of
exploration, development and operation of such tract of land
(collectively, the "Costs") not greater than the decimal or
percentage share set forth in SECTION 3.14 of the Company Disclosure
Schedule in connection with such tract opposite the words "Working
Interest" (or words of similar import) and (B) if such Company
Property is shown in SECTION 3.14 of the Company Disclosure Schedule
to be subject to a unit or units, with respect to each such unit, (1)
entitle the Company and/or the subsidiaries to receive a decimal or
percentage share of all substances covered by such unit that are
produced from, or allocated to, such unit equal to or not less than
the decimal or percentage share set forth in SECTION 3.14 of the
Company Disclosure Schedule in connection with such Company Property
opposite the words "Unit Net Revenue Interest" or words of similar
import (and if such Company Property is subject to more than one
unit, words identifying such interest with such unit), and (2)
obligate the Company and/or the subsidiaries to bear a decimal or
percentage share of the Costs not greater than as set forth in
SECTION 3.14 of the Company Disclosure Schedule in connection with
such Company Property opposite the words "Unit Working Interest" or
words of similar import (and if such Company Property is subject to
more than one unit, words identifying such interest with such unit).
With respect to each Company Property described in SECTION 3.14 of
the Company Disclosure Schedule that is subject to a voluntary or
involuntary pooling, unitization or communitization agreement and/or
order, the term "tract of land" as used in this subsection (k) shall
mean the pooled, unitized or communitized area as an entirety and
shall not be deemed to refer to any individual tract committed to
said pooled, unitized or communitized area. Without limitation of
the foregoing, the ownership by the Company and/or the subsidiaries
of the Company Properties does and will, with respect to each well or
unit identified in SECTION 3.14 of the Company
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Disclosure Schedule, entitle the Company and/or the subsidiaries to
receive a decimal or percentage share of the oil, gas and other
hydrocarbons produced from, or allocated to, such well or unit equal
to not less than the decimal or percentage share set forth, for such
well or unit, in the column headed "Net Revenue Interest" in SECTION
3.14 of the Company Disclosure Schedule, and cause the Company and/or
the subsidiaries to be obligated to bear a decimal or percentage
share of the Costs of such well or unit equal to not more than the
decimal or percentage share set forth, for such well or unit, in the
column headed "Working Interest" in such section. The
above-described shares of production that the Company and/or its
subsidiaries are entitled to receive and share of expenses that the
Company and/or its subsidiaries are obligated to bear are not, and
will not, be subject to change other than such change that arise
pursuant to non-consent provisions of operating agreements described
in SECTION 13.4 of the Company Disclosure Schedule in connection with
operations hereafter proposed, or such changes are reflected in
SECTION 13.4 of the Company Disclosure Schedule.
(l) The Company has delivered to QRI a copy of the Reserve
Report prepared by Citadel Engineering, Ltd. and dated as of March 5,
1998, (the "Citadel Report") relating to the Company's oil and gas
reserves (the "Oil and Gas Reserves"). There are no statements or
conclusions in the Citadel Report that are based upon or include
misleading information or fail to take into account material
information regarding the matters reported therein. To the knowledge
of the Company, the estimates of reserves in the Citadel Report was
prepared in accordance with standard geological and engineering
methods generally accepted in the oil and gas industry. The
estimates of the lease operating expenses, production and ad valorem
taxes and capital expenditures in the Citadel Report reasonably
reflect the historical experience of the Company, and the Company has
no reason to believe that the estimates will not reflect future lease
operating expenses, production and ad valorem taxes and capital
expenses. The historical factual information supplied by the Company
to the independent engineering firm in connection with the
preparation of the Citadel Report was, at the time of delivery to
such firms, true and complete in all material respects.
Section 3.15. REAL PROPERTY. SECTION 3.15 of the Company Disclosure
Schedule lists all real property that is owned or leased by the Company
(other than the Company Properties).
Section 3.16. INSIDER INTERESTS; TRANSACTIONS WITH MANAGEMENT. Except
as set forth in SECTION 3.16 of the Company Disclosure Schedule, no officer,
director, or employee of the Company or holder of more than five percent of
the Company Common Stock currently outstanding has any interest in any
property, real or personal, tangible or intangible, agreement, arrangement,
or understanding, written or oral, providing for the employment of,
furnishing of services by, rental or real or personal property from, or
otherwise requiring payments to any such shareholder, officer, director or
employee used in or pertaining to the business of the Company or any
subsidiary, except for the ordinary rights of a stockholder or employee stock
option holder. Except as disclosed in the Company SEC Reports, no executive
officer, director or stockholder of the Company or any of its subsidiaries
has, since March 7, 1997, engaged in any business dealings with the Company
or any of its subsidiaries, other than such business dealings as would not be
required to be disclosed in such documents or reports pursuant to the
Securities Act and the rules and regulations promulgated thereunder. Except
as set forth on SCHEDULE 3.16, no executive officer or director of the
Company or any of its subsidiaries (except in his capacity as such) has any
direct or indirect material interest
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in (a) any competitor, customer, supplier or agent of the Company or any of
its subsidiaries, or (b) any person that is a party to any contract or
agreement with the Company or any of its subsidiaries.
Section 3.17. CONTRACTS AND AGREEMENTS. The contracts and agreements
listed in SECTION 3.17 of the Company Disclosure Schedule or filed as
exhibits to any of the Company SEC Reports constitute all of the written and
oral contracts, commitments, leases, and other agreements (including, without
limitation, promissory notes, loan agreements, and other evidences of
indebtedness) to which the Company or any of its subsidiaries is a party or
by which any of their properties are bound with respect to which the
obligations of or the benefits to be received by the Company or any of its
subsidiaries, individually or in the aggregate, could reasonably be expected
to have a value in excess of $100,000 in any consecutive 12-month period
(each a "MATERIAL CONTRACT"). Except as set forth in SECTION 3.17 of the
Company Disclosure Schedule, neither the Company nor any of its subsidiaries
are and, to the best knowledge of the Company, no other party thereto is in
default (and no event has occurred which, with the passage of time or the
giving of notice, or both, would constitute a default) under any Material
Contract, and neither the Company nor any of its subsidiaries have waived any
right under any Material Contract. Neither the Company nor any of its
subsidiaries have received any notice of default or termination under any
Material Contract and neither the Company nor any of its subsidiaries has
assigned or otherwise transferred any rights under any Material Contract or
any other contract, to the extent default or termination could have a Company
Material Adverse Effect.
Section 3.18. VOTE REQUIRED. The only votes of the holders of any
class or series of Company capital stock necessary to approve the Merger and
this Agreement are the affirmative votes of the holders of at least a
majority of the outstanding shares of the Company Common Stock. Members of
the Darden Family and Mercury control approximately 46% of the outstanding
Company Common Stock, and they have agreed (a copy of which agreement has
been furnished to QRI concurrently with the execution of this Agreement) to
vote their shares of Company Common Stock in favor of the Merger at the
Company stockholders meeting referred to in SECTION 6.01.
Section 3.19. BROKERS. Except for payments due to EVEREN Securities,
Inc. disclosed on SCHEDULE 3.19 hereto, no broker, finder or investment
banker is entitled to any brokerage, finder's or other fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Company.
Section 3.20. OPINION OF FINANCIAL ADVISOR. The Board of Directors of
the Company has received the written opinion of EVEREN Securities, Inc. to
the effect that, as of the date of this Agreement, the Merger Consideration
to be paid to the holders of the Company Common Stock (other than holders of
shares held by Mercury Exploration Company and shares held by members of the
Darden family and their Affiliates) is fair, from a financial point of view,
to such holders. The Company will promptly deliver a copy of such opinion to
QRI.
Section 3.21. SPECIAL COMMITTEE RECOMMENDATIONS. By a unanimous vote
of the disinterested directors constituting a Special Committee of the Board
of Directors formed to consider the Merger (the "Special Committee") present
at a meeting of the Special Committee (which meeting was duly called and
held and at which a quorum was present at all times), and by unanimous vote
of the Board of Directors of the Company (with members of the Darden family
abstaining) (which meeting was duly called and held at which a quorum was
present at all times), the Special Committee
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and the Board of Directors (with members of the Darden family abstaining) (a)
approved and adopted this Agreement, including the Merger and the other
transactions contemplated hereby, and determined that the Merger is fair to
the stockholders of the Company (other than holders of shares held by Mercury
Exploration Company and shares held by members of the Darden family and their
Affiliates), and (b) subject to SECTION 6.01 hereof, resolved to recommend
approval and adoption of this Agreement, including the Merger and the other
transactions contemplated herein, by the stockholders of the Company.
Section 3.22. DISCLOSURE. No representation or warranty hereunder
contains any untrue statement of material fact or omits to state a material
fact necessary in order to make the statements contained therein or herein
not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF QRI
QRI hereby represents and warrants to the Company that:
Section 4.01. ORGANIZATION AND QUALIFICATION. QRI is a corporation,
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and QRI has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its
business as it is now being conducted and is duly qualified and in good
standing to do business in each jurisdiction in which the nature of the
business conducted by it or the ownership or leasing of its properties makes
such qualification necessary, other than where the failure to be so duly
qualified and in good standing could not reasonably be expected to have a QRI
Material Adverse Effect. The term "QRI MATERIAL ADVERSE EFFECT" as used in
this Agreement shall mean any change or effect that would be materially
adverse to the financial condition, results of operations, business, or
prospects of QRI taken as a whole, at the time of such change or effect;
provided, however, no QRI Material Adverse Effect shall be deemed to have
occurred hereunder as a result of changes in oil or gas prices.
QRI has no subsidiaries (as that term is defined in SECTION 9.03 herein).
Section 4.02. CERTIFICATE OF INCORPORATION AND BYLAWS; FORMATION
DOCUMENTS. QRI has heretofore furnished or made available to the Company
complete and correct copies of the Certificate of Incorporation and Bylaws,
in each case as amended or restated to the date hereof, of QRI and complete
and correct copies of each of the Formation Documents. QRI is not in
violation of any of the provisions of its Certificate of Incorporation or
Bylaws (or equivalent organizational documents) or the Formation Documents,
and to the best knowledge of QRI, no other party to the Formation Documents
is in violation thereof.
Section 4.03. CAPITALIZATION.
(a) The authorized capital stock of QRI as of the Effective
Time will consist of 40,000,000 shares of QRI Common Stock, par
value $.01 per share ("QRI COMMON STOCK") and 10,000,000 shares of
preferred stock par value $.01 per share (the "PREFERRED STOCK").
Immediately prior to the Effective Time, 10,310,806 shares of QRI
Common Stock will be issued and outstanding and no shares of
Preferred Stock will be issued and outstanding.
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Except as described in this SECTION 4.03 or in SECTION 4.03(a) of the
QRI Disclosure Schedule, no shares of capital stock of QRI are reserved
for issuance for any other purpose. Each of the issued shares of
capital stock of, or other equity interests in, QRI is duly authorized,
validly issued and, in the case of shares of capital stock, fully paid
and nonassessable, and has not been issued in violation of (nor are any
of the authorized shares of capital stock of, or other equity interests
in, QRI subject to) any preemptive or similar rights created by statute,
the Certificate of Incorporation or Bylaws (or the equivalent
organizational documents) of QRI, any agreement to which QRI is a party
or is bound or applicable federal or state securities laws.
(b) No bonds, debentures, notes or other indebtedness of QRI having
the right to vote (or convertible into or exchangeable or exercisable for
securities having the right to vote) on any matters on which stockholders
may vote ("QRI VOTING DEBT") are issued or outstanding.
(c) Except as set forth in SECTION 4.03(a) above or in SECTION
4.03(c) of the QRI Disclosure Schedule, there are no options, warrants or
other rights (including registration rights), agreements, arrangements or
commitments of any character to which QRI is a party relating to the issued
or unissued capital stock of QRI or obligating QRI to grant, issue or sell
any shares of capital stock, QRI Voting Debt or other equity interests of
QRI. Except as set forth in SECTION 4.03(c) of the QRI Disclosure
Schedule, there are no obligations, contingent or otherwise, of QRI (i) to
repurchase, redeem or otherwise acquire any shares of QRI Common Stock or
other capital stock of QRI or (ii) to provide funds to, or to make any
investment in (in the form of a loan, capital contribution or otherwise),
or to provide any guarantee with respect to the obligations of any other
person. Except as set forth in SECTION 4.03(c) of the QRI Disclosure
Schedule, QRI (x) does not directly or indirectly own, (y) has not agreed
to purchase or otherwise acquire or (z) does not hold any interest
convertible into or exchangeable or exercisable for the capital stock or
any other equity interests of any corporation, partnership, joint venture
or other business association or entity. Except as set forth in SECTION
4.03(c) of the QRI Disclosure Schedule, there are no agreements,
arrangements or commitments of any character (contingent or otherwise)
pursuant to which any person is or may be entitled to receive any payment
based on, or calculated in accordance with, the revenues or earnings of
QRI. Except as set forth in SECTION 4.03(c) of the QRI Disclosure
Schedule, there are no voting trusts, proxies or other agreements or
understandings to which QRI is a party or by which QRI is bound with
respect to the voting of any shares of capital stock or other equity
interests of QRI.
Section 4.04. AUTHORITY. QRI has all requisite corporate power and
authority to execute and deliver this Agreement and to perform its
obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this
Agreement by QRI and the performance by QRI of its obligations hereunder,
including the consummation of the transactions contemplated hereby, have been
or were duly authorized by all necessary corporate action and no other
corporate proceedings on the part of QRI are necessary to authorize this
Agreement or to consummate the transactions contemplated hereby (subject to,
with respect to the Merger, the approval and adoption of this Agreement by
the stockholders of QRI as set forth in SECTION 6.01 of this Agreement).
This Agreement has been duly executed and delivered by QRI and,
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assuming the due authorization, execution and delivery hereof by the Company,
constitutes the legal, valid and binding obligations of QRI, enforceable
against QRI in accordance with its terms. The Formation Transactions have
been consummated in all material respects in accordance with all applicable
Laws.
Section 4.05. NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement by QRI, does not and
the performance by QRI of its obligations hereunder, including consummation
of the transactions contemplated hereby does not (i) conflict with or
violate the Certificate of Incorporation or Bylaws, or the equivalent
organizational documents, in each case as amended or restated, of QRI,
(ii) conflict with or violate any Laws in effect as of the date of this
Agreement or any judgment, order or decree to which QRI is a party or by or
to which any of its properties are bound or subject or (iii) result in any
breach of or constitute a default (or an event that with notice or lapse of
time or both would become a default) under, or impair any of QRI's rights
or alter the rights or obligations of any third party under, or give to
others any rights of termination, amendment, acceleration or cancellation
of, or require payment under, or result in the creation of a lien or
encumbrance on any of the properties or assets of QRI pursuant to, any
note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which QRI is a party
or by or to which QRI or any of its properties are bound or subject,
excluding from the foregoing clauses (ii) and (iii) any such conflicts,
violations, breaches, defaults, events, rights of termination, amendment,
acceleration or cancellation, payment obligations or liens or encumbrances
that individually or in the aggregate could not reasonably be expected to
have a QRI Material Adverse Effect.
(b) The execution and delivery of this Agreement by QRI does not and
the performance by QRI of its obligations hereunder, including consummation
of the transactions contemplated hereby, will not, require QRI to obtain
any consent, license, permit, waiver, approval, authorization or order of,
or to make any filing with or notification to, any governmental or
regulatory authority, federal, state, local or foreign (collectively,
"GOVERNMENTAL ENTITIES"), except (i) for (A) applicable requirements, if
any, of the Securities Act, the Exchange Act, and the Blue Sky Laws and
(B) the pre-merger notification requirements of the HSR Act and (ii) the
filing and recordation of appropriate merger documents as required by the
DGCL.
Section 4.06. PERMITS; COMPLIANCE. Except as disclosed in SECTION 4.06
of the QRI Disclosure Schedule, QRI is in possession of all Permits necessary to
own, lease and operate its properties and to carry on its business as it is now
being conducted except where the failure to possess such Permits could not
reasonably be expected to have a QRI Material Adverse Effect. Except as
disclosed in SECTION 4.06 of the QRI Disclosure Schedule, as of the date of this
Agreement, there are no actions, proceedings, or investigations pending or, to
the knowledge of QRI, threatened against QRI that could reasonably be expected
to result in the loss, revocation, suspension or cancellation of a Permit held
by QRI. Except as set forth in SECTION 4.06 of the QRI Disclosure Schedule, (i)
QRI is not in conflict with, in default under or in violation of (a) any Law
applicable to QRI or by which any of its properties are bound or subject or (b)
any of the Permits held by QRI, except for any such conflicts, defaults or
violations that individually or in the aggregate could not
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reasonably be expected to have QRI Material Adverse Effect; (ii) is not in
conflict with, in default under or in violation of any judgment, order or
decree applicable to QRI or any material Permits held by QRI; and (iii) QRI
has not received from any Governmental Entity any notice with respect to
possible conflicts with, defaults under or violations of (a) any Law
applicable to QRI or by which any of its properties are bound or subject,
(b) any judgment, order or decree applicable to QRI, or (c) any of the Permits
held by QRI.
Section 4.07. REPORTS; FINANCIAL STATEMENTS.
(a) QRI has heretofore delivered to the Company (i) an unaudited
balance sheet of QRI as of June 30, 1998, and (ii) statements of income,
stockholders' equity and cash flows for the period beginning with inception
and ending June 30, 1998. QRI has also delivered to the Company (i) an
unaudited balance sheet of QRI as of June 30, 1998, and (ii) pro forma
unaudited balance sheets and statements of income, stockholders' equity and
cash flows as of June 30, 1998, giving effect to the Formation
Transactions. Such unaudited historical financial statements, including
any such financial statements and schedules to be contained in the
Registration Statement on Form S-4 (as defined in SECTION 6.02 hereof)
(i) are and will be in accordance with the books and records of QRI in all
material respects and have been prepared in accordance with the published
rules and regulations of the SEC and generally accepted accounting
principles applied on a consistent basis throughout the periods involved
(except (A) to the extent disclosed therein or required by changes in
generally accepted accounting principles, and (B) in the case of the
unaudited financial statements, as permitted by the rules and regulations
of the SEC) and (ii) fairly present in all material respects the
consolidated financial position of QRI as of the respective dates thereof
and the results of operations and cash flows for the periods indicated
(except, in the case of unaudited financial statements for interim periods,
for the absence of footnotes and subject to adjustments, consisting only of
normal, recurring accruals, necessary to present fairly such results of
operations and cash flows). Such unaudited pro forma financial statements
delivered by QRI to the Company fairly present QRI's pro forma financial
position and statements of operation as of and for the periods scheduled
therein, and the pro forma adjustments giving effect to the Formation
Transactions have been properly applied to the historical amounts in the
compilation of those statements.
Section 4.08. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth
in SECTION 4.08 of the QRI Disclosure Schedule, since January 1, 1998, QRI has
conducted its business only in the ordinary course and in a manner consistent
with past practice and there has not been (a) any damage, destruction or loss
with respect to any assets of QRI, including any assets acquired from any of the
Contributing Entities that, whether or not covered by insurance, would
constitute a QRI Material Adverse Effect, (b) any change by QRI in its
significant accounting policies, (c) a material reduction in the rate of
production of oil, gas or other hydrocarbons from the QRI Properties, viewed as
a whole, other than changes in the ordinary course of operation, changes that
result from depletion in the ordinary course of operation, and changes that
result from variances in markets for the oil, gas and other hydrocarbons, or
(d) any other QRI Material Adverse Effect.
Section 4.09. ABSENCE OF LITIGATION. Except as set forth in SECTION 4.09
of the QRI Disclosure Schedule, there is no claim, action, suit, litigation,
proceeding, arbitration or, to the
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knowledge of QRI, investigation of any kind, at law or in equity (including
actions or proceedings seeking injunctive relief), pending or, to the
knowledge of QRI, threatened against QRI or any properties or rights of QRI,
and QRI is not subject to any continuing order of, consent decree, settlement
agreement or other similar written agreement with, or, to the knowledge of
QRI, continuing investigation by, any Governmental Entity, or any judgment,
order, writ, injunction, decree or award of any Governmental Entity or
arbitrator, including, without limitation, cease-and-desist or other orders.
Section 4.10. EMPLOYEE BENEFIT PLANS; LABOR MATTERS.
(a) With respect to each employee benefit plan, program, arrangement,
contract, employment agreement, stock option, bonus, incentive or similar
plan (including, without limitation, any "employee benefit plan" as defined
in Section 3(3) of ERISA), maintained or contributed presently or at any
time within the six (6) year period prior to the date of this Agreement to
by QRI or any ERISA Affiliate, or with respect to which QRI or any ERISA
Affiliate could reasonably be expected to incur liability under ERISA (the
"QRI BENEFIT PLANS"), QRI has delivered or made available to the Company a
true and correct copy of (i) such QRI Benefit Plan, (ii) each trust
agreement, if any, relating to such QRI Benefit Plan, (iii) the most recent
summary plan description of each QRI Benefit Plan for which a summary plan
description is required, (iv) the most recent determination letter issued
by the IRS with respect to any QRI Benefit Plan that is intended to be a
Qualified Plan (v) Internal Revenue Service Forms 5500 for each Company
Benefit Plan for each of the three (3) most recent plan years, and (vi) the
most recent actuarial report, if any, for each QRI Benefit Plan. SECTION
4.10 of QRI Disclosure Schedule contains a complete list of all QRI Benefit
Plans.
(b) Each of the QRI Benefit Plans is in compliance with its terms and
all applicable laws, including, but not limited to, ERISA and the Code and
except as set forth in SECTION 4.10 of the QRI Disclosure Schedule, no QRI
Benefit Plan has an accumulated or waived funding deficiency within the
meaning of Section 412 of the Code. Except as set forth in SECTION 4.10 of
the QRI Disclosure Schedule, neither QRI nor any ERISA Affiliate is or has
contributed to "multiemployer plan," as defined in Section 3(37), and
neither the Company nor any ERISA Affiliate has any past, present or future
obligation or liability to contribute to any multiemployer plan of ERISA.
Neither QRI nor any ERISA Affiliate has completely or partially withdrawn
from any multiemployer plan with respect to which there is any outstanding
liability as of the date of this Agreement. Neither QRI nor any ERISA
Affiliate has incurred, directly or indirectly, any material liability
(including any material contingent liability) to or on account of a QRI
Benefit Plan under Sections 409 or 502 of ERISA or Section 4975 of Code or
pursuant to Title IV of ERISA to which QRI or an ERISA Affiliate made, or
was required to make, contributions during the five (5) years ending on the
date of this Agreement. As of the date of this Agreement, no condition
exists that presents a material risk to QRI or an ERISA Affiliate of
incurring such a material liability. No proceedings have been instituted
to terminate any QRI Benefit Plan that is subject to Title IV of ERISA and
the PBGC is not expected to institute proceedings and no "reportable
event," as such term in defined in Section 4043 of ERISA, has occurred with
respect to any QRI Benefit Plan.
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(c) Except as set forth in SECTION 4.10 of the QRI Disclosure
Schedule, the current value of the assets of each of the QRI Benefit Plans
that are subject to Title IV of ERISA, based upon reasonable actuarial
assumptions, equals or exceeds the present value of the accrued benefits
under each such QRI Benefit Plan and all contributions or other amounts
payable by QRI and each ERISA Affiliate as of the date of this Agreement
with respect to each Plan in respect of current or prior plan years has
been either paid or accrued on the latest balance sheet. There are no
pending, or, to the best knowledge of QRI and each ERISA Affiliate any
threatened or anticipated claims (other than routine claims for benefits)
by, on behalf of or against any of the QRI Benefit Plans or any trusts
related thereto.
(d) There are no collective bargaining or other labor union contracts
to which QRI is a party and no collective bargaining agreement is being
negotiated by QRI. There is no pending or, to the best knowledge of QRI,
threatened labor dispute, strike or work stoppage against the QRI.
(e) No QRI Benefit Plan provides retiree medical or other retiree
welfare benefits and neither QRI is contractually or otherwise obligated to
medical or other welfare benefits upon retirement or termination of
employment of employees.
(f) Neither QRI nor any of its ERISA Affiliates contributes to or
have an obligation to contribute to, or has within six years prior to the
date of this Agreement contributed to or had an obligation to contribute
to, an employee benefit plan that is or was subject to Title IV of ERISA or
Section 412 of the Code.
(g) No transaction prohibited by ERISA Section 406 and no "prohibited
transaction" under Code Section 4975(c) has occurred with respect to any
QRI Benefit Plan. All "fiduciaries," as defined in ERISA Section 3(21),
with respect to the QRI Benefit Plans have complied in all respects with
the requirements of ERISA Section 404. Neither QRI nor any ERISA Affiliate
has any liability to the Internal Revenue Service or the PBGC with respect
to any QRI Benefit Plan.
(h) Each QRI Benefit Plan provides that it may be amended or
terminated at any time except for benefits protected under Code Section
411(d).
(i) Each Qualified Plan is qualified in form and operation under Code
Section 401 (a) and each trust for each Qualified Plan is exempt from
federal income tax under Code Section 501(a). No event has occurred or
circumstances exist that will or could give rise to disqualification or
loss of tax-exempt status of any Qualified Plan or related trust. All
determination letters with respect to Qualified Plans remain in effect and
have not been revoked.
(j) QRI and each ERISA Affiliate has complied with the provisions of
ERISA Section 601 et seq. and Code Section 4980B.
(k) No payment that is owed or may become due to any director,
officer, employee or agent of QRI will be non-deductible to QRI or subject
to tax under Code
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Sections 280G or 4999; nor will QRI be required to "gross-up" or
otherwise compensate any such person because of the imposition of any
excise tax on a payment to such person. The consummation of the
transaction contemplated under this Agreement will not accelerate or
increase any liability under any QRI Benefit Plan because of an
acceleration or increase of any of the rights or benefits to which
employees may be entitled thereunder.
Section 4.11. TAXES. Except as set forth in SECTION 4.11 of the QRI
Disclosure Schedule:
(a) (i) all TAX RETURNS that are required to be filed on or before
the date hereof by or with respect to QRI have been duly and timely filed,
(ii) Taxes that have become due with respect to the period covered by each
such Tax Return have been paid, (iii) all withholding Tax requirements
imposed on or with respect to QRI have been satisfied in all material
respects, and (iv) no penalty, interest or other charge is due with respect
to the late filing of any such Tax Return or late payment of any such Tax.
(b) There is no claim against QRI for any amount of Taxes, no
assessment, deficiency or adjustment has been asserted or proposed with
respect to any Tax Return of or with respect to QRI, and no Tax Return of
or with respect to QRI has been, or is being, audited by the Internal
Revenue Service or any state, local or other taxing authority other than
those disclosed (and to which are attached copies of all audit or similar
reports) in SECTION 4.11 of the QRI Disclosure Schedule.
(c) The total amounts set up as liabilities for current and deferred
Taxes in the financial statements referred to in SECTION 4.07 of this
Agreement are sufficient to cover the payment of all Taxes, whether or not
assessed or disputed, with respect to QRI up to and through the periods
covered thereby.
(d) Except for statutory liens for current Taxes not yet due and for
Taxes being contested in good faith that have been disclosed in SECTION
4.11 of the QRI Disclosure Schedule and for which adequate provisions have
been made in the financial statements referred to in SECTION 4.07, no liens
for Taxes exist upon the assets of QRI.
(e) QRI has not waived any statute of limitations in respect of Taxes
or agreed to any extension of time with respect to a Tax assessment or
deficiency.
(f) QRI has not made an election under Section 341(f) of the Code.
Except as disclosed in SECTION 4.11 of the QRI Disclosure Schedule, QRI has
not made any payments, is obligated to make any payments, or is a party to
any agreement that under the circumstances could obligate it to make any
payments that will not be deductible under Sections 162(m) or 280G of the
Code.
(g) QRI has not taken or agreed to take any action that would create
a material risk that the Merger would not qualify as a tax free
reorganization under the provisions of Section 368(a)(1)(A) of the Code.
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(h) QRI (i) has never been a member of an Affiliated Group (as
defined in Section 1504 of the Code) other than a group the common parent
of which was QRI or (ii) has any liability for the Taxes of any person
(other than QRI) under Treas. Reg. Section 1.1502-6 (or any similar
provision under state, local, or foreign law), as a transferee or
successor, by contract, or otherwise.
Section 4.12. ENVIRONMENTAL MATTERS. Except for matters disclosed in
SECTION 4.12 of the QRI Disclosure Schedule:
(a) To the best knowledge of QRI all of the properties, including the
QRI Properties (as defined in SECTION 4.13 hereof), operations and
activities of QRI comply with all applicable Environmental Laws (as defined
in SECTION 9.03).
(b) QRI and the properties, including the QRI Properties, and
operations of QRI are not subject to any existing, pending or, to the
knowledge of QRI, threatened action, suit, investigation, inquiry or
proceeding by or before any Governmental Authority or third party under any
Environmental Law.
(c) To the best knowledge of QRI, all notices, permits, licenses or
similar authorizations, if any, required to be obtained or filed by QRI
under any Environmental Law in connection with any aspect of the business
of QRI or the QRI Properties, including without limitation those relating
to the treatment, storage, disposal or release of a hazardous substance or
solid waste, have been duly obtained or filed and will remain valid and in
effect after the Merger, and QRI is in compliance with the terms and
conditions of all such notices, permits, licenses and similar
authorizations.
(d) To the best knowledge of QRI, QRI has satisfied and is currently
in compliance with all financial responsibility requirements applicable to
its operations and imposed by any Governmental Authority under any
Environmental Law, and QRI has not received any notice of noncompliance
with any such financial responsibility requirements.
(e) To the best knowledge of QRI, there are no physical or
environmental conditions existing on any property of QRI or resulting from
QRI's operations or activities with respect to any of the QRI Properties,
past or present, at any location, that would give rise to any on-site or
off-site investigative, remedial, response, contribution or similar
obligations under any Environmental Laws.
(f) To the best knowledge of QRI, since the effective date of the
relevant requirements of applicable Environmental Laws, all hazardous
substances or solid wastes generated by QRI or used in connection with
QRI's properties, including the QRI Properties, or operations have to the
extent required by Environmental Laws been transported only by carriers
authorized under Environmental Laws to transport such substances and
wastes, and disposed of only at treatment, storage and disposal facilities
authorized under Environmental Laws to treat, store or dispose of such
substances and wastes, and, to the best knowledge of QRI and with respect
to such substances and wastes, such carriers and facilities have been and
are operating in compliance with such authorizations, are not subject to
any material
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unperformed investigative, remedial, response, contribution or similar
obligations under, and are not the subject of any existing, pending or
overtly threatened action, investigation or inquiry by any Governmental
Authority or third party in connection with, any Environmental Laws.
(g) There has been no exposure of any person or property to hazardous
substances, solid waste or any pollutant or contaminant, nor has there been
any release of hazardous substances, solid waste or any pollutant or
contaminant into the environment by QRI in connection with the properties
or operations of QRI, including the QRI Properties, that could reasonably
be expected to have a QRI Material Adverse Effect.
(h) QRI shall make available to MSR all internal and external
environmental audits and studies and all correspondence on substantial
environmental matters in the possession of QRI relating to any of the
current or former properties or operations of QRI, including the QRI
Properties.
Section 4.13. PROPERTIES.
(a) The oil, gas and/or mineral leases, and interests in which
comprise part of the properties, rights and interest of QRI listed in
SCHEDULE 4.13 (collectively, the "QRI PROPERTIES"), and all other material
contracts, agreements, licenses permits and easements, rights-of-way and
other rights-of-surface use comprising any part of or otherwise relating to
the QRI Properties (such leases and such material contracts, agreements,
licenses, permits, easements, rights-of-way and other rights-of-surface use
being herein called the "QRI BASIC DOCUMENTS"), are in full force and
effect and constitute valid and binding obligations of the parties thereto;
all contracts and agreements which are QRI Basic Documents are disclosed in
SECTION 4.13(a) of the QRI Disclosure Schedule. QRI is not in breach or
default (and no situation exists which with the passing of time or giving
or notice would create such a breach or default) of its obligations under
the QRI Basic Documents, and no breach or default by any third party (or
situation which with the passage of time or giving of notice would create
such a breach of default) exists, to the extent such breach or default
(whether by QRI or such a third party) could materially adversely affect
(after the date hereof) the ownership, operation, value or use of any QRI
Properties. All payments (including, without limitation, all delay
rentals, royalties, excess royalties, overriding royalty interests, shut-in
royalties and valid calls for payment or prepayment under operating
agreements) owing under QRI Basic Documents have been and are being made
(timely and properly, and before the same became delinquent) by QRI in all
material respects and, where the non-payment of same by a third party could
materially adversely affect the ownership, operation, value or use of a QRI
Property after the date hereof, have been and are being made by such third
party in all material respects.
(b) Except as set forth in SECTION 4.13(b) of the QRI Disclosure
Schedule, QRI has not incurred any expenses, or made commitments to make
expenditures, in connection with (and no other obligations or liabilities
have been incurred) that would materially adversely affect the ownership or
operation of the QRI Properties after the date hereof, other than routine
expenses incurred in the normal operation of existing wells on the QRI
Properties. All expenses payable under the terms of the QRI Basic
Contracts have been
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properly and timely paid except for such expenses as are being currently
paid prior to delinquency in the ordinary course of business. Except as
set forth in SECTION 4.13(b) of the QRI Disclosure Schedule, no
proposals are currently outstanding (whether made by QRI or by any other
party) to drill additional wells, or to deepen, plug back, abandon, or
rework existing wells, or to conduct other operations for which consent
is required under the applicable operating agreement, or to conduct any
other material operations, other than normal operation of existing wells
on the QRI Properties.
(c) There exist no agreements or arrangements for the sale,
gathering, transportation, compression, treating, processing or other
marketing of a material volume of production from the QRI Properties
(including without limitation, calls on, or other rights to purchase,
production, whether or not the same are currently being exercised) other
than (a) the agreements set forth in SECTION 4.13(c) of the QRI Disclosure
Schedule, and (b) agreements or arrangements that are cancelable on 30 days
notice or less without penalty or detriment. Any contracts or other
arrangements under which QRI is processing, gathering, transporting or
otherwise marketing any material volume of oil, gas or other minerals
(whether or not attributable to the QRI Properties) for the account of a
third party include terms that represent an arm's length, commercially
reasonable trade for QRI. All of the proceeds from the sale of production
from the QRI Properties are being properly and timely paid to QRI by the
purchaser of production without suspension or indemnity other than standard
division order indemnities.
(d) Except as set forth in SECTION 4.13(d) of the QRI Disclosure
Schedule, QRI has not received prepayments (including, but not limited to,
payments for oil and gas not taken pursuant to "take-or-pay" arrangements)
for any oil or gas produced from the QRI Properties as a result of which
the obligation does (or may) exist to deliver oil or gas produced from the
QRI Properties after the date hereof without then receiving payment (or
without then receiving full payment) therefor or to make repayments in
cash. For each QRI Property listed in SECTION 4.13(d) of the QRI
Disclosure Schedule, such section reflects (A) the total amount of
prepayment received as of the date hereof (and the amount of any recoupment
thereof heretofore made), and (B) whether or not a cash payment can be
required in the event recoupment out of production proves to be inadequate.
Except as set forth in SECTION 4.13 of the QRI Disclosure Schedule, there
is no QRI Property with respect to which QRI and/or its predecessors in
title, have collectively Over-Produced or Under-Produced from such QRI
Property (or on the units in which such QRI Property participates), or any
product thereof, than the ownership of QRI and such predecessors in such
QRI Property would entitle QRI and such predecessors (absent any balancing
agreement or arrangement) to receive, to the extent such Over-produced or
Under-produced position has not, as of the date hereof, been fully made up
or otherwise extinguished. For each QRI Property listed in SECTION 4.13(d)
of the QRI Disclosure Schedule, such section reflects, on a well-by-well or
any other basis as may be dictated by any applicable balancing agreement,
(A) whether QRI is in an Over-produced or Under-produced position, (B) the
amount of such over-production or under-production, (C) a description of
the written balancing agreement (if any) pertaining to such QRI Property
(or a statement that no such agreement exists) and (D) a statement as to
whether royalties, overriding royalties, or other burdens against QRI's net
revenue interest in the affected QRI Properties were, during the period the
subject imbalance accrued, paid
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based upon receipts or entitlements. Except as set forth in
SECTION 4.13(d) of the QRI Disclosure Schedule, there are no pipeline
imbalances that have arisen due to the failure or nominations made by QRI
to match actual deliveries of production from any one or more QRI
Properties. Except as set forth on SECTION 4.13(d) of the QRI Disclosure
Schedule, (i) none of the purchasers under any production sales contracts
has exercised any economic out provision; (ii) none of the purchasers under
any production sales contracts has curtailed its takes of natural gas in
violation of such contracts; and (iii) none of the purchasers under any
production sales contracts has given notice that it desires to amend the
production sales contracts with respect to price or quantity of
deliveries under take-of-pay provisions or otherwise. QRI is not
entitled to receive any portion of the interest of the Company in any
production or to receive cash or other payments to "balance" any
disproportionate allocation of production under any operating agreement,
gas balancing and storage agreement, gas processing or dehydration
agreement, gas transportation or other similar agreements.
(e) QRI has all governmental licenses and permits necessary to own
and operate the QRI Properties as presently being owned and operated, and
such licenses, permits and filings are in full force and effect, and QRI
has not received written notice of any violations in respect of any such
licenses or permits.
(f) Except as set forth in SECTION 4.13(f) of the QRI Disclosure
Schedule, neither QRI nor any QRI Property is subject to (A) any area of
mutual interest agreements or non-compete agreements, (B) any farm-out or
farm-in agreement under which any party thereto is entitled to receive
assignments not yet made, or could earn additional assignments after the
date hereof, (C) any tax partnership, or (D) any agreement, contract or
commitment relating to the disposition or acquisition of the assets of, or
any interest in, any business entity.
(g) All severance, production, ad valorem, windfall profit and other
similar taxes based on or measured by the ownership or operation of the QRI
Properties have been, and are being, paid (properly and timely, and before
the same become delinquent) by QRI in all respects.
(h) The ownership and operation of the QRI Properties has, to the
extent that non-conformance could materially adversely affect the
ownership, operation, value or use thereof after the date hereof, been in
conformity with all applicable laws, and all applicable rules, regulations
and orders of all governmental agencies having jurisdiction.
(i) Except as set forth in SECTION 4.13(i) of the QRI Disclosure
Schedule, there are no Preferential Rights or Consents, other than Routine
Governmental Approvals, that affect any QRI Property or Properties and that
will be triggered by the Merger.
(j) Except as set forth in SECTION 4.13(j) of the QRI Disclosure
Schedule, there exist no agreements or other arrangements whereunder QRI
undertakes to perform gathering, transportation, processing or other
marketing services for any third party, including without limitation the
owner of a royalty or overriding royalty interest burdening a lease
included in the QRI Properties, for a fee or other consideration that is
now, or may hereafter be,
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unrepresentative of commercial rates being received by third parties in
comparable, arm's length transactions.
(k) Except as set forth in SECTION 4.13(k) of the QRI Disclosure
Schedule, QRI has good and defensible title to the QRI Property, free and
clear of all liens, security interests, and encumbrances except for (a) the
contracts, agreements, burdens, encumbrances and other matters set forth in
the descriptions of certain of the QRI Properties in SECTION 4.13 of the
QRI Disclosure Schedule, (b) statutory liens for taxes which are not yet
delinquent, (c) liens under operating agreements, pooling orders and
unitization agreements, and mechanics' materialmen's liens, with respect to
obligations which are not yet due, and (d) minor defects and irregularities
in title to any QRI Property, so long as such defects and irregularities do
not materially impair the value of such QRI Property or the use thereof for
the purposes for such QRI Property is held. With respect to each QRI
Property described in SECTION 4.13 of the QRI Disclosure Schedule, the
ownership of QRI in such QRI Property does and will, (A) with respect to
each tract of land described in SECTION 4.13 of the QRI Disclosure Schedule
(whether described directly in such section or described by reference to
another instrument) in connection with such QRI Property, (1) entitle QRI
to receive a decimal or percentage share of the oil, gas, and other
hydrocarbons produced from, or allocated to, such tract equal to or not
less than the decimal or percentage share set forth in SECTION 4.13 of the
QRI Disclosure Schedule in connection with such tract opposite the words
"Net Revenue Interest" (or words of similar import), (2) cause QRI to be
obligated to bear a decimal or percentage share of the Costs of
exploration, development and operation of such tract of land not greater
than the decimal or percentage share set forth in SECTION 4.13 of the QRI
Disclosure Schedule in connection with such tract opposite the words
"Working Interest" (or words of similar import) and (B) if such QRI
Property is shown in SECTION 4.13 of the QRI Disclosure Schedule to be
subject to a unit or units, with respect to each such unit, (1) entitle QRI
to receive a decimal or percentage share of all substances covered by such
unit that are produced from, or allocated to, such unit equal to or not
less than the decimal or percentage share set forth in SECTION 4.13 of the
QRI Disclosure Schedule in connection with such QRI Property opposite the
words "Unit Net Revenue Interest" or words of similar import (and if such
QRI Property is subject to more than one unit, words identifying such
interest with such unit), and (2) obligate QRI to bear a decimal or
percentage share of the Costs not greater than as set forth in SECTION 4.13
of the QRI Disclosure Schedule in connection with such QRI Property
opposite the words "Unit Working Interests" or words of similar import (and
if such QRI Property is subject to more than one unit, words identifying
such interests with such unit). With respect to each QRI Property
described in SECTION 4.13 of the QRI Disclosure Schedule that is subject to
a voluntary or involuntary pooling, unitization or communitization
agreement and/or order, the term "tract of land" as used in this subsection
(k) shall mean the pooled, unitized or communitized area as an entirety and
shall not be deemed to refer to any individual tract committed to said
pooled, unitized or communitized area. Without limitation of the
foregoing, the ownership by QRI of the QRI Properties does and will, with
respect to each well or unit identified in SECTION 4.13 of the QRI
Disclosure Schedule entitle QRI to receive a decimal or percentage share of
the oil, gas and other hydrocarbons produced from, or allocated to, such
well or unit equal to not less than the decimal or percentage share set
forth, for such well or unit, in the column headed "Net Revenue Interest"
in SECTION 4.13 of the QRI Disclosure Schedule, and cause QRI to be
obligated to bear a decimal or percentage
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share of the cost of operation of such well or unit equal to not more than
the decimal or percentage share set forth, for such well or unit, in the
column headed "Working Interest" in SECTION 4.13 of the QRI Disclosure
Schedule. The above-described shares of production on which QRI is
entitled to receive and shares of expenses that QRI is obligated to bear
are not and will not be subject to change other than such changes that
arise pursuant to non-consent provisions of operating agreements described
in SECTION 4.13 of the QRI Disclosure Schedule in connection with
operations hereafter proposed, or such changes are reflected in SECTION
4.13 of the QRI Disclosure Schedule.
(l) QRI has delivered to the Company copies of (i) the reserve report
dated as of January 1, 1998 prepared by LaRoche Petroleum Consultants,
Ltd., independent petroleum engineers (the "LaRoche Report"), relating to
the oil and gas reserves attributable to certain Mercury Exploration
Company properties, (ii) the reserve report dated August 1, 1997 prepared
by Albrecht & Associates, Inc., independent petroleum engineers (the
"Albrecht Report"), (iii) the reserve report dated as of January 1, 1998
prepared by S.A. Holditch and Associates, Inc., independent petroleum
engineers (the "QELC Holditch Report"), relating to the oil and gas
reserves attributable to the properties of Quicksilver Energy L.C. and (iv)
the reserve report dated as of January 1, 1998 prepared by S.A. Holditch
and Associates, Inc., independent petroleum engineers (together with the
LaRoche Report, the Albrecht Report and the QELC Holditch Report, the
"Reports"), relating to the oil and gas reserves attributable to properties
of Michigan Gas Partners. There are no statements or conclusions in any of
the Reports that are based upon or include misleading information or fail
to take into account material information regarding the matters reported
therein. To the knowledge of QRI, the estimates of reserves in the Reports
were prepared in accordance with standard geological and engineering
methods generally accepted in the oil and gas industry. The estimates of
the lease operating expenses, production and ad valorem taxes and capital
expenditures in the Reports reasonably reflect the historical experience of
QRI and the Contributing Entities, and QRI has no reason to believe that
the estimates will not reflect future lease operating expenses, production
and ad valorem taxes and capital expenses. The historical factual
information supplied by Mercury to the independent engineering firms in
connection with the preparation of the Reports was, at the time of delivery
to such firms, true and complete in all material respects. SECTION 4.13 of
the QRI Disclosure Schedule sets forth a list of all other current reserve
reports covering the QRI Properties, true and complete copies of which have
been delivered to the Company by QRI.
Section 4.14. INSIDER INTERESTS; TRANSACTIONS WITH MANAGEMENT. Except as
set forth in SECTION 4.14 of the QRI Disclosure Schedule, no officer, director,
or employee of QRI or holder of more than five percent of QRI Common Stock
currently outstanding has any interest in any property, real or personal,
tangible or intangible, agreement, arrangement, or understanding, written or
oral, providing for the employment of, furnishing of services by, rental or real
or personal property from, or otherwise requiring payments to any such
shareholder, officer, director or employee used in or pertaining to the business
of QRI, except for the ordinary rights of a stockholder or employee stock option
holder. No executive officer, director or stockholder of the QRI has, since
January 1, 1997, engaged in any business dealings with QRI, other than such
business dealings as would not be required to be disclosed in such documents or
reports pursuant to the Securities Act and the rules and regulations promulgated
thereunder. Except as set forth on SCHEDULE 4.14, no executive officer or
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director of QRI (except in his capacity as such) has any direct or indirect
material interest in (a) any competitor, customer, supplier or agent of QRI, or
(b) any person that is a party to any contract or agreement with QRI.
Section 4.15. VOTE REQUIRED. Except as required under the terms of the
Formation Documents, approval of the Merger and this Agreement requires
solely the affirmative votes of the outstanding shares of QRI Common Stock
held by the Contributing Entities, and no other vote or consent by any
shareholder of QRI is required to approve the Merger and this Agreement.
Members of the Darden family and the Contributing Entities control in excess
of a majority of the outstanding shares of QRI Common Stock, and they have
agreed (a copy of which agreement has been furnished to the Company
concurrently with the execution of this Agreement) to vote their shares of
QRI Common Stock and their shares of Company Common Stock in favor of
approval of the Merger and this Agreement at the QRI and Company stockholders
meetings referred to in SECTION 6.01 (or to consent thereto by written
consent of the stockholders of QRI in lieu thereof in accordance with the
DGCL and QRI's Certificate of Incorporation). All approvals required of the
Contributing Entities to the Merger, this Agreement and the transactions
contemplated hereby under the provisions of the QRI stockholder agreement
have been irrevocably given, and copies thereof have been forwarded to the
Company concurrently with the execution of this Agreement (provided, the
terms thereof are subject to the rights of QRI, JEDI and TCW under an
Agreement, dated , 1998 (the "Voting Agreement"), among QRI, JEDI
and TCW, a copy of which has been delivered to the Company).
Section 4.16. BROKERS. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of QRI.
Section 4.17. BOARD RECOMMENDATIONS. By a unanimous vote of the directors
present at a meeting of QRI's Board of Directors (which meeting was duly called
and held and at which a quorum was present at all times), or by unanimous
written consent, the Board of Directors of QRI (a) approved and adopted this
Agreement and the other transactions contemplated herein, and determined that
the Merger is fair to the stockholders of QRI, and (b) resolved to recommend
approval and adoption of this Agreement, including the Merger and the other
transactions contemplated herein, by the stockholders of QRI.
Section 4.18. DISCLOSURE. No representation or warranty hereunder
contains any untrue statement of material fact or omits to state a material fact
necessary in order to make the statements contained therein or herein not
misleading.
ARTICLE V
COVENANTS
Section 5.1. AFFIRMATIVE COVENANTS OF THE COMPANY. The Company hereby
covenants and agrees that, prior to the Effective Time, unless otherwise
expressly contemplated by this Agreement or consented to in writing by QRI, the
Company will and will cause each of its subsidiaries to:
(a) operate its business in the usual and ordinary course consistent
with past practices;
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(b) use its best efforts to preserve intact its business
organization, maintain its rights and franchises, retain the services of
its respective officers and key employees and maintain its relationships
with its respective customers and suppliers;
(c) maintain and keep its properties and assets in as good a repair
and condition as at present, ordinary wear and tear excepted, and use its
best efforts to maintain supplies and inventories in quantities consistent
with its customary business practices;
(d) use its best efforts to keep in full force and effect insurance
and bonds comparable in amount and scope of coverage to that currently
maintained;
(e) promptly notify QRI, JEDI and TCW of (i) any material adverse
change in the condition (financial or otherwise), of the business,
properties, assets, liabilities or prospects of the Company and its
subsidiaries or in the operation of the business or the properties of the
Company and its subsidiaries, (ii) any litigation or governmental
complaints, investigations or hearings (or communications indicating that
the same may be contemplated) involving the Company or any of its
subsidiaries, (iii) the occurrence, or failure to occur, of any event,
which occurrence or failure to occur would likely cause any representation
or warranty contained in this Agreement to be untrue or inaccurate in any
respect when made or at any time from the date of this Agreement to the
Effective Time; (iv) any failure of the Company to comply in any respect
with or satisfy any covenant, condition or agreement to be complied with or
satisfied by it under this Agreement; or (v) any other event that could
reasonably be expected to result in a Company Material Adverse Effect;
PROVIDED, HOWEVER, that no such notification shall affect the
representations and warranties of the Company or the conditions to the
obligations of the parties hereunder;
(f) (i) file all Tax Returns required to be filed on or before the
Closing Date by or with respect to the Company or any of its subsidiaries,
(ii) include in each such Tax Return all items of income, gain, loss,
deduction and credit or other items required to be included in each such
Tax Return, (iii) timely pay in full all Taxes that become due pursuant to
such Tax Returns, and (iv) satisfy all withholding requirements imposed on
or with respect to the Company;
(g) to the extent legally and contractually authorized to do so, give
QRI and its attorneys and other representatives access at all reasonable
times to the Company Properties and to the Company and any the
subsidiaries' records (including, without limitation, title files, division
order files, well files, production records, equipment inventories,
windfall profit tax records and production, severance and ad valorem tax
records) pertaining to the ownership and/or operation of the Company
Properties;
(h) to the extent third parties operate the Company Properties, take
such steps as would a prudent non-operator to cause the operator to (i)
continue the routine operation of the Company Properties in the ordinary
course of business and as would a prudent operator, (ii) operate the
Company Properties in conformity (in all material respects) with all the
Company Basic Documents and all applicable rules, regulations and orders of
all
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Governmental Authorities having jurisdiction, and (iii) maintain the
machinery, improvements, equipment and other personal property and fixtures
forming a part of the Company Properties in at least as good of a condition
as they are on the date of this Agreement; where the Company or any the
subsidiary is the operator of a Company Property, they will (unless removed
without its consent) remain the operator of such Company Property;
(i) cause all expenses (including, without limitation, all bills for
labor, materials and supplies used or furnished for use in connection with
the Company Properties and all ad valorem, severance, production, windfall
profit and similar taxes) and liabilities relating to the ownership or
operation of the Company Properties to be paid and discharged in the
ordinary course of business; and
(j) request, from the appropriate parties (and in accordance with the
documents creating such rights and/or requirements), all Consents relating
to any Company Property and waivers of Preferential Rights relating to any
material Company Property.
Section 5.2. AFFIRMATIVE COVENANTS OF QRI. QRI hereby covenants and
agrees that, prior to the Effective Time, unless otherwise expressly
contemplated by this Agreement or consented to in writing by the Company, QRI
will:
(a) operate its business in the usual and ordinary course consistent
with past practices;
(b) use its best efforts to preserve intact its business
organization, maintain its rights and franchises, retain the services of
its respective officers and key employees and maintain its relationships
with its respective customers and suppliers;
(c) maintain and keep its properties and assets in as good a repair
and condition as at present, ordinary wear and tear excepted, and use its
best efforts to maintain supplies and inventories in quantities consistent
with its customary business practices;
(d) use its best efforts to keep in full force and effect insurance
and bonds comparable in amount and scope of coverage to that currently
maintained;
(e) promptly notify the Company of (i) any material adverse change in
the condition (financial or otherwise), of the business, properties,
assets, liabilities or prospects of QRI or in the operation of its
businesses or properties; (ii) any litigation or governmental complaints,
investigations or hearings (or communications indicating that the same may
be contemplated) involving QRI or the Contributing Entities, (iii) the
occurrence, or failure to occur, of any event, which occurrence or failure
to occur would likely cause any representation or warranty contained in
this Agreement to be untrue or inaccurate in any respect when made or at
any time from the date of this Agreement to the Effective Time; (iv) any
failure of QRI to comply in any respect with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it under this
Agreement; or (v) any other event that could reasonably be expected to
result in a QRI Material Adverse Effect; PROVIDED,
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HOWEVER, that no such notification shall affect the representations and
warranties of QRI or the conditions to the obligations of the parties
hereunder;
(f) (i) file all Tax Returns required to be filed on or before the
Closing Date by or with respect to QRI, (ii) include in each such Tax
Return all items of income, gain, loss, deduction and credit or other
items required to be included in each such Tax Return, (iii) timely pay
in full all Taxes that become due pursuant to such Tax Returns, and (iv)
satisfy all withholding requirements imposed on or with respect to QRI;
(g) promptly as practicable prepare and file an application with
AMEX to list on AMEX the QRI Common Stock, including the QRI Common
Stock to be issued in the Merger, effective as of the Effective Time and
shall use all reasonable efforts to cause such application to be
approved prior to the Effective Time, and shall comply in all material
respects with the requirements of AMEX in connection with such listing;
(h) to the extent legally and contractually authorized to do so,
give the Company and its attorneys and other representatives access at
all reasonable times to the QRI Properties and to QRI's records
(including, without limitation, title files, division order files, well
files, production records, equipment inventories, windfall profit tax
records and production, severance and ad valorem tax records) pertaining
to the ownership and/or operation of the QRI Properties;
(i) to the extent third parties operate the QRI Properties, will
take such steps as would a prudent non-operator to cause the operator to
(i) continue the routine operation of the QRI Properties in the ordinary
course of business and as would a prudent operator, (ii) operate the QRI
Properties in conformity (in all material respects) with all QRI Basic
Documents, and all applicable rules, regulations and orders of all
Governmental Authorities having jurisdiction, and (iii) maintain the
machinery, improvements, equipment and other personal property and
fixtures forming a part of the QRI Properties in at least as good of a
condition as they are on the date of this Agreement; where QRI is the
operator of a QRI Property, QRI will (unless removed without its
consent) remain the operator of such QRI Property;
(j) cause all expenses (including, without limitation, all bills
for labor, materials and supplies used or furnished for use in
connection with the QRI Properties and all ad valorem, severance,
production, windfall profit and similar taxes) and liabilities relating
to the ownership or operation of the QRI Properties to be promptly paid
and discharged in the ordinary course of business;
(k) request, from the appropriate parties (and in accordance with
the documents creating such rights and/or requirements), all Consents
relating to any QRI Property and waivers of any Preferential Rights
relating to any material QRI Property; and
(l) prior to the Effective Time, take all necessary corporate
action to amend its Certificate of Incorporation and Bylaws so as to
conform with Exhibits A and B hereto, respectively, as contemplated by
SECTIONS 1.05 and 1.06 hereof.
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Section 5.3. NEGATIVE COVENANTS OF THE COMPANY. Except as expressly
contemplated by this Agreement or otherwise consented to in writing by QRI from
the date of this Agreement until the Effective Time, the Company shall not do,
and shall not permit any of its subsidiaries to do, any of the following:
(a) (i) increase the compensation payable to or to become payable
to any director; (ii) increase the compensation payable or pay bonuses
to officers or employees of the Company or any of its subsidiaries other
than in the ordinary course of business and consistent with past
practices; (iii) grant any severance or termination pay (other than
pursuant to agreements or arrangements in effect on the date hereof) or
enter into any employment or severance agreement with, any director,
officer or employee; (iv) establish, adopt or enter into any employee
benefit plan or arrangement; (v) make any loans to any stockholders,
officers, directors or employees or make any change in its borrowing
arrangements; or (vi) amend, or take any other actions (including,
without limitation, the waiving of performance criteria or the
adjustment of awards or any other actions permitted upon a "change in
control" (as defined in the respective plans) of the Company or a filing
under Section 13(d) or 14(d) of the Exchange Act with respect to the
Company) with respect to any of the Company Benefit Plans or any of the
plans, programs, agreements, policies or other arrangements described in
SECTION 3.10(a) of this Agreement;
(b) declare or pay any dividend on, or make any other distribution
in respect of, outstanding shares of capital stock or other equity
interests, except dividends by a wholly owned subsidiary of the Company
to the Company or another wholly owned subsidiary of the Company;
(c) (i) redeem, purchase or otherwise acquire any shares of its or
any of its subsidiaries' capital stock or any securities or obligations
convertible into or exchangeable for any shares of its or its
subsidiaries' capital stock (other than any such acquisition directly
from any wholly owned subsidiary of the Company in exchange for capital
contributions or loans to such subsidiary), or any options, warrants or
conversion or other rights to acquire any shares of its or its
subsidiaries' capital stock or any such securities or obligations, (ii)
effect any reorganization or recapitalization of the Company or any of
its subsidiaries, or (iii) split, combine or reclassify any of its or
its subsidiaries' capital stock or issue or authorize or propose the
issuance of any other securities in respect of, in lieu of or in
substitution for, shares of its or its subsidiaries' capital stock;
PROVIDED, HOWEVER, that nothing in this SECTION 5.03 shall prohibit the
merger of a wholly-owned, direct or indirect subsidiary of the Company
with and into the Company;
(d) issue (whether upon original issue or out of treasury), sell,
grant, award, deliver or limit the voting rights of any shares of any
class of its or its subsidiaries' capital stock, any securities
convertible into or exercisable or exchangeable for any such shares, or
any rights, warrants or options to acquire any such shares (except for
the issuance of shares upon the exercise of outstanding stock options or
warrants in accordance with their terms);
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(e) except for the merger of a wholly-owned, direct or indirect
subsidiary of the Company with and into the Company, acquire or agree to
acquire (whether pursuant to a definitive agreement, a non-binding
letter of intent or otherwise), by merging or consolidating with, by
purchasing an equity interest in or a portion of the assets of, or by
any other manner, any business or any corporation, partnership,
association or other business organization or division thereof, or
otherwise acquire or agree to acquire any assets of any other Person
(other than the purchase of assets from suppliers or vendors in the
ordinary course of business and consistent with past practice);
(f) sell, lease, exchange, mortgage, pledge, transfer or otherwise
dispose of ("TRANSFER"), or agree to sell, lease, exchange, mortgage,
pledge, transfer or otherwise dispose of, any of its assets or any
assets of any of its subsidiaries, except for Transfers of assets in the
ordinary course of business and consistent with past practice;
(g) initiate, solicit or encourage (including by way of furnishing
information or assistance) any Alternative Transaction (as defined
below), or enter into discussions or negotiate with any Person or entity
in furtherance of an Alternative Transaction, or disclose any nonpublic
information relating to the Company or any of its subsidiaries to, or
afford access to the properties, books or records of the Company or any
of its subsidiaries, or agree to, or endorse, any Alternative
Transaction, or authorize or permit any of the officers, directors,
employees or agents of the Company or any of its subsidiaries or any
investment banker, financial advisor, attorney, accountant or other
representative retained by the Company or any of the Company's
subsidiaries (the "REPRESENTATIVES") to take any such action, PROVIDED,
HOWEVER, that at any time prior to the time that the Company's
stockholders shall have voted to approve this Agreement, the Special
Committee of the Board of Directors of the Company may cause the Company
to furnish information to, and may participate in discussions or
negotiations with, any Person who (without any solicitation, initiation,
encouragement, discussion or negotiation, directly or indirectly, with
the Company or any of its subsidiaries or their respective
Representatives) has submitted a written proposal to the Special
Committee of the Board of Directors relating to an Alternative
Transaction that the Special Committee of the Company's Board of
Directors, in the exercise of its fiduciary duty after consideration of
written advice from its legal and financial advisors, determines is more
beneficial to the stockholders of the Company than the Merger. For
purposes of this Agreement, "ALTERNATIVE TRANSACTION" shall mean any of
the following (other than the transactions contemplated by this
Agreement) involving the Company or any of its subsidiaries: (i) any
purchase, lease, exchange, transfer or other acquisition or assumption
of all or a material portion of the assets of the Company and its
subsidiaries, taken as a whole; (ii) any merger, consolidation, share
exchange, business combination or similar transaction involving the
Company or any of its subsidiaries; or (iii) a purchase or other
acquisition (including by way of merger, consolidation, share exchange
or otherwise) of securities representing 20% or more of the outstanding
voting of the Company.
(h) adopt or propose to adopt any amendments to its Certificate of
Incorporation or its Bylaws;
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(i) (i) change any of its significant accounting policies or (ii)
make or rescind any express or deemed election relating to Taxes, settle
or compromise any claim, action, suit, litigation, proceeding,
arbitration, investigation, audit or controversy relating to Taxes, or
change any of its methods of reporting income or deductions for federal
income tax purposes from those employed in the preparation of the
federal income tax returns for the taxable year ended December 31, 1997
except, in the case of clause (i) or clause (ii), as may be required by
Law or generally accepted accounting principles;
(j) take or permit any action that could prevent the Merger from
qualifying as a tax-free reorganization under Section 368 of the Code,
and the Company will use its best efforts to prevent any of its officers
or directors from taking or permitting any such action;
(k) take or permit any action that could adversely affect or delay
the ability of either the Company or QRI to obtain any necessary
approvals of any Governmental Entities required for the transactions
contemplated hereby or to perform its covenants and agreements under
this Agreement;
(l) except as set forth in Section 5.03(l) of the Company
Disclosure Schedule, neither the Company nor any subsidiaries will sell,
transfer or abandon any portion of the Company Properties other than (i)
items of materials, supplies, machinery, equipment, improvements or
other personal property or fixtures forming a part of the Company
Properties (and then only if the same is replaced with an item of equal
suitability and value free of liens and security interests, which
replacement item will then, for the purposes of this Agreement, become
part of the Company Properties) or (ii) production of oil, gas and/or
other minerals, or the products therefrom, in the ordinary course of
business under arrangements that do not cause the representations and
warranties set forth elsewhere herein to be untrue; neither the Company
nor any subsidiary will, without QRI's consent, release, permit to
terminate, modify or reduce its rights under any oil, gas and/or mineral
lease forming a material part of the Company Properties, or any other
material the Company Basic Document, or enter into any new agreements
which would be the Company Basic Documents;
(m) take materially more of the oil or gas produced from the wells
located on any Company Property (or on units in which such properties
participate) than their ownership of such Company Property would entitle
them (absent any oil or gas balancing agreement or arrangement) to take;
(n) take any action that would, or that reasonably could be
expected to, result in any of the representations and warranties set
forth in this Agreement becoming untrue or any of the conditions to the
Merger set forth in Article VI not being satisfied. The Company
promptly shall advise QRI orally and in writing of any change or event
having, or which, insofar as reasonably can be foreseen, would have, a
material adverse effect on the Company and its subsidiaries, taken as a
whole; and
(o) agree in writing or otherwise to do any of the foregoing.
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Section 5.4. NEGATIVE COVENANTS OF QRI. Except as expressly contemplated
by this Agreement or otherwise consented to in writing by the Company, from the
date of this Agreement until the Effective Time, QRI shall not do any of the
following:
(a) amend or modify any one or more of the Formation Documents
delivered to the Company under SECTION 4.02 in any material respect.
(b) propose to adopt any amendments to its Certificate of
Incorporation or its Bylaws that could reasonably be expected to delay
or have an adverse effect on the consummation of the transactions
contemplated by this Agreement or would otherwise be inconsistent in any
material respect with the terms and conditions of this Agreement or the
other agreements or transactions contemplated hereby (it being
understood that this clause (b) shall not in any respect limit the right
and power of QRI to amend its Certificate of Incorporation to increase
the authorized number of shares of any class of capital stock of QRI) or
to adopt the Certificate of Incorporation contemplated by SECTION 1.05
of this Agreement;
(c) change any of its significant accounting policies except as
may be required by Law or generally accepted accounting principles;
(d) declare or pay any dividend (other than a stock split in the
form of a stock dividend as provided for in the last proviso in SECTION
2.01(b))on, or make any other distribution in respect of, outstanding
shares of its or its subsidiaries capital stock or other equity
interests;
(e) take or permit any action that would adversely affect or delay
the ability of either the Company or QRI to obtain any necessary
approvals of any Governmental Entities required for the transactions
contemplated hereby or to perform its covenants and agreements under
this Agreement;
(f) take or permit any action which could prevent the Merger from
qualifying as a tax-free organization under Section 368 of the Code, and
QRI will use its best efforts to prevent any of its officers or
directors from taking or permitting any such action;
(g) except as contemplated by this Agreement, issue (whether upon
original issue or out of treasury), sell, grant, award, deliver or limit
the voting rights of any shares of any class of its capital stock, any
securities convertible into or exercisable or exchangeable for any such
shares, or any rights, warrants or options to acquire any such shares
(except for the issuance of shares upon the exercise of outstanding
awards, stock options or warrants in accordance with their terms), or
amend or otherwise modify in any material respect the terms of such
rights, warrants and options;
(h) QRI will not sell, transfer or abandon any portion of the QRI
Properties other than (i) items of materials, supplies, machinery,
equipment, improvements or other personal property or fixtures forming a
part of the QRI Properties (and then only if the same is replaced with
an item of equal suitability and value free of liens and security
interests, which
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replacement item will then, for the purposes of this Agreement, become
part of the QRI Properties) or (ii) production of oil, gas and/or other
minerals, or the products therefrom, in the ordinary course of business
under arrangements that do not cause the representations and warranties
set forth elsewhere herein to be untrue; QRI will not, without the
Company's consent, release, permit to terminate, modify or reduce its
rights under any oil, gas and/or mineral lease forming a material part
of the QRI Properties, or any other material QRI Basic Document, or
enter into any new agreements which would be QRI Basic Documents;
(i) QRI will not take materially more of the oil or gas produced from
the wells located on any QRI Property (or on units in which such properties
participate) than QRI's ownership of such QRI Property would entitle QRI
(absent any oil or gas balancing agreement or arrangement) to take;
(j) QRI shall not take any action that would, or that reasonably
could be expected to, result in any of the representations and warranties
set forth in this Agreement becoming untrue or any of the conditions to the
Merger set forth in Article VII not being satisfied. QRI promptly shall
advise the Company orally and in writing of any change or event having, or
which, insofar as reasonably can be foreseen, would have, a material
adverse effect on QRI or the QRI Properties; and.
(k) agree in writing or otherwise to do any of the foregoing.
Section 5.05. ACCESS AND INFORMATION.
(a) The Company shall, and shall cause its subsidiaries to, (i)
afford to QRI and QRI's officers, directors, stockholders, employees,
accountants, consultants, legal counsel, agents and other representatives
(collectively, the "QRI REPRESENTATIVES") access during ordinary business
hours and at other reasonable times, upon reasonable prior notice, to the
officers, employees, accountants, agents, properties, offices and other
facilities of the Company and its subsidiaries and to the books and records
thereof and (ii) furnish promptly to QRI and the QRI Representatives such
information concerning the business, properties, contracts, records and
personnel of the Company and its subsidiaries (including, without
limitation, financial, operating and other data and information) as may be
reasonably requested, from time to time, by QRI.
(b) QRI shall, and shall cause its subsidiaries to, (i) afford to the
Company and the Company's officers, directors, employees, accountants,
consultants, legal counsel, agents and other representatives (collectively,
the "COMPANY REPRESENTATIVES") access during ordinary business hours and at
other reasonable times, upon reasonable prior notice, to the officers,
employees, accountants, agents, properties, offices and other facilities of
QRI and its subsidiaries and to the books and records thereof and (ii)
furnish promptly to the Company and the Company Representatives such
information concerning the business, properties, intellectual property
assets, contracts, records and personnel of QRI and its subsidiaries
(including, without limitation, financial, operating and other data and
information) as may be reasonably requested, from time to time, by the
Company.
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(c) No investigation by the parties hereto made heretofore or
hereafter shall affect the representations and warranties of the parties
that are contained herein and each such representation and warranty shall
survive such investigation.
ARTICLE VI
ADDITIONAL AGREEMENTS
Section 6.01. PRESENTATION TO STOCKHOLDERS. The Company shall,
promptly after the date of this Agreement, take all actions necessary in
accordance with the DGCL and its Certificate of Incorporation and Bylaws and
the rules of AMEX to present the Merger and this Agreement to the holders of
the Company Common Stock for their consideration and approval by the vote
thereof at a meeting of the Company's stockholders duly called and convened
to act on the Merger and this Agreement (the "COMPANY STOCKHOLDERS'
MEETING"). In like manner, QRI shall, promptly after the date of this
Agreement, take all actions necessary in accordance with the DGCL, QRI's
Certificate of Incorporation and Bylaws to present the Merger and this
Agreement to the holders of QRI Common Stock for their consideration and
approval by the vote thereof at a meeting of QRI's stockholders duly called
and convened to act on the Merger and this Agreement (the "QRI STOCKHOLDERS'
MEETING") (or, in lieu thereof, such action may be taken by written consent
in accordance with the DGCL and QRI's Certificate of Incorporation). The
Company and QRI shall consult with each other in connection with such
meetings and each shall use its best efforts to cause such meetings to occur
on the same date. The Company and QRI shall use their reasonable best
efforts to solicit from their respective stockholders proxies in favor of the
approval and adoption of this Agreement and to secure the vote of
stockholders required by the DGCL and their respective Certificates of
Incorporation and Bylaws and by the rules of AMEX to approve and adopt the
Merger and this Agreement. The Board of Directors of QRI and the Special
Committee and the Board of Directors of the Company shall recommend that
their respective stockholders approve and adopt this Agreement and the Merger
on the terms and conditions set forth in this Agreement. Provided, however,
that nothing contained in this SECTION 6.01 or elsewhere in this Agreement
shall require the Board of Directors of the Company, or the Special Committee
thereof, to take any action or refrain from taking any action that the Board
of Directors of the Company determines in good faith after consultation with
and based on the advice of outside counsel could be reasonably expected to
result in a breach of its fiduciary duties under applicable law; provided
further that, in the event the Board of Directors, or the Special Committee
thereof, receives a proposal to enter into an Alternative Transaction that
the Special Committee, after consideration of advice from its legal and
financial advisors, determines is more beneficial to the stockholders of the
Company than the Merger, the Company's Board of Directors, or the Special
Committee, may, in the exercise of its fiduciary obligations, withdraw or
modify its approval or recommendation of this Agreement or the Merger.
Notwithstanding any other provision hereof, no party shall be restricted from
complying with Rule 14e-2 promulgated under the Exchange Act with regard to a
tender offer or exchange offer.
Section 6.02. REGISTRATION STATEMENT; PROXY STATEMENT/PROSPECTUS.
(a) As promptly as practicable after the execution of this
Agreement, QRI shall prepare and file with the SEC a registration
statement on Form S-4 (the "Registration Statement") containing a Proxy
Statement/Prospectus (the "PROXY STATEMENT/ PROSPECTUS") for
stockholders of the Company in connection with (i) the registration
under the Securities
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Act of the offer, sale and delivery of QRI Common Stock to be issued in
the Merger and (ii) the vote of the stockholders of the Company with
respect to the Merger and this Agreement. QRI and the Company shall
each use all reasonable efforts to cause the Registration Statement to
become effective as promptly as practicable, and shall take any action
required to be taken in order to comply with any applicable federal or
state securities laws in connection with the issuance of shares of QRI
Common Stock in the Merger. QRI and the Company shall each furnish all
information concerning itself and the holders of its capital stock as
the other may reasonably request in connection with such actions. As
promptly as practicable after the Registration Statement shall have
become effective, the Company and QRI shall mail (the "MAILING DATE")
the Proxy Statement/Prospectus to the holders of Company Common Stock of
record at least 20 calendar days prior to the Company Stockholders'
Meeting. It shall be a condition to the mailing of the Proxy
Statement/Prospectus that QRI and the Company shall have received the
comfort letters described in SECTION 6.13 of this Agreement, if QRI
shall have requested such letters as described in SECTION 6.13 hereof.
(b) None of the information supplied or to be supplied by the
Company for inclusion or incorporation by reference in (i) the
Registration Statement will, at the time the Registration Statement is
filed with the SEC and at the time it becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to
make the statements made therein not misleading and (ii) the Proxy
Statement/Prospectus will, at the Mailing Date and at the time of the
Company Stockholders' Meeting and the QRI Stockholders' Meeting, contain
any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements
made therein, in light of the circumstances in which they were made, not
misleading. If at any time prior to the Company Stockholders' Meeting
or the QRI Stockholders' Meeting any event or circumstance relating to
the Company or any of its Affiliates, or its or their respective
officers or directors, should be discovered by the Company that should
be set forth in an amendment to the Registration Statement or a
supplement to the Proxy Statement/Prospectus, the Company shall promptly
inform QRI. All documents that the Company is responsible for filing
with any Governmental Entity in connection with the transactions
contemplated hereby, including, without limitation, the Proxy
Statement/Prospectus to the extent that the information contained
therein relates to the Company and its subsidiaries or the transactions
contemplated hereby, will comply as to form in all material respects
with the provisions of applicable law, including applicable provisions
of the Securities Act, the Exchange Act and the rules and regulations
thereunder, and each such document required to be filed with any
Governmental Entity other than the SEC will comply with the provisions
of applicable Law as to the information required to be contained therein.
(c) None of the information supplied or to be supplied by QRI for
inclusion in (i) the Registration Statement will, at the time the
Registration Statement is filed with the SEC and at the time it becomes
effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading and
(ii) the Proxy Statement/Prospectus will, at the Mailing Date and at the
time of the Company Stockholders' Meeting and the QRI
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Stockholders' Meeting, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or
necessary to make the statements contained therein, in light of the
circumstances in which they were made, not misleading. If at any time
prior to the Company Stockholders' Meeting or the QRI Stockholders'
Meeting any event or circumstance relating to QRI or any of its
Affiliates, or its or their respective officers or directors, should be
discovered by QRI that should be set forth in an amendment to the
Registration Statement or a supplement to the Proxy
Statement/Prospectus, QRI shall promptly inform the Company. All
documents that QRI is responsible for filing with any Governmental
Entity in connection with the transactions contemplated hereby,
including, without limitation, the Registration Statement to the extent
that the information contained therein relates to QRI and its
subsidiaries or the transactions contemplated hereby, will comply as to
form in all material respects with the provisions of applicable law,
including applicable provisions of the Securities Act, the Exchange Act
and the rules and regulations thereunder, and each such document
required to be filed with any Governmental Entity other than the SEC
will comply with the provisions of applicable Law as to the information
required to be contained therein.
Section 6.03. APPROPRIATE ACTION: CONSENTS; FILINGS.
(a) QRI and the Company and its subsidiaries shall each use all
reasonable efforts promptly (i) to take, or cause to be taken, all
appropriate action, and do, or cause to be done, all things necessary,
proper or advisable under applicable Law or otherwise to consummate and
make effective the transactions contemplated by this Agreement, (ii) to
obtain from any Governmental Entities any consents, licenses, permits,
waivers, approvals, authorizations or orders required to be obtained by
the Company or any of its subsidiaries or QRI, respectively, in
connection with the authorization, execution, delivery and performance
of this Agreement and the consummation of the transactions contemplated
hereby, including, without limitation, the Merger, and (iii) to make all
necessary filings, and thereafter make any other required submissions,
with respect to this Agreement and the Merger required under (a) the
Securities Act and the Exchange Act and the rules and regulations
thereunder, and any other applicable federal or state securities laws,
(b) the HSR Act, and (c) any other applicable Law; and QRI and the
Company shall cooperate with each other in connection with the making of
all such filings, including providing copies of all such documents to
the nonfiling party and its advisors prior to filing and, if requested,
shall accept all reasonable additions, deletions or changes suggested in
connection therewith. The Company and QRI shall furnish all information
required for any application or other filing to be made pursuant to the
rules and regulations of any applicable Law in connection with the
transactions contemplated by this Agreement.
(b) QRI and the Company and its subsidiaries agree to cooperate
and to use all reasonable efforts to contest and resist any action,
including legislative, administrative or judicial action, and to have
vacated, lifted, reversed or overturned any decree, judgment, injunction
or other order (whether temporary, preliminary or permanent) (an
"ORDER") that is in effect and that restricts, prevents or prohibits the
consummation of the Merger or any other transactions contemplated by
this Agreement, including, without limitation, by vigorously pursuing
all available avenues of administrative and judicial appeal and all
available legislative action.
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(c) The Company and QRI shall each promptly give any notices
regarding the Merger, this Agreement or the transactions contemplated
hereby to third parties required by Law or by any material contract,
license, lease or other material agreement to which it is a party or by
which it is bound, and use, and cause its subsidiaries, if any, to use,
all reasonable efforts to obtain any third party Consents or waivers of
Preferential Rights (i) necessary, proper or advisable to consummate the
transactions contemplated by this Agreement, (ii) otherwise required
under any contracts, licenses, leases or other agreements in connection
with the consummation of the transactions contemplated by this
Agreement, or (iii) required to prevent a Company Material Adverse
Effect or a QRI Material Adverse Effect, respectively, from occurring;
PROVIDED, HOWEVER, that this SECTION 6.03 shall not impose any
obligations on or confer any rights upon any person or entity other than
the parties to this Agreement.
(d) If any party shall fail to obtain any third party Consent or
waivers of Preferential Rights described in subsection (c) above, such
party shall use all reasonable efforts, and shall take any such actions
reasonably requested by the other parties, to limit the adverse effect
upon the Company, its subsidiaries, and QRI, and their respective
businesses resulting, or that could reasonably be expected to result
from the failure to obtain such consent.
Section 6.04. AFFILIATES; TAX TREATMENT.
(a) The Company shall obtain and deliver to QRI (i) on the date
that this Agreement is executed by QRI, an executed agreement,
substantially in the form of EXHIBIT C hereto from each person
identified as an Affiliate of the Company in SECTION 3.12 of the Company
Disclosure Schedule, and (ii) by the Closing Date, from any other person
who is an Affiliate of the Company on the Closing Date.
(b) QRI shall be entitled to place legends as specified in such
letter agreements on the certificates evidencing any QRI Common Stock to
be received by such Affiliates of the Company pursuant to the terms of
this Agreement, and to issue appropriate stop transfer instructions to
the transfer agent of the QRI Common Stock, consistent with the terms of
such letter agreements.
(c) Neither the Company nor its subsidiaries nor QRI or other
Affiliates shall (i) take any action, or fail to take any action, that
would jeopardize qualification of the Merger as a tax-free
reorganization within the meaning of Section 368(a)(1)(a) of the Code or
(ii) enter into any contract, agreement, commitment or arrangement with
respect to the foregoing.
(d) At or before the Closing, QRI and the Company shall provide an
officer's certificate, in form and substance reasonably satisfactory to
the Company, to Jenkens & Gilchrist, a Professional Corporation, to
assist such counsel in rendering the written opinion provided for in
SECTION 7.01(d) of this Agreement. The Company shall use all reasonable
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efforts to obtain from its Affiliates such certificate as may be
requested by such counsel in connection with such opinion.
Section 6.05. PUBLIC ANNOUNCEMENTS. Except as otherwise required by
applicable Law or the rules of AMEX, neither QRI nor the Company nor any of
its subsidiaries shall issue or cause the publication of any press release or
other public announcement with respect to, or otherwise make any public
statement concerning, the transactions contemplated by this Agreement without
the consent of the other party, which consent shall not be unreasonably
withheld.
Section 6.06. AMEX LISTING. QRI shall use all reasonable efforts to
cause the shares of QRI Common Stock to be issued in the Merger to be
approved for listing, subject to official notice of issuance, on AMEX prior
to the Effective Time.
Section 6.07. STATE TAKEOVER STATUTES. The Company will take all steps
necessary to exempt the transactions contemplated by this Agreement from, and
if necessary challenge the validity of, any applicable state takeover law,
including, without limitation, Section 203 of the DGCL. The Company shall
take all actions necessary under the DGCL, including approving the
transactions contemplated by this Agreement, to ensure that the prohibitions
on business combinations set forth in Section 203 of the DGCL do not, or will
not, apply to the transactions contemplated by this Agreement.
Section 6.08. BOARD SEAT. Promptly following the Effective Time,
consistent with applicable law and its Bylaws, the Board of Directors of QRI
shall increase the number of members of its Board of Directors from 3 to 8,
and shall elect Frank Darden, Thomas F. Darden, Glenn M. Darden, Mark Warner,
Steven M. Morris, D. Randall Kent and W. Yandell Rogers III to fill seven of
such vacancies, to serve as such until the next annual meeting of QRI
stockholders or such time as their respective successors shall have been duly
elected or appointed and qualified.
Section 6.09. OPTIONS.
(a) At the Effective Time, each option granted by the Company to
purchase shares of Company Common Stock that is outstanding and unexercised
immediately prior thereto shall cease to represent a right to acquire
shares of Company Common Stock and shall be converted automatically into an
option to purchase shares of QRI Common Stock in an amount and at an
exercise price determined as provided below (and otherwise subject to the
terms of the Company benefit plans under which they were issued and the
agreements evidencing grants thereunder).
(i) The number of shares of QRI Common Stock to be subject to
the new option shall be equal to the product of the number of shares
of Company Common Stock subject to the original option and the
Conversion Ratio, provided that any fractional shares of QRI Common
Stock resulting from such multiplication shall be rounded to the
nearest whole share; and
(ii) The exercise price per share of QRI Common Stock under the
new option shall be equal to the exercise price per share of Company
Common Stock
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under the original option divided by the Conversion Ratio, provided
that such exercise price shall be rounded down to the nearest whole
cent.
(b) The adjustment provided herein with respect to any options that
are "incentive options" (as defined in Section 422 of the Code) shall be
and is intended to be effectuated in a manner which is consistent with
Section 424(a) of the Code. Except as set forth in clauses (i) and (ii) of
SECTION 6.09(a), above, the duration and other terms of the new option
shall be the same as the original option except that all references to the
Company or any of its subsidiaries shall be deemed to be references to QRI.
(c) If and to the extent required by the terms of the plans governing
the original options or pursuant to the terms of any agreements evidencing
grants thereunder, the Company shall use its reasonable efforts to obtain
the consent of each holder of outstanding options to the treatment provided
in subparagraph (a) of this SECTION 6.09.
Section 6.10. COMMON STOCK WARRANTS.
(a) At the Effective Time, each Common Stock Warrant granted by the
Company to purchase shares of Company Common Stock that is outstanding and
unexercised immediately prior thereto shall cease to represent a right to
acquire shares of Company Common Stock and shall be converted automatically
into a warrant to purchase shares of QRI Common Stock in an amount and at
an exercise price determined as provided below (and otherwise subject to
the terms of the agreements evidencing such Common Stock Warrants).
(i) The number of shares of QRI Common Stock to be subject to
the new Warrant shall be equal to the product of the number of shares
of Company Common Stock subject to the original Common Stock Warrant
and the Conversion Ratio, provided that any fractional shares of QRI
Common Stock resulting from such multiplication shall be rounded to
the nearest whole share; and
(ii) The exercise price per share of QRI Common Stock under the
new Warrant shall be equal to the exercise price per share of Company
Common Stock under the original Common Stock Warrant divided by the
Conversion Ratio, provided that such exercise price shall be rounded
down to the nearest whole cent.
(iii) Except as set forth in clauses (i) and (ii) of this
SECTION 6.10(a), the expiration date and other terms of the new
warrant shall be the same as the original warrant except that all
references to the Company or any of its subsidiaries shall be deemed
to be references to QRI.
If and to the extent required by the terms of the Common Stock Purchase
Warrants, the Company shall use its reasonable efforts to obtain the consent of
each holder of such Warrants to the treatment thereof provided in subparagraph
(a) of this SECTION 6.10.
Section 6.11. INDEMNIFICATION.
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(a) The Company shall indemnify and hold harmless, to the fullest
extent permitted under applicable law, and after the Effective Time, QRI
and the Surviving Corporation shall indemnify and hold harmless, to the
fullest extent permitted under applicable law, each present and former
director and officer of the Company or any of its subsidiaries, and each
person who is or was then serving as a director of the Company or any of
its subsidiaries (individually, an "INDEMNIFIED PARTY" and collectively,
the "INDEMNIFIED PARTIES") against any expenses, including reasonable
attorneys' fees, fines, losses, claims, damages, liabilities, costs,
judgments and amounts paid in settlement in connection with any
threatened, pending or completed claim, action, suit, proceeding or
investigation (whether civil, criminal or administrative) arising out of
or pertaining to any action or omission occurring prior to the Effective
Time (including, without limitation, any that arise out of or relate to
the Merger and the transactions contemplated by this Agreement) that are
asserted or commenced prior to or within six years following the
Effective Time, and the Company, QRI or the Surviving Corporation, as
the case may be, will advance expenses to each such Indemnified Party
(provided the person to whom expenses are advanced provides an
undertaking to repay such advances if it is ultimately determined that
such person is not entitled to indemnification), provided the
Indemnified Party asserting the right to indemnification hereunder shall
have acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the Company and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful. The termination of any action, suit
or proceeding by judgment, order, settlement, conviction, or upon a plea
of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner
that such person reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, that such person and reasonable cause to believe that his
conduct was unlawful. In the event of any such claim, action, suit,
proceeding or investigation (whether asserted or commenced before or
after the Effective Time), the Company, QRI or the Surviving
Corporation, as the case may be, will be entitled to participate in and,
to the extent that it may wish, to assume the defense thereof; PROVIDED,
HOWEVER, that if any Indemnified Party (or group of Indemnified Parties)
reasonably believes that it is advisable for such Indemnified Parties to
be represented by separate counsel as a result of a conflict, on any
significant issue between the positions of the Indemnified Party (or
group of Indemnified Parties) and the Company, QRI or the Surviving
Corporation, as the case may be, as determined under applicable
standards of professional conduct or if the Company, QRI or the
Surviving Corporation shall promptly fail to assume responsibility for
such defense, such Indemnified Party (or group of Indemnified Parties)
may retain counsel satisfactory to such Indemnified Party (or group of
Indemnified Parties), who will represent such Indemnified Party (or
group of Indemnified Parities), and the Company, QRI or the Surviving
Corporation, as the case may be, shall pay all reasonable fees and
expenses of such counsel promptly as statements therefor are received;
PROVIDED, that the Indemnified Parties and the Company, QRI or the
Surviving Corporation, as the case may be, will use their respective
best efforts to assist in the vigorous defense of any such matter;
PROVIDED, FURTHER, that neither the Company, QRI nor the Surviving
Corporation shall be liable for any settlement effected without their
written consent, which consent, if
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the Company, QRI or the Surviving Corporation fails to assume the
defense of any such matter, shall not be unreasonably withheld and in no
event shall be withheld in bad faith; and PROVIDED, FURTHER, that
neither the Company, QRI nor the Surviving Corporation shall have any
obligation hereunder to any Indemnified Party (i) when and if a court of
competent jurisdiction shall ultimately determine, after exhaustion of
all avenues of appeal, that such Indemnified Party is not entitled to
indemnification hereunder (at which point such Indemnified Party shall
promptly refund, without interest, to the indemnifying party all amounts
previously paid by the indemnifying party hereunder) and (ii) unless
such Indemnified Party has delivered to QRI an undertaking to refund
amounts paid as provided in clause (i) above. Any Indemnified Party
wishing to claim indemnification under this SECTION 6.11, upon learning
of any such claim, action, suit, proceeding or investigation, shall
promptly notify the indemnifying party thereof. In the event the
Indemnified Parties are entitled to separate counsel pursuant to this
paragraph (a), the Indemnified Parties may as a group retain only one
such law firm to represent them with respect to any such matter unless
there is, under applicable standards of professional conduct, a conflict
on any significant issue between the positions of any two or more
Indemnified Parties in which case the Indemnified Parties may retain, at
the expense of the Company, QRI or the Surviving Corporation, as the
case may be, two additional law firms.
(b) The Company, its subsidiaries and the Surviving Corporation
will perform and discharge all indemnification agreements to which the
Company or any of its subsidiaries is a party and that have been
disclosed in SECTION 6.11(b) of the Company Disclosure Schedule.
(c) This Section shall survive the closing of the transactions
contemplated hereby, is intended to benefit the Company, QRI, the
Surviving Corporation and each of the Indemnified Parties (each of whom
shall be entitled to enforce this Section against the Company or the
Surviving Corporation, as the case may be) and shall be binding on all
successors and assigns of the Surviving Corporation. The exercise by
any person of such person's rights under any of paragraphs (a) or (b) of
this Section shall not preclude the exercise of such person's rights
under any such other paragraph of this section, provided that such party
shall not be entitled to multiple recoveries thereunder.
(d) For six years from the Effective Time, QRI shall cause the
Surviving Corporation to provide to the Company's current directors and
officers liability insurance protection of the same kind and scope as
that provided by the Company's directors' and officers' liability
insurance policies (copies of which have been made available to QRI) in
effect on the date hereof; PROVIDED, HOWEVER, that in no event shall the
Surviving Corporation be required to expend in any one year an amount in
excess of 150% of the annual premiums currently paid by the Company for
such insurance; and, PROVIDED, FURTHER, that if the annual premiums of
such insurance coverage exceeds such amount, the Surviving Corporation
shall be obligated to obtain a policy with the greatest coverage
available for a cost not exceeding such amount.
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(e) In the event the Surviving Corporation, QRI or any of their
respective successors or assigns (i) consolidates with or merges into
any other person and shall not be the continuing or surviving
corporation or entity of such consolidation or merger, or (ii) transfers
all or substantially all of its properties and assets to any person,
then, and in each such case, proper provision shall be made so that the
successors and assigns of the Surviving Corporation or QRI, as the case
may be, assume the obligations set forth in this SECTION 6.11.
(f) Nothing in this Section 6.11 shall alter or replace the
obligations of an insurer that provides coverage to the Company or QRI.
Section 6.12. EMPLOYMENT CONTRACTS. The Company represents that it has
previously delivered or made available to QRI all employment, retirement,
termination, severance or similar agreements with officers or other employees
of the Company and its subsidiaries which are currently in effect, all of
which are listed in the Company Disclosure Schedule. SECTION 6.12 of the
Company Disclosure Schedule lists all such agreements and plans that provide
for payment of amounts or awards upon consummation of a "change of control"
of the Company, including all those providing for payments or awards upon
consummation of the Merger. The Company has made available to QRI true,
correct and complete copies of all such agreements and plans. The Company
will not enter into any such agreements after the date hereof without QRI's
prior written consent.
Section 6.13. COMFORT LETTERS.
(a) If requested by QRI, the Company shall cause Deloitte and
Touche LLP to deliver a letter, dated as of the date of the Proxy
Statement/Prospectus and as of the Closing Date, and addressed to QRI
and its Board of Directors, in form and substance reasonably
satisfactory to QRI and customary in scope and substance for agreed upon
procedures letters delivered by independent public accountants in
connection with registration statements and proxy statements similar to
the Proxy Statement/Prospectus.
(b) If QRI should make the request for the Company to cause
Deloitte and Touche LLP to deliver the letter referred to in
subparagraph (a) of this SECTION 6.13, QRI shall then cause Weaver &
Tidwell to deliver a letter dated as of the date of the Proxy Statement/
Prospectus and as of the Closing Date, and addressed to QRI and the
Company and their respective Boards of Directors, in form and substance
reasonably satisfactory to the Company and customary in scope and
substance for agreed upon procedures letters delivered by independent
public accountants in connection with registration statements and proxy
statements similar to the Proxy Statement/Prospectus.
Section 6.14. SALES UNDER RULE 145 IF APPLICABLE.
(a) QRI will use its best efforts to comply with the reporting
requirements of the Exchange Act after the Effective Time.
(b) Upon being informed in writing by any person who, at the
Effective Time, was an officer, director or a shareholder of the Company
that may be deemed to be an affiliate of
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the Company (within the meaning of the Exchange Act), that such person
intends to sell any shares of QRI Common Stock acquired in the Merger
under Rule 145 under the Exchange Act, QRI will certify in writing to
such person that it has been subject to the reporting requirements of
the Exchange Act for at least 90 days and it has filed all of the
reports required to be filed by it under the Exchange Act to enable such
person to sell such person's QRI Common Stock acquired in the Merger
under Rule 145 (or will inform such person in writing that it has not
filed such reports). QRI will further supply such person with any
information in its possession which he may reasonably request in
connection with any such proposed sale.
(c) If any of the certificates representing any QRI Common Stock
acquired in the Merger is presented to QRI's transfer agent for
registration of transfer in connection with any sale theretofore made
under paragraph (d) of Rule 145, provided such certificate is duly
endorsed for transfer or accompanied by a duly executed stock power and
is accompanied by an opinion of counsel satisfactory to QRI that such
transfer has complied with the requirements of Rule 145, QRI will
promptly instruct its transfer agent to register such transfer and to
issue one or more new certificates free of any stop transfer order or
restrictive legend.
Section 6.15. STOCKHOLDER LITIGATION. The Company shall give QRI the
opportunity to participate in the defense or settlement of any stockholder
litigation against the Company and its directors relating to any of the
transactions contemplated by this Agreement; PROVIDED, no such settlement
shall be agreed to without QRI's consent, which consent shall not be
unreasonably withheld; and FURTHER PROVIDED, that no settlement requiring a
payment by a director of the Company shall be agreed to without such
director's consent.
ARTICLE VII
CLOSING CONDITIONS
Section 7.1. CONDITIONS TO OBLIGATIONS OF EACH PARTY UNDER THIS
AGREEMENT. The respective obligations of each party to effect the Merger and
the other transactions contemplated hereby shall be subject to the
satisfaction at or prior to the Effective Time of the following conditions
(any or all of which may be waived by the parties hereto in writing, in whole
or in part, to the extent permitted by applicable Law):
(a) EFFECTIVENESS OF THE REGISTRATION STATEMENT. The Registration
Statement shall have been declared effective by the SEC under the
Securities Act. No stop order suspending the effectiveness of the
Registration Statement shall have been issued by the SEC and no
proceedings for that purpose shall have been initiated by the SEC.
(b) LISTING OF QRI COMMON STOCK. The AMEX shall have approved the
listing, subject to official notice of issuance of the QRI Common Stock,
including the QRI Common Stock to be issued in the Merger.
(c) STOCKHOLDER APPROVAL. The Merger and this Agreement shall have
been approved and adopted by the requisite vote of the stockholders of
the Company and of QRI
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in accordance with the DGCL and the respective Certificates of
Incorporation of the Company and QRI.
(d) HSR ACT. The Company and QRI shall have made all filings, if
any, required under the HSR Act and the applicable waiting period under
the HSR Act with respect to the transactions contemplated by this Agreement
shall have expired or been terminated.
(e) COMPANY TAX OPINION. The Company shall have received from
Jenkens & Gilchrist, a Professional Corporation a written opinion, dated
as of the Mailing Date and as of the Closing Date, to the effect that
the Merger, when effected in accordance with this Agreement, will
qualify as a tax free reorganization under Section 368(a)(1)(A) of the
Code and, QRI and the Company will constitute parties to such
reorganization, and a copy of such opinion shall have been delivered to
QRI.
(f) NationsBank, N.A. and any other lenders to QRI, and Banque
Paribas and any other lenders to the Company, shall have consented to
the Merger under the terms of this Agreement, and the indebtedness to
those lenders shall have been consolidated and restructured in such
manner as to require no guaranty by anyone other than subsidiaries of
QRI and the Company and to require no collateral be provided by anyone
other than QRI, the Company and their respective subsidiaries, all on
terms reasonably satisfactory to QRI and the Company.
(g) CONSENTS. All consents required pursuant to SECTIONS 6.09 and
6.10 shall have been obtained.
Section 7.2. ADDITIONAL CONDITIONS TO OBLIGATIONS OF QRI. The
obligations of QRI to effect the Merger and the other transactions contemplated
by this Agreement are also subject to the following conditions (any or all of
which may be waived by QRI in writing, in whole or in part):
(a) REPRESENTATIONS AND WARRANTIES. Each of the representations
and warranties of the Company contained in this Agreement shall have
been true and correct in all material respects at and as of the date
made and, except as contemplated or permitted by this Agreement, at and
as of the Effective Time as if made at and as of such time. QRI shall
have received a certificate of the President and the Chief Executive
Officer of the Company, in his capacity as such, dated the Closing Date,
to the effect that each of the representations and warranties of the
Company contained in this Agreement were true and correct in all
material respects as of the date made and, except as contemplated or
permitted by this Agreement, at and as of the Effective Time as if made
at and as of such time.
(b) AGREEMENTS AND COVENANTS. The Company shall have performed or
complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by it at or
prior to the Effective Time. QRI shall have received a certificate of
the President and the Chief Executive Officer of the Company, in his
capacity as such, dated the Closing Date, to such effect.
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(c) CONSENTS. All consents, authorizations, orders and approvals
of, or filings or registrations with, any Governmental Entity required
in connection with the execution, delivery and performance of this
Agreement shall have been obtained or made, except for filings required
under the DGCL in connection with the Merger and the Company shall have
obtained all consents, authorizations, waivers and approvals required
from third parties required under all material agreements and
instruments by reason of the Merger and the consummation of the
transactions contemplated hereby.
(d) NO GOVERNMENTAL PROCEEDINGS OR LITIGATION. There shall not be
pending or threatened any action, proceeding, claim or counterclaim by
any Governmental Entity or by any third party which seeks to or would
(i) prohibit or restrict the consummation of the Merger, (ii) require
the disposition of or the holding separate of any of the stock or assets
of the Company or its subsidiaries or impose material limitations on the
ability of QRI to control in any material respect the business, assets
or operations of either QRI or the Company, or (iii) have a material
adverse effect on QRI's business or materially impair the ability of the
Company to perform their obligations hereunder. There shall not be
pending any action, proceeding or claim by any stockholder of MSR based
on the provisions of subsections (1) and (2) of Article 11 of MSR's
Certificate of Incorporation. There shall not be in effect any order,
decree or injunction (whether preliminary, final or appealable) of a
United States Federal or state court of competent jurisdiction, and no
statute, rule or regulation shall have been enacted or promulgated by
any Governmental Entity, which (i) prohibits or restricts consummation
of the Merger or the transactions contemplated hereby, (ii) requires QRI
to hold separate or dispose of any of the stock or assets of the Company
or its subsidiaries or imposes material limitations on the ability of
QRI to control in any material respect the business, assets or
operations of either QRI or the Company or (iii) has a material adverse
effect on the business of QRI or on the Company and its subsidiaries or
materially impairs the ability of QRI to perform its obligations
hereunder.
(e) AFFILIATE AGREEMENTS. The Company shall have delivered to QRI
the letter agreements called for by SECTION 6.04.
(f) DISSENTING SHARES. The aggregate number of Dissenting Shares
held by Shareholders of the Company shall not exceed 5% of the aggregate
number of shares of Company Common Stock outstanding as of the date of
this Agreement.
Section 7.3. ADDITIONAL CONDITIONS TO OBLIGATIONS OF THE COMPANY. The
obligations of the Company to effect the Merger and the other transactions
contemplated hereby are also subject to the following conditions (any or all of
which may be waived by the Company in writing, in whole or in part):
(a) REPRESENTATIONS AND WARRANTIES. Each of the representations
and warranties of QRI contained in this Agreement shall have been true
and correct in all material respects at and as of the date made and,
except as contemplated or permitted by this Agreement, at and as of the
Effective Time as if made at and as of such time. The Company shall have
received a certificate of the President and the Chief Executive Officer
of QRI, in their capacities as such, dated as of the Effective Time, to
the effect that each of the
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representations and warranties of QRI contained in this Agreement were
true and correct in all material respects as of the date made and,
except as contemplated by this Agreement, at and as of the Effective
Time as if made at and as of such time.
(b) AGREEMENTS AND COVENANTS. QRI shall have performed or complied
in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by them at or prior to
the Effective Time. The Company shall have received a certificate of
the Chairman and Chief Executive Officer of QRI, in such capacities,
dated the Closing Date, to that effect.
(c) CONSENTS. All consents, authorizations, orders and approvals
of, or filings or registrations with, any Governmental Entity required
in connection with the execution, delivery and performance of this
Agreement shall have been obtained or made, except for filings required
under the DGCL in connection with the Merger, and QRI shall have
obtained all consents, authorizations, waivers and approvals required
from third parties required under all material agreements and
instruments by reason of the Merger and the consummation of the
transactions contemplated hereby, except for such consents,
authorizations, waivers and approvals where the failure to obtain such
could not reasonably be expected to result in a QRI Material Adverse
Effect.
(d) NO GOVERNMENTAL PROCEEDINGS OR LITIGATION. There shall not be
pending or threatened any action, proceeding, claim or counterclaim by
any Governmental Entity or by any third party that seeks to or would (i)
prohibit or restrict the consummation of the Merger, (ii) require the
disposition of or the holding separate of any of the stock or assets of
the Company or its subsidiaries or impose material limitations on the
ability of the Surviving Corporation to control in any material respect
the business, assets or operations of either the Surviving Corporation
or the Company, or (iii) have a material adverse effect on the Surviving
Corporation's business or materially impair the ability of the Company
to perform their obligations hereunder. There shall not be in effect
any order, decree or injunction (whether preliminary, final or
appealable) of a United States Federal or state court of competent
jurisdiction, and no statute, rule or regulation shall have been enacted
or promulgated by any Governmental Entity, which (i) prohibits or
restricts consummation of the Merger or the transactions contemplated
hereby, (ii) requires QRI to hold separate or dispose of any of the
stock or assets of the Company or its subsidiaries or the Surviving
Corporation or imposes material limitations on the ability of QRI to
control in any material respect the business, assets or operations of
either QRI or the Surviving Corporation, or (iii) has a material adverse
effect on the business of QRI or on the Surviving Corporation or
materially impairs the ability of QRI to perform its obligations
hereunder.
(e) FAIRNESS OPINION. EVEREN Securities, Inc. shall have confirmed
in writing to the Special Committee that on each of (i) the date of
mailing of the Proxy Statement/Prospectus and (ii) the Closing Date the
Merger Consideration to be paid to holders of the Company Common Stock
(other than holders of shares held by Mercury Exploration, Company or
the Darden family members or Affiliates thereof) is fair, from a
financial point of view, to such holders as of the mailing date and the
Closing Date (as applicable).
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ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
Section 8.1. TERMINATION. This Agreement may be terminated and the
Merger hereby contemplated may be abandoned at any time notwithstanding approval
of this Agreement by the stockholders of the Company and/or QRI, but prior to
the Effective Time:
(a) by mutual written consent duly authorized by the Board of
Directors of QRI and the Special Committee of the Board of Directors of
the Company;
(b) by QRI, if there has been a material breach of the
representations and warranties of the Company contained in this
Agreement or if the Company has failed to comply in any material respect
with any of its covenants or agreements set forth in this Agreement, and
the Company shall not have cured such breach or failure within ten days
of receipt of written notice thereof from QRI (a "TERMINATING COMPANY
BREACH"); and PROVIDED, HOWEVER, if such breach or failure is incapable
of cure within such ten day period, such breach or failure shall
constitute a Terminating Company Breach immediately upon receipt of
written notice thereof from QRI;
(c) by the Company, if there has been a material breach of the
representations and warranties of QRI contained in this Agreement or if
QRI has failed to comply in any material respect with any covenant or
agreement on the part of QRI set forth in this Agreement, and QRI shall
not have cured such breach or failure within ten days of receipt of
written notice thereof from the Company (a"Terminating QRI Breach"); and
PROVIDED, HOWEVER, if such breach or failure is incapable of cure within
such ten day period such breach or failure shall constitute a
Terminating QRI Breach immediately upon receipt of written notice
thereof from the Company.
(d) by either QRI or the Company, if any court of competent
jurisdiction in the United States or other United States governmental
body shall have issued an order, decree or ruling or taken any other
action restraining, enjoining or otherwise prohibiting any of the
transactions contemplated hereby and such order, decree, ruling or other
action shall have become final and non-appealable preventing the
consummation of the Merger;
(e) by either QRI or the Company, if the Effective Time shall not
have occurred on or before January 31, 1999; PROVIDED that neither the
Company nor QRI shall be entitled to terminate this Agreement pursuant
to this paragraph if such party's material breach of this Agreement has
been the cause of or resulted in the failure of the Effective Time to
occur at or prior to such time;
(f) by either QRI or the Company, if at the meetings of their
respective stockholders (including any adjournment thereof) called for
by SECTION 6.01 hereof, this Agreement and the Merger shall fail to be
approved and adopted by the affirmative vote of
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the stockholders of QRI and the Company required under the DGCL and
their respective Certificates of Incorporation; PROVIDED, HOWEVER, that
QRI shall not be permitted to terminate this Agreement pursuant to this
paragraph if any of the Contributing Entities and/or the members of the
Darden family, or any of the Affiliates, shall have failed to comply
with the voting provisions of the Voting Agreement.
(g) by the Special Committee, upon three (3) Business Days' prior
notice to QRI, following receipt of a proposal for an Alternative
Transaction with respect to the Company that the Special Committee, in the
exercise of its fiduciary duty, after consideration of advice from its
legal and financial advisors, has determined to be more beneficial to the
Company's stockholders than the Merger (a "Superior Proposal"); PROVIDED,
HOWEVER, that prior to any such termination, the Company shall advise QRI
in writing of the determination by the Special Committee that the Special
Committee has determined that such proposal is a Superior Proposal, which
notice will include a summary of such proposal. During such three (3)
business day period QRI may propose to the Special Committee an Alternative
Transaction, and the Special Committee shall, and shall cause its
respective financial and legal advisors to, negotiate with QRI in good
faith with respect to such adjustments in the terms and conditions of this
Agreement so that such proposal would not constitute a Superior Proposal
and thereby enable the Company to proceed with the transactions
contemplated herein.
Section 8.02. EFFECT OF TERMINATION; REMEDIES. Except as provided in
SECTION 9.01, SECTION 9.13 and SECTION 8.05 of this Agreement and in this
SECTION 8.02, in the event of the termination of this Agreement pursuant to
SECTION 8.01, this Agreement shall forthwith become void, there shall be no
liability on the part of QRI or the Company or any of their respective officers
or directors to the other and all rights and obligations of any party hereto
shall cease, except that nothing herein shall relieve any party from its
obligations with respect to any breach of this Agreement; provided, however,
notwithstanding anything herein to the contrary except to the extent such breach
relates to the payment of amounts owed under SECTION 8.05, the liability of any
party for any breach (other than a willful or intentional breach) of this
Agreement shall be limited to the difference of (i) $100,000 less (ii) the
amount of any payments made by such party pursuant to clauses (i), (iii) and
(iv) of the last proviso of the penultimate sentence of SECTION 8.05(a) provided
the foregoing shall not limit either party's rights under SECTION 9.12 to
specific performance.
Section 8.03. AMENDMENT. This Agreement may be amended by the Company
and QRI by action taken by or on behalf of the Board of Directors of QRI, the
Special Committee and the Board of Directors of the Company (with members of the
Darden family abstaining) at any time prior to the Effective Time; PROVIDED,
HOWEVER, that after approval of the Merger by the stockholders of the Company or
the stockholders of QRI, any such amendment shall be subject to the provisions
of Section 251 of the DGCL; AND FURTHER PROVIDED, that this Agreement may not be
amended unless JEDI and TCW shall have consented thereto in writing. This
Agreement may not be amended except by an instrument in writing signed by the
Company and QRI and with the written consent of JEDI and TCW.
Section 8.04. WAIVER. At any time prior to the Effective Time, any
party hereto may (a) extend the time for the performance of any of the
obligations or other acts of the other party or parties hereto, (b) waive any
inaccuracies in the representations and warranties of the other party or
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parties contained herein or in any document delivered pursuant hereto and (c)
waive compliance by the other party or parties with any of the agreements or
conditions contained herein. Any such extension or waiver shall be valid
only if set forth in an instrument in writing signed by the party or parties
to be bound thereby.
Section 8.5. FEES, EXPENSES AND OTHER PAYMENTS.
(a) All Expenses (as defined in paragraph (b) of this SECTION 8.05)
incurred by the parties hereto shall be borne solely and entirely by the
party that has incurred such Expenses; PROVIDED, HOWEVER, that the
allocable share of each of QRI and the Company for all expenses related to
printing, filing and mailing the Registration Statement and the Proxy
Statement and all SEC and other regulatory filing fees incurred in
connection with the Registration Statement and the Proxy Statement, and all
filing fees incurred in connection with all regulatory filings made under
the HSR Act, shall be one-half; FURTHER, PROVIDED, that (i) in the event
that either the Company or QRI terminates this Agreement pursuant to clause
(b), (e) or (f) of SECTION 8.01 (except in the case of a termination under
clause (f) of SECTION 8.01 under circumstances in which this Agreement and
the Merger shall fail to be approved and adopted by the Stockholders of QRI
as required under QRI's Certificate of Incorporation, its stockholders
agreement and the DGCL) and (a) either this Agreement has not been
submitted to stockholders of the Company or the stockholders of the Company
have failed to approve this Agreement by the requisite vote; (b) after the
date of this Agreement but at or before the time this Agreement is so
terminated, the Company or the Special Committee shall have received a
proposal for an Alternative Transaction; and (c) any Alternative
Transaction is consummated within one year after the date of this
Agreement, the Company shall promptly pay to QRI the sum of $500,000 in
cash upon the consummation of the Alternative Transaction; (ii) in the
event that the Company terminates this Agreement pursuant to clause (g) of
SECTION 8.01 the Company shall promptly pay to QRI the sum of $500,000 in
cash; (iii) in the event that (a) the Company or QRI terminates this
Agreement pursuant to clause (f) of SECTION 8.01 because the stockholders
of the Company have failed to approve this Agreement by the requisite vote
or (b) QRI terminates this Agreement pursuant to clause (b) of SECTION
8.01, or (c) the closing condition specified in clause (e) of SECTION 7.03
hereof shall not have been fulfilled or waived on the Closing Date, and
this Agreement shall have been terminated by the Company or QRI pursuant to
clause (e) of SECTION 8.01 by reason of such failure of condition, the
Company promptly shall pay to QRI the sum of $100,000 in cash as
reimbursement for an agreed upon estimate of Expenses incurred by QRI in
connection with the transactions contemplated hereby, which amount shall
not reduce any amounts owed, if any, to QRI pursuant to clause (i) above;
(iv) in the event that (a) the Company or QRI terminates this Agreement
pursuant to clause (f) of SECTION 8.01 because the stockholders of QRI
shall have failed to approve this Agreement by the requisite vote required
by QRI's Certificate of Incorporation, its stockholders agreement and the
DGCL; or (b) the Company terminates this Agreement pursuant to clause (c)
of SECTION 8.01, QRI promptly shall pay to the Company the sum of $100,000
in cash as reimbursement for an agreed upon amount of Expenses incurred by
the Company in connection with the transactions contemplated hereby.
Notwithstanding anything herein to the contrary, the Company and QRI
acknowledge that the sole and exclusive remedy for termination of this
Agreement under clause (b) or clause (c) of SECTION 8.01 shall be the
payments provided for
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in clauses (iii) and (iv) and, if applicable, clause (i) of the last
proviso of the preceding sentence of this Section 8.05(a), and neither
QRI nor the Company shall have any liability for any other damages
incurred by the other party in connection therewith, including, but not
limited to consequential or special damages.
(b) "EXPENSES" as used in this Agreement shall include all
out-of-pocket expenses (including, without limitation, all 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 and the Proxy Statement/Prospectus, the solicitation of
stockholder approvals and all other matters related to the consummation
of the transactions contemplated hereby.
ARTICLE IX
GENERAL PROVISIONS
Section 9.1. EFFECTIVENESS OF REPRESENTATIONS, WARRANTIES AND
AGREEMENTS.
(a) Except as set forth in SECTION 9.01(b) of this Agreement, the
representations, warranties, covenants and agreements of each party hereto
shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any other party hereto, any person
controlling any such party or any of their officers, directors,
representatives or agents whether prior to or after the execution of this
Agreement.
(b) The representations and warranties in this Agreement shall
terminate at the Effective Time. This SECTION 9.01(b) shall not limit any
covenant or agreement of the parties hereto that by its terms contemplates
performance after the Effective Time.
Section 9.2. NOTICES. All notices and other communications given or
made pursuant hereto shall be in writing and shall be deemed to have been duly
given upon receipt, if delivered personally, sent by nationally recognized
overnight courier service, mailed by registered or certified mail (postage
prepaid, return receipt requested) to the parties at the following addresses (
or at such other address for a party as shall be specified by like changes of
address) or sent by electronic transmission to the telecopier number specified
below:
(a) If to QRI, to:
Quicksilver Resources Inc.
1619 Pennsylvania Avenue
Fort Worth, Texas 76104
Attention: Chief Executive Officer
Telecopier No.: (817) 877-3829
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with copies to:
Cantey & Hanger, L.L.P.
801 Cherry Street
Fort Worth, Texas 76012
Attn: Sloan Blair, Esq.
Telecopier No.: (817) 877-2807
Enron Capital & Trade Resources
1400 Smith Street
Houston, Texas 77002
Attention: Gareth S. Bahlman, Esq.
Telecopier: (713) 646-3393
Milbank, Tweed, Hadley & McCloy
601 South Figueroa, 30th Floor
Los Angeles, California
Attention: David A. Lamb, Esq.
Telecopier No.: (213) 629-5063
(b) If to the Company, to:
MSR Exploration Ltd.
1619 Pennsylvania Avenue
Fort Worth, Texas 76014
Attention: Vice President-Finance
Telecopier No.: (817) 322-1883
with copies to:
Jenkens & Gilchrist
a Professional Corporation
1445 Ross Avenue, Suite 3200
Dallas, Texas 75202-2799
Attention: L. Steven Leshin, Esq.
Telecopier No.: (214) 855-4300
Section 9.3. CERTAIN DEFINITIONS. For purposes of this Agreement, the
term:
(a) "AFFILIATE" means a person that directly or indirectly, through
one or more intermediaries, controls, is controlled by, or is under common
control with, the first mentioned person; PROVIDED THAT, for purposes of
this Agreement, JEDI and TCW are not "Affiliates" of QRI, the Darden
family, Mercury or QELC.
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(b) "BUSINESS DAY" means any day other than a day on which banks in
the State of New York, State of California or the State of Texas are
authorized or obligated to be closed;
(c) "CONTROL" (including the terms "CONTROLLED," "CONTROLLED BY" and
"UNDER COMMON CONTROL WITH") means the possession, directly or indirectly
or as trustee or executor, of the power to direct or cause the direction of
the management or policies of a person, whether through the ownership of
stock or as trustee or executor, by contract or credit arrangement or
otherwise;
(d) "ENVIRONMENTAL LAWS": any all laws, rules, orders, regulations,
statues, ordinances, guidelines, codes or decrees of the United States or
any other nation, or any state, local, municipal or other Governmental
Authority or other Laws (including common law) regulating, relating to or
imposing liability or standards of conduct concerning protection of human
health or the environment, as now or may at any time hereafter be in
effect.
(e) "KNOWLEDGE" or "KNOWN" shall mean, with respect to any matter in
question, the actual knowledge of an executive officer of the Company or
QRI, as the case may be, of such matter after having made due and diligent
inquiry with respect to such matter of all appropriate personnel of the
party in question who would reasonably be expected to be familiar with the
matter involved;
(f) "PERSON" means an individual, corporation, partnership,
association, trust, unincorporated organization, other entity or group (as
defined in Section 13(d) of the Exchange Act);
(g) "PROXY STATEMENT/PROSPECTUS" or "JOINT PROXY
STATEMENT/PROSPECTUS" shall mean a joint proxy statement/prospectus or
joint information statement/prospectus included in the Registration
Statement at the time the Registration Statement is declared effective
under the Securities Act and meeting the requirements of Schedule 14A or
Schedule 14C of the SEC's Proxy Rules promulgated pursuant to the Exchange
Act;
(h) "REGISTRATION STATEMENT" shall mean a registration statement of
QRI on Form S-4 filed with the SEC pursuant to the Securities Act for the
purpose of registering thereunder the offering and sale of the QRI Common
Stock to be issued pursuant to the Merger;
(i) "SIGNIFICANT SUBSIDIARY" means any subsidiary of the Company or
QRI, as the case may be, that would constitute a Significant Subsidiary of
such party within the meaning of Rule 1-02 of Regulation S-X of the SEC;
(j) "SUBSIDIARY" or "SUBSIDIARIES" of the Company, QRI, the Surviving
Corporation or any other person, means any corporation, partnership, joint
venture or other legal entity of which the Company, QRI, the Surviving
Corporation or any such other Person, as the case may be (either alone or
through or together with any other subsidiary), owns, directly or
indirectly, 50% or more of the stock or other equity interests the holders
of which
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are generally entitled to vote for the election of the board of
directors or other governing body of such corporation or other legal
entity; and
(k) "TAX" or "TAXES" shall mean any and all taxes, charges, fees,
levies, assessments, duties or other amounts payable to any federal, state,
local or foreign taxing authority or agency, including, without limitation,
(i) income, franchise, profits, gross receipts, minimum, alternative
minimum, estimated, ad valorem, value added, sales, use, service, real or
personal property, capital stock, license, payroll, withholding,
disability, employment, social security, workers compensation, unemployment
compensation, utility, severance, excise, stamp, windfall profits, transfer
and gains taxes, (ii) customs, duties, imposts, charges, levies or other
similar assessments of any kind, and (iii) interest, penalties and
additions to tax imposed with respect thereto.
Section 9.04. HEADINGS. 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 9.05. SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner to
the end that transactions contemplated hereby are fulfilled to the extent
possible.
Section 9.06. ENTIRE AGREEMENT. This Agreement (together with the
Exhibits, the Company Disclosure Schedule and the QRI Disclosure Schedule)
constitutes the entire agreement of the parties, and supersede all prior
agreements and undertakings, both written and oral, among the parties, with
respect to the subject matter of this Agreement.
Section 9.07. ASSIGNMENT. This Agreement shall not be assigned by
operation of law or otherwise.
Section 9.08. PARTIES IN INTEREST. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto and the beneficiaries of
the provisions of SECTION 6.11 herein, and nothing in this Agreement, express or
implied, is intended to or shall confer upon any other person any right, benefit
or remedy of any nature whatsoever under or by reason of this Agreement.
Section 9.09. FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. No
failure or delay on the part of any party hereto in the exercise of any right
hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty or agreement herein,
nor shall any single or partial exercise of any such right preclude other or
further exercise thereof or of any other right.
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Section 9.10. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
law.
Section 9.11. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
Section 9.12. SPECIFIC PERFORMANCE. The parties hereby acknowledge and
agree that the failure of any party to this Agreement to perform the provisions
in accordance with their specific terms or to otherwise breach such provisions,
including its failure to take all actions as are necessary on its part to the
consummation of the Merger, will cause irreparable injury to the other parties
to this Agreement for which damages, even if available, will not be an adequate
remedy. Accordingly, each of the parties hereto hereby consents to the issuance
of injunctive relief by any court of competent jurisdiction to compel
performance of any party's obligations, including an injunction to prevent
breaches, and to the granting by any such court of the remedy of specific
performance of the terms and conditions hereof.
Section 9.13. CONFIDENTIALITY AGREEMENT.
(a) Each party hereto agrees that all Confidential Information (as
defined below) received by such party (the "Receiving Party") from the any
other party hereto (the "Disclosing Party") shall be kept confidential by
the receiving party and shall not be disclosed by the receiving party in
any manner whatsoever; provided, however, that (i) any of such Confidential
Information may be disclosed to such directors, (and, in the case of QRI,
its stockholders) officers, employees, and authorized representatives
(including without limitation attorneys, accountants, consultants, bankers,
and financial advisors) of the receiving party (collectively, the
"Receiving Party's Representatives") as need to know such information for
the purpose of evaluating the Merger (it being understood that such
receiving party's representatives shall be informed by the receiving party
of the confidential nature of such information and shall be required to
treat such information confidentially), (ii) any disclosure of Confidential
Information may be made to the extent to which the disclosing party
consents in writing, (iii) Confidential Information may be disclosed by the
receiving party or any receiving party's representatives to the extent
that, in the opinion of counsel for the receiving party or such receiving
party's representatives is legally compelled to do so, provided that, prior
to making such disclosure, the party being legally compelled to disclose
such information advises and consults with the disclosing party regarding
such disclosure and provided further that the party being legally compelled
to disclose such information discloses only that portion of the
Confidential Information as is legally required, and (iv) any of such
Confidential Information may be disclosed to any banks or other financial
institutions or other prospective investors that may provide Financing if
such banks or other financial institutions or other prospective investors
agree to comply with the provisions of this Section. The term "Confidential
Information", as used herein, means all information (irrespective of the
form of communication) obtained by or on behalf of a receiving party from a
disclosing party or its representatives, other than information which
(i) was or becomes generally available to the public other than as a result
of disclosure by the receiving party or any receiving party's
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representative, (ii) was or becomes available to the receiving party on
a nonconfidential basis prior to disclosure to the receiving party or
its representatives, or (iii) was or becomes available to the receiving
party from a source other than the disclosing party or its
representatives, provided that such source is not known by the receiving
party to be bound by a confidentiality agreement with the disclosing
party.
(b) If this Agreement is terminated, each receiving party shall
promptly return, and shall use their reasonable best efforts to cause all
receiving party representatives to promptly return, all Confidential
Information to the disclosing party without retaining any copies thereof,
provided that such portion of the Confidential Information as consists of
notes, compilations, analyses, reports, studies, or other documents
prepared by the receiving party or the receiving party's representatives
shall be destroyed.
Section 9.14. LIMITATION ON LIABILITY. NOTWITHSTANDING ANYTHING
CONTAINED HEREIN TO THE CONTRARY, NEITHER PARTY HERETO SHALL BE LIABLE HEREUNDER
FOR ANY LOSS OF PROFITS, INCIDENTAL OR CONSEQUENTIAL DAMAGES, EVEN IF THE OTHER
PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. THE SOLE REMEDIES
FOR BREACHES OF THIS AGREEMENT (OTHER THAN WILLFUL OR INTENTIONAL BREACHES)
SHALL BE AS PROVIDED IN SECTIONS 8.02 AND 9.12.
Section 9.15. DISPUTE RESOLUTION. Notwithstanding any other provisions
hereof, any disputes ("DISPUTES") arising out of or relating to this Agreement
shall be governed by the following procedures in the following order until
finally resolved:
(a) If a Dispute arises out of or relates to this Agreement, or the
breach thereof, within 30 days of receipt of receipt of written notice of a
Dispute, the parties hereto shall attempt in good faith to resolve such
dispute by negotiation among senior executives of their respective
companies who have authority to settle the controversy;
(b) If the Dispute cannot be settled through such negotiations within
the 30 day period set forth in Subsection (a), the parties agree to attempt
in good faith to settle the dispute by mediation within 20 days immediately
following the 30 day period set forth in Subsection (a) in Dallas, Texas
under the Commercial Mediation Rules of the American Arbitration
Association.
(c) If the Dispute cannot be settled by such mediation, the parties
agree to submit the dispute to binding arbitration in Dallas, Texas, under
Texas state and applicable Federal law upon receipt of a written demand for
arbitration by either of the parties setting forth the names of the other
party or parties. Within 15 days after such commencement, each party shall
select one person to act as arbitrator, and the two selected shall select a
third arbitrator within 10 days of appointment. If the arbitrators fail to
select a third arbitrator, then the American Arbitration Association shall
select the third arbitrator (such arbitrators that are selected pursuant to
this Section 9.15(c) shall be referred to herein as the "Arbitrators").
Except as otherwise provided herein, the Arbitrators shall have the
authority to award any remedy or relief a state or federal court of the
state of Texas could order or grant, including,
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without limitation, specific performance, the awarding of compensatory
damages, the issuance of an injunction and other equitable relief, but
excluding any punitive or consequential damages. If the remedy sought
is a monetary award, each party shall simultaneously, on the twentieth
business day following the commencement of the arbitration, propose to
the Arbitrators the amount that party believes should be awarded, and
with respect to compensatory damages, the Arbitrators shall make an
award in whichever of ht two amounts they deem most reasonable. The
Arbitrators' decision shall be issued with findings of fact and
conclusions of law and shall be non-appealable. Notwithstanding anything
in this subsection (c) to the contrary, the losing party in a Dispute
hereunder shall pay all reasonable legal fees and expenses incurred by
the prevailing party in connection with the arbitration.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed as of the date first written above by their respective officers
thereunto duly authorized.
QUICKSILVER RESOURCES INC.
By: /s/ Glenn Darden
-----------------------------------
Name: Glenn Darden
---------------------------------
Title: Vice President
--------------------------------
MSR EXPLORATION LTD.
By: /s/ Howard Boals
-----------------------------------
Name: Howard Boals
---------------------------------
Title: Vice President
--------------------------------
<PAGE>
EXHIBIT A
Form of Certificate of Incorporation of Quicksilver Resources Inc.
<PAGE>
RESTATED
CERTIFICATE OF INCORPORATION
OF
QUICKSILVER RESOURCES INC.
Quicksilver Resources Inc., a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), does hereby certify that this Restated Certificate of
Incorporation has been duly adopted in accordance with the provisions of
Sections 242 and 245 of the General Corporation Law of the State of Delaware.
This Restated Certificate of Incorporation restates, integrates, and amends the
provisions of the Corporation's Certificate of Incorporation as originally filed
on December 18, 1997, omitting such matters as may be omitted pursuant to the
provisions of Section 245(c) of the General Corporation Law of the State of
Delaware. Notice of the adoption of this Restated Certificate of Incorporation
has been given to all nonconsenting stockholders of the Corporation in
accordance with Section 228(d) of the Delaware General Corporation Law.
FIRST: The name of the Corporation is Quicksilver Resources Inc.
SECOND: The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of its registered
agent at such address is The Corporation Trust Company.
THIRD: The nature of the business or purposes to be conducted or
promoted is: To engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law
of Delaware.
FOURTH: The aggregate number of shares of all classes of stock which the
Corporation shall be authorized to issue is 50,000,000, divided
into the following: 40,000,000 shares of Common Stock, par value
of one cent ($0.01) per share (the "Common Stock") and 10,000,000
shares of Preferred Stock, par value of one cent ($0.01) per
share (the "Preferred Stock").
The Board of Directors of the Corporation is expressly vested
with authority to issue one or more series of Preferred Stock
having such voting powers, full or limited, or no voting powers,
and such designations, preferences and relative, participating,
optional or other special rights, and qualifications, limitations
or restrictions thereof as are permitted by law and as shall be
stated and expressed in the resolution or resolutions providing
for the issue of each such series of stock adopted by the Board
of Directors.
FIFTH: The Corporation is to have perpetual existence.
<PAGE>
SIXTH: In furtherance and not in limitation of the powers conferred by
statute, the board of directors is expressly authorized:
To make, alter or repeal the by-laws of the Corporation.
SEVENTH: Elections of directors need not be by written ballot unless the
by-laws of the Corporation shall so provide.
Meetings of stockholders may be held within or without the State
of Delaware, as the by-laws may provide. The books of the
Corporation may be kept (subject to any provision contained in
the statutes) outside the State of Delaware at such place or
places as may be designated from time to time by the board of
directors or in the by-laws of the Corporation.
EIGHTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by
statute, and all rights conferred upon stockholders herein are
granted subject to this reservation.
NINTH: A director of the Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director except for liability
(i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware
General Corporation Law, or (iv) for any transaction from which
the director derived any improper personal benefit. Neither the
amendment nor repeal of this Article Nine, nor the adoption of
any provision of the Corporation's Certificate of Incorporation
inconsistent with this Article Nine, shall eliminate or reduce
the effect of this Article Nine in respect of any matter
occurring, or any cause of action, suit or claim that, but for
this Article Nine, would accrue or arise, prior to such
amendment, repeal or adoption of an inconsistent provision.
TENTH: To the fullest extent permitted by applicable law, the
Corporation shall indemnify any officer or director as set forth
in the bylaws of the Corporation, pursuant to Section 145 of the
Delaware General Corporation Law.
In witness whereof the Corporation has caused this Restated Certificate of
Incorporation to be signed by its authorized officer this _____ day of
_____________, 1998.
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QUICKSILVER RESOURCES INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
THE STATE OF TEXAS
COUNTY OF TARRANT
This instrument was acknowledged before me on the _____ day of
______________, 1998, by _____________________, ____________________ of
Quicksilver Resources Inc., a Delaware corporation, on behalf of said
corporation.
----------------------------------
Notary Public, State of Texas
My Commission Expires:
- --------------------------
3
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EXHIBIT B
Form of Bylaws of Quicksilver Resources, Inc.
<PAGE>
BY-LAWS
QUICKSILVER RESOURCES INC.
ARTICLE I
OFFICES
Section 1. REGISTERED OFFICE. The registered office of the Corporation
shall be in the City of Wilmington, County of New Castle, State of Delaware.
Section 2. OTHER OFFICES. The Corporation may also have offices at such
other place or places, both within and without the State of Delaware, as the
Board of Directors may from time to time determine or the business of the
Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. TIME AND PLACE OF MEETINGS. All meetings of the stockholders
for the election of directors shall be held at such time and place, either
within or without the State of Delaware, as shall be designated from time to
time by the Board of Directors and stated in the notice of the meeting.
Meetings of stockholders for any other purpose may be held at such time and
place, within or without the State of Delaware, as shall be stated in the notice
of the meeting or in a duly executed waiver of notice thereof.
Section 2. ANNUAL MEETINGS. Annual meetings of stockholders, commencing
with the year 1998, shall be held on such date and at such time as shall be
designated from time to time by the Board of Directors and stated in the notice
of the meeting, at which meeting the stockholders shall elect by a plurality
vote a Board of Directors and transact such other business as may properly be
brought before the meeting.
Section 3. NOTICE OF ANNUAL MEETINGS. Written notice of the annual
meeting, stating the place, date, and hour of the meeting, shall be given to
each stockholder of record entitled to vote at such meeting not less than 10 or
more than 60 days before the date of the meeting.
Section 4. SPECIAL MEETINGS. Special meetings of the stockholders for any
purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, may be called at any time by order of the Board of
Directors, the Chairman of the Board or the President. Such request shall state
the purpose or purposes of the proposed special meeting. Business transacted at
any special meeting of stockholders shall be limited to the purposes stated in
the notice.
Section 5. NOTICE OF SPECIAL MEETINGS. Written notice of a special
meeting, stating the place, date, and hour of the meeting and the purpose or
purposes for which the meeting is called, shall be given to each stockholder of
record entitled to vote at such meeting not less than 10 or more than 60 days
before the date of the meeting.
<PAGE>
Section 6. QUORUM. Except as otherwise provided by statute or the
Certificate of Incorporation, the holders of stock having a majority of the
voting power of the stock entitled to be voted thereat, present in person or
represented by proxy, shall constitute a quorum for the transaction of business
at all meetings of the stockholders. If, however, such quorum shall not be
present or represented at any meeting of the stockholders, the stockholders
entitled to vote thereat, present in person or represented by proxy, shall have
power to adjourn the meeting from time to time without notice (other than
announcement at the meeting at which the adjournment is taken of the time and
place of the .adjourned meeting) until a quorum shall be present or represented.
At such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally notified. If the adjournment is for more than 30 days, or if after
the adjournment a new record date is fixed for the adjourned meeting, notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
Section 7. ORGANIZATION. At each meeting of the stockholders, the
Chairman of the Board or the President, determined as provided in Article V of
these By-Laws, or if those officers shall be absent therefrom, another officer
of the Corporation chosen as chairman present in person or by proxy and entitled
to vote thereat, or if all the officers of the Corporation shall be absent
therefrom, a stockholder holding of record shares of stock of the Corporation so
chosen, shall act as chairman of the meeting and preside thereat. The
Secretary, or if he shall be absent from such meeting or shall be required
pursuant to the provisions of this Section 7 to act as chairman of such meeting,
the person (who shall be an Assistant Secretary, if an Assistant Secretary shall
be present thereat) whom the chairman of such meeting shall appoint, shall act
as secretary of such meeting and keep the minutes thereof.
Section 8. VOTING. Except as otherwise provided in the Certificate of
Incorporation, each stockholder shall, at each meeting of the stockholders, be
entitled to one vote in person or by proxy for each share of stock of the
Corporation held by him and registered in his name on the books of the
Corporation on the date fixed pursuant to the provisions of Section 5 of Article
VII of these By-Laws as the record date for the determination of stockholders
who shall be entitled to notice of and to vote at such meeting. Shares of its
own stock belonging to the Corporation or to another corporation, if a majority
of the shares entitled to vote in the election of directors of such other
corporation is held directly or indirectly by the Corporation, shall not be
entitled to vote. Any vote by stock of the Corporation may be given at any
meeting of the stockholders by the stockholder entitled thereto, in person or by
his proxy appointed by an instrument in writing subscribed by such stockholder
or by his attorney thereunto duly authorized and delivered to the Secretary of
the Corporation or to the secretary of the meeting; provided, however, that no
proxy shall be voted or acted upon after three years from its date, unless said
proxy shall provide for a longer period. Each proxy shall be revocable unless
expressly provided therein to be irrevocable and unless otherwise made
irrevocable by law. At all meetings of the stockholders all matters, except
where other provision is made by law, the Certificate of incorporation, or these
By-Laws, shall be decided by the vote of a majority of the votes cast by the
stockholders present in person or by proxy and entitled to vote thereat, a
quorum being present. Unless demanded by a stockholder of the Corporation
present in person or by proxy at any meeting of the stockholders
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and entitled to vote thereat, or so directed by the chairman of the meeting,
the vote thereat on any question other than the election or removal of
directors need not be by written ballot. Upon a demand of any such
stockholder for a vote by written ballot on any question or at the direction
of such chairman that a vote by written ballot be taken on any question, such
vote shall be taken by written ballot. On a vote by written ballot, each
ballot shall be signed by the stockholder voting, or by his proxy, if there
be such proxy, and shall state the number of shares voted.
Section 9. LIST OF STOCKHOLDERS. It shall be the duty of the Secretary or
other officer of the Corporation who shall have charge of its stock ledger,
either directly or through another officer of the Corporation designated by him
or through a transfer agent appointed by the Board of Directors, to prepare and
make, at least 10 days before every meeting of the stockholders, a complete list
of the stockholders entitled to vote thereat, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least 10 days before said meeting, either at
a place within the city where said meeting is to be held, which place shall be
specified in the notice of said meeting, or, if not so specified, at the place
where said meeting is to be held. The list shall also be produced and kept at
the time and place of said meeting during the whole time thereof, and may be
inspected by any stockholder of record who shall be present thereat. The stock
ledger shall be the only evidence as to who are the stockholders entitled to
examine the stock ledger, such list or the books of the Corporation, or to vote
in person or by proxy at any meeting of stockholders.
Section 10. INSPECTORS OF VOTES. At each meeting of the stockholders, the
chairman of such meeting may appoint two Inspectors of Votes to act thereat,
unless the Board of Directors shall have theretofore made such appointments.
Each Inspector of Votes so appointed shall first subscribe an oath or
affirmation faithfully to execute the duties of an Inspector of Votes at such
meeting with strict impartiality and according to the best of his ability. Such
Inspectors of Votes, if any, shall take charge of the ballots, if any, at such
meeting and, after the balloting thereat on any question, shall count the
ballots cast thereon and shall make a report in writing to the secretary of such
meeting of the results thereof. An Inspector of Votes need not be a stockholder
of the Corporation, and any officer of the Corporation may be an Inspector of
Votes on any question other than a vote for or against his election to any
position with the Corporation or on any other question in which he may be
directly interested.
Section 11. ACTIONS WITHOUT A MEETING. Any action required to be taken at
any annual or special meeting of stockholders of the Corporation, or any action
which may by taken at any annual or special meeting of stockholders, may be
taken without a meeting, without prior notice, and without a vote if a consent
in writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereat were present and voted. Prompt notice of the taking of
the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
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<PAGE>
ARTICLE III
BOARD OF DIRECTORS
Section 1. POWERS. The business and affairs of the Corporation shall be
managed by its Board of Directors, which shall have and may exercise all such
powers of the Corporation and do all such lawful acts and things as are not by
statute, the Certificate of Incorporation, or these By-Laws directed or required
to be exercised or done by the stockholders.
Section 2. NUMBER, QUALIFICATION, AND TERM OF OFFICE. The number of
directors which shall constitute the whole Board of Directors shall not be less
than one (1) or more than eight (8). Within the limits above specified, the
number of directors which shall constitute the whole Board of Directors shall be
determined by resolution of the Board of Directors or by the stockholders at any
annual or special meeting or otherwise pursuant to action of the stockholders.
Directors need not be stockholders. The directors shall be elected at the
annual meeting of the stockholders, except as provided in Sections 4 and 5 of
this Article III, and each director elected shall hold office until the annual
meeting next after his election and until his successor is duly elected and
qualified, or until his death or retirement or until he resigns or is removed in
the manner hereinafter provided. Directors shall be elected by a plurality of
the votes of the shares present in person or represented by proxy and entitled
to vote on the election of directors at any annual or special meeting of
stockholders. Such election shall be by written ballot.
Section 3. RESIGNATIONS. Any director may resign at any time by giving
written notice of his resignation to the Corporation. Any such resignation
shall take effect at the time specified therein, or if the time when it shall
become effective shall not be specified therein, then it shall take effect
immediately upon its receipt by the Secretary. Unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make it
effective.
Section 4. REMOVAL OF DIRECTORS. Any director may be removed, either with
or without cause, at any time, by the affirmative vote by written ballot of a
majority in voting interest of the stockholders of record of the Corporation
entitled to vote, given at an annual meeting or at a special meeting of the
stockholders called for that purpose or otherwise. The vacancy in the Board of
Directors caused by any such removal shall be filled by the stockholders at such
meeting or, if not so filled, by the Board of Directors as provided in Section 5
of this Article III.
Section 5. VACANCIES. Vacancies and newly created directorships resulting
from any increase in the authorized number of directors may be filled by a
majority of the directors then in office though less than a quorum, or by a sole
remaining director, and the directors so chosen shall hold office until the
annual meeting next after their election and until their successors are elected
and qualified, unless sooner displaced. If there are no directors in office,
then an election of directors may be held in the manner provided by statute.
Section 6. PLACE OF MEETINGS. The Board of Directors of the Corporation
may hold meetings, both regular and special, either within or without the State
of Delaware.
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Section 7. ANNUAL MEETINGS. The first meeting of each newly elected Board
of Directors shall be held immediately following the annual meeting of
stockholders, and no notice of such meeting to the newly elected directors shall
be necessary in order legally to constitute the meeting, provided a quorum shall
be present. In the event such meeting is not held immediately following the
annual meeting of stockholders, the meeting may be held at such time and place
as shall be specified in a notice given as hereinafter provided for special
meetings of the Board of Directors, or as shall be specified in a written waiver
signed by all of the directors.
Section 8. REGULAR MEETINGS. Regular meetings of the Board of Directors
may be held without notice at such time and at such place as shall from time to
time be determined by the Board of Directors.
Section 9. SPECIAL MEETINGS; NOTICE. Special meetings of the Board of
Directors may be called by the Chairman of the Board, the President, or the
Secretary on 24 hours' notice to each director, either personally or by
telephone or by mail, telegraph, telex, cable, wireless, or other form of
recorded communication; special meetings shall be called by the Chairman of the
Board, the President, or the Secretary in like manner and on like notice on the
written request of two directors. Notice of any such meeting need not be given
to any director, however, if waived by him in writing or by telegraph, telex,
cable, wireless, or other form of recorded communication, or if he shall be
present at such meeting.
Section 10. QUORUM AND MANNER OF ACTING. At all meetings of the Board of
Directors, a majority of the directors at the time in office (but not less than
one-third of the whole Board of Directors) shall constitute a quorum for the
transaction of business, and the act of a majority of the directors present at
any meeting at which a quorum is present shall be the act of the Board of
Directors, except as may be otherwise specifically provided by statute or by the
Certificate of Incorporation. If a quorum shall not be present at any meeting
of the Board of Directors, the directors present thereat may adjourn the meeting
from time to time, without notice other than announcement at the Meeting, until
a quorum shall be present.
Section 11. REMUNERATION. Unless otherwise expressly provided by
resolution adopted by the Board of Directors, none of the directors shall, as
such, receive any stated remuneration for his services; but the Board of
Directors may at any time and f rom time to time by resolution provide that a
specified sum shall be paid to any director of the Corporation, either as his
annual remuneration as such director or member of any committee of the Board of
Directors or as remuneration for his attendance at each meeting of the Board of
Directors or any such Committee. The Board of Directors may also likewise
provide that the corporation shall reimburse each director for any expenses paid
by him on account of his attendance at any meeting. Nothing in this Section 11
shall be construed to preclude any director f rom serving the Corporation in any
other capacity and receiving remuneration therefor.
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COMMITTEES OF DIRECTORS
Section 12. EXECUTIVE COMMITTEE; HOW CONSTITUTED AND POWERS. The Board of
Directors, by majority vote of the whole Board of Directors, may designate an
Executive Committee consisting of three of the directors of the Corporation.
Subject to the provisions of Section 141 of the Delaware General Corporation
Law, the Executive Committee shall have and may exercise all the powers and
authority of the Board of Directors in the management of the business and
affairs of the Corporation, and may authorize the seal of the Corporation to be
affixed to all papers which may require it. The Board of Directors shall have
the power at any time, by majority vote of the whole Board of Directors, to
change the membership of the Executive Committee, to fill all vacancies in it,
or to dissolve it, either with or without cause.
Section 13. ORGANIZATION. The Chairman of the Executive Committee, to be
selected by the Board of Directors, shall act as chairman at all meetings of the
Executive Committee and the Secretary shall act as secretary thereof. In case
of the absence from any meeting of the Executive Committee of the Chairman of
the Executive Committee or the Secretary, the Executive Committee may appoint a
chairman or secretary, as the case may be, of the meeting.
Section 14. MEETINGS. Regular meetings of the Executive Committee, of
which no notice shall be necessary, may be held on such days and at such places,
within or without the State of Delaware, as shall be fixed by resolution adopted
by a majority of the Executive Committee and communicated in writing to all its
members. Special meetings of the Executive Committee shall be held whenever
called by the Chairman of the Executive Committee or a majority of the members
of the Executive Committee then in office. Notice of each special meeting of
the Executive Committee shall be given by mail, telegraph, telex, cable,
wireless, or other form of recorded communication or be delivered personally or
by telephone to each member of the Executive Committee not later than the day
before the day on which such meeting is to be held. Notice of any such meeting
need not be given to any member of the Executive Committee, however, if waived
by him in writing or by telegraph, telex, cable, wireless, or other form of
recorded communication, or if he shall be present at such meeting; and any
meeting of the Executive Committee shall be a legal meeting without any notice
thereof having been given, if all the members of the Executive Committee shall
be present thereat. Subject to the provisions of this Article III, the
Executive Committee, by resolution adopted by a majority of the whole Executive
Committee, shall fix its own rules of procedure.
Section 15. QUORUM AND MANNER OF ACTING. A majority of the Executive
Committee shall constitute a quorum for the transaction of .business,, and the
act of a majority of those present at a meeting thereof at which a quorum is
present shall be the act of the Executive Committee.
Section 16. OTHER COMMITTEES. The Board of Directors may, by resolution
or resolutions passed by a majority of the whole Board of Directors, designate
one or more other committees consisting of one or more directors of the
Corporation, which, to the extent provided in said resolution or resolutions,
shall have and may exercise, subject to the provisions of Section 141 of the
General Corporation Law of the State of Delaware, the Certificate of
Incorporation, and these By-Laws, the powers and authority of the Board of
Directors in the management of the business
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and affairs of the Corporation, and shall have the power to authorize the
seal of the Corporation to be affixed to all papers which may require it; but
no such committee shall have the power to fill vacancies in the Board of
Directors, the Executive Committee, or any other committee or in their
respective membership, to appoint or remove officers of the Corporation, or
to authorize the issuance of shares of the capital stock of the Corporation,
except that such a committee may, to the extent provided in said resolutions,
grant and authorize options and other rights with respect to the common stock
of the Corporation pursuant to and in accordance with any plan approved by
the Board of Directors. Such committee or committees shall have such name or
names as may be determined from time to time by resolution adopted by the
Board of Directors. A majority of all the members of any such E committee
may determine its action and fix the time and place of its meetings and
specify what notice thereof, if any, shall be given, unless the Board of
Directors shall otherwise provide. The Board of Directors. shall have power
to change the members of any such committee at any time to fill vacancies,
and to discharge any such committee, either with or without cause, at any
time.
Section 17. ALTERNATE MEMBER OF COMMITTEES. The Board of Directors may
designate one or more directors as alternate members of the Executive Committee
or any other committee, who may replace any absent or disqualified member at any
meeting of the committee, or if none be so appointed, the member or members
thereof present at any meeting and not disqualified from voting, whether or not
he or they constitute a quorum, may unanimously appoint another member of the
Board of Directors to act at the meeting in the place of any such absent or
disqualified member.
Section 18. MINUTES OF COMMITTEES. Each committee shall keep regular
minutes of its meetings and proceedings and report the same to the Board of
Directors at the next meeting thereof.
GENERAL
Section 19. ACTIONS WITHOUT A MEETING. Unless otherwise restricted by the
Certificate of Incorporation or these By-Laws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
the committee.
Section 20. PRESENCE AT MEETINGS BY MEANS OF COMMUNICATIONS EQUIPMENT.
Members of the Board of Directors, or of any committee designated by the Board
of Directors, may participate in a meeting of the Board of Directors or such
committee by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and participation in a meeting conducted pursuant to this Section 20 shall
constitute presence in person at such meeting.
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ARTICLE IV
NOTICES
Section 1. TYPE OF NOTICE. Whenever, under the provisions of any
applicable statute, the Certificate of Incorporation, or these By-Laws,
notice is required to be given to any director or stockholder, it shall not
be construed to mean personal notice, but such notice may be given in
writing, in person or by mail, addressed to such director or stockholder, at
his address as it appears on the records of the Corporation, with postage
thereon prepaid, and such notice shall be deemed to be given at the time when
the same shall be deposited in the United States mail. Notice to directors
may also be given in any manner permitted by Article III hereof and shall be
deemed to be given at the time when first transmitted by the method of
communication so permitted.
Section 2. WAIVER OF NOTICE. Whenever any notice is required to be
given under the provisions of any applicable statute, the Certificate of
Incorporation, or these By-Laws, a waiver thereof in writing, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto, and transmission of a
waiver of notice by a director or stockholder by mail, telegraph, telex,
cable, wireless, or other form of recorded communication may constitute such
a waiver.
Section 3. WHEN NOTICE UNNECESSARY. Whenever, under the provisions of
the Act, the Certificate of Incorporation or these Bylaws, any notice is
required to be given to any stockholder, such notice need not be given to the
stockholder if:
(a) notice of two consecutive annual meetings and all notices of meetings
held during the period between those annual meetings, if any, or
(b) all (but in no event less than two) payments (if sent by first class
mail) of distributions or interest on securities during a 12-month
period, have been mailed to that person, addressed at his address as
shown on the records of the Corporation, and have been returned
undeliverable. Any action or meeting taken or held without notice to
such a person shall have the same force and effect as if the notice
had been duly given. If such a person delivers to the Corporation a
written notice setting forth his then current address, the requirement
that notice be given to that person shall be reinstated.
ARTICLE V
OFFICERS
Section 1. ELECTED AND APPOINTED OFFICERS. The elected officers of the
Corporation shall be a President, one or more Vice Presidents, with or
without such descriptive titles as the Board of Directors shall deem
appropriate, a Secretary, and a Treasurer, and, if the Board of Directors so
elects, a Chairman of the Board (who shall be a director) and a Controller.
The Board of Directors or the Executive Committee of the Board of Directors
by resolution also may appoint one or more Assistant Vice Presidents,
Assistant Treasurers, Assistant Secretaries, Assistant
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Controllers, and such other officers and agents as from time to time may
appear to be necessary or advisable in the conduct of the affairs of the
Corporation.
Section 2. TIME OF ELECTION OR APPOINTMENT. The Board of Directors at
its annual meeting shall elect or appoint, as the case may be, the officers
to fill the positions designated in or pursuant to Section I of this Article
V. Officers of the Corporation may also be elected or appointed, as the case
may be, at any other time.
Section 3. SALARIES OF ELECTED OFFICERS. The salaries of all elected
officers of the Corporation shall be fixed by the Board of Directors.
Section 4. TERM. Each officer of the Corporation shall hold his office
until his successor is duly elected or appointed and qualified or until his
earlier resignation or removal. Any officer may resign at any time upon
written notice to the Corporation. Any officer elected or appointed by the
Board of Directors or the Executive Committee may be removed at any time by
the affirmative vote of a majority of the whole Board of Directors. Any
vacancy occurring in any office of the Corporation by death, resignation,
removal, or otherwise may be filled by the Board of Directors or the
appropriate committee thereof.
Section 5. DUTIES OF THE CHAIRMAN OF THE BOARD. The Chairman of the
Board, if one be elected, shall be the chief executive officer of the
Corporation and shall have all of the powers and duties as are provided for
the chief executive officer of the Corporation as specified in Section 6
below, in the absence of any person designated and elected to be the Chairman
of the Board, and shall preside when present at all meetings of the Board of
Directors and at all meetings of the stockholders. In addition, he shall
advise and counsel the President and other officers of the Corporation, and
shall exercise such powers and perform such duties as shall be assigned to or
required of him from time to time by the Board of Directors.
Section 6. DUTIES OF THE PRESIDENT. In the absence of any person
designated and elected to be the Chairman of the Board, The President shall
be the chief executive officer of the Corporation and, subject to the
provisions of these By-Laws, shall have the general supervision of the
affairs of the Corporation and shall have general and active control of all
of its business. He shall preside, when present, at all meetings of
stockholders and all meetings of the Board of Directors, except when the
Chairman of the Board presides and as may otherwise be provided by statute or
by the By-Laws. The chief executive officer shall see that all orders and
resolutions of the Board of Directors and the stockholders are carried into
effect. The chief executive officer shall have general authority to execute
bonds, deeds, and contracts in the name of the Corporation and affix the
corporate seal thereto; to sign stock certificates; to cause the employment
or appointment of such employees and agents of the Corporation as the proper
conduct of operations may require, and to fix their compensation, subject to
the provisions of the By-Laws; to remove or suspend any employee or agent who
shall have been employed or appointed under his authority or under authority
of an officer subordinate to him; to suspend for cause, pending final action
by the authority which shall have elected or appointed him, any officer
subordinate to the chief executive officer; and, in general, to exercise all
powers and authority usually appertaining to the chief executive officer of a
corporation and except as otherwise provided in these By-Laws. The
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President shall advise and counsel the Chairman of the Board and the officers
of the Corporation, and shall exercise such powers and perform such duties as
shall be assigned to or required of him from time to time by the Board of
Directors and the Chairman of the Board.
Section 7. DUTIES OF VICE PRESIDENTS. In the absence of the President
or in the event of his inability or refusal to act, the Vice President (or in
the event there be more than one Vice President, the Vice Presidents in the
order designated, or in the absence of any designation, then in the order of
their election) shall perform the duties of the President and, when so
acting, shall have all the powers of and be subject to all the restrictions
upon the President. The Vice Presidents shall perform such other duties and
have such other powers as the Board of Directors or the President may from
time to time prescribe.
Section 8. DUTIES OF ASSISTANT VICE PRESIDENTS. In the absence of a
Vice President or in the event of his inability or refusal to act, the
Assistant Vice President (or in the event there shall be more than one, the
Assistant Vice Presidents in the order designated by the Board of Directors,
or in the absence of any designation, then in the order of their appointment)
shall perform the duties and exercise the powers of that Vice President, and
shall perform such other duties and have such other powers as the Board of
Directors, the President, or the Vice President under whose supervision he is
appointed may from time to time prescribe.
Section 9. DUTIES OF THE SECRETARY. The Secretary shall attend all
meetings of the Board of Directors and all meetings of the stockholders and
record all the proceedings of the meetings of the corporation and of the
Board of Directors in a book to be kept for that purpose and shall perform
like duties for the Executive Committee or other standing committees when
required. He shall give, or cause to be given, notice of all meetings of the
stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors or
the President, under whose supervision he shall be. He shall have custody of
the corporate seal of the Corporation, and he, or an Assistant Secretary,
shall have authority to affix the same to any instrument requiring it, and
when so affixed, it may be attested by his signature or by the signature of
such Assistant Secretary. The Board of Directors may give general authority
to any other officer to affix the seal of the Corporation and to attest the
affixing by his signature. The Secretary shall keep and account for all
books, documents, papers, and records of the Corporation, except those for
which some other officer or agent is properly accountable. He shall have
authority to sign stock certificates and shall generally perform all the
duties usually appertaining to the office of the secretary of a corporation.
Section 10. DUTIES OF ASSISTANT SECRETARIES. In the absence of the
Secretary or in the event of his inability or refusal to act, the Assistant
Secretary (or, if there shall be more than one, the Assistant Secretaries in
the order designated by the Board of Directors, or in the absence of any
designation, then in the order of their appointment) shall perform the duties
and exercise the powers of the Secretary and shall perform such other duties
and have such other powers as the Board of Directors, the President, or the
Secretary may from time to time prescribe.
Section 11. DUTIES OF THE TREASURER. The Treasurer shall have the
custody of the corporate funds and securities and shall keep full and
accurate accounts of receipts and disbursements in
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books belonging to the Corporation and shall deposit all moneys and other
valuable effects in the name and to the credit of the Corporation in such
depositories as may be designated by the Board of Directors. He shall
disburse the funds of the Corporation as may be ordered by the Board of
Directors, taking proper vouchers for such disbursements, and shall, render
to the President and the Board of Directors, at its regular meetings or when
the Board of Directors so requires, an account of all his transactions as
Treasurer and of the financial condition of the Corporation. If required by
the Board of Directors, he shall give the Corporation a bond (which shall be
renewed every six years) in such sum and with such surety or sureties as
shall be satisfactory to the Board of Directors for the faithful performance
of the duties of his office and for the restoration to the Corporation, in
case of his death, resignation, retirement, or removal from office, of all
books, papers, vouchers, money, and other property of whatever kind in his
possession or under his control belonging to the Corporation. The Treasurer
shall be under the supervision of the Vice President in charge of finance, if
one is so designated, and he shall perform such other duties as may be
prescribed by the Board of Directors, the President, or any such Vice
President in charge of finance.
Section 12. DUTIES OF ASSISTANT TREASURERS. The Assistant Treasurer or
Assistant Treasurers shall assist the Treasurer, and in the absence of the
Treasurer or in the event of his inability or refusal to act, the Assistant
Treasurer (or in the event there shall be more than one, the Assistant
Treasurers in the order designated by the Board of Directors, or in the
absence of any designation, then in the order of their appointment) shall
perform the duties and exercise the powers of the Treasurer and shall perform
such other duties and have such other powers as the Board of Directors, the
President, or the Treasurer may from time to time prescribe.
Section 13. DUTIES OF THE CONTROLLER. The Controller, if one is
appointed, shall have supervision of the accounting practices of the
Corporation and shall prescribe the duties and powers of any other accounting
personnel of the Corporation. He shall cause to be maintained an adequate
system of financial control through a program of budgets and interpretive
reports. He shall initiate and enforce measures and procedures whereby the
business of the Corporation shall be conducted with the maximum efficiency
and economy. If required, he shall prepare a monthly report covering the
operating results of the Corporation. The Controller shall be under the
supervision of the Vice President in charge of finance, if one is so
designated, and he shall perform such other duties as may be prescribed by
the Board of Directors, the President, or any such Vice President in charge
of finance.
Section 14. DUTIES OF ASSISTANT CONTROLLER. The Assistant Controller
or Assistant Controllers shall assist the Controller, and in the absence of
the Controller or in the event of his inability or refusal to act, the
Assistant Controller (or, if there shall be more than one, the Assistant
Controllers in the order designated by the Board of Directors, or in the
absence of any designation, then in the order of their appointment) shall
perform the duties and exercise the powers of the Controller and perform such
other duties and have such other powers as the Board of Directors, the
President, or the Controller may from time to time prescribe.
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ARTICLE VI
INDEMNIFICATION
Section 1. ACTIONS OTHER THAN BY OR IN THE RIGHT OF THE CORPORATION.
The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed
action, suit, or proceeding, whether civil, criminal, administrative, or
investigative (other than an action by or in the right of the Corporation),
by reason of the fact that he is or was a director, officer, employee, or
agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust, or other enterprise (all of
such persons being hereafter referred to in this Article as a "Corporate
Functionary"), against expenses (including attorneys' fees), judgments,
fines, and amounts paid in settlement actually and reasonably incurred by him
in connection with such action, suit, or proceeding, if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit, or proceeding by judgment, order,
settlement, or conviction, or upon a plea of nolo contenders or its
equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he reasonably believed to be in
or not opposed to the best interests of the Corporation or, with respect to
any criminal action or proceeding, that he had reasonable cause to believe
that his conduct was unlawful.
Section 2. ACTIONS BY OR IN THE RIGHT OF THE CORPORATION. The
Corporation shall indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending, or completed action or suit by
or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he is or was a Corporate Functionary against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit, if he acted
in good faith and in a manner he reasonably believed to be in or not opposed
to the best interests of the Corporation, except that no indemnification
shall be made in respect of any claim, issue, or matter as to which such
person shall have been adjudged to be liable to the Corporation, unless and
only to the extent that the Court of Chancery or the court in which such
action or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
Section 3. DETERMINATION OF RIGHT TO INDEMNIFICATION. Any
indemnification under Sections 1 or 2 of this Article VI (unless ordered by a
court) shall be made by the Corporation only as authorized in the specific
case upon a determination that indemnification of the Corporate Functionary
is proper in the circumstances because he has met the applicable standard of
conduct set forth in Sections 1 or 2 of this Article VI. Such determination
shall be made (i) by the Board of Directors by a majority vote of a quorum
consisting of directors who were not parties to such action, suit, or
proceeding, or (ii) if such a quorum is not obtainable, or, even if
obtainable if a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (iii) by the stockholders.
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Section 4. RIGHT TO INDEMNIFICATION. Notwithstanding the other
provisions of this Article VI, to the extent that a Corporate Functionary has
been successful on the merits or otherwise in defense of any action, suit, or
proceeding referred to in Sections 1 or 2 of this Article VI (including the
dismissal of a proceeding without prejudice or the settlement of a proceeding
without admission of liability), or in defense of any claim, issue, or,
matter therein, he shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection
therewith.
Section 5. PREPAID EXPENSES. Expenses incurred in defending a civil or
criminal action, suit, or proceeding shall be paid by the corporation in
advance of the final disposition of such action, suit, or proceeding, upon
receipt of an undertaking by or on behalf of the Corporate Functionary to
repay such amount if it shall ultimately be determined he is not entitled to
be indemnified by the Corporation as authorized in this Article VI.
Section 6. RIGHT TO INDEMNIFICATION UPON APPLICATION; PROCEDURE UPON
APPLICATION. Any indemnification under Sections 2, 3 and 4, or any .advance
under Section 5, of this Article VI shall be made promptly upon, and in any
event within 60 days after, the written request of the Corporate Functionary,
unless with respect to applications under sections 2, 3 or 5 of this Article
VI, a determination is reasonably and promptly made by the Board of Directors
by majority vote of a quorum consisting of disinterested directors that such
Corporate Functionary acted in a manner set forth in such Sections as to
justify the corporation in not indemnifying or making an advance of expenses
to the corporate Functionary. If no quorum of disinterested directors is
obtainable, the Board of Directors shall promptly direct that independent
legal counsel shall decide whether the Corporate Functionary acted in a
manner set forth in such Sections as to justify the Corporation's not
indemnifying or making an advance of expenses to the Corporate Functionary.
The right to indemnification or advance of expenses granted by this Article
VI shall be enforceable by the Corporate Functionary in any court of
competent jurisdiction if the Board of Directors or independent legal counsel
denies his claim, in whole or in part, or if no disposition of such claim is
made within 60 days. The expenses of the Corporate Functionary incurred in
connection with successfully establishing his right to indemnification, in
whole or in part, in any such proceeding shall also be indemnified by the
Corporation.
Section 7. OTHER RIGHTS AND REMEDIES. The indemnification and
advancement of expenses or provided by or granted pursuant to this Article VI
shall not be deemed exclusive of any other rights to which any person seeking
indemnification and advancement of expenses or may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors, or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall, unless otherwise
provided when authorized or ratified, continue as to a person who has ceased
to be a Corporate Functionary and shall inure to the benefit of the heirs,
executors, and administrators of such a person. Any repeal or modification
of these by-laws or relevant provisions of the Delaware General Corporation
Law and other applicable law, if any, shall not affect any then existing
rights of a Corporate Functionary to indemnification or advancement of
expenses.
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Section 8. INSURANCE. Upon resolution passed by the Board of
Directors, the Corporation may purchase and maintain insurance on behalf of
any person who is or was a director, officer, employee, or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee, or agent of another corporation, partnership,
joint venture, trust, or other enterprise against any liability asserted
against him and incurred by him in any such capacity, or arising out of his
status as such, whether or not the Corporation would have the power to
indemnify him against such liability under the provisions of this Article VI.
Section 9. MERGERS. For purposes of this Article VI, references to
"the Corporation" shall include, in addition to the resulting or surviving
corporation, constituent corporations (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, employees, or agents, so .that any person who is or was
a director, officer, employee, or agent of such constituent corporation or is
or was serving at the request of such constituent corporation as a director,
officer, employee, or agent of another corporation, partnership, joint
venture, trust, or other enterprise shall stand in the same position under
the provisions of this Article VI with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if
its separate existence had continued.
Section 10. SAVINGS PROVISION. If this Article VI or any portion
hereof shall be invalidated on any ground by a court of competent
Jurisdiction, the Corporation shall nevertheless indemnify each Corporate
Functionary as to expenses (including attorneys' fees), judgments, fines, and
amounts paid in settlement with respect to any action, suit, proceeding, or
investigation, whether civil, criminal, or administrative, including a grand
jury proceeding or action or suit brought by or in the right of the
Corporation, to the full extent permitted by any applicable portion of this
Article VI that shall not have been invalidated.
ARTICLE VII
CERTIFICATES REPRESENTING STOCK
Section 1. RIGHT TO CERTIFICATE. Every holder of stock in the
Corporation shall be entitled to have a certificate, signed by, or in the
name of the Corporation by, the Chairman of the Board, the President, or a
Vice President and by the Secretary or an Assistant Secretary of the
Corporation, certifying the number of shares owned by him in the Corporation.
If the Corporation shall be authorized to issue more than one class of stock
or more than one series of any class, the powers, designations, preferences,
and relative, participating, optional, or other special rights of each class
of stock or series thereof and the qualifications, limitations, or
restrictions of such preferences or rights shall be set forth in full or
summarized on the face or back of the certificate which the Corporation shall
issue to represent such class or series of stock; provided, that, except as
otherwise provided in Section 202 of the General Corporation Law of the State
of Delaware; in lieu of the foregoing requirements, there may be set forth on
the face or back of the certificate which the Corporation shall issue to
represent such class or series of stock a statement that the Corporation will
furnish without charge to each stockholder who so requests the powers,
designations, preferences, and relative, participating, optional, or other
14
<PAGE>
special rights of each class of stock or series thereof and the
qualifications, limitations, or restrictions of such preferences or rights.
Section 2. FACSIMILE SIGNATURES. Any of or all the signatures on the
certificate may be facsimile. In case any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent, or
registrar before such certificate is issued, it may be issued by the
Corporation with the same effect as if he were such officer, transfer agent,
or registrar at the date of issue.
Section 3. NEW CERTIFICATES. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation and alleged to have been
lost, stolen, or destroyed, upon the making of an affidavit of that fact by
the person claiming the certificate of stock to be lost, stolen, or
destroyed. When authorizing such issue of a new certificate or certificates,
the Board of Directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen, or destroyed
certificate or certificates, or his legal representative, to advertise the
same in such manner as it shall require or to give the Corporation a bond in
such sum as it may direct as indemnity against any claim that may be made
against the Corporation with respect to the certificate alleged to have been
lost, stolen, or destroyed or the issuance of such new certificate.
Section 4. TRANSFERS. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate for shares duly endorsed
or accompanied by proper evidence of succession, assignation, or authority to
transfer, it shall be the duty of the Corporation, subject to any proper
restrictions on transfer, to issue a new certificate to the person entitled
thereto, cancel the old certificate, and record the transaction upon its
books.
Section 5. RECORD DATE. The Board of Directors may fix in advance a
date, not preceding the date on which the resolution fixing the record date
is adopted, and (i) not more than 60 days nor less than 10 days preceding the
date of any meeting of stockholders, as a record date for the determination
of the stockholders entitled to notice of, and to vote at, any such meeting
and any adjournment thereof, (ii) not more than 10 days after the date on
which the resolution fixing the record date is adopted, as a record date in
connection with obtaining a consent of the stockholders in writing to
corporate action without a meeting, or (iii) not more than 60 days before the
date for payment of any dividend or distribution, or the date for the
allotment of rights, or the date when any change, or conversion or exchange
of capital stock shall go into effect, or the date on which any other lawful
action shall be taken, as the record date for determining the stockholders
entitled to receive payment of any such dividend or distribution, or to
receive any such allotment of rights, or to exercise the rights in respect of
any such change, conversion or exchange of capital stock or other lawful
action of the corporation, and in such case such stockholders and only such
stockholders as shall be stockholders of record on the date so fixed shall be
entitled to such notice of, and to vote at, any such meeting and any
adjournment thereof (provided, however, that the Board of Directors may fix a
new record date for an adjourned meeting), or to give such consent, or to
receive payment of such dividend or distribution, or to receive such
allotment of rights, or to exercise such rights, as the case may be,
notwithstanding any transfer of any stock on the books of the corporation
after any such record date fixed as aforesaid.
15
<PAGE>
Section 6. REGISTERED STOCKHOLDERS. The Corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and to hold
liable for calls and assessments a person registered on its books as the
owner of shares, and shall not be bound to recognize any equitable or other
claim to or interest in such share or shares on the part of any other person,
whether or not provided by the laws of the State of Delaware.
ARTICLE VIII
GENERAL PROVISIONS
Section 1. DIVIDENDS. Dividends upon the capital stock of the
corporation, if any, subject to the provisions of the Certificate of
Incorporation, may be declared by the Board of Directors (but not any
committee thereof) at any regular meeting, pursuant to law. Dividends may be
paid in cash, in property, or in shares of the capital stock, subject to the
provisions of the Certificate of Incorporation.
Section 2. RESERVES. Before payment of any dividend, there may be set
aside out of any funds of the Corporation available for dividends such sum or
sums as the Board of Directors from time to time, in their absolute
discretion, thinks proper as a reserve or reserves to meet contingencies, or
for equalizing dividends, or for repairing or maintaining any property of the
Corporation, or for such other purpose as the Board of Directors shall think
conducive to the interest of the Corporation, and the Board of Directors may
modify or abolish any such reserve in the manner in which it was created.
Section 3. ANNUAL STATEMENT. The Board of Directors shall present at
each annual meeting, and at any special meeting of the stockholders when
called for by vote of the stockholders, a full and clear statement of the
business and condition of the Corporation.
Section 4. CHECKS. All checks or demands for money and promissory
notes of the Corporation shall be signed by such officer or officers or such
other person or persons as the Board of Directors may f rom time to time
prescribe.
Section 5. FISCAL YEAR. The fiscal year of the Corporation shall be
determined by the Board of Directors.
Section 6. CORPORATE SEAL. The corporate seal shall have inscribed
thereon the name of the Corporation, the year of its organization, and the
word "Delaware." The seal may be used by causing it or a facsimile thereof
to be impressed, affixed, reproduced, or otherwise.
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ARTICLE IX
AMENDMENTS
These By-Laws may be altered, amended, or repealed or new By-Laws may be
adopted by the stockholders or by the Board of Directors at any regular
meeting of the stockholders or the Board of Directors or at any special
meeting of the stockholders or the Board of Directors if notice of such
alteration, amendment, repeal, or adoption of new By-Laws be contained in the
notice of such special meeting.
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EXHIBIT C
Form of Affiliate Agreement<PAGE>
<PAGE>
COMPANY AFFILIATE AGREEMENT
AGREEMENT (hereinafter referred to as the "Agreement") entered into as of
_________, 1998, between Quicksilver Resources Inc., a Delaware corporation
(hereinafter referred to as the "Acquiror"), and the stockholder (the
"Stockholder") of MSR Exploration Ltd., a Delaware corporation (hereinafter
referred to as the "Company").
W I T N E S S E T H:
WHEREAS, the Acquiror and the Company, propose to enter, or have entered
into an Agreement and Plan of Merger and Reorganization expected to be dated, or
dated _______, 1998 (hereinafter referred to as the "Merger Agreement"),
pursuant to which the Company will be merged into Acquiror (the "Merger"); and
WHEREAS, upon the consummation of the Merger and in connection therewith,
the Stockholder will become the owner of shares of Common Stock of Acquiror
(hereinafter referred to as the "Acquiror Shares").
NOW, THEREFORE, in consideration of the promises and the mutual agreements,
provisions and covenants set forth in the Merger Agreement, and hereinafter in
this Agreement, it is hereby agreed as follows:
1. The Stockholder hereby agrees that:
(a) It or he may be deemed to be an "affiliate" of the Company within
the meaning of Rule 145 under the Securities Act of 1933, as amended (the
"Securities Act"), of the Commission.
(b) He agrees not to offer, sell, pledge, transfer or otherwise
dispose of any of the Acquiror Shares unless at that time either:
(i) such transaction shall be permitted pursuant to the
provisions of Rule 145(d) under the Securities Act;
(ii) counsel representing the Stockholder, satisfactory to the
Acquiror, shall have advised the Acquiror in a written opinion letter
satisfactory to the Acquiror and the Acquiror's counsel and upon which the
Acquiror and its counsel may rely, that no registration under the Securities Act
would be required in connection with the proposed sale, transfer or other
disposition;
(iii) a registration statement under the Securities Act
covering the Acquiror Shares proposed to be sold, transferred or otherwise
disposed of, describing the manner and terms of the proposed sale, transfer
or other disposition, and containing a current prospectus under the
Securities Act, shall be effective under the Securities Act; or
(iv) an authorized representative of the Commission shall have
rendered written advice to the Stockholder (sought by the Stockholder or counsel
to the Stockholder, with a copy thereof and of all other related communications
delivered to the Acquiror) to the effect that the
<PAGE>
Commission would take no action, or that the staff of the Commission would
not recommend that the Commission take action, with respect to the proposed
sale, transfer or other disposition if consummated.
The Stockholder understands that the Acquiror is under no obligation to
register the sale, transfer or other disposition of the Acquiror Common Stock by
the Stockholder on its behalf or to take any other action necessary in order to
make compliance with an exemption from registration available.
(c) Until a public sale of the Acquiror Shares represented by such
certificate has been made in compliance with one of the alternative conditions
set forth in the subparagraphs of paragraph (b) of this Section 1, all
certificates representing the Acquiror Shares deliverable to the Stockholder
pursuant to the Merger Agreement and in connection with the Merger and any
certificates subsequently issued with respect thereto or in substitution
therefor shall bear a legend substantially as follows:
"The shares represented by this certificate may not be
offered, sold, pledged, transferred or otherwise disposed of
except in compliance with paragraph (d) of Rule 145
promulgated by the Securities and Exchange Commission."
Acquiror, at its discretion, may cause stop transfer orders to be placed with
its transfer agent(s) with respect to the certificates for the Acquiror Shares
but not as to the certificates for any part of the Acquiror Shares as to which
said legend is no longer appropriate as hereinabove provided.
(d) The Stockholder will observe and comply with the Securities Act
and the General Rules and Regulations thereunder, as now in effect and as from
time to time amended and including those hereafter enacted or promulgated, in
connection with any offer, sale, pledge or transfer or other disposition of the
Acquiror Shares or any part thereof.
2. From and after the Effective Time of the Merger and for so long as
necessary in order to permit the Stockholder to sell the Acquiror Shares
pursuant to Rule 145 and, to the extent applicable, Rule 144 under the
Securities Act, Acquiror will use its best efforts to file on a timely basis all
reports required to be filed by it pursuant to Section 13 of the Securities
Exchange Act of 1934, referred to in paragraph (c)(1) of Rule 144 under the
Securities Act (or, if applicable, Acquiror will use its best efforts to make
publicly available the information regarding itself referred to in paragraph
(c)(2) of Rule 144) in order to permit the Stockholder to sell, pursuant to the
terms and conditions of Rule 145 and the applicable provisions of Rule 144, the
Acquiror Shares.
3. The Stockholder agrees that it or he will not perfect any dissenter's
appraisal rights under the Certificate of Incorporation or the Appraisal
Provisions (as defined in the Merger Agreement)
4. The Stockholder represents that it or he knows of no plan (written or
oral) pursuant to which the stockholders of the Company intend to sell or
otherwise dispose of any Acquiror Shares to be received by them pursuant to the
Merger Agreement which would reduce their holdings of such
2
<PAGE>
Acquiror Shares to an amount having in the aggregate a value at the time of
the Merger of less than 50% of all Common Stock of the Company outstanding
prior to the Merger.
5. No waiver by any party hereto of any condition or of any breach of any
provision of this Agreement shall be effective unless in writing.
6. All notices, requests, demands or other communications which are
required or may be given pursuant to the terms of this Agreement shall be in
writing and shall be deemed to have been duly given if delivered by hand or
(except where receipt thereof is specifically required for purposes of this
Agreement) mailed by registered or certified mail, postage prepaid, as follows:
If to the Stockholder, at the address set forth below the Stockholder's
signature at the end hereof.
If to Acquiror:
To:
Quicksilver Resources Inc.
1619 Pennsylvania Drive
Fort Worth, Texas 76104
or to such other address as any party hereto or any Stockholder may designate
for itself by notice given as herein provided
7. For the convenience of the parties hereto this Agreement may be
executed in one or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
document. This Agreement shall be enforceable by, and shall inure to the
benefit of and be binding upon, the parties hereto and their respective
successors and assigns.
8. This Agreement shall be governed by and construed, interpreted and
enforced in accordance with the laws of the State of Delaware.
9. If a court of competent jurisdiction determines that any provision of
this Agreement is unenforceable or enforceable only if limited in time and/or
scope, this Agreement shall continue in full force and effect with such
provision stricken or so limited.
3
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the date first above written.
Stockholder:
--------------------------------------
[signature]
--------------------------------------
--------------------------------------
--------------------------------------
[print name and address]
Accepted and agreed to as of
______________, 1998.
Acquiror:
QUICKSILVER RESOURCES INC.
By:
--------------------------------
Name:
--------------------------------
Title:
--------------------------------
4
<PAGE>
[EVEREN SECURITIES, INC. LETTERHEAD]
September 1, 1998
Special Committee of the Board of Directors
MSR Exploration Ltd.
612 Eighth Avenue
Fort Worth, Texas 76104
Gentlemen:
You have advised EVEREN Securities, Inc. ("EVEREN") that Quicksilver
Resources Inc. ("Quicksilver") has proposed to acquire 100% of the outstanding
common stock of MSR Exploration Ltd., ("MSR" or the "Company") in a tax-free
exchange of 0.10 shares of Quicksilver common stock for each share of MSR common
stock (the "Transaction"). We further understand that the shares of Quicksilver
will be listed and freely traded on the American Stock Exchange effective at the
time of closing of the Transaction. You have requested that EVEREN issue an
opinion ("Opinion") as to the fairness to the common stockholders of MSR (other
than shares held by Mercury Exploration Company and shares held by members of
the Darden family and their affiliates) of the consideration to be received from
a financial point of view.
In arriving at our Opinion we have, among other things:
1. Reviewed a draft of the Agreement and Plan of Merger and
Reorganization By and Among Quicksilver and MSR dated July 7, 1998
(the "Agreement").
2. Reviewed actual financial results for MSR and Quicksilver for the
years ended December 31, 1996 and 1997 and for the six months ended
June 30, 1998, as well as, other publicly available SEC Filings with
the Securities and Exchange Commission for MSR;
3. Reviewed independently prepared oil and gas reserve estimates as of
December 31, 1997 for MSR and Quicksilver, which include details of
projected production flows, product prices, operating expenses and
capital costs and discussed such estimates with MSR's reserve
engineers;
4. Reviewed terms of acquisitions of oil and gas reserves prepared by an
independent research firm;
5. Discussed with senior management of MSR the operations of and business
prospects for MSR; and
6. Considered such other information, financial studies, analyses and
investigations as we deemed relevant under the circumstances.
In connection with our review, we have not independently verified any of
the information concerning the Company and have relied on its being complete and
accurate in all material respects. We have assumed that the pro forma financial
and reserve information reviewed by us has been
<PAGE>
reasonably prepared on bases reflecting the best currently available
estimates and judgments of the Company's management as to the future
performance reflected therein. In addition, we have not made any independent
evaluation or appraisal of the assets of the Company, nor have we been
furnished with any such independent evaluations or appraisals (other than
certain reserve reports prepared by independent petroleum engineers for the
Company).
Our Opinion is necessarily based solely upon the information set forth
herein as reviewed by us and circumstances existing as of the date hereof.
Events occurring after the date hereof could materially affect the assumptions
used both in preparing this opinion and in the documents reviewed by us.
This letter shall be for the use of the Board of Directors of the Company
in considering the Transaction. The Company may not publish or refer to this
letter (either in its entirety or through excerpt or summaries) or disclose the
existence of our engagement hereunder or describe or characterize the advice
provided by us without the prior approval of EVEREN, which approval shall not be
unreasonably withheld. It is expressly understood that this letter may be
included in certain regulatory filings, including any proxy statement to be
mailed to the stockholders of the Company in connection with the Transaction, or
as otherwise required by law, rule or regulation of any governmental authority
or the rules of the American Stock Exchange and that such approval hereby is
provided subject to EVEREN's prior review of disclosures relating to EVEREN's
engagement and the letter.
As part of our investment banking business, we regularly issue fairness
opinions and are continually engaged in the valuation of companies and their
securities in connection with business reorganizations, private placements,
negotiated underwritings, mergers and acquisitions and valuations for estate,
corporate and other purposes. In the ordinary course of business, EVEREN and
its affiliates at any time may hold long or short positions, and may trade or
otherwise effect transactions as principal or for the accounts of customers, in
debt or equity securities or options on securities of the Company.
Based upon and subject to the foregoing, including the various assumptions
and limitations set forth herein, it is our Opinion that, on the date hereof,
the consideration to be received pursuant to the proposed Transaction is fair to
the common stockholders of MSR (other than shares held by Mercury Exploration
Company and shares held by the Darden family and their affiliates) from a
financial point of view.
Very truly yours,
/S/ EVEREN Securities, Inc.
EVEREN Securities, Inc.
<PAGE>
APPENDIX C
DISSENTERS' RIGHTS UNDER THE
ALBERTA BUSINESS CORPORATIONS ACT
SECTION 184
(1) Subject to sections 185 and 234, a holder of shares of any class of a
corporation may dissent if the corporation resolves to
(a) amend its articles under section 167 or 168 to add, change or remove
any provisions restricting or constraining the issue or transfer of
shares of that class,
(b) amend its articles under section 167 or 168 to add, change or remove
any restrictions on the business or businesses that the corporation
may carry on,
(c) amalgamate with another corporation, otherwise than under section 178
or 180.1,
(d) be continued under the laws of another jurisdiction under section 182,
or
(e) sell, lease or exchange all or substantially all its property under
section 183.
(2) A holder of shares of any class or series of shares entitled to subsection
(20), a stockholder entitled to vote under section 170, other than section
170(1)(a), may dissent if the corporation resolves to amend its articles
in a manner described in that section.
(3) In addition to any other right he may have, but subject to section (20), a
stockholder entitled to dissent under this section and who complies with
this section is entitled to be paid by the corporation the fair value of
the shares held by him in respect of which he dissents, determined as of
the close of business on the last business day before the day on which the
resolution from which he dissents was adopted.
(4) A dissenting stockholder may only claim under this section with respect to
all the shares of a class held by him or on behalf of any one beneficial
owner and registered in the name of the dissenting stockholder.
(5) A dissenting stockholder shall send to the corporation a written objection
to a resolution referred to in subsection (1) or (2)
(a) at or before any meeting of stockholders at which the resolution is to
be voted on, or
(b) if the corporation did not send notice to the stockholder of the
purpose of the meeting or of his right to dissent, within a reasonable
time after he learns that the resolution has been adopted.
(6) An application may be made to the Court by originating notice after the
adoption of a resolution referred to in subsection (1) or (2)
(a) by the corporation, or
(b) by a stockholder if he has sent an objection to the corporation under
subsection(5)
to fix the fair value in accordance with subsection (3) of the shares of a
stockholder who dissents under this section.
(7) If an application is made under subsection (6), the corporation shall,
unless the Court otherwise orders, send to each dissenting stockholder a
written offer to pay him an amount considered by the directors to be the
fair value of the shares.
C-1
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(8) Unless the Court otherwise orders, an offer referred to in subsection (7)
shall be sent to each dissenting stockholder
(a) at least 10 days before the date on which the application is
returnable, if the corporation is the applicant, or
(b) within 10 days after the corporation is served with a copy of the
originating notice, if a stockholder is the applicant.
(9) Every offer made under subsection (7) shall
(a) be made on the same terms, and
(b) contain or be accompanied by a statement showing how the fair value
was determined.
(10) A dissenting stockholder may make an agreement with the corporation for
the purchase of his shares by the corporation, in the amount of the
corporation's offer under subsection (7) or otherwise, at any time before
the Court pronounces an order fixing the fair value of the shares.
(11) A dissenting stockholder
(a) is not required to give security for costs in respect of an
application under subsection (6), and
(b) except in special circumstances shall not be required to pay the costs
of the application or appraisal.
(12) In connection with an application under subsection (6), the Court may give
directions for
(a) joining as parties all dissenting stockholders whose shares have not
been purchased by the corporation and for the representation of
dissenting stockholders who, in the opinion of the Court, are in need
of representation, and
(b) the trial of issues and interlocutory matters, including pleadings and
examinations for discovery.
(13) On an application under subsection (6), the Court shall make an order
(a) fixing the fair value of the shares in accordance with subsection (3)
of all dissenting stockholders who are parties to the application,
(b) giving judgment in that amount against the corporation and in favor of
each of those dissenting stockholders, and
(c) fixing the time within which the corporation must pay that amount to a
stockholder.
(14) On
(a) the action approved by the resolution from which the stockholder
dissents becoming effective,
(b) the making of an agreement under subsection (10) between the
corporation and the dissenting stockholder as to the payment to be
made by the corporation for his shares, whether by the acceptance of
the corporation's offer under subsection (7) or otherwise, or
(c) the pronouncement of an order under subsection (13),
whichever first occurs, the stockholder ceases to have any rights as a
stockholder other than the right to be paid the fair value of his shares
in the amount agreed to between the corporation and the stockholder or in
the amount of the judgment, as the case may be.
(15) Subsection 14(a) does not apply to a stockholder referred to in subsection
(5)(b).
C-2
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(16) Until one of the events mentioned in subsection (14) occurs,
(a) the stockholder may withdraw his dissent, or
(b) the corporation may rescind the resolution,
and in either event proceedings under this section shall be discontinued.
(17) The Court may in its discretion allow a reasonable rate of interest on the
amount payable to each dissenting stockholder, from the date on which the
stockholder ceases to have any rights as a stockholder by reason of
subsection (14) until the date of payment.
(18) If subsection (20) applies, the corporation shall, within 10 days after
(a) the pronouncement of an order under subsection (13), or
(b) the making of an agreement between the stockholder and the corporation
as to the payment to be made for his shares,
notify each dissenting stockholder that it is unable lawfully to pay
dissenting stockholders for their shares.
(19) Notwithstanding that a judgment has been given in favor of a dissenting
stockholder under subsection (13)(b), if subsection (20) applies, the
dissenting stockholder, by written notice delivered to the corporation
within 30 days after receiving the notice under subsection (18), may
withdraw his notice of objection, in which case the corporation is deemed
to consent to the withdrawal and the stockholder is reinstated to his full
rights as a stockholder, failing which he retains a status as a claimant
against the corporation, to be paid as soon as the corporation is lawfully
able to do so or, in a liquidation, to be ranked subordinate to the rights
of creditors of the corporation but prior to its stockholders.
(20) A corporation shall not make a payment to a dissenting stockholder under
this section if there are reasonable grounds for believing that
(a) the corporation is or would after the payment be unable to pay its
liabilities as they become due, or
(b) the realizable value of the corporation's assets would thereby be less
than the aggregate of its liabilities.
C-3
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Bylaws provide that the Registrant shall indemnify any
person who or is a party or is threatened to be made a party to any threatened,
pending, or completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative (other than an action by or in the right of the
Registrant), by reason of the fact that he is or was a director, officer,
employee, or agent of another corporation, partnership, joint venture, trust, or
other enterprise (all of such persons being hereafter referred to as a
"Corporate Functionary"), against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit, or proceeding, if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the Registrant and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit, or proceeding by judgment, order, settlement,
or conviction, or upon a plea of nolo contendere or its equivalent, shall not,
of itself, create a presumption that the person did not act in good faith and in
a manner which he reasonably believed to be in or not opposed to the best
interests of the Registrant or, with respect to any criminal action or
preceding, that he had reasonable cause to believe that his conduct was
unlawful.
The Registrant shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Registrant to procure a judgment in its favor by
reason of the fact that he is or was a Corporate Functionary against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit, if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation, except that no indemnification shall be made
in respect of any claim, issue, or matter as to which such person shall have
been adjudged to be liable to the Registrant, unless and only to the extent that
the Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other court shall deem proper.
Any indemnification under the Bylaws of the Registrant (unless ordered by
a court) shall be made by the Registrant only as authorized in the specific case
upon a determination that indemnification of the Corporate Functionary is proper
in the circumstances because he has met the applicable standard of conduct set
forth in the Bylaws of the Registrant. Such determination shall be made (i) by
the Board of Directors by a majority vote of a quorum consisting of directors
who were not parties to such action, suit, or proceeding, or (ii) if such a
quorum is not obtainable, or, even if obtainable if a quorum of disinterested
directors so directs, by independent legal counsel in a written opinion, or
(iii) by the stockholders.
Notwithstanding the other provisions of the Bylaws of the Registrant to
the extent that a Corporate Functionary has been successful on the merits or
otherwise in defense of any action, suit, or proceeding (including the dismissal
of a proceeding without prejudice or the settlement of a proceeding without
admission of liability), or in defense of any claim, issue, or matter therein,
he shall be indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by him in connection therewith.
Expenses incurred in defending a civil or criminal action, suit, or
proceeding shall be paid by the Registrant in advance of the final deposition of
such action, suit, or proceeding, upon receipt of an undertaking by or on behalf
of the Corporate Functionary to repay such amount if it shall ultimately be
determined he is not entitled to be indemnified by the Registrant as authorized
in the Bylaws of the Registrant.
Any indemnification under the Bylaws of the Registrant shall be made
promptly upon, and in any event within 60 days after, the written request of
the Corporate Functionary, unless determination is reasonably and promptly
made by the Board of Directors by majority vote of a quorum consisting of
disinterested directors that such Corporate Functionary acted in a manner set
forth so as to justify the Registrant in not indemnifying or making an
advance of expenses to the Corporate Functionary. If no quorum of
disinterested directors is obtainable, the Board of Directors shall promptly
direct that independent legal counsel shall decide whether the Corporate
Functionary acted in a manner so as to justify the Registrant's not
indemnifying or making an advance of expenses to the Corporate Functionary.
The right to indemnification or advance of expenses granted by the Bylaws of
the Registrant shall be enforceable by the Corporate
<PAGE>
Functionary in any court of competent jurisdiction if the Board of Directors
or independent legal counsel denies his claim, in whole or in part, or if no
disposition of such claim is made within 60 days. The expenses of the
Corporate Functionary incurred in connection with successfully establishing
his right to indemnification, in whole or in part, in any such preceding
shall also be indemnified by the Registrant.
The indemnification and advancement of expenses or provided by or granted
pursuant to the Bylaws of the Registrant shall not be deemed exclusive of any
other rights to which any person seeking indemnification or advancement of
expenses may be entitled under any bylaw, agreement, vote of stockholders or
disinterested directors, or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office, and
shall, unless otherwise provided when authorized or ratified, continue as to a
person who has ceased to be a Corporate Functionary and shall inure to the
benefit of the heirs, executors, and administrators of such a person. Any
repeal or modification of these bylaws or relevant provisions of the Delaware
General Corporation Law and other applicable law, if any, shall not affect any
then existing rights of a Corporate Functionary to indemnification or
advancement of expenses.
Upon resolution passed by the Board of Directors, the Registrant may
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee, or agent of the Registrant, or is or was serving at
the request of the Registrant as a director, officer, employee, or agent of
another corporation, partnership, joint venture, trust, or other enterprise
against any liability asserted against him and incurred by him in any such
capacity, or rising out of his status as such, whether or not the Registrant
would have the power to indemnify him against such liability under the
provisions of the Bylaws of the Registrant.
References to "the Corporation" in the Bylaws of the Registrant shall
include, in addition to the resulting or surviving corporation, constituent
corporations (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, employees, or
agents, so that any person who is or was a director, officer, employee, or agent
of such constituent corporation or is or was serving at the request of such
another corporation, partnership, joint venture, trust, or other enterprise
shall stand in the same position under the provisions of the Bylaws of the
Registrant with respect to the resulting or surviving corporation as he would
have with respect to such constituent corporation if its separate existence had
continued.
If the provisions in the Bylaws of the Registrant relating to mergers or a
consolidation, or any portion thereof shall be invalidated on any ground by a
court of competent jurisdiction, the Registrant shall nevertheless indemnify
each Corporate Functionary as to expenses (including attorneys' fees),
judgments, fines, and amounts paid in settlement with respect to any action,
suit, proceeding, or investigation, whether civil, criminal or administrative,
including a grant jury proceeding or action or suit brought by or in the right
of the Registrant, to the full extend permitted by any applicable portion of the
provisions in the Bylaws relating to mergers or a consolidation, that shall not
have been invalidated.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES [QRI TO CONFIRM/EXPAND AND
PROVIDE DISKETTES]
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit Sequential
Number Description
------ -----------
<S> <C>
*2.1 Agreement and Plan of Merger, dated September 1,
1998, among Quicksilver Resources Inc. and MSR
Exploration Ltd. is included as Appendix A to
the Proxy Statement/Prospectus included in Part
I of this Registration Statement and is
incorporated herein by reference.
*4.1 Restated Certificate of Incorporation of
Quicksilver Resources Inc.
*4.2 Bylaws of Quicksilver Resources Inc.
**4.3 Form of Quicksilver Resources Inc. Common Stock
Certificate.
<PAGE>
*5.1 Form of Opinion of Cantey & Hanger, L.L.P.,
regarding legality of the shares being
registered.
*8.1 Form of Opinion of Jenkens & Gilchrist regarding tax
matters.
*10.1 Consent and Voting Agreement, dated September 1,
1998, by and among Quicksilver Resources Inc.,
MSR Exploration Ltd, Mercury Exploration
Company, Quicksilver Energy, L.C., Frank Darden,
Thomas F. Darden, Glenn M. Darden, Anne Darden
Self, Trust Company of the West and Joint Energy
Development Investment Limited Partnership.
*10.2 Agreement and Plan of Reorganization and Merger,
dated March 31, 1998, by and among Quicksilver
Resources Inc., Quicksilver Energy, L.C.,
Michigan Gas Partners, Limited Partnership,
Mercury Exploration Company, Trust Company of
the West and Joint Energy Development
Investments Limited Partnership.
*10.3 Agreement Regarding Merger Agreement, dated
April 9, 1998, by and among Quicksilver
Resources Inc., Quicksilver Energy, L.C.,
Michigan Gas Partnership, Limited Partnership,
Mercury Exploration Company, Trust Company of
the West and Joint Energy Development
Investments Limited Partnership.
*10.4 Registration Rights Agreement, dated April 9,
1998, by and among Quicksilver Resources Inc.,
Joint Energy Development Investments Limited
Partnership and Trust Company of the West.
*10.5 Stockholders Agreement, dated April 9, 1998, by
and among Quicksilver Resources, Inc., Mercury
Exploration Company, Quicksilver Energy, L.C.,
Frank Darden, Thomas F. Darden, Glenn M. Darden,
Anne Darden Self, Jeff Cook, Jack L. Thurber,
Trust Company of the West, Joint Energy
Development Investments Limited Partnership and
Mercury Production Company.
*10.6 Amendment No. 1 to Stockholders Agreement, dated
September 1, 1998, by and among Quicksilver
Resources Inc., Mercury Exploration Company,
Quicksilver Energy, L.C., Frank Darden, Thomas
F. Darden, Glenn M. Darden, Anne Darden Self,
Jeff Cook, Jack L. Thurber, Trust Company of the
West, Joint Energy Development Investments
Limited Partnership and Mercury Production
Company.
*10.7 Stock Transfer Agreement, dated April 9, 1998,
by and among Mercury Exploration Company and
Joint Energy Development Investment Limited
Partnership.
<PAGE>
*10.8 Amendment No. 1 to Stock Transfer Agreement,
dated September 1, 1998, by and among Mercury
Exploration Company and Joint Energy Limited
Partnership.
*10.9 Amended and Restated Credit Agreement, dated
April 9, 1998, by and among Quicksilver
Resources Inc. and NationsBank of Texas, N.A.
*10.10 Put/Call Agreement between, dated April 9, 1998,
by and among Mercury Exploration Company and
Trust Company of the West.
*10.11 Amendment No. 1 to Put/Call Agreement, dated
September 4, by and among Mercury Exploration
Company and Trust Company of the West.
*10.12 Management Agreement, dated April 9, 1998, by
and among Mercury Exploration Company and
Quicksilver Resources Inc.
*10.13 Agreement regarding Warrants, dated September 1,
1998, by and among Quicksilver Resources Inc.,
Mercury Exploration Company, Frank Darden,
Thomas F. Darden, Glenn M. Darden, Anne Darden
Self, Joint Energy Development Investments
Limited Partnership and Trust Company of the
West.
*10.14 Agreement, dated September 1, 1998, by and among
Quicksilver Resources Inc., Joint Energy
Development Investments Limited Partnership,
Trust Company of the West and Mercury
Exploration Company.
*10.15 Management Agreement, dated September 1, 1998,
by and among Mercury Exploration Company and
Quicksilver Resources Inc.
10.16 Wells Agreement, filed as an exhibit to the
Registration Statement on Form S-4 (File No.
333-29769) and incorporated herein by reference.
*10.17 Letter Agreement and Fee Letter from NationsBank,
N.A., dated July 17, 1998.
*10.18 Agreement Regarding Future Financings, dated April
9, 1998 by and among Quicksilver Resources, Inc.,
Enron Trade & Capital Resources Corp., Trust Company
of the West and NationsBank of Texas, N.A.
*15 Letter from Deloitte & Touche LLP regarding unaudited
financial information.
*23.1 Consent of Jenkens & Gilchrist, a Professional
Corporation (included in its opinion filed as
Exhibit 8.1 hereto)
*23.2 Consent of Weaver & Tidwell LLP
*23.3 Consent of Deloitte & Touche LLP
*23.4 Consent of EVEREN Securities, Inc.
*23.5 Consent of Citadel Engineering Ltd.
*24 Power of Attorney (included on the signature
page)
*99.1 Form of Proxy of MSR
*99.2 Reserve Report of Citadel Engineering Ltd.
</TABLE>
<PAGE>
- -------------------------------------
* Filed herewith.
* * To be filed by amendment.
ITEM 22. UNDERTAKINGS
(1) The undersigned registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder through
use of a prospectus that is a part of this Registration Statement, by any
person or party who is deemed to be an underwriter within the meaning of Rule
145(c), the issuer undertakes that such reoffering prospectus will contain
the information called for by the applicable registration form with respect
to reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
(2) The registrant undertakes that every prospectus (i) that is
filed pursuant to paragraph (1) immediately preceding, or (ii) that purports
to meet the requirements of section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be filed
as a part of an amendment to the Registration Statement and will not be used
until such amendment is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) The undersigned registrant undertakes to respond to requests
for information that is incorporated by reference into the prospectus
pursuant to Items 4, 10(b), 11, or 13 of this Form, within one business day
of receipt of such request, and to send the incorporated documents by first
class mail or other equally prompt means. This includes information
contained in documents filed subsequent to the effective date of the
Registration Statement through the date of responding to the request.
(4) The undersigned registrant hereby undertakes to supply by means
of a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Fort Worth, Texas, on October 30,
1998.
QUICKSILVER RESOURCES, INC.
By: /s/ Frank Darden
--------------------------------------
Frank Darden
Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated. Each person whose signature appears below
in so signing also makes, constitutes and appoints Mr. Glenn Darden, his true
and lawful attorney-in-fact, with full power of substitution, for him in any and
all capacities, to execute and cause to be filed with the Securities and
Exchange Commission any or all amendments and post-effective amendments to this
Registration Statement, with exhibits thereto and other documents in connection
therewith, and hereby ratifies and confirms all that said attorney-in-fact or
his substitute or substitutes may do or cause to be done by virtue hereof.
Signature Title Date
--------- ----- ----
/s/ Frank Darden Chairman of the Board and October 30, 1998
------------------------ Director (Principal Executive
Frank Darden Officer)
/s/ Thomas F. Darden President and Director October 30, 1998
------------------------ (Principal Financial and
Thomas F. Darden Accounting Officer)
/s/ Glenn M. Darden Vice President and Director October 30, 1998
------------------------
Glenn M. Darden
<PAGE>
RESTATED
CERTIFICATE OF INCORPORATION
OF
QUICKSILVER RESOURCES INC.
Quicksilver Resources Inc., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), does hereby certify that this Restated Certificate of
Incorporation has been duly adopted in accordance with the provisions of
Sections 242 and 245 of the General Corporation Law of the State of Delaware.
This Restated Certificate of Incorporation restates, integrates, and amends
the provisions of the Corporation's Certificate of Incorporation as
originally filed on December 18, 1997, omitting such matters as may be
omitted pursuant to the provisions of Section 245(c) of the General
Corporation Law of the State of Delaware. Notice of the adoption of this
Restated Certificate of Incorporation has been given to all nonconsenting
stockholders of the Corporation in accordance with Section 228(d) of the
Delaware General Corporation Law.
FIRST: The name of the Corporation is Quicksilver Resources Inc.
SECOND: The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of its registered agent at
such address is The Corporation Trust Company.
THIRD: The nature of the business or purposes to be conducted or promoted is:
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
FOURTH: The aggregate number of shares of all classes of stock which the
Corporation shall be authorized to issue is 50,000,000, divided into
the following: 40,000,000 shares of Common Stock, par value of one
cent ($0.01) per share (the "Common Stock") and 10,000,000 shares of
Preferred Stock, par value of one cent ($0.01) per share (the
"Preferred Stock").
The Board of Directors of the Corporation is expressly vested with
authority to issue one or more series of Preferred Stock having such
voting powers, full or limited, or no voting powers, and such
designations, preferences and relative, participating, optional or
other special rights, and qualifications, limitations or restrictions
thereof as are permitted by law and as shall be stated and expressed
in the resolution or resolutions providing for the issue of each such
series of stock adopted by the Board of Directors.
FIFTH: The Corporation is to have perpetual existence.
SIXTH: In furtherance and not in limitation of the powers conferred by
statute, the
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Restated Certificate of Incorporation of Quicksilver Resources Inc. Page 1
<PAGE>
board of directors is expressly authorized:
To make, alter or repeal the by-laws of the Corporation.
SEVENTH: Elections of directors need not be by written ballot unless the
by-laws of the Corporation shall so provide.
Meetings of stockholders may be held within or without the State of
Delaware, as the by-laws may provide. The books of the Corporation
may be kept (subject to any provision contained in the statutes)
outside the State of Delaware at such place or places as may be
designated from time to time by the board of directors or in the
by-laws of the Corporation.
EIGHTH: The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Restated Certificate of Incorporation,
in the manner now or hereafter prescribed by statute, and all rights
conferred upon stockholders herein are granted subject to this
reservation.
NINTH: A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director except for liability (i) for any breach
of the director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the Delaware General Corporation Law, or (iv) for
any transaction from which the director derived any improper personal
benefit. Neither the amendment nor repeal of this Article Nine, nor
the adoption of any provision of the Corporation's Certificate of
Incorporation inconsistent with this Article Nine, shall eliminate or
reduce the effect of this Article Nine in respect of any matter
occurring, or any cause of action, suit or claim that, but for this
Article Nine, would accrue or arise, prior to such amendment, repeal
or adoption of an inconsistent provision.
TENTH: To the fullest extent permitted by applicable law, the Corporation
shall indemnify any officer or director as set forth in the bylaws of
the Corporation, pursuant to Section 145 of the Delaware General
Corporation Law.
In witness whereof the Corporation has caused this Restated Certificate
of Incorporation to be signed by its authorized officer this _____ day of
____________, 1998.
QUICKSILVER RESOURCES INC.
By:
---------------------------------------------
Name:
-------------------------------------------
Title:
------------------------------------------
- --------------------------------------------------------------------------------
Restated Certificate of Incorporation of Quicksilver Resources Inc. Page 2
<PAGE>
THE STATE OF TEXAS
COUNTY OF TARRANT
This instrument was acknowledged before me on the __________ day of _______
_____________, 1998, by ____________________, __________________ of Quicksilver
Resources Inc., a Delaware corporation, on behalf of said corporation.
----------------------------------------
Notary Public, State of Texas
My Commission Expires:
- --------------------------
- --------------------------------------------------------------------------------
Restated Certificate of Incorporation of Quicksilver Resources Inc. Page 3
<PAGE>
BY-LAWS
QUICKSILVER RESOURCES INC.
ARTICLE I
OFFICES
Section 1. REGISTERED OFFICE. The registered office of the
Corporation shall be in the City of Wilmington, County of New Castle, State
of Delaware.
Section 2. OTHER OFFICES. The Corporation may also have offices at
such other place or places, both within and without the State of Delaware, as
the Board of Directors may from time to time determine or the business of the
Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. TIME AND PLACE OF MEETINGS. All meetings of the
stockholders for the election of directors shall be held at such time and
place, either within or without the State of Delaware, as shall be designated
from time to time by the Board of Directors and stated in the notice of the
meeting. Meetings of stockholders for any other purpose may be held at such
time and place, within or without the State of Delaware, as shall be stated
in the notice of the meeting or in a duly executed waiver of notice thereof.
Section 2. ANNUAL MEETINGS. Annual meetings of stockholders,
commencing with the year 1998, shall be held on such date and at such time as
shall be designated from time to time by the Board of Directors and stated in
the notice of the meeting, at which meeting the stockholders shall elect by a
plurality vote a Board of Directors and transact such other business as may
properly be brought before the meeting.
Section 3. NOTICE OF ANNUAL MEETINGS. Written notice of the annual
meeting, stating the place, date, and hour of the meeting, shall be given to
each stockholder of record entitled to vote at such meeting not less than 10
or more than 60 days before the date of the meeting.
Section 4. SPECIAL MEETINGS. Special meetings of the stockholders for
any purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, may be called at any time by order of the Board
of Directors, the Chairman of the Board or the President. Such request shall
state the purpose or purposes of the proposed special meeting. Business
transacted at any special meeting of stockholders shall be limited to the
purposes stated in the notice.
Section 5. NOTICE OF SPECIAL MEETINGS. Written notice of a special
meeting, stating the place, date, and hour of the meeting and the purpose or
purposes for which the meeting is called, shall be given
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Page 1
<PAGE>
to each stockholder of record entitled to vote at such meeting not less than
10 or more than 60 days before the date of the meeting.
Section 6. QUORUM. Except as otherwise provided by statute or the
Certificate of Incorporation, the holders of stock having a majority of the
voting power of the stock entitled to be voted thereat, present in person or
represented by proxy, shall constitute a quorum for the transaction of
business at all meetings of the stockholders. If, however, such quorum shall
not be present or represented at any meeting of the stockholders, the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time without
notice (other than announcement at the meeting at which the adjournment is
taken of the time and place of the adjourned meeting) until a quorum shall be
present or represented. At such adjourned meeting at which a quorum shall be
present or represented, any business may be transacted which might have been
transacted at the meeting as originally notified. If the adjournment is for
more than 30 days, or if after the adjournment a new record date is fixed for
the adjourned meeting, notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
Section 7. ORGANIZATION. At each meeting of the stockholders, the
Chairman of the Board or the President, determined as provided in Article V
of these By-Laws, or if those officers shall be absent therefrom, another
officer of the Corporation chosen as chairman present in person or by proxy
and entitled to vote thereat, or if all the officers of the Corporation shall
be absent therefrom, a stockholder holding of record shares of stock of the
Corporation so chosen, shall act as chairman of the meeting and preside
thereat. The Secretary, or if he shall be absent from such meeting or shall
be required pursuant to the provisions of this Section 7 to act as chairman
of such meeting, the person (who shall be an Assistant Secretary, if an
Assistant Secretary shall be present thereat) whom the chairman of such
meeting shall appoint, shall act as secretary of such meeting and keep the
minutes thereof.
Section 8. VOTING. Except as otherwise provided in the Certificate of
Incorporation, each stockholder shall, at each meeting of the stockholders,
be entitled to one vote in person or by proxy for each share of stock of the
Corporation held by him and registered in his name on the books of the
Corporation on the date fixed pursuant to the provisions of Section 5 of
Article VII of these By-Laws as the record date for the determination of
stockholders who shall be entitled to notice of and to vote at such meeting.
Shares of its own stock belonging to the Corporation or to another
corporation, if a majority of the shares entitled to vote in the election of
directors of such other corporation is held directly or indirectly by the
Corporation, shall not be entitled to vote. Any vote by stock of the
Corporation may be given at any meeting of the stockholders by the
stockholder entitled thereto, in person or by his proxy appointed by an
instrument in writing subscribed by such stockholder or by his attorney
thereunto duly authorized and delivered to the Secretary of the Corporation
or to the secretary of the meeting; provided, however, that no proxy shall be
voted or acted upon after three years from its date, unless said proxy shall
provide for a longer period. Each proxy shall be revocable unless
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Page 2
<PAGE>
expressly provided therein to be irrevocable and unless otherwise made
irrevocable by law. At all meetings of the stockholders all matters, except
where other provision is made by law, the Certificate of Incorporation, or
these By-Laws, shall be decided by the vote of a majority of the votes cast
by the stockholders present in person or by proxy and entitled to vote
thereat, a quorum being present. Unless demanded by a stockholder of the
Corporation present in person or by proxy at any meeting of the stockholders
and entitled to vote thereat, or so directed by the chairman of the meeting,
the vote thereat on any question other than the election or removal of
directors need not be by written ballot. Upon a demand of any such
stockholder for a vote by written ballot on any question or at the direction
of such chairman that a vote by written ballot be taken on any question, such
vote shall be taken by written ballot. On a vote by written ballot, each
ballot shall be signed by the stockholder voting, or by his proxy, if there
be such proxy, and shall state the number of shares voted.
Section 9. LIST OF STOCKHOLDERS. It shall be the duty of the Secretary
or other officer of the Corporation who shall have charge of its stock
ledger, either directly or through another officer of the Corporation
designated by him or through a transfer agent appointed by the Board of
Directors, to prepare and make, at least 10 days before every meeting of the
stockholders, a complete list of the stockholders entitled to vote thereat,
arranged in alphabetical order, and showing the address of each stockholder
and the number of shares registered in the name of each stockholder. Such
list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at
least 10 days before said meeting, either at a place within the city where
said meeting is to be held, which place shall be specified in the notice of
said meeting, or, if not so specified, at the place where said meeting is to
be held. The list shall also be produced and kept at the time and place of
said meeting during the whole time thereof, and may be inspected by any
stockholder of record who shall be present thereat. The stock ledger shall be
the only evidence as to who are the stockholders entitled to examine the
stock ledger, such list or the books of the Corporation, or to vote in person
or by proxy at any meeting of stockholders.
Section 10. INSPECTORS OF VOTES. At each meeting of the stockholders,
the chairman of such meeting may appoint two Inspectors of Votes to act
thereat, unless the Board of Directors shall have theretofore made such
appointments. Each Inspector of Votes so appointed shall first subscribe an
oath or affirmation faithfully to execute the duties of an Inspector of Votes
at such meeting with strict impartiality and according to the best of his
ability. Such Inspectors of Votes, if any, shall take charge of the ballots,
if any, at such meeting and, after the balloting thereat on any question,
shall count the ballots cast thereon and shall make a report in writing to
the secretary of such meeting of the results thereof. An Inspector of Votes
need not be a stockholder of the Corporation, and any officer of the
Corporation may be an Inspector of Votes on any question other than a vote
for or against his election to any position with the Corporation or on any
other question in which he may be directly interested.
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Page 3
<PAGE>
Section 11. ACTIONS WITHOUT A MEETING. Any action required to be taken
at any annual or special meeting of stockholders of the Corporation, or any
action which may by taken at any annual or special meeting of stockholders,
may be taken without a meeting, without prior notice, and without a vote if a
consent in writing, setting forth the action so taken, shall be signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereat were present and voted. Prompt
notice of the taking of the corporate action without a meeting by less than
unanimous written consent shall be given to those stockholders who have not
consented in writing.
ARTICLE III
BOARD OF DIRECTORS
Section 1. POWERS. The business and affairs of the Corporation shall
be managed by its Board of Directors, which shall have and may exercise all
such powers of the Corporation and do all such lawful acts and things as are
not by statute, the Certificate of Incorporation, or these By-Laws directed
or required to be exercised or done by the stockholders.
Section 2. NUMBER, QUALIFICATION, AND TERM OF OFFICE. The number of
directors which shall constitute the whole Board of Directors shall not be
less than one (1) or more than eight (8). Within the limits above specified,
the number of directors which shall constitute the whole Board of Directors
shall be determined by resolution of the Board of Directors or by the
stockholders at any annual or special meeting or otherwise pursuant to action
of the stockholders. Directors need not be stockholders. The directors shall
be elected at the annual meeting of the stockholders, except as provided in
Sections 4 and 5 of this Article III, and each director elected shall hold
office until the annual meeting next after his election and until his
successor is duly elected and qualified, or until his death or retirement or
until he resigns or is removed in the manner hereinafter provided. Directors
shall be elected by a plurality of the votes of the shares present in person
or represented by proxy and entitled to vote on the election of directors at
any annual or special meeting of stockholders. Such election shall be by
written ballot.
Section 3. RESIGNATIONS. Any director may resign at any time by giving
written notice of his resignation to the Corporation. Any such resignation
shall take effect at the time specified therein, or if the time when it shall
become effective shall not be specified therein, then it shall take effect
immediately upon its receipt by the Secretary. Unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make it
effective.
Section 4. REMOVAL OF DIRECTORS. Any director may be removed, either
with or without cause, at any time, by the affirmative vote by written ballot
of a majority in voting interest of the stockholders of record of the
Corporation entitled to vote, given at an annual meeting or at a special
meeting of the stockholders called for that purpose or
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Page 4
<PAGE>
otherwise. The vacancy in the Board of Directors caused by any such removal
shall be filled by the stockholders at such meeting or, if not so filled, by
the Board of Directors as provided in Section 5 of this Article III.
Section 5. VACANCIES. Vacancies and newly created directorships
resulting from any increase in the authorized number of directors may be
filled by a majority of the directors then in office though less than a
quorum, or by a sole remaining director, and the directors so chosen shall
hold office until the annual meeting next after their election and until
their successors are elected and qualified, unless sooner displaced. If there
are no directors in office, then an election of directors may be held in the
manner provided by statute.
MEETINGS OF THE BOARD OF DIRECTORS
Section 6. PLACE OF MEETINGS. The Board of Directors of the
Corporation may hold meetings, both regular and special, either within or
without the State of Delaware.
Section 7. ANNUAL MEETINGS. The first meeting of each newly elected
Board of Directors shall be held immediately following the annual meeting of
stockholders, and no notice of such meeting to the newly elected directors
shall be necessary in order legally to constitute the meeting, provided a
quorum shall be present. In the event such meeting is not held immediately
following the annual meeting of stockholders, the meeting may be held at such
time and place as shall be specified in a notice given as hereinafter
provided for special meetings of the Board of Directors, or as shall be
specified in a written waiver signed by all of the directors.
Section 8. REGULAR MEETINGS. Regular meetings of the Board of
Directors may be held without notice at such time and at such place as shall
from time to time be determined by the Board of Directors.
Section 9. SPECIAL MEETINGS; NOTICE. Special meetings of the Board of
Directors may be called by the Chairman of the Board, the President, or the
Secretary on 24 hours' notice to each director, either personally or by
telephone or by mail, telegraph, telex, cable, wireless, or other form of
recorded communication; special meetings shall be called by the Chairman of
the Board, the President, or the Secretary in like manner and on like notice
on the written request of two directors. Notice of any such meeting need not
be given to any director, however, if waived by him in writing or by
telegraph, telex, cable, wireless, or other form of recorded communication,
or if he shall be present at such meeting.
Section 10. QUORUM AND MANNER OF ACTING. At all meetings of the Board
of Directors, a majority of the directors at the time in office (but not less
than one-third of the whole Board of Directors) shall constitute a quorum for
the transaction of business, and the act of a majority of the directors
present at any meeting at which a quorum is present shall be the act of the
Board of Directors, except as may be otherwise specifically provided by
statute or by the Certificate of
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Incorporation. If a quorum shall not be present at any meeting of the Board
of Directors, the directors present thereat may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a
quorum shall be present.
Section 11. REMUNERATION. Unless otherwise expressly provided by
resolution adopted by the Board of Directors, none of the directors shall, as
such, receive any stated remuneration for his services; but the Board of
Directors may at any time and from time to time by resolution provide that a
specified sum shall be paid to any director of the Corporation, either as his
annual remuneration as such director or member of any committee of the Board
of Directors or as remuneration for his attendance at each meeting of the
Board of Directors or any such committee. The Board of Directors may also
likewise provide that the Corporation shall reimburse each director for any
expenses paid by him on account of his attendance at any meeting. Nothing in
this Section 11 shall be construed to preclude any director from serving the
Corporation in any other capacity and receiving remuneration therefor.
COMMITTEES OF DIRECTORS
Section 12. EXECUTIVE COMMITTEE; HOW CONSTITUTED AND POWERS. The Board
of Directors, by majority vote of the whole Board of Directors, may designate
an Executive Committee consisting of three of the directors of the
Corporation. Subject to the provisions of Section 141 of the Delaware General
Corporation Law, the Executive Committee shall have and may exercise all the
powers and authority of the Board of Directors in the management of the
business and affairs of the Corporation, and may authorize the seal of the
Corporation to be affixed to all papers which may require it. The Board of
Directors shall have the power at any time, by majority vote of the whole
Board of Directors, to change the membership of the Executive Committee, to
fill all vacancies in it, or to dissolve it, either with or without cause.
Section 13. ORGANIZATION. The Chairman of the Executive Committee, to
be selected by the Board of Directors, shall act as chairman at all meetings
of the Executive Committee and the Secretary shall act as secretary thereof.
In case of the absence from any meeting of the Executive Committee of the
Chairman of the Executive Committee or the Secretary, the Executive Committee
may appoint a chairman or secretary, as the case may be, of the meeting.
Section 14. MEETINGS. Regular meetings of the Executive Committee, of
which no notice shall be necessary, may be held on such days and at such
places, within or without the State of Delaware, as shall be fixed by
resolution adopted by a majority of the Executive Committee and communicated
in writing to all its members. Special meetings of the Executive Committee
shall be held whenever called by the Chairman of the Executive Committee or a
majority of the members of the Executive Committee then in office. Notice of
each special meeting of the Executive Committee shall be given by mail,
telegraph, telex, cable, wireless, or other form of recorded communication or
be delivered personally or by telephone to each member of the Executive
Committee not later than the day before the day on which such meeting is to
be held.
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Notice of any such meeting need not be given to any member of the Executive
Committee, however, if waived by him in writing or by telegraph, telex,
cable, wireless, or other form of recorded communication, or if he shall be
present at such meeting; and any meeting of the Executive Committee shall be
a legal meeting without any notice thereof having been given, if all the
members of the Executive Committee shall be present thereat. Subject to the
provisions of this Article III, the Executive Committee, by resolution
adopted by a majority of the whole Executive Committee, shall fix its own
rules of procedure.
Section 15. QUORUM AND MANNER OF ACTING. A majority of the Executive
Committee shall constitute a quorum for the transaction of business, and the
act of a majority of those present at a meeting thereof at which a quorum is
present shall be the act of the Executive Committee.
Section 16. OTHER COMMITTEES. The Board of Directors may, by
resolution or resolutions passed by a majority of the whole Board of
Directors, designate one or more other committees consisting of one or more
directors of the Corporation, which, to the extent provided in said
resolution or resolutions, shall have and may exercise, subject to the
provisions of Section 141 of the General Corporation Law of the State of
Delaware, the Certificate of Incorporation, and these By-Laws, the powers and
authority of the Board of Directors in the management of the business and
affairs of the Corporation, and shall have the power to authorize the seal of
the Corporation to be affixed to all papers which may require it; but no such
committee shall have the power to fill vacancies in the Board of Directors,
the Executive Committee, or any other committee or in their respective
membership, to appoint or remove officers of the Corporation, or to authorize
the issuance of shares of the capital stock of the Corporation, except that
such a committee may, to the extent provided in said resolutions, grant and
authorize options and other rights with respect to the common stock of the
Corporation pursuant to and in accordance with any plan approved by the Board
of Directors. Such committee or committees shall have such name or names as
may be determined from time to time by resolution adopted by the Board of
Directors. A majority of all the members of any such E committee may
determine its action and fix the time and place of its meetings and specify
what notice thereof, if any, shall be given, unless the Board of Directors
shall otherwise provide. The Board of Directors. shall have power to change
the members of any such committee at any time to fill vacancies, and to
discharge any such committee, either with or without cause, at any time.
Section 17. ALTERNATE MEMBER OF COMMITTEES. The Board of Directors may
designate one or more directors as alternate members of the Executive
Committee or any other committee, who may replace any absent or disqualified
member at any meeting of the committee, or if none be so appointed, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously
appoint another member of the Board of Directors to act at the meeting in the
place of any such absent or disqualified member.
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Section 18. MINUTES OF COMMITTEES. Each committee shall keep regular
minutes of its meetings and proceedings and report the same to the Board of
Directors at the next meeting thereof.
GENERAL
Section 19. ACTIONS WITHOUT A MEETING. Unless otherwise restricted by
the Certificate of Incorporation or these By-Laws, any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if all members of the Board
of Directors or committee, as the case may be, consent thereto in writing and
the writing or writings are filed with the minutes of proceedings of the
Board of Directors or the committee.
Section 20. PRESENCE AT MEETINGS BY MEANS OF COMMUNICATIONS EQUIPMENT.
Members of the Board of Directors, or of any committee designated by the
Board of Directors, may participate in a meeting of the Board of Directors or
such committee by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting conducted pursuant to this Section
20 shall constitute presence in person at such meeting.
ARTICLE IV
NOTICES
Section 1. TYPE OF NOTICE. Whenever, under the provisions of any
applicable statute, the Certificate of Incorporation, or these By-Laws,
notice is required to be given to any director or stockholder, it shall not
be construed to mean personal notice, but such notice may be given in
writing, in person or by mail, addressed to such director or stockholder, at
his address as it appears on the records of the Corporation, with postage
thereon prepaid, and such notice shall be deemed to be given at the time when
the same shall be deposited in the United States mail. Notice to directors
may also be given in any manner permitted by Article III hereof and shall be
deemed to be given at the time when first transmitted by the method of
communication so permitted.
Section 2. WAIVER OF NOTICE. Whenever any notice is required to be
given under the provisions of any applicable statute, the Certificate of
Incorporation, or these By-Laws, a waiver thereof in writing, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto, and transmission of a
waiver of notice by a director or stockholder by mail, telegraph, telex,
cable, wireless, or other form of recorded communication may constitute such
a waiver.
Section 3. WHEN NOTICE UNNECESSARY. Whenever, under the provisions of
the Act, the Certificate of Incorporation or these Bylaws, any notice is
required to be given to any stockholder, such notice need not be given to the
stockholder if:
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(a) notice of two consecutive annual meetings and all notices of meetings
held during the period between those annual meetings, if any, or
(b) all (but in no event less than two) payments (if sent by first class
mail) of distributions or interest on securities during a 12-month
period, have been mailed to that person, addressed at his address as
shown on the records of the Corporation, and have been returned
undeliverable. Any action or meeting taken or held without notice to
such a person shall have the same force and effect as if the notice
had been duly given. If such a person delivers to the Corporation a
written notice setting forth his then current address, the requirement
that notice be given to that person shall be reinstated.
ARTICLE V
OFFICERS
Section 1. ELECTED AND APPOINTED OFFICERS. The elected officers of the
Corporation shall be a President, one or more Vice Presidents, with or
without such descriptive titles as the Board of Directors shall deem
appropriate, a Secretary, and a Treasurer, and, if the Board of Directors so
elects, a Chairman of the Board (who shall be a director) and a Controller.
The Board of Directors or the Executive Committee of the Board of Directors
by resolution also may appoint one or more Assistant Vice Presidents,
Assistant Treasurers, Assistant Secretaries, Assistant Controllers, and such
other officers and agents as from time to time may appear to be necessary or
advisable in the conduct of the affairs of the Corporation.
Section 2. TIME OF ELECTION OR APPOINTMENT. The Board of Directors at
its annual meeting shall elect or appoint, as the case may be, the officers
to fill the positions designated in or pursuant to Section 1 of this Article
V. Officers of the Corporation may also be elected or appointed, as the case
may be, at any other time.
Section 3. SALARIES OF ELECTED OFFICERS. The salaries of all elected
officers of the Corporation shall be fixed by the Board of Directors.
Section 4. TERM. Each officer of the Corporation shall hold his office
until his successor is duly elected or appointed and qualified or until his
earlier resignation or removal. Any officer may resign at any time upon
written notice to the Corporation. Any officer elected or appointed by the
Board of Directors or the Executive Committee may be removed at any time by
the affirmative vote of a majority of the whole Board of Directors. Any
vacancy occurring in any office of the Corporation by death, resignation,
removal, or otherwise may be filled by the Board of Directors or the
appropriate committee thereof.
Section 5. DUTIES OF THE CHAIRMAN OF THE BOARD. The Chairman of the
Board, if one be elected, shall be the chief executive officer of the
Corporation and shall have all of the powers and duties as are
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provided for the chief executive officer of the Corporation as specified in
Section 6 below, in the absence of any person designated and elected to be
the Chairman of the Board, and shall preside when present at all meetings of
the Board of Directors and at all meetings of the stockholders. In addition,
he shall advise and counsel the President and other officers of the
Corporation, and shall exercise such powers and perform such duties as shall
be assigned to or required of him from time to time by the Board of Directors.
Section 6. DUTIES OF THE PRESIDENT. In the absence of any person
designated and elected to be the Chairman of the Board, The President shall
be the chief executive officer of the Corporation and, subject to the
provisions of these By-Laws, shall have the general supervision of the
affairs of the Corporation and shall have general and active control of all
of its business. He shall preside, when present, at all meetings of
stockholders and all meetings of the Board of Directors, except when the
Chairman of the Board presides and as may otherwise be provided by statute or
by the By-Laws. The chief executive officer shall see that all orders and
resolutions of the Board of Directors and the stockholders are carried into
effect. The chief executive officer shall have general authority to execute
bonds, deeds, and contracts in the name of the Corporation and affix the
corporate seal thereto; to sign stock certificates; to cause the employment
or appointment of such employees and agents of the Corporation as the proper
conduct of operations may require, and to fix their compensation, subject to
the provisions of the By-Laws; to remove or suspend any employee or agent who
shall have been employed or appointed under his authority or under authority
of an officer subordinate to him; to suspend for cause, pending final action
by the authority which shall have elected or appointed him, any officer
subordinate to the chief executive officer; and, in general, to exercise all
powers and authority usually appertaining to the chief executive officer of a
corporation and except as otherwise provided in these By-Laws. The President
shall advise and counsel the Chairman of the Board and the officers of the
Corporation, and shall exercise such powers and perform such duties as shall
be assigned to or required of him from time to time by the Board of Directors
and the Chairman of the Board.
Section 7. DUTIES OF VICE PRESIDENTS. In the absence of the President
or in the event of his inability or refusal to act, the Vice President (or in
the event there be more than one Vice President, the Vice Presidents in the
order designated, or in the absence of any designation, then in the order of
their election) shall perform the duties of the President and, when so
acting, shall have all the powers of and be subject to all the restrictions
upon the President. The Vice Presidents shall perform such other duties and
have such other powers as the Board of Directors or the President may from
time to time prescribe.
Section 8. DUTIES OF ASSISTANT VICE PRESIDENTS. In the absence of a
Vice President or in the event of his inability or refusal to act, the
Assistant Vice President (or in the event there shall be more than one, the
Assistant Vice Presidents in the order designated by the Board of Directors,
or in the absence of any designation, then in the order of their appointment)
shall perform the duties and exercise the powers of that Vice President, and
shall perform such other duties and have such
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other powers as the Board of Directors, the President, or the Vice President
under whose supervision he is appointed may from time to time prescribe.
Section 9. DUTIES OF THE SECRETARY. The Secretary shall attend all
meetings of the Board of Directors and all meetings of the stockholders and
record all the proceedings of the meetings of the Corporation and of the
Board of Directors in a book to be kept for that purpose and shall perform
like duties for the Executive Committee or other standing committees when
required. He shall give, or cause to be given, notice of all meetings of the
stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors or
the President, under whose supervision he shall be. He shall have custody of
the corporate seal of the Corporation, and he, or an Assistant Secretary,
shall have authority to affix the same to any instrument requiring it, and
when so affixed, it may be attested by his signature or by the signature of
such Assistant Secretary. The Board of Directors may give general authority
to any other officer to affix the seal of the Corporation and to attest the
affixing by his signature. The Secretary shall keep and account for all
books, documents, papers, and records of the Corporation, except those for
which some other officer or agent is properly accountable. He shall have
authority to sign stock certificates and shall generally perform all the
duties usually appertaining to the office of the secretary of a corporation.
Section 10. DUTIES OF ASSISTANT SECRETARIES. In the absence of the
Secretary or in the event of his inability or refusal to act, the Assistant
Secretary (or, if there shall be more than one, the Assistant Secretaries in
the order designated by the Board of Directors, or in the absence of any
designation, then in the order of their appointment) shall perform the duties
and exercise the powers of the Secretary and shall perform such other duties
and have such other powers as the Board of Directors, the President, or the
Secretary may from time to time prescribe.
Section 11. DUTIES OF THE TREASURER. The Treasurer shall have the
custody of the corporate funds and securities and shall keep full and
accurate accounts of receipts and disbursements in books belonging to the
Corporation and shall deposit all moneys and other valuable effects in the
name and to the credit of the Corporation in such depositories as may be
designated by the Board of Directors. He shall disburse the funds of the
Corporation as may be ordered by the Board of Directors, taking proper
vouchers for such disbursements, and shall render to the President and the
Board of Directors, at its regular meetings or when the Board of Directors so
requires, an account of all his transactions as Treasurer and of the
financial condition of the Corporation. If required by the Board of
Directors, he shall give the Corporation a bond (which shall be renewed every
six years) in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of his office and for the restoration to the Corporation, in case of
his death, resignation, retirement, or removal from office, of all books,
papers, vouchers, money, and other property of whatever kind in his
possession or under his control belonging to the Corporation. The Treasurer
shall be under
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the supervision of the Vice President in charge of finance, if one is so
designated, and he shall perform such other duties as may be prescribed by
the Board of Directors, the President, or any such Vice President in charge
of finance.
Section 12. DUTIES OF ASSISTANT TREASURERS. The Assistant Treasurer or
Assistant Treasurers shall assist the Treasurer, and in the absence of the
Treasurer or in the event of his inability or refusal to act, the Assistant
Treasurer (or in the event there shall be more than one, the Assistant
Treasurers in the order designated by the Board of Directors, or in the
absence of any designation, then in the order of their appointment) shall
perform the duties and exercise the powers of the Treasurer and shall perform
such other duties and have such other powers as the Board of Directors, the
President, or the Treasurer may from time to time prescribe.
Section 13. DUTIES OF THE CONTROLLER. The Controller, if one is
appointed, shall have supervision of the accounting practices of the
Corporation and shall prescribe the duties and powers of any other accounting
personnel of the Corporation. He shall cause to be maintained an adequate
system of financial control through a program of budgets and interpretive
reports. He shall initiate and enforce measures and procedures whereby the
business of the Corporation shall be conducted with the maximum efficiency
and economy. If required, he shall prepare a monthly report covering the
operating results of the Corporation. The Controller shall be under the
supervision of the Vice President in charge of finance, if one is so
designated, and he shall perform such other duties as may be prescribed by
the Board of Directors, the President, or any such Vice President in charge
of finance.
Section 14. DUTIES OF ASSISTANT CONTROLLER. The Assistant Controller
or Assistant Controllers shall assist the Controller, and in the absence of
the Controller or in the event of his inability or refusal to act, the
Assistant Controller (or, if there shall be more than one, the Assistant
Controllers in the order designated by the Board of Directors, or in the
absence of any designation, then in the order of their appointment) shall
perform the duties and exercise the powers of the Controller and perform such
other duties and have such other powers as the Board of Directors, the
President, or the Controller may from time to time prescribe.
ARTICLE VI
INDEMNIFICATION
Section 1. ACTIONS OTHER THAN BY OR IN THE RIGHT OF THE CORPORATION.
The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed
action, suit, or proceeding, whether civil, criminal, administrative, or
investigative (other than an action by or in the right of the Corporation),
by reason of the fact that he is or was a director, officer, employee, or
agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust, or other enterprise (all of
such persons being hereafter referred
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to in this Article as a "Corporate Functionary"), against expenses (including
attorneys' fees), judgments, fines, and amounts paid in settlement actually
and reasonably incurred by him in connection with such action, suit, or
proceeding, if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the Corporation and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful. The termination of any action, suit, or
proceeding by judgment, order, settlement, or conviction, or upon a plea of
nolo contendere or its equivalent, shall not, of itself, create a presumption
that the person did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the Corporation or,
with respect to any criminal action or proceeding, that he had reasonable
cause to believe that his conduct was unlawful.
Section 2. ACTIONS BY OR IN THE RIGHT OF THE CORPORATION. The
Corporation shall indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending, or completed action or suit by
or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he is or was a Corporate Functionary against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit, if he acted
in good faith and in a manner he reasonably believed to be in or not opposed
to the best interests of the Corporation, except that no indemnification
shall be made in respect of any claim, issue, or matter as to which such
person shall have been adjudged to be liable to the Corporation, unless and
only to the extent that the Court of Chancery or the court in which such
action or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
Section 3. DETERMINATION OF RIGHT TO INDEMNIFICATION. Any
indemnification under Sections 1 or 2 of this Article VI (unless ordered by a
court) shall be made by the Corporation only as authorized in the specific
case upon a determination that indemnification of the Corporate Functionary
is proper in the circumstances because he has met the applicable standard of
conduct set forth in Sections 1 or 2 of this Article VI. Such determination
shall be made (i) by the Board of Directors by a majority vote of a quorum
consisting of directors who were not parties to such action, suit, or
proceeding, or (ii) if such a quorum is not obtainable, or, even if
obtainable if a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (iii) by the stockholders.
Section 4. RIGHT TO INDEMNIFICATION. Notwithstanding the other
provisions of this Article VI, to the extent that a Corporate Functionary has
been successful on the merits or otherwise in defense of any action, suit, or
proceeding referred to in Sections 1 or 2 of this Article VI (including the
dismissal of a proceeding without prejudice or the settlement of a proceeding
without admission of liability), or in defense of any claim, issue, or,
matter therein, he shall be indemnified
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against expenses (including attorneys' fees) actually and reasonably incurred
by him in connection therewith.
Section 5. PREPAID EXPENSES. Expenses incurred in defending a civil or
criminal action, suit, or proceeding shall be paid by the Corporation in
advance of the final disposition of such action, suit, or proceeding, upon
receipt of an undertaking by or on behalf of the Corporate Functionary to
repay such amount if it shall ultimately be determined he is not entitled to
be indemnified by the Corporation as authorized in this Article VI.
Section 6. RIGHT TO INDEMNIFICATION UPON APPLICATION; PROCEDURE UPON
APPLICATION. Any indemnification under Sections 2, 3 and 4, or any advance
under Section 5, of this Article VI shall be made promptly upon, and in any
event within 60 days after, the written request of the Corporate Functionary,
unless with respect to applications under Sections 2, 3 or 5 of this Article
VI, a determination is reasonably and promptly made by the Board of Directors
by majority vote of a quorum consisting of disinterested directors that such
Corporate Functionary acted in a manner set forth in such Sections as to
justify the Corporation in not indemnifying or making an advance of expenses
to the Corporate Functionary. If no quorum of disinterested directors is
obtainable, the Board of Directors shall promptly direct that independent
legal counsel shall decide whether the Corporate Functionary acted in a
manner set forth in such Sections as to justify the Corporation's not
indemnifying or making an advance of expenses to the Corporate Functionary.
The right to indemnification or advance of expenses granted by this Article
VI shall be enforceable by the Corporate Functionary in any court of
competent jurisdiction if the Board of Directors or independent legal counsel
denies his claim, in whole or in part, or if no disposition of such claim is
made within 60 days. The expenses of the Corporate Functionary incurred in
connection with successfully establishing his right to indemnification, in
whole or in part, in any such proceeding shall also be indemnified by the
Corporation.
Section 7. OTHER RIGHTS AND REMEDIES. The indemnification and
advancement of expenses or provided by or granted pursuant to this Article VI
shall not be deemed exclusive of any other rights to which any person seeking
indemnification and advancement of expenses or may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors, or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall, unless otherwise
provided when authorized or ratified, continue as to a person who has ceased
to be a Corporate Functionary and shall inure to the benefit of the heirs,
executors, and administrators of such a person. Any repeal or modification of
these by-laws or relevant provisions of the Delaware General Corporation Law
and other applicable law, if any, shall not affect any then existing rights
of a Corporate Functionary to indemnification or advancement of expenses.
Section 8. INSURANCE. Upon resolution passed by the Board of
Directors, the Corporation may purchase and maintain insurance on behalf of
any person who is or was a director, officer, employee, or agent of the
Corporation, or is or was serving at the request of the Corporation
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as a director, officer, employee, or agent of another corporation,
partnership, joint venture, trust, or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising out
of his status as such, whether or not the Corporation would have the power to
indemnify him against such liability under the provisions of this Article VI.
Section 9. MERGERS. For purposes of this Article VI, references to
"the Corporation" shall include, in addition to the resulting or surviving
corporation, constituent corporations (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, employees, or agents, so that any person who is or was a
director, officer, employee, or agent of such constituent corporation or is
or was serving at the request of such constituent corporation as a director,
officer, employee, or agent of another corporation, partnership, joint
venture, trust, or other enterprise shall stand in the same position under
the provisions of this Article VI with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if
its separate existence had continued.
Section 10. SAVINGS PROVISION. If this Article VI or any portion
hereof shall be invalidated on any ground by a court of competent
jurisdiction, the Corporation shall nevertheless indemnify each Corporate
Functionary as to expenses (including attorneys' fees), judgments, fines, and
amounts paid in settlement with respect to any action, suit, proceeding, or
investigation, whether civil, criminal, or administrative, including a grand
jury proceeding or action or suit brought by or in the right of the
Corporation, to the full extent permitted by any applicable portion of this
Article VI that shall not have been invalidated.
ARTICLE VII
CERTIFICATES REPRESENTING STOCK
Section 1. RIGHT TO CERTIFICATE. Every holder of stock in the
Corporation shall be entitled to have a certificate, signed by, or in the
name of the Corporation by, the Chairman of the Board, the President, or a
Vice President and by the Secretary or an Assistant Secretary of the
Corporation, certifying the number of shares owned by him in the Corporation.
If the Corporation shall be authorized to issue more than one class of stock
or more than one series of any class, the powers, designations, preferences,
and relative, participating, optional, or other special rights of each class
of stock or series thereof and the qualifications, limitations, or
restrictions of such preferences or rights shall be set forth in full or
summarized on the face or back of the certificate which the Corporation shall
issue to represent such class or series of stock; provided, that, except as
otherwise provided in Section 202 of the General Corporation Law of the State
of Delaware; in lieu of the foregoing requirements, there may be set forth on
the face or back of the certificate which the Corporation shall issue to
represent such class or series of stock a statement that the Corporation will
furnish without charge to each stockholder who so
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requests the powers, designations, preferences, and relative, participating,
optional, or other special rights of each class of stock or series thereof
and the qualifications, limitations, or restrictions of such preferences or
rights.
Section 2. FACSIMILE SIGNATURES. Any of or all the signatures on the
certificate may be facsimile. In case any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent, or
registrar before such certificate is issued, it may be issued by the
Corporation with the same effect as if he were such officer, transfer agent,
or registrar at the date of issue.
Section 3. NEW CERTIFICATES. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation and alleged to have been
lost, stolen, or destroyed, upon the making of an affidavit of that fact by
the person claiming the certificate of stock to be lost, stolen, or
destroyed. When authorizing such issue of a new certificate or certificates,
the Board of Directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen, or destroyed
certificate or certificates, or his legal representative, to advertise the
same in such manner as it shall require or to give the Corporation a bond in
such sum as it may direct as indemnity against any claim that may be made
against the Corporation with respect to the certificate alleged to have been
lost, stolen, or destroyed or the issuance of such new certificate.
Section 4. TRANSFERS. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate for shares duly endorsed
or accompanied by proper evidence of succession, assignation, or authority to
transfer, it shall be the duty of the Corporation, subject to any proper
restrictions on transfer, to issue a new certificate to the person entitled
thereto, cancel the old certificate, and record the transaction upon its
books.
Section 5. RECORD DATE. The Board of Directors may fix in advance a
date, not preceding the date on which the resolution fixing the record date
is adopted, and
(i) not more than 60 days nor less than 10 days preceding the date of
any meeting of stockholders, as a record date for the
determination of the stockholders entitled to notice of, and to
vote at, any such meeting and any adjournment thereof,
(ii) not more than 10 days after the date on which the resolution
fixing the record date is adopted, as a record date in connection
with obtaining a consent of the stockholders in writing to
corporate action without a meeting, or
(iii) not more than 60 days before the date for payment of any dividend
or distribution, or the date for the allotment of rights, or the
date when any change, or conversion or
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Page 16
<PAGE>
exchange of capital stock shall go into effect, or the date on
which any other lawful action shall be taken, as the record date
for determining the stockholders entitled to receive payment of any
such dividend or distribution, or to receive any such allotment of
rights, or to exercise the rights in respect of any such change,
conversion or exchange of capital stock or other lawful action of
the corporation,
and in such case such stockholders and only such stockholders as shall be
stockholders of record on the date so fixed shall be entitled to such notice
of, and to vote at, any such meeting and any adjournment thereof (provided,
however, that the Board of Directors may fix a new record date for an
adjourned meeting), or to give such consent, or to receive payment of such
dividend or distribution, or to receive such allotment of rights, or to
exercise such rights, as the case may be, notwithstanding any transfer of any
stock on the books of the corporation after any such record date fixed as
aforesaid.
Section 6. REGISTERED STOCKHOLDERS. The Corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and to hold
liable for calls and assessments a person registered on its books as the
owner of shares, and shall not be bound to recognize any equitable or other
claim to or interest in such share or shares on the part of any other person,
whether or not provided by the laws of the State of Delaware.
ARTICLE VIII
GENERAL PROVISIONS
Section 1. DIVIDENDS. Dividends upon the capital stock of the
Corporation, if any, subject to the provisions of the Certificate of
Incorporation, may be declared by the Board of Directors (but not any
committee thereof) at any regular meeting, pursuant to law. Dividends may be
paid in cash, in property, or in shares of the capital stock, subject to the
provisions of the Certificate of Incorporation.
Section 2. RESERVES. Before payment of any dividend, there may be set
aside out of any funds of the Corporation available for dividends such sum or
sums as the Board of Directors from time to time, in their absolute
discretion, thinks proper as a reserve or reserves to meet contingencies, or
for equalizing dividends, or for repairing or maintaining any property of the
Corporation, or for such other purpose as the Board of Directors shall think
conducive to the interest of the Corporation, and the Board of Directors may
modify or abolish any such reserve in the manner in which it was created.
Section 3. ANNUAL STATEMENT. The Board of Directors shall present at
each annual meeting, and at any special meeting of the stockholders when
called for by vote of the stockholders, a full and clear statement of the
business and condition of the Corporation.
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Page 17
<PAGE>
Section 4. CHECKS. All checks or demands for money and promissory
notes of the Corporation shall be signed by such officer or officers or such
other person or persons as the Board of Directors may from time ,to time
prescribe.
Section 5. FISCAL YEAR. The fiscal year of the Corporation shall be
determined by the Board of Directors.
Section 6. CORPORATE SEAL. The corporate seal shall have inscribed
thereon the name of the Corporation, the year of its organization, and the
word "Delaware." The seal may be used by causing it or a facsimile thereof to
be impressed, affixed, reproduced, or otherwise.
ARTICLE IX
AMENDMENTS
These By-Laws may be altered, amended, or repealed or new By-Laws may be
adopted by the stockholders or by the Board of Directors at any regular
meeting of the stockholders or the Board of Directors or at any special
meeting of the stockholders or the Board of Directors if notice of such
alteration, amendment, repeal, or adoption of new By-Laws be contained in the
notice of such special meeting.
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Page 18
<PAGE>
[Date]
Quicksilver Resources Inc.
1619 Pennsylvania Avenue
Fort Worth, Texas 76104
Ladies and Gentlemen:
We have acted as counsel to Quicksilver Resources Inc., a Delaware
corporation ("Quicksilver"), in connection with the registration of _______
shares of its common stock, $.01 par value per share (the "Shares"), pursuant to
a Registration Statement on Form S-4 (No. 333-_____) under the Securities Act of
1933, as amended (the "Registration Statement"), and in connection with the
issuance of the Shares pursuant to the Merger Agreement as therein defined.
Unless otherwise defined herein, capitalized terms used in this opinion have the
same meanings as in the Registration Statement.
Our opinion is limited in all respects to the substantive law of the State
of Texas, the federal law of the United States, and the Delaware General
Corporation Law, and we assume no responsibility as to the applicability
thereto, or the effect thereon, of the laws of any other jurisdiction.
BASES OF OPINION
As counsel to Quicksilver, we have examined the Registration Statement, the
Merger Agreement, Quicksilver's Restated Certificate of Incorporation and all
amendments thereto, its Bylaws and all amendments thereto, and other corporate
records of Quicksilver and have made such other investigations as we have deemed
necessary in connection with the opinion hereinafter set forth.
ASSUMPTIONS AND QUALIFICATIONS
For purposes of this opinion we have assumed the genuineness of all
signatures on all documents, the authenticity of all documents submitted to us
as originals, the conformity to the originals of all documents submitted to us
as copies, and the correctness and accuracy of all facts set forth in all
certificates and documents that we have examined.
<PAGE>
[Date]
Page 2
We have also assumed that at the time the Shares are issued the Merger
Agreement will have been consummated in accordance with its terms and
Quicksilver will have become the Surviving Corporation.
OPINION
Based upon and subject to the foregoing, it is our opinion that the Shares
to be issued have been duly authorized and will be, when the Registration
Statement has become effective and the Shares are issued in accordance with the
Merger Agreement, legally issued, fully paid and non-assessable.
This opinion is limited to the matters stated herein and no opinion is
implied or may be inferred beyond the matters expressly stated. We consent to
the filing of this opinion as an exhibit to the Registration Statement.
Very truly yours,
CANTEY & HANGER, L.L.P.
By:
---------------------------------
SBB:hw
<PAGE>
[LETTERHEAD]
__________, 1998
MSR Exploration Ltd.
1619 Pennsylvania Avenue
Fort Worth, Texas 76102
Ladies and Gentlemen:
We have acted as counsel to MSR Exploration Ltd., a Delaware
corporation ("MSR"), in connection with the proposed merger (the "Merger") of
MSR with and into Quicksilver Resources, Inc., a Delaware corporation, and
the registration of 2,577,700 shares of the common stock of Quicksilver
("Quicksilver Common Shares") that may be issued pursuant to the Agreement
and Plan of Merger (the "Merger Agreement") dated September 1, 1998, all as
described in the Form S-4 registration statement filed with the Securities
and Exchange Commission (the "Commission") on __________, 1998 (as thereafter
amended from time to time and together with all exhibits thereto, the
"Registration Statement"). Except as otherwise indicated, capitalized terms
used herein shall have the meanings assigned to them in the Registration
Statement.
Set forth below are our opinions and the assumptions and documents upon
which we have relied in rendering our opinions.
A. DOCUMENTS REVIEWED
In connection with the opinions rendered below, we have reviewed and
relied upon the following documents:
1. the Registration Statement,
2. the Merger Agreement,
3. the Certificates of MSR and Quicksilver attached hereto as
Exhibit "A" and Exhibit "B," respectively (collectively, the "Certificates"),
and
<PAGE>
[LETTERHEAD]
MSR Exploration Ltd.
_____________, 1998
Page 2
4. such other documents as we have deemed necessary or
appropriate for purposes of this opinion.
B. ASSUMPTIONS
In connection with the opinions rendered below, we have assumed:
1. that all signatures on all documents submitted to us are
genuine, that all documents submitted to us as originals are authentic, that
all documents submitted to us as copies are accurate, that all information
submitted to us is accurate and complete, and that all persons executing and
delivering originals or copies of documents examined by us are competent to
execute and deliver such documents.
2. that the Merger and the other transactions specified in the
Registration Statement to be effected on or prior to the Closing Date will be
consummated as contemplated in the Registration Statement and without waiver
of any material provision thereof.
C. OPINIONS
Based solely upon the documents and assumptions set forth above, and
conditioned upon the initial and continuing accuracy of the factual
representations set forth in the Certificates as of the date hereof and as of
the date of the Effective Time of the Merger, it is our opinion that:
(a) the Merger will be a reorganization within the meaning of
section 368(a)(1)(A) of the Code; and
(b) the descriptions of the law and the legal conclusions
contained in the Registration Statement under the caption "Material United
States Federal Income Tax Consequences to Shareholder of MSR Pursuant to the
Merger" are correct in all material respects and that the discussion
thereunder represents an accurate summary of the United States federal income
tax consequences of the Merger that are material to the shareholders of MSR.
D. LIMITATIONS
1. Except as otherwise indicated, the opinions contained in this
letter are based upon the Code and its legislative history, the
Treasury regulations promulgated thereunder (the "Regulations"),
judicial decisions, and current administrative rulings and practices
of the Internal Revenue Service, all as in effect on the date of
<PAGE>
[LETTERHEAD]
MSR Exploration Ltd.
_____________, 1998
Page 3
this letter. These authorities may be amended or revoked at any
time. Any such changes may or may not be retroactive with respect
to transactions entered into or contemplated prior to the effective
date thereof and could significantly alter the conclusions reached
in this letter. There is no assurance that legislative, judicial,
or administrative changes will not occur in the future. We assume
no obligation to update or modify this letter to reflect any
developments that may occur after the date of this letter.
2. The opinions expressed herein represent counsel's best legal
judgment and are not binding upon the Internal Revenue Service or the
courts and are dependent upon the accuracy and completeness of the
documents we have reviewed under the circumstances, the assumptions
made and the factual representations contained in the Certificates.
To the extent that any of the factual representations provided to us
in the Certificates is with respect to matters set forth in the Code
or the Regulations, we have reviewed with the individuals making such
factual representations the relevant portions of the Code and the
applicable Regulations and are reasonably satisfied that such
individuals understand such provisions and are capable of making such
factual representations. We have made no independent investigation of
the facts contained in the documents and assumptions set forth above,
the factual representations set forth in the Certificates or the
Registration Statement. No facts have come to our attention, however,
that would cause us to question the accuracy and completeness of such
facts or documents in a material way. Any material inaccuracy or
incompleteness in these documents, assumptions or factual
representations (whether made by any or all of MSR or Quicksilver)
could adversely affect the opinions stated herein.
3. We are expressing opinions only as to those matters expressly set
forth in Section C above. No opinion should be inferred as to any
other matters. This opinion does not address the various state, local
or foreign tax consequences that may result from the Merger or the
other transactions contemplated by the Merger Agreement. In addition,
no opinion is expressed as to any federal income tax consequence of
the Merger or the other transactions contemplated by the Merger
Agreement except as specifically set forth herein, and this opinion
may not be relied upon except with respect to the consequences
specifically discussed herein.
4. This opinion letter is issued for your benefit and the
shareholders of MSR and no other person or entity may rely hereon
without our express written consent. This opinion letter may be filed
as an exhibit to the Registration Statement.
<PAGE>
[LETTERHEAD]
MSR Exploration Ltd.
_____________, 1998
Page 4
Furthermore, we consent to the reference to Jenkens & Gilchrist, a
Professional Corporation, under the captions "Legal Matters" and
"Material United States Federal Income Tax Consequences to
Shareholders of MSR Pursuant to the Merger." In giving this
consent, we do not thereby admit that we are within the category of
persons whose consent is required under section 7 of the Securities
Act of 1933, as amended, or the rules and regulations of the
Commission promulgated thereunder.
Very truly yours,
JENKENS & GILCHRIST,
a Professional Corporation
By:
---------------------------------------
William P. Bowers, Authorized Signatory
<PAGE>
CONSENT AND VOTING AGREEMENT
This Consent and Voting Agreement (this "Agreement") dated September 1,
1998 is by and among Quicksilver Resources Inc., a Delaware corporation (the
"Company"), MSR Exploration Ltd., a Delaware corporation ("MSR"), Mercury
Exploration Company, a Texas corporation ("Mercury"), Quicksilver Energy,
L.C., a Michigan limited liability company ("QELC"), Frank Darden, Thomas F.
Darden, Glenn M. Darden, Anne Darden Self, Trust Company of the West, a
California trust company, in its capacity described on the signature pages
hereto ("TCW") and Joint Energy Development Investments Limited Partnership,
a Delaware limited partnership ("JEDI").
WHEREAS, on even date herewith, the Company and MSR are entering into an
Agreement and Plan of Reorganization and Merger dated as of September 1, 1998
(the "Merger Agreement"), pursuant to which MSR would be merged (the
"Merger") with and into the Company; and
WHEREAS, Mercury, QELC, Frank Darden, Thomas F. Darden, Glenn M. Darden,
Anne Darden Self, JEDI and TCW (collectively, the "Stockholders" and each, a
"Stockholder") are the holders of 96,357 shares of common stock, par value
$.01 (the "Common Stock") of the Company; and
WHEREAS, pursuant to SECTION 4 of that certain Stockholders Agreement
dated April 9, 1998 (the "Stockholders Agreement") by and among all of the
Stockholders, JEDI and TCW have preemptive rights with respect to the shares
of Common Stock to be issued in connection with the Merger; and
WHEREAS, pursuant to SECTION 8(i) of the Stockholders Agreement, the
consent of JEDI and TCW is required for the Company to enter into the Merger;
and
WHEREAS, the Company, MSR and the Stockholders desire to set forth their
agreement with respect to the voting of the Stockholders' shares of Common
Stock with respect to the Merger and the Merger Agreement; and
WHEREAS, in executing and delivering the Merger Agreement, MSR is
relying on the agreements contained herein.
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants
and agreements contained herein and other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the parties
hereto agree as follows:
1. CONSENT OF JEDI AND TCW
Pursuant to Section 8(i) of the Stockholders Agreement, each of JEDI
and TCW hereby irrevocably and unconditionally consent to the Merger
which consent shall not be withdrawn or modified without the written
consent of MSR. MSR acknowledges that, pursuant to an agreement
("Letter Agreement") dated the date hereof, JEDI and TCW have certain
rights with respect to the administration of the Company's rights
<PAGE>
under the Merger Agreement and the granting of the foregoing consent
does not affect any of JEDI or TCW's rights under such Letter
Agreement.
2. VOTING OF COMMON STOCK
Each of the Stockholders hereby irrevocably and unconditionally
covenants and agrees to vote all shares of Common Stock owned by such
Stockholder in favor of the Merger Agreement and the Merger at the meeting
of the Company's stockholders referred to in SECTION 6.01 of the Merger
Agreement (and to consent thereto if action thereon is to be taken by
written consent in lieu of a meeting of the stockholders of the Company).
Each of the Stockholders further covenants and agrees that it or he shall
not transfer or convey any shares of Common Stock unless it or he shall
obtain the written agreement of the transferee to comply with the terms
hereof and shall have furnished a copy of this Agreement executed by such
transferee to MSR; (provided, however, the existing pledge of the Common
Stock by Mercury, QELC, Frank Darden, Thomas F. Darden, Glenn M. Darden and
Anne Darden Self to secure the Company's debt and any transfer of such
Common Stock following foreclosure upon thereof without such consent will
not constitute a violation hereof.)
Mercury, Frank Darden, Thomas F. Darden, Glenn M. Darden and Anne
Darden Self hereby each (i) irrevocably and unconditionally covenants and
agrees to vote all shares of common stock of MSR now owned or hereafter
acquired by such stockholders in favor of the Merger at the meeting of MSR
stockholders referred to in SECTION 6.01 of the Merger Agreement, and (ii)
further covenants and agrees that it or he or she shall not transfer any
shares of common stock of MSR unless it or he or she shall obtain the
written consent of the transferee to comply with the terms hereof and shall
have furnished a copy of this Agreement executed by such transferee to the
Company; (provided, however, the existing pledge of the shares of common
stock of MSR to secure the Company's debt and any transfer of such shares
following foreclosure upon thereof without such consent will not constitute
a violation hereof).
3. WAIVER OF PREEMPTIVE RIGHTS
Each of JEDI and TCW hereby irrevocably and unconditionally waive the
preemptive rights granted to them in SECTION 4 of the Stockholders
Agreement with respect to the shares of Common Stock to be issued in
connection with the Merger.
4. MISCELLANEOUS
(a) COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each
of which counterparts, when so executed and delivered shall be deemed to be
an original and all of which counterparts, taken together, shall constitute
but one and the same agreement.
(b) GOVERNING LAW. This Agreement shall be governed by the laws
of the State of Delaware, without regard to principles of conflict of laws.
2
<PAGE>
(c) AMENDMENT. This Agreement may be amended only by means of a
written amendment signed by all of the parties hereto.
(d) SUCCESSORS; ASSIGNS; TRANSFEREES. The provisions of this
Agreement shall be binding upon, the successors, assigns and transferees of
each of the parties hereto.
(e) SPECIFIC PERFORMANCE. The parties hereby acknowledge and
agree that the failure of any party to this Agreement to perform the
provisions in accordance with their specific terms or to otherwise breach
such provisions, including its or his failure to take all actions as are
necessary on its or his part to the consummation of the Merger, will cause
irreparable injury to the other parties to this Agreement for which damages,
even if available, will not be an adequate remedy. Accordingly, each of the
parties hereto hereby consents to the issuance of injunctive relief by any
court of competent jurisdiction to compel performance of any party's
obligations, including an injunction to prevent breaches, and to the granting
by any such court of the remedy of specific performance of the terms and
conditions hereof.
(f) TERMINATION. Upon termination of the Merger Agreement in
accordance with its terms, this Agreement shall also terminate.
[THE REST OF THIS PAGE IS INTENTIONALLY LEFT BLANK; SIGNATURE PAGE FOLLOWS]
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first written above.
QUICKSILVER RESOURCES INC.
By: /s/ Glenn Darden
---------------------------------------
Name: Glenn Darden
-------------------------------------
Title: Vice President
------------------------------------
MSR EXPLORATION LTD.
By: /s/ Howard Boals
---------------------------------------
Name: Howard Boals
-------------------------------------
Title: Vice President
------------------------------------
MERCURY EXPLORATION COMPANY
By: /s/ Glenn Darden
---------------------------------------
Name: Glenn Darden
-------------------------------------
Title: Vice President
------------------------------------
QUICKSILVER ENERGY, L.C..
By: /s/ Glenn Darden
---------------------------------------
Name: Glenn Darden
-------------------------------------
Title: /s/ Admistrative Manager
------------------------------------
/s/ Frank Darden
------------------------------------------
Frank Darden
/s/ Thomas F. Darden
------------------------------------------
Thomas F. Darden
/s/ Glenn M. Darden
------------------------------------------
Glenn M. Darden
/s/ Anne Darden Self
------------------------------------------
Anne Darden Self
4
<PAGE>
JOINT ENERGY DEVELOPMENT
INVESTMENT LIMITED PARTNERSHIP
By: Enron Capital Management Limited
Partnership, its general partner
By: Enron Capital Corp.,
its general partner
By: /s/ Jesse E. Neyman
---------------------------------------
Name: Jesse E. Neyman
-------------------------------------
Title: Agent and Attorney-in-Fact
------------------------------------
TRUST COMPANY OF THE WEST, a California trust
company, as Sub-Custodian for Mellon Bank for
the benefit of Account No. CPFF 869-3062
By: TCW ASSET MANAGEMENT COMPANY, a
California corporation, as Investment
Manager under that certain Agreement
dated as of June 13, 1994, between TCW
Asset Management Company and Morgan
Stanley Group, Inc.
By: /s/ Thomas F. Mehlberg
---------------------------------------
Name: Thomas F. Mehlberg
-------------------------------------
Title: Managing Director
------------------------------------
By: /s/ Marc L. MacAluso
---------------------------------------
Name: Marc L. MacAluso
-------------------------------------
Title: Senior Vice President
------------------------------------
5
<PAGE>
Exhibit 10.2
- -------------------------------------------------------------------------------
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
BY AND AMONG
QUICKSILVER RESOURCES INC.,
QUICKSILVER ENERGY, L.C.,
MICHIGAN GAS PARTNERS, LIMITED PARTNERSHIP,
MERCURY EXPLORATION COMPANY,
TRUST COMPANY OF THE WEST,
IN THE CAPACITY DESCRIBED ON THE SIGNATURE PAGES HERETO,
AND
JOINT ENERGY DEVELOPMENT
INVESTMENTS LIMITED PARTNERSHIP
MARCH 31, 1998
- -------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
ARTICLE I.
THE MERGER; THE SURVIVING CORPORATION . . . . . . . . . . . . . . . . . . 1
1.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Certificate of Incorporation and Bylaws of the Surviving
Corporation. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Directors and Officers of the Surviving Corporation. . . . . . . . . 2
1.4 Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.5 Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.6 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.7 Conversion or Cancellation of Interests in the Constituent
Entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE II.
TRANSFER OF ASSETS; PREPAYMENT OF INDEBTEDNESS. . . . . . . . . . . . . . 3
2.1 Transfer of Assets of Mercury. . . . . . . . . . . . . . . . . . . . 3
2.2 Transfer of Assets of QELC . . . . . . . . . . . . . . . . . . . . . 4
2.3 Transfers of Interests of Individuals. . . . . . . . . . . . . . . . 4
2.4 Prepayment Of Indebtedness . . . . . . . . . . . . . . . . . . . . . 4
2.5 Balance Sheet and Adjustments. . . . . . . . . . . . . . . . . . . . 5
2.6 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE III.
REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . . . . . . . 6
3.1 Representations and Warranties of Mercury, QELC, MGP and QRI . . . . 7
(a) Organization. . . . . . . . . . . . . . . . . . . . . . . . . . 7
(b) Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . 7
(c) Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(d) No Conflicts or Violations. . . . . . . . . . . . . . . . . . . 8
(e) Licenses; No Violations . . . . . . . . . . . . . . . . . . . . 9
(f) Governmental Filings and Consents . . . . . . . . . . . . . . . 9
(g) Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(h) Title to Properties . . . . . . . . . . . . . . . . . . . . . . 9
(i) Financial Statements and Reserve Reports. . . . . . . . . . . .12
(j) No Undisclosed Liabilities. . . . . . . . . . . . . . . . . . .13
(k) No Material Adverse Change. . . . . . . . . . . . . . . . . . .13
(l) Employee Benefit Matters. . . . . . . . . . . . . . . . . . . .13
(m) Investment Company Act; Public Utility Holding Company Act. . .13
(n) Environmental Matters . . . . . . . . . . . . . . . . . . . . .14
(o) Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
(p) Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . .16
(q) Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . .16
<PAGE>
<S> <C>
(r) No Restrictions on Affiliates . . . . . . . . . . . . . . . . .17
(s) Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . .18
(t) Certain Transaction . . . . . . . . . . . . . . . . . . . . . .18
(u) Plugging and Abandonment Obligations. . . . . . . . . . . . . .18
(v) No Material Misstatements or Omission . . . . . . . . . . . . .18
(w) Fees and Commission . . . . . . . . . . . . . . . . . . . . . .19
(x) Preferential Purchase Rights. . . . . . . . . . . . . . . . . .19
(y) Certain Payments. . . . . . . . . . . . . . . . . . . . . . . .19
(z) Imbalances, etc.. . . . . . . . . . . . . . . . . . . . . . . .19
3.2 Representations and Warranties of JEDI . . . . . . . . . . . . . . .20
(a) Organization and Authority. . . . . . . . . . . . . . . . . . .20
(b) No Conflicts or Violations. . . . . . . . . . . . . . . . . . .20
(c) Fees and Commissions. . . . . . . . . . . . . . . . . . . . . .20
(d) Certain Transactions. . . . . . . . . . . . . . . . . . . . . .20
3.3 Representations and Warranties of TCW. . . . . . . . . . . . . . . .20
(a) Organization and Authority. . . . . . . . . . . . . . . . . . .20
(b) No Conflicts or Violations. . . . . . . . . . . . . . . . . . .21
(c) Fees and Commissions. . . . . . . . . . . . . . . . . . . . . .21
(d) Certain Transactions. . . . . . . . . . . . . . . . . . . . . .21
3.4 Representations and Warranties of Mercury and QELC. . . . . . . . .21
ARTICLE IV.
COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
4.1 Certain Covenants of QRI, QELC, MGP and Mercury. . . . . . . . . . .22
(a) Interim Operations. . . . . . . . . . . . . . . . . . . . . . .22
(b) Negative Covenants. . . . . . . . . . . . . . . . . . . . . . .22
(c) Other Operational Covenants . . . . . . . . . . . . . . . . . .23
(d) Inspection and Access to Information. . . . . . . . . . . . . .23
4.2 Certain Additional Covenants of the Parties. . . . . . . . . . . . .23
(a) Certain Filings, Consents and Arrangements. . . . . . . . . . .23
(b) Notification of Certain Matters . . . . . . . . . . . . . . . .24
(c) Reasonable Efforts. . . . . . . . . . . . . . . . . . . . . . .24
4.3 Additional Covenants of Mercury, QELC, MGP and QRI . . . . . . . . .24
ARTICLE V.
CONDITIONS TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . .25
5.1 Conditions to the Closing. . . . . . . . . . . . . . . . . . . . . .25
(a) Representations and Warranties. . . . . . . . . . . . . . . . .25
(b) Pending Litigation. . . . . . . . . . . . . . . . . . . . . . .25
(c) Other Consents and Filings. . . . . . . . . . . . . . . . . . .26
(d) Due Diligence . . . . . . . . . . . . . . . . . . . . . . . . .26
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
(e) Legal Opinion . . . . . . . . . . . . . . . . . . . . . . . . .26
(f) Stockholders Agreement. . . . . . . . . . . . . . . . . . . . .26
(g) Registration Rights Agreement . . . . . . . . . . . . . . . . .26
(h) Stock Transfer Agreement. . . . . . . . . . . . . . . . . . . .26
(i) Management Agreement. . . . . . . . . . . . . . . . . . . . . .26
(j) Letter Agreement. . . . . . . . . . . . . . . . . . . . . . . .26
(k) Assignment and Assumption Documents . . . . . . . . . . . . . .26
(q) Charter Amendment . . . . . . . . . . . . . . . . . . . . . . .28
(s) 3/31/98 Balance Sheet . . . . . . . . . . . . . . . . . . . . .28
ARTICLE VI.
TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28
6.1 Termination by Mutual Consent. . . . . . . . . . . . . . . . . . . .28
6.2 Termination by Individual Parties. . . . . . . . . . . . . . . . . .28
ARTICLE VII.
MISCELLANEOUS; GENERAL. . . . . . . . . . . . . . . . . . . . . . . . . .28
7.1 Fees and Expenses. . . . . . . . . . . . . . . . . . . . . . . . . .28
7.2 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29
7.3 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . .29
(a) Indemnification of JEDI and TCW . . . . . . . . . . . . . . . .29
(b) Indemnification of Mercury, TCW and QRI . . . . . . . . . . . .29
(c) Indemnification of Mercury, JEDI and QRI. . . . . . . . . . . .30
(d) Notice and Defense of Third-Party Claims. . . . . . . . . . . .30
(d) Termination of Indemnification Obligations. . . . . . . . . . .31
7.4 Dispute Resolution . . . . . . . . . . . . . . . . . . . . . . . . .31
7.5 Business Opportunity Matters . . . . . . . . . . . . . . . . . . . .32
7.6 Modification or Amendment. . . . . . . . . . . . . . . . . . . . . .32
7.7 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . .32
7.8 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . .33
7.9 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
7.10 Schedules and Exhibits; Entire Agreement . . . . . . . . . . . . . .34
7.11 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35
7.12 Titles and Captions. . . . . . . . . . . . . . . . . . . . . . . . .35
</TABLE>
-iii-
<PAGE>
INDEX OF DEFINITIONS
<TABLE>
<CAPTION>
Definition Page
- ---------- ----
<S> <C>
3/31/98 Balance Sheet. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
AAA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31
Affiliate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Amounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Articles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Basic Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
Calendar First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
CERCLA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Closing Date Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Constituent Entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
Damages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29
Defensible Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
DGCL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Dispute. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31
Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Environmental Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Final Settlement Statement . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Governmental Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Governmental Consents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Governmental Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Hydrocarbon Interests. . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
Hydrocarbons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Individual . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
JEDI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
JEDI Registration Rights Agreement . . . . . . . . . . . . . . . . . . . . . .26
LaRoche Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Letter Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
Letter of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Management Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
-iv-
<PAGE>
<S> <C>
Material Adverse Effect. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Material Adverse Change. . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Mercury. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Mercury Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
MGP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
MGP Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Oil and Gas Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
OPA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
Permitted Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
Put/Call Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
QELC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
QELC Holditch Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
QRI. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
QRI Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
RCRA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
Reports. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Representatives. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
Royalty Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
Securities Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
Stock Transfer Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . .26
Stockholders Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
Surviving Corporation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
TCW. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
TCW Credit Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
TCW Registration Rights Agreement. . . . . . . . . . . . . . . . . . . . . . .26
TCW Release Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
Third-Party Claim. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
TRLPA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
</TABLE>
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<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
This AGREEMENT AND PLAN OF REORGANIZATION AND MERGER (this "Agreement"),
dated as of March 31, 1998, is by and among Quicksilver Resources Inc., a
Delaware corporation ("QRI"), Quicksilver Energy, L.C., a Michigan limited
liability company ("QELC"), Michigan Gas Partners, Limited Partnership, a Texas
limited partnership ("MGP"), Mercury Exploration Company, a Texas corporation
("Mercury"), Trust Company of the West, a California trust company, in its
capacity described on the signature pages hereto ("TCW"), and Joint Energy
Development Investments Limited Partnership, a Delaware limited partnership
("JEDI"). QRI and MGP are sometimes collectively referred to herein as the
"Constituent Entities."
R E C I T A L S
WHEREAS, Mercury is the sole general partner and JEDI is the sole limited
partner of MGP, and Mercury and certain affiliates of Mercury own a majority of
the membership interests in QELC; and
WHEREAS, the parties hereto desire to combine certain oil and natural gas
properties owned by MGP, Mercury and QELC by causing MGP to be merged with and
into QRI and by causing certain assets and liabilities of Mercury and QELC to be
transferred to and assumed by QRI; and
WHEREAS, QELC and Mercury have certain indebtedness to TCW and NationsBank
of Texas, N.A. which the parties desire to restructure;
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants, agreements and conditions specified in this Agreement,
the parties hereto agree as follows:
ARTICLE I.
THE MERGER; THE SURVIVING CORPORATION
1.1 THE MERGER. Subject to the terms and conditions of this Agreement,
at the Effective Time (as defined in Section 1.5), MGP shall be merged with
and into QRI and the separate existence of MGP shall thereupon cease (the
"Merger"). QRI shall be the surviving corporation of the Merger (sometimes
hereinafter referred to as the "Surviving Corporation") and shall continue to
be governed by the laws of the State of Delaware, and the separate corporate
existence of QRI shall continue, and QRI shall possess all the rights,
privileges, powers and franchises as well of a public as of a private nature,
and be subject to all the restrictions, disabilities and duties, of each of
the Constituent Entities; and all and singular the rights, privileges, powers
and franchises of each of the Constituent
<PAGE>
Entities, and all property, real, personal and mixed, and all debts due to
any of the Constituent Entities on whatever account, shall be vested in the
Surviving Corporation; and all property, rights, privileges, powers and
franchises, and all and every other interest shall be thereafter as
effectually the property of the Surviving Corporation as they were of the
respective Constituent Entities, and the title to any real estate vested by
deed or otherwise, in any of the Constituent Entities, shall not revert or be
in any way impaired; but all rights of creditors and all liens upon any
property of any of the Constituent Entities shall be preserved unimpaired,
and all debts liabilities and duties of the respective Constituent Entities
shall thenceforth attach to the Surviving Corporation, and may be enforced
against it to the same extent as if said debts and liabilities had been
incurred or contracted by it. The Merger shall have the effects specified in
the Delaware General Corporation Law (the "DGCL") and the Texas Revised
Limited Partnership Act (the "TRLPA").
1.2 CERTIFICATE OF INCORPORATION AND BYLAWS OF THE SURVIVING
CORPORATION. The Certificate of Incorporation and the Bylaws of QRI in effect
at the Effective Time shall be the Certificate of Incorporation and the
Bylaws of the Surviving Corporation until duly amended in accordance with the
terms thereof and the DGCL.
1.3 DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION. The directors
and officers of QRI shall, from and after the Effective Time, be the
directors and officers of the Surviving Corporation 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.
1.4 CLOSING. The Closing of the Merger and the transactions
contemplated by Article II of this Agreement (the "Closing") shall take place
at such place and time as the parties hereto may agree, on the soonest
practicable date following the fulfillment or, to the extent permissible, the
waiver of all of the conditions to Closing set forth in Article V hereof.
The "Closing Date" shall be the date on which the Closing occurs.
1.5 EFFECTIVE TIME. On the Closing Date, QRI and MGP shall cause a
Certificate or Articles of Merger (the "Articles") effecting the Merger to be
properly executed and filed with the Secretaries of State of the States of
Delaware and Texas in accordance with the DGCL and the TRLPA. The Merger
shall become effective at the time at which the Articles have been duly filed
with the Secretaries of State of the States of Delaware and Texas or at such
time thereafter as provided in the Articles, and such time is herein referred
to as the "Effective Time."
1.6 FURTHER ASSURANCES. If at any time after the Effective Time the
Surviving Corporation shall consider or be advised that any further deeds,
bills of sale, assignments, assurances or any other actions or things are
necessary, desirable or proper to vest, perfect or confirm, of record or
otherwise, in the Surviving Corporation its rights, title or interest in, to
or under any of the rights, properties or assets of any of the Constituent
Entities acquired or to be acquired by the Surviving Corporation
-2-
<PAGE>
as a result of, or in connection with, the Merger or otherwise to carry out
the purposes of this Agreement, the officers and directors of the Surviving
Corporation shall be authorized to execute and deliver, in the name and on
behalf of each of the Constituent Entities or otherwise, all such deeds,
bills of sale, assignments and assurances and to take and do, in the name and
on behalf of each of the Constituent Entities or otherwise, all such other
actions and things as may be necessary, desirable or proper to vest, perfect
or confirm any and all right, title and interest in, to and under such
rights, properties or assets in the Surviving Corporation or otherwise to
carry out the purposes of this Agreement.
1.7 CONVERSION OR CANCELLATION OF INTERESTS IN THE CONSTITUENT
ENTITIES. At the Effective Time, all of the partnership interests of JEDI in
MGP shall, by virtue of the Merger and without any action on the part of
JEDI, be converted into the right to receive 13,000 shares of common stock,
par value $.01 per share, of QRI ("QRI Common Stock"). At the Closing, QRI
shall cause a certificate or certificates, at JEDI's request, representing
such shares of QRI Common Stock to be issued to JEDI. At the Effective Time,
all of the partnership interests of Mercury in MGP shall be canceled without
payment of any consideration therefor. At the Effective Time, MGP shall be
dissolved, and, notwithstanding any provision of the Agreement of Limited
Partnership of MGP to the contrary, no partner of MGP shall be required to
restore any deficit in its capital account upon such dissolution. At the
Effective Time, all shares of QRI Common Stock outstanding immediately prior
to the Effective Time shall be canceled without payment of any consideration
therefor.
ARTICLE II.
TRANSFER OF ASSETS; PREPAYMENT OF INDEBTEDNESS
2.1 TRANSFER OF ASSETS OF MERCURY. At the Closing, Mercury shall
transfer to QRI (i) effective as of 7:00 a.m. on January 1, 1998 (the
"Effective Date") in the locations of the Oil and Gas Properties, as
hereafter defined, all of its Oil and Gas Properties in the states of
Michigan and Wyoming, and to the extent set forth on Schedule 3.1(h),
Montana, except for the assets listed on SCHEDULE 2.1.1 hereto and (ii)
effective as of the Closing Date, the assets shown on the 3/31/98 Balance
Sheet as hereafter defined (collectively, the "Mercury Properties"). As
consideration therefor, at the Closing, QRI shall (i) assume the Indebtedness
(as defined below) of Mercury, as of the Effective Date, described on
SCHEDULE 2.1.2 hereto (which such assumption shall not include any over
production liabilities from the Mercury Properties) and any other liabilities
that arise on or after January 1, 1998 and relate solely to the Mercury
Properties, and (ii) QRI shall issue 32,257 shares of QRI Common Stock to
Mercury. At the Closing, QRI shall cause a certificate or certificates, at
Mercury's request, representing such shares of QRI Common Stock to be issued
to Mercury.
As used herein, "Indebtedness" means, without duplication, (i) all
indebtedness for borrowed money or for the deferred purchase price of
property or services, (ii) all obligations
-3-
<PAGE>
evidenced by bonds, notes, debentures or other similar instruments, (iii) all
indebtedness created or arising under any conditional sale or other title
retention agreement with respect to property acquired (if the rights and
remedies of the seller or lender under such agreement in the event of default
are limited to repossession or sale of such property), (iv) all capitalized
lease obligations, (v) all indebtedness referred to in clause (i), (ii),
(iii) or (iv) above of other persons, the payment of which is secured by (or
for which the holder of such indebtedness has an existing right, contingent
or otherwise, to be secured by) any lien upon or in property (including,
without limitation, accounts and contract rights) owned, even though such
person has not assumed or become liable for the payment of such indebtedness,
(vi) all guaranteed debt, and (vii) any amendment, supplement, modification,
deferral, renewal, extension or refunding of any liability of the types
referred to in clauses (i) through (vi) above.
2.2 TRANSFER OF ASSETS OF QELC. At the Closing, QELC shall transfer to
QRI (i) effective as of 7:00 a.m. on the Effective Date in the locations of
the Oil and Gas Properties, as hereafter defined, all of its Oil and Gas
Properties in the states of Michigan, Wyoming and, to the extent set forth on
Schedule 3.1(h), Montana, except for the assets listed on SCHEDULE 2.2.1
hereto and (ii) effective as of the Closing Date the assets shown on the
3/31/98 Balance Sheet (collectively, the "QELC Properties"). As
consideration therefor, at the Closing, QRI shall assume (i) the Indebtedness
of QELC, as of the Effective Date, described on SCHEDULE 2.2.2 hereto (which
such assumption shall not include any over production liabilities from the
QELC Properties) and any other liabilities that arise on or after January 1,
1998 and relate solely to the QELC Properties, and (ii) shall issue 29,395
shares of QRI Common Stock to QELC. At the Closing, QRI shall cause a
certificate or certificates, at QELC's request, representing such shares of
QRI Common Stock to be issued to QELC.
2.3 TRANSFERS OF INTERESTS OF INDIVIDUALS. At the Closing, each of
Frank Darden, Thomas F. Darden, Glenn M. Darden, Anne Darden Self, Jeff Cook
and Jack L. Thurber shall transfer to QRI any interest owned by each such
person in any of the assets of Mercury or QELC to be transferred to QRI
pursuant to SECTION 2.1 or SECTION 2.2 hereof, or in any property burdened by
or covered by any Hydrocarbon Interests as of 1/1/98 which constitute Mercury
Properties, QELC Properties and MGP Properties or any other rights or
interests of QRI and its assets, and shall waive any claims that each such
person may have with respect to such assets or any revenues therefrom. As
consideration for such transfer and waiver, at the Closing QRI shall issue
2,356 shares of QRI Common Stock to Frank Darden, 2,356 share of QRI Common
Stock to Thomas F. Darden, 2,356 share of QRI Common Stock to Glenn M.
Darden, 2,356 shares of QRI Common Stock to Anne Darden Self, and 2,924
shares of QRI Common Stock to Jack L. Thurber. At the Closing, QRI shall
cause a certificate or certificates, at such person's request, representing
such shares of QRI Common Stock to be issued to each such person.
2.4 PREPAYMENT OF INDEBTEDNESS. At the Closing, as prepayment of and
in full satisfaction of outstanding principal, interest and fees under the
Note (to be assumed at Closing by
-4-
<PAGE>
QRI pursuant to Section 2.2 above) under the Credit Agreement (the "TCW
Credit Agreement") dated November 14, 1996 between, among others, QELC and
TCW, QRI shall issue to TCW 13,000 shares of QRI Common Stock and pay to TCW
by wire transfer of immediately available funds cash in the amount of
$17,075,000 plus $6,750 for each day from and after the date hereof to and
including the Closing Date. At the Closing, QRI shall cause a certificate or
certificates, at TCW's request, representing such shares of QRI Common Stock
to be issued to TCW.
2.5 BALANCE SHEET AND ADJUSTMENTS. At Closing, Mercury and QELC shall
deliver a balance sheet of QRI which shows the estimated financial position
of QRI as of March 31, 1998 assuming the consummation of the transactions
contemplated hereby on such date (the "3/31/98 Balance Sheet"). The 3/31/98
Balance Sheet will give effect to the following, using estimates where the
actual amounts are not known as of the date hereof (collectively, the
"Amounts"):
(a) An amount equal to the costs and expenses that are, according
to customary accounting principles used in the oil and gas industry, (i)
attributable to the Mercury Properties, QELC Properties and MGP Properties
for the period from 12:01 a.m. central time on January 1, 1998 through the
close of business on the date hereof (the "Calendar First Quarter"), (ii)
charged to Mercury, QELC or MGP under a Contract and (iii) paid by Mercury,
QELC or MGP, expressly excluding, however, any fines, penalties or other
charges levied, and any costs or expenses incurred due to requirements of any
nature imposed by any Governmental Authority.
(b) An amount equal to the interest of Mercury, QELC or MGP in the
quantity of merchantable oil produced from the Mercury Properties, QELC
Properties and MGP Properties in the tanks above the pipeline connection on
the date hereof multiplied by the posted price for such oil on the date
hereof, net of all applicable taxes.
(c) The amount of all taxes attributable to the Mercury
Properties, QELC Properties and MGP Properties for the Calendar First Quarter.
(d) An amount equal to the proceeds received by Mercury, QELC or
MGP for the sale during the Calendar First Quarter of Hydrocarbons, net of
all applicable taxes not reimbursed to either Mercury, QELC or MGP, as
applicable, by a purchaser of Hydrocarbons.
(e) An amount equal to (i) the proceeds received by Mercury, QELC
or MGP for the disposition during the Calendar First Quarter of any Mercury
Properties, QELC Properties or MGP Properties (other than Hydrocarbons); (ii)
the value for any Mercury Properties, QELC Properties and MGP Properties that
are subject to, or could be subject to, a validly exercised preferential
right; (iii) the diminution in value of any Mercury Properties, QELC
Properties or MGP Properties effected by a casualty loss or, in the
alternative, the insurance proceeds received by Mercury, QELC or MGP for such
loss; and (iv) all other proceeds received by Mercury, QELC or
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MGP from whatever source derived that relate to the Mercury Properties, QELC
Properties or MGP Properties and are attributable to Calendar First Quarter.
(f) An amount equal to payments of principal of and interest
accruing during the Calendar First Quarter on all Indebtedness of Mercury,
QELC or MGP.
As soon as practicable and, in any event, no later than ninety calendar days
after the Closing Date, QRI shall prepare and deliver to each of JEDI and TCW
a statement (the "Final Settlement Statement") setting forth the adjustments
to the 3/31/98 Balance Sheet to (i) give effect to actual numbers for the
Amounts where estimates were used to prepare the 3/31/98 Balance Sheet, (ii)
correct inaccuracies in the statement of financial position of QRI as set
forth in the 3/31/98 Balance Sheet, and (iii) give effect to the Amounts as
such Amounts relate to the time period from 3/31/98 through the Closing Date.
The Final Settlement Statement shall be prepared in accordance with
customary accounting principles used in the oil and gas industry. The Final
Settlement Statement shall show the additions or reductions to each asset or
liability shown on the Balance Sheet. Within thirty calendar days after
JEDI's and TCW's receipt of the Final Settlement Statement (but not earlier
than ninety calendar days after the Closing Date), QRI, JEDI and TCW shall
endeavor to agree on a final cash payment based on the Final Settlement
Statement. Within five business days after the agreement of QRI, JEDI and
TCW on the Final Settlement Statement, QRI on the one hand or Mercury, QELC
or, with respect to MGP, Mercury in its capacity as the general partner of
MGP on the other hand, as the case may be, shall promptly make a cash payment
to the other equal to the sums as may be found to be due in the Final
Settlement Statement. Upon the payment of any amounts due pursuant to the
Final Settlement Statement, none of QRI, Mercury, QELC or, with respect to
MGP, Mercury in its capacity as the general partner of MGP shall have any
further claims based on the accuracy or completeness of the 3/31/98 Balance
Sheet. Mercury represents that no distributions were made by MGP after the
Effective Date which distributions were attributable to production produced
or sold by MGP after the Effective Date.
2.6 FURTHER ASSURANCES. If at any time after the Closing, any further
deeds, bills of sale, assignments, assurances or any other actions or things
are necessary, desirable or proper to vest, perfect or confirm, of record or
otherwise, in QRI its rights, title or interest in, to or under any of the
assets transferred to QRI pursuant to SECTION 2.1 or SECTION 2.2 or
otherwise to carry out the purposes of this Agreement, each party hereto
shall execute and deliver all such deeds, bills of sale, assignments and
assurances and take and do all such other actions and things as may be
necessary, desirable or proper to vest, perfect or confirm any and all right,
title and interest in, to and under the assets transferred to QRI pursuant to
SECTION 2.1 or SECTION 2.2 in QRI or otherwise to carry out the purposes of
this Agreement.
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ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES OF MERCURY, QELC, MGP AND QRI.
Mercury, QELC, MGP and QRI hereby jointly and severally represent and warrant
to JEDI and TCW that, as of the date hereof:
(a) ORGANIZATION. QRI is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. QRI
has not at any time since its incorporation (i) engaged, directly or through
any subsidiary, in any business or activities of any kind whatsoever, (ii)
owned or acquired any assets other than $1,000 in cash received as payment
for the issuance of currently outstanding shares of QRI Common Stock, (iii)
entered into any agreements with any person or entity or (iv) become subject
to or bound by any obligation or undertaking. SCHEDULE 3.1(a) contains true
and complete copies of the Certificate of Incorporation and Bylaws of QRI in
effect as the date hereof. QELC is limited liability company duly organized,
validly existing and in good standing under the laws of the State of
Michigan. MGP is a limited partnership duly organized and validly existing
under the laws of the state of Texas. Mercury is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Texas. Each of Mercury, QELC and MGP is, and as of the Closing QRI will
be, duly qualified or licensed and in good standing as a foreign partnership,
limited liability company or corporation, and authorized to do business, in
each jurisdiction in which the ownership or leasing of its respective
properties or the character of its respective operations makes such
qualification necessary, except where the failure to obtain such
qualification, license, authorization or good standing would not have a
material adverse effect on its assets, properties, financial condition,
business operations or prospects or on its ability to timely perform its
obligations under this Agreement and the other Basic Documents (as defined in
Section 5.1(j)) to which it is or will be a party (a "Material Adverse
Effect").
(b) CAPITALIZATION. The authorized capital stock of QRI consists
of 1,000,000 shares of QRI Common Stock. The outstanding capital stock of
QRI as of the date hereof consists of 1,000 issued and outstanding shares of
QRI Common Stock, all of which are owned beneficially and of record by QELC.
SCHEDULE 3.1(b) reflects the ownership of all of the issued and outstanding
capital stock of Mercury and all of the issued and outstanding membership
interests of QELC. Except as contemplated in the Basic Documents, there are,
and have been, no preemptive rights with respect to the issuance of shares of
QRI Common Stock. QRI has no shares reserved for issuance for any purpose
except as contemplated by this Agreement. Except as contemplated in the
Basic Documents, there are no outstanding subscriptions, options, warrants,
rights, convertible securities, or other agreements or commitments (whether
contingent or not) of any character relating to unissued capital stock,
membership interests or other securities of QRI, Mercury or QELC obligating
QRI, Mercury or QELC to issue any shares of or membership or other equity
interests in, or
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securities or rights convertible into or exchangeable for shares of or
membership or other equity interests in, QRI, Mercury or QELC. There are no
agreements or understandings with respect to the voting, sale, transfer or
registration of any shares of capital stock of QRI to which QRI is a party or
to which any holder of capital stock of QRI, or any person who will become a
holder of capital stock of QRI as a result of the transactions contemplated
hereby, is a party. Mercury and JEDI are the only partners in MGP. Except
as contemplated in the Basic Documents, there are no outstanding
subscriptions, options, warrants, rights, convertible securities or other
agreements or commitments (whether contingent or not) of any character
relating to unissued partnership interests or other securities of MGP
obligating MGP to issue any partnership or other interests in, or securities
or rights convertible into or exchangeable for partnership or other interests
in MGP. The shares of QRI Common Stock to be issued pursuant to this
Agreement have been reserved for issuance and, when issued, will be validly
issued, fully paid and nonassessable. SCHEDULE 3.1(b) reflects the ownership
of all of the issued and outstanding capital stock of QRI immediately
following the Closing.
(c) AUTHORITY. Each of QRI, QELC, MGP and Mercury has the full
power and authority to enter into this Agreement and the other Basic
Documents to which it is a party, to consummate the transactions contemplated
hereby and thereby and to carry on its respective business and own its
respective properties. The execution and delivery of this Agreement and, as
applicable, the other Basic Documents and the consummation of the
transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary actions on the part of QRI, QELC, MGP and
Mercury. This Agreement has been, and upon execution and delivery thereof
the other Basic Documents to which such entity is a party will have been,
duly and validly executed and delivered by each of QRI, QELC, MGP and
Mercury, and this Agreement constitutes, and upon execution and delivery
thereof each of the other Basic Documents to which such entity is a party
will constitute, a legal, valid and binding agreement of each of QRI, QELC,
MGP and Mercury enforceable against each of them in accordance with its terms.
(d) NO CONFLICTS OR VIOLATIONS. Except as disclosed in Schedule
3.1(d), the execution and delivery of this Agreement by each of QRI, QELC,
MGP and Mercury does not, and the consummation by each of them of the
transactions contemplated hereby will not, constitute or result in (i) a
breach or violation of, or a default under, the Certificate of Incorporation
or Bylaws of QRI, the Articles of Organization or Operating Agreement of
QELC, the Articles of Incorporation or Bylaws of Mercury or the Agreement of
Limited Partnership of MGP or (ii) a breach or violation of, a default under,
the creation of a right to terminate, the acceleration of, the creation of a
lien, pledge, security interest or other encumbrance on assets or any
additional rights or entitlements to increased, additional, guaranteed or
accelerated payments pursuant to (with or without the giving of notice or the
lapse of time) any provision of any agreement, lease, contract, note,
mortgage, indenture, arrangement or other obligation of QRI, QELC, MGP or
Mercury, or any law, rule, ordinance or regulation or judgment, decree,
order, award or governmental or non-governmental permit or license to which
any of them is subject.
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(e) LICENSES; NO VIOLATIONS. Each of Mercury, QELC and MGP holds,
and as of the Closing QRI will hold, all permits, licenses, variances,
exemptions, orders and approvals from governmental authorities (collectively,
the "Licenses") which are necessary to conduct its businesses and operations
in the manner heretofore conducted except for failures to hold such Licenses
or to comply with such laws, rules and regulations which, in the aggregate,
would not have a Material Adverse Effect. Each of QRI, QELC, Mercury and MGP
is, and as of the Closing QRI will be, in compliance with all federal, state,
local and foreign laws, ordinances, codes, regulations, orders, requirements,
standards and procedures, which are applicable to its business, except for
failures so to comply which would not have a Material Adverse Effect.
(f) GOVERNMENTAL FILINGS AND CONSENTS. No notices, reports or
other filings ("Governmental Filings") are required to be made by QRI, QELC,
Mercury or MGP with, nor are any consents, registrations, approvals, permits
or authorizations ("Governmental Consents") required to be obtained by QRI,
QELC, Mercury or MGP from, any governmental or regulatory authorities of the
United States, the several states or any foreign jurisdiction ("Governmental
Authority") in connection with the execution and delivery of this Agreement
or any other Basic Document by QRI, QELC, Mercury and MGP and the
consummation of the transactions contemplated hereby and thereby, except for
the filing and recordation of the Articles in accordance with the DGCL and
the TRLPA.
(g) LITIGATION. Except as set forth in SCHEDULE 3.1(g) or which
would not have a Material Adverse Effect, there are no actions, suits,
investigations or proceedings pending or, to the knowledge of Mercury, QELC,
MGP or QRI, threatened against QRI, QELC, Mercury or MGP, nor is there any
judgment, decree, injunction, rule or order of any Governmental Authority
outstanding against QRI, QELC, Mercury or MGP.
(h) TITLE TO PROPERTIES. SCHEDULE 3.1(h) hereto identifies all of
the Hydrocarbon Interests included in the Mercury Properties, all of the
Hydrocarbon Interests included in the QELC Properties, and all of the
Hydrocarbon Interests included in the Oil and Gas Properties owned by MGP
(the "MGP Properties"). A certificate of even date herewith shall be
delivered by Mercury and QELC certifying that the title opinions relating to
certain of the Mercury and QELC Properties were delivered to JEDI and TCW
("Delivered Opinions"). Mercury has Defensible Title (as defined below) to
all of the Mercury Properties. QELC has Defensible Title to all of the QELC
Properties. MGP has Defensible Title to all of the MGP Properties. Except as
set forth on SCHEDULE 3.1(h) or with respect to any trade accounts payable or
other accrued current liabilities incurred in the ordinary course of business
not in excess of $150,000 in the aggregate, MGP has no outstanding
Indebtedness. At the Closing, QRI will acquire Defensible Title to the
Mercury Properties, the QELC Properties and the MGP Properties, and will not
be liable for any Indebtedness of Mercury or QELC except for Indebtedness
expressly assumed by QRI pursuant to Section 2.1 or 2.2 hereof. Schedule
3.1(h) part III as attached hereto shall be replaced with the Revised Well
Exhibit (as hereinafter defined) upon its delivery prior to Closing.
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As used herein, the terms defined below have the meanings specified:
"Defensible Title" means that, subject to and except for Permitted
Liens, (i) the title of Mercury, QELC or MGP, as the case may be, to its
assets is free and clear of all liens and encumbrances, of any kind
whatsoever and (ii) as to those Oil and Gas Properties for which a "working
interest" and a "net revenue interest" are set forth in SCHEDULE 3.1(h),
Mercury, QELC or MGP, as the case may be, is, and following the Closing QRI
will be, entitled to receive the percentage of all Hydrocarbons produced,
saved and marketed from such Oil and Gas Properties in an amount not less
than the net revenue interest set forth therein, without reduction,
suspension or termination throughout the duration of the productive life of
such wells (except as set forth in SCHEDULE 3.1(h)), and such party is
obligated to bear the percentage of costs and expenses related to the
maintenance, development and operation of such wells in an amount not greater
than the working interest set forth in SCHEDULE 3.1(h), without increase
throughout the productive life of such wells, except increases that also
result in a proportionate increase in net revenue interest and as set forth
in SCHEDULE 3.1(h).
"Hydrocarbons" means oil, gas, casinghead gas, condensate,
distillate, liquid hydrocarbons, gaseous hydrocarbons and all products
refined therefrom, together with all minerals (including without limitation
carbon dioxide) produced in association therewith.
"Hydrocarbon Interests" means all rights, titles, leasehold and
other interests and estates in and to oil and gas leases, oil, gas and
mineral leases, or other liquid or gaseous Hydrocarbon leases, mineral fee
interests, overriding royalty and royalty interests, net profit interests and
production payment interests, including any reserve or residual interest of
whatever nature.
"Oil and Gas Properties" means Hydrocarbon Interests; the
properties now or hereafter pooled or unitized with Hydrocarbon Interests;
all presently existing or future unitization, pooling agreements and
declarations of pooled units and the units created thereby (including, but
not limited to, units created under orders, regulations and rules of any
Governmental Authority having jurisdiction) which may affect all or any
portion of the Hydrocarbon Interests; all operating agreements, partnership
agreements, contracts and other agreements which relate to any of the
Hydrocarbon Interests or the production, sale, purchase, exchange or
processing of Hydrocarbons from or attributable to such Hydrocarbon
Interests; all Hydrocarbons in and under and which may be produced and saved
or attributable to, and the profits, proceeds, products, revenues and other
incomes from or attributable to, the Hydrocarbon Interests; all tenements,
hereditaments, appurtenances and properties in anywise appertaining,
belonging, affixed or incidental to the Hydrocarbon Interests, and all
property, real or personal, now owned or hereafter acquired and situated
upon, used, held for use or useful in connection with the operating, working
or development of any of such Hydrocarbon Interests or property (excluding
(i) drilling rigs, automotive equipment or other personal property which may
be on such premises for the purpose of drilling a well or for other similar
temporary uses and (ii) that certain office building and related land located
in Gaylord,
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Michigan) and including any and all oil, gas, carbon dioxide or injection
wells, buildings, structures, fuel separators, liquid extraction plants,
plant compressors, pumps, pumping units, field gathering systems, tanks and
tank batteries, fixtures, valves, fittings, machinery and parts, engines,
boilers, meters, apparatus, equipment, appliances, tools, implements, cables,
wires, towers, casing, tubing and rods, surface leases, rights-of-way,
easements and servitudes together with all additions, substitutions,
replacements, accessions and attachments to any and all of the foregoing.
"Permitted Liens" means any of the following: (i) any liens for
taxes and assessments not yet delinquent or, if delinquent, that are being
contested in good faith in the ordinary course of business; (ii) any
obligations or duties to any municipality or public authority with respect to
any franchise, grant, certificate, license or permit, and all applicable
laws; (iii) any easements, rights-of-way, servitudes, permits and other
rights in respect of surface operations, pipelines or the like, and easements
for pipelines, power lines and other similar rights-of-way, and
encroachments, on, over or in respect of any of the Mercury Properties, QELC
Properties or MGP Properties, that do not interfere in any material respect
with the operation of any of the Mercury Properties, QELC Properties or MGP
Properties; (iv) all royalties, overriding royalties, net profits interests,
production payments, carried interests, reversionary interests, calls on
production and other burdens on or deductions from the proceeds of production
that do not operate to (A) reduce the net revenue interest of Mercury, QELC
or MGP, as the case may be, below that set forth in SCHEDULE 3.1(h), or (B)
increase the working interest of Mercury, QELC or MGP, as the case may be,
above that set forth in SCHEDULE 3.1(h), without a proportionate increase in
the net revenue interest of such party; (v) 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,
carbon dioxide purchase or sale agreements, salt water or other disposal
agreements, seismic or geophysical permits or agreements, and other
agreements to the extent that such contracts and agreements do not (A) reduce
the net revenue interest below that set forth in SCHEDULE 3.1(h), or (B)
increase the working interest above that set forth in SCHEDULE 3.1(h), as
applicable, without a proportionate increase in the net revenue interest of
the applicable party; (vi) conventional rights of reassignment prior to
abandonment; (vii) materialmen's, mechanics', repairmen's, employees',
contractors', operators', tax and other similar liens or charges arising in
the ordinary course of business incidental to construction, maintenance or
operation of any of the assets (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;
(viii) liens securing borrowings under the Credit Agreement dated January 31,
1997 between Mercury and NationsBank of Texas, N.A.; (ix) liens securing
Indebtedness to TCW to be prepaid and satisfied at Closing pursuant to
Section 2.4; (x) liens in favor of MA Gas LLC pursuant to the transactions
contemplated by the Purchase and Sale Agreement
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dated December 1, 1997 between Mercury and MA Gas LLC; (xi) liens in favor of
MGP Gas LLC pursuant to the transactions contemplated by the Purchase and
Sale Agreement dated December 1, 1997 between MGP and MGP Gas LLC; and (xii)
the interests, if any, of Jack Thurber, Frank Darden, Thomas F. Darden, Glenn
M. Darden and Anne Darden Self in the Mercury Properties and QELC Properties,
which such interests shall be satisfied at Closing pursuant to certain
assignments as such assignments are more fully described in Section 5.1.
(i) FINANCIAL STATEMENTS AND RESERVE REPORTS.
(1) Mercury has delivered to JEDI and TCW the audited financial
statements of MGP and Mercury for the fiscal year ended December 31, 1997
required by Section 10.2 of the Agreement of Limited Partnership of MGP
dated as of November 18, 1993. Such financial statements were prepared in
accordance with such provision and fairly present in all material respects
the consolidated financial position, results of operations and cash flows
of MGP and Mercury as of the dates and throughout the periods therein
specified. Mercury has delivered to JEDI and TCW the audited balance sheet
and statements of income and cash flows of QELC as of and for the fiscal
year ended September 30, 1997 and the unaudited balance sheet and
statements of income and cash flows of QELC as of and for the three months
ended December 31, 1997. Such financial statements of QELC were prepared
in accordance with generally accepted accounting principles applied on a
consistent basis (except as noted therein) and fairly present the financial
position, results of operations and cash flows of QELC as of the dates and
for the periods therein specified.
(2) Mercury has delivered to JEDI and TCW copies of (i) the
reserve report dated as of January 1, 1998 prepared by LaRoche Petroleum
Consultants, Ltd., independent petroleum engineers (the "LaRoche Report"),
relating to the oil and gas reserves attributable to certain of the Mercury
Properties, (ii) the reserve report dated August 1, 1997 prepared by
Albrecht & Associates, Inc., independent petroleum engineers (the "Albrecht
Report"), (iii) the reserve report dated as of January 1, 1998 prepared by
S.A. Holditch and Associates, Inc., independent petroleum engineers (the
"QELC Holditch Report"), relating to the oil and gas reserves attributable
to the QELC Properties and (iv) the reserve report dated as of January 1,
1998 prepared by S. A. Holditch and Associates, Inc., independent petroleum
engineers (together with the LaRoche Report, the Albrecht Report and the
QELC Holditch Report, the "Reports"), relating to the oil and gas reserves
attributable to the MGP Properties. There are no statements or conclusions
in any of the Reports that are based upon or include misleading information
or fail to take into account material information regarding the matters
reported therein. To the knowledge of Mercury, MGP, QRI and QELC, the
estimates of reserves in the Reports were prepared in accordance with
standard geological and engineering methods generally accepted in the oil
and gas industry. The estimates of the lease operating expenses,
production and ad valorem taxes and capital expenditures in the Reports
reasonably reflect the historical experience of Mercury, MGP, QRI and QELC,
and
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Mercury, MGP, QRI and QELC have no reason to believe that the estimates
will nor reflect future lease operating expenses, production and ad valorem
taxes and capital expenses. The historical factual information supplied by
Mercury to the independent engineering firms in connection with the
preparation of the Reports was, at the time of delivery to such firms, true
and complete in all material respects.
(j) NO UNDISCLOSED LIABILITIES. Except as reflected or reserved
against in the balance sheets included in the financial statements described
in Section 2.1(i) or in the notes thereto or as disclosed in SCHEDULE 3.1(j),
there are no Liabilities against, relating to or affecting Mercury, QELC, MGP
or QRI or any of their subsidiaries or any of their respective assets, other
than Liabilities (i) incurred in the ordinary course of business consistent
with commercially reasonable business practice and (ii) which, individually
or in the aggregate, are not material to the business or condition of
Mercury, QELC, MGP or QRI. As of 1/1/98, there are no over production
liabilities for the MGP Properties. "Liabilities" means all Indebtedness,
obligations and other liabilities of a person (whether absolute, accrued,
contingent, fixed or otherwise, or whether due or to become due).
(k) NO MATERIAL ADVERSE CHANGE. Subsequent to December 31, 1997,
except as disclosed in SCHEDULE 3.1(k), there has been (a) (i) no material
adverse change and (ii) no development which reasonably would be expected to
result in (individually or in the aggregate) a material adverse change, in
either case, in the financial condition, properties, assets, business or
results of operations or future business prospects (a "Material Adverse
Change") of Mercury, MGP or QELC, (b) no material obligation or other
material Liability (contingent or other) incurred by Mercury, MGP or QELC
other than obligations and other Liabilities incurred in the ordinary course
of business, (c) no lien (other than Permitted Liens) placed on any of the
properties of Mercury, MGP or QELC which remains in existence on the date
hereof and (d) no acquisition or disposition of any material asset by
Mercury, MGP or QELC or any contract or arrangement therefor, otherwise than
for fair value in the ordinary course of business.
(l) EMPLOYEE BENEFIT MATTERS. SCHEDULE 3.1(l) sets forth a
complete and accurate list of all employee benefit plans (including any stock
option, stock purchase or ownership plan) with respect to which QRI or MGP is
a sponsor. QRI and MGP are in compliance in all material respects with all
applicable provisions of the Employee Retirement Income Security Act of 1974
("ERISA") and published interpretations thereunder with respect to all
employee benefit plans which are subject to ERISA, and there are no defaults
or undisclosed Liabilities with respect to such employee benefit plans.
Neither Mercury nor QELC is a sponsor of any employee benefit plan under
which any obligation or Liability could be imposed on QRI after the Closing.
(m) INVESTMENT COMPANY ACT; PUBLIC UTILITY HOLDING COMPANY ACT.
QRI is not an "investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment Company Act of 1940
or a "holding company" or a "subsidiary company" of a "holding company" or an
"affiliate" of a "holding company" or of a "subsidiary company" of
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a "holding company" or a "public utility" within the meaning of the Public
Utility Holding Company Act of 1935.
(n) ENVIRONMENTAL MATTERS.
(1) Neither any property of Mercury, QELC or MGP nor the
operations conducted thereon violate any applicable order of any court or
Governmental Authority or Environmental Laws, which violation could
reasonably be expected to have a Material Adverse Effect on Mercury, MGP,
QELC or QRI or which could reasonably be expected to result in remedial
obligations having a Material Adverse Effect on Mercury, MGP, QELC or QRI,
assuming disclosure to the applicable Governmental Authority of all
relevant facts, conditions and circumstances, if any, pertaining to the
relevant property.
(2) Without limitation of Section 3.1(n)(1) above, no property
of Mercury, QELC or MGP nor the operations currently conducted thereon or
by any prior owner or operator of such property or operation, are in
violation of or subject to any existing, pending or, to the knowledge of
Mercury, MGP, QELC or QRI threatened action by or before any Governmental
Authority or to any remedial obligations under Environmental Laws.
(3) All material notices, permits, licenses or similar
authorizations, if any, required to be obtained or filed by QRI, QELC,
Mercury or MGP in connection with the operation or use of any and all
property of QELC or MGP, including but not limited to past or present
treatment, storage, disposal or release of a hazardous substance or solid
waste into the environment, have been duly obtained or filed.
(4) All hazardous substances or solid waste generated at any and
all property of the Mercury, QELC or MGP have in the past been transported,
treated and disposed of only by carriers maintaining valid permits under
any Environmental Law, except to the extent the failure to have such
substances or waste transported, treated or disposed by such carriers could
not reasonably be expected to have a Material Adverse Effect on QRI, QELC,
Mercury or MGP, and only at treatment, storage and disposal facilities
maintaining valid permits under any Environmental Law, which carriers and
facilities have been and are operating in compliance with such permits,
except to the extent the failure to have such substances or waste treated,
stored or disposed at such facilities, or the failure of such carriers or
facilities to so operate, could not reasonably be expected to have a
Material Adverse Effect on QRI, QELC, Mercury or MGP or which could
reasonably be expected to result in remedial obligations having a Material
Adverse Effect on QRI, QELC, Mercury and MGP, assuming disclosure to the
applicable Governmental Authority of all relevant facts, conditions and
circumstances, if any, pertaining to the relevant property.
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(5) Mercury, QELC and MGP have taken all commercially reasonable
steps necessary to determine and have determined that no hazardous
substances or solid waste have been disposed of or otherwise released and
there has been no threatened release of any hazardous substances on or to
any property of Mercury, QELC or MGP except in compliance with
Environmental Laws, except to the extent the failure to do so could not
reasonably be expected to have a Material Adverse Effect on QRI, QELC,
Mercury or MGP or which could reasonably be expected to result in remedial
obligations having a Material Adverse Effect on QRI, QELC, Mercury or MGP,
assuming disclosure to the applicable Governmental Authority of all
relevant facts, conditions and circumstances, if any, pertaining to the
relevant property.
(6) QRI, QELC, Mercury and MGP have complied with all applicable
design, operation and equipment requirements imposed by OPA or scheduled to
be imposed by OPA, and QRI, QELC, MGP and Mercury do not have reason to
believe that, following the Merger, QRI will not be able to maintain such
compliance with OPA requirements in the future, other than violations that
have not had and could not reasonably be expected to have a Material
Adverse Effect on QRI, QELC, Mercury or MGP.
(7) Mercury, QELC and MGP have no material contingent liability
in connection with any release or threatened release of any hazardous
substance or solid waste into the environment, other than (i) contingent
liabilities that, individually and in the aggregate, could not reasonably
be expected to exceed applicable insurance coverage or (ii) contingent
liabilities for which adequate reserves for the payment thereof as required
by generally accepted accounting principles have been provided.
(8) As used herein, "Environmental Laws" means any and all laws,
statutes, ordinances, rules, regulations, orders, or determinations of any
Governmental Authority pertaining to health or the environment in effect in
any and all jurisdictions in which QRI, QELC, Mercury or MGP is conducting
or at any time have conducted business, or where any property of the QRI,
QELC, Mercury or MGP is located, or where any hazardous substances
generated by or disposed of by the QRI, QELC, Mercury or MGP are located,
including but not limited to the Oil Pollution Act of 1990, as amended
("OPA"), the Clean Air Act, as amended, the Comprehensive Environmental,
Response, Compensation, and Liability Act of 1980, as amended ("CERCLA"),
the Federal Water Pollution Control Act, as amended, the Occupational
Safety and Health Act of 1970, as amended, the Resource Conservation and
Recovery Act of 1976, as amended ("RCRA"), the Safe Drinking Water Act, as
amended, the Toxic Substances Control Act, as amended, the Superfund
Amendments and Reauthorization Act of 1986, as amended, and other
environmental conservation or protection laws. The term "oil" has the
meaning specified in OPA; the terms "hazardous substance," "release" and
"threatened release" have the meanings specified in CERCLA, and the terms
"solid waste," "disposal" and "disposed" have the meanings
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specified in RCRA; provided, however, if either CERCLA, RCRA or OPA is
amended so as to broaden the meaning of any term defined thereby, such
broader meaning shall apply subsequent to the effective date of such
amendment, and provided, further, that, to the extent the laws of the
state in which any property of QRI, QELC, Mercury or MGP is located
establish a meaning for "oil," "hazardous substance," "release," "solid
waste" or "disposal" which is broader than that specified in either OPA,
CERCLA or RCRA, such broader meaning shall apply with respect to such
property.
(o) TAXES. Mercury, MGP and QELC have timely and properly prepared
and filed all necessary federal, state, local and foreign tax returns with
respect to Mercury, MGP and QELC which are required to be filed (taking into
consideration any extension periods) and have paid all taxes shown to be due
thereon and have paid, or made adequate provision (in accordance with generally
accepted accounting principles) for the payment of, all other taxes and
assessments with respect to Mercury, MGP and QELC to the extent that the same
shall have become due (taking into consideration any extension periods), except
where the failure to file such returns or to pay, or make provision for the
payment of, such taxes and assessments would not have a Material Adverse Effect
on QRI, QELC, Mercury or MGP. Mercury, QELC, MGP and QRI have no knowledge of
any tax deficiency which has been asserted against Mercury, QELC or MGP which
reasonably would be expected to have a Material Adverse Effect on QRI, QELC,
Mercury or MGP.
(p) INSURANCE. Mercury, QELC and MGP maintain, and as of the Closing
QRI will have, property, casualty, general liability and other insurance
policies with coverage limits in amounts and with carriers as in each case are
customary in accordance with sound business practices and which Mercury, QELC,
MGP and QRI believe are adequate in the circumstances.
(q) CONTRACTS. All agreements, personal property and fixture leases,
real property leases, contracts, notes, mortgages, indentures, arrangements or
other obligations that are included in the Mercury Properties, the QELC
Properties or the MGP Properties or that will impose any obligation on QRI (the
"Contracts") are valid, binding and enforceable in accordance with their terms
except to the extent limited by bankruptcy or other laws affecting creditors'
rights generally. All of the Contracts between Mercury, QELC, MGP or QRI and
any of their respective Affiliates (as defined in Section 3.1(r)) are identified
as such on SCHEDULE 3.1(q), and the terms of all of such Contracts are no less
favorable to Mercury, QELC, MGP or QRI, as the case may be, than terms that
would be available in contracts negotiated at arms' length with unaffiliated
third parties. True, correct and complete copies of all Contracts have been
made available to JEDI and TCW. No default by Mercury, MGP or QELC under any
Contract has occurred and is continuing, except for any default which would not
give another person the right, with or without giving of notice or lapse of
time, or both, to terminate or materially modify the terms of such contract and
except for terminations and modifications which would not have a Material
Adverse Effect. Mercury, QELC, MGP and QRI have no knowledge of any material
default or claimed, threatened or alleged material default by any other party
under any term or provision of any Contract. There are no developments
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known to Mercury, QELC, MGP or QRI materially affecting any Contract that
might prevent Mercury, QELC or MGP from realizing the benefits of any such
Contract or that might prevent QRI from realizing such benefits after the
Closing. Except for the Basic Documents or as disclosed in SCHEDULE 3.1(q),
QRI and MGP and (except to the extent that such contracts or agreements could
not have any effect on the Mercury Properties or QELC Properties or the
operation thereof or impose any obligation on QRI) Mercury and QELC have no
(i) employment, management or consulting contract, (ii) capital redemption or
purchase agreements; (iii) agreements providing for the indemnification of
other parties for such parties' negligence or other fault or the sharing of
the tax liability of other parties; (iv) collective bargaining agreements;
(v) gas sales or purchase contract, gas marketing agreement or transportation
agreement under which Mercury, QELC, MGP or QRI is the seller, which
agreement is not terminable without penalty on thirty days' notice or less,
and which provides for a price less than fair market value; (vi) agreement
for capital expenditures, the acquisition of commodities, equipment or
material or the construction of fixed assets which individually are expected
to require aggregate future payments by Mercury, QELC, MGP or QRI in excess
of $50,000 and all which in the aggregate would be expected to require future
payments in excess of $500,000; (vii) agreement for, or that contemplates,
the sale of any interest in oil or gas leases which involves payment
(including property received in exchange or other non-cash consideration) to
Mercury, QELC, MGP or QRI in excess of $50,000 in the aggregate; (viii)
agreement which requires future payments by MGP, QELC, Mercury or QRI in
excess of $50,000 (and not included in clauses (vi) or (vii)) which is not
otherwise specifically disclosed herein; (ix) agreements containing covenants
limiting or restricting the freedom of Mercury, QELC, MGP or QRI to compete
in any line of business or territory or with any person or entity, (x) area
of mutual interest agreements binding Mercury, QELC, MGP or QRI; (xi)
futures, hedge, swaps, collars, puts, calls, floors, caps, options or other
contracts that are intended to benefit from or reduce or eliminate the risk
of fluctuations in the price of commodities, including Hydrocarbons; (xii)
indentures, mortgages, promissory notes, loan agreements, guaranties or other
agreements or commitments for the borrowing of money or any related security
agreements (other than relating to Indebtedness described in SCHEDULE 2.1.2,
SCHEDULE 2.2.2 or SCHEDULE 3.1(h)); (xiii) voting trust or other agreement or
understanding with respect to the voting of its capital stock or (xiv)
agreement with respect to any of its securities which grants registration
rights to any person.
(r) NO RESTRICTIONS ON AFFILIATES. None of QRI, Mercury, QELC or MGP
is a party to any agreement that would purport to impose restrictions or
limitations on JEDI or TCW or any of their respective Affiliates. As used
herein, "Affiliate" of any person means any other person directly or indirectly
controlling, controlled by or under direct or indirect common control with such
person. For purposes of this definition, "control," when used with respect to
any person, means the power to direct the management and policies of such
person, whether through the ownership of voting securities, by contract or
otherwise, and the terms "controlling" and "controlled" have correlative
meanings.
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(s) SUBSIDIARIES. QRI and MGP do not own any subsidiaries and do not
own, directly or indirectly, any interest or investment in any person, other
than interests under any joint operating agreement of oil and gas property that
expressly provides the relationship of the parties created by such agreement is
not intended to render the parties thereto liable as partners.
(t) CERTAIN TRANSACTION. Except as set forth on SCHEDULE 3.1(t) and
except, in the case of Mercury and QELC, for any Indebtedness, relationships or
interests that are not being assumed by or assigned to QRI pursuant hereto or
that could not have any effect on the Mercury Properties or the QELC Properties
or the operation thereof (a) none of QRI, QELC, Mercury or MGP is indebted
directly or indirectly to any of its officers, directors, stockholders, members,
partners or to their respective spouses or children in any amount whatsoever,
(b) none of such officers, directors or stockholders, partners or members or any
members of their immediate families, are indebted to QRI, QELC, Mercury or MGP
or have any direct or indirect ownership interest in any person with which QRI,
QELC, Mercury or MGP has a business relationship (other than ownership interests
of less than 5% in a publicly traded company) or any person that competes with
QRI, QELC, Mercury or MGP (other than ownership interests of less than 5% in a
publicly traded competitor), and (c) no officer, director or 10% stockholder,
partner or member or member of his immediate family, has a direct or material
indirect financial interest in any material contract with QRI, QELC, Mercury or
MGP other than, in the case of QELC, Mercury or MGP, employment arrangements and
benefit plans.
(u) PLUGGING AND ABANDONMENT OBLIGATIONS. Except as would not have a
Material Adverse Effect on QRI, QELC, Mercury or MGP, there is no well located
upon any property owned by Mercury, QELC or MGP that Mercury, QELC or MGP is
currently obligated by law or contract to plug and abandon.
(v) NO MATERIAL MISSTATEMENTS OR OMISSION. This Agreement, the other
Basic Documents and the other certificates and documents contemplated hereby do
not, or will not when executed and delivered, contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
herein or therein not misleading, in view of the circumstances in which they
were made. To the knowledge of Mercury, QRI, MGP and QELC, there is no fact or
information relating to the business, prospects, condition (financial or
otherwise), affairs, operations, or assets of QRI, Mercury, QELC or MGP that has
not been disclosed to JEDI and TCW in writing by Mercury, QRI, MGP and QELC
which could result in a Material Adverse Effect on QRI, QELC, Mercury or MGP.
The financial statements and other related financial data (excluding all
projections and pro forma financial data) and reserve reports furnished to JEDI
and TCW by or at the direction of Mercury, QRI, MGP or QELC in connection with
the negotiation of this Agreement do not contain any material misstatement of
fact and, when considered with all other written statements furnished to JEDI
and TCW in that connection, such financial statements, related financial data
(excluding all projections and pro forma financial data) and reserve reports do
not omit to state a material fact or any fact necessary to make the statement
contained therein not misleading. The
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circumstances and events that are not required to be identified on the
schedules hereto by reason of the materiality qualifications contained in the
representations and warranties in this Article III, or which are otherwise
within such qualifications, in the aggregate do not have, and could not
reasonably be expected to have, a Material Adverse Effect on QRI, Mercury,
QELC or MGP.
(w) FEES AND COMMISSION. Except for a $75,000 prepayment fee
included in the cash to be paid to TCW pursuant to Section 2.4 hereof, Mercury,
QRI, QELC and MGP have not retained, nor are any fees due from any of them to,
any finder, broker, agent, financial advisor or other intermediary in connection
with the transactions contemplated by this Agreement.
(x) PREFERENTIAL PURCHASE RIGHTS. Except as disclosed on SCHEDULE
3.1(x), none of the Mercury Properties, QELC Properties and MGP Properties is
subject to preferential purchase rights in favor of a third party or
restrictions on assignment requiring the consent of a third party.
(y) CERTAIN PAYMENTS. All rentals, royalties, excess royalty,
overriding royalty interests and other payments due under or with respect to the
Mercury Properties, QELC Properties and MGP Properties have been properly and
timely paid. All ad valorem, property, production, severance and other taxes
based on or measured by the ownership of the Mercury Properties, QELC Properties
and MGP Properties or the production of Hydrocarbons from the Mercury
Properties, QELC Properties and MGP Properties have been properly and timely
paid. All expenses payable under the terms of the Contracts have been properly
and timely paid except for such expenses as are being currently paid prior to
delinquency in the ordinary course of business. All of the proceeds from the
sale of Hydrocarbons are being properly and timely paid to MEC, QELC and MGP by
the purchasers of production without suspension or indemnity other than standard
division order indemnities.
(z) IMBALANCES, ETC. On the Effective Date, (1) none of the
purchasers under any production sales contracts is entitled to "make-up" or
otherwise receive deliveries of Hydrocarbons without paying at the time of such
deliveries the full contract price therefor by reason of payments made prior to
the date hereof; (2) none of the purchasers under any production sales contracts
has exercised any economic out provision; (3) none of the purchasers under any
production sales contracts has curtailed its takes of natural gas in violation
of such contracts; (4) none of the purchasers under any production sales
contracts has given notice that it desires to amend the production sales
contracts with respect to price or quantity of deliveries under take-or-pay
provisions or otherwise; (5) MGP is not entitled to receive any portion of the
interest of QRI in any Hydrocarbons or to receive cash or other payments to
"balance" any disproportionate allocation of Hydrocarbons under any operating
agreement, gas balancing and storage agreement, gas processing or dehydration
agreement, gas transportation or other similar agreements; and (6) QRI is not
obligated to pay any penalties or other payments under any gas transportation or
other agreement as a result of the delivery of quantities of gas from the
Mercury Properties, QELC Properties and MGP Properties in excess of the contract
requirements.
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3.2 REPRESENTATIONS AND WARRANTIES OF JEDI. JEDI represents and warrants
to Mercury, QRI, QELC and TCW that:
(a) ORGANIZATION AND AUTHORITY. JEDI is a limited partnership duly
organized and validly existing under the laws of the State of Delaware. JEDI
has the requisite power and authority and has taken all action necessary in
order to execute and deliver this Agreement and the other Basic Documents to
which it is a party and to consummate the transactions contemplated hereby and
thereby. This Agreement and, upon execution and delivery thereof, each of the
other Basic Documents to which JEDI is a party has been or will have been duly
and validly executed and delivered by JEDI and constitutes or will constitute a
legal, valid and binding agreement of JEDI enforceable against it in accordance
with its terms.
(b) NO CONFLICTS OR VIOLATIONS. The execution and delivery of
this Agreement and the other Basic Documents to which it is a party by JEDI
do not, and the consummation by JEDI of the transactions contemplated hereby
and thereby will not, constitute or result in (i) a breach or violation of,
or a default under, the Agreement of Limited Partnership of JEDI or (ii) a
breach or violation of, a default under, the creation of a right to
terminate, the acceleration of or the creation of a lien, pledge, security
interest or other encumbrance on assets pursuant to (with or without the
giving of notice or the lapse of time), any provision of any agreement,
lease, contract, note, mortgage, indenture, arrangement or other obligation
of JEDI or any law, rule, ordinance or regulation or judgment, decree, order,
award or governmental or non-governmental permit or license to which it is
subject except, in the case of clause (ii) above, for such breaches,
violations, defaults, accelerations or liens which, alone or in the
aggregate, would not have a Material Adverse Effect on the consummation of
the transactions contemplated by this Agreement.
(c) FEES AND COMMISSIONS. JEDI has not retained, nor are any fees
due from JEDI to, any finder, broker, agent, financial advisor or other
intermediary in connection with the transactions contemplated by this Agreement.
(d) CERTAIN TRANSACTIONS. Upon consummation of the transactions
contemplated hereby, except as contemplated in this Agreement and the other
Basic Documents, JEDI will not have any indebtedness to, or any indebtedness
owed to it from, any business relationship with or any direct financial interest
in any contract with QRI.
3.3 REPRESENTATIONS AND WARRANTIES OF TCW. TCW represents and warrants to
Mercury, QRI, QELC and JEDI that:
(a) ORGANIZATION AND AUTHORITY. TCW is a trust company duly
organized and validly existing under the laws of the State of California. TCW
has the requisite power and authority and has taken all action necessary in
order to execute and deliver this Agreement and the other Basic Documents to
which it is a party, and to consummate the transactions contemplated hereby and
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thereby. This Agreement and, upon execution and delivery thereof, each of the
other Basic Documents to which TCW is a party has been or will have been duly
and validly executed and delivered by TCW and constitutes or will constitute a
legal, valid and binding agreement of TCW enforceable against it in accordance
with its terms.
(b) NO CONFLICTS OR VIOLATIONS. The execution and delivery of this
Agreement by TCW do not, and the consummation by TCW of the transactions
contemplated hereby will not, constitute or result in (i) a breach or violation
of, or a default under, the organizational documents of TCW or (ii) a breach or
violation of, a default under, the creation of a right to terminate, the
acceleration of or the creation of a lien, pledge, security interest or other
encumbrance on assets pursuant to (with or without the giving of notice or the
lapse of time), any provision of any agreement, lease, contract, note, mortgage,
indenture, arrangement or other obligation of TCW or any law, rule, ordinance or
regulation or judgment, decree, order, award or governmental or non-governmental
permit or license to which it is subject except, in the case of clause (ii)
above, for such breaches, violations, defaults, accelerations or liens which,
alone or in the aggregate, would not have a Material Adverse Effect on the
consummation of the transactions contemplated by this Agreement.
(c) FEES AND COMMISSIONS. TCW has not retained, nor are any fees due
from TCW to, any finder, broker, agent, financial advisor or other intermediary
in connection with the transactions contemplated by this Agreement.
(d) CERTAIN TRANSACTIONS. Upon consummation of the transactions
contemplated hereby, except as contemplated in this Agreement and the other
Basic Documents, TCW will not have any indebtedness to, or any indebtedness owed
to it from, any business relationship with or any direct financial interest in
any contract with QRI.
3.4 REPRESENTATIONS AND WARRANTIES OF MERCURY AND QELC. Each of Mercury
and QELC represents and warrants to TCW that:
(a) The Transaction Documents (as defined in the TCW Credit
Agreement) constitute, and with respect to QRI will constitute upon QRI's
execution and delivery of the TCW Assumption Agreement (as defined in SECTION
5.1(k), hereof, the legal, valid and binding contracts, obligations and
agreements of Mercury, QELC and QRI enforceable against Mercury, QELC and QRI in
accordance with their terms and the terms of the TCW Assumption Agreement.
Neither Mercury nor QELC is in violation or breach of any of the provisions or
agreements contained in the Transaction Documents and there is no Default or
Event of Default (as such terms are defined in the TCW Credit Agreement) that
has occurred which is continuing.
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ARTICLE IV.
COVENANTS
4.1 CERTAIN COVENANTS OF QRI, QELC, MGP AND MERCURY.
(a) INTERIM OPERATIONS. From and after the date hereof and prior to
the Effective Time (unless JEDI and TCW shall otherwise agree in writing and
except as otherwise contemplated by this Agreement), QRI, QELC, Mercury and MGP
shall, and Mercury shall cause QRI, QELC and MGP to (1) carry on its businesses
diligently and in the ordinary and usual course, consistent with past practice;
(2) take all action necessary to comply with and maintain all of its Licenses
and otherwise preserve its rights to conduct its business in the areas in which
it has the right to conduct its business as of the date of this Agreement; and
(3) use all reasonable efforts to preserve its business organization intact and
maintain its existing relations with customers, suppliers, employees and
business associates.
(b) NEGATIVE COVENANTS. From and after the date hereof and prior
to the Effective Time (unless JEDI and TCW shall otherwise agree in writing
and except as otherwise contemplated by this Agreement), QRI, QELC, Mercury
and MGP shall not, and Mercury shall cause QRI, QELC and MGP not to (1) sell
or pledge or agree to sell or pledge any of its stock, in the case of QRI and
Mercury, or membership interests, in the case of QELC, or partnership
interests, in the case of MGP; (2) amend its Certificate of Incorporation or
Bylaws, in the case of QRI, or its Articles of Organization and Operating
Agreement, in the case of QELC, or its partnership agreement, in the case of
MGP; (3) split, combine or reclassify the outstanding shares of QRI Common
Stock or partnership interests in MGP; (4) declare, set aside or pay any
dividend payable in cash, securities or other property with respect to shares
of QRI Common Stock or partnership interests in MGP; (5) issue, sell, pledge,
dispose of or encumber any shares of capital stock of QRI or Mercury or
membership interests in QELC or partnership interests in MGP, or securities
convertible or exchangeable or exercisable for, or options, warrants, calls,
commitments or rights of any kind to acquire any shares of capital stock of
QRI or Mercury or membership interests in QELC or partnership interests in
MGP; (6) transfer, lease, license, sell, mortgage, pledge, dispose of or
encumber any assets other than in the ordinary course of business; (7) incur,
amend the terms of or modify any Indebtedness or other liability other than
current liabilities incurred in the ordinary and usual course of business;
(8) extend other than on a month-to-month basis or otherwise modify or amend,
or waive any rights under, any lease of real property; (9) acquire directly
or indirectly by redemption or otherwise any shares of capital stock of QRI
or Mercury or membership interests in QELC or partnership interests in MGP or
any options, warrants, calls, commitments or rights to acquire the same; (10)
acquire, by merger, reorganization, consolidation or purchase, substantially
all of the assets of, or otherwise acquire, any business or any organization
or division thereof; (11) merge with, liquidate into or otherwise combine
with any other person, corporation, partnership or other entity; (12) enter
into any agreement or make any commitment to do any of the foregoing;
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(13) change its application of accounting principles in any material respect
except if such change is required by generally accepted accounting principles
to be made at such time; or (14) take any action that is intended or may
reasonably be expected to result in (a) any of their representations and
warranties contained in this Agreement being or becoming untrue in any
material respect, or (b) any of the conditions to the Closing set forth in
Article V not being satisfied, or (c) a violation of any provision of this
Agreement.
(c) OTHER OPERATIONAL COVENANTS. Between the date hereof and the
Effective Time, unless JEDI and TCW shall otherwise agree in writing, QRI, QELC,
Mercury and MGP shall, and Mercury shall cause QRI, QELC and MGP to (1) perform
in all material respects all of its obligations under all Contracts (except
those being contested in good faith and disclosed to JEDI and TCW in writing and
which are not, individually or in the aggregate, material to the business of
QRI, QELC, Mercury or MGP) and not enter into, assume or amend any contracts
except (x) contracts which are in the ordinary course of business involving the
payment by QRI, QELC, Mercury or MGP of less than $10,000 individually or
(y) contracts which are not in the ordinary course of business involving the
payment by QRI, QELC, Mercury or MGP of less than $5,000 individually; (2)
maintain in full force and effect policies of insurance comparable in scope of
coverage to that now maintained by QRI, QELC, Mercury and MGP and use reasonable
efforts to cause its material properties and equipment to be kept in good
repair, working order and condition, ordinary wear and tear excepted, in
accordance with its customary policies and past practices; and (3) prepare and
timely file, or obtain extensions of time in which to file, all federal, state,
local and foreign returns for taxes and other tax reports, filings and
amendments thereto required to be filed by it.
(d) INSPECTION AND ACCESS TO INFORMATION. QRI, QELC, MGP and Mercury
shall allow each of JEDI and TCW and its authorized employees, representatives
and designees (collectively, the "Representatives") reasonable access during
normal business hours to all of QRI's, QELC's, Mercury's and MGP's properties
and records, officers, employees, counsel and tax accountants and shall make
available to JEDI and TCW and the Representatives such information concerning
QRI's, QELC's, Mercury's and MGP's affairs as JEDI and TCW may reasonably
request.
4.2 CERTAIN ADDITIONAL COVENANTS OF THE PARTIES.
(a) CERTAIN FILINGS, CONSENTS AND ARRANGEMENTS. Mercury, QELC, QRI,
MGP, TCW and JEDI shall cooperate with one another (1) in promptly determining
whether any filings are reasonably required to be or should be made, or any
consents, approvals, permits or authorizations are required to be or should be
obtained, under any federal, state or local law or regulation or whether any
consents, approvals or waivers are required to be or should be obtained from
other parties to loan agreements or other Contracts in connection with the
consummation of the transactions contemplated hereby, and (2) in promptly making
any such filings, furnishing information required in connection therewith and
seeking timely to obtain any such consents, permits, authorizations, approvals
or waivers.
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(b) NOTIFICATION OF CERTAIN MATTERS. Each of Mercury, QELC, QRI,
MGP, TCW and JEDI shall give prompt notice to the other of (1) any notice of,
or other communication relating to, a default or event which, with notice or
lapse of time or both, would become a default, received by it subsequent to the
date of this Agreement and prior to the Effective Time, under any Contract, or
(2) any notice or other communication from any third party alleging that the
consent of such third party is or may be required in connection with the
transactions contemplated by this Agreement.
(c) REASONABLE EFFORTS. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use all reasonable efforts to
take, or cause to be taken, all actions, 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 on
or before April 30, 1998. Nothing in this paragraph (c) shall impose any
obligation on any party hereto to approve any matter to the extent that this
Agreement provides that such party's approval is at such party's sole
discretion, including matters set forth in Section 5.1(d).
4.3 ADDITIONAL COVENANTS OF MERCURY, QELC, MGP AND QRI.
(a) Each of Mercury and QELC, jointly and severally, agree to pay all
taxes (other than Federal, state or local income taxes) which may be payable in
connection with the execution, delivery and performance of this Agreement or any
other Basic Document to which it is a party, the Merger, the transfer and
assumption of the QELC Properties and the Mercury Properties and related
Indebtedness, the issuance of the QRI Common Stock hereunder, any payments to
TCW provided for herein, the execution and delivery of this Agreement and the
other Basic Documents or the consummation of the transactions contemplated
hereby and thereby and will save QRI, JEDI and TCW harmless without limitation
as to time against any and all Liabilities with respect to or resulting from any
delay in paying or omission to pay such taxes. The obligations of Mercury and
QELC under this Section shall survive any redemption, repurchase or acquisition
of the shares of QRI Common Stock issued hereunder for any reason and the
termination of this Agreement.
(b) Each of Mercury, QELC, MGP and QRI, jointly and severally, agrees
that none of Mercury, QELC, MGP or QRI or anyone acting on their behalf will
offer QRI Common Stock or any similar securities for issue or sale to, or will
solicit any offer to acquire any of the same from, anyone so as to make the
issuance of shares of QRI Common Stock pursuant to this Agreement not exempt
from the provisions of Section 5 of the Securities Act of 1933, as amended.
(c) Within three days after the Closing Date, Mercury, QELC and QRI,
jointly and severally, agree to file each of the Royalty Documents (as defined
in SECTION 5.1(l)) in the same filing offices that the original royalty
agreements were filed and all other appropriate filing offices.
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ARTICLE V.
CONDITIONS TO CLOSING
5.1 CONDITIONS TO THE CLOSING. The Closing shall not occur unless at or
prior to the Effective Time each of the following conditions, any or all of
which may be waived in whole or in part by mutual agreement of all of the
parties hereto to the extent allowed by applicable law, are satisfied.
(a) REPRESENTATIONS AND WARRANTIES. Except for representations and
warranties specifically stated to be made only as of a specified date, the
representations and warranties of Mercury, QRI, QELC and MGP set forth in this
Agreement shall be true and correct at and as of the Effective Time with the
same force and effect as though the same had been made at and as of the
Effective Time (except for such changes therein expressly permitted by this
Agreement or in writing by JEDI and TCW), Mercury, QRI, QELC and MGP shall have
performed in all material respects all of its obligations under this Agreement
theretofore to be performed, and JEDI and TCW shall have received at the
Effective Time a certificate to that effect (and addressing such other matters
as JEDI or TCW may request) dated the Closing Date and executed by an authorized
executive officer of each of Mercury, QRI, MGP and QELC. Except for
representations and warranties specifically stated to be made only as of a
specified date, the representations and warranties of JEDI set forth in this
Agreement shall be true and correct at and as of the Effective Time with the
same force and effect as though the same had been made at and as of the
Effective Time (except for such changes therein expressly permitted by this
Agreement or in writing by Mercury and TCW), JEDI shall have performed in all
material respects all of its obligations under this Agreement theretofore to be
performed, and Mercury, QRI, QELC and TCW shall have received at the Effective
Time a certificate to that effect (and addressing such other matters as Mercury,
QRI, QELC or TCW may request) dated the Closing Date and executed by an
authorized representative of JEDI. Except for representations and warranties
specifically stated to be made only as of a specified date, the representations
and warranties of TCW set forth in this Agreement shall be true and correct at
and as of the Effective Time with the same force and effect as though the same
had been made at and as of the Effective Time (except for such changes therein
expressly permitted by this Agreement or in writing by Mercury and JEDI), TCW
shall have performed in all material respects all of its obligations under this
Agreement theretofore to be performed, and Mercury, QRI, QELC and JEDI shall
have received at the Effective Time a certificate to that effect (and addressing
such other matters as Mercury, QRI, QELC or JEDI may request) dated the Closing
Date and executed by an authorized representative of TCW.
(b) PENDING LITIGATION. There shall not be any litigation or other
proceeding pending or threatened to restrain or invalidate any of the
transactions contemplated by this Agreement, which would reasonably be expected
to make the consummation of the transactions contemplated hereby imprudent in
light of applicable law.
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(c) OTHER CONSENTS AND FILINGS. All Governmental Consents and
Governmental Filings (other than the filing provided for in Section 1.5), all
consents, approvals, permits, authorizations, waivers and filings referred to
in Section 4.2(a) (except for any such which, in the aggregate, would not
have a Material Adverse Effect) and all other consents or approvals of any
other person determined to be required to permit the consummation of the
transactions contemplated hereby, including without limitation consents of
parties to Contracts, shall have been obtained or made to the reasonable
satisfaction of JEDI and TCW.
(d) DUE DILIGENCE. JEDI and TCW shall have completed a due
diligence examination of (i) QRI, QELC, Mercury and MGP, and (ii) the
properties, assets and liabilities of each parties listed in clause (i), and
TCW and JEDI have approved all matters and information contained or referred
to in any Exhibit or Schedule hereto, and the results of such due diligence
examination shall be satisfactory to JEDI and TCW in JEDI's and TCW's, as
applicable, sole discretion.
(e) LEGAL OPINION. JEDI and TCW shall have received the legal
opinion of Cantey & Hanger as to such matters as JEDI and TCW may reasonably
request.
(f) STOCKHOLDERS AGREEMENT. Each of the parties hereto other than
MGP shall have entered into a Stockholders Agreement (the "Stockholders
Agreement") substantially in the form of EXHIBIT A hereto.
(g) REGISTRATION RIGHTS AGREEMENT. QRI shall have entered into a
Registration Rights Agreement with JEDI (the "JEDI Registration Rights
Agreement") in a form mutually acceptable to JEDI and Mercury, and shall have
entered into a Registration Rights Agreement with TCW (the "TCW Registration
Rights Agreement") in a form mutually acceptable to TCW and Mercury.
(h) STOCK TRANSFER AGREEMENT. JEDI and Mercury shall have entered
into a Stock Transfer Agreement (the "Stock Transfer Agreement")
substantially in the form of EXHIBIT D hereto.
(i) MANAGEMENT AGREEMENT. QRI and Mercury shall have entered into
a Management Agreement (the "Management Agreement") substantially in the form
of EXHIBIT E hereto.
(j) LETTER AGREEMENT. JEDI or one of its Affiliates and QRI shall
have entered into a Letter Agreement (the "Letter Agreement") substantially
in the form of EXHIBIT F hereto.
(k) ASSIGNMENT AND ASSUMPTION DOCUMENTS. Mercury, QELC, Frank
Darden, Thomas F. Darden, Glenn M. Darden, Anne Darden Self, Jeff Cook and
Jack L. Thurber shall have executed and delivered assignment documents in
such forms as are requested by TCW and JEDI,
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each in its sole discretion, which assignments shall vest in QRI the assets
to be transferred to QRI pursuant to Section 2.1 and Section 2.2 hereof and
shall release any and all claims of such persons relating to such assets and
any revenue produced therefrom. Frank Darden, Thomas F. Darden, Glenn M.
Darden, and Anne Darden Self shall execute and deliver an assignment in the
form of EXHIBIT G. Jack L. Thurber shall execute and deliver the assignment
and termination in the form of EXHIBIT H. Jeff Cook shall execute and
deliver the Share Conveyance Agreement in the form of EXHIBIT I. Each of
such individuals shall execute a document containing securities law
representations satisfactory to the parties hereto. QRI shall have executed
and delivered assumption agreements in such forms as requested by TCW and
JEDI, each in its sole discretion, assuming the indebtedness to be assumed by
QRI pursuant to Sections 2.1 and 2.2 hereof, including without limitation an
Assumption Agreement (the "TCW Assumption Agreement") in a form satisfactory
to TCW and QRI, each in its sole discretion.
(l) ROYALTY DOCUMENTS. An Amendment to Royalty Agreement, an
Amendment to Royalty Conveyance and an Amendment to Royalty Subordination
Agreement (the "Royalty Documents") shall have been executed and delivered by
the parties thereto in forms satisfactory to TCW and QRI, each in its sole
discretion.
(m) PUT/CALL AGREEMENT. A Put/Call Agreement (the "Put/Call
Agreement") shall have been executed and delivered by the parties thereto in
a form satisfactory to Mercury and TCW, each in its sole discretion.
(n) LETTER OF CREDIT. TCW shall have received a letter of credit
(the "Letter of Credit") supporting the obligations of Mercury under the
Put/Call Agreement in the amount of $10,000,000 expiring at the earlier of
the date the MSR Merger (as defined in the Put/Call Agreement) is consummated
and December 31, 1998, from such issuing bank and on such other terms as are
requested by TCW in its sole discretion.
(o) TCW RELEASE DOCUMENTS. TCW shall have executed and delivered
such documents (the "TCW Release Documents") as are necessary to (i)
terminate and release all mortgages, financial statements, pledge agreements
and all other security documents relating to the TCW Credit Agreement and
(ii) evidence the payment in full of all outstanding principal, interest and
fees under the Note under the TCW Credit Agreement. This Agreement, the
Stockholders Agreement, the JEDI Registration Rights Agreements, the TCW
Registration Rights Agreement, the Stock Transfer Agreement, the Management
Agreement, the Letter Agreement, the assignment and assumption documents
referred to in SECTION 5.1(k), the Royalty Documents, the Put/Call Agreement,
the Letter of Credit and the TCW Release Documents are referred to
collectively herein as the "Basic Documents".
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(p) CREDIT AGREEMENT. QRI shall have obtained a new credit
facility with NationsBank of Texas, N.A. on substantially the terms set forth
on the term sheet attached hereto as EXHIBIT K and under documents acceptable
to JEDI and TCW, each in its sole discretion.
(q) CHARTER AMENDMENT. The Certificate of Incorporation and
Bylaws of QRI shall be in a form reasonably acceptable to JEDI and TCW.
(r) SCHEDULE 3.1(h). Mercury, QELC and MGP shall deliver to JEDI
and TCW a schedule in such form as is satisfactory to JEDI and TCW (the
"Revised Well Exhibit") setting forth all wells on the Mercury Properties,
QELC Properties and the MGP Properties and the working interests and net
revenue interests therein.
(s) 3/31/98 BALANCE SHEET. Mercury and QELC shall have delivered
the 3/31/98 Balance Sheet.
ARTICLE VI.
TERMINATION
6.1 TERMINATION BY MUTUAL CONSENT. This Agreement may be terminated
and the transaction contemplated hereby may be abandoned at any time before
the Closing by the mutual consent of each of the parties hereto.
6.2 TERMINATION BY INDIVIDUAL PARTIES. This Agreement may be
terminated and the transaction contemplated hereby may be abandoned by action
of any of the parties hereto if (a) the Closing shall not have occurred on or
before April 30, 1998 or such later date as may be mutually agreed to by the
parties hereto, provided that the party taking action to terminate this
Agreement is not otherwise in breach in any material respect of any of its
obligations hereunder or (b) any court of competent jurisdiction or other
governmental body shall have issued an order, decree or ruling or taken any
other action restraining, enjoining or otherwise prohibiting the consummation
of transactions contemplated hereby and such order, decree, ruling or other
action shall have become final and nonappealable; PROVIDED, HOWEVER, that the
provisions of Section 7.1 shall survive the termination of this Agreement.
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ARTICLE VII.
MISCELLANEOUS; GENERAL
7.1 FEES AND EXPENSES. Whether or not the Closing shall occur, each
party hereto shall pay its own expenses incident to preparing for, entering
into or carrying out this Agreement and the consummation of the transactions
contemplated hereby; PROVIDED, HOWEVER, that Mercury shall pay one-half of
the legal fees and expenses incurred by JEDI incident to preparing for,
entering into or carrying out this Agreement and the consummation of the
transactions contemplated hereby; PROVIDED, FURTHER, that, regardless of
whether the Closing occurs, Mercury shall: (a) pay, or reimburse TCW for,
all of the third party engineering, legal, accounting and other professional
costs and expenses incurred by TCW incident to the transactions contemplated
hereby, with such payments to be made not later than the Effective Time with
respect to all invoices submitted on or before the Closing and not later than
15 days after receipt thereof with respect to all other invoices; and (b) pay
to TCW $25,000 for all other out-of-pocket costs incurred or anticipated to
be incurred by TCW, with such payment to be made not later than the earlier
to occur of the Effective Time and five days after the date hereof.
7.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations or
warranties contained in this Agreement shall survive the Effective Time for a
period of three years.
7.3 INDEMNIFICATION.
(a) INDEMNIFICATION OF JEDI AND TCW. From and after the Effective
Time, Mercury and QRI jointly and severally shall defend, indemnify, save,
hold harmless, discharge and release JEDI and TCW and their respective
Affiliates and their successors and permitted assigns from and against any
and all damages (including exemplary damages, interest and penalties),
losses, deficiencies, costs, expenses, obligations, fines, expenditures,
assessments, charges, claims and liabilities, including attorneys' fees,
court costs and expenses of investigating, defending and prosecuting
litigation (collectively, the "Damages"), caused by, arising from, based on,
or in any way relating to (i) any inaccuracy in any representation or
warranty made by Mercury, QRI, MGP or QELC in this Agreement, including any
inaccuracy in or omission from any of the other Basic Documents or any list,
schedule, certificate or other document or instrument furnished or to be
furnished in connection with this Agreement, and (ii) any breach of any
agreement or covenant in this Agreement, any of the other Basic Documents or
any other document or instrument furnished or to be furnished in connection
with this Agreement to be performed by Mercury, QRI, QELC or MGP prior to, at
or subsequent to the Effective Time. Notwithstanding anything herein to the
contrary, Mercury shall not be entitled to seek contribution from QRI for any
portion of any Damages for which Mercury is required to provide
indemnification pursuant to this Section 7.3(a).
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(b) INDEMNIFICATION OF MERCURY, TCW AND QRI. From and after the
Effective Time, JEDI shall defend, indemnify, save, hold harmless, discharge
and release Mercury, TCW and QRI from and against any and all Damages caused
by, arising from, based on, or in any way relating to (i) any inaccuracy in
any representation or warranty made by JEDI in this Agreement, including any
inaccuracy in or omission from any of the other Basic Documents or any list,
schedule, certificate or other document or instrument furnished or to be
furnished in connection with this Agreement, or (ii) any breach of any
agreement or covenant on the part of JEDI in this Agreement, any of the other
Basic Documents or any other document or instrument furnished to or to be
furnished in connection with this Agreement.
(c) INDEMNIFICATION OF MERCURY, JEDI AND QRI. From and after the
Effective Time, TCW shall defend, indemnify, save, hold harmless, discharge
and release Mercury, JEDI and QRI from and against any and all Damages caused
by, arising from, based on, or in any way relating to (i) any inaccuracy in
any representation or warranty made by TCW in this Agreement, including any
inaccuracy in or omission from any of the other Basic Documents or any list,
schedule, certificate or other document or instrument furnished or to be
furnished in connection with this Agreement, or (ii) any breach of any
agreement or covenant on the part of TCW in this Agreement, any of the other
Basic Documents or any other document or instrument furnished to or to be
furnished in connection with this Agreement.
(d) NOTICE AND DEFENSE OF THIRD-PARTY CLAIMS. The obligations and
liabilities of an indemnifying person with respect to Damages resulting from
the assertion of liability by third parties (each, a "Third-Party Claim")
shall be subject to the following terms and conditions:
(1) The indemnified persons shall promptly give written
notice to the indemnifying parties of any Third-Party Claim
(including, without limitation, any threat of a Third-Party Claim,
such as an audit or investigation) which might give rise to any
Damages by the indemnified persons, stating the nature and basis of
such Third-Party Claim and the amount thereof to the extent known;
provided, however, that no delay on the part of the indemnified
persons in notifying any indemnifying party shall relieve the
indemnifying party from any liability or obligation hereunder unless
(and then solely to the extent) the indemnifying party thereby is
prejudiced by the delay. Such notice shall be accompanied by copies
of all relevant documentation with respect to such Third-Party Claim,
including, but not limited to, any summons, complaint or other
pleading which may have been served, any written demand or any other
document or instrument.
(2) If the indemnifying parties shall acknowledge in a
writing delivered to the indemnified persons that the indemnifying
parties shall be obligated under the terms of their indemnification
obligations hereunder in connection with such Third-Party Claim, then
the indemnifying parties shall have the right to assume the defense
of any Third-Party Claim at their own expense and by their own
counsel, which counsel shall be reasonably
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<PAGE>
satisfactory to the indemnified persons; provided, however, that the
indemnifying parties shall not have the right to assume the defense of
any Third-Party Claim, notwithstanding the giving of such written
acknowledgment, if (i) the indemnified persons shall have been advised
by counsel that there are one or more legal or equitable defenses
available to them which are different from or in addition to those
available to the indemnifying parties, and, in the reasonable opinion of
the indemnified persons, counsel for the indemnifying parties could not
adequately represent the interests of the indemnified parties because
such interests could be in conflict with those of the indemnifying
parties, (ii) such action or proceeding involves, or could have a
material effect on, any material matter beyond the scope of the
indemnification obligation of the indemnifying parties or (iii) the
indemnifying parties shall not have assumed the defense of the
Third-Party Claim in a timely fashion.
(3) If the indemnifying parties shall assume the defense
of a Third-Party Claim (under circumstances in which the proviso to
Section 7.3(d)(2) is not applicable), the indemnifying parties shall
not be responsible for any legal or other defense costs subsequently
incurred by the indemnified persons in connection with the defense
thereof. If the indemnifying parties do not exercise their right to
assume the defense of a Third-Party Claim by giving the written
acknowledgment referred to in Section 7.3(d)(2), or are otherwise
restricted from so assuming by the proviso to Section 7.3(d)(2), the
indemnifying parties shall nevertheless be entitled to participate in
such defense with their own counsel and at their own expense; and in
any such case, the indemnified persons may assume the defense of the
Third-Party Claim at the indemnifying parties' expense, with counsel
which shall be reasonably satisfactory to the indemnifying parties
and shall act reasonably and in accordance with their good faith
business judgment and shall not effect any settlement without the
consent of the indemnifying parties, which consent shall not
unreasonably be withheld or delayed.
(4) If the indemnifying parties exercise their right to
assume the defense of a Third-Party Claim, they shall not make any
settlement of any claims without the prior written consent of the
indemnified persons, which consent shall not be unreasonably withheld
or delayed.
(d) TERMINATION OF INDEMNIFICATION OBLIGATIONS. Notwithstanding
the foregoing, no party shall be required to provide indemnification pursuant
to this Section 7.3 in respect of any claim for indemnification for a breach
of a representation or warranty contained herein unless the party seeking
indemnification provides notice of the indemnification claim to the party
from whom indemnification is sought within three years after the Effective
Time.
7.4 DISPUTE RESOLUTION. Any controversy, dispute or claim arising out
of or relating to this Agreement or any of the other Basic Documents or the
transactions contemplated hereby or thereby (a "Dispute") shall be resolved
by arbitration administered by the American Arbitration
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Association (the "AAA") in accordance with the terms of this Section 7.4, the
Commercial Arbitration Rules of the AAA, and, to the maximum extent
applicable, the United Stated Arbitration Act. Judgment on any matter
rendered by arbitrators may be entered in any court having jurisdiction. Any
arbitration shall be conducted before three arbitrators. The arbitrators
shall be individuals knowledgeable in the subject matter of the Dispute.
Each party shall select one arbitrator and the two arbitrators so selected
shall select the third arbitrator. If the third arbitrator is not selected
within 30 days after the request for an arbitration, then any party may
request the AAA to select the third arbitrator. The arbitrators may engage
engineers, accountants or other consultants they deem necessary to render a
conclusion in the arbitration proceeding. To the maximum extent practicable,
an arbitration proceeding hereunder shall be concluded within 180 days of the
filing of the Dispute with the AAA. Arbitration proceedings shall be
conducted in Houston, Texas. Arbitrators shall be empowered to impose
sanctions and to take such other actions as the arbitrators deem necessary to
the same extent a judge could impose sanctions or take such other actions
pursuant to the Federal Rules of Civil Procedure and applicable law. At the
conclusion of any arbitration proceeding, the arbitrators shall make specific
written findings of fact and conclusions of law. The arbitrators shall have
the power to award recovery of all costs and fees to the prevailing party.
All fees of the arbitrators and any engineer, accountant or other consultant
engaged by the arbitrators, shall be shared equally unless otherwise awarded
by the arbitrators.
7.5 BUSINESS OPPORTUNITY MATTERS. To the fullest extent permitted by law,
(a) QRI, Mercury, TCW and JEDI acknowledge and agree that neither JEDI, TCW nor
any of their respective Affiliates shall be expressly or implicitly restricted
or proscribed pursuant to this Agreement or the relationship that exists between
JEDI or TCW and QRI or otherwise, from engaging in any type of business activity
or owning an interest in any type of business entity, regardless of whether such
business activity is (or such business entity engages in businesses that are) in
direct or indirect competition with the businesses or activities of QRI or any
of its Affiliates. Without limiting the foregoing and to the fullest extent
permitted by law, JEDI, QRI, TCW and Mercury acknowledge and agree that
(i) neither QRI nor its Affiliates nor any other person shall have any rights,
by virtue of this Agreement and the other Basic Documents, the relationship that
exists between JEDI or TCW and QRI or otherwise, in any business venture or
business opportunity of JEDI or TCW or any of their respective Affiliates, and
neither JEDI or TCW nor their respective Affiliates shall have any obligation to
offer any interest in any such business venture or business opportunity to QRI
or any Affiliate of QRI or any other person or otherwise account to any of such
persons in respect of any such business ventures, (ii) the activities of JEDI,
TCW or any of their respective Affiliates that are in direct or indirect
competition with the activities of QRI or any of its Affiliates are hereby
approved by QRI and Mercury, and (iii) by virtue of this Agreement and the other
documents contemplated hereby, it shall not be deemed a breach of any fiduciary
or other duties, if any and whether express or implied, that may be owed by
JEDI, TCW or their respective Affiliates to QRI or its Affiliates for JEDI or
TCW to permit itself or one of its respective Affiliates to engage in a business
opportunity in preference or to the exclusion of QRI, its Affiliates or any
other person.
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7.6 MODIFICATION OR AMENDMENT. Subject to the applicable provisions of
the DGCL and the TRLPA, at any time prior to the Effective Time, this Agreement
may be modified or amended only by the mutual written consent of each of the
parties hereto.
7.7 COUNTERPARTS. For the convenience of the parties hereto, this
Agreement may be executed in any number of counterparts, each such counterpart
being deemed to be an original instrument, and all such counterparts shall
together constitute the same agreement.
7.8 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas without giving effect to the
principles of conflict of laws thereof.
7.9 NOTICES. Any notice, request, instruction or other document to be
given hereunder by any party to the others shall be in writing and shall be
deemed to have been duly given on the next business day after the same is sent,
if delivered personally or sent by telecopy or overnight delivery, or five
calendar days after the same is sent, if sent by registered or certified mail,
return receipt requested, postage prepaid, as set forth below, or to such other
persons or addresses as may be designated in writing in accordance with the
terms hereof by the party to receive such notice.
If to Mercury, QELC, QRI or MGP, to such party at:
1619 Pennsylvania Avenue
Fort Worth, Texas 76104
Attention: Glenn M. Darden
Telecopier: (817) 332-1883
If to JEDI:
Joint Energy Development Investments Limited Partnership
c/o Enron Capital Management Limited Partnership
1400 Smith Street
Houston, Texas 77002
Attention: Jeremy M. Blachman
Telecopier: (713) 646-8174
with copies to:
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Enron Capital & Trade Resources
Corp. Legal Department
1400 Smith Street
Houston, Texas 77002
Attention: Carol St. Clair and Gareth S. Bahlmann
Telecopier: (713) 646-3393
Enron Capital & Trade Resources
Compliance Department
1400 Smith Street
Houston, Texas 77002
Attention: Donna W. Lowry
Telecopier: (713) 646-4039 or (713) 646-4946
If to TCW:
Trust Company of the West
865 South Figueroa Street
Los Angeles, California 90017
Attention: Arthur R. Carlson
Telecopier: (213) 244-0604
and
TCW Asset Management Company
2175 First Interstate Bank Plaza
1000 Louisiana
Houston, Texas 77002
Attention: George R. Hutchinson
Telecopier: (713) 615-7460
with copies to:
Milbank, Tweed, Hadley & McCloy
601 South Figueroa Street, 30th Floor
Los Angeles, California 90017
Attention: David A. Lamb
Telecopier: (213) 629-5063
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<PAGE>
7.10 SCHEDULES AND EXHIBITS; ENTIRE AGREEMENT. All schedules and exhibits
to this Agreement are hereby incorporated into this Agreement and are hereby
made a part hereof as if set out in full in this Agreement. This Agreement
supersedes all other prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof and constitutes the
entire agreement among the parties hereto.
7.11 ASSIGNMENT. Prior to the Effective Time, this Agreement and the
rights and obligations of the parties hereto shall not be assignable, by
operation of law or otherwise, or delegable.
7.12 TITLES AND CAPTIONS. The titles, captions and table of contents
contained in this Agreement are inserted herein only as a matter of convenience
and for reference and in no way deem, limit, extend or describe the scope of
this Agreement or the intent of any provisions hereof.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the parties hereto.
QUICKSILVER RESOURCES INC.
By: /s/ Glenn Darden
-----------------------------
Name: Glenn Darden
--------------------------
Title: Vice President
-------------------------
QUICKSILVER ENERGY, L.C.
By: /s/ Glenn Darden
-----------------------------
Name: Glenn Darden
--------------------------
Title: Administrative Manager
-------------------------
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MICHIGAN GAS PARTNERS,
LIMITED PARTNERSHIP
By: Mercury Exploration Company,
Managing General Partner
By: /s/ Glenn Darden
--------------------------------
Name: Glenn Darden
-----------------------------
Title: Vice President
----------------------------
MERCURY EXPLORATION COMPANY
By: /s/ Glenn Darden
--------------------------------
Name: Glenn Darden
-----------------------------
Title: Vice President
----------------------------
JOINT ENERGY DEVELOPMENT
INVESTMENTS LIMITED PARTNERSHIP
By: Enron Capital Management Limited
Partnership, its General Partner
By: Enron Capital Corp., its General
Partner
By: /s/ Jesse E. Neyman
--------------------------------
Name: Jesse E. Neyman
-----------------------------
Title: Agent and Attorney-in-Fact
----------------------------
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TRUST COMPANY OF THE WEST,
a California trust company, as
Sub-Custodian for Mellon Bank for the
benefit of Account No. CPFF 869-3062
By: TCW ASSET MANAGEMENT COMPANY,
a California corporation, as
Investment Manager under that
certain Agreement dated as of
June 13, 1994, between TCW Asset
Management Company and Morgan
Stanley Group, Inc.
By: /s/ Arthur R. Carlson
-----------------------------
Name: Arthur R. Carlson
--------------------------
Title: Managing Director
-------------------------
By: /s/ Marc L. MacAluso
-----------------------------
Name: Marc L. MacAluso
--------------------------
Title: Senior Vice President
-------------------------
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AGREEMENT REGARDING MERGER AGREEMENT
This Agreement Regarding Merger Agreement dated April 9, 1998 (this
"Agreement") is by and among Quicksilver Resources Inc., a Delaware corporation
("QRI"), Quicksilver Energy, L.C., a Michigan limited liability company
("QELC"), Michigan Gas Partners, Limited Partnership, a Texas limited
partnership ("MGP"), Mercury Exploration Company, a Texas corporation
("Mercury"), Joint Energy Development Investments Limited Partnership, a
Delaware limited partnership ("JEDI"), and Trust Company of the West, a
California trust company, in the capacity indicated on the signature pages
hereto ("TCW").
QRI, QELC, MGP, Mercury, JEDI and TCW (collectively, the "Parties") are
parties to an Agreement and Plan of Reorganization and Merger dated March 31,
1998 (the "Merger Agreement"). In anticipation of the closing of the
transactions contemplated by the Merger Agreement, the Parties to the Merger
Agreement desire to clarify their intention with respect to certain matters
addressed in the Merger Agreement. Initially capitalized terms used but not
otherwise defined herein have the meanings ascribed to such terms in the Merger
Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements
contained herein and in the Merger Agreement, the Parties hereto agree as
follows:
1. SECTION 2.5. In order to clarify the nature of the cash payments to
be made subsequent to Closing pursuant to Section 2.5 of the Merger Agreement,
the Parties agree that such a cash payment will only be made based on an
adjusted 3/31/98 Balance Sheet Amount if the adjustment relates to an asset or
liability item that was previously charged or credited in error to any of the
parties based on a 1/1/98 effective date of the transactions contemplated by the
Merger Agreement.
2. SECTION 3.1(h). The Parties agree that the definition of
"Permitted Liens" contained in Section 3.1(h) of the Merger Agreement shall
be deemed to include any liens securing borrowings under (i) the Credit
Agreement dated November 14, 1996 between QELC and NationsBank of Texas, N.A.
and (ii) the Credit Agreement dated April 9, 1998 between QRI, NationsBank of
Texas, N.A., as Agent, and the financial institutions listed on Schedule 1
thereto (the "New Credit Agreement"). The Parties further agree that for all
purposes any reference to NationsBank of Texas, N.A. contained in the Merger
Agreement, any Schedule or Exhibit thereto and any of the other Basic
Documents shall be deemed to include NationsBank of Texas, N.A. in its
capacity as agent for other financial institutions.
3. SECTION 3.1(i). The Parties agree that the financial statements
delivered by Mercury to JEDI and TCW are, instead of audited financial
statements of Mercury as of and for the year
<PAGE>
ended December 31, 1997, (i) the audited consolidated balance sheet and
statements of income, cash flows and stockholders' equity of Mercury as of
and for the year ended September 30, 1997 and (ii) the unaudited consolidated
balance sheet and statements of income, cash flows and stockholders' equity
of Mercury as of and for the three months ended December 31, 1997. Section
3.1(i) of the Merger Agreement shall be deemed to include the representation
and warranty that such financial statements delivered to JEDI and TCW were
prepared in accordance with generally accepted accounting principles applied
on a consistent basis (except as noted therein) and fairly present the
financial position, results of operations and cash flows of Mercury as of the
dates and for the periods therein specified.
4. SECTION 4.1(b). The Parties hereby waive compliance with the
covenants contained in clauses (1), (5), (12) and (14) of Section 4.1(b) of the
Merger Agreement to the extent that such covenants would be breached by the
pledge of, or agreement or commitment to pledge, any shares of QRI Common Stock
pursuant to the New Credit Agreement.
5. CERTAIN SCHEDULES. The Parties agree that Schedule 2.1.1, Schedule
2.1.2, Schedule 2.2.1, Schedule 2.2.2, and Schedule 3.1(b) attached hereto shall
be deemed (i) to replace, respectively, Schedule 2.1.1, Schedule 2.1.2, Schedule
2.2.2, and Schedule 3.1(b) attached to the Merger Agreement and (ii) to be
Schedule 2.1.1, Schedule 2.1.2, Schedule 2.2.1, Schedule 2.2.2, and Schedule
3.1(b) to the Merger Agreement for all purposes as if they were attached to the
Merger Agreement at the time of execution of the Merger Agreement. The Parties
agree that Schedule 3.1(h), part III attached hereto constitutes the Revised
Well Exhibit referred to in Section 5.1(r) of the Merger Agreement.
6. REMOVAL OF LEGENDS FROM STOCK CERTIFICATES. QRI agrees that it will
cause all legends regarding securities law transfer restrictions to be removed
from certificates representing shares of QRI Common Stock issued pursuant to the
Merger Agreement upon receipt of a legal opinion reasonably acceptable to QRI's
counsel to the effect that such legends are no longer necessary under applicable
securities laws.
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<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the Parties.
QUICKSILVER RESOURCES INC.
By: /s/ Glenn Darden
-------------------------------------
Name: Glenn Darden
-----------------------------------
Title: Vice President
----------------------------------
QUICKSILVER ENERGY, L.C.
By: /s/ Glenn Darden
-------------------------------------
Name: Glenn Darden
-----------------------------------
Title: Vice President
----------------------------------
MICHIGAN GAS PARTNERS,
LIMITED PARTNERSHIP
By: Mercury Exploration Company,
Managing General Partner
By: /s/ Glenn Darden
-------------------------------------
Name: Glenn Darden
-----------------------------------
Title: Vice President
----------------------------------
MERCURY EXPLORATION COMPANY
By: /s/ Glenn Darden
-------------------------------------
Name: Glenn Darden
-----------------------------------
Title: Vice President
----------------------------------
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<PAGE>
JOINT ENERGY DEVELOPMENT
INVESTMENTS LIMITED PARTNERSHIP
By: Enron Capital Management Limited
Partnership, its General Partner
By: Enron Capital Corp., its
General Partner
By: /s/ Jesse E. Neyman
-------------------------------------
Name: Jesse E. Neyman
-----------------------------------
Title: Agent and Attorney-in-Fact
----------------------------------
TRUST COMPANY OF THE WEST,
a California trust company, as
Sub-Custodian for Mellon Bank for the
benefit of Account No. CPFF 869-3062
By: TCW ASSET MANAGEMENT COMPANY,
a California corporation, as
Investment Manager under that
certain Agreement dated as of
June 13, 1994, between TCW
Asset Management Company and
Morgan Stanley Group, Inc.
By: /s/ George R. Hutchinson
-------------------------------------
Name: George R. Hutchinson
-----------------------------------
Title: Managing Director
----------------------------------
By: /s/ Marc A. MacAluso
-------------------------------------
Name: Marc A. MacAluso
-----------------------------------
Title: Senior Vice President
----------------------------------
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<PAGE>
Exhibit 10.4
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and
entered into as of April 9, 1998, by and among Quicksilver Resources Inc., a
Delaware corporation (the "Company"), Joint Energy Development Investments
Limited Partnership, a Delaware limited partnership ("JEDI"), and Trust
Company of the West, a California trust company, in the capacity indicated on
the signature pages hereto ("TCW").
This Agreement is made pursuant to the Agreement and Plan of
Reorganization and Merger (the "Merger Agreement") dated as of March 31, 1998
by and among the Company, JEDI, TCW, Quicksilver Energy, L.C., Michigan Gas
Partners, Limited Partnership and Mercury Exploration Company. In order to
induce JEDI and TCW to enter into the Merger Agreement, the Company has
agreed to provide the registration and other rights set forth in this
Agreement. Pursuant to the Merger Agreement, JEDI will become the owner of
13,000 shares (the "JEDI Shares") of the common stock, par value $.01 per
share, of the Company (the "Common Stock"), and TCW will become the owner of
13,000 shares (the "TCW Shares") of Common Stock. The execution and delivery
of this Agreement is a condition to the Closing (as defined in the Merger
Agreement) under the Merger Agreement.
The parties agree as follows:
ARTICLE I
Section 1.01. DEFINITIONS. The terms set forth below are used herein
as so defined:
"AFFILIATE" means, with respect to any Person, any Person directly
or indirectly controlling or controlled by or under direct or indirect common
control with such Person. For the purposes of this definition, "control,"
when used with respect to any Person means the power to direct the management
and policies of such Person, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise, and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"HOLDER" means the record holder of any Registrable Securities.
"JEDI REGISTRABLE SECURITIES" means the JEDI Shares and, if held by
JEDI or an Affiliate of JEDI, any other shares of Common Stock, and any other
securities issued or issuable to any Holder upon the exchange or conversion
(by merger or otherwise) of any of the JEDI Shares or such other shares of
Common Stock, until such time as such securities cease to be Registrable
Securities pursuant to Section 1.02 hereof.
"PERSON" means any individual, corporation, limited liability
company, partnership, joint venture, association, joint-stock company,
business trust, trust or unincorporated entity.
<PAGE>
"REGISTRABLE SECURITIES" means the JEDI Registrable Securities and
the TCW Registrable Securities.
"SELLING HOLDER" means a Holder who is selling Registrable
Securities pursuant to a Registration Statement (as defined herein).
"TCW REGISTRABLE SECURITIES" means the TCW Shares and, if held by
TCW or an Affiliate of TCW, any other shares of Common Stock, and any other
securities issued or issuable to any Holder upon the exchange or conversion
(by merger or otherwise) of any of the TCW Shares or such other shares of
Common Stock, until such time as such securities cease to be Registrable
Securities pursuant to Section 1.02 hereof.
Section 1.02. REGISTRABLE SECURITIES. Any Registrable Security will
cease to be a Registrable Security when (i) a Registration Statement (as
defined in Section 2.01(b)) covering such Registrable Security has been
declared effective by the Securities and Exchange Commission (the
"Commission") and such Registrable Security has been issued, sold or disposed
of pursuant to such effective Registration Statement, (ii) such Registrable
Security is disposed of to the public pursuant to Rule 144 (or any similar
provision then in force) under the Securities Act of 1933, as amended (the
"Securities Act"), (iii) such Registrable Security is eligible to be, and at
the time of determination can be, disposed of to the public pursuant to
paragraph (k) of Rule 144 (or any similar provision then in force) under the
Securities Act or (iv) such Registrable Security is held by the Company or
one of its subsidiaries.
ARTICLE II
Section 2.01. DEMAND REGISTRATION. (a) Any time after the date of this
Agreement at which the Common Stock (or any other class or series of
securities of the Company or any other Person of which Registrable Securities
are a part) is registered with the Commission under Section 12 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), any Holder
or Holders who collectively beneficially own at least a majority of the JEDI
Registrable Securities or at least a majority of the TCW Registrable
Securities, in each case outstanding at such time, may request (a "Request
Notice") the Company to register under the Securities Act all or any portion
(provided that such portion will have an aggregate offering price of at least
$1,000,000) of the JEDI Registrable Securities or TCW Registrable Securities,
as applicable, that are held by such Holder or Holders (collectively, the
"Original Requesting Holders") for sale in the manner specified in the
Request Notice.
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<PAGE>
(b) Promptly following receipt of a Request Notice, the Company
shall immediately notify each Holder (except the Original Requesting Holders)
of the receipt of a Request Notice and shall use its best efforts to file a
registration statement under the Securities Act (each such registration
statement is hereinafter referred to as a "Registration Statement") effecting
the registration under the Securities Act, for public sale in accordance with
the method of disposition specified in such Request Notice, of the
Registrable Securities specified in the Request Notice (and in any notices
received from any additional Holders other than the Original Requesting
Holders no later than the 15th day after receipt of the notice sent by the
Company) (such additional Holders and the Original Requesting Holders are
hereinafter referred to collectively as the "Requesting Holders"). If such
method of disposition shall be an underwritten public offering, the Company
may designate the managing underwriter of such offering, subject to the
approval of the Requesting Holders holding a majority of the Registrable
Securities requested to be registered, which approval shall not be withheld
unreasonably. The Company shall be obligated to register Registrable
Securities pursuant to this Section 2.01 on three occasions only with respect
to Request Notices delivered by the Holders of a majority of the JEDI
Registrable Securities and on three occasions only with respect to Request
Notices delivered by Holders of a majority of the TCW Registrable Securities.
For purposes of the foregoing sentence, a request pursuant to this Section
2.01 shall be counted only when (i) all the Registrable Securities requested
to be included in any such registration have been so included, (ii) the
corresponding Registration Statement has become effective under the
Securities Act, and (iii) the effectiveness of the Registration Statement has
been maintained for the period specified in Section 2.03(g) below; provided,
however, that a request shall be counted in the event that clause (i), (ii)
or (iii) above is not satisfied for reasons that are solely within the
control of the Original Requesting Holders. Notwithstanding anything to the
contrary contained herein, the Company may delay the filing or effectiveness
of a Registration Statement after receipt of a Request Notice (i) for up to
60 days if, at the time of such request, a firm commitment underwritten
public offering of the Company's securities is being conducted (A) pursuant
to a Request Notice under this Section 2.01 or (B) in which Holders may
include Registrable Securities and for which the Company has delivered the
notice to Holders required by the first sentence of Section 2.02 or (ii) for
up to 45 days if, within five days after the date of such request, the Board
of Directors of the Company determines in its reasonable judgment and in good
faith that the filing of such a Registration Statement or the making of any
required disclosure in connection therewith would have a material adverse
effect on the Company or substantially interfere with a significant
transaction in which the Company is then engaged; provided that the Company
may not delay the filing of a Registration Statement in reliance on this
clause (ii) more than once during any period of eighteen consecutive calendar
months.
(c) The Company shall be entitled to include in any Registration
Statement filed pursuant to this Section 2.01, for sale in accordance with
the method of disposition specified by the Original Requesting Holders,
securities of the Company entitled to vote generally in the election of
directors (or any securities convertible into or exchangeable for or
exercisable for the purchase of
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<PAGE>
securities so entitled generally to vote in the election of directors)
(collectively, "Voting Securities") to be sold by the Company for its own
account, except as and to the extent that, in the opinion of the managing
underwriter (if such method of disposition shall be an underwritten public
offering) or in the opinion of the Requesting Holders owning a majority of
the Registrable Securities requested to be registered (if such method of
distribution is not an underwritten public offering), such inclusion would
adversely affect the price or materially jeopardize the successful marketing
of the Registrable Securities to be sold. Any Person, other than a Holder,
who is entitled to piggy-back registration rights with respect to a
Registration Statement filed pursuant to this Section 2.01 may include Voting
Securities of the Company with respect to which such rights apply in such
Registration Statement for sale in accordance with the method of disposition
specified by the Original Requesting Holders, except and to the extent that,
in the opinion of the managing underwriter (if such method of disposition
shall be an underwritten public offering) or in the opinion of the Requesting
Holders owning a majority of the Registrable Securities requested to be
registered (if such method of distribution is not an underwritten public
offering), such inclusion would adversely affect the price or materially
jeopardize the successful marketing of the Registrable Securities to be sold.
In the event that, in the opinion of the managing underwriter (if the method
of distribution is an underwritten public offering), the number of
Registrable Securities to be included by Requesting Holders in a registration
pursuant to this Section 2.01 exceeds the number (the "Maximum Number") of
Registrable Securities that may be included without adversely affecting the
price or materially jeopardizing the marketing of Registrable Securities,
then the number of Registrable Securities to be included in the registration
shall be reduced to the Maximum Number of Registrable Securities. In
effecting such reduction, the number of Registrable Securities to be included
by each Requesting Holder shall be reduced in proportion to the respective
number of Registrable Securities requested to be included by each Requesting
Holder. Except as provided in this subsection (c), the Company will not
effect any other registration of its Voting Securities (except with respect
to Registration Statements on Form S-4 or S-8 for purposes permissible under
such forms as of the date hereof), whether for its own account or that of any
other security holder, from the date of receipt of a Request Notice
requesting the registration of an underwritten public offering until the
completion of the distribution by the underwriters of all securities
thereunder or, if sooner, until 60 days following the date of effectiveness
under the Securities Act of the Registration Statement relating to the
request notice. In addition, in connection with any underwritten public
offering pursuant to a request notice under this Section 2.01, the Company
will, if requested by the underwriters, cooperate with the underwriters in
obtaining from the officers, directors and significant stockholders (other
than Holders) of the Company customary lock-up agreements prohibiting the
sale of Voting Securities by such persons for a period not to exceed 60 days
following effectiveness under the Securities Act of the Registration
Statement relating to the request notice.
(d) Until no Registrable Securities remain outstanding, the
Company shall not issue any demand registration rights to any person or
entity without the prior written consent of the
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<PAGE>
Holders of a majority of the JEDI Registrable Securities and the Holders of a
majority of the TCW Registrable Securities.
Section 2.02. PIGGY-BACK REGISTRATION. If the Company proposes to
register any Voting Securities under the Securities Act for sale to the
public for cash for its own account or for the account of its security
holders other than Holders (except with respect to Registration Statements on
Forms S-4 or S-8 for purposes permissible under such forms as of the date
hereof), each such time it will give written notice to all Holders of its
intention to do so no less than 20 days prior to the anticipated filing date.
Upon the written request of any Holder, received by the Company no later
than the 15th day after receipt by such Holder of the notice sent by the
Company, to register, on the same terms and conditions as the securities
otherwise being sold pursuant to such registration, any of its Registrable
Securities (which request shall state the intended method of distribution
thereof if the Company's offering is not an underwritten offering), the
Company will use its best efforts to cause the Registrable Securities as to
which registration shall have been so requested to be included in the
securities to be covered by the Registration Statement proposed to be filed
by the Company, on the same terms and conditions as any similar securities
included therein, all to the extent requisite to permit the sale or other
disposition by each Holder (in accordance with its written request) of such
Registrable Securities so registered; PROVIDED, HOWEVER, that the Company may
at any time prior to the effectiveness of any such Registration Statement, in
its sole discretion and without the consent of any Holder, abandon the
proposed offering in which any Holder had requested to participate. The
number of Registrable Securities to be included in such a registration shall
be reduced or eliminated if and to the extent, in the case of an underwritten
offering, the managing underwriter shall render to the Holders that have
requested inclusion of Registrable Securities in such offering its opinion
that such inclusion would adversely affect the price or materially jeopardize
the successful marketing of the securities (including the Registrable
Securities) proposed to be sold therein; PROVIDED, HOWEVER, that such number
of shares of Registrable Securities shall not be reduced if any securities
included in such registration are included other than for the account of the
Company or a Holder. From and after the date of this Agreement and until no
Registrable Securities remain outstanding, the Company shall not grant any
piggy-back registration rights to any Person unless such rights are expressly
made subject to the prior right of Holders to include any or all of their
Registrable Shares before such other Person includes any shares in any
registration with respect to which, in the opinion of the managing
underwriter (if the method of distribution is an underwritten public
offering) or in the opinion of the Holders owning a majority of the
Registrable Securities requested to be registered (if such method of
distribution is not an underwritten public offering), the inclusion in the
offering of all shares requested to be registered by all Persons holding
registration rights would adversely affect the price or materially jeopardize
the successful marketing of the securities (including the Registrable
Securities) to be sold. In the event that the number of Registrable
Securities to be included in a registration is to be reduced as provided
above, the number of Registrable Securities to be included by each Holder
shall be reduced in proportion to the respective numbers of Registrable
Securities
-5-
<PAGE>
specified in their respective written requests for registration.
Notwithstanding anything to the contrary contained in this Section 2.02, in
the event that there is a firm commitment underwritten offering of securities
of the Company pursuant to a Registration Statement covering Registrable
Securities and a Holder does not elect to sell (or elects to sell but is
selling or being permitted to sell less than all of) its Registrable
Securities to the underwriters of the Company's securities in connection with
such offering, such Holder shall not (other than to the underwriters in such
offering) offer for sale, sell, grant any option for the sale of, or
otherwise dispose of, directly or indirectly, any shares of Common Stock, or
any securities convertible into or exchangeable into or exercisable for any
shares of Common Stock during the period of distribution of the Company's
securities by such underwriters, which shall be specified in writing by the
underwriters, shall not exceed any period during which management of the
Company and others are similarly prohibited from disposing of shares of
Common Stock and shall not be a period greater than 10 days prior to and 60
days following the date of effectiveness under the Securities Act of the
Registration Statement relating thereto if the net proceeds to the Company
from such offering will be $50,000,000 or greater and shall not be a period
greater than 10 days prior to and 45 days following the date of effectiveness
under the Securities Act of the Registration Statement relating thereto if
the net proceeds to the Company from such offering will be less than
$50,000,000.
Section 2.03. REGISTRATION PROCEDURES. If and whenever the Company is
required pursuant to this Agreement to effect the registration of any of the
Registrable Securities under the Securities Act, the Company will, as
expeditiously as possible:
(a) prepare and file as promptly as possible with the Commission a
Registration Statement, on a form available to the Company, with respect to
such securities (which filing shall be made within 45 days after the receipt
by the Company of a Request Notice) and use its best efforts to cause such
Registration Statement to become effective as promptly as possible and to
remain effective for the period of the distribution contemplated thereby
(determined pursuant to subparagraph (g) below); provided, however, that the
Company shall provide all Selling Holders reasonable opportunity to review,
prior to filing, the Registration Statement and any amendment thereto or
prospectus included therein and shall not file any such Registration
Statement, amendment or prospectus to which any such Selling Holder
reasonably objects;
(b) prepare and file with the Commission such amendments and
supplements to such Registration Statement and the prospectus used in
connection therewith as may be necessary to keep such Registration Statement
effective for the period specified in subsection (g) below and as may be
necessary to comply with the provisions of the Securities Act with respect to
the disposition of all securities covered by such Registration Statement in
accordance with the sellers' intended method of disposition set forth in such
Registration Statement for such period;
-6-
<PAGE>
(c) furnish to each Selling Holder and to each underwriter such
number of copies of the Registration Statement and the prospectus included
therein (including each preliminary prospectus and each document incorporated
by reference therein to the extent then required by the rules and regulations
of the Commission) as such Persons may reasonably request in order to
facilitate the public sale or other disposition of the Registrable Securities
covered by such Registration Statement;
(d) use its best efforts to register or qualify the Registrable
Securities covered by such Registration Statement under the securities or
blue sky laws of such jurisdictions as the Selling Holders or, in the case of
an underwritten public offering, the managing underwriter, shall reasonably
request; provided, however, that the Company shall not be required to subject
itself to taxation in any such jurisdiction or to consent to general service
of process in any such jurisdiction;
(e) immediately notify each Selling Holder and each underwriter,
at any time when a prospectus relating thereto is required to be delivered
under the Securities Act, of the happening of any event as a result of which
the prospectus contained in such Registration Statement, as then in effect,
includes an untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing and as promptly as practicable amend the Registration Statement or
supplement the prospectus or take other appropriate action so that the
prospectus does not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing; provided, however, that, in the case of a shelf registration, the
Company, on one occasion during each such registration, may suspend the
effectiveness of such Registration Statement or otherwise prohibit sales
thereunder by the Selling Holders, the Company and any other Person entitled
to sell securities thereunder for a period of up to 45 days, during which
time the Selling Holders shall not sell any Registrable Securities, if the
Board of Directors determines in its reasonable judgment and in good faith
that the making of any required disclosure in connection therewith would have
a material adverse effect on the Company or substantially interfere with a
significant transaction in which the Company is then engaged;
(f) in the case of an underwritten public offering, furnish, (i)
on the date that Registrable Securities are delivered to the underwriters for
sale pursuant to such Registration Statement, an opinion of counsel for the
Company dated as of such date and addressed to the underwriters and to the
Selling Holders, stating that such Registration Statement has become
effective under the Securities Act and that (A) to the best knowledge of such
counsel, no stop order suspending the effectiveness thereof has been issued
and no proceedings for that purpose have been instituted or are pending or
contemplated under the Securities Act, (B) the Registration Statement, the
related prospectus, and each amendment or supplement thereof, comply as to
form in all material
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<PAGE>
respects with the requirements of the Securities Act and the applicable rules
and regulations thereunder of the Commission (except that such counsel need
express no opinion as to the financial statements or any engineering report
contained or incorporated therein) and (C) to such other effects as may
reasonably be requested by counsel for the underwriters, and (ii) on the
effective date of the Registration Statement and on the date that Registrable
Securities are delivered to the underwriters for sale pursuant to such
Registration Statement, a letter dated such dates from the independent
accountants retained by the Company, addressed to the underwriters and to the
Selling Holders, stating that they are independent public accountants within
the meaning of the Securities Act and that, in the opinion of such
accountants, the financial statements of the Company and the schedules
thereto that are included or incorporated by reference in the Registration
Statement or the prospectus, or any amendment or supplement thereof, comply
as to form in all material respects with the applicable requirements of the
Securities Act and the published rules and regulations thereunder, and such
letter shall additionally address such other financial matters (including
information as to the period ending no more than five Business Days prior to
the date of such letter) included in the Registration Statement in respect of
which such letter is being given as the underwriters may reasonably request;
(g) make available for inspection by representatives of the
Selling Holders, any underwriter participating in any distribution pursuant
to such Registration Statement, and any attorney, accountant or other agent
retained by the Selling Holders or underwriter (the "Inspectors") (provided,
however, that the Inspectors shall not include more than one accounting firm,
one law firm and three other representatives appointed by the Selling Holders
selling JEDI Registrable Securities and not more than one accounting firm,
one law firm and three other representatives appointed by the Selling Holders
selling TCW Registrable Securities), all financial and other records,
pertinent corporate documents and properties of the Company, and cause the
Company's officers, directors and employees to supply all information
reasonably requested by any such Inspector in connection with such
Registration Statement. For purposes of subsections (a) and (b) above and of
Section 2.01(c) of this Agreement, the period of distribution of Registrable
Securities in a firm commitment underwritten public offering shall be deemed
to extend until each underwriter has completed the distribution of all
securities purchased by it, and the period of distribution of Registrable
Securities in any other registration shall be deemed to extend until the
earlier of the sale of all Registrable Securities covered thereby or one
year, excluding any period of time during which Selling Holders are
prohibited from selling Registrable Securities pursuant to Section 2.02 or
2.03(e) hereof;
(h) use its best efforts to keep effective and maintain for the
period specified in subparagraph (g) a registration, qualification, approval
or listing obtained to cover the Registrable Securities as may be necessary
for the Selling Holders to dispose thereof and shall from time to time
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<PAGE>
amend or supplement any prospectus used in connection therewith to the extent
necessary in order to comply with applicable law;
(i) use its best efforts to cause the Registrable Securities to be
registered with or approved by such other governmental agencies or
authorities as may be necessary by virtue of the business and operations of
the Company to enable the Selling Holders to consummate the disposition of
such Registrable Securities; and
(j) enter into customary agreements (including, if requested, an
underwriting agreement in customary form) and take such other actions as are
reasonably requested by the Selling Holders or the underwriters, if any, in
order to expedite or facilitate the disposition of such Registrable
Securities.
In connection with each registration hereunder, each Selling Holder will
furnish promptly to the Company in writing such information with respect to
itself and the proposed distribution by it as shall be reasonably necessary
in order to ensure compliance with federal and applicable state securities
laws.
In connection with each registration hereunder with respect to an
underwritten public offering, the Company and each Selling Holder agree to
enter into a written agreement with the managing underwriter or underwriters
selected in the manner herein provided in such form and containing such
provisions as are customary in the securities business for such an
arrangement between underwriters and companies of the Company's size and
investment stature, provided that such agreement shall not contain any such
provision applicable to the Company or the Selling Holders that is
inconsistent with the provisions hereof; and further provided, that the time
and place of the closing under said agreement shall be as mutually agreed
upon among the Company, the Selling Holders and such managing underwriter.
Section 2.04. EXPENSES. (a) All expenses incident to the Company's
performance under or compliance with this Agreement, including without
limitation, all registration and filing fees, blue sky fees and expenses,
printing expenses, listing fees, fees and disbursements of counsel and
independent public accountants for the Company, fees of the National
Association of Securities Dealers, Inc., transfer taxes, fees of transfer
agents and registrars and costs of insurance and reasonable out-of-pocket
expenses (including, without limitation, legal fees of one counsel for the
Selling Holders selling JEDI Registrable Securities and one counsel for the
Selling Holders selling TCW Registrable Securities) of the Selling Holders,
but excluding any Selling Expenses (as defined below), are herein called
"Registration Expenses." All underwriting fees, discounts and selling
commissions allocable to the sale of the Registrable Securities are herein
called "Selling Expenses."
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<PAGE>
(b) Except as provided below, the Company will pay all
Registration Expenses in connection with each Registration Statement filed
pursuant to this Agreement, whether pursuant to Section 2.01 or 2.02 and
whether or not the Registration Statement becomes effective, and the Selling
Holders shall pay Selling Expenses in connection with any Registrable
Securities registered pursuant to this Agreement. Notwithstanding the
foregoing, on the second and third occasions of the exercise of demand
registration rights under Section 2.01 hereof pursuant to a Request Notice
delivered by Holders of a majority of the JEDI Registrable Securities, the
Selling Holders who are Holders of JEDI Registrable Securities shall pay all
Registration Expenses except for any Registration Expenses attributable to
the inclusion in such registration of any Voting Securities by the Company or
any other Person that is not a Holder of JEDI Registrable Securities;
provided, however, that the Holders of JEDI Registrable Securities shall not
be required to pay any Registration Expenses pursuant to this sentence for
any registration pursuant to Section 2.01 that is not counted as a request
pursuant to Section 2.01(b).
Section 2.05. INDEMNIFICATION. (a) In the event of a registration of
any Registrable Securities under the Securities Act pursuant to this
Agreement, the Company will indemnify and hold harmless each Selling Holder
thereunder and its directors, officers, employees and agents and each
underwriter of Registrable Securities thereunder and each Person, if any, who
controls such Selling Holder or underwriter within the meaning of the
Securities Act and the Exchange Act, against any losses, claims, damages or
liabilities (including reasonable attorneys' fees) ("Losses"), joint or
several, to which such Selling Holder or underwriter or controlling Person
may become subject under the Securities Act, the Exchange Act or otherwise,
insofar as such Losses, (or actions in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of any material
fact contained in any Registration Statement under which such Registrable
Securities were registered under the Securities Act pursuant to this
Agreement, any preliminary prospectus or final prospectus contained therein,
or any amendment or supplement thereof, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
and will reimburse each such Selling Holder, each such underwriter and each
such controlling Person for any legal or other expenses reasonably incurred
by them in connection with investigating or defending any such Loss or
actions; provided, however, that the Company will not be liable in any such
case if and to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission so made in conformity with
information furnished by such Selling Holder, such underwriter or such
controlling Person in writing specifically for use in such Registration
Statement or prospectus.
(b) Each Selling Holder agrees to indemnify and hold harmless the
Company, each other Selling Holder and their respective directors, officers,
employees and agents and each Person, if any, who controls the Company or
such other Selling Holders within the meaning of the
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<PAGE>
Securities Act or of the Exchange Act to the same extent as the foregoing
indemnity from the Company to such Selling Holder, but only with respect to
information regarding such Selling Holder furnished in writing by or on
behalf of such Selling Holder expressly for inclusion in any Registration
Statement or prospectus relating to the Registrable Securities, or any
amendment or supplement thereto; provided, however, that the liability of
such Selling Holder shall not be greater in amount than the dollar amount of
the proceeds (net of any Selling Expenses) received by such Selling Holder
from the sale of the Registrable Securities giving rise to such
indemnification.
(c) Promptly after receipt by an indemnified party hereunder of
notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against the indemnifying party
hereunder, notify the indemnifying party in writing thereof, but the omission
so to notify the indemnifying party shall not relieve it from any liability
which it may have to any indemnified party other than under this Section
2.05. In case any such action shall be brought against any indemnified party
and it shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate in and, to the extent it
shall wish, to assume and undertake the defense thereof with counsel
reasonably satisfactory to such indemnified party and, after notice from the
indemnifying party to such indemnified party of its election so to assume and
undertake the defense thereof, the indemnifying party shall not be liable to
such indemnified party under this Section 2.05 for any legal expenses
subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation and of liaison
with counsel so selected; provided, however, that, (i) if the indemnifying
party has failed to assume the defense and employ counsel or (ii) if the
defendants in any such action include both the indemnified party and the
indemnifying party and counsel to the indemnified party shall have concluded
that there may be reasonable defenses available to the indemnified party that
are different from or additional to those available to the indemnifying party
or if the interests of the indemnified party reasonably may be deemed to
conflict with the interests of the indemnifying party, then the indemnified
party shall have the right to select a separate counsel and to assume such
legal defense and otherwise to participate in the defense of such action,
with the expenses and fees of such separate counsel and other expenses
related to such participation to be reimbursed by the indemnifying party as
incurred.
(d) If the indemnification provided for in this Section 2.05 is
not available to the Company or the Selling Holders or is insufficient to
hold them harmless in respect of any losses, claims, damages, liabilities or
expenses referred to herein, then each such indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims,
damages, liabilities and expenses as between the Company on the one hand and
each Selling Holder on the other, in such proportion as is appropriate to
reflect the relative fault of the Company on the one hand and of each Selling
Holder on the other in connection with the statements or omissions which
resulted in such losses, claims, damages or
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<PAGE>
liabilities, as well as any other relevant equitable considerations;
provided, however, that the liability of such Selling Holder shall not be
greater in amount than the dollar amount of the proceeds (net of any Selling
Expenses) received by such Selling Holder from the sale of the Registrable
Securities giving rise to such indemnification. The relative fault of the
Company on the one hand and each Selling Holder on the other shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statements of a material fact or the omission or alleged omission to
state a material fact has been made by, or relates to, information supplied
by such party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who is not guilty of such fraudulent
misrepresentation.
ARTICLE III
Section 3.01. COMMUNICATIONS. All notices and other communications
provided for or permitted hereunder shall be made in writing by telecopy,
courier service or personal delivery:
(a) if to a Holder of Registrable Securities, at the most current
address given by such Holder of the Company in accordance with the provisions
of this Section 3.01, which addresses initially are, with respect to JEDI and
TCW, the addresses set forth in the Merger Agreement, and
(b) if to the Company, initially at its address set forth in the
Merger Agreement and thereafter at such other address, notice of which is
given in accordance with the provisions of this Section 3.01.
All such notices and communications shall be deemed to have been
received at the time delivered by hand, if personally delivered; when receipt
acknowledged, if telecopied; and on the next business day if timely delivered
to an air courier guaranteeing overnight delivery.
Section 3.02. SUCCESSOR AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties, including without limitation and without the need for an express
assignment, subsequent holders of Registrable Securities. This Agreement
shall be binding upon any successor to the Company, whether by merger, stock
purchase or purchase of all or substantially all assets of the Company, and
the Company and such successors shall not engage in any such transaction
unless such successor agrees to be bound by the terms of this Agreement.
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<PAGE>
Section 3.03. COUNTERPARTS. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate
counterparts, each of which counterparts, when so executed and delivered,
shall be deemed to be an original and all of which counterparts, taken
together, shall constitute but one and the same Agreement.
Section 3.04. HEADINGS. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
Section 3.05. GOVERNING LAW. The laws of the State of Texas shall
govern this Agreement without regard to principles of conflict of laws.
Section 3.06. SEVERABILITY OF PROVISIONS. 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 or
affecting or impairing the validity or enforceability of such provision in
any other jurisdiction.
Section 3.07. ENTIRE AGREEMENT. This Agreement, together with the
Merger Agreement and the other Basic Documents (as defined in the Merger
Agreement) is intended by the parties as a final expression of their
agreement and intended to be a complete and exclusive statement of the
agreement and understanding of the parties hereto in respect of the subject
matter contained herein. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein or in the
Basic Documents with respect to the registration rights granted by the
Company with respect to the securities sold pursuant to the Merger Agreement.
This Agreement, the Merger Agreement and the other Basic Documents supersede
all prior agreements and understandings between the parties with respect to
such subject matter.
Section 3.08. ATTORNEYS' FEES. In any action or proceeding brought to
enforce any provision of this Agreement, the successful party shall be
entitled to recover reasonable attorneys' fees in addition to its costs and
expenses and any other available remedy.
Section 3.09. AMENDMENT. This Agreement may be amended only by means
of a written amendment signed by the Company, the Holders of a majority of
the JEDI Registrable Securities and the Holders of a majority of the TCW
Registrable Securities.
Section 3.10. REGISTRABLE SECURITIES HELD BY THE COMPANY OR ITS
AFFILIATES. In determining whether the Holders of the required amount of
Registrable Securities have concurred in any direction, amendment,
supplement, waiver or consent, Registrable Securities owned by the Company or
one of its Affiliates (other than JEDI, TCW and their respective Affiliates)
shall be disregarded.
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<PAGE>
Section 3.11. ASSIGNMENT OF RIGHTS. (a) The rights of any Holder under
this Agreement may be assigned to any Person who acquires any Registrable
Securities. Any assignment of registration rights pursuant to this Section
3.11(a) shall be effective only upon receipt by the Company of written notice
from such assigning Holder stating the name and address of any assignee.
(b) The rights of an assignee under Section 3.11(a) shall be the
same rights granted to the assigning Holder under this Agreement. In
connection with any such assignment, the term "Holder" as used herein shall,
where appropriate to assign the rights and obligations of the assigning
Holder hereunder to such assignee, be deemed to refer to the assignee.
Section 3.12. SPECIFIC PERFORMANCE. Each of the parties hereto
acknowledges and agrees that the other parties hereto would be damaged
irreparably in the event any of the provisions of this Agreement are not
performed in accordance with their specific terms or otherwise are breached.
Accordingly, each of the parties hereto agrees that the other parties hereto
shall be entitled to an injunction or injunctions to prevent breaches of the
provisions of this Agreement and to enforce specifically this Agreement and
the terms and provisions hereof in any action instituted in any court of the
United States or any state thereof having jurisdiction over the parties
hereto and the matter in addition to any other remedy to which it may be
entitled, at law or in equity.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
QUICKSILVER RESOURCES INC.
By: /s/ Glenn Darden
-------------------------------
Name: Glenn Darden
-----------------------------
Title: Vice President
----------------------------
JOINT ENERGY DEVELOPMENT
INVESTMENTS LIMITED PARTNERSHIP
By: Enron Capital Management Limited
Partnership, its General Partner
By: Enron Capital Corp., its General Partner
By: /s/ Jesse E. Neyman
-------------------------------
Name: Jesse E. Neyman
-----------------------------
Title: Agent and Attorney-in-Fact
----------------------------
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<PAGE>
TRUST COMPANY OF THE WEST,
a California trust company, as Sub-Custodian for
Mellon Bank for the benefit of Account No. CPFF
869-3062
By: TCW ASSET MANAGEMENT COMPANY,
a California corporation, as Investment
Manager under that certain Agreement dated as
of June 13, 1994, between TCW Asset
Management Company and Morgan Stanley Group,
Inc.
By: /s/ George R. Hutchinson
-------------------------------
Name: George R. Hutchinson
-----------------------------
Title: Managing Director
----------------------------
By: /s/ Marc A. MacAluso
-------------------------------
Name: Marc A. MacAluso
-----------------------------
Title: Senior Vice President
----------------------------
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<PAGE>
Exhibit 10.5
STOCKHOLDERS AGREEMENT
This Stockholders Agreement (this "Agreement") dated April 9, 1998 is by
and among Quicksilver Resources Inc., a Delaware corporation (the "Company"),
Mercury Exploration Company, a Texas corporation ("Mercury"), Quicksilver
Energy, L.C., a Michigan limited liability company ("QELC"), Frank Darden,
Thomas F. Darden, Glenn M. Darden, Anne Darden Self, Jeff Cook, Jack L.
Thurber, Trust Company of the West, a California trust company, in its
capacity described on the signature pages hereto ("TCW"), Joint Energy
Development Investments Limited Partnership, a Delaware limited partnership
("JEDI") and Mercury Production Company, a Texas corporation ("MPC").
WHEREAS, certain of the parties hereto and Michigan Gas Partners,
Limited Partnership ("MGP") have entered into an Agreement and Plan of
Reorganization and Merger dated as of March 31, 1998 (the "Merger
Agreement"), pursuant to which MGP would be merged with and into the Company
and certain assets of Mercury and QELC would be transferred to the Company;
and
WHEREAS, as a result of the transactions contemplated by the Merger
Agreement, Mercury, QELC, Frank Darden, Thomas F. Darden, Glenn M. Darden,
Anne Darden Self, Jeff Cook, Jack L. Thurber, TCW and JEDI (collectively, the
"Stockholders" and each, a "Stockholder") will receive the number of shares
of the Company's common stock, par value $.01 per share (the "Common Stock"),
set forth on EXHIBIT A hereto and will be the only holders of the capital
stock of the Company; and
WHEREAS, the Company and the Stockholders desire to set forth their
agreement with respect to certain matters relating to the transfer, voting
and issuance of Common Stock and the management of the Company; and
WHEREAS, the execution and delivery of this Agreement is a condition to
the obligations of the parties to consummate the transactions contemplated by
the Merger Agreement.
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants
and agreements contained herein and other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the parties
hereto agree as follows:
1. STANDSTILL.
(a) Each Stockholder other than TCW covenants and agrees that,
until the Termination Date (as defined below), such Stockholder will not
sell, assign, donate, transfer, devise, deliver, pledge, hypothecate,
encumber or otherwise dispose of any shares of Common Stock or New Securities
(as defined in Section 6 below) or any interest therein ("Transfer"; and the
act of so doing, a "Transfer") except for Permitted Transfers (as defined in
Section 6 below). Following the Termination Date, and in the case of TCW
prior to and following the Termination Date, no Stockholder shall Transfer
any shares of Common Stock except in accordance with Section 2 and, if
applicable to such Stockholder, Section 3 hereof.
(b) As used in this Agreement, "Termination Date" means (i) if on
the first anniversary of the date of this Agreement the Common Stock is not
Publicly Traded (as defined
<PAGE>
below), the first anniversary of the date of this Agreement, or (ii) if on
the first anniversary of the date of this Agreement the Common Stock or New
Securities are Publicly Traded, the earlier of (A) the first anniversary of
the date on which the Common Stock or New Securities become, or are exchanged
for or converted into New Securities that are, Publicly Traded or (B) the
date on which Mercury makes the Transfer Election (as defined in the Stock
Transfer Agreement dated as of the date hereof between Mercury and JEDI (the
"Stock Transfer Agreement")); provided, however, that, with respect to a
Transfer by JEDI, "Termination Date" means the earlier of the Termination
Date determined as provided above and the date on which TCW makes a Transfer
that results in TCW's having Transferred, other than in Permitted Transfers,
a number of shares of Common Stock or New Securities that is more than 25% of
the shares of Common Stock owned by TCW as of the date hereof as shown on
EXHIBIT A hereto or the New Securities into which or for which such shares of
Common Stock are converted or exchanged (in each case as adjusted for stock
splits, combinations or dividends). As used in this Agreement, "Publicly
Traded" means listed for trading on the New York Stock Exchange, the American
Stock Exchange, or the Nasdaq National Market.
2. RIGHT OF FIRST REFUSAL. Each Stockholder agrees that, from and
after the Termination Date and until such time as the Common Stock or New
Securities are Publicly Traded (the "Expiration Date"), except for Permitted
Transfers, such Stockholder will not Transfer any shares of Common Stock
without first providing the Company and the persons who are Stockholders on
the date of this Agreement and on the date of any Transfer Notice (as defined
below) and their Permitted Transferees (the "Initial Stockholders") the right
to purchase the shares of Common Stock to be Transferred in accordance with
the following provisions:
(a) If a Stockholder (a "Transferring Stockholder") desires to
Transfer, other than in a Permitted Transfer, shares of Common Stock, the
Transferring Stockholder shall deliver to the Company and each Initial
Stockholder a written notice (a "Transfer Notice"), which shall specify the
proposed transferee, the number of shares of Common Stock to be Transferred
(the "Subject Shares"), the proposed consideration to be paid therefor (the
"Proposed Sale Price") and the proposed closing date for the Transfer (the
"Proposed Closing Date") which shall not be less than thirty days nor more
than ninety days after the date of delivery of the Transfer Notice.
(b) The Company shall have the right, for a period of ten days
following its receipt of a Transfer Notice to elect to acquire all, but not
less than all, of the Subject Shares at a cash price equal to the Proposed
Sale Price or, if the Proposed Sale Price consists of noncash consideration,
for substantially identical consideration. The Company may exercise the
foregoing right by delivering to the Transferring Stockholder, within ten
days after receipt of the Transfer Notice, written notice (an "Acceptance
Notice") of its intention to purchase the Subject Shares. If the
Transferring Stockholder is not TCW, JEDI or one of their Permitted
Transferees, the Company may exercise the foregoing right only with the prior
written consent of TCW and JEDI. The closing
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<PAGE>
of any acquisition of Subject Shares by the Company shall be consummated on
the Proposed Closing Date at the principal offices of the Company (unless
otherwise mutually agreed), at which time the purchase price (in the form of
a wire transfer to an account designated by the Transferring Stockholder or,
if other than cash, in a form acceptable to the Transferring Stockholder)
shall be delivered to the Transferring Stockholder or its representative and
the Transferring Stockholder shall deliver to the Company certificates
representing the Subject Shares, duly endorsed for transfer or accompanied by
duly executed stock powers.
(c) If the Company does not elect to acquire the Subject Shares by
delivering an Acceptance Notice within ten days after receipt of the Transfer
Notice, the Initial Stockholders shall have the right, for a period of twenty
days following the expiration of the ten day period during which the Company
was entitled to elect to acquire the Subject Shares, to elect to acquire all,
but not less than all, of the Subject Shares at a cash price equal to the
Proposed Sale Price or, if the Proposed Sale Price consists of noncash
consideration, for substantially identical consideration. Each Initial
Stockholder may exercise the foregoing right by delivering to the
Transferring Stockholder, within twenty days after the expiration of the ten
day period during which the Company was entitled to elect to acquire the
Subject Shares, written notice (a "Stockholder Acceptance Notice") of its
intention to purchase Subject Shares. If more than one Initial Stockholder
timely delivers a Stockholder Acceptance Notice, each such Initial
Stockholder shall be entitled and obligated to acquire, against payment of
the portion of the Proposed Sale Price attributable thereto, a number of
Subject Shares (rounded to the nearest whole number of Subject Shares) equal
to the product of (A) the total number of Subject Shares and (B) a fraction,
the numerator of which is the number of shares of Common Stock held by such
Initial Stockholder and the denominator of which is the number of shares of
Common Stock held by all of the Initial Stockholders that have timely
delivered a Stockholder Acceptance Notice. The closing of any acquisition of
Subject Shares by the Initial Stockholders shall be consummated on the
Proposed Closing Date at the principal offices of the Company (unless
otherwise mutually agreed), at which time the purchase price (in the form of
one or more wire transfers to an account designated by the Transferring
Stockholder or, if other than cash, in a form acceptable to the Transferring
Stockholder) shall be delivered to the Transferring Stockholder or its
representative and the Transferring Stockholder shall deliver to the
appropriate Initial Stockholders certificates representing the Subject
Shares, duly endorsed for transfer or accompanied by duly executed stock
powers.
(d) If the neither the Company nor any Initial Stockholder elects
to acquire the Subject Shares within the applicable time periods, the
Transferring Stockholder shall be free to consummate the proposed Transfer on
the terms set forth in the Transfer Notice, provided the proposed Transfer of
the Subject Shares on the terms set forth in the Transfer Notice is
consummated within ninety days after the date of receipt of the Transfer
Notice, and further provided that the transferee agrees in writing to be
bound by the terms of this Agreement by executing an Adoption
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<PAGE>
Agreement in the form of EXHIBIT B hereto (an "Adoption Agreement"),
whereupon such transferee shall be deemed a "Stockholder" and shall have all
of the rights and obligations of a Stockholder under this Agreement and any
shares of Common Stock held by such transferee shall be subject to the
provisions hereof.
(e) From and after the Expiration Date and until such time, with
respect to each Darden Stockholder (as defined in Section 3(a) below), as
such Darden Stockholder shall have Transferred, other than in Permitted
Transfers, the number of shares of Common Stock owned by such Darden
Stockholder on the date hereof as shown in EXHIBIT A, or the number of shares
of New Securities into which such shares of Common Stock have been converted
or for which such shares of Common Stock have been exchanged (in each case as
adjusted to account for stock splits, combinations or dividends), no Darden
Stockholder shall make any Transfer, other than a Permitted Transfer, without
first providing JEDI (provided that JEDI and its Permitted Transferees
continue to own beneficially at least 5% of the issued and outstanding shares
of Common Stock or New Securities, excluding shares hereafter acquired from
stockholders other than JEDI and its Permitted Transferees or in the public
market) and TCW (provided that TCW and its Permitted Transferees continue to
own beneficially at least 5% of the issued and outstanding shares of Common
Stock or New Securities, excluding shares hereafter acquired from
stockholders other than TCW and its Permitted Transferees or in the public
market) the right to purchase the shares of Common Stock or New Securities to
be Transferred in accordance with the following provisions
(1) If a Darden Stockholder desires to Transfer, other than in a
Permitted Transfer, shares of Common Stock or New Securities, such Darden
Stockholder shall provided each of JEDI and TCW with a Transfer Notice in
accordance with paragraph (a) above, except that in the case of a proposed
Transfer in a "brokers' transaction" (as such term is defined in
Rule 144(f) under the Securities Act of 1933, as amended), the Proposed
Sale Price shall be the average of the high and low sale prices of the
Common Stock or New Securities on the principal market on which such
securities are traded on the date of the Transfer Notice.
(2) JEDI and TCW shall have the right, for a period of twenty
days following receipt of the Transfer Notice, to elect to acquire all, but
not less than all, of the shares to be Transferred by the Darden
Stockholder at a cash price equal to the Proposed Sale Price or, if the
Proposed Sale Price consists of noncash consideration, for substantially
identical consideration. JEDI and TCW may exercise the foregoing right by
delivering to the Darden Stockholder making the proposed transfer, within
twenty days after receipt of the Transfer Notice, written notice (a
"JEDI/TCW Acceptance Notice") of its intention to purchase the shares
proposed to be Transferred by the Darden Stockholder. If both JEDI and TCW
deliver a JEDI/TCW Acceptance Notice, each of JEDI and TCW shall be
entitled and
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<PAGE>
obligated to acquire, against payment of the portion of the Proposed
Sale Price attributable thereto, a number of the shares proposed to be
transferred by the Darden Stockholder (rounded to the nearest whole
number of shares) equal to the product of (A) the total number of
shares proposed to be Transferred by the Darden Stockholder and (B) a
fraction, the numerator of which is the number of shares of Common
Stock or New Securities held by JEDI and TCW, as the case may be, and
their Permitted Transferees and the denominator of which is the number
of shares of Common Stock or New Securities held by all of JEDI, TCW
and their Permitted Transferees. The closing of any acquisition of
shares by JEDI or TCW shall be consummated on the Proposed Closing Date
at the principal offices of the Company (unless otherwise mutually
agreed), at which time the purchase price (in the form of one or more
wire transfers to an account designated by the Darden Stockholder
making the proposed Transfer, or, if other than cash, in a form
acceptable to the such Darden Stockholder) shall be delivered to such
Darden Stockholder or its representative and such Darden Stockholder
shall deliver to the JEDI and/or TCW, as the case may be, certificates
representing the shares to be Transferred, duly endorsed for transfer
or accompanied by duly executed stock powers, free and clear of all
encumbrances other than this Agreement.
(3) If the neither JEDI nor TCW elects to acquire the shares
proposed to be Transferred by the Darden Stockholder within the
applicable time period, the Darden Stockholder shall be free to
consummate the proposed Transfer on the terms set forth in the Transfer
Notice, provided the proposed Transfer on the terms set forth in the
Transfer Notice is consummated within ninety days after the date of
receipt of the Transfer Notice.
3. TAG ALONG RIGHTS; LIMITATION ON TRANSFERS BY CERTAIN STOCKHOLDERS.
(a) Each of Mercury, QELC, Frank Darden, Thomas F. Darden, Glenn
M. Darden and Anne Darden Self (collectively, the "Darden Stockholders," and
each, a "Darden Stockholder") agrees that, from and after the Termination
Date and until JEDI, TCW and their Permitted Transferees no longer own any
shares of Common Stock or New Securities, such Darden Stockholder will not
Transfer any shares of Common Stock except for Permitted Transfers without
first providing JEDI and TCW the right to join in such transfer in accordance
with the following provisions:
(1) If a Darden Stockholder desires to Transfer, other than
in a Permitted Transfer, shares of Common Stock or New Securities (a
"Proposed Transfer"), the Darden Stockholder shall cause the proposed
transferee (the "Proposed Transferee") to make a written offer (the
"Offer") to each of JEDI and TCW to purchase, on the same terms offered
to the Darden Stockholder, from each of JEDI and TCW a number of shares
of Common Stock or New Securities (rounded to the nearest whole number
of shares) (the "Offered
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<PAGE>
Shares") equal to the product of (A) a fraction the numerator of which
is the number of shares of Common Stock or New Securities held by JEDI
(in the case of the Offer to JEDI) or the number of shares of Common
Stock or New Securities held by TCW (in the case of the Offer to TCW)
and the denominator of which is the total number of shares of Common
Stock issued pursuant to the Merger Agreement or New Securities issued
upon conversion of or in exchange for such shares of Common Stock (in
each case as adjusted to take into account stock splits, dividends or
combinations) and (B) the total number of shares of Common Stock or New
Securities to be purchased from the Darden Stockholder in the Proposed
Transfer. The Offer shall specify the total number of shares of Common
Stock or New Securities to be purchased from the Darden Stockholder,
the per share consideration to be paid and the other terms of the
Proposed Transfer, including the closing date for the Proposed
Transfer, which shall not be less than twenty days nor more than ninety
days after the date the Offer is received by JEDI and TCW.
(2) Each of JEDI and TCW shall have the right, for a period
of twenty days following its receipt of an Offer, to elect to accept
the Offer with respect to the all or a portion of the Offered Shares by
delivering to the Proposed Transferee within twenty days after receipt
of the Offer a written acceptance (an "Acceptance") of the Offer,
specifying the number of shares to be Transferred by it. The number of
shares of Common Stock or New Securities to be Transferred by the
Darden Stockholder in the Proposed Transfer shall be reduced by the
number of shares of Common Stock or New Securities to be Transferred by
JEDI and TCW in the Proposed Transfer. Closing of the Proposed Transfer
shall be made on reasonable terms specified in the Offer, which terms
shall include only those terms that are customary in transactions
similar to the Proposed Transfer. In the event that JEDI or TCW does
not deliver an Acceptance within ten days after receipt of an Offer,
the Offer shall expire.
(b) Notwithstanding the foregoing, until the Expiration Date,
without the prior written consent of each of JEDI and TCW, except for
Permitted Transfers no Darden Stockholder shall Transfer any shares of Common
Stock in the event that the Transfer would result in the Darden Stockholders
and their Permitted Transferees owning beneficially or of record in the
aggregate less than a majority of the outstanding shares of Common Stock, nor
shall any Darden Stockholder Transfer any shares of Common Stock in the event
that the Transfer would result in such Darden Stockholder and its Permitted
Transferees owning beneficially or of record less than a majority of the
shares of Common Stock owned by such Darden Stockholder as set forth on
EXHIBIT A. Any consent by JEDI and TCW to a Transfer prohibited by this
paragraph (b) shall not effect the rights of first refusal or tag along
rights of the Company or any Stockholders with respect to such Transfer
pursuant to Section 2 or this Section 3. In addition until the rights
provided in paragraph (a) above
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<PAGE>
no longer apply, no Darden Stockholder shall make any Transfer, other than a
Permitted Transfer, for consideration other than cash or Publicly Traded
securities.
(c) Each of Mercury, MPC, Frank Darden, Thomas F. Darden, Glenn M.
Darden and Anne Darden Self agrees that (except for transfers that would
constitute Permitted Transfers if made by such person with respect to Common
Stock to transferees who agree in writing to be bound by the provisions of
this paragraph (b)), until the Expiration Date, such person will not Transfer
any shares of the capital stock of Mercury or MPC held by it or any
membership interests in QELC held by it. Each of Mercury, MPC and QELC
agrees that it will not issue any shares of its capital stock or membership
interests, as the case may be, or any rights, warrants, options or other
securities that are convertible into or exchangeable for shares of its
capital stock or membership interests or enter into any contract, agreement,
commitment, understanding or arrangement of any kind relating to the issuance
of its capital stock or membership interests. Each of the Darden
Stockholders hereby represents and warrants to the other Stockholders that
the issued and outstanding capital stock of Mercury and MPC as of the date
hereof and the issued and outstanding membership interests of QELC are as set
forth in EXHIBIT C hereto and there are no outstanding rights, warrants,
options, or other securities that are convertible into or exchangeable for
shares of capital stock of Mercury or MPC or membership interests of QELC,
and no outstanding contracts, agreements, commitments, understandings or
arrangements of any kind relating to the issuance of the capital stock of
Mercury or MPC or membership interests of QELC.
(d) No Transfer of Common Stock shall be made under this Section 3
unless the Proposed Transferee agrees in writing to be bound by the terms of
this Agreement by executing an Adoption Agreement, whereupon such Proposed
Transferee shall be deemed a "Stockholder" and shall have all of the rights
and obligations of a Stockholder under this Agreement and any shares of
Common Stock held by such Proposed Transferee shall be subject to the
provisions hereof.
4. PREEMPTIVE RIGHTS.
(a) From and after the date of this Agreement and until the
Expiration Date, each of JEDI and TCW shall have the right (which may be
exercised in whole or in part) to purchase its proportionate share of any
additional Common Stock issued by the Company, at the same Price (as defined
herein) and on the same terms as the Common Stock to be sold by the Company.
The number of shares of Common Stock JEDI or TCW shall have a right to
acquire pursuant to this Section 4 shall be based upon the proportion of the
total outstanding shares of Common Stock which is owned by JEDI or TCW. The
Company shall notify JEDI and TCW in writing (an "Issuance Notice") at least
20 days prior to the issuance of any Common Stock. Each Issuance Notice
shall set forth the number of shares of Common Stock proposed to be issued
and sold, the Price to be paid for such Common Stock and the proposed date of
issuance (the "Issuance Date"). Each of JEDI and
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<PAGE>
TCW shall notify the Company prior to the Issuance Date if it elects to
exercise its right to purchase Common Stock and, if it makes such an
election, shall make payment in cash for the Common Stock by certified check
or wire transfer on or prior to the later of the Issuance Date or the actual
date of issuance. Upon receipt of such payment by the Company, JEDI or TCW,
as the case may be shall be deemed for all purposes to be the owner of such
shares of Common Stock, and the Company shall cause certificates representing
such Common Stock to be issued to JEDI or TCW on such date of issuance. The
Company may sell Common Stock described in an Issuance Notice, during a
period not to exceed 30 days after the Issuance Date. Thereafter, any
issuance by the Company must again be preceded by an offer to JEDI and TCW
hereunder.
(b) As used herein, the "Price" at which Common Stock is to be
issued by the Company shall be (i) in the case of cash consideration paid for
such Common Stock, the amount of such cash consideration and (ii) in the case
of noncash consideration, the fair market value of such consideration, as
determined in good faith by the Board of Directors of the Company.
5. BOARD REPRESENTATION.
(a) The Company, subject to its fiduciary duties under applicable
state law and each of the Stockholders agree and acknowledge that each of
JEDI (until it and its Permitted Transferees no longer own any shares of
Common Stock or New Securities) and TCW (until it and its Permitted
Transferees no longer own any shares of Common Stock or New Securities) shall
have the right, exercisable at any time and acting alone, to elect one or
more members of the Board of Directors of the Company as determined below.
The Stockholders shall at all times cause the number of directors
constituting the whole Board of Directors to be no greater than five plus the
number of directors elected pursuant to this Section 5. The number of
directors that each of JEDI and TCW shall be entitled to elect shall be that
number of directors that represents a percentage of the entire board of
directors that is as close as possible to the percentage of outstanding
shares of Common Stock held by JEDI or TCW, as the case may be, but in no
case less than one. Any director elected by JEDI pursuant to this Section 5
may be removed only by JEDI, and any vacancy resulting from the resignation,
removal or death of any director elected by JEDI may be filled only by JEDI,
and neither the Company nor any Stockholder other than JEDI shall take any
action to remove any such director or fill any such vacancy. Any director
elected by TCW pursuant to this Section 5 may be removed only by TCW, and any
vacancy resulting from the resignation, removal or death of any director
elected by TCW may be filled only by TCW, and neither the Company nor any
Stockholder other than TCW shall take any action to remove any such director
or fill any such vacancy.
(b) In order to facilitate the rights of JEDI set forth in
paragraph (a) of this Section 5, each of the Stockholders other than JEDI
hereby grants to JEDI its proxy, which (being coupled with an interest) shall
be irrevocable, to take any of the following actions, either by written
consent
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<PAGE>
or at a meeting of the Company's stockholders: (i) to amend the Bylaws of the
Company to increase the maximum authorized number of directors if necessary
to allow JEDI to elect the number of directors that it is entitled to elect
pursuant to this Section 5; (ii) to increase the number of directors
constituting the entire Board of Directors to allow JEDI to elect the number
of directors that it is entitled to elect pursuant to this Section 5 and to
elect directors to fill the vacancies created by such increase; (iii) to
remove a director elected by JEDI pursuant to clause (ii) or (iv); and (iv)
to fill any vacancy on the Board of Directors resulting from the removal,
resignation or death of a director elected by JEDI pursuant to clause (ii) or
this clause (iv). The proxy granted hereby shall terminate upon the
termination of JEDI's right to elect directors pursuant to paragraph (a) of
this Section 5.
(c) In order to facilitate the rights of TCW set forth in
paragraph (a) of this Section 5, each of the Stockholders other than TCW
hereby grants to TCW its proxy, which (being coupled with an interest) shall
be irrevocable, to take any of the following actions, either by written
consent or at a meeting of the Company's stockholders: (i) to amend the
Bylaws of the Company to increase the maximum authorized number of directors
if necessary to allow TCW to elect the number of directors that it is
entitled to elect pursuant to this Section 5; (ii) to increase the number of
directors constituting the entire Board of Directors to allow TCW to elect
the number of directors that it is entitled to elect pursuant to this Section
5 and to elect directors to fill the vacancies created by such increase;
(iii) to remove a director elected by TCW pursuant to clause (ii) or (iv);
and (iv) to fill any vacancy on the Board of Directors resulting from the
removal, resignation or death of a director elected by TCW pursuant to clause
(ii) or this clause (iv). The proxy granted hereby shall terminate upon the
termination of TCW's right to elect directors pursuant to paragraph (a) of
this Section 5.
(d) The Company and each Stockholder hereby agrees that each of
JEDI and TCW shall be entitled to (a) receive prior notice of any action
proposed to be taken by the Board of Directors of the Company (or any
committee thereof), (b) receive such notices as required to be given to
directors of the Company of any meeting of the Board of Directors of the
Company (or any committee thereof), (c) in lieu of its right to elect one or
more members of the Board of Directors of the Company provided above)
designate no more than two persons to attend any meeting of the Board of
Directors of the Company, as observers, (d) receive, promptly upon
completion, all written management reports and written management accounts
relating to the Company, to the extent such reports and accounts are provided
to the Board of Directors of the Company (or any committee thereof)
6. PERMITTED TRANSFERS; RIGHT TO PURCHASE.
(a) As used in this Agreement, "Permitted Transfer" shall mean, in
the case of an individual Stockholder, any Transfer (i) by will or the laws
of descent and distribution or
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<PAGE>
otherwise by operation of law or judicial decree or (ii) to (A) such
Stockholder's spouse or (B) any trust solely for the benefit of the
Stockholder, the Stockholder's spouse, or their descendants, provided in the
case of an individual Stockholder who is a Darden Stockholder that the
trustee of such trust is acceptable to JEDI and TCW. In the case of a
Stockholder that is not an individual, "Permitted Transfer" shall mean a
Transfer (i) by operation of law or judicial decree or (ii) except in the
case of Mercury, QELC and any Permitted Transferee of a Darden Stockholder,
to any entity directly or indirectly controlling or controlled by or under
direct or indirect common control with such Stockholder. For the purposes of
this definition, "control," when used with respect to any entity means the
power to direct the management and policies of such entity, directly or
indirectly, whether through the ownership of voting securities, by contract
or otherwise, and the terms "controlling" and "controlled" have meanings
correlative to the foregoing. "Permitted Transfer" shall also mean (i) with
respect to any Stockholder, a Transfer of shares of Common Stock in exchange
for equity securities of the Company or any other entity (any shares
belonging to the same class or series as such equity securities are referred
to herein as "New Securities") in connection with the merger or consolidation
of the Company with or into another entity, provided that the New Securities
are Publicly Traded, (ii) with respect to JEDI, a Transfer to Mercury
pursuant to the Stock Transfer Agreement, (iii) with respect to TCW, any
Transfer pursuant to the Put/Call Agreement (as defined in the Merger
Agreement) or any Transfer to any party for which TCW shall beneficially hold
any shares of Common Stock (a "beneficial owner") or any successor custodian,
sub-custodian, investment manager, fiduciary or party holding a similar
capacity with respect to such beneficial owner, and (iv) with respect to
QELC, a Transfer to its members. Notwithstanding the foregoing, no Transfer
(other than a Transfer of Common Stock in exchange for New Securities in
connection with the merger or consolidation of the Company with or into
another entity) shall constitute a Permitted Transfer unless the transferee
(a "Permitted Transferee") agrees in writing to be bound by the terms of this
Agreement by executing an Adoption Agreement, whereupon such Proposed
Transferee shall be deemed a "Stockholder" and shall have all of the rights
and obligations of a Stockholder under this Agreement and any shares of
Common Stock held by such Proposed Transferee shall be subject to the
provisions hereof. In addition, a Permitted Transferee of a Darden
Stockholder, JEDI or TCW shall succeed to all of the rights and obligations
of the Stockholder making the Transfer to such Permitted Transferee.
(b) Immediately following any Permitted Transfer that is made by
will or the laws of descent and distribution (other than a Transfer to the
Stockholder's spouse, parents, siblings or lineal descendants or a trust
solely for their benefit) or otherwise by operation of law or judicial decree
(a "Special Permitted Transfer"), the Company and the Initial Stockholders
shall have the opportunity to purchase the shares of Common Stock Transferred
in the Special Permitted Transfer (the "Transferred Shares") in accordance
with the following provisions:
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<PAGE>
(1) Within thirty days after the date of the Special
Permitted Transfer, the Company shall obtain, at its expense, an
appraisal of the Transferred Shares from an independent appraiser that
is reasonably satisfactory to the Permitted Transferee that received
the Transferred Shares in the Special Permitted Transfer (the "Special
Permitted Transferee"). The appraised value of the Transferred Shares
resulting from such appraisal is referred to herein as the "Appraised
Value."
(2) The Company shall have the right, for a period of ten
days following the date the Appraised Value is determined, to elect to
acquire from the Special Permitted Transferee all, but not less than
all, of the Transferred Shares at a cash price equal to the Appraised
Value. The Company may exercise the foregoing right by delivering to
the Special Permitted Transferee, within ten days after the date the
Appraised Value is determined, a written notice (a "Purchase Notice")
of its intention to purchase the Transferred Shares. The Company may
exercise the foregoing right only with the prior written consent of TCW
and JEDI. The closing of any acquisition of Transferred Shares by the
Company shall be consummated on the fifth day after the date the
Purchase Notice is received by the Special Permitted Transferee at the
principal offices of the Company (unless otherwise mutually agreed), at
which time the purchase price (in the form of a wire transfer to an
account designated by the Special Permitted Transferee) shall be
delivered to the Special Permitted Transferee or its representative and
the Special Permitted Transferee shall deliver to the Company
certificates representing the Transferred Shares, duly endorsed for
transfer or accompanied by duly executed stock powers.
(3) If the Company does not elect to acquire the Transferred
Shares by delivering a Purchase Notice within ten days after the date
the Appraised Value is determined, the Initial Stockholders shall have
the right, for a period of twenty days following the expiration of the
twenty day period during which the Company was entitled to elect to
acquire the Transferred Shares, to elect to acquire all, but not less
than all, of the Transferred Shares at a cash price equal to the
Appraised Value. Each Initial Stockholder may exercise the foregoing
right by delivering to the Special Permitted Transferee, within ten
days after the expiration of the ten day period during which the
Company was entitled to elect to acquire the Transferred Shares,
written notice (a "Stockholder Purchase Notice") of its intention to
purchase Transferred Shares. If more than one Initial Stockholder
timely delivers a Stockholder Purchase Notice, each such Initial
Stockholder shall be entitled and obligated to acquire, against payment
of the portion of the Appraised Value attributable thereto, a number of
Transferred Shares (rounded to the nearest whole number of Transferred
Shares) equal to the product of (A) the total number of Transferred
Shares and (B) a fraction, the numerator of which is the number of
shares of Common Stock held
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<PAGE>
by such Initial Stockholder and the denominator of which is the number
of shares of Common Stock held by all of the Initial Stockholders that
have timely delivered a Stockholder Purchase Notice. The closing of any
acquisition of Transferred Shares by the Initial Stockholders shall be
consummated on the fifth day after the last day on which a Stockholder
Purchase Notice may timely be delivered at the principal offices of the
Company (unless otherwise mutually agreed), at which time the purchase
price (in the form of one or more wire transfers to an account
designated by the Special Permitted Transferee) shall be delivered to
the Special Permitted Transferee or its representative and the Special
Permitted Transferee shall deliver to the appropriate Initial
Stockholders certificates representing the Transferred Shares, duly
endorsed for transfer or accompanied by duly executed stock powers.
(c) Notwithstanding anything herein to the contrary, this
Agreement shall not apply (i) to any Transfer by Mercury to its employees of
options to purchase shares of common stock, par value $.01 per share, of MSR
Exploration Ltd. ("MSR Common Stock") from Mercury pursuant to the Mercury
Exploration Company 1998 Non-Qualified Stock Option Plan, as such plan is in
effect as of the date hereof, or to the Transfer by Mercury of shares of MSR
Common Stock pursuant to the exercise of such options, provided that the
total number of shares of MSR Common Stock issuable upon the exercise of such
options does not exceed 2,000,000 shares (adjusted for stock splits,
dividends or combinations or similar recapitalizations), of MSR Common Stock,
(ii) to any Transfer to NationsBank of Texas, N.A., as Agent ("NationsBank")
pursuant to a pledge of stock under the Credit Agreement dated April 9, 1998
between the Company and NationsBank (such pledged stock being hereinafter
referred to as "Pledged Stock"), or (iii) to any Pledged Stock Transferred by
NationsBank pursuant to foreclosure, retention in lieu of foreclosure or a
Transfer in lieu of foreclosure (a "foreclosure event") pursuant to a pledge
under such Credit Agreement, in each case unless such stock is acquired by an
Initial Stockholder or its Permitted Transferees; provided that the
provisions of clauses (ii) and (iii) of this sentence shall terminate upon
consummation of any merger or similar business combination involving the
Company and MSR Exploration Ltd. Subject to the foregoing proviso, it is the
intent of the parties hereto that, following a foreclosure event, neither the
Pledged Stock subject to the foreclosure event nor the owner of such Pledged
Stock (other than an Initial Stockholder) will be subject to this Agreement
in any respect.
7. LEGEND ON CERTIFICATES; STOP TRANSFER ORDERS. The parties hereto
agree to the placement on certificates representing shares of Common Stock
and any New Securities of a legend indicating that such securities may not be
Transferred except in accordance with this Agreement and to the entry of a
stop transfer order with the transfer agent for such securities against the
transfer of such securities except in accordance with this Agreement.
8. CERTAIN COVENANTS OF THE COMPANY AND THE STOCKHOLDERS. The Company
hereby covenants and agrees with JEDI and TCW as follows, and each of the
Stockholders agrees to vote its shares of Common Stock or New Securities to
cause the Company not to breach such covenants
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<PAGE>
and agreements and any covenants and agreements of the Company contained in
any of the Basic Documents (as defined in the Merger Agreement), until (i)
with respect to paragraphs (i) and (j), the Expiration Date and (ii) with
respect to all paragraphs other than (i) and (j), until JEDI, TCW and their
Permitted Transferees no longer own any shares of Common Stock or New
Securities.
(a) The Company will do or cause to be done all things necessary
to preserve and keep in full force and effect its corporate existence, rights
(charter and statutory); PROVIDED, HOWEVER, that the Company shall not be
required to preserve any such right or franchise if the Board of Directors
shall determine that the preservation thereof is no longer desirable in the
conduct of the business of the Company and that the loss thereof is not
disadvantageous in any material respect to JEDI or TCW.
(b) The Company shall comply with all applicable federal, state
and local laws, rules and regulations, including, without limitation,
Environmental Laws (as defined in the Merger Agreement), except where failure
to comply will not have a Material Adverse Effect (as defined in the Merger
Agreement) on the Company.
(c) The Company will cause all properties (except as to properties
not operated by it, as to which the Company shall use commercially reasonably
efforts) owned by it or used or held for use in the conduct of its business
to be maintained and kept in good condition, repair and working order and
supplied with all necessary equipment and will cause to be made all necessary
repairs, renewals, replacements, betterments and improvements thereof, all as
in the judgment of the Company may be necessary so that the business carried
on in connection therewith may be properly and advantageously conducted at
all times; PROVIDED, HOWEVER, that nothing in this paragraph shall prevent
the Company from discontinuing the maintenance of any of such properties if
such discontinuance is, in the judgment of the Company, desirable in the
conduct of its business and not disadvantageous in any material respect to
JEDI or TCW.
(d) The Company shall not materially change any method of
accounting employed in the preparation of its financial statements from the
methods employed in the preparation of the audited consolidated financial
statements of Mercury and MGP for the year ended December 31, 1997, unless
required to conform to generally accepted accounting principles and
recommended by the Company's independent auditors or approved in writing by
JEDI and TCW, which approval will not be unreasonably withheld or delayed.
(e) Each of JEDI and TCW shall be entitled at any reasonable time
to inspect any and all of the properties, books and records of the Company at
the expense of the Company up to $5,000 per year for each of JEDI and TCW.
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<PAGE>
(f) The Company will not engage in any sale of any of its assets
unless such asset sale is for not less than the fair market value of the
assets sold (as determined in good faith by the Board of Directors of the
Company).
(g) The Company will not, directly or indirectly, enter into any
transaction or series of related transactions involving aggregate
consideration equal to or greater than $60,000 (including, without
limitation, the purchase, sale, lease or exchange of any property or the
rendering of any service) with any Affiliate (as defined in Rule 405 under
the Securities Act of 1933) of the Company unless (a) such transaction is on
terms that are no less favorable to the Company than those that could have
been obtained in a transaction between the Company and unaffiliated party in
an arm's-length transaction and (b) such transaction is approved by a
majority of the disinterested members of the Board of Directors or if there
are no such members, then by a majority of the shares of the Common Stock
held by disinterested stockholders.
(h) The Company shall provide to JEDI and TCW as promptly as
practicable, but in no event later than 50 days after the end of each fiscal
quarter, unaudited consolidated balance sheets as of the end of such fiscal
quarter, and the related statements of income and cash flows for such quarter
and as promptly as practicable, but in no event later than 90 days after the
close of each fiscal year, audited consolidated balance sheets of the Company
as of the end of such fiscal year and the related audited statements of
income and cash flows for such year; all such financial statements shall be
prepared in conformity with generally accepted accounting principles, and all
such audited financial statements shall be audited by a national accounting
firm that is among those firms commonly referred to as the "Big Six" . The
Company shall within 60 days after the close of each fiscal year provide to
JEDI and TCW a reserve report dated as of January 1 of the succeeding year
covering all of Oil and Gas Properties (as defined in the Merger Agreement)
of the Company as of such date, which report shall be prepared in accordance
with the guidelines of S.P.E.E. and S.P.E. by an independent engineering firm
acceptable to JEDI and TCW. Monthly, by the 5th day of the month, the
Company shall furnish to JEDI and TCW a report showing the gross production
of Hydrocarbons (as defined in the Merger Agreement) from each well, the
gross production of Hydrocarbons attributable to the Company, the quantity of
Hydrocarbons sold for the account of or taken in kind by the Company, the
current status of any gas imbalances affecting the Company, the cumulative
amount of Hydrocarbons remaining to be delivered therefrom, the number of
wells operated, wells drilled and wells abandoned and lease operating
expenses on a per well basis. Such reports shall contain (i) estimates for
the immediately preceding month and (ii) year-to-date information based on
actual production and actual costs and expense data. Prior to the end of
each fiscal year, the Company shall provide to each of JEDI and TCW a budget
on a monthly basis for the coming fiscal year. From time to time the Company
shall provide to JEDI and TCW such other information concerning the business,
affairs and operations of the Company as JEDI or TCW may reasonably request.
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<PAGE>
(i) Without the prior written consent of JEDI and TCW, the Company
shall not (1) amend, alter or repeal any provision of its Certificate of
Incorporation or Bylaws; (2) authorize, create or issue, increase the
authorized amount of, or redeem, purchase or otherwise acquire any shares of
capital stock; (3) merge or consolidate with or into any other corporation or
other entity or sell of all or substantially all of the Company's assets; (4)
engage in any reorganization, restructuring, recapitalization or other
similar transaction that requires the approval of the stockholders of the
Company; (5) incur Indebtedness (as defined in the Merger Agreement) in an
amount that would cause the Company's ratio of Indebtedness to stockholders'
equity determined in accordance with generally accepted accounting principles
and shown on the Company's balance sheet as of the end of the Company's most
recently completed fiscal quarter to be greater than 0.7:1; (6) acquire, in
one transaction or series of related transactions, any assets for
consideration in excess of $1,000,000; (7) dissolve, liquidate or wind-up;
(8) sell or transfer assets representing 10% or more of the total assets of
the Company as reflected on the most recent balance sheet delivered pursuant
to paragraph (h) above, or prior to the delivery of the first such balance
sheet, based on values used in determining the numbers of shares to be issued
under the Merger Agreement; or (9) expand the nature of the business
conducted by the Company beyond that conducted by the Company as of the date
of this Agreement.
(j) The Company shall use its reasonable best efforts, subject to
the rights of JEDI and TCW pursuant to paragraph (i) above, to engage as soon
as practicable in a transaction that results in the Common Stock becoming
Publicly Traded or being exchanged for or converted into New Securities that
are Publicly Traded and to cause the shares of Common Stock or New Securities
held by JEDI and TCW to be registered and freely tradable, without limitation
as to volume or manner of sale, following the consummation of such
transaction.
(k) For so long as JEDI or TCW or its respective Affiliates own
any shares of Common Stock, neither the Company nor any of its subsidiaries
will enter into any agreement that would purport to impose restrictions or
limitations on the business, operations or assets of JEDI or TCW or its
respective Affiliates by virtue of JEDI's or TCW's or its respective
Affiliates' ownership in the Company, including, without limitation, any
"area of mutual interest" agreement or similar agreement that would have the
effect of binding JEDI or TCW or any of their respective Affiliates or
properties. For purposes of this paragraph (k), the term "Affiliate," when
used to refer to Affiliates of JEDI or TCW, shall exclude the Company and its
Affiliates.
(l) As soon as practicable following the exercise by JEDI or TCW
of its right pursuant to Section 5 to elect one or more members of the Board
of Directors of the Company, the Company shall obtain customary directors'
and officers' liability insurance for the benefit of its directors and
officers.
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<PAGE>
9. MISCELLANEOUS.
(a) This Agreement shall inure to the benefit of and be binding
upon the successors and assigns of the parties hereto. Notwithstanding the
foregoing, the rights and obligations of the parties hereunder shall not be
assignable, except that the rights and obligations hereunder shall be
assigned to any transferee of shares of Common Stock or New Securities that
executes an Adoption Agreement.
(b) Any controversy, dispute or claim arising out of or relating
to this Agreement or any of the other documents contemplated hereby or the
transactions contemplated hereby or thereby (a "Dispute") shall be resolved
by arbitration administered by the American Arbitration Association (the
"AAA") in accordance with the terms of this paragraph (c), the Commercial
Arbitration Rules of the AAA, and, to the maximum extent applicable, the
United Stated Arbitration Act. Judgment on any matter rendered by
arbitrators may be entered in any court having jurisdiction. Any arbitration
shall be conducted before three arbitrators. The arbitrators shall be
individuals knowledgeable in the subject matter of the Dispute. Each party
shall select one arbitrator and the two arbitrators so selected shall select
the third arbitrator. If the third arbitrator is not selected within 15 days
after the request for an arbitration, then any party may request the AAA to
select the third arbitrator. The arbitrators may engage engineers,
accountants or other consultants they deem necessary to render a conclusion
in the arbitration proceeding. To the maximum extent practicable, an
arbitration proceeding hereunder shall be concluded within 45 days of the
filing of the Dispute with the AAA. Arbitration proceedings shall be
conducted in Houston, Texas. Arbitrators shall be empowered to impose
sanctions and to take such other actions as the arbitrators deem necessary to
the same extent a judge could impose sanctions or take such other actions
pursuant to the Federal Rules of Civil Procedure and applicable law. At the
conclusion of any arbitration proceeding, the arbitrators shall make specific
written findings of fact and conclusions of law. The arbitrators shall have
the power to award recovery of all costs and fees to the prevailing party.
All fees of the arbitrators and any engineer, accountant or other consultant
engaged by the arbitrators, shall be shared equally unless otherwise awarded
by the arbitrators.
(c) Each of the parties hereto acknowledges and agrees that the
other parties would be damaged irreparably in the event any of the provisions
of this Agreement are not performed in accordance with their specific terms
or otherwise are breached. Accordingly, each of the parties agrees that the
other parties shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof in any action instituted in any
court of the United States or any state thereof having jurisdiction over the
parties and the matter or with any arbitrators pursuant to paragraph (b)
above in addition to any other remedy to which it may be entitled, at law or
in equity,
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<PAGE>
and if any action should be brought in equity to enforce any of the
provisions of this Agreement, none of the parties hereto shall raise the
defense that there is an adequate remedy at law.
(d) This Agreement may be executed in any number of counterparts
and by different parties hereto in separate counterparts, each of which
counterparts, when so executed and delivered, shall be deemed to be an
original and all of which counterparts, taken together, shall constitute but
one and the same Agreement.
(e) The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(f) The laws of the State of Texas shall govern this Agreement
without regard to principles of conflict of laws.
(g) Any provision of this Agreement that 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 or affecting or impairing the
validity or enforceability of such provision in any other jurisdiction.
(h) This Agreement, together with the Merger Agreement and the
other Basic Documents (as defined in the Merger Agreement), is intended by
the parties as a final expression of their agreement and intended to be a
complete and exclusive statement of the agreement and understanding of the
parties hereto in respect of the subject matter contained herein. This
Agreement, the Merger Agreement and the other Basic Documents supersede all
prior agreements and understandings between the parties with respect to such
subject matter.
(i) This Agreement may be amended only by means of a written
amendment signed by all of the parties hereto.
(j) All notices provided for hereunder shall be given by telecopy
(confirmed by overnight delivery), air courier guaranteeing overnight
delivery or personal delivery at the following addresses:
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If to the Company:
Quicksilver Resources Inc.
1619 Pennsylvania Avenue
Fort Worth, Texas 76104
Attention: Glenn Darden
Telecopier: (817) 332-1883
If to Mercury:
Mercury Exploration Company
1619 Pennsylvania Avenue
Fort Worth, Texas 76104
Attention: Glenn Darden
Telecopier: (817) 332-1883
If to Frank Darden, Thomas F. Darden, Glenn M. Darden, Anne Darden
Self, Jack L. Thurber or Jeff Cook, to such individual in care of:
Mercury Exploration Company
1619 Pennsylvania Avenue
Fort Worth, Texas 76104
Attention: Glenn Darden
Telecopier: (817) 332-1883
If to TCW:
Trust Company of the West
865 South Figueroa Street
Los Angeles, California 90017
Attention: Arthur R. Carlson
Telecopier: (213) 244-0604
and
-18-
<PAGE>
TCW Asset Management Company
2175 First Interstate Bank Plaza
1000 Louisiana
Houston, Texas 77002
Attention: George R. Hutchinson
Telecopier: (713) 615-7460
with copies to:
Milbank, Tweed, Hadley & McCloy
601 South Figueroa Street, 30th Floor
Los Angeles, California 90017
Attention: David A. Lamb
Telecopier: (213) 629-5063
If to JEDI:
Joint Energy Development Investments Limited Partnership
c/o Enron Capital Management Limited Partnership
1400 Smith Street
Houston, Texas 77002
Attention: Jeremy M. Blachman
Telecopier: (713) 646-8174
with copies to:
Enron Capital & Trade Resources
Corp. Legal Department
1400 Smith Street
Houston, Texas 77002
Attention: Carol St. Clair and Gareth S. Bahlmann
Telecopier: (713) 646-3393
Enron Capital & Trade Resources
Compliance Department
1400 Smith Street
Houston, Texas 77002
Attention: Donna W. Lowry
Telecopier: (713) 646-4039 or (713) 646-4946
-19-
<PAGE>
or to such other address as any such party may designate by notice in the
manner provided above. All such notices shall be deemed to have been
delivered and received at the time delivered by hand, if personally
delivered, when receipt acknowledged, if telecopied, and on the next business
day, if timely delivered to an air courier guaranteeing overnight delivery.
-20-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first written above.
QUICKSILVER RESOURCES INC.
By: /s/ Glenn Darden
--------------------------
Name: Glenn Darden
------------------------
Title: Vice President
-----------------------
MERCURY EXPLORATION COMPANY
By: /s/ Glenn Darden
--------------------------
Name: Glenn Darden
------------------------
Title: Vice President
-----------------------
MERCURY PRODUCTION COMPANY
By: /s/ Glenn Darden
--------------------------
Name: Glenn Darden
------------------------
Title: Vice President
-----------------------
/s/ Frank Darden
------------------------------
Frank Darden
/s/ Thomas F. Darden
------------------------------
Thomas F. Darden
/s/ Glenn M. Darden
------------------------------
Glenn M. Darden
/s/ Anne Darden Self
------------------------------
Anne Darden Self
-21-
<PAGE>
/s/ Jeff Cook
------------------------------
Jeff Cook
/s/ Jack L. Thurber
------------------------------
Jack L. Thurber
TRUST COMPANY OF THE WEST, a
California trust company, as Sub-Custodian
for Mellon Bank for the benefit of Account
No. CPFF 869-3062
By: TCW ASSET MANAGEMENT COMPANY, a
California corporation, as Investment Manager
under that certain Agreement dated as of
June 13, 1994, between TCW Asset Management
Company and Morgan Stanley Group, Inc.
By: /s/ George R. Hutchinson
--------------------------
Name: George R. Hutchinson
------------------------
Title: Managing Director
-----------------------
By: /s/ Marc A. MacAluso
--------------------------
Name: Marc A. MacAluso
------------------------
Title: Senior Vice President
-----------------------
-22-
<PAGE>
JOINT ENERGY DEVELOPMENT
INVESTMENTS LIMITED PARTNERSHIP
By: Enron Capital Management Limited
Partnership, its general partner
By: Enron Capital Corp.,
its general partner
By: /s/ Jesse E. Neyman
-----------------------------
Name: Jesse E. Neyman
---------------------------
Title: Agent and Attorney-in-Fact
--------------------------
<PAGE>
QUICKSILVER RESOURCES, INC.
SPOUSAL CONSENT
The undersigned spouse of Anne Darden executes this Consent to
acknowledge his or her joining the Stockholders Agreement dated as of April
9, 1998 by and between Quicksilver Resources Inc., a Delaware corporation
(the "Company"), and the persons identified therein as "Stockholders" with
respect to her community property interest, if any, in the shares of common
stock, par value $.01 per share, of the Company held by ____________________.
WITNESS: SPOUSE:
/s/ Anthony C. Wells /s/ Robert L. Self
- ----------------------------- -----------------------------------
Name: Anthony C. Wells Name: Robert L. Self
------------------------ ------------------------------
Date: Date:
------------------------ ------------------------------
<PAGE>
QUICKSILVER RESOURCES, INC.
SPOUSAL CONSENT
The undersigned spouse of ____________________ executes this Consent to
acknowledge his or her joining the Stockholders Agreement dated as of April
9, 1998 by and between Quicksilver Resources Inc., a Delaware corporation
(the "Company"), and the persons identified therein as "Stockholders" with
respect to her community property interest, if any, in the shares of common
stock, par value $.01 per share, of the Company held by ____________________.
WITNESS: SPOUSE:
/s/ Kimberly H. Darden
- ----------------------------- -----------------------------------
Name: Name: Kimberly H. Darden
------------------------ ------------------------------
Date: Date:
------------------------ ------------------------------
<PAGE>
QUICKSILVER RESOURCES, INC.
SPOUSAL CONSENT
The undersigned spouse of Jack L. Thurber executes this Consent to
acknowledge his or her joining the Stockholders Agreement dated as of April
9, 1998 by and between Quicksilver Resources Inc., a Delaware corporation
(the "Company"), and the persons identified therein as "Stockholders" with
respect to her community property interest, if any, in the shares of common
stock, par value $.01 per share, of the Company held by ____________________.
WITNESS: SPOUSE:
/s/ William C. New /s/ Gwenden Thurber
- ----------------------------- -----------------------------------
Name: William C. New Name: Gwenden Thurber
------------------------ ------------------------------
Date: 4/8/98 Date: 4/8/98
------------------------ ------------------------------
<PAGE>
QUICKSILVER RESOURCES, INC.
SPOUSAL CONSENT
The undersigned spouse of Jeff Cook executes this Consent to
acknowledge his or her joining the Stockholders Agreement dated as of April
9, 1998 by and between Quicksilver Resources Inc., a Delaware corporation
(the "Company"), and the persons identified therein as "Stockholders" with
respect to her community property interest, if any, in the shares of common
stock, par value $.01 per share, of the Company held by ____________________.
WITNESS: SPOUSE:
/s/ B. Lea Shultz /s/ Debra Cook
- ----------------------------- -----------------------------------
Name: B. Lea Shultz Name: Debra Cook
------------------------ ------------------------------
Date: 4/8/98 Date: 4/8/98
------------------------ ------------------------------
<PAGE>
QUICKSILVER RESOURCES, INC.
SPOUSAL CONSENT
The undersigned spouse of Frank Darden executes this Consent to
acknowledge his or her joining the Stockholders Agreement dated as of April
9, 1998 by and between Quicksilver Resources Inc., a Delaware corporation
(the "Company"), and the persons identified therein as "Stockholders" with
respect to her community property interest, if any, in the shares of common
stock, par value $.01 per share, of the Company held by ____________________.
WITNESS: SPOUSE:
/s/ Anthony C. Wills /s/ Lucy Darden
- ----------------------------- -----------------------------------
Name: Anthony C. Wills Name: Lucy Darden
------------------------ ------------------------------
Date: Date:
------------------------ ------------------------------
<PAGE>
EXHIBIT B
ADOPTION AGREEMENT
This Adoption Agreement ("Agreement") is executed by the person or
entity named as "TRANSFEREE" below pursuant to the terms of the Stockholders
Agreement dated as of April 9, 1998 ("Stockholders Agreement"), relating to
shares of Common Stock, $.01 per share, of Quicksilver Resources Inc., a
Delaware corporation. Initially capitalized terms used but not otherwise
defined herein, shall have the meanings ascribed to them in the Stockholders
Agreement.
1. ACKNOWLEDGMENT. Transferee acknowledges that Transferee is
acquiring certain shares of Common Stock, or an interest therein, subject to
the terms and conditions of the Stockholders Agreement.
2. AGREEMENT. Transferee (a) agrees that Transferee and the shares
acquired by Transferee shall be bound by and subject to the terms of the
Stockholders Agreement and (b) adopts the Stockholders Agreement with the
same force and effect as if Transferee were a "Stockholder" thereunder.
3. NOTICE. Any notice required or permitted by the Stockholders'
Agreement shall be given to Transferee at the address listed below
Transferee's signature.
4. JOINDER. The spouse of Transferee, if applicable, executes this
Agreement to acknowledge that it is fair and in such spouse's best interests
and to bind such spouse's community interest, if any, in the shares acquired
by Transferee to the terms of the Stockholders Agreement.
<PAGE>
This Agreement is executed by Transferee on___________________________.
TRANSFEREE: SPOUSE (if applicable):
- ------------------------------ ---------------------------------------
Signature Signature
- ------------------------------ ---------------------------------------
Print Name Print Name
- ------------------------------
- ------------------------------
Address
QUICKSILVER RESOURCES INC.
By:
----------------------------------
Name:
---------------------------------
Title:
--------------------------------
<PAGE>
AMENDMENT NO. 1 TO STOCKHOLDERS AGREEMENT
This is Amendment No. 1 ("Amendment") to that certain Stockholders
Agreement dated April 9, 1998 (the "Agreement") by and among Quicksilver
Resources Inc. (the "Company"), Mercury Exploration Company ("Mercury"),
Quicksilver Energy, L.C. ("QELC"), Frank Darden, Thomas F. Darden, Glenn M.
Darden, Anne Darden Self, Jeff Cook, Jack L. Thurber, Trust Company of the
West in its capacity described on the signature pages hereto ("TCW"), Joint
Energy Development Investments Limited Partnership ("JEDI") and Mercury
Production Company ("MPC"). Unless otherwise defined herein, all capitalized
terms used herein shall have the meanings given to them in the Agreement.
For good and valuable consideration, the receipt and sufficiency of
which are acknowledged, the parties hereto agree as follows:
1. The Agreement is amended in the following respects:
(a) In the second sentence of Section 5(a) of the Agreement, the
phrase "to be no greater than five" is amended to read "to be no greater
than six".
(b) Clause (i) of Section 6(c) of the Agreement is amended to read
as follows: "(i) to any Transfer by Mercury to its employees, independent
consultants, or directors of options to purchase from Mercury either shares
of common stock, par value $.01 per share, of MSR Exploration Ltd. ("MSR
Common Stock") or, if MSR has merged into the Company, shares of Common
Stock, or to any Transfer by Mercury of shares of MSR Common Stock or Common
Stock pursuant to the exercise of such options, provided that the total
number of shares Transferred upon the exercise of such options does not
exceed in the case of MSR Common Stock 2,000,000 shares (adjusted for stock
splits, dividends or combinations) or in the case of Common Stock the number
of shares (adjusted for stock splits, dividends or combinations) into which
2,000,000 shares of MSR Common Stock are converted upon the merger of MSR
into the Company,".
2. Except as amended and modified hereby, the Agreement is unchanged
and is ratified and affirmed, as amended and modified hereby, in all
respects.
3. This Amendment may be executed in counterparts, all of which shall
be one and the same agreement and shall become effective when a counterpart
shall have been signed by each of the parties and delivered to the other
party or its counsel, it being understood that each of the parties need not
sign the same counterpart.
<PAGE>
Executed effective as of September 1, 1998.
QUICKSILVER RESOURCES INC.
By: /s/ Glenn M. Darden
-----------------------------------
Name: Glenn M. Darden
---------------------------------
Title: Vice President
--------------------------------
QUICKSILVER ENERGY, L.C.
By: /s/ Glenn M. Darden
-----------------------------------
Name: Glenn M. Darden
---------------------------------
Title: Administrative Manager
--------------------------------
MERCURY EXPLORATION COMPANY
By: /s/ Glenn M. Darden
-----------------------------------
Name: Glenn M. Darden
---------------------------------
Title: Vice President
--------------------------------
MERCURY PRODUCTION COMPANY
By: /s/ Glenn M. Darden
-----------------------------------
Name: Glenn M. Darden
---------------------------------
Title: Vice President
--------------------------------
2
<PAGE>
/s/ Frank Darden
-------------------------------------------
Frank Darden
/s/ Thomas F. Darden
-------------------------------------------
Thomas F. Darden
/s/ Glenn M. Darden
-------------------------------------------
Glenn M. Darden
/s/ Anne Darden Self
-------------------------------------------
Anne Darden Self
/s/ Jeff Cook
-------------------------------------------
Jeff Cook
/s/ Jack L. Thurber
-------------------------------------------
Jack L. Thurber
TRUST COMPANY OF THE WEST, a California
trust company, as Sub-Custodian for Mellon
Bank for the benefit of Account No. CPFF
869-3062
By: TCW ASSET MANAGEMENT COMPANY, a
California corporation, as Investment
Manager under that certain Agreement dated
as of June 13, 1994, between TCW Asset
Management Company and Morgan Stanley Group,
Inc.
By: /s/ Thomas F. Mehlberg
-----------------------------------
Name: Thomas F. Mehlberg
---------------------------------
Title: Managing Director
--------------------------------
3
<PAGE>
By: /s/ Marc L. MacAluso
-----------------------------------
Name: Marc L. MacAluso
---------------------------------
Title: Senior Vice President
--------------------------------
JOINT ENERGY DEVELOPMENT
INVESTMENTS LIMITED PARTNERSHIP
By: Enron Capital Management Limited
Partnership, its general partner
By: Enron Capital Corp.,
its general partner
By: /s/ Jesse E. Neyman
-----------------------------------
Name: Jesse E. Neyman
---------------------------------
Title: Agent and Attorney-in-Fact
--------------------------------
4
<PAGE>
STOCK TRANSFER AGREEMENT
This Stock Transfer Agreement (this "Agreement") dated April 9, 1998, is by
and between Mercury Exploration Company, a Texas corporation ("Mercury"), and
Joint Energy Development Investments Limited Partnership, a Delaware limited
partnership ("JEDI").
WHEREAS, Mercury is the sole general partner and JEDI is the sole limited
partner of Michigan Gas Partners, Limited Partnership, a Texas limited
partnership ("MGP"), which is being merged (the "Merger") with and into
Quicksilver Resources Inc., a Delaware corporation ("QRI"), pursuant to an
Agreement and Plan of Reorganization and Merger dated as of March 31, 1998 by
and among Mercury, JEDI, MGP, QRI, Quicksilver Energy, L.C., and Trust Company
of the West (the "Merger Agreement"); and
WHEREAS, in the Merger, JEDI is receiving 13,000 shares of the common
stock, par value $.01 per share, of QRI ("QRI Common Stock"); and
WHEREAS, to induce Mercury to enter into the Merger Agreement, JEDI has
agreed to enter into this Agreement to preserve certain of the economic
consequences of the MGP partnership agreement, which would have allowed
Mercury's interest in MGP to increase under certain circumstances.
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements
contained herein and in the Merger Agreement, Mercury and JEDI agree as follows:
1. CERTAIN DEFINITIONS. As used herein, the following terms have the
indicated meanings:
"DAILY AVERAGE PRICE" means, for any given day, the average of the high and
low sale prices of the QRI Common Stock or New Securities on such day on the New
York Stock Exchange, the American Stock Exchange or the Nasdaq National Market,
whichever is applicable.
"EARN OUT AMOUNT" means $20,995,205.00; provided, however, that after the
date that is six months after the date (the "Commencement Date") on which the
QRI Common Stock or New Securities become, or are converted into or exchanged
for New Securities that are, Publicly Traded, the "EARN OUT AMOUNT" shall mean
$20,995,205.00 plus interest at a compound monthly rate of 1.530948% from the
date that is six months after the Commencement Date through the last day of the
Measurement Period for which a Transfer Election (as defined in paragraph 2
below) is made.
"MARKET VALUE" means, with respect to a Share, the average of the Daily
Average Prices of the QRI Common Stock or New Securities for the trading days
during a Measurement Period.
<PAGE>
"MEASUREMENT PERIOD" means any period of thirty consecutive trading days
ending prior to the first anniversary of the Commencement Date during which the
average daily trading volume of the QRI Common Stock or New Securities on the
New York Stock Exchange, the American Stock Exchange or the Nasdaq National
Market, whichever is applicable, is at least 50,000 shares, excluding any shares
traded by Mercury or any of its Affiliates (as defined in Rule 405 under the
Securities Act of 1933) and provided, that if on any of the 30 trading days the
trading volume is greater than 200,000 shares, then only 200,000 shares on such
days may be used in calculating the average volume.
"NEW SECURITIES" means any class of equity securities into which shares of
QRI Common Stock have been converted or for which shares of QRI Common Stock
have been exchanged.
"PUBLICLY TRADED" means listed for trading on the New York Stock Exchange,
the American Stock Exchange or the Nasdaq National Market.
"SHARES" means the shares of QRI Common Stock acquired by JEDI pursuant to
the Merger or any New Securities into which such shares of QRI Common Stock are
converted or for which such shares of QRI Common Stock are exchanged.
2. TRANSFER ELECTION. If (a) the Commencement Date occurs on or before
the first anniversary of the date hereof and (b) for any Measurement Period the
aggregate Market Value of all of the Shares exceeds the Earn Out Amount (as
calculated as of the last trading day of such Measurement Period) (an "Earn Out
Period"), Mercury may elect (the "Transfer Election") to require that JEDI
transfer to Mercury a number of Shares or other shares of QRI Common Stock or
New Securities (rounded to the nearest whole number of Shares or other shares of
QRI Common Stock or New Securities) with an aggregate Market Value equal to 85%
of the amount by which the aggregate Market Value of all of the Shares exceeds
the Earn Out Amount for such Earn Out Period. The Transfer Election may be made
on only one occasion prior to the first anniversary of the Commencement Date and
only by written notice received by JEDI prior to the commencement of trading on
the trading day immediately following the last trading day in the Earn Out
Period.
3. TRANSFER OF SHARES. In the event that Mercury makes the Transfer
Election, as soon as practicable after the date notice of the Transfer Election
is received by JEDI, Mercury and JEDI shall take all reasonable action necessary
to transfer the required number of Shares or other shares of QRI Common Stock or
New Securities to Mercury or its designee pursuant to paragraph 2 above.
-2-
<PAGE>
4. MISCELLANEOUS.
(a) This Agreement shall inure to the benefit of and be binding upon
the successors and permitted assigns of the parties hereto. Except as set forth
herein, the rights and obligations of a party hereunder shall not be assignable
without the prior written consent of the other party. JEDI may assign any or
all of its rights, privileges and obligations hereunder to (i) any direct or
indirect affiliate or (ii) any other entity managed by Enron Corp. or any of its
affiliates or for which Enron Corp. or one of its affiliates acts as
administrative agent. Nothing in this paragraph (a) shall prohibit Mercury from
designating a third party to receive all or any portion of the Shares that
Mercury is or becomes entitled to receive from JEDI pursuant to Section 2 above.
(b) This Agreement may be executed in any number of counterparts and
by different parties hereto in separate counterparts, each of which
counterparts, when so executed and delivered, shall be deemed to be an original
and all of which counterparts, taken together, shall constitute but one and the
same Agreement.
(c) The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.
(d) The laws of the State of Texas shall govern this Agreement
without regard to principles of conflict of laws.
(e) This Agreement, together with the Merger Agreement and the other
Basic Documents (as defined in the Merger Agreement), is intended by the parties
as a final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein. This Agreement, the Merger
Agreement and the other Basic Documents supersede all prior agreements and
understandings between the parties with respect to such subject matter. The
agreements of the parties contained in this Agreement are not intended, and
shall not be interpreted, to confer any benefit on any person other than the
parties hereto.
(f) This Agreement may be amended only by means of a written
amendment signed by both of the parties hereto.
(g) All notices provided for hereunder shall be given by telecopy
(confirmed by overnight delivery), air courier guaranteeing overnight delivery
or personal delivery at the following addresses:
-3-
<PAGE>
If to Mercury:
Mercury Exploration Company
1619 Pennsylvania Avenue
Fort Worth, Texas 76104
Attention: Glenn Darden
Telecopier: (817) 332-1883
If to JEDI:
Joint Energy Development Investments Limited Partnership
c/o Enron Capital Management Limited Partnership
1400 Smith Street
Houston, Texas 77002
Attention: Jeremy M. Blachman
Telecopier: (713) 646-8174
with copies to:
Enron Capital & Trade Resources
Corp. Legal Department
1400 Smith Street
Houston, Texas 77002
Attention: Carol St. Clair and Gareth S. Bahlmann
Telecopier: (713) 646-3393
Enron Capital & Trade Resources
Compliance Department
1400 Smith Street
Houston, Texas 77002
Attention: Donna W. Lowry
Telecopier: (713) 646-4039 or (713) 646-4946
or to such other address as any such party may designate by notice in the manner
provided above. All such notices shall be deemed to have been delivered and
received at the time delivered by hand, if personally delivered, when receipt
acknowledged, if telecopied, and on the next business day, if timely delivered
to an air courier guaranteeing overnight delivery.
-4-
<PAGE>
(h) Any controversy, dispute or claim arising out of or relating to
this Agreement or the transactions contemplated hereby (a "Dispute") shall be
resolved by arbitration administered by the American Arbitration Association
(the "AAA") in accordance with the terms of this paragraph (h), the Commercial
Arbitration Rules of the AAA, and, to the maximum extent applicable, the United
Stated Arbitration Act. Judgment on any matter rendered by arbitrators may be
entered in any court having jurisdiction. Any arbitration shall be conducted
before three arbitrators. The arbitrators shall be individuals knowledgeable in
the subject matter of the Dispute. Each party shall select one arbitrator and
the two arbitrators so selected shall select the third arbitrator. If the third
arbitrator is not selected within 30 days after the request for an arbitration,
then any party may request the AAA to select the third arbitrator. The
arbitrators may engage engineers, accountants or other consultants they deem
necessary to render a conclusion in the arbitration proceeding. To the maximum
extent practicable, an arbitration proceeding hereunder shall be concluded
within 180 days of the filing of the Dispute with the AAA. Arbitration
proceedings shall be conducted in Houston, Texas. Arbitrators shall be
empowered to impose sanctions and to take such other actions as the arbitrators
deem necessary to the same extent a judge could impose sanctions or take such
other actions pursuant to the Federal Rules of Civil Procedure and applicable
law. At the conclusion of any arbitration proceeding, the arbitrators shall
make specific written findings of fact and conclusions of law. The arbitrators
shall have the power to award recovery of all costs and fees to the prevailing
party. All fees of the arbitrators and any engineer, accountant or other
consultant engaged by the arbitrators, shall be shared equally unless otherwise
awarded by the arbitrators.
-5-
<PAGE>
EXECUTED as of the date first written above.
MERCURY EXPLORATION COMPANY
By: /s/ Glenn M. Darden
------------------------------------------
Name: Glenn M. Darden
----------------------------------------
Title: Vice President
---------------------------------------
JOINT ENERGY DEVELOPMENT
INVESTMENTS LIMITED PARTNERSHIP
By: Enron Capital Management, Limited
Partnership, its General Partner
By: Enron Capital Corp., its General Partner
By: /s/ Jesse E. Neyman
------------------------------------------
Name: Jesse E. Neyman
----------------------------------------
Title: Agent and Attorney-in-Fact
---------------------------------------
-6-
<PAGE>
AMENDMENT NO. 1 TO STOCK TRANSFER AGREEMENT
This Amendment No. 1 to Stock Transfer Agreement (this "Amendment") is
made as of September 1, 1998 by and among Mercury Exploration Company, a
Texas corporation ("Mercury"), and Joint Energy Development Investments
Limited Partnership, a Delaware limited partnership ("JEDI").
WHEREAS, Mercury and JEDI are parties to a Stock Transfer Agreement
dated as of April 9, 1998 (the "Agreement"); and
WHEREAS, Mercury and JEDI desire to amend the Agreement as set forth
below.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. AMENDMENT. The definition of "Shares" contained in Section 1 of
the Agreement is hereby deleted in its entirety and replaced with the
following:
"SHARES" means the shares of QRI Common Stock acquired by JEDI
pursuant to the Merger plus any additional shares of QRI Common Stock
issued in respect of such shares pursuant to any stock split, stock
dividend, recapitalization or similar transaction, or any New
Securities into which such shares of QRI Common Stock are converted or
for which such shares of QRI Common Stock are exchanged, plus any
additional New Securities issued in respect of such New Securities
pursuant to any stock split, stock dividend, recapitalization or
similar transaction.
2. CONTINUED VALIDITY. Except as specifically amended hereby, the
Agreement remains in full force and effect pursuant to its terms.
3. AMENDMENTS. This Amendment may be amended only by means of a
written amendment signed by both of the parties hereto.
4. COUNTERPARTS. For convenience of the parties hereto, this
Amendment may be executed in any number of counterparts, each of such
counterparts being deemed to be an original instrument, and all of such
counterparts shall together constitute the same agreement.
5. GOVERNING LAW. This Amendment shall be governed by and construed
in accordance with the laws of the State of Texas without giving effect to
the principles of conflict of laws thereof.
<PAGE>
6. BINDING EFFECT. This Amendment shall be binding upon and inure to
the benefit of the parties hereto and there respective successors and
permitted assigns.
7. HEADINGS. The headings in this Amendment are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
EXECUTED as of the date first written above.
MERCURY EXPLORATION COMPANY
By: /s/ Glenn Darden
-----------------------------------------
Name: Glenn Darden
---------------------------------------
Title: Vice President
--------------------------------------
JOINT ENERGY DEVELOPMENT
INVESTMENTS LIMITED PARTNERSHIP
By: Enron Capital Management Limited
Partnership, its General Partner
By: Enron Capital Corp., its General Partner
By: /s/ Jesse E. Neyman
-----------------------------------------
Name: Jesse E. Neyman
---------------------------------------
Title: Agent and Attorney-in-Fact
--------------------------------------
-2-
<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT
among
QUICKSILVER RESOURCES, INC.,
as Borrower,
NATIONSBANK OF TEXAS, N.A.,
as Agent
and
The Financial Institutions Listed on Schedule 1 Hereto,
as Banks
$100,000,000
dated
April 9, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I AMENDMENT AND RESTATEMENT. . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II TERMS DEFINED . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 2.1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 2.2. ACCOUNTING TERMS AND DETERMINATIONS . . . . . . . . . . . .22
SECTION 2.3. PETROLEUM TERMS . . . . . . . . . . . . . . . . . . . . . .22
SECTION 2.4. MONEY . . . . . . . . . . . . . . . . . . . . . . . . . . .23
ARTICLE III THE CREDIT . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
SECTION 3.1. COMMITMENTS . . . . . . . . . . . . . . . . . . . . . . . .23
SECTION 3.2. NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . .27
SECTION 3.3. INTEREST RATES; PAYMENTS. . . . . . . . . . . . . . . . .27
SECTION 3.4. MANDATORY PREPAYMENTS RESULTING FROM BORROWING BASE
DEFICIENCY. . . . . . . . . . . . . . . . . . . . . . . . .29
SECTION 3.5. VOLUNTARY PREPAYMENTS.. . . . . . . . . . . . . . . . . . .29
SECTION 3.6. VOLUNTARY REDUCTION OF COMMITMENTS. . . . . . . . . . . . .29
SECTION 3.7. TERMINATION OF COMMITMENTS; FINAL MATURITY. . . . . . . . .29
SECTION 3.8. UNUSED COMMITMENT FEE . . . . . . . . . . . . . . . . . . .29
SECTION 3.9. BORROWING BASE INCREASE FEE . . . . . . . . . . . . . . . .30
SECTION 3.10. AGENCY AND OTHER FEES . . . . . . . . . . . . . . . . . . .30
ARTICLE IV GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . .30
SECTION 4.1. DELIVERY AND ENDORSEMENT OF NOTES . . . . . . . . . . . . .30
SECTION 4.2. GENERAL PROVISIONS AS TO PAYMENTS . . . . . . . . . . . . .30
ARTICLE V CHANGE IN CIRCUMSTANCES. . . . . . . . . . . . . . . . . . . . . . .31
SECTION 5.1. INCREASED COST AND REDUCED RETURN . . . . . . . . . . . . .31
SECTION 5.2. LIMITATION ON EURODOLLAR LOANS. . . . . . . . . . . . . . .33
SECTION 5.3. ILLEGALITY. . . . . . . . . . . . . . . . . . . . . . . . .33
SECTION 5.4. TREATMENT OF AFFECTED LOANS . . . . . . . . . . . . . . . .33
SECTION 5.5. COMPENSATION. . . . . . . . . . . . . . . . . . . . . . . .34
SECTION 5.6. TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . .34
SECTION 5.7. DISCRETION OF BANKS AS TO MANNER OF FUNDING . . . . . . . .36
<PAGE>
<S> <C> <C>
ARTICLE VI BORROWING BASE. . . . . . . . . . . . . . . . . . . . . . . . . . .36
SECTION 6.1. BORROWING BASE AND CONFORMING BORROWING BASE. . . . . . . .36
SECTION 6.2. REDETERMINATION OF BORROWING BASE AND CONFORMING
BORROWING BASE. . . . . . . . . . . . . . . . . . . . . . .36
SECTION 6.3. BANK APPROVAL OF BORROWING BASE . . . . . . . . . . . . . .37
SECTION 6.4. BORROWING BASE DEFICIENCY . . . . . . . . . . . . . . . . .37
ARTICLE VII COLLATERAL AND GUARANTEES. . . . . . . . . . . . . . . . . . . . .37
SECTION 7.1. SECURITY. . . . . . . . . . . . . . . . . . . . . . . . . .37
SECTION 7.2. GUARANTEES. . . . . . . . . . . . . . . . . . . . . . . . .37
SECTION 7.3. RELEASE OF GUARANTEES AND COLLATERAL. . . . . . . . . . . .38
ARTICLE VIII CONDITIONS PRECEDENT. . . . . . . . . . . . . . . . . . . . . . .38
SECTION 8.1. CONDITIONS TO AMENDMENT AND RESTATEMENT AND INITIAL
BORROWING AND PARTICIPATION IN LETTER OF CREDIT EXPOSURE. .38
SECTION 8.2. CONDITIONS TO EACH BORROWING AND EACH LETTER OF CREDIT. . .42
SECTION 8.3. POST CLOSING DELIVERIES.. . . . . . . . . . . . . . . . . .42
SECTION 8.4. MATERIALITY OF CONDITIONS . . . . . . . . . . . . . . . . .43
ARTICLE IX REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . . . .43
SECTION 9.1. CORPORATE EXISTENCE AND POWER . . . . . . . . . . . . . . .43
SECTION 9.2. CREDIT PARTY AND GOVERNMENTAL AUTHORIZATION;
CONTRAVENTION. . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 9.3. BINDING EFFECT. . . . . . . . . . . . . . . . . . . . . . .44
SECTION 9.4. FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . .44
SECTION 9.5. LITIGATION. . . . . . . . . . . . . . . . . . . . . . . . .45
SECTION 9.6. ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . .45
SECTION 9.7. TAXES AND FILING OF TAX RETURNS . . . . . . . . . . . . . .46
SECTION 9.8. OWNERSHIP OF PROPERTIES GENERALLY . . . . . . . . . . . . .46
SECTION 9.9. MINERAL . . . . . . . . . . . . . . . . . . . . . . . . . .46
SECTION 9.10. LICENSES, PERMITS, ETC. . . . . . . . . . . . . . . . . . .47
SECTION 9.11. COMPLIANCE WITH LAW . . . . . . . . . . . . . . . . . . . .47
SECTION 9.12. FULL DISCLOSURE . . . . . . . . . . . . . . . . . . . . . .47
SECTION 9.13. ORGANIZATIONAL STRUCTURE; NATURE OF BUSINESS. . . . . . . .47
SECTION 9.14. ENVIRONMENTAL MATTERS . . . . . . . . . . . . . . . . . . .47
SECTION 9.15. BURDENSOME OBLIGATIONS. . . . . . . . . . . . . . . . . . .48
SECTION 9.16. FISCAL YEAR . . . . . . . . . . . . . . . . . . . . . . . .48
SECTION 9.17. NO DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . .48
SECTION 9.18. GOVERNMENT REGULATION . . . . . . . . . . . . . . . . . . .48
SECTION 9.19. INSIDER . . . . . . . . . . . . . . . . . . . . . . . . . .49
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
SECTION 9.20. GAS BALANCING AGREEMENTS AND ADVANCE PAYMENT CONTRACTS . .49
SECTION 9.21. CAPITALIZATION DOCUMENTS.. . . . . . . . . . . . . . . . .49
ARTICLE X AFFIRMATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . . .49
SECTION 10.1. INFORMATION. . . . . . . . . . . . . . . . . . . . . . . .49
SECTION 10.2. BUSINESS OF BORROWER . . . . . . . . . . . . . . . . . . .51
SECTION 10.3. MAINTENANCE OF EXISTENCE . . . . . . . . . . . . . . . . .51
SECTION 10.4. TITLE DATA . . . . . . . . . . . . . . . . . . . . . . . .52
SECTION 10.5. RIGHT OF INSPECTION. . . . . . . . . . . . . . . . . . . .52
SECTION 10.6. MAINTENANCE OF INSURANCE . . . . . . . . . . . . . . . . .52
SECTION 10.7. PAYMENT OF TAXES AND CLAIMS. . . . . . . . . . . . . . . .52
SECTION 10.8. COMPLIANCE WITH LAWS AND DOCUMENTS . . . . . . . . . . . .53
SECTION 10.9. OPERATION OF PROPERTIES AND EQUIPMENT. . . . . . . . . . .53
SECTION 10.10. ENVIRONMENTAL LAW COMPLIANCE . . . . . . . . . . . . . . .53
SECTION 10.11. ERISA REPORTING REQUIREMENTS . . . . . . . . . . . . . . .53
SECTION 10.12. ADDITIONAL DOCUMENTS . . . . . . . . . . . . . . . . . . .54
SECTION 10.13. ENVIRONMENTAL REVIEW . . . . . . . . . . . . . . . . . . .54
SECTION 10.14. REQUIRED PURCHASE CONTRACTS. . . . . . . . . . . . . . . .54
ARTICLE XI NEGATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . .55
SECTION 11.1. INCURRENCE OF DEBT . . . . . . . . . . . . . . . . . . . .55
SECTION 11.2. RESTRICTED PAYMENTS. . . . . . . . . . . . . . . . . . . .55
SECTION 11.3. NEGATIVE PLEDGE. . . . . . . . . . . . . . . . . . . . . .55
SECTION 11.4. CONSOLIDATIONS AND MERGERS . . . . . . . . . . . . . . . .55
SECTION 11.5. ASSET DISPOSITIONS . . . . . . . . . . . . . . . . . . . .56
SECTION 11.6. AMENDMENTS TO ORGANIZATIONAL DOCUMENTS; OTHER MATERIAL
AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . .56
SECTION 11.7. USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . .56
SECTION 11.8. INVESTMENTS. . . . . . . . . . . . . . . . . . . . . . . .56
SECTION 11.9. TRANSACTIONS WITH AFFILIATES . . . . . . . . . . . . . . .56
SECTION 11.10. ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . .57
SECTION 11.11. HEDGE TRANSACTIONS . . . . . . . . . . . . . . . . . . . .57
SECTION 11.12. FISCAL YEAR. . . . . . . . . . . . . . . . . . . . . . . .57
SECTION 11.13. CHANGE IN BUSINESS . . . . . . . . . . . . . . . . . . . .57
ARTICLE XII FINANCIAL COVENANTS. . . . . . . . . . . . . . . . . . . . . . . .57
ARTICLE XIII DEFAULTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . .58
SECTION 13.1. EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . .58
<PAGE>
<S> <C> <C>
ARTICLE XIV AGENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .60
SECTION 14.1. APPOINTMENT, POWERS, AND IMMUNITIES. . . . . . . . . . . .60
SECTION 14.2. RELIANCE BY AGENT. . . . . . . . . . . . . . . . . . . . .60
SECTION 14.3. DEFAULTS . . . . . . . . . . . . . . . . . . . . . . . . .61
SECTION 14.4. RIGHTS AS BANK . . . . . . . . . . . . . . . . . . . . . .61
SECTION 14.5. INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . .61
SECTION 14.6. NON-RELIANCE ON AGENT AND OTHER BANKS. . . . . . . . . . .61
SECTION 14.7. RESIGNATION OF AGENT . . . . . . . . . . . . . . . . . . .62
ARTICLE XV MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . .62
SECTION 15.1. NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . .62
SECTION 15.2. NO WAIVERS . . . . . . . . . . . . . . . . . . . . . . . .62
SECTION 15.3. EXPENSES; INDEMNIFICATION. . . . . . . . . . . . . . . . .63
SECTION 15.4. RIGHT OF SET-OFF; ADJUSTMENTS. . . . . . . . . . . . . . .63
SECTION 15.5. AMENDMENTS AND WAIVERS . . . . . . . . . . . . . . . . . .64
SECTION 15.6. SURVIVAL . . . . . . . . . . . . . . . . . . . . . . . . .64
SECTION 15.7. LIMITATION ON INTEREST . . . . . . . . . . . . . . . . . .65
SECTION 15.8. INVALID PROVISIONS . . . . . . . . . . . . . . . . . . . .65
SECTION 15.9. WAIVER OF CONSUMER CREDIT LAWS . . . . . . . . . . . . . .65
SECTION 15.10. ASSIGNMENTS AND PARTICIPATIONS . . . . . . . . . . . . . .65
SECTION 15.11. TEXAS LAW. . . . . . . . . . . . . . . . . . . . . . . . .67
SECTION 15.12. CONSENT TO JURISDICTION; WAIVER OF IMMUNITIES. . . . . . .67
SECTION 15.13. COUNTERPARTS; EFFECTIVENESS. . . . . . . . . . . . . . . .68
SECTION 15.14. NO THIRD PARTY BENEFICIARIES . . . . . . . . . . . . . . .68
SECTION 15.15. COMPLETE AGREEMENT . . . . . . . . . . . . . . . . . . . .68
SECTION 15.16. WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . .68
</TABLE>
<PAGE>
EXHIBITS
<TABLE>
<S> <C>
EXHIBIT A FORM OF BORROWER PLEDGE AGREEMENT
EXHIBIT B FORM OF NOTE
EXHIBIT C FORM OF GUARANTY
EXHIBIT D FORM OF REQUEST FOR BORROWING
EXHIBIT E FORM OF REQUEST FOR LETTER OF CREDIT
EXHIBIT F FORM OF NOTICE OF CONTINUATION OR CONVERSION
EXHIBIT G FORM OF CERTIFICATE OF OWNERSHIP INTERESTS
EXHIBIT H FORM OF CERTIFICATE OF FINANCIAL OFFICER
EXHIBIT I FORM OF ASSIGNMENT AND ACCEPTANCE AGREEMENT
</TABLE>
SCHEDULES
<TABLE>
<S> <C>
SCHEDULE 1 FINANCIAL INSTITUTIONS
SCHEDULE 2 CAPITALIZATION DOCUMENTS
SCHEDULE 3 INVESTMENTS
SCHEDULE 4 LITIGATION
SCHEDULE 5 CAPITALIZATION
SCHEDULE 6 ENVIRONMENTAL DISCLOSURE
</TABLE>
<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT
THIS AMENDED AND RESTATED CREDIT AGREEMENT (this "AGREEMENT") is entered
into as of the 9th day of April, 1998, among QUICKSILVER RESOURCES, INC., a
Delaware corporation ("BORROWER"), NATIONSBANK OF TEXAS, N.A., as Agent
("AGENT"), and the financial institutions listed on SCHEDULE 1 hereto as
Banks (individually a "BANK" and collectively "BANKS").
W I T N E S S E T H:
WHEREAS, Mercury Exploration Company, a Texas corporation ("MERCURY"),
NationsBank of Texas, N.A., as Agent, and NationsBank of Texas, N.A., as the
sole Bank, are parties to that certain Credit Agreement dated as of January
31, 1997 pursuant to which NationsBank of Texas, N.A. provided certain loans
and other extensions of credit to Mercury (the "MERCURY/NATIONSBANK CREDIT
AGREEMENT"); and
WHEREAS, Quicksilver Energy, L.C., a Michigan limited liability company
("QELC"), NationsBank of Texas, N.A., as Agent, and NationsBank of Texas,
N.A., as the sole Bank, are parties to that certain Credit Agreement dated as
of November 14, 1996, pursuant to which NationsBank of Texas, N.A. provided
certain loans to QELC (the "QELC/NATIONSBANK CREDIT AGREEMENT"); and
WHEREAS, pursuant to an Assumption Agreement of even date herewith by
and among NationsBank of Texas, N.A. (as Agent and a Bank), Borrower, Mercury
and QELC, Borrower assumed and agreed to perform, as primary obligor, all
obligations of (a) Mercury under the Mercury/NationsBank Credit Agreement and
all related Loan Papers (as defined in the Mercury/NationsBank Credit
Agreement), and (b) QELC under the QELC/NationsBank Credit Agreement and all
related Loan Papers (as defined in the QELC/NationsBank Credit Agreement); and
WHEREAS, pursuant to an Assumption Agreement of even date herewith
between Borrower and QELC, Borrower assumed and agreed to perform as primary
obligor, all obligations of QELC under that certain Credit Agreement dated
November 14, 1996 among QELC, Trust Company of the West and TCW Asset
Management Company (the "QELC/TCW CREDIT AGREEMENT"); and
WHEREAS, Borrower desires to consolidate, amend and restate the
Mercury/NationsBank Credit Agreement and the QELC/NationsBank Credit
Agreement in the form of this Agreement and desires to obtain Borrowings (as
herein defined) (a) to refinance the indebtedness assumed by Borrower under
the QELC/TCW Credit Agreement, and (b) for other purposes permitted herein;
and
WHEREAS, subject to and upon the terms and conditions herein contained,
Agent and Banks are in agreement with Borrower's requests; and
1
<PAGE>
WHEREAS, in connection with the refinancing of the indebtedness
outstanding under the QELC/TCW Credit Agreement, TCW (as herein defined) has
executed and delivered to Agent hereunder (a) that certain Assignment of
Notes, Liens and Security Interests dated of even date herewith pursuant to
which all indebtedness outstanding thereunder and all liens securing payment
thereof have been assigned to Agent hereunder.
NOW, THEREFORE, in consideration of the premises, the representations,
warranties, covenants and agreements contained herein, and other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Borrower, Agent and Banks agree as follows:
ARTICLE I
AMENDMENT AND RESTATEMENT
Subject to the satisfaction of each condition precedent contained in
SECTION 8.1 hereof, the Mercury/NationsBank Credit Agreement shall be amended
and restated in the form of this Agreement.
ARTICLE II
TERMS DEFINED
SECTION 2.1. DEFINITIONS. The following terms, as used herein, have
the following meanings:
"Adjusted Eurodollar Rate" means, for any Eurodollar Loan for any
Interest Period therefor, the rate per annum (rounded upwards, if necessary,
to the nearest 1/100 of 1%) determined by the Agent to be equal to the
quotient obtained by dividing (a) the Eurodollar Rate for such Eurodollar
Loan for such Interest Period by (b) 1 minus the Reserve Requirement for such
Eurodollar Loan for such Interest Period.
"Advance Payment Contract" means any contract whereby any Credit Party
either (a) receives or becomes entitled to receive (either directly or
indirectly) any payment (an "ADVANCE PAYMENT") to be applied toward payment
of the purchase price of Hydrocarbons produced or to be produced from Mineral
Interests owned by any Credit Party and which Advance Payment is paid or to
be paid in advance of actual delivery of such production to or for the
account of the purchaser regardless of such production, or (b) grants an
option or right of refusal to the purchaser to take delivery of such
production in lieu of payment, and, in either of the foregoing instances, the
Advance Payment is, or is to be, applied as payment in full for such
production when sold and delivered or is, or is to be, applied as payment for
a portion only of the purchase price thereof or of a percentage or share of
such production; PROVIDED THAT inclusion of the standard "take or pay"
provision in any
2
<PAGE>
gas sales or purchase contract or any other similar contract shall not, in
and of itself, constitute such contract as an Advance Payment Contract for
the purposes hereof.
"Affiliate" means, as to any Person, any Subsidiary of such Person, or
any other Person which, directly or indirectly, controls, is controlled by,
or is under common control with, such Person and, with respect to any Credit
Party, means, any director or executive officer of such Credit Party and any
Person who holds five percent (5%) or more of the voting stock of such Credit
Party. For the purposes of this definition, "control" (including, with
correlative meanings, the terms "controlled by" and "under common control
with"), as used with respect to any Person, shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of such Person, whether through the ownership of
voting securities or partnership interests, or by contract or otherwise.
"Agent" means NationsBank of Texas, N.A. in its capacity as agent for
Banks hereunder or any successor thereto.
"Agreement" means this Amended and Restated Credit Agreement as the same
may hereafter be modified, amended or supplemented from time to time.
"Applicable Environmental Law" means any federal, state or local law,
common law, ordinance, regulation or policy, as well as order, decree,
permit, judgment or injunction issued, promulgated, approved, or entered
thereunder, relating to the environment, health and safety, or Hazardous
Substances (including, without limitation, the use, handling, transportation,
production, disposal, discharge or storage thereof) or to industrial hygiene
or the environmental conditions on, under, or about any real property owned,
leased or operated at any time by any Credit Party or any real property
owned, leased or operated by any other party including, without limitation,
soil, groundwater, and indoor and ambient air conditions.
"Applicable Lending Office" means, for each Bank and for each Type of
Loan, the "Lending Office" of such Bank (or of an affiliate of such Bank)
designated for such Type of Loan on the signature pages hereof or such other
office of such Bank (or an affiliate of such Bank) as such Bank may from time
to time specify to the Agent and the Borrower by written notice in accordance
with the terms hereof as the office by which Loans of such Type are to be
made and maintained.
"Applicable Margin" means, on any date, with respect to each Eurodollar
Loan, an amount determined by reference to the ratio of Outstanding Credit to
the Conforming Borrowing Base on such date in accordance with the table below:
3
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Ratio of Outstanding Applicable Margin for
Credit to Conforming Borrowing Base Eurodollar Tranches
- ------------------------------------------------------------------------------------------
<S> <C>
LESS THAN OR EQUAL TO .50 to 1 1.000%
- ------------------------------------------------------------------------------------------
GREATER THAN.50 to 1 LESS THAN OR EQUAL TO .75 to 1 1.250%
- ------------------------------------------------------------------------------------------
GREATER THAN .75 to LESS THAN OR EQUAL TO 1.0 to 1 1.500%
- ------------------------------------------------------------------------------------------
GREATER THAN 1.0 to 1 1.750%
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
</TABLE>
; provided, that the Applicable Margin otherwise in effect pursuant to the
foregoing table will increase by .125% from and after July 31, 1998.
"Approved Petroleum Engineer" means Netherland Sewell and Associates,
Inc. or any other reputable firm of independent petroleum engineers as shall
be selected by Borrower and approved by Required Banks, such approval not to
be unreasonably withheld.
"Assignment and Acceptance Agreement" has the meaning given such term in
SECTION 15.10(a).
"Assignment and Amendment to Mortgages" means an Assignment of Notes,
Liens and Secuirty Interests to Mortgages to be entered into among Borrower,
Agent and TCW, in form and substance acceptable to Agent, pursuant to which
all indebtedness outstanding under the QELC/TCW Credit Agreement and all
Liens securing payment thereof shall be assigned to Agent for the ratable
benefit of each Bank to secure the Obligations.
"Authorized Officer" means, as to any Person, its Chief Executive
Officer, its President, its Chief Financial Officer, any of its Vice
Presidents, its Treasurer or its corporate Secretary.
"Availability" means, as of any date, the remainder of (a) the Borrowing
Base in effect on such date, minus (b) the Outstanding Credit on such date.
"Bank" means any financial institution reflected on SCHEDULE 1 hereto as
having a Commitment and its successors and permitted Assignees, and "Banks"
shall mean all Banks.
"Base Rate" means, for any day, the rate per annum equal to the higher
of (a) the Federal Funds Rate for such day plus one-half of one percent (.5%)
and (b) the Prime Rate for such day.
"Base Rate Loan" means the portion of the principal of the Revolving
Loan bearing interest with reference to the Base Rate.
"Borrower" means Quicksilver Resources, Inc., a Delaware corporation.
4
<PAGE>
"Borrower Pledge Agreement" means a Pledge Agreement in the form of
EXHIBIT A hereto to be executed by Borrower pursuant to which Borrower shall
pledge all issued and outstanding capital stock of each Subsidiary of
Borrower of every class to Agent to secure the Obligations.
"Borrowing" means any disbursement to Borrower under, or to satisfy the
obligations of any Credit Party under, any of the Loan Papers. Any Borrowing
which will constitute a part of the Base Rate Loan is referred to herein as
an "BASE RATE BORROWING," and any Borrowing which will constitute a
Eurodollar Loan is referred to herein as a "EURODOLLAR BORROWING."
"Borrowing Base" means the loan value attributable to certain of
Borrower's Mineral Interests as determined in accordance with ARTICLE VI
hereof.
"Borrowing Base Deficiency" means, as of any date, the amount, if any,
by which the Outstanding Credit on such date exceeds the Borrowing Base in
effect on such date; provided, that, for purposes of determining the
existence and amount of any Borrowing Base Deficiency, Letter of Credit
Exposure will not be deemed to be outstanding to the extent it is secured by
cash in the manner contemplated by SECTION 3.2(b).
"Borrowing Base Properties" means all Mineral Interests evaluated by
Banks for purposes of establishing the Borrowing Base. The Borrowing Base
Properties on the date hereof are described in the Property Description and
constitute all of the Mineral Interests described in the Initial Reserve
Reports.
"Borrowing Date" means the Eurodollar Business Day or the Domestic
Business Day, as the case may be, upon which the proceeds of any Borrowing
are made available to Borrower or to satisfy any obligation of any Credit
Party.
"Capitalization Documents" means the documents, instruments and
agreements described in SCHEDULE 2 hereto.
"Capitalization Transactions" means the following transactions to be
effected on the Closing Date pursuant to the Capitalization Documents: (a)
the contribution by Mercury of all of its Mineral Interests which constitute
Borrowing Base Properties to Borrower in exchange for common equity of
Borrower and the assumption by Borrower of the debt of Mercury to NationsBank
of Texas, N.A. outstanding under the Mercury/NationsBank Credit Agreement,
(b) the contribution by QELC of all of its Mineral Interests to Borrower in
exchange for common equity of Borrower and the assumption by Borrower of (i)
all debt of QELC to NationsBank of Texas, N.A. outstanding under the
QELC/NationsBank Credit Agreement; and (ii) $17,075,000 (plus $6,750 per day
for each day from and after March 31, 1998, to and including the Closing
Date) of Debt of QELC to TCW outstanding under the QELC/TCW Credit Agreement,
(c) the conversion of all debt of QELC to TCW outstanding under the QELC/TCW
Credit Agreement which is not assumed by Borrower to common equity of
Borrower, and (d) the merger of MGP into Borrower pursuant to which certain
of MGP's outstanding partnership interests will be canceled and others will
be converted into the right to receive common equity of Borrower, all
pursuant to the Capitalization Documents.
5
<PAGE>
"Change of Control" means that, for any reason, the Darden Family
Members fail to own and control, directly or indirectly, more than fifty
percent (50%) of the outstanding voting power of the issued and outstanding
capital stock of every class of the Borrower.
"Closing Date" means April 9, 1998.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral Assignment" means, collectively, that certain (i) Amended
and Restated Collateral Assignment of Promissory Notes and Contract Rights
dated of even date herewith executed by Borrower in favor of Agent, and (ii)
Collateral Assignment of Promissory Notes and Contract Rights dated of even
date herewith executed by Borrower in favor of Agent, pursuant to which
Borrower assigns to Agent and grants Agent a security interest in certain of
the Section 29 Documents.
"Commitment" means, with respect to any Bank, the commitment of such
Bank to lend its Commitment Percentage of the Total Commitment to Borrower
pursuant to SECTION 3.1 hereof, as such Commitment may be terminated and
reduced from time to time in accordance with the provisions hereof. On the
Closing Date the amount of each Bank's Commitment is the amount set forth
opposite such Bank's name on SCHEDULE 1 hereto; provided, that, after giving
effect to any Assignment and Acceptance Agreement, the Commitment of each
Bank shall be the amount set forth in the Register maintained by Agent
pursuant to SECTION 15.10(b).
"Commitment Percentage" means, with respect to each Bank, the Commitment
Percentage for such Bank set forth on SCHEDULE 1 hereto; provided, that,
after giving effect to any Assignment and Acceptance Agreement, the
Commitment of each Bank shall be the amount set forth in the Register
maintained by Agent pursuant to SECTION 15.10(b).
"Conforming Borrowing Base" has the meaning set forth in SECTION 6.1
hereof.
"Consolidated Current Assets" means, for any Person at any time, the
current assets of such Person and its Consolidated Subsidiaries at such time.
"Consolidated Current Liabilities" means, for any Person at any time,
the current liabilities of such Person and its Consolidated Subsidiaries at
such time, but, in the case of Borrower, excluding current maturities of Long
Term Debt of Borrower and its Consolidated Subsidiaries outstanding at such
time.
"Consolidated Subsidiary" or "Consolidated Subsidiaries" means, for any
Person, any Subsidiary or other entity the accounts of which would be
consolidated with those of such Person in its consolidated financial
statements.
"Consumers Power" means Consumers Power Company, a Michigan corporation.
6
<PAGE>
"Consumers Power Contract" means that certain Gas Purchase Agreement
dated October 1, 1994, by and between Mercury, as seller, and Consumers
Power, as buyer, pursuant to which Consumers Power has agreed to purchase
certain gas owned or controlled by Mercury.
"Continue", "Continuation", and "Continued" shall refer to the
continuation pursuant to SECTION 3.5 hereof of a Eurodollar Loan from one
Interest Period to the next Interest Period.
"Convert", "Conversion", and "Converted" shall refer to a conversion
pursuant to SECTION 3.5 of all or a portion of one Type of Loan into another
Type of Loan.
"Corporate Credit Party" means Mercury, Mercury Production, QELC,
Borrower and each Subsidiary of Borrower.
"Credit Parties" means, collectively, Borrower, each Subsidiary of
Borrower, Mercury, Mercury Production, QELC, each member of the Darden Family
Group, and "Credit Party" means any one of the foregoing.
"Darden Family Group" means, collectively, Frank Darden, Anne Darden
Self, Glenn Darden and Thomas Darden and their respective heirs and estates.
"Darden Family Pledge Agreements" means Pledge Agreements in form and
substance acceptable to Agent to be executed by each member of the Darden
Family Group pursuant to which such member pledges to Agent for the ratable
benefit of the Banks all issued and outstanding capital stock and other
equity interests owned by such member in (a) the Borrower, and (b) MSR.
"Debt" means, for any Person at any time, without duplication, (a) all
obligations of such Person for borrowed money, (b) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments,
(c) all other indebtedness (including capitalized lease obligations, other
than usual and customary oil and gas leases) of such Person on which interest
charges are customarily paid or accrued, (d) all Guarantees by such Person,
(e) the unfunded or unreimbursed portion of all letters of credit issued for
the account of such Person, (f) any amount owed by such Person representing
the deferred purchase price of property or services other than accounts
payable incurred in the ordinary course of business and in accordance with
customary trade terms and which have not been outstanding for more than
ninety (90) days past the invoice date, (g) all obligations of such Person
secured by a Lien on any property or asset owned or held by that Person
regardless of whether the indebtedness secured thereby shall have been
assumed by that Person or is non-recourse to the credit of that Person, and
(h) all liability of such Person as a general partner of a partnership for
obligations of such partnership of the nature described in (a) through (g)
preceding.
"Default" means any condition or event which constitutes an Event of
Default or which with the giving of notice, lapse of time or both would,
unless cured or waived, become an Event of Default.
7
<PAGE>
"Distribution" by any Person, means (a) with respect to any stock issued
by such Person or any partnership, joint venture, limited liability company,
membership or other interest of such Person, the retirement, redemption,
purchase, or other acquisition for value of any such stock or partnership,
joint venture, limited liability company, membership or other interest, (b)
the declaration or payment of any dividend or other distribution on or with
respect to any stock, partnership, joint venture, limited liability company,
membership or other interest of any Person, and (c) any other payment by such
Person with respect to such stock, partnership, joint venture, limited
liability company, membership or other interest of such Person.
"Domestic Business Day" means any day except a Saturday, Sunday or other
day on which national banks in Dallas, Texas, are authorized by Law to close.
"Domestic Lending Office" means, as to each Bank, its office located at
its address identified (a) on SCHEDULE 1 hereto as its Domestic Lending
Office, (b) on the Register (as defined in Section 15.10(b)) as its Domestic
Lending Office, or (c) such other office as such Bank may hereafter designate
as its Domestic Lending Office by notice to Borrower and Agent.
"Eligible Assignee" means (i) a Bank, (ii) an Affiliate of a Bank, and
(iii) any other Person approved by Agent and, unless an Event of Default has
occurred and is continuing at the time any assignment is effected in
accordance with SECTION 15.10, Borrower, such approval not to be unreasonably
withheld or delayed by Borrower and such approval to be deemed given by
Borrower if no objection is received by the assigning Bank and Agent from
Borrower within two (2) Domestic Business Days after notice of such proposed
assignment has been provided by the assigning Bank to Borrower; PROVIDED,
HOWEVER, that neither Borrower nor an Affiliate of Borrower shall qualify as
an Eligible Assignee.
"Environmental Complaint" means any complaint, summons, citation,
notice, directive, order, claim, litigation, investigation, proceeding,
judgment, letter or other communication from any federal, state or municipal
authority or any other party against any Credit Party involving (a) a
Hazardous Discharge from, onto or about any real property owned, leased or
operated at any time by any Credit Party, (b) a Hazardous Discharge caused,
in whole or in part, by any Credit Party or by any Person acting on behalf of
or at the instruction of any Credit Party, or (c) any violation of any
Applicable Environmental Law by any Credit Party.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means any corporation or trade or business under
common control with any Credit Party as determined under section 4001(a)(14)
of ERISA.
"Eurodollar Business Day" means any Domestic Business Day on which
commercial banks are open for international business (including dealings in
dollar deposits) in the applicable eurodollar interbank market.
8
<PAGE>
"Eurodollar Lending Office" means, as to each Bank, its office, branch
or affiliate located at its address identified (a) on SCHEDULE 1 hereto as
its Eurodollar Lending Office, (b) on the Register (as defined in SECTION
15.10(b)) as its Eurodollar Lending Office, or (c) such other office, branch
or affiliate of such Bank as it may hereafter designate as its Eurodollar
Lending Office by notice to Borrower and Agent.
"Eurodollar Loans" means Loans that bear interest at rates based upon
the Adjusted Eurodollar Rate.
"Eurodollar Rate" means, for any Loan which is the subject of a
Eurodollar Tranche for any Interest Period therefor, the rate per annum
(rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on
Telerate Page 3750 (or any successor page) as the London interbank offered
rate for deposits in Dollars at approximately 11:00 a.m. (London time) two
(2) Eurodollar Business Days prior to the first day of such Interest Period
for a term comparable to such Interest Period. If for any reason such rate is
not available, the term "Eurodollar Rate" shall mean, for the principal
amount of the Revolving Loan which is the subject of a Eurodollar Tranche for
any Interest Period therefor, the rate per annum (rounded upwards, if
necessary, to the nearest 1/100 of 1%) appearing on Reuters Screen LIBO Page
as the London interbank offered rate for deposits in Dollars at approximately
11:00 a.m. (London time) two (2) Eurodollar Business Days prior to the first
day of such Interest Period for a term comparable to such Interest Period;
PROVIDED, HOWEVER, if more than one rate is specified on Reuters Screen LIBO
Page, the applicable rate shall be the arithmetic mean of all such rates
(rounded upwards, if necessary, to the nearest 1/100 of 1%).
"Events of Default" has the meaning set forth in SECTION 13.1.
"Exhibit" refers to an exhibit attached to this Agreement and
incorporated herein by reference, unless specifically provided otherwise.
"Existing Credit Agreements" means the Mercury/NationsBank Credit
Agreement, the QELC/NationsBank Credit Agreement and the QELC/TCW Credit
Agreement.
"Facility Guarantees" means (a) Guarantees in form and substance
acceptable to Agent to be executed by Mercury, Mercury Production and QELC in
favor of the Banks pursuant to which Mercury, Mercury Production and QELC
shall guaranty payment and performance of the Obligations, and (b) any
Subsidiary Guaranty which may now or hereafter be executed pursuant to this
Agreement.
"Federal Funds Rate" means, for any day, the rate per annum (rounded
upwards, if necessary, to the nearest 1/100 of 1%) equal to the weighted
average of the rates on overnight federal funds transactions with members of
the Federal Reserve System arranged by federal funds brokers on such day, as
published by the Federal Reserve Bank of New York on the Domestic Business
Day next succeeding such day, provided that (a) if the day for which such
rate is to be determined is not a Domestic Business Day, the Federal Funds
Rate for such day shall be such rate on such transactions on the next
preceding Domestic Business Day as so published on the next succeeding
Domestic
9
<PAGE>
Business Day, and (b) if such rate is not so published on such next
succeeding Domestic Business Day, the Federal Funds Rate for any day shall be
the average rate charged to Agent on such day on such transactions as
determined by Agent.
"Financial Officer" of any Person means its Chief Financial Officer;
provided, that if no Person serves in such capacity, "Financial Officer"
shall mean the highest ranking executive officer of such Person with
responsibility for accounting, financial reporting, cash management and
similar functions.
"Fiscal Quarter" means the three (3) month periods ending on March 31,
June 30, September 30 and December 31 of each Fiscal Year.
"Fiscal Year" means a twelve (12) month period ending December 31.
"GAAP" means those generally accepted accounting principles and
practices which are recognized as such by the American Institute of Certified
Public Accountants acting through its Accounting Principles Board or by the
Financial Accounting Standards Board or through other appropriate boards or
committees thereof and which are consistently applied for all periods after
the date hereof so as to properly reflect the financial condition, and the
results of operations and changes in financial position, of a Person and its
Consolidated Subsidiaries, except that any accounting principle or practice
required to be changed by the said Accounting Principles Board or Financial
Accounting Standards Board (or other appropriate board or committee of the
said Boards) in order to continue as a generally accepted accounting
principle or practice may be so changed.
"Gas Balancing Agreement" means any agreement or arrangement whereby any
Credit Party, or any other party having an interest in any Hydrocarbons to be
produced from Mineral Interests in which any Credit Party owns an interest,
has a right to take more than its proportionate share of production therefrom.
"Governmental Authority" means any court or governmental department,
commission, board, bureau, agency, or instrumentality of any nation or of any
province, state, commonwealth, nation, territory, possession, county, parish,
or municipality, whether now or hereafter constituted or existing.
"Guarantee" by any Person means any obligation, contingent or otherwise,
of such Person directly or indirectly guaranteeing any Debt or other
obligation of any other Person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of
such Person (a) to purchase or pay (or advance or supply funds for the
purchase or payment of) such Debt or other obligation (whether arising by
virtue of partnership arrangements, by agreement to keep-well, to purchase
assets, goods, securities or services, to take-or-pay, or to maintain
financial statement conditions, by "comfort letter" or other similar
undertaking of support or otherwise) or (b) entered into for the purpose of
assuring in any other manner the obligee of such Debt or other obligation of
the payment thereof or to protect such obligee against loss in respect
thereof (in whole
10
<PAGE>
or in part), provided that the term Guarantee shall not include endorsements
for collection or deposit in the ordinary course of business.
"Hazardous Discharge" means any releasing, spilling, leaking, pumping,
pouring, emitting, emptying, discharging, injecting, escaping, leaching,
disposing or dumping of any Hazardous Substance from or onto any real property
owned, leased or operated at any time by any Credit Party or any real property
owned, leased or operated by any other party.
"Hazardous Substance" means any pollutant, toxic substance, hazardous
waste, compound, element or chemical that is defined as hazardous, toxic,
noxious, dangerous or infectious pursuant to any Applicable Environmental Law or
which is otherwise regulated by any Applicable Environmental Law or is required
to be investigated and/or remediated by or pursuant to any Applicable
Environmental Law.
"Hedge Transaction" means any commodity, interest rate, currency or other
swap, option, collar, futures contract or other contract pursuant to which a
Person hedges risks related to commodity prices, interest rates, currency
exchange rates, securities prices or financial market conditions. Hedge
Transactions expressly includes Oil and Gas Hedge Transactions.
"Hydrocarbons" means oil, gas, casinghead gas, drip gasolines, natural
gasoline, condensate, distillate, and all other liquid and gaseous
hydrocarbons produced or to be produced in conjunction therewith, and all
products, by-products and all other substances derived therefrom or the
processing thereof, and all other minerals and substances, including, but not
limited to, sulphur, lignite, coal, uranium, thorium, iron, geothermal steam,
water, carbon dioxide, helium, and any and all other minerals, ores, or
substances of value, and the products and proceeds therefrom, including,
without limitation, all gas resulting from the in-situ combustion of coal or
lignite.
"Initial Reserve Reports" means the following reserve reports which contain
an evaluation of the Borrowing Base Properties: (a) reserve report dated as of
January 1, 1998 prepared by LaRoche Petroleum Consultants, Ltd., (b) reserve
report dated August 1, 1997 prepared by Albrecht & Associates, Inc., (c) reserve
report dated as of January 1, 1998 prepared by S.A. Holditch and Associates,
Inc. (with respect to certain Mineral Interests owned by QELC prior to the
Closing Date), and (d) reserve report dated as of January 1, 1998 prepared by
S.A. Holditch and Associates, Inc. (with respect to certain Mineral Interests
owned by MGP prior to the Closing Date).
"Interest Period" means, with respect to each Eurodollar Borrowing and each
Continuation of Eurodollar Loans and each Conversion of all or part of the Base
Rate Loan to Eurodollar Loans, the period commencing on the date of such
Borrowing, Continuation or Conversion and ending one (1), two (2), or three (3)
months thereafter, as Borrower may elect in the applicable Request for Borrowing
or Notice of Continuation or Conversion; provided that:
(a) any Interest Period which would otherwise end on a day which is
not a Eurodollar Business Day shall be extended to the next succeeding
Eurodollar Business Day unless such Eurodollar Business Day falls in
another calendar month,
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<PAGE>
in which case such Interest Period shall end on the next preceding
Eurodollar Business Day;
(b) any Interest Period which begins on the last Eurodollar Business
Day of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall, subject to clause (c) below, end on the last Eurodollar
Business Day of a calendar month;
(c) if any Interest Period includes a date on which any payment of
principal of the Eurodollar Loans which are the subject of such
Borrowing, Continuation or Conversion is required to be made
hereunder, but does not end on such date, then (i) the principal
amount of such Eurodollar Loans required to be repaid on such date
shall have an Interest Period ending on such date, and (ii) the
remainder of each such Eurodollar Loans shall have an Interest Period
determined as set forth above; and
(d) no Interest Period shall extend past the Termination Date.
"Investment" means, with respect to any Person, any loan, advance,
extension of credit, capital contribution to, investment in or purchase of the
stock or other securities of, or interests in, any other Person; provided, that
"Investment" shall not include current customer and trade accounts which are
payable in accordance with customary trade terms.
"Laws" means all applicable statutes, laws, ordinances, regulations,
orders, writs, injunctions, or decrees of any state, commonwealth, nation,
territory, possession, county, township, parish, municipality or Governmental
Authority.
"Lending Office" means as to any Bank its Domestic Lending Office or its
Eurodollar Lending Office, as the context may require.
"Letters of Credit" means letters of credit issued for the account of
Borrower pursuant to SECTION 3.2(b).
"Letter of Credit Exposure" of any Bank means such Bank's aggregate
participation in the unfunded portion and the funded but unreimbursed portion of
Letters of Credit outstanding at any time.
"Letter of Credit Fee" means, with respect to any Letter of Credit issued
hereunder, a fee in an amount equal to a percentage of the stated amount of such
Letter of Credit (c)alculated on a per annum basis based on the stated term of
such Letter of Credit) determined by reference to the ratio of the Outstanding
Credit to the Conforming Borrowing Base in effect on the date such Letter of
Credit is issued in accordance with the table below:
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<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Ratio of Outstanding Per Annum Letter of
Credit to Conforming Borrowing Base Credit Fee
- -------------------------------------------------------------------------------
<S> <C>
LESS THAN OR EQUAL TO .50 to 1 1.000%
- -------------------------------------------------------------------------------
> .50 to 1 LESS THAN OR EQUAL TO .75 to 1 1.250%
- -------------------------------------------------------------------------------
> .75 to 1 LESS THAN OR EQUAL TO 1.0 to 1 1.500%
- -------------------------------------------------------------------------------
> 1.0 to 1 1.750%
- -------------------------------------------------------------------------------
</TABLE>
; provided, that, the Letter of Credit Fee otherwise in effect pursuant to the
foregoing table will increase by .125% from and after July 31, 1998.
"Letter of Credit Fronting Fee" means, with respect to any Letter of Credit
issued hereunder, a fee equal to one hundred twenty five one thousandths of one
percent (.125%) of the stated amount of such Letter of Credit.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
For the purposes of this Agreement, Borrower and its Subsidiaries shall be
deemed to own subject to a Lien any asset which is acquired or held subject to
the interest of a vendor or lessor under any conditional sale agreement, capital
lease or other title retention agreement relating to such asset.
"Loan Papers" means this Agreement, the Assumption Agreements referenced in
the recitals hereto, the Notes, the Facility Guarantees, the Darden Family
Pledge Agreements, the Mercury Pledge Agreement, all Mortgages now or at any
time hereafter delivered pursuant to SECTION 7.1, the Collateral Assignments,
any Borrower Pledge Agreement (which may hereafter be executed), the Assignment
and Amendment to Mortgages, and all other certificates, documents or instruments
delivered in connection with this Agreement, as the foregoing may be amended
from time to time.
"Long Term Debt" means Debt which matures more than one year from the date
it is incurred, or which can be extended at the option of the obligor(s) to a
date more than one year from the date it is incurred.
"Management Agreement" means a Management Agreement in form and substance
acceptable to Agent to be entered into between Mercury and Borrower pursuant to
which Mercury shall operate all of Borrower's Mineral Interests and provide all
general and administrative services necessary for the operation of Borrower's
business and properties.
"Margin Regulations" means Regulations G, T, U and X of the Board of
Governors of the Federal Reserve System, as in effect from time to time.
"Margin Stock" means "margin stock" as defined in Regulation U.
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<PAGE>
"Material Adverse Change" means any circumstance or event that has had or
would reasonably be expected to have (a) a material and adverse effect on the
financial condition, business operations, prospects, properties or assets of any
Credit Party, (b) an adverse effect on (i) the validity and enforceability of
any Loan Paper, or (ii) the perfection or priority of any Lien purported to be
created thereby, or (c) a material adverse effect on the right or ability of any
Credit Party to fully, completely and timely pay and perform its obligations
under the Loan Papers.
"Material Agreement" means any material written or oral agreement,
contract, commitment, or understanding to which a Person is a party, by which
such Person is directly or indirectly bound, or to which any assets of such
Person may be subject, which is not cancelable by such Person upon notice of
thirty (30) days or less without liability for further payment other than
nominal penalty.
"Material Gas Imbalance" means, with respect to all Gas Balancing
Agreements to which any Credit Party is a party or by which any Mineral Interest
owned by any Credit Party is bound, a net negative gas imbalance to any Credit
Party in excess of $250,000.
"Maximum Lawful Rate" means, for each Bank, the maximum rate (or, if the
context so permits or requires, an amount calculated at such rate) of interest
which, at the time in question would not cause the interest charged on the
portion of the Revolving Loan owed to such Bank at such time to exceed the
maximum amount which such Bank would be allowed to contract for, charge, take,
reserve, or receive under applicable Laws after taking into account, to the
extent required by applicable Laws, any and all relevant payments or charges
under the Loan Papers. To the extent the Laws of the State of Texas are
applicable for purposes of determining the "Maximum Lawful Rate," such term
shall mean the "indicated rate ceiling" from time to time in effect under
Chapter 1D of the Texas Credit Title, Revised Civil Statutes of Texas, 1925, as
amended, substituted for or restated, or, if permitted by applicable Law and
effective upon the giving of the notices required by such Chapter 1D (or
effective upon any other date otherwise specified by applicable Law), the
"quarterly ceiling" or "annualized ceiling" from time to time in effect under
such Chapter 1D, whichever Agent (with the approval of the Required Banks) shall
elect to substitute for the "indicated rate ceiling," and VICE VERSA, each such
substitution to have the effect provided in such Chapter 1D, and Agent (with the
approval of the Required Banks) shall be entitled to make such election from
time to time and one or more times and, without notice to Borrower, to leave any
such substitute rate in effect for subsequent periods in accordance with
subsection (h)(1) of such Chapter 1D.
"Mercury" means Mercury Exploration Company, a Texas corporation.
"Mercury Pledge Agreement" means a Pledge Agreement form and substance
acceptable to Agent to be executed by Mercury in favor of Agent pursuant to
which Mercury will pledge all of the issued and outstanding capital stock of
every class of MSR and Borrower owned by Mercury to Agent to secure the
Obligations.
"Mercury Production" means Mercury Production Company, a Texas corporation.
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<PAGE>
"MGP" means Michigan Gas Partners, Limited Partnership, a Texas limited
partnership.
"Mineral Interests" means rights, estates, titles, and interests in and to
oil and gas leases and any oil and gas interests, royalty and overriding royalty
interest, production payment, net profits interests, oil and gas fee interests,
and other rights therein, including, without limitation, any reversionary or
carried interests relating to the foregoing, together with rights, titles, and
interests created by or arising under the terms of any unitization,
communization, and pooling agreements or arrangements, and all properties,
rights and interests covered thereby, whether arising by contract, by order, or
by operation of Laws, which now or hereafter include all or any part of the
foregoing without limiting the foregoing, in the case of Borrower, "Mineral
Interests" also includes all rights of Borrower under the Section 29 Documents.
"Monthly Date" means the fifteenth day of each calendar month.
"Mortgages" means all mortgages, deeds of trusts, security agreements,
pledge agreements, collateral mortgages, collateral chattel mortgages,
collateral assignments, financing statements and other documents, instruments
and agreements evidencing, creating, perfecting or otherwise establishing the
Liens required by SECTION 7.1 hereof. All Mortgages shall be in form and
substance satisfactory to Agent in its sole discretion.
"MSR" means MSR Exploration Ltd.
"MSR Merger" means the proposed (as of the Closing Date) merger of Borrower
with MSR.
"Non-Recourse Debt" means indebtedness (a) secured solely by the assets
acquired with the proceeds of such indebtedness, (b) with respect to which no
Credit Party shall have any liability for repayment beyond the assets pledged,
and (c) with respect to which Borrower has delivered to Banks an opinion in a
form satisfactory to Required Banks of counsel acceptable to Agent stating that
such indebtedness meets the criteria set forth in (a) and (b) preceding.
"Note" means a promissory note of Borrower payable to the order of a Bank,
in substantially the form of EXHIBIT B hereto, in the amount of such Bank's
Commitment, evidencing the obligation of Borrower to repay to such Bank its
Commitment Percentage of the Revolving Loan, together with all modifications,
extensions, renewals, and rearrangements thereof and "Notes" means all of such
Notes collectively.
"Notice of Continuation or Conversion" has the meaning set forth in SECTION
3.3(c).
"Obligations" means all present and future indebtedness, obligations and
liabilities, and all renewals and extensions thereof, or any part thereof, of
each Credit Party to Agent or to any Bank or any Affiliate of any Bank arising
pursuant to the Loan Papers or pursuant to any Hedge Transaction entered into
with any Bank or any Affiliate of any Bank, and all interest accrued thereon and
costs, expenses, and attorneys' fees incurred in the enforcement or collection
thereof, regardless
15
<PAGE>
of whether such indebtedness, obligations and liabilities are direct,
indirect, fixed, contingent, liquidated, unliquidated, joint, several or
joint and several.
"Oil & Gas Hedge Transaction" means a Hedge Transaction pursuant to which
any Person hedges the price to be received by it for future production of
Hydrocarbons.
"Outstanding Credit" means, on any date, the sum of (a) the aggregate
outstanding Letter of Credit Exposure on such date, including the Letter of
Credit Exposure attributable to Letters of Credit to be issued on such date,
plus (b) the aggregate outstanding principal balance of the Revolving Loan on
such date, including the amount of any Borrowing to be made on such date.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Permitted Encumbrances" means with respect to any asset:
(a) Liens (if any) securing the Notes in favor of Banks;
(b) Minor defects in title which do not secure the payment of money
and otherwise have no material adverse effect on the value or the operation of
the subject property, and for the purposes of this Agreement, a minor defect in
title shall include, but not be limited to, easements, rights-of-way,
servitudes, permits, surface leases and other similar rights in respect of
surface operations, and easements for pipelines, streets, alleys, highways,
telephone lines, power lines, railways and other easements and rights-of-way,
on, over or in respect of any of the properties of any Credit Party that are
customarily granted in the oil and gas industry;
(c) Inchoate statutory or operators' liens securing obligations for
labor, services, materials and supplies furnished to Mineral Interests which are
not delinquent (except to the extent permitted by SECTION 10.7);
(d) Mechanic's, materialmen's, warehouseman's, journeyman's and
carrier's liens and other similar liens arising by operation of Law in the
ordinary course of business which are not delinquent (except to the extent
permitted by SECTION 10.7);
(e) Liens for Taxes or assessments not yet due or not yet delinquent,
or, if delinquent, that are being contested in good faith in the normal course
of business by appropriate action, as permitted by SECTION 10.7;
(f) Lease burdens payable to third parties which are deducted in the
calculation of discounted present value in the Reserve Report including, without
limitation, any royalty, overriding royalty, net profits interest, production
payment, carried interest or reversionary working interest;
16
<PAGE>
(g) the Section 29 Mortgages; provided that such mortgages are
subordinated to all Liens securing the Obligations; and
(h) the TCW Royalty Documents.
"Permitted Investments" means (a) readily marketable direct obligations of
the United States of America (or investments in mutual funds or similar funds
which invest solely in such obligations), (b) fully insured time deposits and
certificates of deposit with maturities of one year or less of any commercial
bank operating in the United States having capital and surplus in excess of
$500,000,000, (c) commercial paper of a domestic issuer if at the time of
purchase such paper is rated in one of the two highest ratings categories of
Standard and Poor's Corporation or Moody's Investors Service, (d) Investments
described on SCHEDULE 3 hereto, and (e) other Investments; provided that, the
aggregate amount of all other Investments made pursuant to this clause (e)
outstanding at any time shall not exceed $500,000 (measured on a cost basis).
"Person" means an individual, a corporation, a partnership, an association,
a trust or any other entity or organization, including a Government Authority.
"Plan" means an employee benefit plan within the meaning of section 3(3) of
ERISA, and any other similar plan, policy or arrangement, including an
employment contract, whether formal or informal and whether legally binding or
not, under which any Credit Party or an ERISA Affiliate of a Credit Party has
any current or future obligation or liability or under which any present or
former employee of any Credit Party or an ERISA Affiliate of a Credit Party, or
such present or former employee's dependents or beneficiaries, has any current
or future right to benefits resulting from the present or former employee's
employment relationship with any Credit Party or an ERISA Affiliate of a Credit
Party.
"Prime Rate" means the per annum rate of interest established from time to
time by Agent as its prime rate, which rate may not be the lowest rate of
interest charged by Agent to its customers.
"Property Description" means the legal description of Mineral Interests
attached to the Certificate of Ownership Interest.
"Proved Mineral Interests" means, collectively, Proved Producing Mineral
Interests, Proved Nonproducing Mineral Interests, and Proved Undeveloped Mineral
Interests.
"Proved Nonproducing Mineral Interests" means all Mineral Interests which
constitute proved developed nonproducing reserves.
"Proved Producing Mineral Interests" means all Mineral Interests which
constitute proved developed producing reserves.
"Proved Undeveloped Mineral Interests" means all Mineral Interests which
constitute proved undeveloped reserves.
1
<PAGE>
"Quarterly Date" means the last day of each March, June, September and
December.
"QELC" means Quicksilver Energy, L.C., a Michigan limited liability
company.
"QELC/NationsBank Credit Agreement" has the meaning assigned to such term
in the recitals hereto.
"QELC Pledge Agreement" means a Pledge Agreement in form and substance
acceptable to Agent to be executed by QELC in favor of Agent pursuant to which
QELC will pledge all of the issued and outstanding capital stock of every class
of Borrower owned by QELC to Agent to secured the Obligations.
"QELC/TCW Credit Agreement" has the meaning assigned to such term in the
recitals hereto.
"Recognized Value" means, with respect to oil and gas properties, the
pre-tax value of such properties determined in accordance with Financial
Accounting Standards Board Statement 69, generally known as the "standardized
measure of discounted cash flow".
"Redetermination" means any redetermination of the Borrowing Base pursuant
to SECTION 6.2.
"Regulation U" means Regulation U of the Board of Governors of the Federal
Reserve System, 12 C.F.R. Part 221, as in effect from time to time.
"Request for Borrowing" has the meaning set forth in SECTION 3.2(d).
"Request for Letter of Credit" has the meaning set forth in SECTION 3.2(e).
"Required Banks" means Banks holding at least sixty-six and two-thirds
percent (66 2/3%) of the Total Commitment.
"Reserve Report" means an unsuperseded engineering analysis of the Mineral
Interests owned by Borrower in form and substance reasonably acceptable to the
Required Banks, prepared by the Approved Petroleum Engineer in accordance with
customary and prudent practices in the petroleum engineering industry and
Financial Accounting Standards Board Statement 69. Until superseded, Reserve
Report means the Initial Reserve Reports, collectively.
"Reserve Requirement" means, at any time, the maximum rate at which
reserves (including, without limitation, any marginal, special, supplemental, or
emergency reserves) are required to be maintained under regulations issued from
time to time by the Board of Governors of the Federal Reserve System (or any
successor) by member banks of the Federal Reserve System against in the case of
Eurodollar Loans, "Eurocurrency liabilities" (as such term is used in Regulation
D). Without limiting the effect of the foregoing, the Reserve Requirement shall
reflect any other reserves required
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<PAGE>
to be maintained by such member banks with respect to (i) any category of
liabilities which includes deposits by reference to which the Adjusted
Eurodollar Rate is to be determined, or (ii) any category of extensions of
credit or other assets which include Eurodollar Loans. The Adjusted
Eurodollar Rate shall be adjusted automatically on and as of the effective
date of any change in the Reserve Requirement.
"Restricted Payment" means, with respect to any Person, (a) any
Distribution by such Person, or (b) the retirement, redemption or prepayment
prior to scheduled maturity by such Person or any Affiliate of such Person of
any Debt of such Person.
"Revolving Loan" means the revolving credit loan in an amount outstanding
at any time not to exceed the amount of the Total Commitment then in effect less
the amount of the Letter of Credit Exposure then outstanding to be made by Banks
to Borrower in accordance with SECTION 3.1 hereof. The Revolving Loan may be
comprised of the Base Rate Loan and one or more Eurodollar Loans as Borrower may
select in a Request for Borrowing or a Notice of Continuation and Conversion.
"Schedule" means a "schedule" attached to this Agreement and incorporated
herein by reference, unless specifically indicated otherwise.
"Section" refers to a "section" or "subsection" of this Agreement unless
specifically indicated otherwise.
"Section 29 Documents" means each of the following documents, instruments
and agreements:
(a) Assignment, dated as of December 1, 1997, by and between Mercury,
as assignor, and MA Gas, LLC ("MAG"), as assignee, and recorded in the
county records of (i) Antrim County, Michigan, December 23, 1997, under
Liber 477, Page 1232, (ii) Crawford County, Michigan, December 23, 1997,
under Liber 444, Page 01, (iii) Montmorency County, Michigan, December 22,
1997, under Liber 405, Page 01, and (iv) Otsego County, Michigan, December
22, 1997, under Liber 662, Page 579;
(b) Conveyance of Production Payment, dated as of December 1, 1997,
by and between MAG, as assignor, and Mercury, as assignee, and recorded in
the county records of (i) Antrim County, Michigan, December 23, 1997, under
Liber 477, Page 1273, (ii) Crawford County, Michigan, December 23, 1997,
under Liber 444, Page 42, (iii) Montmorency County, Michigan, December 22,
1997, under Liber 405, Page 42, and (iv) Otsego County, Michigan, December
22, 1997, under Liber 662, Page 620;
(c) Mortgage, dated as of December 1, 1997, by and between MAG, as
mortgagor, and Mercury, as mortgagee, and recorded in the county records of
(i) Antrim County, Michigan, December 23, 1997, under Liber 477, Page 1413,
(ii) Crawford County, Michigan, December 23, 1997, under Liber 444, Page
182, (iii) Montmorency County,
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<PAGE>
Michigan, December 22, 1997, under Liber 134, Page 528, and (iv) Otsego
County, Michigan, December 22, 1997, under Liber 662, Page 760;
(d) Assignment, dated as of December 1, 1997 by and between MGP, as
assignor, and MGP Gas, L.L.C. ("MGPG"), as assignee, and recorded in the
county records of (i) Antrim County, Michigan, December 23, 1997, under
Liber 478, Page 1, and (ii) Otsego County, Michigan, December 22, 1997,
under Liber 662, Page 802;
(e) Conveyance of Production Payment, dated as of December 1, 1997,
by and between MGPG, as assignor, and MGP, as assignee, and recorded in the
county records of (i) Antrim County, Michigan, December 23, 1997, under
Liber 478, Page 9, and (ii) Otsego County, Michigan, December 22, 1997,
under Liber 662, Page 810;
(f) Mortgage, dated as of December 1, 1997, by and between MGPG, as
mortgagor, and MGP, as mortgagee, and recorded in the county records of (i)
Antrim County, Michigan, December 23, 1997, under Liber 478, Page 37, and
(ii) Otsego County, Michigan, December 22, 1997, under Liber 662, Page 838;
(g) Purchase and Sale Agreement, dated as of December 1, 1997, by and
between Mercury, as Seller, and MAG, as buyer;
(h) Credit Payment Note, dated December 1, 1997, executed by MAG, as
maker, payable to the order of Mercury, as payee;
(i) Fixed Payment Note, dated December 1, 1997, executed by MAG, as
maker, payable to the order of Mercury, as payee, in the original principal
amount of $5,092,721;
(j) Assignment of Enforcement Rights, dated effective December 1,
1997, by and between MAG and Mercury, and acknowledged and consented to by
State Street and Antrim;
(k) Management Agreement, dated as of December 1, 1997, by and
between MAG and Mercury, as manager;
(l) Purchase and Sale Agreement, dated as of December 1, 1997, by and
between MGP, as seller, and MGPG, as buyer;
(m) Credit Payment Note, dated December 1, 1997, executed by MGPG, as
maker, payable to the order of MGP, as payee;
(n) Fixed Payment Note, dated December 1, 1997, executed by MGPG, as
maker, payable to the order of MGP, as payee, in the original principal
amount of $2,017,373;
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<PAGE>
(o) Assignment of Enforcement Rights, dated effective December 1,
1997, by and between MGPG and MGP, and acknowledged and consented to by
State Street and Antrim; and
(p) Management Agreement, dated as of December 1, 1997, by and
between MGPG and MGP, as manager.
"Section 29 Mortgages" means each of the following documents, instruments
and agreements:
(a) Mortgage, dated as of December 1, 1997, by and between Mercury,
as mortgagor, and MAG, as mortgagee, and recorded in the county records of
(i) Antrim County, Michigan, December 23, 1997, under Liber 477, Page 1370,
(ii) Crawford County, Michigan, December 23, 1997, under Liber 444, Page
139; (iii) of Montmorency County, Michigan, December 22, 1997, under Liber
134, Page 485; and (iv) Otsego County, Michigan, December 22, 1997, under
Liber 662, Page 717; and
(b) Mortgage, dated as of December 1, 1997, by and between MGPG, as
mortgagor, and MGP, as mortgagee, and recorded in the county records of (i)
Antrim County, Michigan, December 23, 1997, under Liber 478, Page 37; and
(ii) Otsego County, Michigan, December 22, 1997, under Liber 662, Page 838.
"Subsidiary" means, for any Person, any corporation or other entity of
which securities or other ownership interests having ordinary voting power to
elect a majority of the board of directors or other persons performing similar
functions (including that of a general partner) are at the time directly or
indirectly owned, collectively, by such Person and any Subsidiaries of such
Person. The term Subsidiary shall include Subsidiaries of Subsidiaries (and so
on).
"Subsidiary Guaranty" means a Guaranty substantially in the form of EXHIBIT
C hereto to be executed by each existing and future Subsidiary of Borrower in
favor of the Banks pursuant to which each Subsidiary of Borrower guaranties
payment and performance in full of the Obligations.
"Taxes" means all taxes, assessments, filing or other fees, levies,
imposts, duties, deductions, withholdings, stamp taxes, capital transaction
taxes, foreign exchange taxes or other charges, or other charges of any nature
whatsoever, from time to time or at any time imposed by Law or any Governmental
Authority. "Tax" means any one of the foregoing.
"TCW" means, collectively, (a) Trust Company of the West, acting in its
capacity as SubCustodian for Mellon Bank for the benefit of Account No. CPFF
869-3062, and (b) TCW Asset Management Company, as Agent and Collateral Agent.
"TCW Royalty Documents" means, collectively, (a) the Royalty Agreement
dated November 14, 1996 by and among Borrower and TCW Portfolio No. 1555 DR V
Sub-Custody Partnership, L.P., as amended by a First Amendment to Royalty
Agreement dated as of April 9, 1998, (b) the
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<PAGE>
Conveyance of Adjustable Overriding Royalty Interest dated November 14, 1996
granted by Borrower to TCW Portfolio No. 1555 DR V Sub-Custody Partnership,
L.P., as amended by an Amendment to Conveyance of Overriding Royalty Interest
dated as of April 9, 1998.
"TCW Put" means the right of TCW pursuant to that certain Put/Call
Agreement dated April 9, 1998 by and between TCW and Mercury to require Mercury
to repurchase certain shares of common stock of Borrower held by TCW.
"Termination Date" means the earlier of (a) January 31, 1999, or (b) the
consummation of the MSR Merger.
"Total Commitment" means the Commitments of all Banks in an initial
aggregate amount of $100,000,000 as such amount shall be reduced from time to
time pursuant to SECTION 3.7.
"Type" means with reference to a Loan, the characterization of such Loan as
an Adjusted Base Rate Loan or a Eurodollar Loan based on the method by which the
accrual of interest on such Tranche is calculated.
"Unused Commitment Fee Percentage" means, for any day, the percentage
determined pursuant to the table below based on the ratio of the Outstanding
Credit on such date to the Conforming Borrowing Base in effect on such date:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Ratio of Outstanding Unused Commitment
Credit to Conforming Borrowing Base Fee Percentage
- -------------------------------------------------------------------------------
<S> <C>
LESS THAN OR EQUAL TO 1.0 to 1 .375%
- -------------------------------------------------------------------------------
> 1.0 to 1 .45%
- -------------------------------------------------------------------------------
</TABLE>
SECTION 2.2. ACCOUNTING TERMS AND DETERMINATIONS. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial statements
required to be delivered hereunder shall be prepared in accordance with GAAP,
applied on a basis consistent with the most recent audited consolidated
financial statements of Borrower and its Consolidated Subsidiaries delivered to
Banks prior to the date hereof except for changes concurred in by Borrower's
independent certified public accountants and which are disclosed to Agent on the
next date on which financial statements are required to be delivered to Banks
pursuant to SECTION 10.1.
SECTION 2.3. PETROLEUM TERMS. As used herein, the terms "proved
reserves," "proved developed reserves," "proved developed producing reserves,"
"proved developed nonproducing reserves," and "proved undeveloped reserves" have
the meaning given such terms from time to time and at the time in question by
the Society of Petroleum Engineers of the American Institute of Mining
Engineers.
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<PAGE>
SECTION 2.4. MONEY. Unless expressly stipulated otherwise, all references
herein to "dollars," "money," "funds," "payments," "prepayments" or other
similar financial or monetary terms, are references to currency of the United
States of America.
ARTICLE III
THE CREDIT
SECTION 3.1. COMMITMENTS. (a) Each Bank severally agrees, subject to
SECTIONS 3.1(c), 8.1 and 8.2 and the other terms and conditions set forth in
this Agreement, to lend to Borrower from time to time prior to the Termination
Date amounts not to exceed in the aggregate at any one time outstanding, the
amount of such Bank's Commitment reduced by an amount equal to such Bank's
Letter of Credit Exposure. Each Borrowing shall be in an aggregate principal
amount of $1,000,000 or any larger integral multiple of $100,000 (except that
any Base Rate Borrowing may be in an amount equal to the Availability at such
time), and (ii) shall be made from the Banks ratably in accordance with their
respective Commitment Percentages. Subject to the foregoing limitations and the
other provisions of this Agreement, prior to the Termination Date Borrower may
borrow under this SECTION 3.1(a), repay amounts borrowed and request new
Borrowings to be made under this SECTION 3.1.
(b) Agent will, from time to time prior to the Termination Date, upon
request by Borrower, issue Letters of Credit for the account of Borrower, so
long as (i) the sum of (a) the total Letter of Credit Exposure then existing,
and (b) the amount of the requested Letter of Credit does not exceed ten percent
(10%) of the Borrowing Base, and (ii) Borrower would be entitled to a Borrowing
under SECTIONS 3.1(a) and 3.1(c) in the amount of the requested Letter of
Credit. Not less than three (3) Domestic Business Days prior to the requested
date of issuance of any such Letter of Credit, Borrower shall execute and
deliver to Agent, Agent's customary letter of credit application. Each Letter
of Credit shall be in the minimum amount of $10,000 and shall be in form and
substance acceptable to Agent. No Letter of Credit shall have an expiration
date later than the Termination Date. Upon the date of issuance of a Letter of
Credit, Agent shall be deemed to have sold to each other Bank, and each other
Bank shall be deemed to have unconditionally and irrevocably purchased from
Agent, a non recourse participation in the related Letter of Credit and Letter
of Credit Exposure equal to such Bank's Commitment Percentage of such Letter of
Credit and Letter of Credit Exposure. Upon request of any Bank, but not less
often than quarterly, Agent shall provide notice to each Bank by telephone,
teletransmission or telex setting forth each Letter of Credit issued and
outstanding pursuant to the terms hereof and specifying the Agent, beneficiary
and expiration date of each such Letter of Credit, each Bank's percentage of
each such Letter of Credit and the actual dollar amount of each Bank's
participation held by the Agent(s) thereof for such Bank's account and risk. At
the time of issuance of each Letter of Credit, Borrower shall pay to Agent in
respect of such Letter of Credit (a) the applicable Letter of Credit Fee, and
(b) the applicable Letter of Credit Fronting Fee. Agent shall distribute the
Letter of Credit Fee payable upon the issuance of each Letter of Credit to Banks
in accordance with their respective Commitment Percentages, and Agent shall
distribute the Letter of Credit Fronting Fee to the Agent of such Letter of
Credit for its own account.
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<PAGE>
Immediately upon the occurrence of an Event of Default Borrower shall
deposit with Agent cash in such amounts as Agent may request, up to a maximum
amount equal to the aggregate existing Letter of Credit Exposure of all Banks.
Any amounts so deposited shall be held by Agent for the ratable benefit of all
Banks as security for the outstanding Letter of Credit Exposure and the other
Obligations, and Borrower will, in connection therewith, execute and deliver
such security agreements in form and substance satisfactory to Agent which it
may, in its discretion, require. As drafts or demands for payment are presented
under any Letter of Credit, Agent shall apply such cash to satisfy such drafts
or demands. When all Letters of Credit have expired and the Obligations have
been repaid in full (and no Bank has any obligation to lend or issue Letters of
Credit hereunder) or such Event of Default has been cured to the satisfaction of
Required Banks, Agent shall release to Borrower any remaining cash deposited
under this SECTION 3.1(b). Whenever Borrower is required to make deposits under
this SECTION 3.1(b) and fails to do so on the day such deposit is due, Agent or
any Bank may, without notice to Borrower, make such deposit (whether by
application of proceeds of any collateral for the Obligation, by transfers from
other accounts maintained with any Bank or otherwise) using any funds then
available to any Bank of any Credit Party or any other party liable for
repayment of the Obligations.
Notwithstanding anything to the contrary contained herein, Borrower hereby
agrees to reimburse Agent immediately upon demand by Agent, and in immediately
available funds, for any payment or disbursement made by Agent under any Letter
of Credit issued by it. Payment shall be made by Borrower with interest on the
amount so paid or disbursed by Agent from and including the date payment is made
under any Letter of Credit to and including the date of payment, at the lesser
of (i) the Maximum Lawful Rate, or (ii) the sum of (a) three percent (3%), plus
(b) the Base Rate in effect from day to day. The obligations of Borrower under
this paragraph will continue until all Letters of Credit have expired and all
reimbursement obligations with respect thereto have been paid in full by
Borrower and until all other Obligations shall have been paid in full.
Borrower shall be obligated to reimburse Agent upon demand for all amounts
paid under Letters of Credit as set forth in the immediately preceding paragraph
hereof; provided, however, if Borrower for any reason fails to reimburse Agent
in full upon demand, Banks shall reimburse Agent in accordance with each Banks'
Commitment Percentage for amounts due and unpaid from Borrower as set forth
hereinbelow; provided, however, that no such reimbursement made by Banks shall
discharge Borrower's obligations to reimburse Agent. All reimbursement amounts
payable by any Bank under this SECTION 3.1(b) shall include interest thereon at
the Federal Funds Rate, from the date of the payment of such amounts by Agent to
the date of reimbursement by such Bank. No Bank shall be liable for the
performance or nonperformance of the obligations of any other Bank under this
paragraph. The reimbursement obligations of Banks under this paragraph shall
continue after the Termination Date and shall survive termination of this
Agreement and the other Loan Papers.
Borrower shall indemnify and hold Agent and each Bank, and their respective
officers, directors, representatives and employees harmless from loss for any
claim, demand or liability which may be asserted against any or such indemnified
party in connection with actions taken under Letters of Credit or in connection
therewith (including losses resulting from the negligence of any or such
indemnified party), and shall pay each indemnified party for reasonable fees of
attorneys and legal
24
<PAGE>
costs paid or incurred by each indemnified party in connection with any
matter related to Letters of Credit, except for losses and liabilities
incurred as a direct result of the gross negligence or wilful misconduct of
such indemnified party, IT BEING THE EXPRESS INTENTION OF THE PARTIES THAT
EACH INDEMNIFIED PARTY SHALL BE INDEMNIFIED FOR THE CONSEQUENCES OF ITS OWN
ORDINARY NEGLIGENCE. If Borrower for any reason fails to indemnify or pay
such indemnified party as set forth herein in full, Banks shall indemnify and
pay such indemnified party upon demand, in accordance with each Bank's
Commitment Percentage of such amounts due and unpaid from Borrower. The
provisions of this paragraph shall survive the termination of this Agreement.
Agent does not make any representation or warranty, and does not assume any
responsibility with respect to the validity, legality, sufficiency or
enforceability of any letter of credit application executed and delivered in
connection with any Letter of Credit issued hereunder or any document relative
thereto or to the collectibility thereunder. Agent does not assume any
responsibility for the financial condition of Borrower or for the performance of
any obligation of Borrower. Agent may use its discretion with respect to
exercising or refraining from exercising any rights, or taking or refraining
from taking any action which may be vested in it or which it may be entitled to
take or assert with respect to any Letter of Credit or any Letter of Credit
application. FURTHERMORE, EXCEPT AS SET FORTH HEREIN, AGENT SHALL BE UNDER NO
LIABILITY TO ANY BANK, WITH RESPECT TO ANYTHING AGENT MAY DO OR REFRAIN FROM
DOING IN THE EXERCISE OF ITS JUDGMENT, THE SOLE LIABILITY AND RESPONSIBILITY OF
AGENT BEING TO HANDLE EACH BANK'S SHARE ON AS FAVORABLE A BASIS AS AGENT
HANDLES ITS OWN SHARE. AGENT SHALL NOT HAVE ANY DUTIES OR RESPONSIBILITIES
EXCEPT THOSE EXPRESSLY SET FORTH HEREIN AND THOSE DUTIES AND LIABILITIES SHALL
BE SUBJECT TO THE LIMITATIONS AND QUALIFICATIONS SET FORTH HEREIN. FURTHERMORE,
NEITHER AGENT, NOR ANY OF ITS DIRECTORS, OFFICERS, OR EMPLOYEES SHALL BE LIABLE
FOR ANY ACTION TAKEN OR OMITTED (WHETHER OR NOT SUCH ACTION TAKEN OR OMITTED IS
EXPRESSLY SET FORTH HEREIN) UNDER OR IN CONNECTION HEREWITH OR UNDER ANY OTHER
INSTRUMENT OR DOCUMENT IN CONNECTION HEREWITH, EXCEPT FOR GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT. Agent shall not incur any liability to any Bank, Borrower,
or any Affiliate of any Bank, or Borrower, in acting upon any notice, document,
order, consent, certificate, warrant or other instrument reasonably believed by
Agent to be genuine or authentic and to be signed by the proper party.
(c) No Bank will be obligated to lend to Borrower hereunder or incur
Letter of Credit Exposure, and Borrower shall not be entitled to borrow
hereunder or obtain Letters of Credit hereunder in an amount which would cause
the Outstanding Credit to exceed the Borrowing Base then in effect. No Bank
shall be obligated to fund Borrowings hereunder and Borrower shall not be
entitled to Borrowings hereunder during the existence of a Borrowing Base
Deficiency.
25
<PAGE>
(d) In order to request any Borrowing under this SECTION 3.1,
Borrower shall hand deliver, telex or telecopy to Agent a duly completed
Request for Borrowing (herein so called) prior to 12:00 noon (Dallas, Texas
time), (i) at least one (1) Domestic Business Day before the Borrowing Date
specified for a proposed Base Rate Borrowing, and (ii) at least three (3)
Eurodollar Business Days before the Borrowing Date of a proposed Eurodollar
Borrowing. Each such Request for Borrowing shall be substantially in the
form of EXHIBIT D hereto, and shall specify:
(i) the Borrowing Date of such Borrowing, which shall be
a Domestic Business Day in the case of a Base Rate
Borrowing or a Eurodollar Business Day in the case of a
Eurodollar Borrowing;
(ii) the aggregate amount of such Borrowing;
(iii) whether such Borrowing is to be a Base Rate Borrowing
or a Eurodollar Borrowing; and
(iv) in the case of a Eurodollar Borrowing, the duration
of the Interest Period applicable thereto, subject to the
provisions of the definition of Interest Period.
Upon receipt of a Request for Borrowing, Agent shall promptly notify each
Bank of the contents thereof and the amount of the Borrowing to be loaned by
such Bank pursuant thereto, and such Request for Borrowing shall not
thereafter be revocable by Borrower. Not later than 12:00 noon (Dallas,
Texas time) on the date of each Borrowing, each Bank shall make available its
Commitment Percentage of such Borrowing, in Federal or other funds
immediately available in Dallas, Texas to Agent at its address set forth on
SCHEDULE 1 hereto. Notwithstanding the foregoing, if Borrower delivers to
Agent a Request for Borrowing prior to 10:00 a.m. (Dallas, Texas time) on a
Domestic Business Day requesting a Base Rate Borrowing on such day, each Bank
shall use its best efforts to make available to Agent its Commitment
Percentage of such Borrowing by 1:00 p.m. (Dallas, Texas time) on the same
day. Unless Agent determines that any applicable condition specified in
SECTION 8.2 has not been satisfied, Agent will make the funds so received
from Banks available to Borrower at Agent's aforesaid address.
(e) In order to request any Letter of Credit hereunder, Borrower
shall hand deliver, telex or telecopy to Agent a duly completed Request for
Letter of Credit (herein so called) prior to 12:00 noon (Dallas, Texas time)
at least three (3) Domestic Business Days before the date specified for
issuance of such Letter of Credit. Each Request for Letter of Credit shall
be substantially in the form of EXHIBIT E hereto, shall be accompanied by the
Agent's duly completed and executed letter of credit application and
agreement and shall specify:
(i) the requested date for issuance of such Letter of Credit;
26
<PAGE>
(ii) the terms of such requested Letter of Credit,
including the name and address of the beneficiary, the
stated amount, the expiration date and the conditions
under which drafts under such Letter of Credit are to be
available; and
(iii) the purpose of such Letter of Credit.
Upon receipt of a Request for Letter of Credit, Agent shall promptly notify
each Bank of the contents thereof, including the amount of the requested
Letter of Credit, and such Request for Letter of Credit shall not thereafter
be revocable by Borrower. No later than 12:00 noon (Dallas, Texas time) on
the date each Letter of Credit is requested, unless Agent determines that any
applicable condition precedent set forth in SECTION 8.2 hereof has not been
satisfied, the Agent will issue and deliver such Letter of Credit pursuant to
the instructions of Borrower.
SECTION 3.2. NOTES. Each Bank's Commitment Percentage of the Revolving
Loan shall be evidenced by a single Note payable to the order of such Bank in
an amount equal to such Bank's Commitment.
SECTION 3.3. INTEREST RATES; PAYMENTS. (a) The principal amount of
the Base Rate Loan shall bear interest at a rate per annum equal to the Base
Rate in effect from day to day; PROVIDED THAT in no event shall the rate
charged hereunder or under the Notes exceed the Maximum Lawful Rate.
Interest on the Base Rate Loan shall be payable as it accrues on each
Quarterly Date, and on the Termination Date.
(b) The principal amount of each Eurodollar Loan shall bear interest
for the Interest Period applicable thereto at a rate per annum equal to the
sum of the Applicable Margin plus the applicable Adjusted Eurodollar Rate;
PROVIDED THAT in no event shall the rate charged hereunder or under the Notes
exceed the Maximum Lawful Rate. Interest on any Eurodollar Loan shall be
payable on the last day of the Interest Period applicable thereto.
(c) So long as no Default or Event of Default shall be continuing,
subject to the provisions of this SECTION 3.3, Borrower shall have the option
of having all or any portion of the principal outstanding under the Revolving
Loan be a Base Rate Loan or one (1) or more Eurodollar Loans, which shall
bear interest at rates determined by reference to the Base Rate and the
Adjusted Eurodollar Rate, respectively; provided, that each Eurodollar Loan
shall be in a minimum amount of $2,000,000 and shall be in an amount which is
an integral multiple of $500,000. Prior to the termination of each Interest
Period with respect to each Eurodollar Loan, Borrower shall give written
notice (a "NOTICE OF CONTINUATION OR CONVERSION") in the form of EXHIBIT F
attached hereto to Agent of the Type of Loan which shall be applicable to the
principal of such Eurodollar Loan upon the expiration of such Interest
Period. Such Notice of Continuation or Conversion shall be given to Agent at
least one (1) Domestic Business Day, in the case of a Base Rate Loan
selection and three (3) Eurodollar Business Days, in the case of a Eurodollar
Loan selection, prior to the termination of the Interest Period then
expiring. If Borrower shall specify a Eurodollar Loan, such Notice of
Continuation or Conversion shall also specify the length of the succeeding
Interest Period (subject to the definition of such term) selected by
Borrower. Each Notice of Continuation or Conversion
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<PAGE>
shall be irrevocable and effective upon notification thereof to Agent. If
the required Notice of Continuation or Conversion shall not have been timely
received by Agent, Borrower shall be deemed to have elected that the
principal of the Eurodollar Loan subject to the Interest Period then expiring
be a part of the Base Rate Loan upon the expiration of such Interest Period
and Borrower will be deemed to have given Agent notice of such election.
Subject to the limitations set forth in this SECTION 3.3(c) on the amount and
number of Eurodollar Loans, Borrower shall have the right to convert (a
"CONVERSION") all or any part of the Base Rate Loan to a Eurodollar Loan by
giving Agent a Notice of Continuation or Conversion of such election at
least three (3) Eurodollar Business Days prior to the date on which Borrower
elects to make such conversion (a "CONVERSION DATE"). The Conversion Date
selected by Borrower shall be a Eurodollar Business Day. Notwithstanding
anything in this SECTION 3.3 to the contrary, no portion of the principal of
the Base Rate Loan may be Converted to a Eurodollar Loan and no Eurodollar
Loan may be Continued as such when any Default or Event of Default has
occurred and is continuing, but each such Eurodollar Loan shall be
automatically Converted to the Base Rate Loan on the last day of each
applicable Interest Period. Borrower shall not be permitted to have more
than five (5) Eurodollar Loans in effect at any time.
(d) Notwithstanding anything to the contrary set forth in SECTION
3.3(a) OR (b) above, all overdue principal of and, to the extent permitted by
law, overdue interest, shall bear interest from the date due, payable on
demand, for each day until paid at a rate per annum equal to the lesser of
(a) the sum of (i) three percent (3%), plus (ii) the Base Rate in effect from
day to day, and (b) the Maximum Lawful Rate.
(e) Agent shall determine each interest rate applicable to the
Revolving Loan in accordance with the terms hereof. Agent shall promptly
notify Borrower and Banks by telex, telecopy or cable of each rate of
interest so determined, and its determination thereof shall be conclusive in
the absence of manifest error.
(f) Notwithstanding the foregoing, if at any time the rate of interest
calculated with reference to the Base Rate or the Eurodollar Rate hereunder
(the "contract rate") is limited to the Maximum Lawful Rate, any subsequent
reductions in the contract rate shall not reduce the rate of interest on the
Revolving Loan below the Maximum Lawful Rate until the total amount of
interest accrued equals the amount of interest which would have accrued if
the contract rate had at all times been in effect. In the event that at
maturity (stated or by acceleration), or at final payment of any Note, the
total amount of interest paid or accrued on such Note is less than the amount
of interest which would have accrued if the contract rate had at all times
been in effect with respect thereto, then at such time, to the extent
permitted by law, Borrower shall pay to the holder of such Note an amount
equal to the difference between (i) the lesser of the amount of interest
which would have accrued if the contract rate had at all times been in effect
and the amount of interest which would have accrued if the Maximum Lawful
Rate had at all times been in effect, and (ii) the amount of interest
actually paid on such Note.
(g) Interest payable hereunder on each Eurodollar Loan shall be
computed based on the number of actual days elapsed assuming that each
calendar year consisted of 360 days. Interest
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payable hereunder on the Base Rate Loan shall be computed based on the actual
number of days elapsed assuming that each calendar year consisted of 365 days.
SECTION 3.4. MANDATORY PREPAYMENTS RESULTING FROM BORROWING BASE
DEFICIENCY. In the event a Borrowing Base Deficiency exists after giving
effect to any Redetermination, Borrower shall eliminate such Borrowing Base
Deficiency by making a single mandatory prepayment of principal on the
Revolving Loan in an amount equal to the entire amount of such Borrowing Base
Deficiency on the first Domestic Business Day following the date on which
such Borrowing Base Deficiency is determined to exist. If a Borrowing Base
Deficiency cannot be eliminated pursuant to this SECTION 3.4 by prepayment of
the Revolving Loan in full (as a result of outstanding Letter of Credit
Exposure), Borrower shall also on such Domestic Business Day deposit cash
with Agent, to be held by Agent to secure outstanding Letter of Credit
Exposure in the manner contemplated by SECTION 3.1(b), in an amount at least
equal to the balance of such Borrowing Base Deficiency (the difference
between the Borrowing Base Deficiency and the remaining outstanding principal
under the Revolving Loan on the date such Borrowing Base Deficiency is first
determined to occur).
SECTION 3.5. VOLUNTARY PREPAYMENTS. Borrower may, subject to SECTION
5.5 and the other provisions of this Agreement, upon three (3) Domestic
Business Days advance notice to Agent, prepay the principal of the Revolving
Loan in whole or in part. Any partial prepayment shall be in a minimum
amount of $1,000,000 and shall be in an integral multiple of $100,000.
SECTION 3.6. VOLUNTARY REDUCTION OF COMMITMENTS. Borrower may, by
notice to Agent five (5) Domestic Business Days prior to the effective date
of any such reduction, reduce the Total Commitment (and thereby reduce the
Commitment of each Bank ratably) in amounts not less than $5,000,000 and in
an amount which is an integral multiple of $1,000,000. On the effective date
of any such reduction, Borrower shall, to the extent required as a result of
such reduction, make a principal payment on the Revolving Loan in an amount
sufficient to cause the principal balance of the Revolving Loan then
outstanding to be equal to or less than the Total Commitment as thereby
reduced. Notwithstanding the foregoing, Borrower shall not be permitted to
voluntarily reduce the Total Commitment to an amount less than the aggregate
Letter of Credit Exposure of all Banks.
SECTION 3.7. TERMINATION OF COMMITMENTS; FINAL MATURITY OF REVOLVING
LOAN. The Total Commitment (and the Commitment of each Bank) shall terminate,
and the entire outstanding principal balance of the Revolving Loan, all
interest accrued thereon, all accrued but unpaid fees hereunder and all other
outstanding Obligations shall be due and payable in full on the Termination
Date.
SECTION 3.8. UNUSED COMMITMENT FEE. On the Termination Date, on each
Quarterly Date prior to the Termination Date, and, in the event the
Commitments are terminated in their entirety prior to the Termination Date,
on the date of such termination, Borrower shall pay to Agent, for the ratable
benefit of each Bank based on each Bank's Commitment Percentage, a commitment
fee equal to the Unused Commitment Fee Percentage in effect from day to day
(applied on a per annum basis and computed on the basis of actual days
elapsed and as if each calendar year consisted of 365 days)
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of the average daily Availability for the Fiscal Quarter (or portion thereof)
ending on the date such payment is due.
SECTION 3.9. BORROWING BASE INCREASE FEE. Simultaneously with each
increase in the Borrowing Base which results in a Borrowing Base greater than
$85,000,000, Borrower shall pay to Agent for the ratable benefit of each
Bank, a borrowing base increase fee in an amount equal to one fourth of one
percent (.25%) of the amount of such increase (above $85,000,000).
SECTION 3.10. AGENCY AND OTHER FEES. Borrower shall pay to Agent and
its Affiliates such other fees and amounts as Borrower shall be required to
pay to Agent and its Affiliates from time to time pursuant to any separate
agreement between Borrower and Agent or such Affiliates. Such fees and other
amounts shall be retained by Agent and its Affiliates, and no Bank (other
than Agent) shall have any interest therein.
ARTICLE IV
GENERAL PROVISIONS
SECTION 4.1. DELIVERY AND ENDORSEMENT OF NOTES. Simultaneously with
the execution of this Agreement, Agent shall deliver to each Bank the Notes
payable to such Bank. Each Bank may endorse (and prior to any transfer of
its Notes shall endorse) on the schedules attached and forming a part thereof
appropriate notations to evidence the date and amount of its Commitment
Percentage of each Borrowing, the Interest Period applicable thereto, and the
date and amount of each payment of principal made by Borrower with respect
thereto; PROVIDED that the failure by any Bank to so endorse its Notes shall
not affect the liability of Borrower for the repayment of all amounts
outstanding under such Notes together with interest thereon. Each Bank is
hereby irrevocably authorized by Borrower to endorse its Notes and to attach
to and make a part of any Notes a continuation of any such schedule as
required.
SECTION 4.2. GENERAL PROVISIONS AS TO PAYMENTS. (a) Borrower shall
make each payment of principal of, and interest on, the Revolving Loan and
all fees payable hereunder shall be paid not later than 12:00 noon (Dallas,
Texas time) on the date when due, in Federal or other funds immediately
available in Dallas, Texas, to Agent at its address set forth on SCHEDULE 1
hereto. Agent will promptly (and if such payment is received by Agent by
10:00 a.m., and otherwise if reasonably possible, on the same Domestic
Business Day) distribute to each Bank its Commitment Percentage of each such
payment received by Agent for the account of Banks. Whenever any payment of
principal of, or interest on, portion of the Revolving Loan subject to a Base
Rate Tranche or of fees shall be due on a day which is not a Domestic
Business Day, the date for payment thereof shall be extended to the next
succeeding Domestic Business Day (subject to the definition of Interest
Period). Whenever any payment of principal of, or interest on, any portion
of the Revolving Loan subject to a Eurodollar Tranche shall be due on a day
which is not a Eurodollar Business Day, the date for payment thereof shall be
extended to the next succeeding Eurodollar Business Day (subject to the
definition of Interest Period). If the date for any payment of principal is
extended by operation of
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Law or otherwise, interest thereon shall be payable for such extended time.
Borrower hereby authorizes Agent to charge from time to time against
Borrower's accounts with Agent any amount then due.
(b) Prior to the occurrence of an Event of Default, all principal
payments received by Banks with respect to the Revolving Loan shall be
applied first to Eurodollar Tranches outstanding with Interest Periods ending
on the date of such payment, then to Base Rate Tranches, and then to
Eurodollar Tranches next maturing until such principal payment is fully
applied.
(c) After the occurrence of an Event of Default, all amounts
collected or received by Agent or any Bank shall be applied first to the
payment of all proper costs incurred by Agent in connection with the
collection thereof (including reasonable expenses and disbursements of
Agent), second to the payment of all proper costs incurred by Banks in
connection with the collection thereof (including reasonable expenses and
disbursements of Banks), third to the reimbursement of any advances made by
Banks to effect performance of any unperformed covenants of any Credit Party
under any of the Loan Papers, fourth to the payment of any unpaid fees
required pursuant to SECTION 3.10, fifth to the payment of any unpaid fees
required pursuant to SECTIONS 3.2(b), 3.8 and 3.9, sixth, to payment to each
Bank of its Commitment Percentage of the outstanding principal of the
Revolving Loan and accrued but unpaid interest thereon, and seventh to
establish the deposits required in SECTION 3.2(b). All payments received by
a Bank after the occurrence of an Event of Default for application to the
principal of the Revolving Loan shall be applied by such Bank in the manner
provided in SECTION 4.2(b).
ARTICLE V
CHANGE IN CIRCUMSTANCES
SECTION 5.1. INCREASED COST AND REDUCED RETURN.
(a) If, after the date hereof, the adoption of any applicable law,
rule, or regulation, or any change in any applicable law, rule, or
regulation, or any change in the interpretation or administration thereof by
any governmental authority, central bank, or comparable agency charged with
the interpretation or administration thereof, or compliance by any Bank (or
its Applicable Lending Office) with any request or directive (whether or not
having the force of law) of any such governmental authority, central bank, or
comparable agency:
(i) shall subject such Bank (or its Applicable Lending
Office) to any tax, duty, or other charge with respect to
any Eurodollar Loans, its Note, or its obligation to make
Eurodollar Loans, or change the basis of taxation of any
amounts payable to such Bank (or its Applicable Lending
Office) under this Agreement or its Note in respect of
any Eurodollar Loans (other than taxes imposed on the
overall net income of such Bank by the jurisdiction in
which such Bank has its principal office or such
Applicable Lending Office);
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(ii) shall impose, modify, or deem applicable any
reserve, special deposit, assessment, compulsory loan, or
similar requirement (other than the Reserve Requirement
utilized in the determination of the Adjusted Eurodollar
Rate) relating to any extensions of credit or other
assets of, or any deposits with or other liabilities or
commitments of, such Bank (or its Applicable Lending
Office), including the Commitment of such Bank hereunder;
or
(iii) shall impose on such Bank (or its Applicable
Lending Office) or on the London interbank market any
other condition affecting this Agreement or its Note or
any of such extensions of credit or liabilities or
commitments;
and the result of any of the foregoing is to increase the cost to such Bank
(or its Applicable Lending Office) of making, Converting into, Continuing, or
maintaining any Eurodollar Loans or to reduce any sum received or receivable
by such Bank (or its Applicable Lending Office) under this Agreement or its
Note with respect to any Eurodollar Loans, then the Borrower shall pay to
such Bank on demand such amount or amounts as will compensate such Bank for
such increased cost or reduction. If any Bank requests compensation by the
Borrower under this SECTION 5.1(a), the Borrower may, by notice to such Bank
(with a copy to the Agent), suspend the obligation of such Bank to make or
Continue Eurodollar Loans or to Convert all or part of the Base Rate Loan
owing to such Bank into Eurodollar Loans, until the event or condition giving
rise to such request ceases to be in effect (in which case the provisions of
SECTION 5.4 shall be applicable); PROVIDED that such suspension shall not
affect the right of such Bank to receive the compensation so requested.
(b) If, after the date hereof, any Bank shall have determined that the
adoption of any applicable law, rule, or regulation regarding capital
adequacy or any change therein or in the interpretation or administration
thereof by any governmental authority, central bank, or comparable agency
charged with the interpretation or administration thereof, or any request or
directive regarding capital adequacy (whether or not having the force of law)
of any such governmental authority, central bank, or comparable agency, has
or would have the effect of reducing the rate of return on the capital of
such Bank or any corporation controlling such Bank as a consequence of such
Bank's obligations hereunder to a level below that which such Bank or such
corporation could have achieved but for such adoption, change, request, or
directive (taking into consideration its policies with respect to capital
adequacy), then from time to time upon demand the Borrower shall pay to such
Bank such additional amount or amounts as will compensate such Bank for such
reduction.
(c) Each Bank shall promptly notify the Borrower and the Agent of any
event of which it has knowledge, occurring after the date hereof, which will
entitle such Bank to compensation pursuant to this Section and will designate
a different Applicable Lending Office if such designation will avoid the need
for, or reduce the amount of, such compensation and will not, in the judgment
of such Bank, be otherwise disadvantageous to it. Any Bank claiming
compensation under this Section shall furnish to the Borrower and the Agent a
statement setting forth the additional amount or amounts to be paid to it
hereunder which shall be conclusive in the absence of manifest error. In
determining such amount, such Bank may use any reasonable averaging and
attribution methods.
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SECTION 5.2. LIMITATION ON EURODOLLAR LOANS. If on or prior to the
first day of any Interest Period for any Eurodollar Loan:
(a) the Agent determines (which determination shall be
conclusive) that by reason of circumstances affecting the relevant market,
adequate and reasonable means do not exist for ascertaining the Eurodollar
Rate for such Interest Period; or
(b) the Required Banks determine (which determination shall
be conclusive) and notify the Agent that the Adjusted Eurodollar Rate will
not adequately and fairly reflect the cost to the Banks of funding Eurodollar
Loans for such Interest Period;
then the Agent shall give the Borrower prompt notice thereof and the relevant
amounts or periods, and so long as such condition remains in effect, the
Banks shall be under no obligation to make additional Eurodollar Loans,
Continue Eurodollar Loans, or to Convert all or any part of the Base Rate
Loan and the Borrower shall, on the last day(s) of the then current Interest
Period(s) for the outstanding Eurodollar Loans, either prepay such Eurodollar
Loans or Convert such Eurodollar Loans into the Base Rate Loan in accordance
with the terms of this Agreement.
SECTION 5.3. ILLEGALITY. Notwithstanding any other provision of this
Agreement, in the event that it becomes unlawful for any Bank or its
Applicable Lending Office to make, maintain, or fund Eurodollar Loans
hereunder, then such Bank shall promptly notify the Borrower thereof and such
Bank's obligation to make or Continue Eurodollar Loans and to Convert all or
any part of the Base Rate Loan into Eurodollar Loans shall be suspended until
such time as such Bank may again make, maintain, and fund Eurodollar Loans
(in which case the provisions of SECTION 5.4 shall be applicable).
SECTION 5.4. TREATMENT OF AFFECTED LOANS. If the obligation of any
Bank to make particular Eurodollar Loans or to Continue Eurodollar Loans, or
to Convert all or any part of the Base Rate Loan into Eurodollar Loans shall
be suspended pursuant to SECTION 5.1 or 5.3 hereof, such Bank's Eurodollar
Loans shall be automatically Converted into the Base Rate Loan on the last
day(s) of the then current Interest Period(s) for Eurodollar Loans (or, in
the case of a Conversion required by SECTION 5.3 hereof, on such earlier date
as such Bank may specify to the Borrower with a copy to the Agent) and,
unless and until such Bank gives notice as provided below that the
circumstances specified in SECTION 5.1 or 5.3 hereof that gave rise to such
Conversion no longer exist:
(a) to the extent that such Bank's Eurodollar Loans have been
so Converted, all payments and prepayments of principal that would otherwise
be applied to such Bank's Eurodollar Loans shall be applied instead to the
Base Rate Loan; and
(b) all Loans that would otherwise be made or Continued by such
Bank as Eurodollar Loans of shall be made or Continued instead as part of the
Base Rate Loan, and all or any party of the Base Rate Loan that would
otherwise be Converted into Eurodollar Loans shall remain as part of the Base
Rate Loan.
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If such Bank gives notice to the Borrower (with a copy to the Agent) that the
circumstances specified in SECTION 5.1 or 5.3 hereof that gave rise to the
Conversion of such Bank's Eurodollar Loans pursuant to this SECTION 5.4 no
longer exist (which such Bank agrees to do promptly upon such circumstances
ceasing to exist) at a time when Eurodollar Loans made by other Banks are
outstanding, such Bank's portion of the Base Rate Loan shall be automatically
Converted, on the first day(s) of the next succeeding Interest Period(s) for
such outstanding Eurodollar Loans, to the extent necessary so that, after
giving effect thereto, all Loans held by the Banks holding Eurodollar Loans
are held pro rata (as to principal amounts, and Interest Periods) in
accordance with their respective Commitments.
SECTION 5.5. COMPENSATION. Upon the request of any Bank, the Borrower
shall pay to such Bank such amount or amounts as shall be sufficient (in the
reasonable opinion of such Bank) to compensate it for any loss, cost, or
expense (including loss of anticipated profits) incurred by it as a result of:
(a) any payment, prepayment, or Conversion of a Eurodollar
Loan for any reason (including, without limitation, the acceleration of the
Revolving Loan) on a date other than the last day of the Interest Period for
such Loan; or
(b) any failure by the Borrower for any reason (including,
without limitation, the failure of any condition precedent specified in
ARTICLE VIII to be satisfied) to borrow, Convert, Continue, or prepay a
Eurodollar Loan on the date for such borrowing, Conversion, Continuation, or
prepayment specified in the relevant notice of borrowing, prepayment,
Continuation, or Conversion under this Agreement.
SECTION 5.6. TAXES. (a) Any and all payments by the Borrower to or
for the account of any Bank or any Agent hereunder or under any other Loan
Paper shall be made free and clear of and without deduction for any and all
present or future taxes, duties, levies, imposts, deductions, charges or
withholdings, and all liabilities with respect thereto, EXCLUDING, in the
case of each Bank and each Agent, taxes imposed on its income, and franchise
taxes imposed on it, by the jurisdiction under the laws of which such Bank
(or its Applicable Lending Office) or such Agent (as the case may be) is
organized or any political subdivision thereof (all such non-excluded taxes,
duties, levies, imposts, deductions, charges, withholdings, and liabilities
being hereinafter referred to as "TAXES"). If the Borrower shall be required
by law to deduct any Taxes from or in respect of any sum payable under this
Agreement or any other Loan Paper to any Bank or any Agent, (i) the sum
payable shall be increased as necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this SECTION 5.6) such Bank or such Agent receives an amount equal to the sum
it would have received had no such deductions been made, (ii) the Borrower
shall make such deductions, (iii) the Borrower shall pay the full amount
deducted to the relevant taxation authority or other authority in accordance
with applicable law, and (iv) the Borrower shall furnish to the Agent, at its
address referred to in SECTION 15.1, the original or a certified copy of a
receipt evidencing payment thereof.
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(b) In addition, the Borrower agrees to pay any and all present or
future stamp or documentary taxes and any other excise or property taxes or
charges or similar levies which arise from any payment made under this
Agreement or any other Loan Paper or from the execution or delivery of, or
otherwise with respect to, this Agreement or any other Loan Paper
(hereinafter referred to as "OTHER TAXES").
(c) The Borrower agrees to indemnify each Bank and each Agent for the
full amount of Taxes and Other Taxes (including, without limitation, any
Taxes or Other Taxes imposed or asserted by any jurisdiction on amounts
payable under this SECTION 5.6) paid by such Bank or such Agent (as the case
may be) and any liability (including penalties, interest, and expenses)
arising therefrom or with respect thereto.
(d) Each Bank organized under the laws of a jurisdiction outside the
United States, on or prior to the date of its execution and delivery of this
Agreement in the case of each Bank listed on the signature pages hereof and
on or prior to the date on which it becomes a Bank in the case of each other
Bank, and from time to time thereafter if requested in writing by the
Borrower or the Agent (but only so long as such Bank remains lawfully able to
do so), shall provide the Borrower and the Agent with (i) Internal Revenue
Service Form 1001 or 4224, as appropriate, or any successor form prescribed
by the Internal Revenue Service, certifying that such Bank is entitled to
benefits under an income tax treaty to which the United States is a party
which reduces the rate of withholding tax on payments of interest or
certifying that the income receivable pursuant to this Agreement is
effectively connected with the conduct of a trade or business in the United
States, (ii) Internal Revenue Service Form W-8 or W-9, as appropriate, or any
successor form prescribed by the Internal Revenue Service, and (iii) any
other form or certificate required by any taxing authority (including any
certificate required by Sections 871(h) and 881(c) of the Internal Revenue
Code), certifying that such Bank is entitled to an exemption from or a
reduced rate of tax on payments pursuant to this Agreement or any of the
other Loan Papers.
(e) For any period with respect to which a Bank has failed to provide
the Borrower and the Agent with the appropriate form pursuant to SECTION
5.6(d) (unless such failure is due to a change in treaty, law, or regulation
occurring subsequent to the date on which a form originally was required to
be provided), such Bank shall not be entitled to indemnification under
SECTION 5.6(a) or 5.6(b) with respect to Taxes imposed by the United States;
PROVIDED, HOWEVER, that should a Bank, which is otherwise exempt from or
subject to a reduced rate of withholding tax, become subject to Taxes because
of its failure to deliver a form required hereunder, the Borrower shall take
such steps as such Bank shall reasonably request to assist such Bank to
recover such Taxes.
(f) If the Borrower is required to pay additional amounts to or for the
account of any Bank pursuant to this SECTION 5.6, then such Bank will agree
to use reasonable efforts to change the jurisdiction of its Applicable
Lending Office so as to eliminate or reduce any such additional payment which
may thereafter accrue if such change, in the judgment of such Bank, is not
otherwise disadvantageous to such Bank.
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(g) Within thirty (30) days after the date of any payment of Taxes, the
Borrower shall furnish to the Agent the original or a certified copy of a
receipt evidencing such payment.
(h) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower contained in
this SECTION 5.6 shall survive the termination of the Commitments and the
payment in full of the Notes.
SECTION 5.7. DISCRETION OF BANKS AS TO MANNER OF FUNDING. Notwithstanding
any provisions of this Agreement to the contrary, each Bank shall be entitled to
fund and maintain its funding of all or any part of its Commitment in any manner
it sees fit, it being understood, however, that for the purposes of this
Agreement all determinations hereunder shall be made as if such Bank had
actually funded and maintained each Eurodollar Loan during the Interest Period
for such Eurodollar Loan through the purchase of deposits having a maturity
corresponding to the last day of such Interest Period and bearing an interest
rate equal to the Adjusted Eurodollar Rate for such Interest Period.
ARTICLE VI
BORROWING BASE
SECTION 6.1. BORROWING BASE AND CONFORMING BORROWING BASE. The aggregate
amount of credit available to Borrower under this Credit Agreement shall be
limited by a Borrowing Base (herein so called) which shall be $75,000,000 unless
and until a Redetermination is made pursuant to SECTION 6.2 below. Borrower
acknowledges that such Borrowing Base is higher than the Borrowing Base would be
if the Banks determined the Borrowing Base based on each Bank's application of
the credit standards and other criteria customarily applied by such Bank in the
determination of credit limitations for companies similar to Borrower
("CONFORMING CREDIT CRITERIA"). If Conforming Credit Criteria were applied by
the Banks, the Borrowing Base that would result would be $60,000,000, and such
amount is the "CONFORMING BORROWING BASE" for purposes of this Agreement unless
and until a Redetermination is made pursuant to SECTION 6.2 below.
SECTION 6.2. REDETERMINATION OF BORROWING BASE AND CONFORMING BORROWING
BASE. Required Banks and Borrower shall each have the right to cause the
Borrowing Base and the Conforming Borrowing Base to be redetermined (a
"REDETERMINATION") once during the term of this Agreement. Any request for a
Redetermination shall be made by written notice to the other parties to this
Agreement. If such request is made by Borrower, such request shall be
accompanied by a Reserve Report prepared with respect to all Borrowing Base
Properties as of a date not more than thirty (30) days prior to the date of such
request. The amount of the Borrowing Base established in connection with any
Redetermination shall be determined by the Banks in their sole discretion, and
in determining such amount, no Bank is required to apply Conforming Credit
Criteria, and each Bank (a) may make such assumptions regarding appropriate
existing and projected pricing for Hydrocarbons as it deems appropriate in its
sole discretion, (b) may make such assumptions regarding projected rates and
quantities of future production of Hydrocarbons from the Borrowing
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Base Properties as it deems appropriate in its sole discretion, (c) may
consider the projected cash requirements of the Credit Parties, (d) is not
required to consider any asset other than Proved Mineral Interests with
respect to which Borrower has good and valid title subject to no Liens other
than Permitted Encumbrances, (e) will not consider any Mineral Interest not
subject to a first and prior Lien in favor of Agent to secure the
Obligations, and (f) may make such other assumptions, considerations and
exclusions and consider such other credit criteria as such Bank deems
appropriate. The Conforming Borrowing Base shall also be determined by the
Banks in their sole discretion, and in determining the amount of the
Conforming Borrowing Base, each Bank may make the assumptions and consider
the factors and criteria set forth in clauses (a) through (f) above;
provided, that each Bank shall apply Conforming Credit Criteria. As soon as
the amount of the Borrowing Base and Conforming Borrowing Base have been
redetermined, Agent shall notify Borrower of such amounts, and such amounts
shall be the Borrowing Base and Conforming Borrowing Base from and after the
effective date specified in such notice.
SECTION 6.3. BANK APPROVAL OF BORROWING BASE. The Borrowing Base and
Conforming Borrowing Base which become effective upon any Redetermination shall
be approved by (a) the unanimous consent of all Banks to the extent such
Borrowing Base or Conforming Borrowing Base represents an increase in the
Borrowing Base or Conforming Borrowing Base, respectively, in effect prior to
such Redetermination, and (b) shall be approved by Required Banks to the extent
such Borrowing Base or Conforming Borrowing Base represents a reaffirmation of,
or a decrease in, the Borrowing Base or Conforming Borrowing Base, respectively,
in effect prior to such Redetermination.
SECTION 6.4. BORROWING BASE DEFICIENCY. To the extent a Borrowing Base
Deficiency exists after giving effect to any Redetermination, Borrower shall be
obligated to eliminate such Borrowing Base Deficiency by making the mandatory
prepayments required by SECTION 3.5.
ARTICLE VII
COLLATERAL AND GUARANTEES
SECTION 7.1. SECURITY. The Obligations shall be secured by first and
prior Liens (subject only to Permitted Encumbrances) covering and encumbering
(a) one hundred percent (100%) of all Borrowing Base Properties, (b) one
hundred percent (100%) of the issued and outstanding capital stock of every
class and all other equity interests of each Subsidiary of Borrower, (c) all
capital stock of MSR and Borrower of every class owned by Mercury, QELC or any
member of the Darden Family Group, and (d) all right, title and interest of
Borrower under the Management Agreement.
SECTION 7.2. GUARANTEES. Payment and performance of the Obligations shall
be fully guaranteed by Mercury, Mercury Production, QELC and each existing and
future Subsidiary of Borrower pursuant to Facility Guarantees.
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SECTION 7.3. RELEASE OF GUARANTEES AND COLLATERAL. All of the Facility
Guarantees (other than those executed by Subsidiaries of the Borrower) and all
Liens required by this ARTICLE VII will be released, at Borrower's cost and
expense, upon the payment and performance in full of the Obligations, except, in
the case of Liens encumbering the Borrowing Base Properties, to the extent that
such Liens are carried forward to secure any credit facility which may be
provided by, through or under Agent or any Bank which is used to refinance the
Obligations. Borrower acknowledges that neither Agent, nor any Bank nor any of
their Affiliates has provided any commitment for any such financing and that any
election by Agent, any Bank or any of their Affiliates to provide any such
financing shall be made in their sole and absolute discretion. Provided that no
Default or Event of Default has occurred which is continuing, all of the
Facility Guarantees (other than those executed by Subsidiaries of the Borrower)
and all pledges of the issued and outstanding capital stock of Borrower and MSR
shall be canceled and released upon the satisfaction of each of the following
conditions: (a) a reduction in the Outstanding Credit to an amount equal or
below the amount of the Conforming Borrowing Base, and (b) the execution and
delivery by Borrower, Agent and each Bank of a letter agreement in form and
substance acceptable to Agent and each Bank pursuant to which the Borrowing Base
is reduced to the amount of the Conforming Borrowing Base then in effect.
ARTICLE VIII
CONDITIONS PRECEDENT
SECTION 8.1. CONDITIONS TO AMENDMENT AND RESTATEMENT AND INITIAL
BORROWING AND PARTICIPATION IN LETTER OF CREDIT EXPOSURE. The obligation of
each Bank to amend and restate the Mercury/NationsBank Credit Agreement and
the QELC/NationsBank Credit Agreement in the form of this Agreement and the
obligation of each Bank to loan its Commitment Percentage of the initial
Borrowing made hereunder, and the obligation of Agent to issue (or cause
another Bank to issue) the initial Letter of Credit issued hereunder is
subject to the satisfaction of each of the following conditions:
(a) CLOSING DELIVERIES. Agent shall have received each of the
following documents, instruments and agreements, each of which shall be in form
and substance and executed in such counterparts as shall be acceptable to Agent
and each Bank and each of which shall, unless otherwise indicated, be dated the
Closing Date:
(i) a Note payable to the order of each Bank, each in the amount
of such Bank's Commitment duly executed by Borrower;
(ii) Mortgages duly executed and delivered by Borrower creating
first and prior Liens in all Borrowing Base Properties;
(iii) the Assignment and Amendment to Mortgages duly executed and
delivered by TCW and Borrower;
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(iv) the Mercury Pledge Agreement duly executed and delivered by
Mercury (together with certificates evidencing all shares of capital
stock of MSR and Borrower owned by Mercury, which certificates shall
be endorsed in blank or accompanied by stock transfer powers which
have been executed in blank);
(v) the QELC Pledge Agreement duly executed and delivered by QELC
(together with certificates evidencing all shares of capital stock of
Borrower owned by Mercury, which certificates shall be endorsed in
blank or accompanied by stock transfer powers which have been executed
in blank);
(vi) the Darden Family Pledge Agreements duly executed and
delivered by each member of the Darden Family Group (together with
certificates evidencing all shares of capital stock of MSR and
Borrower owned by members of the Darden Family Group, which
certificates shall be endorsed in blank or accompanied by stock
transfer powers which have been duly executed in blank);
(vii) the Collateral Assignments duly executed by Borrower;
(viii) such financing statements in form and substance acceptable to
Agent and executed by each Credit Party as Agent shall specify to
fully evidence and perfect all Liens contemplated by the Loan Papers,
all of which shall be filed of record in such jurisdictions as Agent
shall require in its sole direction;
(vix) Facility Guarantees duly executed and delivered by each of
Mercury and Mercury Production and QELC;
(x) a copy of the Articles or Certificate of Incorporation or
comparable charter documents, and all amendments thereto, of each
Corporate Credit Party accompanied by a certificate that such copy is
true, correct and complete, and dated within ten (10) days of the
Closing Date, issued by the appropriate Governmental Authority of the
jurisdiction of incorporation or organization of each Corporate Credit
Party, and accompanied by a certificate of the Secretary or comparable
Authorized Officer of each Corporate Credit Party that such copy is
true, correct and complete on the Closing Date;
(xi) a copy of the Bylaws or comparable charter documents, and all
amendments thereto, of each Corporate Credit Party accompanied by a
certificate of the Secretary or comparable Authorized Officer of each
Corporate Credit Party that such copy is true, correct and complete as
of the date hereof;
(xii) certain certificates and other documents issued by the
appropriate Governmental Authorities of such jurisdictions as Agent
has requested relating to the existence of each Corporate Credit
Party and to the effect that each Corporate Credit
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Party is in good standing with respect to the payment of franchise
and similar Taxes and is duly qualified to transact business in such
jurisdictions;
(xiii) a certificate of incumbency of all officers of each Corporate
Credit Party who will be authorized to execute or attest to any Loan
Paper, dated the date hereof, executed by the Secretary or comparable
Authorized Officer of each Corporate Credit Party;
(xiv) copies of resolutions or comparable authorizations approving
the Loan Papers and authorizing the transactions contemplated by this
Agreement and the other Loan Papers, duly adopted by the Board of
Directors or comparable authority of each Corporate Credit Party
accompanied by certificates of the Secretary or comparable officer of
each Corporate Credit Party that such copies are true and correct
copies of resolutions duly adopted at a meeting of or (if permitted by
applicable Law and, if required by such Law, by the Bylaws or other
charter documents of such Credit Party) by the unanimous written
consent of the Board of Directors of each Credit Party, and that such
resolutions constitute all the resolutions adopted with respect to
such transactions, have not been amended, modified, or revoked in any
respect, and are in full force and effect as of the date hereof;
(xv) an opinion of Cantey & Hanger, L.L.P., special counsel for
Borrower dated the date hereof, favorably opining as to the
enforceability of each of the Loan Papers and otherwise in form and
substance satisfactory to Agent;
(xvi) an opinion of Loomis, Ewert, Parsley, Davis & Gotting, special
Michigan counsel for Agent, dated the date hereof, favorably opinion
as to the enforceability of the Mortgages in Michigan and otherwise in
form and substance satisfactory to Agent;
(xvii) an opinion of Herschler, Freudenthal, Salzburg, Bonds & Zerga,
P.C., special Wyoming counsel for Agent, dated the date hereof,
favorably opining as to the enforceability of the Mortgages in Wyoming
and otherwise in form and substance satisfactory to Agent;
(xviii) an opinion of Crowley, Haughey, Hanson, Toole & Dietrich,
special Montana counsel for Agent, dated the date hereof, favorably
opining as to the enforceability of the Mortgages in Montana and
otherwise in form and substance satisfactory to Agent;
(xix) a certificate signed by an Authorized Officer of Borrower
stating that (a) the representations and warranties contained in this
Agreement and the other Loan Papers are true and correct in all
respects, and (b) no Default or Event of Default has occurred and is
continuing, and (c) all conditions set forth in this SECTION 8.1 and
SECTION 8.2 have been satisfied;
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(xx) a Certificate of Ownership Interests signed by an Authorized
Officer of Borrower in the form of EXHIBIT G attached hereto;
(xxi) Certificates from Borrower's insurance broker setting forth
the insurance maintained by Borrower, stating that such insurance is
in full force and effect, that all premiums due have been paid and
stating that such insurance is adequate and complies with the
requirements of SECTION 9.4;
(xxii) a copy of each of the Capitalization Documents accompanied by
a Certificate executed by an Authorized Officer of Borrower certifying
that (a) such copies are accurate and complete and represent the
complete understanding and agreement of the parties thereto, (b) no
material right or obligation of any party thereto has been modified,
amended or waived, and (c) subject only to funding the initial
Borrowing to be made hereunder, the Capitalization Transactions have
been consummated on the terms set forth in such Capitalization
Documents; and
(xxiii) a consent in form and substance acceptable to Agent, executed
by MGPG in connection with the Liens granted to Agent with respect to
the Section 29 Documents.
(b) COMPLETION OF CAPITALIZATION TRANSACTION. Borrower shall have
completed (or simultaneously with the funding of the initial Borrowing
hereunder, Borrower shall complete) the Capitalization Transactions
substantially in accordance with the Capitalization Documents, and as a result
thereof Borrower shall have acquired, or simultaneously with the funding of such
Borrowing Borrower shall acquire, good and defensible title to all Borrowing
Base Properties, free and clear of all Liens except Permitted Encumbrances.
(c) TITLE REVIEW. Agent or its counsel shall have completed a review
of title (including opinions of title) to the Borrowing Base Properties having a
Recognized Value not less than eighty percent (80%) of the Recognized Value of
all Borrowing Base Properties on the Closing Date (as determined by Agent), and
such review shall not have revealed any condition or circumstance which would
reflect that the representations and warranties contained in SECTION 9.9 hereof
are inaccurate in any respect.
(d) NO MATERIAL ADVERSE CHANGE. In the sole discretion of each Bank,
no Material Adverse Change shall have occurred.
(e) NO LEGAL PROHIBITION. The transactions contemplated by this
Agreement shall be permitted by applicable Law and regulation and shall not
subject Agent, any Bank, or any Credit Party to any Material Adverse Change.
(f) NO LITIGATION. No litigation, arbitration or similar proceeding
shall be pending or threatened which calls into question the validity or
enforceability of this Agreement, the other Loan Papers or the transactions
contemplated hereby or thereby.
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(g) CLOSING FEES. Borrower shall have paid to Agent for the ratable
benefit of each Bank, and shall have paid to Agent, the fees to be paid on the
Closing Date pursuant to SECTION 3.10.
(h) OTHER MATTERS. All matters related to this Agreement, the other
Loan Papers, the Capitalization Documents, the Capitalization Transactions and
the Credit Parties shall be acceptable to each Bank in its sole discretion, and
each Credit Party shall have delivered to Agent and each Bank such evidence as
they shall request to substantiate any matters related to this Agreement and the
other Loan Papers, as Agent or any Bank shall request.
SECTION 8.2. CONDITIONS TO EACH BORROWING AND EACH LETTER OF CREDIT. The
obligation of each Bank to loan its Commitment Percentage of each Borrowing and
the obligation of the Agent to issue a Letter of Credit on the date such Letter
of Credit is to be issued is subject to the further satisfaction of the
following conditions:
(a) timely receipt by Agent of a Request for Borrowing or a Request
for Letter of Credit (as applicable);
(b) immediately before and after giving effect to such Borrowing or
issuance of such Letter of Credit, no Default or Event of Default shall have
occurred and be continuing and the funding of such Borrowing or the issuance of
the requested Letter of Credit (as applicable) shall not cause a Default or
Event of Default;
(c) the representations and warranties of each Credit Party contained
in this Agreement and the other Loan Papers shall be true and correct on and as
of the date of such Borrowing or issuance of such Letter of Credit (as
applicable);
(d) the amount of the requested Borrowing or the amount of the
requested Letter of Credit (as applicable) shall not exceed the Availability;
(e) no Material Adverse Change shall have occurred; and
(f) the funding of such Borrowing or the issuance of such Letter of
Credit (as applicable) shall be permitted by applicable Law.
The funding of each Borrowing and the issuance of each Letter of Credit
hereunder shall be deemed to be a representation and warranty by Borrower on the
date of such Borrowing and the date of issuance of each Letter of Credit as to
the facts specified in SECTIONS 8.2(b) THROUGH (e).
SECTION 8.3. POST CLOSING DELIVERIES. Borrower shall deliver, or cause to
be delivered, to Agent each document, instrument or agreement, and take each
action, or cause to be taken, each action specified in each subsection of this
SECTION 8.3 below, in each case on or before April 24, 1998:
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(a) each stock certificate evidencing shares of MSR capital stock owned by
Mercury or any member of the Darden Family Group;
(b) stock transfer powers executed in blank with respect to each
certificate evidencing shares of capital stock of Borrower or MSR which are
pledged to secure the Obligations; and
(c) each original promissory note executed by MGPG as maker included in
the Section 29 Documents endorsed to Agent.
SECTION 8.4. MATERIALITY OF CONDITIONS. Each condition precedent herein
is material to the transactions contemplated herein, and time is of the essence
in respect of each thereof.
ARTICLE IX
REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants to Agent and each Bank that each of the
following statements is true and correct on the date hereof after giving effect
to the Capitalization Transactions, and will be true and correct on the occasion
of each Borrowing and the issuance of each Letter of Credit:
SECTION 9.1. CORPORATE EXISTENCE AND POWER. Each Corporate Credit Party
(a) is a corporation duly incorporated (or, in the case of QELC, duly
organized), validly existing and in good standing under the laws of its
jurisdiction of incorporation or organization, (b) has all corporate power and
all material governmental licenses, authorizations, consents and approvals
required to carry on its businesses as now conducted and as proposed to be
conducted, and (c) is duly qualified to transact business as a foreign
corporation (or, in the case of QELC, a foreign limited liability company) in
each jurisdiction where a failure to be so qualified could result in a Material
Adverse Change.
SECTION 9.2. CREDIT PARTY AND GOVERNMENTAL AUTHORIZATION;
CONTRAVENTION. The execution, delivery and performance of this Agreement and
the other Loan Papers by each Corporate Credit Party (to the extent each
Corporate Credit Party is a party to this Agreement and such Loan Papers) are
within such Credit Party's corporate (or, in the case of QELC, a limited
liability company) powers, when executed will be duly authorized by all
necessary corporate (or, in the case of QELC, a limited liability company)
action, require no action by or in respect of, or filing with, any Governmental
Authority and do not contravene, or constitute a default under, any provision of
applicable Law (including, without limitation, the Margin Regulations) or of the
Articles or Certificate of Incorporation, Bylaws, Regulations or comparable
charter documents of any Corporate Credit Party or of any agreement, judgment,
injunction, order, decree or other instrument binding upon any Credit Party or
result in the creation or imposition of any Lien on any asset of any Credit
Party other than the Liens securing the Obligations.
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SECTION 9.3. BINDING EFFECT. This Agreement constitutes a valid and
binding agreement of Borrower; the other Loan Papers when executed and delivered
in accordance with this Agreement, will constitute valid and binding obligations
of each Credit Party executing the same; and each Loan Paper is, or when
executed and delivered, will be, enforceable against each Credit Party which
executes the same in accordance with its terms except as (i) the enforceability
thereof may be limited by bankruptcy, insolvency or similar laws affecting
creditors rights generally, and (ii) the availability of equitable remedies may
be limited by equitable principles of general applicability.
SECTION 9.4. FINANCIAL INFORMATION. (a) The audited consolidated balance
sheet of MGP for the Fiscal Year ended December 31, 1997 and the related
consolidated statements of operations and cash flows for the Fiscal Year then
ended, copies of which have been delivered to each Bank, fairly present, in
conformity with GAAP, the consolidated financial position of MGP as of the end
of such Fiscal Year and its consolidated results of operations and cash flows
for such Fiscal Year.
(b) The audited consolidated balance sheets of QELC and Mercury for
each such Person's fiscal year ended September 30, 1997 and the related audited
consolidated statements of operations and cash flows for such fiscal year,
fairly present, in conformity with GAAP, each such Person's consolidated
financial position as of the end of such fiscal year and its consolidated
results of operations and cash flows for such fiscal year.
(c) The unaudited consolidated balance sheets of QELC and Mercury for
the Fiscal Quarter ended December 31, 1997 and the related unaudited
consolidated statements of operations and cash flows for the portion of each
such Person's Fiscal Year, then ended, fairly present, in conformity with GAAP
applied on a basis consistent with the financial statements referred to in
SECTION 9.4(b) the consolidated financial position of each such Person's Fiscal
Year as of such date and its consolidated results of operations and cash flows
for such portion of each such Person's Fiscal Year.
(d) The most recent annual audited consolidated balance sheet of
Borrower and the related consolidated statements of operations and cash flows
for the Fiscal Year then ended, copies of which have been delivered to each
Bank, fairly present, in conformity with GAAP, the consolidated financial
position of Borrower as of the end of such Fiscal Year and its consolidated
results of operations and cash flows for such Fiscal Year (this representation
and warranty will not be applicable until the first annual audited statement of
Borrower is delivered pursuant to SECTION 10.1(a)).
(e) The most recent quarterly unaudited consolidated balance sheet of
Borrower delivered to Banks, and the related unaudited consolidated statements
of operations and cash flows for the portion of Borrower's Fiscal Year then
ended, fairly present, in conformity with GAAP applied on a basis consistent
with the financial statements referred to in SECTION 9.4(c), the consolidated
financial position of Borrower as of such date and its consolidated results of
operations and cash flows for such portion of Borrower's Fiscal Year (this
representation and warranty will not be applicable until the first annual
audited statement of Borrower is delivered pursuant to SECTION 10.1(b)).
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(f) Except as disclosed in writing to Banks prior to the execution
and delivery of this Agreement, since the date of Mercury, MGP's and QELC's
annual audited consolidated balance sheet and consolidated statements of
operations and cash flow referenced in SECTIONS 9.1(a) and 9.1(b), no Material
Adverse Change has occurred.
(g) After giving effect to the transactions contemplated by this
Agreement (including the Capitalization Transactions), (i) the fair value of the
property of each Credit Party is greater than the total amount of liabilities,
including, without limitation, contingent liabilities, of such Credit Party,
(ii) the present fair saleable value of the assets of each Credit Party is not
less than the amount that will be required to pay the liability of each Credit
Party on its debts as they become absolute and matured, (iii) each Credit Party
is able to realize upon its assets and pay its debts and other liabilities,
contingent obligations and other commitments as they mature in the normal course
of business, (iv) no Credit Party intends to, and no Credit Party believes that
it will, incur debts or liabilities beyond its ability to pay as such debts and
liabilities mature, and (v) no Credit Party is engaged in a business or
transaction, and no Credit Party is about to engage in business or a transaction
for which such Credit Party's property would constitute unreasonably small
capital after giving due consideration to the prevailing practice in the
industry in which such Credit Party is engaged.
SECTION 9.5. LITIGATION. Except for matters disclosed on SCHEDULE 4
attached hereto, there is no action, suit or proceeding pending against, or to
the knowledge of any Credit Party, threatened against or affecting any Credit
Party before any Governmental Authority in which there is a reasonable
possibility of an adverse decision which could result in a Material Adverse
Change or which could in any manner draw into question the validity of the Loan
Papers.
SECTION 9.6. ERISA. No Credit Party nor any ERISA Affiliate of any
Credit Party maintains or has ever maintained or been obligated to contribute
to any Plan covered by Title IV of ERISA or subject to the funding
requirements of Section 412 of the Code or Section 302 of ERISA. Each Plan
maintained by any Credit Party or any ERISA Affiliate of any Credit Party is
in compliance in all material respects with all applicable Laws. Except in
such instances where an omission or failure would not have a Material Adverse
Effect on the business, financial condition or prospects of any Credit Party,
(a) all returns, reports and notices required to be filed with any regulatory
agency with respect to any Plan have been filed timely, and (b) no Credit
Party nor any ERISA Affiliate of any Credit Party has failed to make any
contribution or pay any amount due or owing as required by the terms of any
Plan. There are not pending or, to the best of Borrower's knowledge,
threatened claims, lawsuits, investigations or actions (other than routine
claims for benefits in the ordinary course) asserted or instituted against,
and no Credit Party nor any ERISA Affiliate of any Credit Party has knowledge
of any threatened litigation or claims against, the assets of any Plan or its
related trust or against any fiduciary of a Plan with respect to the
operation of such Plan that are likely to result in liability of any Credit
Party having a Material Adverse Effect. Except in such instances where an
omission or failure would not have a Material Adverse Effect, each Plan that
is intended to be "qualified" within the meaning of section 401(a) of the
Code is, and has been during the period from its adoption to date, so
qualified, both as to form and operation and all necessary governmental
approvals, including a favorable determination as to the qualification under
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the Code of such Plan and each amendment thereto, have been or will be timely
obtained. No Credit Party nor any ERISA Affiliate of any Credit Party has
engaged in any prohibited transactions, within the meaning of section 406 of
ERISA or section 4975 of the Code, in connection with any Plan which would
result in liability of any Credit Party having a Material Adverse Effect. No
Credit Party nor any ERISA Affiliate of any Credit Party maintains or
contributes to any Plan that provides a post-employment health benefit, other
than a benefit required under Section 601 of ERISA, or maintains or
contributes to a Plan that provides health benefits that is not fully funded
except where the failure to fully fund such Plan would not have a Material
Adverse Effect. No Credit Party nor any ERISA Affiliate of any Credit Party
maintains, has established or has ever participated in a multiple employer
welfare benefit arrangement within the meaning of section 3(40)(a) of ERISA.
SECTION 9.7. TAXES AND FILING OF TAX RETURNS. Each Credit Party has filed
all tax returns required to have been filed and has paid all Taxes shown to be
due and payable on such returns, including interest and penalties, and all other
Taxes which are payable by such party, to the extent the same have become due
and payable. No Credit Party knows of any proposed material Tax assessment
against it and all Tax liabilities of each Credit Party are adequately provided
for. Except as disclosed in writing to Banks prior to the date hereof, no
income tax liability of any Credit Party has been asserted by the Internal
Revenue Service or other Governmental Authority for Taxes in excess of those
already paid.
SECTION 9.8. OWNERSHIP OF PROPERTIES GENERALLY. Each Credit Party has
good and valid fee simple or leasehold title to all material properties and
assets purported to be owned by it, including, without limitation, in the case
of MGP, QELC and Mercury, all assets reflected in the balance sheets referred to
in SECTION 9.4 (a) and (b) and all assets which are used by the Credit Parties
in the operation of their respective businesses (except to the extent such
assets are contributed to Borrower pursuant to the Capitalization Transactions),
and none of such properties or assets is subject to any Lien other than
Permitted Encumbrances.
SECTION 9.9. MINERAL INTERESTS. The Property Description is an accurate
and complete description of all Borrowing Base Properties on the date hereof.
Subject only to Immaterial Title Deficiencies (as herein defined), after giving
effect to the Capitalization Transactions, Borrower will have good and
defensible title to all Mineral Interests described in the Reserve Report,
including, without limitation, all Borrowing Base Properties, free and clear of
all Liens except for Permitted Encumbrances. Subject only to immaterial Title
Deficiencies, all Mineral Interests described in the Reserve Report are valid,
subsisting, and in full force and effect, and all rentals, royalties, and other
amounts due and payable in respect thereof have been duly paid. Without regard
to any consent or non-consent provisions of any joint operating agreement
covering any of Borrower's Proved Mineral Interests, after giving effect to the
Capitalization Transactions, but subject to Immaterial Title Deficiencies,
Borrower's share of (a) the costs for each Proved Mineral Interest described in
the Reserve Report is not greater than the decimal fraction set forth in the
Reserve Report, before and after payout, as the case may be, and described
therein by the respective designations "working interests", "WI", "gross working
interest", "GWI", or similar terms, and (b) production from, allocated to, or
attributed to each such Proved Mineral Interest is not less than the decimal
fraction set forth in the Reserve Report, before and after payout, as the case
may be, and described therein
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by the designations net revenue interest, NRI, or similar terms. As used
herein, "Immaterial Title Deficiencies" means minor defects or deficiencies
in title which do not effect, in the aggregate, more than two percent (2%)
(by value) of all Borrowing Base Properties. Each well drilled in respect of
each Proved Producing Mineral Interest described in the Reserve Report (y) is
capable of, and is presently, producing Hydrocarbons in commercially
profitable quantities, and after giving effect to the Capitalization
Transactions, Borrower will receive payments on a current basis for its share
of production, with no funds in respect of any thereof held in suspense,
other than any such funds held in suspense pending delivery of appropriate
division orders, and (z) has been drilled, bottomed, completed, and operated
in compliance with all applicable Laws and no such well which is currently
producing Hydrocarbons is subject to any penalty in production by reason of
such well having produced in excess of its allowable production.
SECTION 9.10. LICENSES, PERMITS, ETC. Each Credit Party possesses such
valid franchises, certificates of convenience and necessity, operating rights,
licenses, permits, consents, authorizations, exemptions and orders of
Governmental Authorities, as are necessary to carry on its business as now
conducted and as proposed to be conducted, except to the extent a failure to
obtain any such item would not have a Material Adverse Effect.
SECTION 9.11. COMPLIANCE WITH LAW. The business and operations of the
Credit Parties have been and are being conducted in accordance with all
applicable Laws other than violations of Laws which do not (either individually
or collectively) have a Material Adverse Effect.
SECTION 9.12. FULL DISCLOSURE. All information heretofore furnished by
each Credit Party to Agent or any Bank for purposes of or in connection with
this Agreement, any Loan Paper or any transaction contemplated hereby or thereby
is, and all such information hereafter furnished by or on behalf of any Credit
Party to Agent or any Bank will be, true, complete and accurate in every
material respect. The Credit Parties have disclosed or have caused to be
disclosed to Banks in writing any and all facts (other than facts of general
public knowledge) which might reasonably be expected to result in a Material
Adverse Change.
SECTION 9.13. ORGANIZATIONAL STRUCTURE; NATURE OF BUSINESS. The Credit
Parties are engaged only in the business of acquiring, exploring, developing and
operating Mineral Interests and the production, marketing, processing and
transporting of Hydrocarbons therefrom. SCHEDULE 5 hereto accurately reflects
(i) the jurisdiction of incorporation or organization of each Credit Party and
MSR, (ii) each jurisdiction in which each Credit Party and MSR are qualified to
transact business as a foreign corporation or foreign limited liability company,
(iii) the authorized, issued and outstanding stock or limited liability
interests of each Credit Party and MSR (and the legal and beneficial owners of
such capital stock; provided, that, in the case of MSR, such Schedule is only
required to reflect the beneficial owners which are Credit Parties or their
Affiliates), and (iv) all outstanding warrants, options, subscription rights,
convertible securities or other rights to purchase capital stock or limited
liability interests of each Credit Party and MSR.
SECTION 9.14. ENVIRONMENTAL MATTERS. Except for matters disclosed on
SCHEDULE 6 hereto, no operation conducted by any Credit Party and no real or
personal property now or previously
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owned or leased by any Credit Party (including, without limitation, Mineral
Interests) and no operations conducted thereon, and to any Credit Parties'
knowledge, no operations of any prior owner, lessee or operator of any such
properties, is or has been in violation of any Applicable Environmental Law
other than violations which neither individually nor in the aggregate could
result in a Material Adverse Change. Except for matters disclosed on
SCHEDULE 6 hereto, no Credit Party, nor any such property nor operation is
the subject of any existing, pending or, to any Credit Parties' knowledge,
threatened Environmental Complaint which could, individually or in the
aggregate, result in a Material Adverse Change. All notices, permits,
licenses, and similar authorizations, required to be obtained or filed in
connection with the ownership of each tract of real property or operations of
any Credit Party thereon and each item of personal property owned, leased or
operated by any Credit Party, including, without limitation, notices,
licenses, permits and authorizations required in connection with any past or
present treatment, storage, disposal, or release of Hazardous Substances into
the environment, have been duly obtained or filed except to the extent the
failure to obtain or file such notices, licenses, permits and authorizations
would not result in a Material Adverse Change. All Hazardous Substances,
generated at each tract of real property and by each item of personal
property owned, leased or operated by any Credit Party have been transported,
treated, and disposed of only by carriers or facilities maintaining valid
permits under RCRA and all other Applicable Environmental Laws for the
conduct of such activities except in such cases where the failure to obtain
such permits could not, individually or in the aggregate, result in a
Material Adverse Change. Except for matters disclosed on SCHEDULE 6 hereto,
there have been no Hazardous Discharges which were not in compliance with
Applicable Environmental Laws other than Hazardous Discharges which would
not, individually or in the aggregate, result in a Material Adverse Change.
Except for matters disclosed on SCHEDULE 6 hereto, no Credit Party nor any
Subsidiary of any Credit Party has any contingent liability in connection
with any Hazardous Discharge which could reasonably be expected to result in
a Material Adverse Change.
SECTION 9.15. BURDENSOME OBLIGATIONS. No Credit Party, nor any of the
properties of any Credit Party is subject to any Law or any pending or
threatened change of Law or subject to any restriction under its articles (or
certificate) of incorporation, bylaws, regulations, partnership agreement or
comparable charter documents or under any agreement or instrument to which any
Credit Party or by which any Credit Party or any of their properties may be
subject or bound, which is so unusual or burdensome as to be likely in the
foreseeable future to result in a Material Adverse Change. Without limiting the
foregoing, no Credit Party is a party to or bound by any agreement or subject to
any order of any Governmental Authority which prohibits or restricts in any way
the right of such Credit Party to make Distributions.
SECTION 9.16. FISCAL YEAR. Borrower's Fiscal Year is January 1 through
December 31.
SECTION 9.17. NO DEFAULT. Neither a Default nor an Event of Default has
occurred or will exist after giving effect to the transactions contemplated by
this Agreement or the other Loan Papers.
SECTION 9.18. GOVERNMENT REGULATION. No Credit Party is subject to
regulation under the Public Utility Holding Company Act of 1935, the Federal
Power Act, the Interstate Commerce Act (as any of the preceding acts have been
amended), the Investment Company Act of 1940 or any other
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law which regulates the incurring by such Credit Party of Debt, including,
but not limited to laws relating to common contract carriers or the sale of
electricity, gas, stream, water or other public utility services.
SECTION 9.19. INSIDER. No Credit Party is, and no Person having "control"
(as that term is defined in 12 U.S.C. Section 375(b) or regulations promulgated
thereunder) of any Credit Party is an "executive officer", "director" or
"shareholder" of any Bank or any bank holding company of which any Bank is a
Subsidiary or of any Subsidiary of such bank holding company.
SECTION 9.20. GAS BALANCING AGREEMENTS AND ADVANCE PAYMENT CONTRACTS. On
the date of this Agreement, (a) there is no Material Gas Imbalance, and (b) the
aggregate amount of all Advance Payments received by any Credit Party under
Advance Payment Contracts which have not been satisfied by delivery of
production does not exceed $250,000.
SECTION 9.21. CAPITALIZATION DOCUMENTS. Borrower has provided each Bank
with a true and correct copy of each of the Capitalization Documents including
all amendments and modifications thereto. No material rights or obligations of
any party to any of such Capitalization Documents have been waived and no Credit
Party, nor to the best knowledge of Borrower, any other party to any of such
Capitalization Documents, is in default of its obligations thereunder. Each of
the Capitalization Documents is a valid, binding and enforceable obligation of
the parties thereto in accordance with its terms and is in full force and
effect. Each representation and warranty made by each Credit Party, and to the
best knowledge of Borrower, by each other party to the Capitalization Documents,
in the Capitalization Documents (a) was true and correct when made, and (b) will
be true and correct on the Closing Date.
ARTICLE X
AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, so long as any Bank has any commitment
to lend or participate in Letter of Credit Exposure hereunder or any amount
payable under any Note remains unpaid or any Letter of Credit remains
outstanding:
SECTION 10.1. INFORMATION. Borrower will deliver, or cause to be
delivered, to each Bank:
(a) as soon as available and in any event within ninety (90) days
after the end of each Fiscal Year, a consolidated and consolidating balance
sheet of Borrower and each other Corporate Credit Party as of the end of such
Fiscal Year and the related consolidated and consolidating statements of income
and statements of cash flow for such Fiscal Year, setting forth in each case in
comparative form the figures for the previous Fiscal Year, all reported by such
Corporate Credit Party in accordance with GAAP and audited by a firm of
independent public accountants of nationally recognized standing and acceptable
to Agent;
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(b) (i) as soon as available and in any event within forty-five (45)
days after the end of each of the first three (3) Fiscal Quarters of each Fiscal
Year, consolidated and consolidating balance sheets of Borrower and each other
Corporate Credit Party as of the end of such Fiscal Quarter and the related
consolidated and consolidating statements of income and statements of cash flow
for such quarter and for the portion of such Corporate Credit Party's Fiscal
Year ended at the end of such Fiscal Quarter, setting forth in each case in
comparative form the figures for the corresponding quarter and the corresponding
portion of such Corporate Credit Party's previous Fiscal Year;
(c) simultaneously with the delivery of each set of financial
statements referred to in SECTIONS 10.1(a) and (b), a certificate of a Financial
Officer of each Corporate Credit Party in the form of EXHIBIT H attached hereto,
(i) setting forth, in the case of Borrower, in reasonable detail the
calculations required to establish whether Borrower was in compliance with the
requirements of ARTICLE XI on the date of such financial statements,
(ii) stating, in the case of Borrower, whether there exists on the date of
such certificate any Default and, if any Default then exists, setting forth
the details thereof and the action which Borrower is taking or proposes to
take with respect thereto, (iii) stating whether or not such financial
statements fairly reflect in all material respects the results of operations
and financial condition of each Corporate Credit Party as of the date of the
delivery of such financial statements and for the period covered thereby,
(iv) setting forth (a) whether as of such date there is a Material Gas
Imbalance and, if so, setting forth the amount of net gas imbalances under
Gas Balancing Agreements to which any Credit Party is a party or by which any
Mineral Interests owned by Borrower is bound, and (b) the aggregate amount of
all Advance Payments received under Advance Payment Contracts to which any
Credit Party is a party or by which any Mineral Interests owned by Borrower
is bound which have not been satisfied by delivery of production, if any, and
(v) a summary of the Hedge Transactions to which each Credit Party is a party
on such date;
(d) promptly upon the mailing thereof to the stockholders of any
Corporate Credit Party generally, copies of all financial statements, reports
and proxy statements so mailed;
(e) promptly upon the filing thereof, copies of all final
registration statements post effective amendments thereto and annual, quarterly
or special reports which any Credit Party shall have filed with the Securities
and Exchange Commission; PROVIDED, THAT Borrower must deliver, or cause to be
delivered, any annual reports which any Credit Party shall have filed with the
Securities and Exchange Commission, within ninety (90) days after the end of
each Fiscal Year of such Credit Party, and any quarterly reports which any
Credit Party shall have filed with the Securities and Exchange Commission,
within forty-five (45) days after the end of each of the first three (3) Fiscal
Quarters of each Fiscal Year of such Credit Party;
(f) promptly upon receipt of same, any notice or other information
received by any Credit Party indicating any potential, actual or alleged
(i) non-compliance with or violation of the requirements of any Applicable
Environmental Law which could result in liability to any Credit Party for
fines, clean up or any other remediation obligations or any other liability
in excess of $100,000 in the aggregate; (ii) threatened Hazardous Discharge
which Hazardous Discharge would
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impose on any Credit Party a duty to report to a Governmental Authority or to
pay cleanup costs or to take remedial action under any Applicable
Environmental Law which could result in liability to any Credit Party for
fines, clean up and other remediation obligations or any other liability in
excess of $100,000 in the aggregate; or (iii) the existence of any Lien
arising under any Applicable Environmental Law securing any obligation to pay
fines, clean up or other remediation costs or any other liability in excess
of $100,000 in the aggregate. Without limiting the foregoing, each Credit
Party shall provide to Banks promptly upon receipt of same by any Credit
Party copies of all environmental consultants or engineers reports received
by any Credit Party which would render the representation and warranty
contained in SECTION 9.14 untrue or inaccurate in any respect;
(g) In the event any notification is provided to any Bank or Agent
pursuant to SECTION 10.1(f) hereof or Agent or any Bank otherwise learns of any
event or condition under which any such notice would be required, then, upon
request of Required Banks, Borrower shall within thirty (30) days of such
request, cause to be furnished to Agent and each Bank a report by an
environmental consulting firm acceptable to Agent and Required Banks, stating
that a review of such event, condition or circumstance has been undertaken (the
scope of which shall be acceptable to Agent and Required Banks) and detailing
the findings, conclusions and recommendations of such consultant; Borrower shall
bear all expenses and costs associated with such review and updates thereof;
(h) immediately upon any Authorized Officer becoming aware of the
occurrence of any Default, a certificate of an Authorized Officer setting forth
the details thereof and the action which Borrower is taking or proposes to take
with respect thereto;
(i) no later than March 31, and September 30 of each year, reports of
production volumes, revenue, expenses and product prices for all Mineral
Interests owned by Borrower for the periods of six (6) months ending the
preceding December 31, and June 30, respectively. Such reports shall be
prepared on an accrual basis and shall be reported on a field by field basis;
(j) promptly notify Banks of any Material Adverse Change affecting
any Credit Party; and
(k) from time to time such additional information regarding the
financial position or business of any Credit Party as Agent, at the request of
any Bank, may reasonably request.
SECTION 10.2. BUSINESS OF BORROWER. The sole business of Borrower shall
be the acquisition, exploration, development and operation of Mineral Interests
and the production, marketing, processing and transportation of Hydrocarbons
therefrom.
SECTION 10.3. MAINTENANCE OF EXISTENCE. Borrower shall, and shall cause
each other Corporate Credit Party to, at all times (a) maintain its corporate,
partnership or limited liability company existence in its state of incorporation
or organization, and (b) maintain its good standing and qualification to
transact business in all jurisdictions where the failure to maintain good
standing or qualification to transact business could result in a Material
Adverse Change.
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SECTION 10.4. TITLE DATA. Borrower shall, upon the request of Required
Banks, cause to be delivered to Agent such title opinions and other information
regarding title to Mineral Interests owned by Borrower and the perfection and
priority of Agent's Liens therein as are appropriate to determine the status
thereof.
SECTION 10.5. RIGHT OF INSPECTION. Borrower will permit, and will cause
each other Credit Party to permit, any officer, employee or agent of Agent or of
any Bank to visit and inspect any of the assets of any Corporate Credit Party,
examine each Corporate Credit Party's books of record and accounts, take copies
and extracts therefrom, and discuss the affairs, finances and accounts of each
Corporate Credit Party with such Corporate Credit Party's officers, accountants
and auditors, all at such reasonable times and as often as Agent or any Bank may
desire, all at the expense of Borrower.
SECTION 10.6. MAINTENANCE OF INSURANCE. Borrower will, and will cause
each other Corporate Credit Party to, at all times maintain or cause to be
maintained insurance covering such risks as are customarily carried by
businesses similarly situated, including, without limitation, the following: (a)
workmen's compensation insurance; (b) employer's liability insurance;
(c) comprehensive general public liability and property damage insurance; (d)
insurance against losses customarily insured against as a result of damage by
fire, lightning, hail, tornado, explosion and other similar risk; and (e)
comprehensive automobile liability insurance. All loss payable clauses or
provisions in all policies of insurance maintained by Borrower pursuant to this
SECTION 10.6 shall be endorsed in favor of and made payable to Agent for the
ratable benefit of Banks, as their interests may appear. Agent shall have the
right, for the ratable benefit of the Banks, to collect, and Borrower hereby
assigns to Agent for the ratable benefit of Banks, any and all monies that may
become payable under any such policies of insurance by reason of damage, loss or
destruction of any of property which stands as security for the Obligations or
any part thereof, and Agent may, at its election, either apply for the ratable
benefit of Banks all or any part of the sums so collected toward payment of the
Obligations, whether or not such Obligations are then due and payable, in such
manner as Agent may elect or release same to the applicable Credit Party.
SECTION 10.7. PAYMENT OF TAXES AND CLAIMS. Borrower will, and will cause
each other Credit Party to, pay (a) all Taxes imposed upon it or any of its
assets or with respect to any of its franchises, business, income or profits
before any material penalty or interest accrues thereon and (b) all material
claims (including, without limitation, claims for labor, services, materials and
supplies) for sums which have become due and payable and which by law have or
might become a Lien (other than a Permitted Encumbrance) on any of its assets;
provided, however, no payment of Taxes or claims shall be required if (i) the
amount, applicability or validity thereof is currently being contested in good
faith by appropriate action promptly initiated and diligently conducted in
accordance with good business practices and no material part of the property or
assets of any Credit Party is subject to any pending levy or execution, (ii) the
Credit Parties, as and to the extent required in accordance with GAAP, shall
have set aside on their books reserves (segregated to the extent required by
GAAP) deemed by them to be adequate with respect thereto, and (iii) the Credit
Parties have notified Agent of such circumstances, in detail satisfactory to
Agent.
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SECTION 10.8. COMPLIANCE WITH LAWS AND DOCUMENTS. Borrower will, and will
cause each other Credit Party to, comply with all Laws, their respective
certificates (or articles) of incorporation, bylaws, regulations and similar
organizational documents and all Material Agreements to which any Credit Party
is a party, if a violation, alone or when combined with all other such
violations, could result in a Material Adverse Change.
SECTION 10.9. OPERATION OF PROPERTIES AND EQUIPMENT. (a) Borrower will,
and will cause each of its Subsidiaries to, maintain, develop and operate (or
cause the operator to maintain and operate to the extent borrower is not the
operator) its Mineral Interests in a good and workmanlike manner, and observe
and comply with all of the terms and provisions, express or implied, of all oil
and gas leases relating to such Mineral Interests so long as such Mineral
Interests are capable of producing Hydrocarbons and accompanying elements in
paying quantities.
(b) Borrower will, and will cause each of its Subsidiaries to, comply
in all respects with all contracts and agreements applicable to or relating to
its Mineral Interest or the production and sale of Hydrocarbons and accompanying
elements therefrom.
(c) Borrower will, and will cause each of its Subsidiaries to, at all
times maintain, preserve and keep all operating equipment used with respect to
its Mineral Interests in proper repair, working order and condition, and make
all necessary or appropriate repairs, renewals, replacements, additions and
improvements thereto so that the efficiency of such operating equipment shall at
all times be properly preserved and maintained; provided further that no item of
operating equipment need be so repaired, renewed, replaced, added to or
improved, if Borrower shall in good faith determine that such action is not
necessary or desirable for the continued efficient and profitable operation of
the business of such Credit Party.
SECTION 10.10. ENVIRONMENTAL LAW COMPLIANCE. Borrower will, and will
cause each other Credit Party to, comply with all Applicable Environmental Laws,
including, without limitation, (a) all licensing, permitting, notification and
similar requirements of Applicable Environmental Laws, and (b) all provisions of
all Applicable Environmental Laws regarding storage, discharge, release,
transportation, treatment and disposal of Hazardous Substances. Borrower will,
and will cause each other Corporate Credit Party to, promptly pay and discharge
when due all legal debts, claims, liabilities and obligations with respect to
any clean-up or remediation measures necessary to comply with Applicable
Environmental Laws.
SECTION 10.11. ERISA REPORTING REQUIREMENTS. Borrower shall furnish, or
cause to be furnished, to Agent:
(a) Promptly and in any event (i) within thirty (30) days after Borrower
or any ERISA Affiliate receives notice from any regulatory agency of the
commencement of an audit, investigation or similar proceeding with respect to a
Plan, and (ii) within ten (10) days after Borrower or any ERISA Affiliate
contacts the Internal Revenue Service for the purpose of participation in a
closing agreement or any voluntary resolution program with respect to a Plan or
knows or has reason to know that any event with respect to any Plan of Borrower
or any ERISA Affiliate has occurred, a
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written notice describing such event and describing what action is being taken
or is proposed to be taken with respect thereto, together with a copy of any
notice of event that is given to the PBGC;
(b) Promptly and in any event within thirty (30) days after the receipt by
Borrower of a request therefor by a Bank, copies of any annual and other report
(including Schedule B thereto) with respect to a Plan filed by Borrower or any
ERISA Affiliate with the United States Department of Labor, the Internal Revenue
Service or the PBGC;
(c) Notification within thirty (30) days of the effective date thereof of
any material increases in the benefits, or material change in the funding
method, of any existing Plan which is not a multiemployer plan (as defined in
section 4001(a)(3) of ERISA), or the establishment of any material new Plans, or
the commencement of contributions to any Plan to which Borrower or any ERISA
Affiliate was not previously contributing; and
(d) Promptly after receipt of written notice of commencement thereof,
notice of all (i) claims made by participants or beneficiaries with respect to
any Plan and (ii) actions, suits and proceedings before any court or
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, affecting Borrower or any ERISA Affiliate with respect to
any Plan, except those which, in the aggregate, if adversely determined could
not result in a Material Adverse Change.
SECTION 10.12. ADDITIONAL DOCUMENTS. Borrower will, and will cause each
other Credit Party (to the extent each is party thereto) to, cure promptly any
defects in the creation and issuance of each Note, and the execution and
delivery of this Agreement and the other Loan Papers and, at Borrower's expense,
Borrower shall promptly and duly execute and deliver to each Bank, and cause
each other Credit Party to promptly and duly execute and deliver to each Bank,
upon reasonable request, all such other and further documents, agreements and
instruments in compliance with or accomplishment of the covenants and agreements
of the Credit Parties in this Agreement and the other Loan Papers as may be
reasonably necessary or appropriate in connection therewith.
SECTION 10.13. ENVIRONMENTAL REVIEW. Not later than thirty (30) days
prior to the date of any acquisition by any Credit Party of Mineral Interests or
related assets, other than an acquisition of additional interests in Mineral
Interests in which a Credit Party previously held an interest, Borrower shall
deliver to Agent a report in form, scope and detail acceptable to Agent from
environmental engineering firms acceptable to Agent, which report or reports
shall set forth the results of a Phase I environmental review of such Mineral
Interests and related assets.
SECTION 10.14. REQUIRED PURCHASE CONTRACTS. Borrower will at all times
during the period commencing on and including the Closing Date and continuing
through and including the Termination Date, maintain contracts for the sale of
at least ninety-five percent (95%) of its gas production to Consumers Power (or
other parties of equal or greater creditworthiness approved by Agent and
Required Banks) which provide for fixed prices on all gas production sold that,
when averaged in each calendar year, equal or exceed $2.40 per thousand cubic
feet. Such average shall be calculated for each calendar year by dividing (i)
all revenues under such fixed price contracts for
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such gas production, by (ii) the total amount of such gas production,
measured in thousand cubic feet. For the purpose of determining compliance
with the foregoing, if Borrower enters into floating rate contracts for the
sale of its gas production to Consumers Power (or other parties of equal or
greater creditworthiness approved by Agent and Required Banks) and at the
same time puts into place Hedging Transactions in equivalent notional amounts
with counterparties approved by Agent and Required Banks which, when netted
against such floating rate contracts, provide Borrower with a net price in
excess of $2.40 per thousand cubic feet, such net price shall be deemed to be
the fixed price to be used in making the foregoing calculation.
ARTICLE XI
NEGATIVE COVENANTS
Borrower agrees that, so long as any Bank has any commitment to lend or
participate in Letter of Credit Exposure hereunder or any amount payable under
any Note remains unpaid or any Letter of Credit remains outstanding:
SECTION 11.1. INCURRENCE OF DEBT. Borrower will not, nor will Borrower
permit any Corporate Credit Party to, incur, become or remain liable for any
Debt other than the Obligations; PROVIDED, THAT, at any time when the
Outstanding Credit is less than the Conforming Borrowing Base and no Default or
Event of Default has occurred which is continuing, (a) Borrower may incur and
remain liable for Non-Recourse Debt to the extent such Non- Recourse Debt has
been specifically approved in writing by Required Banks, and (b) Borrower and
its Subsidiaries may incur and remain liable for other Debt in an aggregate
amount outstanding at any time not to exceed $1,000,000.
SECTION 11.2. RESTRICTED PAYMENTS. Borrower will not, nor will Borrower
permit any Corporate Credit Party to, directly or indirectly, declare or pay, or
incur any liability to declare or pay, any Restricted Payment; provided, that,
so long as no Default or Event of Default has occurred which is then continuing
Mercury shall be permitted to honor the TCW Put.
SECTION 11.3. NEGATIVE PLEDGE. Borrower will not, nor will Borrower
permit any Corporate Credit Party to, create, assume or suffer to exist any Lien
on any of their respective assets other than Permitted Encumbrances. Borrower
will not, nor will Borrower permit any of its Subsidiaries to, enter into or
become bound by any agreement (other than this Agreement) that prohibits or
otherwise restricts the right of Borrower or any of its Subsidiaries to create,
assume or suffer to exist any Lien on any of their respective assets in favor of
Agent for the ratable benefit of Banks.
SECTION 11.4. CONSOLIDATIONS AND MERGERS. Borrower will not, nor will
Borrower permit any Corporate Credit Party to, consolidate or merge with or into
any other Person.
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SECTION 11.5. ASSET DISPOSITIONS. Borrower will not, nor will Borrower
permit any Corporate Credit Party to, sell, lease, transfer, abandon or
otherwise dispose of any asset other than the sale in the ordinary course of
business of Hydrocarbons produced from Borrower's and its Subsidiaries'
Mineral Interests (and not pursuant to Advance Payment Contracts); provided,
that, so long as no Default or Event of Default has occurred which is
continuing, Borrower shall be permitted to sell or dispose of (a) machinery
and equipment which is not obsolete or otherwise not necessary or useful in
the operation of Borrower's business, and (b) Mineral Interests with an
aggregate Recognized Value (measured at the time of such sale or disposition)
not to exceed $200,000 during the term of this Agreement. Borrower will not
sell, transfer or dispose of, or permit any Subsidiary of Borrower to sell,
transfer or dispose of any capital stock or other equity interest, in any
Subsidiary of Borrower.
SECTION 11.6. AMENDMENTS TO ORGANIZATIONAL DOCUMENTS; OTHER MATERIAL
AGREEMENTS. Borrower will not, nor will Borrower permit any other Credit
Party to, enter into or permit any modification or amendment of, or waive any
material right or obligation of any Person under, (a) its certificate or
articles of incorporation, bylaws, partnership agreement, regulations or
other organizational documents other than amendments, modifications and
waivers which could not, individually or in the aggregate, result in a
Material Adverse Change, (b) the Capitalization Documents, or (c) the Section
29 Documents.
SECTION 11.7. USE OF PROCEEDS. The proceeds of Borrowings will not be
used for any purpose other than (a) working capital, (b) to finance the
acquisition, exploration and development of Mineral Interests and related
capital assets, and (c) to refinance the obligations outstanding under the
Existing Credit Agreements. None of such proceeds (including, without
limitation, proceeds of Letters of Credit issued hereunder) will be used,
directly or indirectly, for the purpose, whether immediate, incidental or
ultimate, of purchasing or carrying any Margin Stock, and none of such
proceeds will be used in violation of applicable Law (including, without
limitation, the Margin Regulations). Letters of Credit will be issued
hereunder only for the purpose of securing bids, tenders, bonds, contracts
and other obligations entered into in the ordinary course of Borrower's
business. Without limiting the foregoing, no Letters of Credit will be
issued hereunder for the purpose of providing credit enhancement with respect
to any Debt or equity security of any Credit Party or to secure any Credit
Party's obligations with respect to Hedge Transactions other than Hedge
Transactions with a Bank.
SECTION 11.8. INVESTMENTS. Borrower will not, nor will Borrower permit
any other Corporate Credit Party to, directly or indirectly, make or have
outstanding any Investment other than Permitted Investments.
SECTION 11.9. TRANSACTIONS WITH AFFILIATES. Borrower will not, nor
will Borrower permit any other Credit Party to, engage in any transaction
with an Affiliate unless such transaction is as favorable to such party as
could be obtained in an arm's length transaction with an unaffiliated Person
in accordance with prevailing industry customs and practices.
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SECTION 11.10. ERISA. Except in such instances where an omission or
failure would not result in a Material Adverse Change, Borrower will not, nor
will Borrower permit any of its Subsidiaries to (a) take any action or fail
to take any action which would result in a violation of ERISA, the Code or
other laws applicable to the Plans maintained or contributed to by it or any
ERISA Affiliate, or (b) modify the term of, or the funding obligations or
contribution requirements under any existing Plan, establish a new Plan, or
become obligated or incur any liability under a Plan that is not maintained
or contributed to by a Borrower or any ERISA Affiliate as of the Closing Date.
SECTION 11.11. HEDGE TRANSACTIONS. With the exception of Oil and Gas
Hedge Transactions entered into pursuant to SECTION 9.14 Borrower will not,
nor will Borrower permit any other Corporate Credit Party to, enter into Oil
and Gas Hedge Transactions which would cause the volume of Hydrocarbons with
respect to which a settlement payment is calculated under such Oil and Gas
Hedge Transactions to exceed seventy-five percent (75%) of Borrower's
anticipated production from Proved Producing Mineral Interests during the
period from the immediately preceding settlement date (or the commencement of
such Hedge Transaction if there is no prior settlement date) to such
settlement date. Borrower shall not enter into or consent to any amendment,
modification, cancellation or termination of the Consumers Power Contract and
will at all times perform all of its obligations thereunder and take all
other actions necessary to cause such contract to be maintained.
SECTION 11.12. FISCAL YEAR. Borrower will not, and Borrower will not
permit any Corporate Credit Party to, change its Fiscal Year.
SECTION 11.13. CHANGE IN BUSINESS. Borrower will not, nor will
Borrower permit any of its Subsidiaries to, engage in any business other than
the businesses engaged in by such parties on the date hereof as described in
SECTION 9.13 hereof.
ARTICLE XII
FINANCIAL COVENANTS
Borrower agrees that so long as any Bank has any commitment to lend or
participate in Letter of Credit Exposure hereunder or any amount payable
under any Note remains unpaid or any Letter of Credit remains outstanding,
Borrower will not permit its ratio of Consolidated Current Assets to its
Consolidated Current Liabilities to be less than 1.0 to 1.0 at any time.
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ARTICLE XIII
DEFAULTS
SECTION 13.1. EVENTS OF DEFAULT. If one or more of the following
events (c)ollectively "EVENTS OF DEFAULT" and individually an "EVENT OF
DEFAULT") shall have occurred and be continuing:
(a) Borrower shall fail to pay when due any principal on any Note;
(b) Borrower shall fail to pay when due accrued interest on any
Note or any fees or any other amount payable hereunder and such failure shall
continue for a period of three (3) days following the due date;
(c) Borrower shall fail to observe or perform any covenant or
agreement contained in ARTICLE XI or ARTICLE XII of this Agreement;
(d) any Credit Party shall fail to observe or perform any covenant
or agreement contained in this Agreement or any other Loan Papers (other than
those referenced in SECTIONS 13.1(a), (b) and (c) and such failure continues
for a period of twenty (20) days after the earlier of (i) the date any
Authorized Officer of any Credit Party acquires knowledge of such failure, or
(ii) written notice of such failure has been given to any Credit Party by
Agent or any Bank;
(e) any representation, warranty, certification or statement made
or deemed to have been made by any Credit Party in any certificate, financial
statement or other document delivered pursuant to this Agreement shall prove
to have been incorrect in any material respect when made;
(f) any Credit Party shall fail to make any payment when due on
any Debt of such Person in a principal amount equal to or greater than
$250,000 or any other event or condition shall occur which (i) results in the
acceleration of the maturity of any such Debt, or (ii) entitles the holder of
such Debt to accelerate the maturity thereof;
(g) any Credit Party shall commence a voluntary case or other
proceeding seeking liquidation, reorganization or other relief with respect
to itself or its debts under any bankruptcy, insolvency or other similar law
now or hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any substantial part
of its property, or shall consent to any such relief or to the appointment of
or taking possession by any such official in an involuntary case or other
proceeding commenced against it, or shall make a general assignment for the
benefit of creditors, or shall fail generally to pay its debts as they become
due, or shall take any corporate action to authorize any of the foregoing;
(h) an involuntary case or other proceeding shall be commenced
against any Credit Party seeking liquidation, reorganization or other relief
with respect to it or its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the
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appointment of a trustee, receiver, liquidator, custodian or other similar
official of it or any substantial part of its property, and such involuntary
case or other proceeding shall remain undismissed and unstayed for a period
of sixty (60) days; or an order for relief shall be entered against any
Credit Party under the federal bankruptcy Laws as now or hereafter in effect;
(i) one (1) or more final judgments or orders for the payment of
money aggregating in excess of $250,000 shall be rendered against any Credit
Party and such judgment or order shall continue unsatisfied and unstayed for
thirty (30) days;
(j) any event occurs with respect to any Plan or Plans pursuant to
which any Credit Party and/or any ERISA Affiliate incur a liability due and
owing at the time of such event, without existing funding therefor, for
benefit payments under such Plan or Plans in excess of $250,000; or (ii) any
Credit Party, any ERISA Affiliate, or any other "party-in-interest" or
"disqualified person", as such terms are defined in section 3(14) of ERISA
and section 4975(e)(2) of the Code, shall engage in transactions which in the
aggregate would reasonably result in a direct or indirect liability to any
Credit Party or any ERISA Affiliate in excess of $250,000 under section 409
or 502 of ERISA or section 4975 of the Code;
(k) this Agreement or any other Loan Paper shall cease to be in
full force and effect or shall be declared null and void or the validity or
enforceability thereof shall be contested or challenged by any Credit Party,
or any Credit Party shall deny that it has any further liability or
obligation under any of the Loan Papers to which it is a party, or any Lien
created by the Loan Papers shall for any reason (other than the release
thereof in accordance with the Loan Papers) cease to be a valid, first
priority, perfected Lien upon any of the Proved Mineral Interests purported
to be covered thereby;
(l) a Material Adverse Change shall occur with respect to any
Credit Party; or
(m) a Change of Control shall occur.
then, and in every such event, Agent shall without presentment, notice or
demand (unless expressly provided for herein) of any kind (including, without
limitation, notice of intention to accelerate and acceleration), all of which
are hereby waived, (a) if requested by the Required Banks, terminate the
Commitments and they shall thereupon terminate, and (b) if requested by the
Required Banks, take such other actions as may be permitted by the Loan
Papers including, declaring the Notes (together with accrued interest
thereon) to be, and the Notes shall thereupon become, immediately due and
payable; PROVIDED THAT (c) in the case of any of the Events of Default
specified in SECTIONS 13.1(g) or (h), without any notice to any Credit Party
or any other act by Agent or Banks, the Commitments shall thereupon terminate
and the Notes (together with accrued interest thereon) shall become
immediately due and payable.
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ARTICLE XIV
AGENT
SECTION 14.1. APPOINTMENT, POWERS, AND IMMUNITIES. Each Bank hereby
irrevocably appoints and authorizes Agent to act as its agent under this
Agreement and the other Loan Papers with such powers and discretion as are
specifically delegated to Agent by the terms of this Agreement and the other
Loan Papers, together with such other powers as are reasonably incidental
thereto. Agent (which term as used in this sentence and in SECTION 14.5 and
the first sentence of SECTION 14.6 hereof shall include its Affiliates and
its own and its Affiliates' officers, directors, employees, and agents): (a)
shall not have any duties or responsibilities except those expressly set
forth in this Agreement and shall not be a trustee or fiduciary for any Bank;
(b) shall not be responsible to Banks for any recital, statement,
representation, or warranty (whether written or oral) made in or in
connection with any Loan Paper or any certificate or other document referred
to or provided for in, or received by any of them under, any Loan Paper, or
for the value, validity, effectiveness, genuineness, enforceability, or
sufficiency of any Loan Paper, or any other document referred to or provided
for therein or for any failure by Borrower, any Subsidiary of Borrower or any
other Person to perform any of its obligations thereunder; (c) shall not be
responsible for or have any duty to ascertain, inquire into, or verify the
performance or observance of any covenants or agreements by Borrower or any
of its Subsidiaries or the satisfaction of any condition or to inspect the
property (including the books and records) of Borrower, any of its
Subsidiaries or Affiliates; (d) shall not be required to initiate or conduct
any litigation or collection proceedings under any Loan Paper; and (e) shall
not be responsible for any action taken or omitted to be taken by it under or
in connection with any Loan Paper, except for its own gross negligence or
willful misconduct. Agent may employ agents and attorneys-in-fact and shall
not be responsible for the negligence or misconduct of any such agents or
attorneys-in-fact selected by it with reasonable care.
SECTION 14.2. RELIANCE BY AGENT. Agent shall be entitled to rely upon
any certification, notice, instrument, writing, or other communication
(including, without limitation, any thereof by telephone or telecopy)
believed by it to be genuine and correct and to have been signed, sent or
made by or on behalf of the proper Person or Persons, and upon advice and
statements of legal counsel (including counsel for Borrower), independent
accountants, and other experts selected by Agent. Agent may deem and treat
the payee of any Note as the holder thereof for all purposes hereof unless
and until Agent receives and accepts an Assignment and Acceptance Agreement
executed in accordance with SECTION 15.10 hereof. As to any matters not
expressly provided for by this Agreement, Agent shall not be required to
exercise any discretion or take any action, but shall be required to act or
to refrain from acting (and shall be fully protected in so acting or
refraining from acting) upon the instructions of Required Banks, and such
instructions shall be binding on Banks; PROVIDED, HOWEVER, that Agent shall
not be required to take any action that exposes Agent to personal liability
or that is contrary to any Loan Paper or applicable Law or unless it shall
first be indemnified to its satisfaction by Banks against any and all
liability and expense which may be incurred by it by reason of taking any
such action.
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SECTION 14.3. DEFAULTS. Agent shall not be deemed to have knowledge or
notice of the occurrence of a Default or Event of Default unless Agent has
received written notice from a Bank or Borrower specifying such Default or
Event of Default and stating that such notice is a "Notice of Default". In
the event that Agent receives such a notice of the occurrence of a Default or
Event of Default, Agent shall give prompt notice thereof to Banks. Agent
shall (subject to SECTION 14.2 hereof) take such action with respect to such
Default or Event of Default as shall reasonably be directed by Required
Banks; PROVIDED THAT, unless and until Agent shall have received such
directions, Agent may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such Default or Event of
Default as it shall deem advisable in the best interest of Banks.
SECTION 14.4. RIGHTS AS BANK. With respect to its Commitment and the
Loans made by it, NationsBank (and any successor acting as Agent) in its
capacity as a Bank hereunder shall have the same rights and powers hereunder
as any other Bank and may exercise the same as though it were not acting as
Agent, and the term "Bank" or "Banks" shall, unless the context otherwise
indicates, include Agent in its individual capacity. NationsBank (and any
successor acting as Agent) and its Affiliates may (without having to account
therefor to any Bank) accept deposits from, lend money to, make investments
in, provide services to, and generally engage in any kind of lending, trust,
or other business with Borrower or any of its Subsidiaries or Affiliates as
if it were not acting as Agent, and NationsBank (and any successor acting as
Agent) and its Affiliates may accept fees and other consideration from
Borrower or any of its Subsidiaries or Affiliates for services in connection
with this Agreement or otherwise without having to account for the same to
Banks.
SECTION 14.5. INDEMNIFICATION. Banks agree to indemnify Agent (to the
extent not reimbursed by Borrower or any Subsidiary of Borrower hereof, but
without limiting the obligations of Borrower or any Subsidiary of Borrower to
so reimburse) ratably in accordance with their respective Commitments, for
any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses (including attorneys' fees), or
disbursements of any kind and nature whatsoever that may be imposed on,
incurred by or asserted against Agent (including by any Bank) in any way
relating to or arising out of any Loan Paper or the transactions contemplated
thereby or any action taken or omitted by Agent under any Loan Paper
(INCLUDING ANY OF THE FOREGOING ARISING FROM THE NEGLIGENCE OF AGENT);
PROVIDED that no Bank shall be liable for any of the foregoing to the extent
they arise from the gross negligence or willful misconduct of the Person to
be indemnified. Without limitation of the foregoing, each Bank agrees to
reimburse Agent promptly upon demand for its ratable share of any costs or
expenses payable by Borrower hereunder, to the extent that Agent is not
promptly reimbursed for such costs and expenses by Borrower. The agreements
contained in this SECTION 14.5 shall survive payment and performance in full
of the Obligations and all other amounts payable under this Agreement.
SECTION 14.6. NON-RELIANCE ON AGENT AND OTHER BANKS. Each Bank agrees
that it has, independently and without reliance on Agent or any other Bank,
and based on such documents and information as it has deemed appropriate,
made its own credit analysis of Borrower and its Subsidiaries and decision to
enter into this Agreement and that it will, independently and without
reliance upon Agent or any other Bank, and based on such documents and
information as it shall
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deem appropriate at the time, continue to make its own analysis and decisions
in taking or not taking action under the Loan Papers. Except for notices,
reports, and other documents and information expressly required to be
furnished to Banks by Agent hereunder, Agent shall not have any duty or
responsibility to provide any Bank with any credit or other information
concerning the affairs, financial condition, or business of Borrower or any
of its Subsidiaries or Affiliates that may come into the possession of Agent
or any of its Affiliates.
SECTION 14.7. RESIGNATION OF AGENT. Agent may resign at any time by
giving notice thereof to Banks and Borrower. Upon any such resignation, the
Required Banks shall have the right to appoint a successor Agent. If no
successor Agent shall have been so appointed by the Required Banks and shall
have accepted such appointment within thirty (30) days after the retiring
Agent's giving of notice of resignation, then the retiring Agent may, on
behalf of Banks, appoint a successor Agent which shall be a commercial bank
organized under the Laws of the United States of America having combined
capital and surplus of at least $100,000,000. Upon the acceptance of any
appointment as Agent hereunder by a successor, such successor shall thereupon
succeed to and become vested with all the rights, powers, discretion,
privileges, and duties of the retiring Agent, and the retiring Agent shall be
discharged from its duties and obligations hereunder. After any retiring
Agent's resignation hereunder as Agent, the provisions of this ARTICLE XIV
shall continue in effect for its benefit in respect of any actions taken or
omitted to be taken by it while it was acting as Agent.
ARTICLE XV
MISCELLANEOUS
SECTION 15.1. NOTICES. All notices, requests and other communications
to any party hereunder shall be in writing (including bank wire, telecopy or
similar writing) and shall be given, if to Agent or any Bank, at its address
or telecopier number set forth on SCHEDULE 1 hereto, and if given to
Borrower, at its address or telecopy number set forth on the signature pages
hereof (or in either case, at such other address or telecopy number as such
party may hereafter specify for the purpose by notice to the other parties
hereto). Each such notice, request or other communication shall be effective
(a) if given by telecopy, when such telecopy is transmitted to the telecopy
number specified in this SECTION 15.1 and the appropriate answerback is
received or receipt is otherwise confirmed, (b) if given by mail, three (3)
Domestic Business Days after deposit in the mails with first class postage
prepaid, addressed as aforesaid or (c) if given by any other means, when
delivered at the address specified in this SECTION 15.1; PROVIDED THAT
notices to Agent under ARTICLE II or III shall not be effective until
received.
SECTION 15.2. NO WAIVERS. No failure or delay by Agent or any Bank in
exercising any right, power or privilege hereunder or under any Note or other
Loan Paper shall operate as a waiver thereof nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies
herein provided shall be cumulative and not exclusive of any rights or
remedies provided by Law or in any of the other Loan Papers.
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SECTION 15.3. EXPENSES; INDEMNIFICATION. (a) Borrower agrees to pay on
demand all reasonable costs and expenses of Agent in connection with the
syndication, preparation, execution, delivery, modification, and amendment of
this Agreement, the other Loan Papers, and the other documents to be
delivered hereunder, including, without limitation, the reasonable fees and
expenses of counsel for Agent (including the cost of internal counsel) with
respect thereto and with respect to advising Agent as to its rights and
responsibilities under the Loan Papers. Borrower further agrees to pay on
demand all reasonable costs and expenses of Agent and Banks, if any
(including, without limitation, reasonable attorneys' fees and expenses and
the cost of internal counsel), in connection with the enforcement (whether
through negotiations, legal proceedings, or otherwise) of the Loan Papers and
the other documents to be delivered hereunder.
(b) Borrower agrees to indemnify and hold harmless Agent and each Bank
and each of their Affiliates and their respective officers, directors,
employees, agents, and advisors (each, an "INDEMNIFIED PARTY") from and
against any and all claims, damages, losses, liabilities, costs, and expenses
(including, without limitation, reasonable attorneys' fees) that may be
incurred by or asserted or awarded against any Indemnified Party, in each
case arising out of or in connection with or by reason of (including, without
limitation, in connection with any investigation, litigation, or proceeding
or preparation of defense in connection therewith) the Loan Papers, any of
the transactions contemplated herein or the actual or proposed use of the
proceeds of the Revolving Loan (INCLUDING ANY OF THE FOREGOING ARISING FROM
THE NEGLIGENCE OF THE INDEMNIFIED PARTY), except to the extent such claim,
damage, loss, liability, cost, or expense is found in a final, non-appealable
judgment by a court of competent jurisdiction to have resulted from such
Indemnified Party's gross negligence or willful misconduct. In the case of
an investigation, litigation or other proceeding to which the indemnity in
this SECTION 15.3 applies, such indemnity shall be effective whether or not
such investigation, litigation or proceeding is brought by Borrower, its
directors, shareholders or creditors or an Indemnified Party or any other
Person or any Indemnified Party is otherwise a party thereto and whether or
not the transactions contemplated hereby are consummated. Borrower agrees
not to assert any claim against Agent, any Bank, any of their Affiliates, or
any of their respective directors, officers, employees, attorneys, agents,
and advisers, on any theory of liability, for special, indirect,
consequential, or punitive damages arising out of or otherwise relating to
the Loan Papers, any of the transactions contemplated herein or the actual or
proposed use of the proceeds of the Revolving Loan.
(c) Without prejudice to the survival of any other agreement of
Borrower hereunder, the agreements and obligations of Borrower contained in
this SECTION 15.3 shall survive the payment in full of the Loans and all
other amounts payable under this Agreement.
SECTION 15.4. RIGHT OF SET-OFF; ADJUSTMENTS. (a) Upon the occurrence
and during the continuance of any Event of Default, each Bank (and each of
its Affiliates) is hereby authorized at any time and from time to time, to
the fullest extent permitted by Law, to set off and apply any and all
deposits (general or special, time or demand, provisional or final) at any
time held and other indebtedness at any time owing by such Bank (or any of
its Affiliates) to or for the credit or the account of Borrower against any
and all of the Obligations, irrespective of whether such Bank shall have made
any demand under this Agreement or Note held by such and although such
obligations
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may be unmatured. Each Bank agrees promptly to notify Borrower after any
such set-off and application made by such Bank; PROVIDED, HOWEVER, that the
failure to give such notice shall not affect the validity of such set-off and
application. The rights of each Bank under this SECTION 15.4 are in addition
to other rights and remedies (including, without limitation, other rights of
set-off) that such Bank may have.
(b) If any Bank (a "BENEFITTED BANK") shall at any time receive any
payment of all or part of the Loans owing to it, or interest thereon, or
receive any collateral in respect thereof (whether voluntarily or
involuntarily, by set-off, or otherwise), in a greater proportion than any
such payment to or collateral received by any other Bank, if any, in respect
of such other Bank's Loans owing to it, or interest thereon, such benefitted
Bank shall purchase for cash from the other Banks a participating interest in
such portion of each such other Bank's Loans owing to it, or shall provide
such other Banks with the benefits of any such collateral, or the proceeds
thereof, as shall be necessary to cause such benefitted Bank to share the
excess payment or benefits of such collateral or proceeds ratably with each
Banks; PROVIDED, HOWEVER, that if all or any portion of such excess payment
or benefits is thereafter recovered from such benefitted Bank, such purchase
shall be rescinded, and the purchase price and benefits returned, to the
extent of such recovery, but without interest. Borrower agrees that any Bank
so purchasing a participation from a Bank pursuant to this SECTION 15.4 may,
to the fullest extent permitted by Law, exercise all of its rights of payment
(including the right of set-off) with respect to such participation as fully
as if such Person were the direct creditor of Borrower in the amount of such
participation.
SECTION 15.5. AMENDMENTS AND WAIVERS. Any provision of this Agreement
or any other Loan Paper may be amended or waived if, but only if, such
amendment or waiver is in writing and is signed by Borrower and the Required
Banks (and, if ARTICLE XIV or the rights or duties of Agent are affected
thereby, by Agent); PROVIDED that no such amendment or waiver shall, unless
signed by each Bank directly affected thereby, (i) increase the Commitments
of Banks, (ii) reduce the principal of or rate of interest on any Loan or any
fees or other amounts payable hereunder, (iii) postpone any date fixed for
the payment of any scheduled installment of principal of or interest on any
Loan or any fees or other amounts payable hereunder or for termination of any
Commitment, (iv) change the percentage of the Commitments or of the unpaid
principal amount of the Notes, or the number of Banks, which shall be
required for Banks or any of them to take any action under this SECTION 15.5
or any other provision of this Agreement, or (v) release any guarantor of the
Obligations or all or substantially all of the collateral securing the
Obligations.
SECTION 15.6. SURVIVAL. All representations, warranties and covenants
made by any Credit Party herein or in any certificate or other instrument
delivered by it or in its behalf under the Loan Papers shall be considered to
have been relied upon by Banks and shall survive the delivery to Banks of
such Loan Papers or the extension of the Revolving Loan (or any part
thereof), regardless of any investigation made by or on behalf of Banks. The
indemnity provided in SECTION 15.3(b) herein shall survive the repayment of
all credit advances hereunder and/or the discharge or release of any Lien
granted hereunder or in any other Loan Paper, contract or agreement between
Borrower or any other Credit Party and Agent or any Bank.
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SECTION 15.7. LIMITATION ON INTEREST. Regardless of any provision
contained in the Loan Papers, Banks shall never be entitled to receive,
collect, or apply, as interest on the Revolving Loan, any amount in excess of
the Maximum Lawful Rate, and in the event any Bank ever receives, collects or
applies as interest any such excess, such amount which would be deemed
excessive interest shall be deemed a partial prepayment of principal and
treated hereunder as such; and if the Revolving Loan is paid in full, any
remaining excess shall promptly be paid to Borrower. In determining whether
or not the interest paid or payable under any specific contingency exceeds
the Maximum Lawful Rate, Borrower and Banks shall, to the extent permitted
under applicable Law, (a) characterize any nonprincipal payment as an
expense, fee or premium rather than as interest, (b) exclude voluntary
prepayments and the effects thereof and (c) amortize, prorate, allocate and
spread, in equal parts, the total amount of the interest throughout the
entire contemplated term of the Notes, so that the interest rate is the
Maximum Lawful Rate throughout the entire term of the Notes; PROVIDED,
HOWEVER, that if the unpaid principal balance thereof is paid and performed
in full prior to the end of the full contemplated term thereof, and if the
interest received for the actual period of existence thereof exceeds the
Maximum Lawful Rate, Banks shall refund to Borrower the amount of such excess
and, in such event, Banks shall not be subject to any penalties provided by
any laws for contracting for, charging, taking, reserving or receiving
interest in excess of the Maximum Lawful Rate.
SECTION 15.8. INVALID PROVISIONS. If any provision of the Loan Papers
is held to be illegal, invalid, or unenforceable under present or future Laws
effective during the term thereof, such provision shall be fully severable,
the Loan Papers shall be construed and enforced as if such illegal, invalid,
or unenforceable provision had never comprised a part thereof, and the
remaining provisions thereof shall remain in full force and effect and shall
not be affected by the illegal, invalid, or unenforceable provision or by its
severance therefrom. Furthermore, in lieu of such illegal, invalid, or
unenforceable provision there shall be added automatically as a part of the
Loan Papers a provision as similar in terms to such illegal, invalid, or
unenforceable provision as may be possible and be legal, valid and
enforceable.
SECTION 15.9. WAIVER OF CONSUMER CREDIT LAWS. Pursuant to Article
15.10(b) of Chapter 15, Subtitle 79, Revised Civil Statutes of Texas, 1925,
as amended, Borrower agrees that such Chapter 15 shall not govern or in any
manner apply to the Revolving Loan.
SECTION 15.10. ASSIGNMENTS AND PARTICIPATIONS. (a) Each Bank may
assign to one or more Eligible Assignees all or a portion of its rights and
obligations under this Agreement (including, without limitation, all or a
portion of its interest in the Revolving Loan, its Notes, and its
Commitment); PROVIDED, HOWEVER, that
(i) each such assignment shall be to an Eligible Assignee;
(ii) except in the case of an assignment to another Bank or an
assignment of all of a Bank's rights and obligations under this Agreement,
any such partial assignment shall be in an amount at least equal to
$5,000,000 or an integral multiple of $100,000 in excess thereof;
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(iii) each such assignment by a Bank shall be of a constant, and
not varying, percentage of all of its rights and obligations under this
Agreement and its Notes; and
(iv) the parties to such assignment shall execute and deliver to
Agent for its acceptance an Assignment and Acceptance Agreement (herein so
called) in the form of EXHIBIT I hereto, together with any Notes subject to
such assignment and a processing fee of $3,500.
Upon execution, delivery, and acceptance of such Assignment and Acceptance
Agreement, the assignee thereunder shall be a party hereto and, to the extent
of such assignment, have the obligations, rights, and benefits of a Bank
hereunder and the assigning Bank shall, to the extent of such assignment,
relinquish its rights and be released from its obligations under this
Agreement. Upon the consummation of any assignment pursuant to this SECTION
15.10(a), the assignor, Agent and Borrower shall make appropriate
arrangements so that, if required, new Notes are issued to the assignor and
the assignee. If the assignee is not incorporated under the Laws of the
United States of America or a state thereof, it shall deliver to Borrower and
Agent certification as to exemption from deduction or withholding of Taxes in
accordance with SECTION 5.6.
(b) Agent shall maintain at its address set forth on SCHEDULE 1 hereto,
a copy of each Assignment and Acceptance Agreement delivered to and accepted
by it and a register for the recordation of the names and addresses of Banks
and the Commitment of, and principal amount of the Revolving Loan owing to,
each Bank and the Commitment Percentage of each Bank from time to time (the
"REGISTER"). The entries in the Register shall be conclusive and binding for
all purposes, absent manifest error, and Borrower, Agent and Banks may treat
each Person whose name is recorded in the Register as a Bank hereunder for
all purposes of this Agreement. The Register shall be available for
inspection by Borrower or any Bank at any reasonable time and from time to
time upon reasonable prior notice.
(c) Upon its receipt of an Assignment and Acceptance Agreement
executed by the parties thereto, together with any Notes subject to such
assignment and payment of the processing fee, Agent shall, if such Assignment
and Acceptance Agreement has been completed and is in substantially the form
of EXHIBIT I hereto, (i) accept such Assignment and Acceptance Agreement,
(ii) record the information contained therein in the Register, and (iii) give
prompt notice thereof to the parties thereto.
(d) Each Bank may sell participations to one or more Persons in all or
a portion of its rights and obligations under this Agreement (including all
or a portion of its Commitment and its interest in the Revolving Loan);
PROVIDED, HOWEVER, that (i) such Bank's obligations under this Agreement
shall remain unchanged, (ii) such Bank shall remain solely responsible to
the other parties hereto for the performance of such obligations, (iii) the
participant shall be entitled to the benefit of the yield protection
provisions contained in ARTICLE V and the right of set-off contained in
SECTION 15.4, and (iv) Borrower shall continue to deal solely and directly
with such Bank in connection with such Bank's rights and obligations under
this Agreement, and such Bank shall retain the sole right to enforce the
obligations of Borrower relating to its interest in the Revolving Loan and
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its Notes and to approve any amendment, modification, or waiver of any
provision of this Agreement (other than amendments, modifications, or waivers
decreasing the amount of principal of or the rate at which interest is
payable on the Revolving Loan or Notes, extending any scheduled principal
payment date or date fixed for the payment of interest on the Revolving Loan
or Notes, or extending its Commitment).
(e) Notwithstanding any other provision set forth in this Agreement,
any Bank may at any time assign and pledge all or any portion of its interest
in the Revolving Loan and its Notes to any Federal Reserve Bank as collateral
security pursuant to Regulation A and any Operating Circular issued by such
Federal Reserve Bank. No such assignment shall release the assigning Bank
from its obligations hereunder.
(f) Any Bank may furnish any information concerning Borrower or any of
its Subsidiaries in the possession of such Bank from time to time to
assignees and participants (including prospective assignees and participants).
(g) Borrower shall not assign or transfer any rights or obligations
under any Loan Paper or permit any Credit Party to assign a transfer of
rights or obligations under any Loan Paper without first obtaining all Banks'
consent, and any purported assignment or transfer without all Banks' consent
is void.
SECTION 15.11. TEXAS LAW. THIS AGREEMENT, EACH NOTE AND THE OTHER LOAN
PAPERS HAVE BEEN EXECUTED AND DELIVERED IN THE STATE OF TEXAS AND SHALL BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS
AND THE LAWS OF THE UNITED STATES OF AMERICA, EXCEPT TO THE EXTENT THAT THE
LAWS OF ANY STATE IN WHICH ANY PROPERTY INTENDED AS SECURITY FOR THE
OBLIGATIONS IS LOCATED NECESSARILY GOVERN (a) THE PERFECTION AND PRIORITY OF
THE LIENS IN FAVOR OF AGENT AND BANKS WITH RESPECT TO SUCH PROPERTY, AND (b)
THE EXERCISE OF ANY REMEDIES (INCLUDING FORECLOSURE) WITH RESPECT TO SUCH
PROPERTY.
SECTION 15.12. CONSENT TO JURISDICTION; WAIVER OF IMMUNITIES. (a)
Borrower hereby irrevocably submits to the jurisdiction of any Texas State or
Federal court sitting in the Northern District of Texas over any action or
proceeding arising out of or relating to this Agreement or any other Loan
Papers, and Borrower hereby irrevocably agrees that all claims in respect of
such action or proceeding may be heard and determined in such Texas State or
Federal court. As an alternative, Borrower irrevocably consents to the
service of any and all process in any such action or proceeding by the
mailing of copies of such process to such Person at its address specified in
SECTION 15.1. Borrower agrees that a final judgment on any such action or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law.
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(b) Nothing in this SECTION 15.12 shall affect any right of Banks
to serve legal process in any other manner permitted by law or affect the
right of any Bank to bring any action or proceeding against any Credit Party
or their properties in the courts of any other jurisdictions.
(c) To the extent that Borrower has or hereafter may acquire any
immunity from jurisdiction of any court or from any legal process (whether
through service or notice, attachment prior to judgment, attachment in aid of
execution, execution or otherwise) with respect to itself or its property,
such Person hereby irrevocably waives such immunity in respect of its
obligations under this Agreement and the other Loan Papers.
SECTION 15.13. COUNTERPARTS; EFFECTIVENESS. This Agreement may be
signed in any number of counterparts, each of which shall be an original,
with the same effect as if the signatures thereto and hereto were upon the
same instrument. This Agreement shall become effective when Agent shall have
received counterparts hereof signed by all of the parties hereto or, in the
case of any Bank as to which an executed counterpart shall not have been
received, Agent shall have received telegraphic or other written confirmation
from such Bank of execution of a counterpart hereof by such Bank.
SECTION 15.14. NO THIRD PARTY BENEFICIARIES. It is expressly intended
that there shall be no third party beneficiaries of the covenants,
agreements, representations or warranties herein contained other than third
party beneficiaries permitted pursuant to SECTION 14.10.
SECTION 15.15. COMPLETE AGREEMENT. THIS AGREEMENT AND THE OTHER LOAN
PAPERS COLLECTIVELY REPRESENT THE FINAL AGREEMENT BY AND AMONG BANKS, AGENT
AND THE CREDIT PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF BANKS, AGENT AND THE CREDIT
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG BANKS, AGENT AND THE
CREDIT PARTIES.
SECTION 15.16. WAIVER OF JURY TRIAL. BORROWER, AGENT AND BANKS HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN PAPERS AND FOR
ANY COUNTERCLAIM THEREIN.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective Authorized Officers on the day and year
first above written.
BORROWER:
QUICKSILVER RESOURCES, INC.,
a Delaware corporation
By: /s/ Glenn Darden
---------------------------------
Glenn Darden,
Vice President
Address for Notice:
1619 Pennsylvania Avenue
Fort Worth, Texas 76104
Attn: Glenn Darden
Fax No. (817) 877-3829
BANKS:
NATIONSBANK OF TEXAS, N.A.
By: /s/ J. Scott Fowler
---------------------------------
J. Scott Fowler, Vice President
AGENT:
NATIONSBANK OF TEXAS, N.A.
By: /s/ J. Scott Fowler
---------------------------------
J. Scott Fowler, Vice President
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EXHIBIT A
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT (this "AGREEMENT") is made as of __________, _____ by
Quicksilver Resources, Inc., a Delaware corporation (herein called
"BORROWER"), in favor of NationsBank of Texas, N.A., as Agent for the ratable
benefit of Banks (as defined below) (herein called "AGENT").
W I T N E S S E T H:
WHEREAS, Borrower, Agent and Banks are parties to an Amended and
Restated Credit Agreement dated as of _________, 1998, pursuant to which
Banks have agreed to make a revolving credit loan and a term loan to Borrower
and issue and participate in letters of credit issued on behalf of Borrower
(herein called the "CREDIT AGREEMENT"); and
WHEREAS, it is a condition to the agreement of Banks to make the
revolving loan and the term loan and issue and participate in Letters of
Credit under the Credit Agreement that Borrower execute and deliver this
Agreement in favor of Agent for the benefit of Banks.
NOW, THEREFORE, in consideration of the premises and in order to induce
Banks to extend credit under the Credit Agreement, Borrower hereby agrees
with Agent as follows:
ARTICLE I
DEFINITIONS AND REFERENCES
Section 1.1. GENERAL DEFINITIONS. As used herein, the terms
"AGREEMENT," "CREDIT AGREEMENT," "AGENT," and "BORROWER," shall have the
meanings indicated above, and the following terms shall have the following
meanings:
"BANK" means any financial institution reflected on Schedule 1 to the
Credit Agreement and its successors and assigns, and "BANKS" shall mean all
Banks.
"CODE" means the Uniform Commercial Code in effect in the State of Texas
on the date hereof.
"COLLATERAL" means all property of whatever type, in which Agent at any
time has a security interest pursuant to SECTION 2.1.
"COMMITMENT" means the agreement or commitment by Banks to make loans or
otherwise extend credit to Borrower under the Credit Agreement, and any other
agreement, commitment, statement of terms or other document contemplating the
making of loans or advances or other
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extension of credit by Banks to or for the account of Borrower which is now
or at any time hereafter intended to be secured by the Collateral under this
Agreement.
"OBLIGATION DOCUMENTS" means the Credit Agreement, the Notes, the other
Loan Papers, and all other documents and instruments under, by reason of
which, or pursuant to which, any or all of the Obligations are evidenced,
governed, secured, or otherwise dealt with, and all other agreements,
certificates, and other documents, instruments and writings heretofore or
hereafter delivered in connection herewith or therewith.
"OBLIGATIONS" means all present and future indebtedness, obligations and
liabilities of whatever type which are or shall be secured pursuant to
SECTION 2.2.
"OTHER LIABLE PARTY" means any Person, other than Borrower, who may now
or may at any time hereafter be primarily or secondarily liable for any of
the Obligations or who may now or may at any time hereafter have granted to
Agent or Banks a Lien upon any property as security for the Obligations.
"PLEDGED SHARES" has the meaning given it in SECTION 2.1.
Section 1.2. OTHER DEFINITIONS. Reference is hereby made to the
Credit Agreement for a statement of the terms thereof. All capitalized terms
used in this Agreement which are defined in the Credit Agreement and not
otherwise defined herein shall have the same meanings herein as set forth
therein. All terms used in this Agreement which are defined in the Code and
not otherwise defined herein or in the Credit Agreement shall have the same
meanings herein as set forth therein, except where the context otherwise
requires.
Section 1.3. EXHIBITS. All exhibits attached to this Agreement are a
part hereof for all purposes.
Section 1.4. AMENDMENT OF DEFINED INSTRUMENTS. Unless the context
otherwise requires or unless otherwise provided herein, references in this
Agreement to a particular agreement, instrument or document also refer to and
include all renewals, extensions, amendments, modifications, supplements or
restatements of any such agreement, instrument or document, provided that
nothing contained in this SECTION 1.4 shall be construed to authorize any
Person to execute or enter into any such renewal, extension, amendment,
modification, supplement or restatement.
Section 1.5. REFERENCES AND TITLES. All references in this Agreement
to Exhibits, Articles, Sections, subsections, and other subdivisions refer to
the Exhibits, Articles, Sections, subsections and other subdivisions of this
Agreement unless expressly provided otherwise. Titles appearing at the
beginning of any subdivision are for convenience only and do not constitute
any part of any such subdivision and shall be disregarded in construing the
language contained in this Agreement. The words "this Agreement," "herein,"
"hereof," "hereby," "hereunder" and words of similar import refer to this
Agreement as a whole and not to any particular subdivision unless expressly
so limited. The
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phrases "this Section" and "this subsection" and similar phrases refer only
to the Sections or subsections hereof in which the phrase occurs. The word
"or" is not exclusive, and the word "including" (in all of its forms) means
"including without limitation". Pronouns in masculine, feminine and neuter
gender shall be construed to include any other gender, and words in the
singular form shall be construed to include the plural and vice versa unless
the context otherwise requires.
ARTICLE II
SECURITY INTEREST
Section 2.1. GRANT OF SECURITY INTEREST. As collateral security for
all of the Obligations, Borrower hereby pledges and assigns to Agent and
grants to Agent a continuing first priority security interest for the benefit
of Banks in and to all of the following rights, interests and property:
(a) all of the issued and outstanding shares of capital stock of
[each Subsidiary of Borrower] now owned or hereafter acquired by Borrower
including, without limitation, the shares of [each Subsidiary of Borrower]
owned by Borrower on the date hereof (all of the foregoing being herein
sometimes called the "PLEDGED SHARES");
(b) any and all proceeds or other sums arising from or by virtue of,
and all dividends and distributions (c)ash or otherwise) payable and/or
distributable with respect to, all or any of the Pledged Shares described in
clause (a) preceding; and
(c) all cash, securities, dividends and other property at any time and
from time to time receivable or otherwise distributed in respect of or in
exchange for any or all of the Pledged Shares described in clause (a) hereof
and any other property substituted or exchanged therefor.
Section 2.2. OBLIGATIONS SECURED. The security interest created
hereby in the Collateral constitutes continuing collateral security for all
of the following obligations, indebtedness and liabilities, whether now
existing or hereafter incurred:
(a) CREDIT AGREEMENT INDEBTEDNESS. The payment by Borrower, as and
when due and payable, of all amounts from time to time owing by Borrower
under or in respect of the Credit Agreement, the Notes or any of the other
Obligation Documents.
(b) RENEWALS. All renewals, extensions, amendments, modifications,
supplements, or restatements of, or substitutions for, any of the foregoing.
(c) PERFORMANCE. The due performance and observance by Borrower of all
of its other obligations from time to time existing under or in respect of
any of the Obligation Documents.
(d) HEDGE TRANSACTIONS. The payment and performance of any and all
present or future obligations of Borrower according to the terms of any
present or future Hedge Transaction, including, without limitation, any
present or future swap agreements, cap, floor, collar, exchange,
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transaction, forward agreement or other exchange or protection agreements
relating to crude oil, natural gas or other Hydrocarbons, or any option with
respect to any such transaction now existing or hereafter entered into
between and/or among Borrower, Agent, any Bank or any affiliate of any of the
foregoing.
ARTICLE III
REPRESENTATIONS WARRANTIES AND COVENANTS
Section 3.1. REPRESENTATIONS AND WARRANTIES. Borrower represents and
warrants as follows:
(a) OWNERSHIP AND LIENS. Borrower has good and marketable title to the
Collateral free and clear of all Liens, encumbrances or adverse claims,
except for the security interest created by this Agreement. No effective
financing statement or other instrument similar in effect covering all or any
part of the Collateral is on file in any recording office except such as have
been filed in favor of Agent relating to this Agreement.
(b) NO CONFLICTS OR CONSENTS. Neither the ownership or the intended
use of the Collateral by Borrower, nor the grant of the security interest by
Borrower to Agent herein, nor the exercise by Agent of its rights or remedies
hereunder, will (i) conflict with any provision of (a) any domestic or
foreign law, statute, rule or regulation, (b) the articles of incorporation,
charter or bylaws of Borrower, or (c) any agreement, judgment, license, order
or permit applicable to or binding upon Borrower, or (ii) result in or
require the creation of any Lien, charge or encumbrance upon any assets or
properties of Borrower except as expressly contemplated in the Obligation
Documents. Except as expressly contemplated in the Obligation Documents, no
consent, approval, authorization or order of, and no notice to or filing
with, any court, Governmental Authority or third party is required in
connection with the grant by Borrower of the security interest herein, or the
exercise by Agent of its rights and remedies hereunder.
(c) SECURITY INTEREST. Borrower has and will have at all times full
right, power and authority to grant a security interest in the Collateral to
Agent in the manner provided herein, free and clear of any Lien, adverse
claim, or encumbrance. This Agreement creates a valid and binding security
interest in favor of Agent in the Collateral securing the Obligations. The
taking possession by Agent (for the ratable benefit of Banks) of all
certificates, instruments and cash constituting Collateral from time to time
and the filing of the financing statements delivered concurrently herewith by
Borrower to Agent will perfect, and establish the first priority of, Agent's
security interest hereunder in the Collateral securing the Obligations. No
further or subsequent filing, recording, registration, other public notice or
other action is necessary or desirable to perfect or otherwise continue,
preserve or protect such security interest except for continuation statements
or filings as contemplated in SECTION 3.3(b).
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(d) PLEDGED SHARES. (i) Borrower is the legal and beneficial owner of
the Pledged Shares issued by [each Subsidiary of Borrower], (ii) the Pledged
Shares are duly authorized and issued, fully paid and non-assessable, and all
documentary, stamp or other Taxes or fees owing in connection with the
issuance, transfer and/or pledge thereof hereunder have been paid, (iii) no
dispute, right of setoff, counterclaim or defense exists with respect to all
or any part of the Pledged Shares, (iv) the Pledged Shares are free and clear
of all Liens, options, warrants, puts, calls or other rights of third
Persons, and restrictions, other than (a) those Liens arising under this
Agreement or any other of the Loan Papers and Liens for Taxes not yet due and
payable, and (b) restrictions on transferability imposed by applicable state
and federal securities Laws, (v) Borrower has full right and authority to
pledge the Pledged Shares for the purposes and upon the terms set out herein,
(vi) certificates representing the Pledged Shares have been delivered to
Agent, together with a duly executed blank stock power with signatures
guaranteed, for each certificate, (vii) the Pledged Shares constitute all of
the issued and outstanding capital stock of [each Subsidiary of Borrower] of
every class, and (viii) [no Subsidiary of Borrower] has issued, and there are
not outstanding, any options, warrants or other rights to acquire capital
stock of [any Subsidiary of Borrower].
Section 3.2. AFFIRMATIVE COVENANTS. Unless Agent shall otherwise
consent in writing, Borrower will at all times comply with the covenants
contained in this SECTION 3.2 from the date hereof and so long as any part of
the Obligations or Commitments is outstanding.
(a) OWNERSHIP AND LIENS. Borrower will maintain good and marketable
title to all Collateral free and clear of all Liens encumbrances or adverse
claims, except for the security interest created by this Agreement and the
security interests and other encumbrances expressly permitted by the Credit
Agreement. Borrower will cause to be terminated any financing statement or
other registration with respect to the Collateral, except such as may exist
or as may have been filed in favor of Agent. Borrower will defend Agent's
right, title and special property and security interest in and to the
Collateral against the claims of any Person.
(b) FURTHER ASSURANCES. Borrower will, at its expense and at any time
and from time to time, promptly execute and deliver all further instruments
and documents and take all further action that may be necessary or desirable
or that Agent may request in order (i) to perfect and protect the security
interest created or purported to be created hereby and the first priority of
such security interest; (ii) to enable Agent to exercise and enforce its
rights and remedies hereunder in respect of the Collateral; or (iii) to
otherwise effect the purposes of this Agreement, including, without
limitation: (a) executing and filing such financing or continuation
statements, or amendments thereto, as may be necessary or desirable or that
Agent may request in order to perfect and preserve the security interest
created or purported to be created hereby; and (b) furnishing to Agent from
time to time statements and schedules further identifying and describing the
Collateral and such other reports in connection with the Collateral as Agent
may reasonably request, all in reasonable detail.
(c) DELIVERY OF PLEDGED SHARES. All certificates, instruments and
writings evidencing the Pledged Shares shall be delivered to Agent on or
prior to the execution and delivery of this Agreement. All other
certificates, instruments and writings hereafter evidencing or constituting
Pledged Shares shall be delivered to Agent promptly upon the receipt thereof
by or on behalf of
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Borrower. All such Pledged Shares shall be held by or on behalf of Agent
pursuant hereto and shall be delivered in the same manner and with the same
effect as described in SECTION 2.1 and SECTION 3.1 hereof. Upon delivery,
such shares shall thereupon constitute "Pledged Shares" and shall be subject
to the Liens herein created, for the purposes and upon the terms and
conditions set forth in this Agreement and the other Loan Papers.
(d) PROCEEDS OF PLEDGED SHARES. If Borrower shall receive, by virtue
of its being or having been an owner of any Pledged Shares, any (i) shares of
capital stock (including any certificate representing any shares of capital
stock or distribution in connection with any increase or reduction of
capital, reorganization, reclassification, merger, consolidation, sale of
assets, or spinoff or split-off), promissory note or other instrument or
writing; (ii) option or right, whether as an addition to, substitution for,
or in exchange for, any Pledged Shares or otherwise; (iii) dividends payable
in cash (except such dividends permitted to be retained by Borrower pursuant
to SECTION 4.7 hereof) or in securities or other property; or (iv) dividends
or other distributions in connection with a partial or total liquidation or
dissolution or in connection with a reduction of capital, capital surplus or
paid-in surplus, Borrower shall receive the same in trust for the benefit of
Agent, shall segregate it from Borrower's other property, and shall promptly
deliver it to Agent in the exact form received, with any necessary
endorsement or appropriate stock powers duly executed in blank, to be held by
Agent as Collateral.
(e) STATUS OF PLEDGED SHARES. The certificates evidencing the Pledged
Shares shall at all times be valid and genuine and shall not be altered. The
Pledged Shares at all times shall be duly authorized, validly issued, fully
paid, and non-assessable, shall not be issued in violation of the pre-emptive
rights of any Person or of any agreement by which Borrower or
[any of its Subsidiaries] is bound, and, except for the bylaws of Borrower,
shall not be subject to any restrictions or conditions with respect to the
transfer, voting or capital of any Pledged Shares.
Section 3.3. NEGATIVE COVENANTS. Unless Agent shall otherwise consent
in writing, Borrower will at all times comply with the covenants contained in
this SECTION 3.3 from the date hereof and so long as any part of the
Obligations or the Commitments is outstanding.
(a) TRANSFER OR ENCUMBRANCE. Borrower will not sell, assign (by
operation of law or otherwise), transfer, exchange, lease or otherwise
dispose of any of the Collateral, nor will Borrower grant a Lien upon or
execute, file or record any financing statement or other registration with
respect to the Collateral, nor will Borrower allow any such Lien, financing
statement, or other registration to exist or deliver actual or constructive
possession of the Collateral to any other Person other than Liens in favor of
Agent.
(b) FINANCING STATEMENT FILINGS. Borrower recognizes that financing
statements pertaining to the Collateral have been or may be filed where
Borrower maintains any Collateral, has its records concerning any Collateral
or has its chief executive office or chief place of business. Without
limitation of any other covenant herein, Borrower will not cause or permit
any change to be made in its name, identity or corporate structure, or any
change to be made to a jurisdiction other than as represented in SECTION 3.1
hereof in (i) the location of any records concerning any Collateral,
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or (ii) in the location of its chief executive office or chief place of
business, unless Borrower shall have notified Agent of such change at least
thirty (30) days prior to the effective date of such change, and shall have
first taken all action required by Agent for the purpose of further
perfecting or protecting the security interest in favor of Agent in the
Collateral. In any notice furnished pursuant to this subsection, Borrower
will expressly state that the notice is required by this Agreement and
contains facts that may require additional filings of financing statements or
other notices for the purposes of continuing perfection of Agent's security
interest in the Collateral.
(c) IMPAIRMENT OF SECURITY INTEREST. Borrower will not take or fail to
take any action which would in any manner impair the enforceability of Agent's
security interest in any Collateral.
(d) DILUTION OF PLEDGED SHARES. Borrower will not permit the issuance of
(i) any additional shares of capital stock of any class of [any of its
Subsidiaries] (unless immediately upon issuance the same are pledged and
delivered to Agent pursuant to the terms hereof), (ii) any securities
convertible voluntarily by the holder thereof or automatically upon the
occurrence or non-occurrence of any event or condition into, or exchangeable
for, any such capital stock, or (iii) any warrants, options, contracts or other
commitments entitling any Person to purchase or otherwise acquire any such
capital stock of [any Subsidiary of Borrower].
(e) RESTRICTIONS ON PLEDGED SHARES. Except for the bylaws of [each
Subsidiary of Borrower], Borrower will not enter into any agreement creating, or
otherwise permit to exist, any restriction or condition upon the transfer,
voting or control of any Pledged Shares.
ARTICLE IV.
REMEDIES, POWERS AND AUTHORIZATIONS
Section 4.1. PROVISIONS CONCERNING THE COLLATERAL.
(a) ADDITIONAL FINANCING STATEMENT FILINGS. Borrower hereby authorizes
Agent to file, without the signature of Borrower where permitted by law, one (1)
or more financing or continuation statements, and amendments thereto, relating
to the Collateral. Borrower further agrees that a carbon, photographic or other
reproduction of this Agreement or any financing statement describing any
Collateral is sufficient as a financing statement and may be filed in any
jurisdiction Agent may deem appropriate.
(b) POWER OF ATTORNEY. Borrower hereby irrevocably appoints Agent as
Borrower's attorney-in-fact and proxy, with full authority in the place and
stead of Borrower and in the name of Borrower or otherwise, from time to time in
Agent's discretion, to take any action (except for the exercise of any voting
rights pertaining to the Pledged Shares or any part thereof) and to execute any
instrument, certificate or notice which Agent may deem necessary or advisable to
accomplish the purposes of this Agreement including, without limitation: (i) to
request or instruct Borrower (and each registrar, transfer agent, or similar
Person acting on behalf of Borrower) to register the pledge or transfer of the
Collateral to Agent; (ii) to otherwise give notification to Borrower, registrar,
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transfer agent, financial intermediary, or other Person of Agent's security
interests hereunder; (iii) to ask, demand, collect, sue for, recover, compound,
receive and give acquittance and receipts for moneys due and to become due under
or in respect of any of the Collateral; (iv) to receive, indorse and collect any
drafts or other instruments, documents and chattel paper; and (v) to file any
claims or take any action or institute any proceedings which Agent may deem
necessary or desirable for the collection of any of the Collateral or otherwise
to enforce the rights of Agent with respect to any of the Collateral.
(c) PERFORMANCE BY AGENT. If Borrower fails to perform any agreement or
obligation contained herein, Agent may itself perform, or cause performance of,
such agreement or obligation, and the expenses of Agent incurred in connection
therewith shall be payable by Borrower (but not Borrower) under SECTION 4.4.
(d) COLLECTION RIGHTS. Agent shall have the right at any time, upon the
occurrence and during the continuance of a Default or an Event of Default, to
notify any or all obligors (including without limitation Borrower) under any
accounts or general intangibles included among the Collateral of the assignment
thereof to Agent and to direct such obligors to make payment of all amounts due
or to become due to Borrower thereunder directly to Agent and, upon such
notification and at the expense of Borrower (but not Borrower) and to the extent
permitted by law, to enforce collection thereof and to adjust, settle or
compromise the amount or payment thereof, in the same manner and to the same
extent as Borrower could have done. After Borrower receives notice that Agent
has given any notice referred to above in this subsection, (i) all amounts and
proceeds (including instruments and writings) received by Borrower in respect of
such accounts or general intangibles shall be received in trust for the benefit
of Agent hereunder, shall be segregated from other funds of Borrower and shall
be forthwith paid over to Agent in the same form as so received (with any
necessary indorsement) to be held as cash collateral and (a) released to
Borrower upon the remedy of all Defaults or Events of Default, or (b) if any
Event of Default shall have occurred and be continuing, applied as specified in
SECTION 4.3, and (ii) Borrower will not adjust, settle or compromise the amount
or payment of any such account or general intangible or release wholly or partly
any account debtor or obligor thereof (including without limitation Borrower) or
allow any credit or discount thereon.
Section 4.2. EVENT OF DEFAULT REMEDIES. If an Event of Default shall
have occurred and be continuing, Agent may from time to time in its discretion,
without limitation and without notice except as expressly provided below:
(a) exercise in respect of the Collateral, in addition to other rights and
remedies provided for herein, under the other Obligation Documents or otherwise
available to it, all the rights and remedies of a secured party on default under
the Code (whether or not the Code applies to the affected Collateral);
(b) require Borrower to, and Borrower hereby agrees that it will at its
expense and upon request of Agent forthwith, assemble all or part of the
Collateral as directed by Agent and make it
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available to Agent at a place to be designated by Agent which is reasonably
convenient to both parties;
(c) reduce its claim to judgment against Borrower or foreclose or
otherwise enforce, in whole or in part, the security interest created hereby by
any available judicial procedure;
(d) dispose of, at its office, on the premises of Borrower or elsewhere,
all or any part of the Collateral, as a unit or in parcels, by public or private
proceedings, and by way of one or more contracts (it being agreed that the sale
of any part of the Collateral shall not exhaust Agent's power of sale, but sales
may be made from time to time, and at any time, until all of the Collateral has
been sold or until the Obligations have been paid and performed in full), and at
any such sale it shall not be necessary to exhibit any of the Collateral;
(e) buy (or allow any Bank to buy) the Collateral, or any part thereof, at
any public sale;
(f) buy (or allow any Bank to buy) the Collateral, or any part thereof, at
any private sale if the Collateral is of a type customarily sold in a recognized
market or is of a type which is the subject of widely distributed standard price
quotations;
(g) apply by appropriate judicial proceedings for appointment of a
receiver for the Collateral, or any part thereof, and Borrower hereby consents
to any such appointment; and
(h) at its discretion, retain the Collateral in satisfaction of the
Obligations whenever the circumstances are such that Agent is entitled to do so
under the Code or otherwise (provided that Agent shall in no circumstances be
deemed to have retained the Collateral in satisfaction of the Obligations in the
absence of an express notice by Agent to Borrower that Agent has either done so
or intends to do so).
Borrower agrees that, to the extent notice of sale shall be required by law, at
least five (5) days' notice to Borrower of the time and place of any public sale
or the time after which any private sale is to be made shall constitute
reasonable notification. Agent shall not be obligated to make any sale of
Collateral regardless of notice of sale having been given. Agent may adjourn
any public or private sale from time to time by announcement at the time and
place fixed therefor, and such sale may, without further notice, be made at the
time and place to which it was so adjourned.
Section 4.3. APPLICATION OF PROCEEDS. If any Event of Default shall have
occurred and be continuing, Agent may in its discretion apply any cash held by
Agent as Collateral, and any cash proceeds received by Agent in respect of any
sale of, collection from, or other realization upon all or any part of the
Collateral, to any or all of the following in such order as Agent may elect:
(a) To the repayment of the reasonable costs and expenses, including
reasonable attorneys' fees and legal expenses, incurred by Agent in connection
with (i) the administration of this Agreement, (ii) the custody, preservation,
use or operation of, or the sale of, collection from, or other
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realization upon, any Collateral, (iii) the exercise or enforcement of any of
the rights of Agent hereunder, or (iv) the failure of Borrower to perform or
observe any of the provisions hereof;
(b) To the payment or other satisfaction of any Liens, encumbrances, or
adverse claims upon or against any of the Collateral;
(c) To the reimbursement of Agent for the amount of any obligations of
Borrower or any Other Liable Party paid or discharged by Agent pursuant to the
provisions of this Agreement or the other Obligation Documents, and of any
expenses of Agent payable by Borrower hereunder or under the other Obligation
Documents;
(d) To the satisfaction of any other Obligations or any other indebtedness
of Borrower to Banks or Agent;
(e) By holding the same as Collateral;
(f) To the payment of any other amounts required by applicable law
(including, without limitation, Section 9.504(a)(3) of the Code or any successor
or similar, applicable statutory provision); and
(g) By delivery to Borrower or to whomsoever shall be lawfully entitled to
receive the same or as a court of competent jurisdiction shall direct.
Section 4.4. RELEASE AND EXPENSES. In addition to, and not in
qualification of, any similar obligations under other Obligation Documents:
(a) Borrower agrees to release and forever discharge Agent and each Bank
from and against any and all claims, losses and liabilities growing out of or
resulting from this Agreement (including, without limitation, enforcement of
this Agreement). The foregoing release and discharge shall apply whether or not
such claims, losses and liabilities are in any way or to any extent owed, in
whole or in part, under any claim or theory of strict liability or are, to any
extent caused, in whole or in part, by any negligent act or omission of any kind
by Agent or any Bank.
(b) Borrower will upon demand pay to Agent the amount of any and all costs
and expenses, including the fees and disbursements of Agent's counsel and of any
experts and agents, which Agent may incur in connection with (i) the
transactions which give rise to this Agreement; (ii) the preparation of this
Agreement and the perfection and preservation of the security interest created
under this Agreement; (iii) the administration of this Agreement; (iv) the
custody, preservation, use or operation of, or the sale of, collection from, or
other realization upon, any Collateral; (v) the exercise or enforcement of any
of the rights of Agent hereunder; or (vi) the failure by Borrower to perform or
observe any of the provisions hereof, except expenses resulting from Agent's
gross negligence or willful misconduct.
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Section 4.5. NON-JUDICIAL REMEDIES. In granting to Agent the power to
enforce its rights hereunder without prior judicial process or judicial hearing,
Borrower expressly waives, renounces and knowingly relinquishes any legal right
which might otherwise require Agent to enforce its rights by judicial process.
In so providing for non-judicial remedies, Borrower recognizes and concedes that
such remedies are consistent with the usage of trade, are responsive to
commercial necessity, and are the result of a bargain at arm's length. Nothing
herein is intended to prevent Agent or Borrower from resorting to judicial
process at either party's option.
Section 4.6. OTHER RECOURSE. Borrower waives any right to require Agent
or Banks to proceed against any other Person, exhaust any Collateral or other
security for the Obligations, or to have any Other Liable Party joined with
Borrower in any suit arising out of the Obligations or this Agreement, or pursue
any other remedy in Agent's power. Borrower further waives any and all notice
of acceptance of this Agreement and of the creation, modification,
rearrangement, renewal or extension for any period of any of the Obligations of
any Other Liable Party from time to time. Borrower further waives any defense
arising by reason of any disability or other defense of any Other Liable Party
or by reason of the cessation from any cause whatsoever of the liability of any
Other Liable Party. Until all of the Obligations shall have been paid in full,
Borrower shall have no right to subrogation and Borrower waives the right to
enforce any remedy which Agent or any Bank has or may hereafter have against any
Other Liable Party, and waives any benefit of and any right to participate in
any other security whatsoever now or hereafter held by Agent. Borrower
authorizes Agent and each Bank, without notice or demand and without any
reservation of rights against Borrower and without affecting Borrower's
liability hereunder or on the Obligations, from time to time to (a) take or hold
any other property of any type from any other Person as security for the
Obligations, and exchange, enforce, waive and release any or all of such other
property, (b) apply the Collateral or such other property and direct the order
or manner of sale thereof as Agent may in its discretion determine, (c) renew,
extend for any period, accelerate, modify, compromise, settle or release any of
the obligations of any Other Liable Party in respect to any or all of the
Obligations or other security for the Obligations, (d) waive, enforce, modify,
amend or supplement any of the provisions of any Obligation Document with any
Person other than Borrower, and (e) release or substitute any Other Liable
Party.
Section 4.7. VOTING RIGHTS, DIVIDENDS ETC. IN RESPECT OF PLEDGED SHARES.
(a) So long as no Default or Event of Default shall have occurred and be
continuing Borrower may receive and retain any and all dividends or interest
paid in respect of the Pledged Shares; PROVIDED, HOWEVER, that any and all
(i) dividends and interest paid or payable other than in cash in
respect of, and instruments and other property received, receivable or
otherwise distributed in respect of or in exchange for, any Pledged Shares,
(ii) dividends and other distributions paid or payable in cash in
respect of any Pledged Shares in connection with a partial or total
liquidation or dissolution or in connection with a reduction of capital,
capital surplus or paid-in surplus, and
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<PAGE>
(iii) cash paid, payable or otherwise distributed in redemption of,
or in exchange for, any Pledged Shares,
shall be, and shall forthwith be delivered to Agent to hold as, Pledged Shares
and shall, if received by Borrower, be received in trust for the benefit of
Agent, be segregated from the other property or funds of Borrower, and be
forthwith delivered to Agent in the exact form received with any necessary
indorsement or appropriate stock powers duly executed in blank, to be held by
Agent as Collateral.
(b) Upon the occurrence and during the continuance of a Default or an
Event of Default:
(i) all rights of Borrower to receive and retain the dividends and
interest payments which Borrower would otherwise be authorized to receive
and retain pursuant to subsection (a) of this section shall automatically
cease, and all such rights shall thereupon become vested in Agent which
shall thereupon have the right to receive and hold as Pledged Shares such
dividends and interest payments;
(ii) without limiting the generality of the foregoing, Agent may at
its option exercise any and all rights of conversion, exchange,
subscription or any other rights, privileges or options pertaining to any
of the Pledged Shares (except voting rights) as if it were the absolute
owner thereof, including, without limitation, the right to exchange, in its
discretion, any and all of the Pledged Shares upon the merger,
consolidation, reorganization, recapitalization or other adjustment of
Borrower or [any of its Subsidiaries], or upon the exercise by Borrower or
[any of its Subsidiaries] of any right, privilege or option pertaining to
any Pledged Shares, and, in connection therewith, to deposit and deliver
any and all of the Pledged Shares with any committee, depository, transfer,
agent, registrar or other designated agent upon such terms and conditions
as it may determine; and
(iii) all dividends and interest payments which are received by
Borrower contrary to the provisions of subsection (b) (i) of this section
shall be received in trust for the benefit of Agent, shall be segregated
from other funds of Borrower, and shall be forthwith paid over to Agent as
Pledged Shares in the exact form received, to be held by Agent as
Collateral.
Anything herein to the contrary notwithstanding, Agent may not exercise any
voting rights pertaining to the Pledged Shares and Borrower may at all times
exercise any and all voting rights pertaining to the Pledged Shares or any part
thereof for any purpose not inconsistent with the terms of this Agreement or any
other Obligation Document; provided, however, upon the occurrence and during the
continuance of a Default or an Event of Default, Borrower will not exercise or
refrain from exercising any such right, as the case may be, if Agent gives
notice that, in Agent's judgment, such action would result in a Material Adverse
Change with respect to the value of the Pledged Shares or the benefits to Agent
of its security interest hereunder.
Section 4.8. PRIVATE SALE OF PLEDGED SHARES. Borrower recognizes that
Agent may deem it impracticable to effect a public sale of all or any part of
the Pledged Shares and that Agent may,
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<PAGE>
therefore, determine to make one or more private sales of any such securities
to a restricted group of purchasers who will be obligated to agree, among
other things, to acquire such securities for their own account, for
investment and not with a view to the distribution or resale thereof.
Borrower acknowledges that any such private sale may be at prices and on
terms less favorable to the seller than the prices and other terms which
might have been obtained at a public sale and, notwithstanding the foregoing,
agrees that such private sales shall be deemed to have been made in a
commercially reasonable manner and that Agent shall have no obligation to
delay the sale of any such securities for the period of time necessary to
permit Borrower to register such securities (with no obligation of Borrower
to accomplish such registration) for public sale under the Securities Act of
1933, as amended. Borrower further acknowledges and agrees that any offer to
sell such securities which has been (a) publicly advertised on a BONA FIDE
basis in a newspaper or other publication of general circulation in the
financial community of Dallas, Texas (to the extent that such an offer may be
so advertised without prior registration under the Securities Act), or (b)
made privately in the manner described above to not less than fifteen (15)
BONA FIDE offerees shall be deemed to involve a "public sale" for the
purposes of Section 9.504(c) of the Code (or any successor or similar,
applicable statutory provision) as then in effect in the State of Texas,
notwithstanding that such sale may not constitute a "public offering" under
the Securities Act of 1933, as amended, and that Agent may, in such event,
bid for the purchase of such securities.
ARTICLE V
MISCELLANEOUS
Section 5.1. NOTICES. Any notice or communication required or permitted
hereunder shall be given in writing, sent by personal delivery, by telecopy, by
delivery service with proof of delivery, or by registered or certified United
States mail, postage prepaid, addressed to the appropriate party as follows:
TO BORROWER: Quicksilver Resources, Inc.
1619 Pennsylvania Avenue
Fort Worth, Texas 76104
Fax No.: (817) 877-3829
TO AGENT: NationsBank of Texas, N.A., as Agent for Banks
901 Main Street, 64th Floor
Dallas, Texas 75202
Fax No. (214) 508-1285
or to such other address or to the attention of such other individual as
hereafter shall be designated in writing by the applicable party sent in
accordance herewith. Any such notice or communication shall be deemed to have
been given (a) in the case of personal delivery or delivery service, as of the
date of first attempted delivery at the address or in the manner provided
herein, (b) in the case of
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<PAGE>
telecopy, upon receipt, or (c) in the case of registered or certified United
States mail, three (3) days after deposit in the mail.
Section 5.2. AMENDMENTS. No amendment of any provision of this Agreement
shall be effective unless it is in writing and signed by Borrower, Agent and
Banks, and no waiver of any provision of this Agreement, and no consent to any
departure by Borrower therefrom, shall be effective unless it is in writing and
signed by Agent and Banks, and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given and
to the extent specified in such writing.
Section 5.3. PRESERVATION OF RIGHTS. No failure on the part of Agent or
any Bank to exercise, and no delay in exercising, any right hereunder or under
any other Obligation Document shall operate as a waiver thereof; nor shall any
single or partial exercise of any such right preclude any other or further
exercise thereof or the exercise of any other right. Neither the execution nor
the delivery of this Agreement shall in any manner impair or affect any other
security for the Obligations. The rights and remedies of Agent and Banks
provided herein and in the other Obligation Documents are cumulative of and are
in addition to, and not exclusive of, any rights or remedies provided by law.
The rights of Agent and Banks under any Obligation Document against any party
thereto are not conditional or contingent on any attempt by Agent or Banks to
exercise any of its rights under any other Obligation Document against such
party or against any other Person.
Section 5.4. UNENFORCEABILITY. 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 invalidity without
invalidating the remaining portions hereof or thereof or affecting the validity
or enforceability of such provision in any other jurisdiction.
Section 5.5. SURVIVAL OF AGREEMENTS. All representations and warranties
of Borrower herein, and all covenants and agreements herein shall survive the
execution and delivery of this Agreement, the execution and delivery of any
other Obligation Documents and the creation of the Obligations.
Section 5.6. OTHER LIABLE PARTY. Neither this Agreement nor the exercise
by Agent or any Bank or the failure of Agent or any Bank to exercise any right,
power or remedy conferred herein or by law shall be construed as relieving any
Other Liable Party from liability on the Obligations or any deficiency thereon.
This Agreement shall continue irrespective of the fact that the liability of any
Other Liable Party may have ceased or irrespective of the validity or
enforceability of any other Obligation Document to which Borrower or any Other
Liable Party may be a party, and notwithstanding the reorganization, death,
incapacity or bankruptcy of any Other Liable Party, and notwithstanding the
reorganization or bankruptcy or other event or proceeding affecting any Other
Liable Party.
Section 5.7. BINDING EFFECT AND ASSIGNMENT. This Agreement creates a
continuing security interest in the Collateral and (a) shall be binding on
Borrower and its successors and permitted assigns, and (b) shall inure, together
with all rights and remedies of Agent hereunder, to the benefit
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<PAGE>
of Agent and Banks and their respective successors, transferees and assigns.
Without limiting the generality of the foregoing, Agent and Banks may pledge,
assign or otherwise transfer any or all of their respective rights under any
or all of the Obligation Documents to any other Person, and such other Person
shall thereupon become vested with all of the benefits in respect thereof
granted herein or otherwise. None of the rights or duties of Borrower
hereunder may be assigned or otherwise transferred without the prior written
consent of Agent and Banks.
Section 5.8. TERMINATION. It is contemplated by the parties hereto that
there may be times when no Obligations are outstanding, but notwithstanding such
occurrences, this Agreement shall remain valid and shall be in full force and
effect as to subsequent outstanding Obligations. Upon the satisfaction in full
of the Obligations, upon the termination or expiration of the Credit Agreement
and any other Commitment of Banks to extend credit to Borrower, and upon written
request for the termination hereof delivered by Borrower to Agent and Banks,
this Agreement and the security interest created hereby shall terminate and all
rights to the Collateral shall revert to Borrower. Agent will, upon Borrower's
request and at Borrower's expense, (a) return to Borrower such of the Collateral
as shall not have been sold or otherwise disposed of or applied pursuant to the
terms hereof, and (b) execute and deliver to Borrower such documents as Borrower
shall reasonably request to evidence such termination.
SECTION 5.9. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS AND THE LAWS OF
THE UNITED STATES OF AMERICA.
Section 5.10. COUNTERPARTS. This Agreement may be separately executed in
any number of counterparts, all of which when so executed shall be deemed to
constitute one and the same Agreement.
Section 5.11. LOAN PAPER. This Agreement is a "Loan Paper", as defined in
the Credit Agreement, and, except as expressly provided herein to the contrary,
this Agreement is subject to all provisions of the Credit Agreement governing
such Loan Paper.
IN WITNESS WHEREOF, Borrower has caused this Agreement to be executed and
delivered by its officer thereunto duly authorized, as of the date first above
written.
QUICKSILVER RESOURCES, INC.,
a Delaware corporation
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
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<PAGE>
EXHIBIT B
NOTE
$100,000,000 Dallas, Texas ________, 1998
FOR VALUE RECEIVED, the undersigned, Quicksilver Resources, Inc., a
Delaware corporation ("MAKER"), promises to pay to the order of NationsBank of
Texas, N.A. ("PAYEE"), at the offices of NationsBank of Texas, N.A., as Agent
(herein so called), at 901 Main Street, 64th Floor, Dallas, Texas 75202, for
Payee, the principal sum of One Hundred Million and No/100 Dollars
($100,000,000), or so much thereof as may be advanced and outstanding, together
with interest, as hereinafter described.
This Note has been executed and delivered pursuant to, and is subject to
and governed by, the terms of that certain Amended and Restated Credit Agreement
dated as of ___________, 1998 (as hereafter renewed, extended, amended, or
supplemented, the "AGREEMENT") among Maker, Payee, Agent, and the other Banks
named therein, and is one of the "NOTES" referred to therein. Unless otherwise
defined herein or unless the context hereof otherwise requires, each term used
herein with its initial letter capitalized has the meaning given to such term in
the Agreement.
Maker also promises to pay interest on the unpaid principal amount hereof
in like money at the offices of Agent above referenced from the date hereof at
the rates applicable to amounts outstanding under the Revolving Loan provided in
the Agreement and on the dates specified in the Agreement.
The principal balance of this Note shall be paid at the times and in the
amounts required by the Agreement. The entire outstanding principal balance
hereof and all accrued but unpaid interest thereon shall be due and payable in
full on the Termination Date.
Upon and subject to the terms and conditions of the Agreement, Maker shall
be entitled to prepay the principal of or interest on this Note from time to
time and at any time, in whole or in part.
Upon the occurrence and continuance of an Event of Default, and upon the
conditions stated in the Agreement, Agent may, at its option, and shall, to the
extent required in accordance with the terms of the Agreement, declare the
entire unpaid principal of and accrued interest on this Note immediately due and
payable (provided that, upon the occurrence of certain Events of Default, and
upon the conditions stated in the Agreement, such acceleration shall be
automatic), without notice (except as otherwise required by the Agreement),
demand, or presentment, all of which are hereby waived, and the holder hereof
shall have the right to offset against this Note any sum or sums owed by the
holder hereof to Maker. All past-due principal of and, to the extent permitted
by law, accrued interest on this Note shall, at the option of the holder hereof,
bear interest at the lesser of (a) the Maximum Lawful Rate or (b) the Base Rate
plus 3% until paid from the due date.
<PAGE>
Notwithstanding the foregoing, if at any time, any rate of interest
calculated under Section 3.3 of the Agreement (the "CONTRACT RATE") exceeds the
Maximum Lawful Rate, the rate of interest hereunder shall be limited to the
Maximum Lawful Rate, but any subsequent reductions in the Contract Rate shall
not reduce the rate of interest on this Note below the Maximum Lawful Rate until
the total amount of interest accrued equals the amount of interest which would
have accrued (including the amount of interest which would have accrued prior to
the payment or prepayment of any portion of this Note) if the Contract Rate had
at all times been in effect. In the event that at maturity (stated or by
acceleration), or at final payment of this Note, the total amount of interest
paid or accrued on this Note is less than the amount of interest which would
have accrued if the Contract Rate had at all times been in effect with respect
thereto, then at such time the Maker shall pay to the holder of this Note an
amount equal to the difference between (a) the lesser of the amount of interest
which would have accrued if the Contract Rate had at all times been in effect
and the amount of interest which would have accrued if the Maximum Lawful Rate
had at all times been in effect, and (b) the amount of interest actually paid or
accrued on this Note.
QUICKSILVER RESOURCES, INC.,
a Delaware corporation
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
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<PAGE>
ADVANCES, MATURITIES, AND
PAYMENTS OF PRINCIPAL AND INTEREST
<TABLE>
<CAPTION>
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Payee's
Commitment Expiration Rate of Interest Unpaid
Borrowing Percentage of Interest Applicable to Amount of Amount of Principal Notation
Date of Borrowing Period Tranche Principal Paid Interest Paid Balance Made By
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
EXHIBIT C
GUARANTY
THIS GUARANTY (this "GUARANTY") is dated as of the ____ day of __________,
1998, by [SUBSIDIARY OF BORROWER], a _____ corporation ("GUARANTOR"), in favor
of NATIONSBANK OF TEXAS, N.A. and each of the other financial institutions
listed on Schedule 1 to the Credit Agreement (as hereinafter defined) as Banks,
and each of their successors and assigns as permitted pursuant to the Credit
Agreement (NationsBank of Texas, N.A. acting as a Bank but not as Agent, each of
the other Banks listed on Schedule 1 of the Credit Agreement, and each of their
successors and assigns are collectively referred to herein as "NOTEHOLDERS").
W I T N E S S E T H:
WHEREAS, Quicksilver Resources, Inc., a Delaware corporation ("BORROWER"),
Noteholders, and NationsBank of Texas, N.A., as Agent ("AGENT") are parties to
that certain Amended and Restated Credit Agreement (herein so called) dated as
of __________, 1998, pursuant to which Noteholders have agreed to make a
revolving credit loan and a term loan to Borrower and issue and participate in
letters of credit issued on behalf of Borrower (unless otherwise defined herein,
all terms used herein with their initial letter capitalized shall have the
meaning given such terms in the Credit Agreement); and
WHEREAS, Noteholders have required, as a condition to extending credit
under the Credit Agreement, that Guarantor execute and deliver this Guaranty;
and
WHEREAS, Guarantor has determined that valuable benefits will be derived by
it as a result of the Credit Agreement and the extension of credit to be made by
Noteholders thereunder; and
WHEREAS, Guarantor has further determined that the benefits accruing to it
from the Credit Agreement exceed Guarantor's anticipated liability under this
Guaranty.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which are hereby acknowledged and confessed, Guarantor hereby covenants and
agrees as follows:
1. Guarantor hereby absolutely and unconditionally guarantees the prompt,
complete and full payment when due, no matter how such shall become due, of the
Obligations, and further guarantees that Borrower will properly and timely
perform the Obligations. Notwithstanding any contrary provision in this
Guaranty, however, Guarantor's maximum liability under this Guaranty is limited,
to the extent, if any, required so that its liability is not subject to
avoidance under applicable Debtor Relief Laws (as such term is defined in
PARAGRAPH 8 hereof).
2. If Guarantor is or becomes liable for any indebtedness owing by
Borrower to any Noteholder by endorsement or otherwise than under this Guaranty,
such liability shall not be in any manner impaired or affected hereby, and the
rights of Noteholders hereunder shall be cumulative of
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<PAGE>
any and all other rights that Noteholders may ever have against Guarantor.
The exercise by any Noteholder of any right or remedy hereunder or under any
other instrument, at law or in equity, shall not preclude the concurrent or
subsequent exercise of any other right or remedy.
3. In the event of default by Borrower in payment of the Obligations, or
any part thereof, when such Obligations become due, either by their terms or as
the result of the exercise of any power to accelerate, Guarantor shall, on
demand, and without further notice of dishonor and without any notice having
been given to Guarantor previous to such demand of the acceptance by Noteholders
of this Guaranty, and without any notice having been given to such Guarantor
previous to such demand of the creating or incurring of such Obligations, pay
the amount due thereon to Noteholders at Agent's office as set forth in the
Credit Agreement, and it shall not be necessary for any Noteholder, in order to
enforce such payment by Guarantor, first, to institute suit or exhaust its
remedies against Borrower or others liable on such Obligations, to have Borrower
joined with Guarantor in any suit brought under this Guaranty or to enforce
their rights against any security which shall ever have been given to secure
such indebtedness; provided, however, that in the event any Noteholder elects to
enforce and/or exercise any remedies they may possess with respect to any
security for the Obligations prior to demanding payment from Guarantor,
Guarantor shall nevertheless be obligated hereunder for any and all sums still
owing to Noteholders on the Obligations and not repaid or recovered incident to
the exercise of such remedies.
4. Notice to Guarantor of the acceptance of this Guaranty and of the
making, renewing or assignment of the Obligations and each item thereof, are
hereby expressly waived by Guarantor.
5. Each payment on the Obligations shall be deemed to have been made by
Borrower unless express written notice is given to Noteholders at the time of
such payment that such payment is made by Guarantor as specified in such notice.
6. If all or any part of the Obligations at any time are secured,
Guarantor agrees that Agent and/or Noteholders may at any time and from time to
time, at their discretion and with or without valuable consideration, allow
substitution or withdrawal of collateral or other security and release
collateral or other security or compromise or settle any amount due or owing
under the Credit Agreement or amend or modify in whole or in part the Credit
Agreement or any Loan Paper executed in connection with same without impairing
or diminishing the obligations of Guarantor hereunder. Guarantor further agrees
that if Borrower executes in favor of any Noteholder any collateral agreement,
mortgage or other security instrument, the exercise by any Noteholder of any
right or remedy thereby conferred on such Noteholder shall be wholly
discretionary with such Noteholder, and that the exercise or failure to exercise
any such right or remedy shall in no way impair or diminish the obligation of
Guarantor hereunder. Guarantor further agrees that Noteholders and Agent shall
not be liable for their failure to use diligence in the collection of the
Obligations or in preserving the liability of any person liable for the
Obligations, and Guarantor hereby waives presentment for payment, notice of
nonpayment, protest and notice thereof (including, notice of acceleration), and
diligence in bringing suits against any Person liable on the Obligations, or any
part thereof.
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<PAGE>
7. Guarantor agrees that Noteholders, in their discretion, may (i) bring
suit against all guarantors (including, without limitation, Guarantor hereunder)
of the Obligations jointly and severally or against any one or more of them,
(ii) compound or settle with any one or more of such guarantors for such
consideration as Noteholders may deem proper, and (iii) release one or more of
such guarantors from liability hereunder, and that no such action shall impair
the rights of Noteholders to collect the Obligations (or the unpaid balance
thereof) from other such guarantors of the Obligations, or any of them, not so
sued, settled with or released. Guarantor agrees, however, that nothing
contained in this paragraph, and no action by Noteholders permitted under this
paragraph, shall in any way affect or impair the rights or obligations of such
guarantors among themselves.
8. Guarantor represents and warrants to each Noteholder that (i)
Guarantor is a corporation duly organized and validly existing under the laws of
the jurisdiction of its incorporation or formation; and (ii) Guarantor possesses
all requisite authority and power to authorize, execute, deliver and comply with
the terms of this Guaranty; this Guaranty has been duly authorized and approved
by all necessary action on the part of Guarantor and constitutes a valid and
binding obligation of Guarantor enforceable in accordance with its terms, except
as the enforcement thereof may be limited by applicable Debtor Relief Laws; and
no approval or consent of any court or governmental entity is required for the
authorization, execution, delivery or compliance with this Guaranty which has
not been obtained (and copies thereof delivered to Noteholders). As used in
this PARAGRAPH 8, "DEBTOR RELIEF LAWS" means the Bankruptcy Code of the United
States of America and all other applicable liquidation, conservatorship,
bankruptcy, moratorium, rearrangement, receivership, insolvency, reorganization,
suspension of payments or similar debtor relief laws from time to time in effect
affecting the rights of creditors generally.
9. Guarantor covenants and agrees that until the Obligations are paid and
performed in full, except as otherwise provided in the Credit Agreement or
unless Noteholders give their prior written consent to any deviation therefrom,
it will (i) at all times maintain its existence and authority to transact
business in any State or jurisdiction where Guarantor has assets and operations,
(ii) promptly deliver to Noteholders and to Agent such information respecting
its business affairs, assets and liabilities as Noteholders may reasonably
request, and (iii) duly and punctually observe and perform all covenants
applicable to Guarantor under the Credit Agreement and the other Loan Papers.
The failure of Guarantor to comply with the terms of this paragraph shall be an
Event of Default under the Credit Agreement.
10. This Guaranty is for the benefit of Noteholders, their successors and
assigns, and in the event of an assignment by Noteholders (or their successors
or assigns) of the Obligations, or any part thereof, the rights and benefits
hereunder, to the extent applicable to the Obligations so assigned, may be
transferred with such Obligations. This Guaranty is binding upon Guarantor and
its successors and assigns.
11. No modification, consent, amendment or waiver of any provision of this
Guaranty, nor consent to any departure by Guarantor therefrom, shall be
effective unless the same shall be in writing and signed by each Noteholder, and
then shall be effective only in the specific instance and
6
<PAGE>
for the purpose for which given. No notice to or demand on Guarantor in any
case shall, of itself, entitle Guarantor to any other or further notice or
demand in similar or other circumstances. No delay or omission by
Noteholders in exercising any power or right hereunder shall impair any such
right or power or be construed as a waiver thereof or any acquiescence
therein, nor shall any single or partial exercise of any such power preclude
other or further exercise thereof, or the exercise of any other right or
power hereunder. All rights and remedies of Noteholders hereunder are
cumulative of each other and of every other right or remedy which Noteholders
may otherwise have at law or in equity or under any other contract or
document, and the exercise of one or more rights or remedies shall not
prejudice or impair the concurrent or subsequent exercise of other rights or
remedies.
12. No provision herein or in any promissory note, instrument or any
other Loan Paper executed by Borrower or Guarantor evidencing the Obligations
shall require the payment or permit the collection of interest in excess of
the Maximum Lawful Rate. If any excess of interest in such respect is
provided for herein or in any such promissory note, instrument, or any other
Loan Paper, the provisions of this paragraph shall govern, and neither
Borrower nor Guarantor shall be obligated to pay the amount of such interest
to the extent that it is in excess of the amount permitted by law. The
intention of the parties being to conform strictly to any applicable federal
or state usury laws now in force, all promissory notes, instruments and other
Loan Papers executed by Borrower or Guarantor evidencing the Obligations
shall be held subject to reduction to the amount allowed under said usury
laws as now or hereafter construed by the courts having jurisdiction.
13. If Guarantor should breach or fail to perform any provision of this
Guaranty, Guarantor agrees to pay Noteholders all costs and expenses
(including court costs and reasonable attorneys fees) incurred by Noteholders
in the enforcement hereof.
14. (a) The liability of Guarantor under this Guaranty shall in no
manner be impaired, affected or released by the insolvency, bankruptcy,
making of an assignment for the benefit of creditors, arrangement,
compensation, composition or readjustment of Borrower, or any proceedings
affecting the status, existence or assets of Borrower or other similar
proceedings instituted by or against Borrower and affecting the assets of
Borrower.
(b) Guarantor acknowledges and agrees that any interest on any
portion of the Obligations which accrues after the commencement of any
proceeding referred to in clause (a) above (or, if interest on any portion of
the Obligations ceases to accrue by operation of law by reason of the
commencement of said proceeding, such interest as would have accrued on such
portion of the Obligations if said proceedings had not been commenced) shall
be included in the Obligations because it is the intention of Guarantor,
Agent and Noteholders that the Obligations which are guaranteed by Guarantor
pursuant to this Guaranty should be determined without regard to any rule of
law or order which may relieve Borrower of any portion of such Obligations.
Guarantor will permit any trustee in bankruptcy, receiver, debtor in
possession, assignee for the benefit of creditors or similar person to pay
Noteholders or Agent, or allow the claim of Noteholders or Agent in respect
of, any such interest accruing after the date on which such proceeding is
commenced.
7
<PAGE>
(c) In the event that all or any portion of the Obligations are
paid by Borrower, the obligations of Guarantor hereunder shall continue and
remain in full force and effect or be reinstated, as the case may be, in the
event that all or any part of such payment(s) are rescinded or recovered
directly or indirectly from Agent or any Noteholder as a preference,
fraudulent transfer or otherwise, and any such payments which are so
rescinded or recovered shall constitute Obligations for all purposes under
this Guaranty.
15. Guarantor understands and agrees that any amounts of Guarantor on
account with any Noteholder may be offset to satisfy the obligations of
Guarantor hereunder.
16. Guarantor hereby subordinates and makes inferior any and all
indebtedness now or at any time hereafter owed by Borrower to Guarantor to
the Obligations evidenced by the Credit Agreement and agrees after the
occurrence of a Default under the Credit Agreement, or any event which with
notice, lapse of time, or both, would constitute a Default under the Credit
Agreement, not to permit Borrower to repay, or to accept payment from
Borrower of, such indebtedness or any part thereof without the prior written
consent of Noteholders.
17. During the period that Banks have any commitment to lend or
participate in Letter of Credit Exposure under the Loan Papers, or any amount
payable under any Note remains unpaid or any Letter of Credit remains
outstanding, and throughout any additional preferential period subsequent
thereto, Guarantor hereby waives any and all rights of subrogation to which
Guarantor may otherwise be entitled against Borrower, or any other guarantor
of the Obligations, as a result of any payment made by Guarantor pursuant to
this Guaranty.
18. As of the date hereof, the fair saleable value of the property of
Guarantor is greater than the total amount of liabilities (including
contingent and unliquidated liabilities) of Guarantor, and Guarantor is able
to pay all of its liabilities as such liabilities mature and Guarantor does
not have unreasonably small capital within the meaning of Section 548, Title
11, United States Code, as amended. In computing the amount of contingent or
liquidated liabilities, such liabilities have been computed at the amount
which, in light of all the facts and circumstances existing as of the date
hereof, represents the amount that can reasonably be expected to become an
actual or matured liability.
19. If any provision of this Guaranty is held to be illegal, invalid,
or unenforceable, such provision shall be fully severable; this Guaranty
shall be construed and enforced as if such illegal, invalid, or unenforceable
provision had never comprised a part hereof; and the remaining provisions
hereof shall remain in full force and effect and shall not be affected by the
illegal, invalid, or unenforceable provision or by its severance herefrom.
Furthermore, in lieu of such illegal, invalid, or unenforceable provision
there shall be added automatically as a part of this Guaranty a provision as
similar in terms to such illegal, invalid, or unenforceable provision as may
be possible and be legal, valid and enforceable.
20. (a) Except to the extent required for the exercise of the remedies
provided in the other security instruments, Guarantor hereby irrevocably
submits to the nonexclusive jurisdiction
8
<PAGE>
of any Texas state or federal court over any action or proceeding arising out
of or relating to this Guaranty or any other Loan Paper, and Guarantor hereby
irrevocably agrees that all claims in respect of such action or proceeding
may be heard and determined in such Texas state or federal court. Guarantor
hereby irrevocably waives, to the fullest extent permitted by Law, any
objection which it may now or hereafter have to the laying of venue of any
Litigation arising out of or in connection with this Guaranty or any of the
Loan Papers brought in district courts of Dallas County, Texas, or in the
United States District Court for the Northern District of Texas, Dallas
Division. Guarantor hereby irrevocably waives any claim that any Litigation
brought in any such court has been brought in an inconvenient forum.
Guarantor hereby irrevocably consents to the service of process out of any of
the aforementioned courts in any such Litigation by the mailing of copies
thereof by certified mail, return receipt requested, postage prepaid, to
Guarantor's office at _____________________ _______________________.
Guarantor irrevocably agrees that any legal proceeding against Noteholders
shall be brought in the district courts of Dallas County, Texas, or in the
United States District Court for the Northern District of Texas, Dallas
Division. Nothing herein shall affect the right of Noteholder to commence
legal proceedings or otherwise proceed against Guarantor in any jurisdiction
or to serve process in any manner permitted by applicable law. As used
herein, the term "LITIGATION" means any proceeding, claim, lawsuit or
investigation (i) conducted or threatened by or before any court or
governmental department, commission, board, bureau, agency or instrumentality
of the United States or of any state, commonwealth, nation, territory,
possession, county, parish, or municipality, whether now or hereafter
constituted or existing, or (ii) pending before any public or private
arbitration board or panel.
(b) Nothing in this PARAGRAPH 20 shall affect any right of any
Noteholder to serve legal process in any other manner permitted by law or
affect the right of any Noteholder to bring any action or proceeding against
Guarantor in the courts of any other jurisdictions.
(c) To the extent that Guarantor has or hereafter may acquire any
immunity from jurisdiction of any court or from any legal process (whether
through service or notice, attachment prior to judgment, attachment in aid of
execution, execution or otherwise) with respect to itself or its property,
Guarantor hereby irrevocably waives such immunity in respect of its
obligations under this Guaranty and the other Loan Papers.
21. THIS GUARANTY AND THE OTHER LOAN PAPERS COLLECTIVELY REPRESENT THE
FINAL AGREEMENT BY AND AMONG NOTEHOLDERS, AGENT AND GUARANTOR AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF NOTEHOLDERS, AGENT AND GUARANTOR. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS AMONG NOTEHOLDERS, AGENT AND GUARANTOR.
22. GUARANTOR, FOR ITSELF, ITS SUCCESSORS AND ASSIGNS, HEREBY
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ITS RIGHT TO A
JURY TRIAL, IN ANY LITIGATION ARISING OUT OF OR IN CONNECTION WITH THIS
GUARANTY OR ANY OF THE OTHER LOAN PAPERS.
9
<PAGE>
23. THIS GUARANTY AND THE OTHER LOAN PAPERS SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS.
EXECUTED and effective as of the date first above written.
GUARANTOR:
[SUBSIDIARY OF BORROWER]
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
10
<PAGE>
EXHIBIT D
REQUEST FOR BORROWING
Reference is made to that certain Amended and Restated Credit Agreement
dated as of ___________, 1998 (as from time to time amended, the "AGREEMENT")
by and among Quicksilver Resources, Inc. ("BORROWER"), NationsBank of Texas,
N.A., as Agent, and certain Banks as named and defined therein. Terms which
are defined in the Agreement and which are used but not defined herein are
used herein with the meanings given them in the Agreement. Pursuant to the
terms of the Agreement, Borrower hereby requests a Borrowing in the amount of
$_____________ to be advanced on , .
Borrower requests that the Borrowing to be made hereunder shall be
[A BASE RATE BORROWING] [A EURODOLLAR BORROWING] in the aggregate amount set
forth below:
TYPE OF BORROWING AGGREGATE AMOUNT
--------------------------- ----------------------------
--------------------------- ----------------------------
--------------------------- ----------------------------
Borrower and the Authorized Officer of Borrower signing this instrument
hereby certify that:
(a) Such officer is the duly elected, qualified and acting officer of
Borrower as indicated below such officers signature hereto.
(b) The representations and warranties of Borrower and each other
Credit Party set forth in the Agreement and the Loan Papers delivered to
Agent and Banks are true and correct on and as of the date hereof, with the
same effect as though such representations and warranties had been made on
and as of the date hereof or, if such representations and warranties are
expressly limited to particular dates, as of such particular dates. No
Material Adverse Change has occurred with respect to any Credit Party since
the date of the last financial reports delivered to Banks pursuant to
SECTION 10.1 of the Agreement.
(c) There does not exist on the date hereof, any condition or event
which constitutes a Default or Event of Default, nor will any such Default
or Event of Default exist upon Borrower's receipt and application of the
proceeds requested hereby. Borrower will use the proceeds hereby requested
in compliance with the applicable provisions of the Agreement.
1
<PAGE>
(d) After giving effect to the Borrowing requested hereby, the
Outstanding Credit will not be in excess of the Borrowing Base.
IN WITNESS WHEREOF, this instrument is executed as of ____________, ____.
QUICKSILVER RESOURCES, INC.,
a Delaware corporation
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
2
<PAGE>
EXHIBIT E
REQUEST FOR LETTER OF CREDIT
Reference is made to that certain Amended and Restated Credit Agreement
dated as of ____________, 1998 (as from time to time amended, the
"AGREEMENT"), by and among Quicksilver Resources, Inc. ("BORROWER"),
NationsBank of Texas, N.A., as Agent, and certain Banks as named and defined
therein. Terms which are defined in the Agreement and which are used but not
defined herein are used herein with the meanings given them in the Agreement.
Pursuant to the terms of the Agreement, Borrower hereby requests
NationsBank of Texas, N.A., as Agent ("ISSUER") to issue a Letter of Credit
for the account of Borrower, as follows:
TYPE OF COMMITMENT:
Requested Amount $
------------------
Requested Date of Issuance
------------------
Requested Expiration Date
------------------
Summary of Terms
------------------
(provide a brief description
of conditions under which the
drafts under such Letter of
Credit are to be available)
------------------
Beneficiary (Name/Address)
------------------
------------------
------------------
------------------
------------------
Such Letter of Credit is more particularly described in the Letter of
Credit Application and Agreement of Issuer which is attached hereto.
Borrower and the Authorized Officer of Borrower signing this instrument
hereby certify that:
(a) Such officer is the duly elected, qualified and acting officer of
Borrower as indicated below such officer's signature hereto.
(b) The representations and warranties of Borrower and each Credit
Party set forth in the Agreement and the other Loan Papers delivered to
Agent and Banks are true and correct on and as of the date hereof, with the
same effect as though such representations and warranties had been made on
and as of the date hereof, or if such representations and warranties are
expressly limited to particular dates, as of such particular dates. No
Material Adverse Change has occurred with respect to a Credit Party since
the date of the last financial reports delivered to Banks pursuant to
SECTION 10.1 of the Agreement.
1
<PAGE>
(c) There does not exist on the date hereof any condition or event
which constitutes a Default or Event of Default, nor will any such Default
or Event of Default exist upon the issuance of the Letter of Credit
requested hereby. Borrower will use the Letter of Credit solely for
purposes permitted by the Agreement.
(d) After the issuance of the Letter of Credit requested hereby, the
Outstanding Credit will not be in excess of the Borrowing Base.
IN WITNESS WHEREOF, this instrument is executed as of _____________, ___.
QUICKSILVER RESOURCES, INC.,
a Delaware corporation
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
2
<PAGE>
EXHIBIT F
NOTICE OF CONTINUATION OR CONVERSION
Reference is made to that certain Amended and Restated Credit Agreement
dated as of ____________, 1998 (as from time to time amended, the
"AGREEMENT"), by and among Quicksilver Resources, Inc. ("BORROWER"),
NationsBank of Texas, N.A., as Agent, and certain Banks as named and defined
therein. Terms which are defined in the Agreement and which are used but not
defined herein are used herein with the meanings given them in the Agreement.
/ / Reference is hereby made to the existing Eurodollar Loan outstanding
under the Agreement in the amount of $________ which is subject to an
Interest Period expiring on _________________, ____. Borrower hereby
requests that on the expiration of such Interest Period the portion of
the principal of such Eurodollar Loan which is subject to such
Interest Period be made the subject of / / a Base Rate Loan or / / a
Eurodollar Loan having an Interest Period of ____________ (___)
months.
/ / Borrower hereby requests that on _______________, ____, a portion of
the principal of the Base Rate Loan in the amount of $_________ be
made the subject of a Eurodollar Loan having an Interest Period of
____________ (___) months.
Borrower and the Authorized Officer of Borrower signing this instrument
hereby certify that:
(a) Such officer is the duly elected, qualified and acting officer of
Borrower as indicated below such officer's signature hereto;
(b) There does not exist on the date hereof any condition or event
which constitutes a Default or Event of Default; and
(c) The representations and warranties of Borrower and each Credit
Party set forth in the Agreement and the Loan Papers delivered to Agent and
each Bank are true and correct on and as of the date hereof, with the same
effect as though such representations and warranties had been made on and
as of the date hereof or, if such representations and warranties are
expressly limited to particular dates, as of such particular dates.
IN WITNESS WHEREOF, this instrument is executed as of ___________, ____.
QUICKSILVER RESOURCES, INC.,
a Delaware corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
1
<PAGE>
EXHIBIT G
CERTIFICATE OF OWNERSHIP INTERESTS
This Certificate of Ownership Interest (this "CERTIFICATE") is executed
and delivered pursuant to that certain Amended and Restated Credit Agreement
dated as of ____________, 1998 (as amended from time to time, the
"AGREEMENT"), by and between Quicksilver Resources, Inc. ("BORROWER"),
NationsBank of Texas, N.A., as Agent, and certain Banks as named and defined
therein. Unless otherwise defined herein, all capitalized terms shall have
the meanings given such terms in the Agreement.
In order to induce Banks to extend credit to Borrower under the
Agreement, Borrower hereby represents and warrants to Agent and each Bank
that (a) EXHIBIT A attached hereto (the "PROPERTY DESCRIPTION") is a complete
and accurate description of all Mineral Interests described in the Initial
Reserve Reports (the "INITIAL BORROWING BASE PROPERTIES"), (b) Borrower holds
good and defensible title, subject only to Permitted Encumbrances, to the
Initial Borrowing Base Properties described in the Property Description, (c)
Borrower's share of (i) the costs for each of the Initial Borrowing Base
Properties is not greater than the decimal fraction set forth in the Initial
Reserve Reports, before and after payout, as the case may be, and described
therein by the respective designations "working interests," "WI," "gross
working interest," "GWI," or similar terms (except in such cases where there
is a corresponding increase in the net revenue interest), and (ii) production
from, allocated to, or attributed to each of such Initial Borrowing Base
Properties is not less than the decimal fraction set forth in the Initial
Reserve Reports, before and after payout, as the case may be, and described
therein by the designations net revenue interest, NRI, or similar terms, and
(d) each well drilled in respect of each of the Initial Borrowing Base
Properties described in the Initial Reserve Reports (a) is capable of, and is
presently, producing Hydrocarbons in commercially profitable quantities,
Borrower is receiving payments for its share of production, with no funds in
respect of any thereof being presently held in suspense, other than any such
funds being held in suspense pending delivery of appropriate division orders,
and (b) has been drilled, bottomed, completed and operated in compliance with
all applicable Laws and no such well which is currently producing
Hydrocarbons is subject to any penalty in production by reason of such well
having produced in excess of its allowable production.
Borrower acknowledges and agrees that each Bank is relying on this
Certificate and the representations and warranties herein contained in
extending credit under the Agreement, and but for Borrower's execution and
delivery of this Certificate, Banks would not extend credit under the
Agreement.
1
<PAGE>
Executed as of the ____ day of _________, 1998.
QUICKSILVER RESOURCES, INC.,
a Delaware corporation
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
2
<PAGE>
EXHIBIT A
Initial Borrowing Base Properties
(to be attached)
3
<PAGE>
EXHIBIT H
OFFICER'S CERTIFICATE
The undersigned, the ____________ of [CORPORATE CREDIT PARTY] ("CREDIT
PARTY"), hereby (a) delivers this Certificate pursuant to SECTION 10.1(c) of
that certain Amended and Restated Credit Agreement ("CREDIT AGREEMENT") dated as
of ___________, 1998, by and among [CREDIT PARTY] [QUICKSILVER RESOURCES, INC.,
A TEXAS CORPORATION ("BORROWER")] NationsBank of Texas, N.A., as Agent
("AGENT"), and the financial institutions listed on Schedule 1 thereto, as Banks
("BANKS"), and (b) certifies to Banks, with the knowledge and intent that Banks
may, without any independent investigation, rely fully on the matters herein in
connection with the Credit Agreement, as follows:
1. [FOR BORROWER ONLY] Attached hereto as SCHEDULE I are the financial
statements of Borrower as of and for the Fiscal / /Year / /Quarter (c)heck one)
ended ____________, ____.
2. [FOR BORROWER ONLY] Such financial statements are true and correct,
have been prepared on a consistent basis in accordance with GAAP (except as
otherwise noted therein) and fairly present the financial condition of Borrower
as of the date indicated therein and the results of operations for the
respective periods indicated therein.
3. [FOR BORROWER ONLY] Attached hereto as SCHEDULE II are detailed
calculations used by Borrower to establish that Borrower was in compliance with
the requirements of Article XII of the Credit Agreement on the date of the
financial statements attached as SCHEDULE I hereto.
4. [FOR BORROWER ONLY] Unless otherwise disclosed on SCHEDULE III
attached hereto and incorporated herein by reference for all purposes, neither a
Default nor an Event of Default has occurred which is in existence on the date
hereof; provided, that, for any Default or Event of Default disclosed on
SCHEDULE III attached hereto, Borrower is taking or proposes to take the action
to cure such Default or Event of Default set forth on SCHEDULE III.
5. On the date hereof (a) (c)heck one) / / there is no Material Gas
Imbalance or / / the amount of the net gas imbalances under Gas Balancing
Agreements to which Credit Party is a party or by which any Mineral Interests
owned by Borrower or any of its Subsidiaries is bound is ____________________,
and (b) the aggregate amount of all Advance Payments received under Advance
Payment Contracts to which Credit Party is a party or by which any Mineral
Interests owned by Borrower or any of its Subsidiaries is bound which have not
been satisfied by delivery of production, if any, is
_______________________________.
6. Attached hereto as SCHEDULE [IV] [I] is a summary of the Hedge
Transactions to which Credit Party is a party on the date hereof.
7. Unless otherwise described on SCHEDULE [V] [II] attached hereto and
incorporated herein by reference for all purposes, the representations and
warranties of each Credit Party set forth in the Credit Agreement and the other
Loan Papers are true and correct on and as of the date hereof,
4
<PAGE>
with the same effect as though such representations and warranties had been
made on and as of the date hereof, or if such representations and warranties
are expressly limited to particular dates, as of such particular dates.
Unless otherwise defined herein, all capitalized terms used herein shall
have the meaning given such terms in the Credit Agreement.
IN WITNESS WHEREOF, the undersigned has duly executed this Officer's
Certificate as of ___________, ____.
[CREDIT PARTY]
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
5
<PAGE>
SCHEDULE I
Financial Statements
(to be attached)
6
<PAGE>
SCHEDULE II
Compliance Calculations
(to be attached)
7
<PAGE>
SCHEDULE III
Defaults/Remedial Action
(to be attached)
8
<PAGE>
SCHEDULE IV
Summary of Hedge Transactions
(to be attached)
9
<PAGE>
SCHEDULE V
Qualifications to Representations and Warranties
(to be attached)
10
<PAGE>
EXHIBIT I
ASSIGNMENT AND ACCEPTANCE
Reference is made to that certain Amended and Restated Credit Agreement
dated as of _____________, 1998 (the "CREDIT AGREEMENT") among Quicksilver
Resources, Inc., ("BORROWER"), NationsBank of Texas, N.A., as Agent ("AGENT")
and the financial institutions listed on Schedule 1 thereto, as Banks ("BANKS").
Terms defined in the Credit Agreement are used herein with the same meaning.
The "Assignor" and the "Assignee" referred to on Schedule 1 agree as follows:
1. Assignor hereby sells and assigns to Assignee, without recourse and without
representation or warranty except as expressly set forth herein, and Assignee
hereby purchases and assumes from Assignor, an interest in and to Assignor's
rights and obligations under the Credit Agreement and the other Loan Papers as
of the date hereof equal to the percentage interest specified on SCHEDULE 1 of
all outstanding rights and obligations under the Credit Agreement and the other
Loan Papers. After giving effect to such sale and assignment, Assignee's
Commitment, Assignee's Commitment Percentage and the principal amount of the
Revolving Loan owing to Assignee will be as set forth on SCHEDULE 1.
2. Assignor (i) represents and warrants that it is the legal and
beneficial owner of the interest being assigned by it hereunder and that such
interest is free and clear of any adverse claim; (ii) makes no representation
or warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with the Loan Papers
or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of the Loan Papers or any other instrument or document
furnished pursuant thereto; (iii) makes no representation or warranty and
assumes no responsibility with respect to the financial condition of Borrower
or the performance or observance by Borrower of any of its obligations under
the Loan Papers or any other instrument or document furnished pursuant
thereto; and (iv) attaches the Note held by Assignor and requests that Agent
exchange such Note for new Notes payable to the order of Assignee in an
amount equal to the Commitment assumed by Assignee pursuant hereto and to
Assignor in an amount equal to the Commitment retained by Assignor, if any,
as specified on SCHEDULE 1.
3. Assignee (i) confirms that it has received a copy of the Credit Agreement,
together with copies of the financial statements referred to in Section 10.1
thereof and such other documents and information as it has deemed appropriate to
make its own credit analysis and decision to enter into this Assignment and
Acceptance; (ii) agrees that it will, independently and without reliance upon
Agent, Assignor or any other Bank and based on such documents and information as
it shall deem appropriate at the time, continue to make its own credit decisions
in taking or not taking action under the Credit Agreement; (iii) confirms that
it is an Eligible Assignee; (iv) appoints and authorizes Agent to take such
action as agent on its behalf and to exercise such powers and discretion under
the Credit Agreement as are delegated to the Agent by the terms thereof,
together with such
1
<PAGE>
powers and discretion as are reasonably incidental thereto; (v) agrees that
it will perform in accordance with their terms all of the obligations that by
the terms of the Credit Agreement are required to be performed by it as a
Bank; and (vi) attaches any U.S. Internal Revenue Service or other forms
required under Section 5.6.
4. Following the execution of this Assignment and Acceptance, it will be
delivered to Agent for acceptance and recording by Agent. The effective date
for this Assignment and Acceptance (the "EFFECTIVE DATE") shall be the date of
acceptance hereof by Agent, unless otherwise specified on SCHEDULE 1.
5. Upon such acceptance and recording by Agent, as of the Effective Date, (i)
Assignee shall be a party to the Credit Agreement and, to the extent provided in
this Assignment and Acceptance, have the rights and obligations of a Bank
thereunder, and (ii) Assignor shall, to the extent provided in this Assignment
and Acceptance, relinquish its rights and be released from its obligations under
the Credit Agreement.
6. Upon such acceptance and recording by Agent, from and after the
Effective Date, Agent shall make all payments under the Credit Agreement and
the Notes in respect of the interest assigned hereby (including, without
limitation, all payments of principal, interest and commitment fees with
respect thereto) to Assignee. Assignor and Assignee shall make all
appropriate adjustments in payments under the Credit Agreement and the Notes
for periods prior to the Effective Date directly between themselves.
7. This Assignment and Acceptance shall be governed by, and construed in
accordance with, the laws of the State of Texas.
8. This Assignment and Acceptance may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement. Delivery of an executed
counterpart of SCHEDULE 1 to this Assignment and Acceptance by telecopier shall
be effective as delivery of a manually executed counterpart of this Assignment
and Acceptance.
IN WITNESS WHEREOF, Assignor and Assignee have caused SCHEDULE 1 to this
Assignment and Acceptance to be executed by their officers thereunto duly
authorized as of the date specified thereon.
2
<PAGE>
SCHEDULE 1
to
ASSIGNMENT AND ACCEPTANCE
<TABLE>
<S> <C>
Percentage interest assigned: %
--------
Assignee's Commitment: $
--------
Assignee's Commitment Percentage: %
--------
Aggregate outstanding principal amount
of Revolving Loan assigned: $
--------
Principal amount of Note payable to Assignee: $
--------
Principal amount of Note payable to Assignor: $
--------
Effective Date (if other than date
of acceptance by Agent): * , 19
------- --
</TABLE>
[NAME OF ASSIGNOR], as Assignor
By:
------------------------
Title:
----------------
Dated: , 19
-------------- --
[NAME OF ASSIGNEE], as Assignee
By:
------------------------
Title:
----------------
Domestic Lending Office:
Eurodollar Lending Office:
3
<PAGE>
* This date should be no earlier than five Domestic Business Days after
the delivery of this Assignment and Acceptance to the Agent.
Accepted and Approved
this ___ day of ___________, 19 _
NATIONSBANK OF TEXAS, N.A., as Agent
By:
---------------------------
Name:
-------------------------
Title:
------------------------
Approved this ____ day
of ____________, 19__
QUICKSILVER RESOURCES, INC.
By:
---------------------------
Name:
-------------------------
Title:
------------------------
4
<PAGE>
SCHEDULE 1
FINANCIAL INSTITUTIONS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
COMMITMENT COMMITMENT
BANK AMOUNT PERCENTAGE
- ----------------------------------------------------------------------
<S> <C> <C>
NationsBank of Texas, $100,000,000 100%
N.A.
- ----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
DOMESTIC LENDING EURODOLLAR LENDING
OFFICE OFFICE ADDRESS FOR NOTICE AGENT - ADDRESS
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
901 Main Street, 901 Main Street, 901 Main Street, 901 Main Street,
64th Floor 64th Floor 64th Floor 64th Floor
Dallas, Texas 75202 Dallas, Texas 75202 Dallas, Texas 75202 Dallas, Texas 75202
Fax No. (214) 508-1285 Fax No. (214) 508-1285 Fax No. (214) 508-1285 Fax No. (214) 508-1285
- --------------------------------------------------------------------------------------------------
</TABLE>
1
<PAGE>
SCHEDULE 2
CAPITALIZATION DOCUMENTS
1. Agreement and Plan of Reorganization and Merger (the "Merger Agreement")
dated as of March 31, 1998, by and among Borrower, QESC, MGP, Mercury, TCW
and Joint Energy Development Limited Partnership ("JEDI").
2. Stockholders Agreement dated as of April 9, 1998 by and among Borrower,
QESC, Mercury, TCW, JEDI and the members of the Darden Family Group.
3. Registration Rights Agreement dated as of April 9, 1998 by and among TCW,
JEDI and Borrower.
4. Stock Transfer Agreement dated as of April 9, 1998, by and between JEDI and
Mercury.
5. Management Agreement dated as of April 9, 1998 by and between Mercury and
Borrower.
6. Agreement Regarding Financing Transactions dated as of April 9, 1998, by
and among Borrower, JEDI, TCW and NationsBank.
7. Assignment and Acceptance Documents referenced in Section 5.1(k) of the
Merger Agreement.
8. Put/Call Agreement dated as of April 9, 1998 by and between Mercury and
TCW.
9. The amendments described in and included within the definition of "TCW
Royalty Documents" herein contained.
1
<PAGE>
SCHEDULE 3
INVESTMENTS
None
1
<PAGE>
SCHEDULE 4
LITIGATION
None
2
<PAGE>
SCHEDULE 5
CAPITALIZATION
MERCURY PRODUCTION COMPANY - incorporated in Texas
Authorized Shares: 1,000,000 $.10 par value of which 500,000 are voting
and 500,000 are non-voting.
Issued and Outstanding*:
<TABLE>
<CAPTION>
VOTING COMMON
SHAREHOLDER NO. OF SHARES
<S> <C>
Frank Darden 46,500
Thomas F. Darden 14,500
Glenn M. Darden 14,500
Anne Darden Self 14,500
<CAPTION>
NON-VOTING COMMON
SHAREHOLDER NO. OF SHARES
<S> <C>
Frank Darden 2,766
Thomas F. Darden 29,078
Glenn M. Darden 29,078
Anne Darden Self 29,078
Thomas G. Jackson, III 10
Lee Calhoun Jackson 10
</TABLE>
MERCURY EXPLORATION COMPANY - incorporated in Texas
Authorized Shares: 1,000,000 no par
Issued and Outstanding*:
<TABLE>
<S> <C>
Mercury Production Company 250,000 shares
Frank Darden 410 shares
Thomas Darden 180 shares
Glenn Darden 180 shares
Anne Darden Self 180 shares
</TABLE>
1
<PAGE>
QELC - organized in Michigan
Membership Interests*:
<TABLE>
<S> <C>
Mercury: 52%
Frank Darden: 12%
Thomas Darden: 12%
Glenn Darden: 12%
Anne Darden Self: 12%
</TABLE>
* no outstanding warrants, options, subscription rights, convertible securities
or other rights to purchase capital stock or limited liability interests.
CREDIT PARTY OWNERSHIP OF MSR SHARES AND WARRANTS
<TABLE>
<CAPTION>
MSR SHARES
<S> <C>
Mercury: 6,480,000
Frank Darden: 1,040,000
Thomas Darden: 1,160,000
Glenn Darden: 1,140,000
Anne Darden Self: 1,140,000
<CAPTION>
WARRANTS @ 1.25 PER SHARE STRIKE PRICE
<S> <C>
Mercury: 2,970,000
Frank Darden: 550,000
Thomas Darden: 550,000
Glenn Darden: 550,000
Anne Darden Self: 550,000
<CAPTION>
WARRANTS @ 2.00 PER SHARE STRIKE PRICE
<S> <C>
Mercury: 2,970,000
Frank Darden: 550,000
Thomas Darden: 550,000
Glenn Darden: 550,000
Anne Darden Self: 550,000
</TABLE>
2
<PAGE>
SCHEDULE 6
ENVIRONMENTAL DISCLOSURE
None
1
<PAGE>
PUT/CALL AGREEMENT
This PUT/CALL AGREEMENT is entered into as of April 9, 1998 by and
between Mercury Exploration Company, a Texas corporation ("MERCURY"), and
Trust Company of the West, in the capacity set forth on the signature page
hereto ("TCW").
WHEREAS, Quicksilver Energy, L.C., a Michigan limited liability
company ("QELC"), Mercury and TCW are parties to an Agreement and Plan of
Reorganization and Merger, dated as of March 31, 1998, by and between QELC,
Mercury, TCW, Quicksilver Resources Inc., a Delaware corporation ("QRI"), and
the other parties listed on the signature pages thereto (the "REORGANIZATION
AGREEMENT"), whereby QRI has agreed to issue, as of the date hereof, 13,000
shares (the "SHARES") of Common Stock, par value $.01 per share, of QRI to
TCW;
WHEREAS, pursuant to SECTION 5.1 of the Reorganization Agreement,
QELC, Mercury and TCW are required to execute and deliver this Put/Call
Agreement relating to the Shares as a condition to the closing of the
transactions contemplated by the Reorganization Agreement.
NOW, THEREFORE, for and in consideration of the mutual covenants
contained herein and other good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
Section 1.1. PUT RIGHT OF TCW--MSR MERGER. If QRI does not
consummate the MSR Merger (as defined below) on or before December 31, 1998,
then TCW shall automatically have the right, exercisable at its option at any
time from and after January 1, 1999 through July 10, 1999, to sell to
Mercury, and Mercury shall be obligated to purchase and pay for, all of the
Shares for an aggregate cash purchase price (the "Put Price") equal to the
sum of (a) $10,000,000 plus (b) an amount equal to interest accruing on
$10,000,000 at the rate of 12.25% per annum, compounded quarterly from the
date hereof to and including the date the Put Price is paid by wire transfer
of immediately available funds to TCW. TCW shall exercise the foregoing
option by delivering a written notice of such exercise to Mercury at the
address set forth below. As used herein, "MSR MERGER" shall mean a merger or
similar business combination between QRI and MSR Exploration Ltd., a Delaware
corporation ("MSR"), whereby (i) the Shares are of a class that become, or
are exchanged for an amount or number of shares of stock (which is approved
by TCW in its sole and absolute discretion) of the surviving entity in such
merger or business combination which are of a class that are, publicly traded
securities listed on the New York Stock Exchange, Nasdaq National Market or
American Stock Exchange; (ii) the Registration Rights Agreement dated as of
the date hereof between QRI and TCW concerning stock of QRI held by TCW shall
be assumed by or survive, as applicable, in its entirety as an obligation of
the surviving entity and the other parties thereto immediately following such
merger or business combination; (iii) the Stockholders Agreement dated as of
the date hereof between QRI, TCW, Mercury and the other parties listed on the
signature pages thereto shall be assumed by or survive, as applicable, in its
entirety as an obligation of the surviving entity and the other parties
thereto immediately following such merger or business combination; and (iv)
the other terms of such merger or business consolidation are approved by TCW
in its sole and absolute discretion. If QRI shall consummate a merger
transaction with MSR the specific terms of which are approved in writing in
advance by TCW, the MSR Merger shall be deemed to have been consummated for
the purposes of the first sentence of this Section 1.1 notwithstanding that
the terms of such merger shall not comply with all of the provisions of the
immediately preceding sentence.
Section 1.2. PUT RIGHT OF TCW--YEARS 8 THROUGH 10. On and after
April 9, 2006, TCW shall automatically have the right, exercisable at its option
at any time beginning on April 9, 2006 and ending at 11:59 p.m., Los Angeles
time on October 9, 2008, to sell to Mercury, and Mercury shall be obligated to
purchase and pay for, up to 4,333 of the Shares (as adjusted as provided below)
for an aggregate cash purchase price of $769.24 per share (as adjusted as
provided below). Likewise, on and after April 9, 2007, TCW shall automatically
have the right, exercisable at its option at any time beginning on April 9, 2007
and
<PAGE>
ending at 11:59 p.m., Los Angeles time on October 9, 2008, to sell to
Mercury, and Mercury shall be obligated to purchase and pay for, up to an
additional 4,333 of the Shares (as adjusted as provided below) for an
aggregate cash purchase price of $769.24 per share (as adjusted as provided
below). Likewise, on and after April 9, 2008, TCW shall automatically have
the right, exercisable at its option at any time beginning on April 9, 2008
and ending at 11:59 p.m., Los Angeles time on October 9, 2008, to sell to
Mercury, and Mercury shall be obligated to purchase and pay for, up to an
additional 4,334 of the Shares (as adjusted as provided below) for an
aggregate cash purchase price of $729.23 per share (as adjusted as provided
below). TCW shall exercise the foregoing options by delivering a written
notice of such exercise to Mercury at the address set forth below.
Section 1.3. CALL RIGHT OF MERCURY. During the period commencing
on October 9, 1999 and ending on and including the earlier of (a) the sixth
anniversary of the closing date of the MSR Merger, or (b) December 31, 2005
so long as there shall not be outstanding any uncured breach by Mercury or
any Affiliate of Mercury of any material obligation or duty to TCW under any
Royalty Documents (as defined in the Reorganization Agreement), Mercury shall
have the right, at its option, to purchase from TCW and pay for, and TCW
shall be obligated to sell to Mercury, all of the Shares, other than shares
that have been sold by TCW or by its Affiliates in either case in an arms'
length transaction, for a cash purchase price equal to that amount necessary
to cause TCW to receive on the date of purchase a nominal 25% cash-on-cash
internal rate of return on $10,000,000 from the date hereof to the date of
receipt of such cash payment. A nominal 25% cash-on-cash internal rate of
return shall be deemed to have been received on such amount when the
aggregate of the net present values as of the date hereof of Cash Proceeds
(as defined below) actually received after the date hereof by TCW or the
Grantee under the Royalty Documents (as defined in the Reorganization
Agreement) is equal to or greater than $10,000,000. In calculating such net
present values, Cash Proceeds received shall be discounted quarterly using
the discount factors set forth on Schedule 1 hereto. As used herein, Cash
Proceeds shall include (1) all dividends and distributions received by TCW
with respect to the Shares, (2) the net cash sales proceeds received by TCW
or its Affiliates (after deduction of all commissions and other costs of sale
including transaction costs) from the sale of any Shares to a party in an
arms' length sale and (3) 50% of all amounts received as (a) proceeds of the
overriding royalties granted and conveyed in the Royalty Conveyance (as
defined below) by TCW or the Grantee under the Royalty Documents or any
assignee thereof in a Permitted Transfer (as defined in the Stockholders
Agreement) (a "Permitted Assignee") but not any other assignee thereof during
and with respect to the period from and after the date hereof to the date of
purchase or (b) net cash sales proceeds received by TCW, the Grantee under
the Royalty Documents or any Permitted Assignee (after deduction of all
commissions and other costs of sale including transaction costs) from the
sale of any of the overriding royalties granted and conveyed in the Royalty
Conveyance. Mercury shall exercise the foregoing option by delivering a
written notice of such exercise to TCW at the address set forth below. Any
sale of any Shares by TCW or by its Affiliates in either case in an arms'
length transaction shall result in such Shares that are sold no longer being
subject to Mercury's right to purchase hereunder; PROVIDED, HOWEVER, that
prior to any sale of Shares by TCW prior to October 9, 1999, TCW shall give
Mercury written notice of TCW's intent to sell such Shares and Mercury shall
have the right, at its option, for a period of 10 days after the date of such
notice to purchase from TCW and pay for the Shares for a cash purchase price
per share equal to the difference of (a) $1,057.69 minus (b) the quotient of
(i) 50% of the sum of (A) the amounts received by TCW, the Grantee or a
Permitted Assignee (1) as proceeds of the overriding royalties granted and
conveyed in the Royalty
-2-
<PAGE>
Conveyance during and with respect to the period from and after the date
hereof to the date of such purchase or (2) net cash sales proceeds received
by TCW, Grantee or a Permitted Assignee (after deduction of all commissions
and other costs of sale including transaction costs) from the sale of any of
the overriding royalties granted and conveyed in the Royalty Conveyance prior
to the date of such purchase plus (B) the amounts (the "Projected ORR
Amount") projected to be received by TCW, the Grantee or a Permitted Assignee
as proceeds of the overriding royalties granted and conveyed in the Royalty
Conveyance during the period from the date of such purchase to October 9,
1999 which Projected ORR Amount shall be determined by the mutual agreement
of Mercury and TCW or, if such parties are unable to agree, by the
independent engineer preparing the latest annual engineering report covering
the properties burdened by the Royalty Conveyance pursuant to the
Stockholders Agreement (as defined in the Reorganization Agreement) using the
same assumptions and parameters as used in such annual engineering report,
divided by (ii) 13,000 (as adjusted to reflect an adjustment to the number of
Shares as provided in Section 1.5 below). In the event that Mercury and TCW
shall be unable to agree on the Projected ORR Amount or the independent
engineer in unable to determine such amount by the date of the scheduled
closing of the sale of such Shares to Mercury pursuant to the preceding
sentence, such sale shall nevertheless close on the scheduled closing date
using as the Projected ORR Amount for the purpose of calculating the amount
payable at closing the amount estimated by TCW in good faith to be the
Projected ORR Amount and there shall be a cash adjustment between the parties
as appropriate within three (3) business days of the final determination of
the Projected ORR Amount either by the mutual agreement of Mercury and TCW
or, if such parties are unable to agree, by the independent engineer. As
used herein the term "Royalty Conveyance" shall mean the Royalty Conveyance
as referred to and amended by the Amendment to Royalty Conveyance dated as of
the date hereof.
Section 1.4. CLOSING. Closing of the sale and purchase of any of
the Shares pursuant to any provision of this Put/Call Agreement shall take
place within 10 calendar days after the date of the notice of the exercise of
a party's option to sell or purchase, as the case may be, such Shares, at the
offices of TCW, 865 South Figueroa Street, Los Angeles, California, at 10:00
a.m. local time, or at such other place and time as the parties mutually
agree. There shall be delivered at such closing, against payment by wire of
same day funds of the full purchase price, the certificate or certificates
representing such Shares duly endorsed in blank.
Section 1.5. ADJUSTMENTS TO SHARES. In the event that the Shares
are exchanged for other securities of QRI or of a surviving entity resulting
from a merger or other business combination involving QRI or any successor to
QRI, then reference to the "Shares" herein shall refer to such other
securities. In addition, for purposes of Sections 1.2 and 1.3, should QRI or
any such surviving entity, combine, split or otherwise reclassify its capital
stock, then appropriate adjustment shall be made hereunder to equitably
reflect such combination, split or reclassification.
-3-
<PAGE>
Section 1.6. MISCELLANEOUS.
(a) MODIFICATION OR AMENDMENT. This Put/Call Agreement may be
modified or amended only by the mutual written consent of each of the parties
hereto.
(b) ATTORNEYS' FEES. In the event any amounts owing by party
hereunder are not paid when due or a party otherwise breaches its obligations
hereunder, such party hereby promises to pay all costs of enforcement and
collection, including but not limited to, reasonable attorneys' fees, whether
or not such enforcement and collection includes the filing of a lawsuit. For
the purpose of this Put/Call Agreement, the term "attorneys' fees" shall mean
the reasonable fees and expenses of counsel to the non-breaching party which
may include printing, photostating, duplicating and other expenses, air
freight charges, and reasonable fees billed for law clerks, paralegals,
librarians and others not admitted to the bar but performing services under
the supervision of an attorney and shall also include, without limitation,
all such reasonable fees and expenses incurred with respect to appeals,
arbitrations and bankruptcy proceedings, and whether or not any action or
proceeding is brought with respect to the matter for which said fees and
expenses were incurred.
(c) COUNTERPARTS. For the convenience of the parties hereto, this
Put/Call Agreement may be executed in any number of counterparts, each such
counterpart being deemed to be an original instrument, and all such
counterparts shall together constitute the same agreement.
(d) GOVERNING LAW. This Put/Call Agreement shall be governed by
and construed in accordance with the laws of the State of Texas without
giving effect to the principles of conflict of laws thereof.
(e) NOTICES. Any notice, request, instruction or other document
to be given hereunder by any party to the others shall be in writing and
shall be deemed to have been duly given on the next business day after the
same is sent, if delivered personally or sent by telecopy or overnight
delivery, or five calendar days after the same is sent, if sent by registered
or certified mail, return receipt requested, postage prepaid, as set forth
below, or to such other persons or addresses as may be designated in writing
in accordance with the terms hereof by the party to receive such notice.
If to Mercury:
1619 Pennsylvania Avenue
Forth Worth, Texas 76104
Attention: Glenn Darden
Telecopier: (817) 332-1883
With a copy to:
Cantey & Hanger L.L.P.
2100 Burnett Plaza
801 Cherry Street
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<PAGE>
Forth Worth, Texas 76102
Attention: Sloan Blair, Esq.
Telecopier: (817) 877-2807
If to TCW:
Trust Company of the West
865 South Figueroa Street
Los Angeles, California 90017
Attention: Arthur R. Carlson
Telecopier: (213) 244-0604
and
TCW Asset Management Company
2175 First Interstate Bank Plaza
1000 Louisiana
Houston, Texas 77002
Attention: George R. Hutchinson and
Marc A. MacAluso
Telecopier: (713) 615-7460
with a copy to:
Milbank, Tweed, Hadley & McCloy
601 South Figueroa Street, 30th Floor
Los Angeles, California 90017
Attention: David A. Lamb, Esq.
Telecopier: (213) 629-5063
(f) ASSIGNMENT. This Put/Call Agreement and the rights and
obligations of Mercury shall not be assignable, by operation of law or
otherwise, or delegable; PROVIDED, that (i) TCW may assign this Agreement in
whole or in part to any transferee of the Shares as long as only one entity
retains the right to approve the terms of the MSR Merger under the last
sentence of Section 1.1 hereof and (ii) Mercury may assign its rights under
Section 1.3.
[Signature Page Follows]
-5-
<PAGE>
[Signature Page to Put/Call Agreement]
IN WITNESS WHEREOF, the parties hereto have entered into this
Put/Call Agreement as of the date first written above.
MERCURY EXPLORATION COMPANY
By: /s/ Glenn Darden
--------------------------------------
Name: Glenn Darden
------------------------------------
Title: Vice President
-----------------------------------
TRUST COMPANY OF THE WEST, a California trust
company, as Sub-Custodian for Mellon Bank for the
benefit of Account No. CPFF 869-3062
By: TCW ASSET MANAGEMENT COMPANY, a California
corporation, as Investment Manager under that
certain Agreement, dated as of June 13, 1994,
between TCW Asset Management Company and
Morgan Stanley Group, Inc.
By: /s/ George R. Hutchinson
--------------------------------------
Name: George R. Hutchinson
------------------------------------
Title: Managing Director
-----------------------------------
By: /s/ Marc A. MacAluso
--------------------------------------
Name: Marc A. MacAluso
------------------------------------
Title: Senior Vice President
-----------------------------------
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<PAGE>
AMENDMENT NO. 1 TO PUT/CALL AGREEMENT
This Amendment No. 1 to Put/Call Agreement (this "AMENDMENT") is dated
as of September 4, 1998, by and between Mercury Exploration Company, a Texas
corporation ("MERCURY"), Trust Company of the West, in the capacity set
forth on the signature page hereto ("TCW"), and amends that certain Put/Call
Agreement dated as of April 9, 1998 between Mercury and TCW (the "PUT/CALL
AGREEMENT"; capitalized words used herein and not otherwise defined shall
have the meaning ascribed to them in the Put/Call Agreement).
As a condition to TCW's entering into that certain Consent and Voting
Agreement dated the date hereof concerning the merger (the "MSR-QRI MERGER")
of MSR with and into QRI pursuant to that certain Agreement and Plan of
Reorganization dated the date hereof between QRI and MSR (the "MSR-QRI MERGER
AGREEMENT"), the parties hereto hereby agree as follows:
1. The following is added as a new Section 1.1A immediately following
Section 1.1 of the Put/Call Agreement:
"Section 1.1A. PUT RIGHT OF TCW--DARDEN WARRANTS. If any of the
Darden Warrants (as defined below) are exercised, redeemed, sold,
exchanged, or otherwise transferred for value or converted into other
securities of any entity (other than such adjustments required under the
terms of such Darden Warrants in connection with reorganizations,
consolidations or mergers, including the MSR-QRI Merger pursuant to the
MSR-QRI Merger Agreement) at any time during which TCW or any of its
affiliates owns any of the Shares, then TCW and any such affiliate shall
automatically have the right, exercisable at its option for up to 180 days
after TCW receives written notice from a member of the Darden Group that
such event has occurred (with a specific reference to this Section 1.1A of
the Put/Call Agreement) (the "OPTION PERIOD"), to sell to Mercury, and
Mercury shall be obligated to purchase and pay for, all of the Shares then
owned by TCW and any affiliate thereof for the Darden Warrant Put Price (as
defined below). TCW shall exercise the put option set forth in this
paragraph by delivering a written notice of such exercise to Mercury within
the Option Period at the address set forth below. Notwithstanding the
foregoing, this paragraph does not apply to the exercise of Darden Warrants
by Mercury to purchase up to an aggregate of (i) prior to the consummation
of the MSR-QRI Merger, 1,000,000 shares of MSR common stock or (ii)
following and giving effect to the consummation of the MSR-QRI Merger,
100,000 shares of QRI common stock, in each case as adjusted for stock
splits, stock dividends, recapitalizations and other similar transactions
(other than any such transaction effected prior to the consummation of the
MSR-QRI Merger) solely for the purpose of delivering such shares of MSR
common stock or QRI common stock to employees, independent consultants or
directors of Mercury upon the exercise of options granted to such persons;
provided that not more than 10% of such shares referenced in (i) and (ii)
shall be beneficially owned in the aggregate by members of the Darden Group
or any affiliate or family member thereof. Notwithstanding Section 1.6(f)
below, this Section 1.1A shall not be assigned by TCW or any of its
affiliates to persons other than TCW and its affiliates. In the event that
the MSR-QRI Merger Agreement is terminated without the consummation of the
MSR-QRI Merger, this Section 1.1A shall be null and void and without any
force or effect as of the date of such termination."
<PAGE>
For purposes hereof, "DARDEN WARRANTS" shall mean the Common Stock
Warrants issued by Mercury Montana, Inc. (now known as MSR) to Mercury,
Frank Darden, Thomas F. Darden, Glenn M. Darden and Anne Darden Self
(collectively, the "DARDEN GROUP"), each dated March 7, 1997 and each
having an exercise price per share of $1.25, as the same may be amended
from time to time (the "DARDEN WARRANTS").
For purposes hereof, "DARDEN WARRANT PUT PRICE" shall mean the amount
that would be payable by Mercury to TCW and its affiliates for the number
of shares sold to Mercury under this Section 1.1A if Mercury had exercised
its Call Right and purchased that number of Shares pursuant to Section 1.3
below on the date such sale closes.
2. Section 1.3 of the Put/Call Agreement is hereby amended in its
entirety to read as follows:
"Section 1.3 CALL RIGHT OF MERCURY. During the period commencing on
the date hereof and ending on and including the earlier of (a) the sixth
anniversary of the closing date of the MSR Merger, or (b) December 31, 2005
so long as there shall not be outstanding any uncured breach by Mercury or
any affiliate of Mercury of any material obligation or duty to TCW under
any Royalty Documents (as defined in the Reorganization Agreement), Mercury
shall have the right, at its option, to purchase from TCW and pay for in
cash, and TCW shall be obligated to sell to Mercury, all of the Shares,
other than shares that have been sold by TCW or by its Affiliates in either
case in an arms' length transaction, for the cash purchase price described
below. In the event Mercury exercises the foregoing option at any time
prior to October 9, 1999, the cash purchase price per share shall be an
amount equal to the difference of (a) $1,057.69 (as adjusted to reflect an
adjustment to the number of Shares as provided in Section 1.5 below) minus
(b) the quotient of (i) 50 % of the sum of (A) the amounts received by TCW,
the Grantee under the Royalty Documents ("GRANTEE") or a Permitted
Transferee (as defined below) (1) as proceeds of the overriding royalties
granted and conveyed in the Royalty Conveyance (as defined below) during
and with respect to the period from and after April 9, 1998 to the date of
such purchase or (2) net cash sales proceeds received by TCW, Grantee or a
Permitted Transferee (after deduction of all commissions and other costs of
sale including transaction costs) from the sale of any of the overriding
royalties granted and conveyed in the Royalty Conveyance prior to the date
of such purchase plus (B) the amounts (the "PROJECTED ORR AMOUNT")
projected to be received by TCW, Grantee or a Permitted Transferee as
proceeds of the overriding royalties granted and conveyed in the Royalty
Conveyance during the period from the date of such purchase to October 9,
1999 which Projected ORR Amount shall be determined by the mutual agreement
of Mercury and TCW or, if such parties are unable to agree, by the
independent engineer preparing the latest annual engineering report
covering the properties burdened by the Royalty Conveyance pursuant to the
Stockholders Agreement (as defined in the Reorganization Agreement) using
the same assumptions and parameters as used in such annual engineering
report, divided by (ii) 13,000 (as adjusted to reflect an adjustment to the
number of Shares as provided in Section 1.5 below) (the "PRE-OCTOBER 1999
PRICE"). In the event that Mercury and TCW shall be unable to agree on the
Projected ORR Amount or the independent engineer is unable to determine
such amount by the date of the scheduled closing of the exercise of such
purchase option by Mercury, such purchase shall nevertheless close on the
scheduled closing date using as
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<PAGE>
the Projected ORR Amount for the purpose of calculating the amount payable
at closing the amount estimated by TCW in good faith to be the Projected
ORR Amount and there shall be a cash adjustment between the parties as
appropriate within three (3) business days of the final determination of
the Projected ORR Amount either by the mutual agreement of Mercury and TCW
or, if such parties are unable to agree, by the independent engineer. In
the event Mercury exercises the purchase option described herein at any
time on or after October 9, 1999, the cash purchase price shall be equal
to that amount necessary to cause TCW to receive on the date of purchase a
nominal 25% cash-on-cash internal rate of return on $10,000,000 from
April 9, 1998 to the date of receipt of such cash payment. A nominal
cash-on-cash internal rate of return shall be deemed to have been received
on such amount when the aggregate of the net present values as of April 9,
1998 of Cash Proceeds (as defined below) actually received after April 9,
1998 by TCW or Grantee is equal to or greater than $10,000,000. In
calculating such net present values, Cash Proceeds received shall be
discounted quarterly using the discount factors set forth on Schedule 1
hereto. As used herein, Cash Proceeds shall include (1) all dividends and
distributions received by TCW with respect to the Shares, (2) the net cash
sales proceeds received by TCW or its Affiliates (after deduction of all
commissions and other costs of sale including transaction costs) from the
sale of any Shares to a party in an arms' length sale and (3) 50% of all
amounts received as (a) proceeds of the overriding royalties granted and
conveyed in the Royalty Conveyance by TCW or Grantee under the Royalty
Documents or any assignee thereof in a Permitted Transfer (as defined in
the Stockholders Agreement) (a "PERMITTED TRANSFEREE") but not any other
assignee thereof during and with respect to the period from and after
April 9, 1998 to the date of purchase or (b) net cash sales proceeds
received by TCW, Grantee or any Permitted Transferee (after deduction of
all commissions and other costs of sale including transaction costs) from
the sale of any of the overriding royalties granted and conveyed in the
Royalty Conveyance. Mercury shall exercise the foregoing option by
delivering a written notice of such exercise to TCW at the address set
forth below. Any sale of any Shares by TCW or by its Affiliates in either
case in an arms' length transaction shall result in such Shares that are
sold no longer being subject to Mercury's right to purchase hereunder;
PROVIDED, HOWEVER, that prior to any sale of Shares by TCW prior to
October 9, 1999, TCW shall give Mercury written notice of TCW's intent to
sell such Shares and Mercury shall have the right, at its option, for a
period of 10 days after the date of such notice to purchase from TCW and
pay for the Shares for a cash purchase price equal to the Pre-October 1999
Price. As used herein the term "Royalty Conveyance" shall mean the Royalty
Conveyance as referred to and amended by the Amendment to Royalty
Conveyance dated as of April 9, 1998.
3. Section 1.5 of the Put/Call Agreement is hereby amended in its
entirety to read as follows:
"Section 1.5. ADJUSTMENTS OF SHARES. In the event that the Shares
are exchanged for other securities of QRI or of a surviving entity
resulting from a merger or other business combination involving QRI or any
successor to QRI, then reference to the "Shares" herein shall refer to such
other securities. In addition, if TCW or any of its affiliates should
receive in respect of the Shares any additional shares issued pursuant to
any stock split, stock dividend, recapitalization or similar transaction by
QRI or any such surviving entity, then references herein to the "Shares"
shall include such additional shares, and appropriate adjustment shall be
made hereunder, including without limitation,
3
<PAGE>
adjustment to any per share purchase price expressed herein, to reflect
such stock split, stock dividend, recapitalization or similar transaction.
If the number of Shares is reduced pursuant to any stock combination by
QRI or such surviving entity, appropriate adjustment shall likewise be
made to reflect such combination.
If TCW or any of its affiliates should acquire any additional shares
of QRI common stock other than pursuant to any such combination, split,
reclassification or stock dividend or similar transaction regarding the
Shares ("ADDITIONAL TCW SHARES") while any of such parties owns any of the
Shares, then any subsequent sale, transfer or other disposition of shares
of QRI common stock by TCW or any of its affiliates shall be treated, for
purposes of this Put/Call Agreement, as a sale, transfer or other
disposition of the Shares rather than Additional TCW Shares until TCW and
its affiliates no longer own any of the Shares."
4. The following is added as a new Section 1.7 after
Section 1.6 of the Put/Call Agreement:
"Section 1.7. SPECIFIC PERFORMANCE. Upon default of a party's
obligations hereunder to purchase and pay for any of the Shares when due,
the non-defaulting party may notify the defaulting party that the
non-defaulting party is holding the Shares for account of the defaulting
party, whereupon the Shares will be deemed to have been tendered and
delivered to, and accepted by, the defaulting party and the defaulting
party shall thereupon become obligated to pay, and the non-defaulting party
shall be entitled to proceed against the defaulting party for payment of,
the aggregate purchase price as calculated hereunder. Each party agrees
that the non-defaulting party is entitled to specific performance of the
defaulting party's obligation to pay the aggregate purchase price and each
party hereby waives, and agrees that it will not raise, any defense to such
an action for specific performance of such party's obligation to purchase
and pay for the Shares based upon any obligation of the non-defaulting
party to mitigate damages or upon the non-defaulting party having an
adequate remedy at law."
5. The following is added as Section 1.6(g) of the Put/Call
Agreement:
(g) SURRENDER OF LETTER OF CREDIT. Within five (5) business days of
Mercury providing written notice to TCW of the consummation of the MSR-QRI
Merger, TCW shall surrender to Mercury that certain Irrevocable Standby
Letter of Credit No. 950445, dated April 10, 1998 by NationsBank of Texas,
N.A. (the "BANK") in favor of TCW for cancellation by the Bank and deliver
to Mercury a cover letter from TCW addressed to the Bank and authorizing
the cancellation of such letter of credit.
6. Except as amended as set forth above the Put/Call Agreement shall
remain in full force and effect.
7. Mercury hereby represents and warrants to TCW that the Darden
Warrants have been owned beneficially and of record by the Darden Group since
they were originally issued and have not been amended, modified, exercised,
exchanged or converted for value or for other securities since their original
issuance date other than adjustments to account for (a) the merger of Mercury
Montana, Inc. and MSR, (b) the Agreement Regarding Warrants between the
Darden Group, Joint Energy Development Investment Limited Partnership and TCW
dated the
4
<PAGE>
date hereof and (c) this Amendment. Any breach of the foregoing
representations and warranties shall be deemed an exercise of the Darden
Warrants under Section 1.1A of the Put/Call Agreement, as amended hereby,
entitling TCW to the option set forth in such Section 1.1A.
8. This Amendment shall be governed by and construed in accordance
with the laws of the state of Texas without giving effect to the principles
of conflicts of laws thereof and may be signed in any number of counterparts.
[SIGNATURE PAGE FOLLOWS]
5
<PAGE>
[SIGNATURE PAGE TO AMENDMENT NO. 1 TO PUT/CALL AGREEMENT]
IN WITNESS WHEREOF, the parties hereto have entered into
this Amendment as of the date first written above.
MERCURY EXPLORATION COMPANY
By: /s/ Glenn Darden
-------------------------------
Glenn Darden
Vice President
TRUST COMPANY OF THE WEST, a California trust
company, as Sub-Custodian for Mellon Bank for
the benefit of Account No. CPFF 869-3062
By: TCW ASSET MANAGEMENT COMPANY, a
California corporation, as Investment Manager
under that certain Agreement, dated as of
June 13, 1994, between TCW Asset Management
Company and Morgan Stanley Group, Inc.
By: /s/ Arthur R. Carlson
-------------------------------
Arthur R. Carlson
Managing Director
By: /s/ Marc MacAluso
-------------------------------
Marc MacAluso
Senior Vice President
6
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
MANAGEMENT AGREEMENT
by and between
MERCURY EXPLORATION COMPANY
and
QUICKSILVER RESOURCES INC.
April 9, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<C> <S> <C>
ARTICLE I
DEFINITIONS
Section 1.1 Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . .1
Section 1.2 References. . . . . . . . . . . . . . . . . . . . . . . . . . . .2
ARTICLE II
APPOINTMENT OF MANAGER
Section 2.1 Appointment . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Section 2.2 Acceptance. . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Section 2.3 Legal Ownership Retained in the Company . . . . . . . . . . . . .3
Section 2.4 Duties Retained by the Company. . . . . . . . . . . . . . . . . .3
ARTICLE III
STATUS OF THE MANAGER
Section 3.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
ARTICLE IV
AUTHORITY AND RESPONSIBILITY OF THE MANAGER
Section 4.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Section 4.2 Compliance with Laws. . . . . . . . . . . . . . . . . . . . . . .3
Section 4.3 Compliance with Obligations . . . . . . . . . . . . . . . . . . .4
ARTICLE V
SERVICES
Section 5.1 Provision of Administrative Services. . . . . . . . . . . . . . .4
Section 5.2 Other Services. . . . . . . . . . . . . . . . . . . . . . . . . .6
Section 5.3 Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Section 5.4 Payment of Out-of-Pocket Expenses . . . . . . . . . . . . . . . .7
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ARTICLE VI
REQUIRED COMPANY APPROVAL
Section 6.1 Required Company Approval . . . . . . . . . . . . . . . . . . . .7
ARTICLE VII
PERSONNEL ADMINISTRATION
Section 7.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Section 7.2 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Section 7.3 Consultants and Others. . . . . . . . . . . . . . . . . . . . . .8
ARTICLE VIII
FINANCIAL ADMINISTRATION
Section 8.1 Budgets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Section 8.2 Cash Management . . . . . . . . . . . . . . . . . . . . . . . . .9
ARTICLE IX
CONTRACTS
Section 9.1 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Section 9.2 Purchases for the Account of the Company. . . . . . . . . . . . .9
Section 9.3 Affiliate Transactions. . . . . . . . . . . . . . . . . . . . . 10
ARTICLE X
INDEMNITIES
Section 10.1 Indemnification by the Manager. . . . . . . . . . . . . . . . . 10
Section 10.2 Indemnification by the Company. . . . . . . . . . . . . . . . . 10
Section 10.3 Non-Assumption of Liabilities . . . . . . . . . . . . . . . . . 11
Section 10.4 Survival of Indemnification Obligations . . . . . . . . . . . . 11
ARTICLE XI
ACCESS TO INFORMATION, BOOKS AND RECORDS;
CONFIDENTIALITY; POWER OF ATTORNEY
Section 11.1 Access to Books and Records . . . . . . . . . . . . . . . . . . 11
Section 11.2 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 11.3 Power of Attorney . . . . . . . . . . . . . . . . . . . . . . . 12
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<PAGE>
ARTICLE XII
CONFLICTS OF INTEREST AND GOOD FAITH
Section 12.1 Other Activities. . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE XIII
REPRESENTATIONS AND WARRANTIES
Section 13.1 Representations and Warranties of the Manager . . . . . . . . . 13
ARTICLE XIV
TERM AND TERMINATION OF AGREEMENT
Section 14.1 Initial Term. . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 14.2 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 14.3 Effects of Termination. . . . . . . . . . . . . . . . . . . . . 15
ARTICLE XV
AGENCY WITH RESPECT TO CERTAIN ASSETS
Section 15.1 Agent and Nominee . . . . . . . . . . . . . . . . . . . . . . . 15
Section 15.2 Distributions, Expenses and Management. . . . . . . . . . . . . 16
Section 15.3 Approval of the Manager . . . . . . . . . . . . . . . . . . . . 17
ARTICLE XVI
MISCELLANEOUS
Section 16.1 Relationship of Parties . . . . . . . . . . . . . . . . . . . . 17
Section 16.2 No Third Party Beneficiaries. . . . . . . . . . . . . . . . . . 18
Section 16.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 16.4 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 16.5 Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 16.6 Waiver of Breach. . . . . . . . . . . . . . . . . . . . . . . . 20
Section 16.7 Dispute Resolution. . . . . . . . . . . . . . . . . . . . . . . 20
Section 16.8 Additional Assurances . . . . . . . . . . . . . . . . . . . . . 20
Section 16.9 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 16.10 Article and Section Headings. . . . . . . . . . . . . . . . . . 21
Section 16.11 Discretionary Terms . . . . . . . . . . . . . . . . . . . . . . 21
Section 16.12 Amendments and Contract Execution . . . . . . . . . . . . . . . 21
Section 16.13 Action by the Company . . . . . . . . . . . . . . . . . . . . . 21
</TABLE>
iii
<PAGE>
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT (this "Agreement") is entered into effective as
of the 9th day of April, 1998, by and between Mercury Exploration Company, a
Texas corporation ("Manager"), and Quicksilver Resources Inc., a Delaware
corporation (together with its predecessors, the "Company").
W I T N E S S E T H:
WHEREAS, Manager is primarily engaged in the business of providing
operations, accounting and management services relating to oil and gas assets
for MSR Exploration Ltd. ("MSR") and others and in the acquisition and ownership
of gas processing plants, gathering facilities and. pipelines; and
WHEREAS, the Company is primarily engaged in the oil and gas business,
including the acquisition, development and exploration and production of oil and
gas properties; and
WHEREAS, in order to reduce overhead and operating expenses and in an
effort to manage its affairs in a more cost effective and efficient manner, the
Company desires to retain the Manager to provide certain management,
administrative and support services to the Company, and the Manager desires to
render such services to the Company, all upon the terms and conditions
hereinafter set forth;
NOW, THEREFORE, for and in consideration of the mutual covenants and
promises contained herein and other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
DEFINITIONS
Section 1.1 DEFINED TERMS. For the purpose of this Agreement, the
following terms shall have the meaning ascribed thereto below unless otherwise
specified or clearly required by the context in which such term is used:
AFFILIATES. "Affiliates" means, with respect to a Person that directly or
indirectly through one or more intermediaries controls, is controlled by, or is
under common control with such Person, and the term "control" shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management, activities or policies of any Person or entity,
whether through the ownership of voting securities, by contract, employment or
otherwise.
AGREEMENT. "Agreement" means this Management Agreement, as modified from
time to time by any duly adopted amendments.
<PAGE>
ASSET MAINTENANCE ACTIVITIES. "Asset Maintenance Activities" means all
activities of the Company incident to the operation, maintenance, upgrading,
renewal or reconstruction of its assets.
BUSINESS. "Business" means all business activities of the Company
conducted both directly and indirectly through subsidiaries, nominees, joint
ventures, general and limited partnerships and other entities which the Company
serves as a partner of or otherwise has an interest in, as such business is now
conducted or may hereafter be conducted in the future including, without
limitation, all Investment Activities, Financing Activities and Asset
Maintenance Activities.
COMMENCEMENT DATE. "Commencement Date" means the date first set forth
above.
COMPENSATION EXPENSE. "Compensation Expense" means, with respect to an
employee of the Manager, all reasonable direct expenses of the Manager incurred
in connection with compensating such employee, including without limitation, all
salary payments, unemployment, payroll and other taxes, health, life, disability
and other insurance costs, and costs of pension and retirement plans.
FINANCING ACTIVITIES. "Financing Activities" means all activities of the
Company incident to the financing of its Business, including borrowing,
repayment, restructuring, renewal and compromise of indebtedness, and the
creation, issuance, redemption or repurchase, conversion, or exchange of capital
stock.
INVESTMENT ACTIVITIES. "Investment Activities" means all activities of the
Company incident to the acquisition, disposition, development or redevelopment
of assets or other customary investment activities of an oil and gas company.
PERSON. "Person" means any of the following: an individual, corporation,
partnership, limited partnership, limited liability company unincorporated
association, trust, estate, or other incorporated or unincorporated entity.
TERM OF AGREEMENT. "Term of Agreement" means the period from the date
hereof until this Agreement is terminated or otherwise expires pursuant to
Article XIV hereof.
Section 1.2 REFERENCES. Unless otherwise specified, the references
herein to "Sections", "Subsections" or "Articles" refer to the sections,
subsections or articles in this Agreement.
ARTICLE II
APPOINTMENT OF MANAGER
Section 2.1 APPOINTMENT. The Company hereby appoints the Manager to
conduct the Business by and on behalf of, and for the account of, the Company
pursuant to and as set forth in this Agreement. The Company shall at all times
have and retain ultimate control over its business and operations.
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<PAGE>
Section 2.2 ACCEPTANCE. The Manager hereby accepts the appointment and
agrees to perform the duties and obligations herein imposed in a reasonable and
prudent manner, consistent with sound field practices and generally accepted
standards for businesses similar to the Business.
Section 2.3 LEGAL OWNERSHIP RETAINED IN THE COMPANY. The Manager shall
not take title to any properties owned of record or beneficially by the Company
during the Term of Agreement. Any addition to the assets of the Company
purchased, leased, or otherwise acquired with the Company's funds or securities
shall be acquired in the name of the Company.
Section 2.4 DUTIES RETAINED BY THE COMPANY. The Company shall remain
responsible for (i) making all decisions required of the Company under this
Agreement, (ii) such other duties as shall be specifically identified in writing
by the Company to the Manager and (iii) authorizing (in its discretion) and
executing all agreements, contracts, and other documents in connection with its
Business.
ARTICLE III
STATUS OF THE MANAGER
Section 3.1 GENERAL. The Manager shall render services hereunder as the
Company's agent to the extent specifically provided herein or as further
delegated from time to time by the Company and accepted in writing by the
Manager. The relationship created by this Agreement is one of principal and
agent, and nothing to the contrary shall be inferred from this Agreement.
ARTICLE IV
AUTHORITY AND RESPONSIBILITY OF THE MANAGER
Section 4.1 GENERAL. As agent for the Company, the Manager shall have
the authority and the responsibility for the supervision and management of the
day-to-day operations of the Business. As agent for the Company, the Manager
agrees, to the extent that adequate funds are made available to the Manager, to
manage the Business in a reasonable and prudent manner, consistent with sound
field practices and generally accepted standards for businesses similar to the
Business. Except as set forth in Sections 5.3 and 5.4, the Manager shall have
no obligation to advance funds for the account of the Company or to pay any sums
of its own in connection with the performance of the actions which it is
authorized to take hereunder. The Manager's management and activities under
this Agreement shall be specifically subject to the terms hereof and the general
control, direction and supervision of the Company.
Section 4.2 COMPLIANCE WITH LAWS. The Manager shall use reasonable best
efforts to ensure full compliance with federal, state and municipal laws,
ordinances, regulations and orders relative to the use, operation, development
and maintenance of the Business. The Manager shall use reasonable best efforts
to remedy any violation of any such law, ordinance, rule, regulation or order
which comes to its attention. If the violation is one for which the Company
might be subject to penalty, the Manager shall promptly notify the Company of
such violation to allow actions to be made to remedy the violation, and the
Manager shall transit promptly to the
3
<PAGE>
Company a copy of any citation or other communication received by the Manager
setting forth any such violation.
Section 4.3 COMPLIANCE WITH OBLIGATIONS. The Manager, to the extent
such matters are within its control, shall use reasonable best efforts to cause
compliance with all terms and conditions contained in any contract, agreement,
judicial, administrative or governmental order, lease, mortgage, deed of trust
or other contractual or security instrument affecting the Business including,
but not limited to, joint operating agreements and service contracts; PROVIDED,
however, that, except as otherwise set forth herein, the Manager shall not be
required to make any payment or incur any liability on account thereof. The
Manager shall promptly notify the Company of any violation of any covenant in
such instruments or agreements.
ARTICLE V
SERVICES
Section 5.1 PROVISION OF ADMINISTRATIVE SERVICES. The Manager shall
provide Administrative Services to the Company, subject to the general approval
and direction of the Company. Administrative Services shall mean the following:
(a) providing the Company with such office space, equipment,
facilities and supplies, and the services of such secretarial, clerical and
other personnel as may be required for the reasonable conduct of the Business;
(b) making such arrangements with and employing, at the expense and
for the benefit of the Company, such accountants, attorneys, banks, transfer
agents, custodians, underwriters, engineers, technical consultants, insurance
companies and other persons as may from time to time be requested by the Company
or may reasonably be necessary to manage the Business;
(c) maintaining in good order the books and accounts, ledger and
records of the Company and performing all day-to-day accounting functions of the
Company, including, without limitation, matters related to paying and receiving,
billing, reserve estimates, contract coordination and administration and tax
return preparation. Without limiting the generality of the foregoing, the
Managers shall prepare, or assist in the preparation of, all requisite
accounting reports and interim financial statements of the Company, including
balance sheets, statements of operations, changes in stockholders' equities and
cash flow and shall assist the Company, if requested, in selecting an
independent public accounting firm for the purpose of conducting annual
financial audit reviews of the Company and shall aid in coordinating such
audits;
(d) assisting in determining the Company's long and short-term
capital requirements, in determining the best method of fulfilling the Company's
capital requirements, in locating sources of equity and long and short-term debt
financing, in preparing formal presentations to potential investors and lenders,
in negotiating the terms and conditions of such financing and in consummating
such financing;
4
<PAGE>
(e) timely preparing and filing on behalf of the Company, all
reports, forms, documents, certificates and other instruments required by the
Securities and Exchange Commission, any national securities exchange on which
the Company's securities are traded, state securities commissions, federal,
state and local tax authorities, regulatory agencies, including federal and
state energy regulatory agencies, and other governmental bodies in order to
lawfully conduct the Business;
(f) analyzing reports, economic data and other information relating
to the Business and periodically reporting to the Board of Directors of the
Company all such information obtained and analyzed, including making
recommendations with respect thereto;
(g) Asset Maintenance Activities, including overseeing and managing
the interests of the Company in the various partnerships, joint ventures,
companies and other entities which the Company has an interest in, and reporting
to the Company any significant fact or matter which relates to such interests;
(h) providing the Company, at its request, with relevant information
for assessing the value of, or making decisions with respect to the acquisition,
funding, management or disposition of, existing or future assets or
investments of the Company;
(i) advising the Company of any potential investments coming to its
attention which the Manager believes the Company may be interested in and which
are within the scope of the Business; and
(j) taking such other actions and performing such other services as
are deemed necessary, customary or appropriate in the opinion of the Manager to
conduct the Business.
In carrying out its duties hereunder, the Manager agrees that, to the
extent the Company has adequate funds available, it will or it will cause:
(i) a prudent operating and maintenance program designed to drill
and complete or abandon the Company's properties and all other operations to be
conducted on the Company's assets as would a reasonable and prudent operator and
in accordance with sound field practices;
(ii) the Company's properties to be maintained and operated for the
production of oil and gas in a good and workmanlike manner and in accordance
with sound field practices, applicable operating agreements, contracts of
development, or similar instruments, none of which shall be superseded by this
Agreement, and, in all material respects, with all applicable laws, rules,
regulations, permits, orders, or decrees, except those being contested in good
faith and by appropriate proceedings (provided that no forfeiture or loss of the
Company's property or any part thereof shall result during the pendency or in
the resolution of such contest);
(iii) all rentals and royalties with respect to the Company's
properties to be paid;
5
<PAGE>
(iv) all taxes, assessments, and governmental charges or levies and
all claims asserted or imposed upon the Company's properties that, if unpaid,
may become a lien upon the Company's properties to be paid prior to delinquency;
(v) all machinery, equipment, and facilities of any kind now or
hereafter located on the Company's properties necessary or useful in the
operation thereof or for the production of oil and gas therefrom, to be provided
and to be kept in good and effective operating condition, and all repairs,
renewals, replacements, additions, and improvements thereof or thereto needful
to such end, to be promptly made, all as would a reasonable and prudent operator
acting in accordance with sound field practices;
(vi) notice to be given to the Company's stockholders of every
material adverse claim or demand made by any\person, affecting the Company's
properties or of any material proceedings instituted with respect thereto, and
all reasonably necessary and proper steps to be diligently taken to protect and
defend the Company's properties against any such adverse claim, demand, or
proceeding, all as would a reasonable and prudent operator;
(vii) the Company's properties to be kept free and clear of liens,
charges, and encumbrances of every character other than those consented to by
the Company;
(viii) insurance of the type and in the amounts not less than those
set forth in Exhibit A hereto to be carried for the Company at the Company's
expense; and
(ix) title opinions in form and substance satisfactory to the
Company to be rendered prior to conducting operations on any Company property
for which no prior satisfactory title opinion has been rendered.
Section 5.2 OTHER SERVICES. The Manager may, at its discretion, perform
all other activities related or incidental to the Business for the account of
the Company, at the request of the Company, including Investment Activities or
Financing Activities. Such activities shall be performed under the control and
supervision of the Company.
Section 5.3 FEE.
(a) Each salaried employee of the Manager shall prepare a daily time
sheet recording the number of hours (recorded in minimum intervals of 1 hour)
spent each day on specific matters relating to the Business of the Company
pursuant to this Article V. All such employee time sheets shall be tabulated by
the Manager at the end of each month and the Manager shall prepare a monthly
report setting forth the name of each employee, the total number of hours worked
during such month by each employee, the monthly salary of each employee, and a
brief description of the work performed and the total number of hours devoted by
each employee during such month to the business of the Company. The Company
shall pay the Manager a fee (the "Fee") equal to (a) the sum of the following
for each employee of the Manager who worked on the Business of the Company
pursuant to this Article V: total Compensation Expense of such employee during
such month multiplied times a fraction, the numerator of which is the total
number of hours spent by such employee on the Business of the Company during
such month and
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<PAGE>
the denominator of which shall be the total number of hours worked by such
employee during such month, in each case as reflected on the time sheets of
such employee maintained pursuant to this Section 5.3; reduced by (b) the
amount of direct and overhead charges paid by the Company to the Manager or
any Affiliate thereof under any joint operating agreements or any other
agreement applicable to any properties of the Company or the Managed Assets
(as hereafter defined). Within thirty days after the end of each month
during the Term of Agreement, the Manager shall prepare and submit to the
Company, together with a copy of the monthly report, an invoice for the Fee
owed pursuant to this section, which the Company shall promptly pay.
(b) For purposes of this Section 5.3, in the absence of fraud,
misstatement, miscalculation or other manifest error, the daily time sheets and
monthly reports shall be presumed accurate and binding upon the parties hereto.
However, in the event that a dispute arises between the Company and the Manager
as to the amount of time devoted by the Manager's employees to the Business
during any month and/or the amount of monthly payroll expenses payable by the
Company, and the parties are unable to resolve such dispute in a timely manner,
then the issue shall be submitted for resolution to the Company's independent
public accountants, whose determination shall be final and binding upon the
Company and the Manager.
Section 5.4 PAYMENT OF OUT-OF-POCKET EXPENSES. The Manager shall pay
all out-of-pocket expenses ("Expenses") of the Manager and its employees, agents
and consultants not reimbursed from another source including the following:
travel, food, lodging, entertainment and similar expenses ("Out-of-Pocket
Expenses"), pursuant to the policies and procedures established by the Manager
for the payment or reimbursement of such costs with respect to activities
conducted by the Company under this Article V. The Company shall reimburse the
Manager, within thirty days after the end of each month during the Term of
Agreement, for all such Out-of-Pocket Expenses paid by the Manager on behalf of
the Company or in connection with the Business of the Company during such month.
ARTICLE VI
REQUIRED COMPANY APPROVAL
Section 6.1 REQUIRED COMPANY APPROVAL. The Company must specifically
approve the following matters before they are undertaken by the Manager for the
account of the Company, and, notwithstanding any other provisions hereof, none
of the following shall be undertaken without the Company's prior approval:
(a) the issuance of any capital stock or security convertible into or
exchangeable for such capital stock;
(b) the entering into of capital leases or making of capital
expenditures in excess of $20,000;
(c) the execution of any agreements for borrowing of funds (other
than trade accounts payable incurred in the ordinary course of the Business) on
a long-term basis;
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<PAGE>
(d) the pledge, hypothecation or other encumbrance of any material
asset of the Company;
(e) the acquisition or disposition of any material asset of the
Company, other than in the ordinary course of business or as contemplated
herein;
(f) the initiation or compromise of any single litigation matter (or
settling of any single claim) with a cost to the company of $ 1 0,000 or more;
(g) the execution of any contract whose term extends beyond one year
from its effective date;
(h) use any of the Company's assets in any way for the furtherance of
business activities of any entity other than the Company or unrelated to the
Business of the Company; and
(i) any agreement to do any of the foregoing.
Notwithstanding any provision of this Agreement to the contrary, the Manager
shall have no authority to take any action that will contravene the Company's
Certificate of Incorporation or Bylaws or result in a breach of, or be in
contravention of, any obligation, representation, covenant or other agreement of
the Manager or the Company under any of the Basic Documents (as defined in the
Agreement and Plan of Reorganization and Merger dated March 31, 1998 by and
among the Company, the Manager, Quicksilver Energy, L.C., Michigan Gas Partners,
Limited Partnership, Trust Company of the West ("TCW"), and Joint Energy
Development Investments Limited Partnership ("JEDI") (the "Merger Agreement") or
the Merger Agreement.
ARTICLE VII
PERSONNEL ADMINISTRATION
Section 7.1 GENERAL. The Manager shall have in its employ or available
to it at all times during the Term of Agreement a sufficient number of personnel
to enable it to properly and adequately manage, operate, maintain, and account
for the Business as herein provided. All matters pertaining to the employment,
supervision, compensation, promotion and discharge of any employees or personnel
of the Manager are the responsibility of the Manager, which is in all respects
the employer of any such employees. All such employment arrangements are solely
the Manager's concern and, other than as set forth in Article V hereof, the
Company shall have no liability with respect thereto.
Section 7.2 EMPLOYEES. The Manager shall determine the number and
qualifications of employees needed in the operation of the Business and shall
implement the policies of the Company with regard to employer/employee matters.
Section 7.3 CONSULTANTS AND OTHERS. Except as otherwise provided
herein, the Manager shall have the power and authority to retain and pay as
independent contractors, on behalf of and
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for the account of the Company, lawyers, accountants, engineers, contractors,
technical consultants, architects, and others in connection with the conduct
of the Business.
ARTICLE VIII
FINANCIAL ADMINISTRATION
Section 8.1 BUDGETS. Within 30 days after the end of each fiscal year
of the Company during the Term of Agreement, the Manager shall prepare and
submit to the Company, a budget (a "Budget") for the operation of the Business
for the ensuing year, setting forth anticipated income, operating expenses and
anticipated capital expenditures. Such proposed Budget shall include an
explanation of anticipated changes in asset utilization, payroll rates and
positions, non-wage costs increases and other items expected to differ
significantly from the previous year. The Budget's projection of cash receipts
and disbursements shall also include the Manager's recommendations as to the use
of projected cash flow in excess of short term operating requirements and
recommendations as to the sources and amounts of additional cash that may be
required to meet operating and capital requirements. Such Budget shall serve as
a guide for the operation of the Business in the ordinary course of the
Company's business during the periods covered thereby. The Manager shall employ
reasonable best efforts to ensure that the actual costs of managing and
operating the Business shall not exceed the approved Budget either in total or
in any one accounting category.
Section 8.2 CASH MANAGEMENT. The Manager shall implement a cash
management system for the cash and cash equivalents of the Company. The Manager
shall maintain separate accounts for the funds of the Company and shall not
commingle the funds of the Company with its own funds. The Manager shall direct
all funds received for the Company to be deposited into such separate accounts.
ARTICLE IX
CONTRACTS
Section 9.1 CONTRACTS. The management of the Business by the Manager
shall include negotiating, administering and terminating contracts, by and on
behalf of the Company, in the ordinary course of Business. Contracts that, by
their terms, involve amounts in excess of $20,000 shall not be entered into
without the prior approval of the Company. All such contracts shall be executed
by duly authorized officers of the Company.
Section 9.2 PURCHASES FOR THE ACCOUNT OF THE COMPANY.
(a) Day-to-day operation of the Business shall include the purchase
(or lease) of such equipment, supplies and other goods necessary for the
efficient operation of the Business.
(b) Purchases shall be made only at reasonable costs pursuant to the
"prudent buyer" principle. The Manager is not a merchant, as that term is
defined in the Uniform Commercial Code, and makes no warranty, express or
implied, including, without limitation, that
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of fitness for a particular purpose, for any item purchased for the
administration of the Business or on behalf of the Company.
(c) In order to facilitate the performance by the Manager of its
obligations hereunder, the Company agrees to make available, upon the request of
the Manager, such additional amounts as may be needed, in the good faith
judgment of the Manager to manage and operate the Business under the terms
hereof.
Section 9.3 AFFILIATE TRANSACTIONS. The Manager shall not make or cause
the Company to make any contract with or purchase or sell goods or services from
the Manager or any Affiliate of the Manager except in accordance with procedures
established by the independent members of the Board of Directors of the Company.
ARTICLE X
INDEMNITIES
Section 10.1 INDEMNIFICATION BY THE MANAGER. The Manager shall protect,
indemnify, defend and hold harmless the Company and its officers, directors,
stockholders and Affiliates from any and all threatened or actual claims,
demands, causes of action, suits, proceedings (formal or informal), losses,
damages, fines, penalties, liabilities, costs and expenses of any nature,
including attorneys' fees and court costs (collectively, "Damages"), sustained
or incurred by or asserted against the Company or its Affiliates by any person,
firm, corporation, governmental authority, partnership or other entity by reason
of or arising out of: (i) any breach of this Agreement or any document or
agreement delivered in connection herewith or therewith by the Manager or its
Affiliates, agents, or employees; or (ii) any act of fraud, willful misconduct
or gross negligence of the Manager or its Affiliates, agents or employees, or
acts or omissions outside the scope of the Manager's authorized duties and
responsibilities contained herein. In case any action or proceeding shall be
brought against the Company or its Affiliates in respect of which the
indemnification contemplated by this Section 10.1 may be sought against the
Manager, the Manager, upon the receipt of notice from the Company, shall defend
such action or proceeding by counsel reasonably satisfactory to the Company and
the Manager, and the Manager shall pay for all expenses therefor unless such
action or proceeding is resisted and defended by counsel for any carrier of
public liability insurance that benefits the Company or the Manager. The
Company shall promptly give written notice to the Manager when a claim is made
against the Company for which indemnity is owed to the Company by the Manager
pursuant to this Section 10.1. The Manager shall participate at its own expense
in defense of such claims, but the Company shall have the right to employ its
own separate counsel. The Company shall assist the Manager in the defense of
any claim for which the Manager owes indemnification hereunder and is
undertaking to provide a defense, by making available to the Manager such
records and personnel as may be reasonably requested in the defense of such
claim.
Section 10.2 INDEMNIFICATION BY THE COMPANY. The Company hereby releases
and agrees to indemnify, defend and hold harmless the Manager and its officers,
directors shareholders, employees, agents and Affiliates from any and all
Damages sustained or incurred by or asserted against the Manager or its
Affiliates, officers, directors, employees and agents by any person,
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firm, corporation, governmental authority, partnership or other entity by
reason of or arising out of: (i) the conduct of the Company, or (ii) the
conduct of the Business or the provision of services by the Manager pursuant
to this Agreement, except in each case to the extent that such Damages arise
out of (i) any breach of or liability/obligation arising under this Agreement
or any document or agreement delivered in connection herewith or therewith by
the Manager or its Affiliates, agents, or employees, or (ii) any act of
fraud, willful misconduct or gross negligence of the Manager or its
Affiliates, agents or employees, or acts or omission outside the scope of the
Manager's authorized duties and responsibilities contained herein. THE
PARTIES HERETO EXPRESSLY AGREE THAT THE RELEASE AND INDEMNIFICATION PROVIDED
BY THIS SECTION 10.2 INCLUDES RELEASE AND INDEMNIFICATION FOR THE ORDINARY
NEGLIGENCE OF THE PERSONS ENTITLED TO INDEMNIFICATION PURSUANT TO THIS
SECTION 10.2. In case any action or proceeding shall be brought against the
Manager in respect of Which the indemnity contemplated by this Section 10.2
may be sought against the Company, the Manager shall give notice of such
action to the Company, and the Company shall defend such action or proceeding
by counsel reasonably satisfactory to the Company and the Manager, and the
Company shall pay for all expenses therefor unless such action or proceeding
is resisted and defended by counsel for any carrier of public liability
insurance that benefits the Company or the Manager. The Manager shall
promptly give written notice to the Company when a claim is made against the
Manager for which indemnity is owed to the Manager by the Company pursuant to
this Section 10.2. The Company shall participate in defense of such claims,
but the Manager shall have the right to employ its own separate counsel, and
the Manager shall assist the Company in the defense of any claim for which
the Company owes indemnification hereunder and is undertaking to provide a
defense, by making available to the Company such, records and personnel of
the Manager as may be reasonably requested.
Section 10.3 NON-ASSUMPTION OF LIABILITIES. The Manager shall not, by
entering into this Agreement, assume or become liable for any of the
obligations, debts or other liabilities of the Company in existence or
arising on or after the date hereof.
Section 10.4 SURVIVAL OF INDEMNIFICATION OBLIGATIONS. The respective
indemnification obligations of the Manager and the Company under this Article
X shall survive the termination of this Agreement. Notwithstanding the
foregoing, no party shall be obligated to provide identification pursuant to
this Article X for any claim unless the person seeking indemnification
provides notice of such claim to the party from whom indemnification is being
sought within three years after the termination of this Agreement.
ARTICLE XI
ACCESS TO INFORMATION, BOOKS AND RECORDS;
CONFIDENTIALITY; POWER OF ATTORNEY
Section 11.1 ACCESS TO BOOKS AND RECORDS. The Manager and its duly
authorized representative shall have reasonable access to the Company's
offices, facilities and records wherever located, in order to discharge the
Manager's responsibilities hereunder. All records and materials furnished to
the Manager by the Company in performance of this Agreement shall at all
times during the Term of Agreement remain the property of the Company.
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Section 11.2 CONFIDENTIALITY. For two years after the Term of
Agreement, the Manager agrees to keep confidential all non-public information
concerning the Company acquired by the Manager or its Affiliates during the
Term of Agreement. For the purpose of this Section 11.2, confidential
information shall not include any information available to or otherwise
disclosed by the Company to third parties generally, provided such disclosure
did not involve the breach of a nondisclosure obligation owed to the Company.
Nothing in this Section 11.2 shall prohibit any announcement or disclosure
by a party that such party determines is required to be disclosed by
applicable law or court order.
Section 11.3 POWER OF ATTORNEY. By execution of this Agreement, the
Company does hereby irrevocably make, constitute and appoint the Manager, and
its successors, with full power of substitution, as its true and lawful
attorney and agent with full power and authority in its name, place and stead
to execute, swear to, acknowledge, deliver, file, record in the appropriate
public offices and publish any and all contracts, agreements, instruments,
conveyances, mortgages, deeds, notes and other documents of any kind or
nature related to, arising out of or in connection with the Business or the
Manager's performance of this Agreement.
During the Term of the Agreement, the power of attorney granted herein
shall be irrevocable and a power coupled with an interest, shall survive the
bankruptcy, dissolution or other termination of the Company, shall extend and
be binding upon the Company's successors and assigns and shall continue in
full force and effect regardless of the occurrence of any of the foregoing.
The Company hereby agrees to be bound by any such contracts, agreements,
instruments, conveyances, mortgages, deeds, notes and other documents
executed or otherwise entered into by the attorney and agent acting in good
faith pursuant to such power of attorney, and hereby waives any and all
defenses which may be available to contest, negate, or disaffirm any action
of the attorney and agent taken under such power of attorney except in cases
of bad faith, gross negligence or willful misconduct.
ARTICLE XII
CONFLICTS OF INTEREST AND GOOD FAITH
Section 12.1 OTHER ACTIVITIES. The Company acknowledges that the
Manager and its Affiliates own, manage and/or operate assets through the
Manager's management relationship with MSR and others through joint operating
agreements and similar agreements. The Company agrees that the Manager shall
have no liability or accountability to the Company for any activities or
interests that compete or may compete as of the date hereof or any profits or
value generated therefrom. The foregoing shall not be deemed to impair,
limit or otherwise restrict the application of the corporate opportunity
doctrine or other duties owed to the Company with respect to future
opportunities of the Company.
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ARTICLE XIII
REPRESENTATIONS AND WARRANTIES
Section 13.1 REPRESENTATIONS AND WARRANTIES OF THE MANAGER. The
Manager represents and warrants to the Company as follows:
(a) The Manager has the full power and authority to enter into
this agreement, to perform its obligations contemplated hereunder and to
carry on its business and own its properties.
(b) This Agreement has been duly executed and delivered by the
Manager.
(c) This Agreement is the valid and legally binding obligation of
the Manager enforceable against the Manager in accordance with its terms, and
the Company is entitled to the benefits thereof.
(d) The Manager is not in default with respect to any order, writ,
injunction, decree or demand of any court or any governmental authority, or
in the payment of any indebtedness for borrower money or under the terms or
provisions of any agreement or instrument evidencing or securing any such
indebtedness.
(e) No representation or warranty of the Manager contained in this
Agreement and no statement of the Manager contained in any monthly or interim
request for funds, certificate, schedule, list, financial statement or other
instrument famished to the Company pursuant to this Agreement contains, or
will contain, any untrue statement of a material fact, or omits, or will
omit, to state a material fact necessary to make the statements contained
herein or therein not misleading in view of the circumstances in which they
are or were made.
(f) There are no actions, suits, proceedings or governmental
investigations or inquiries pending or threatened against the Manager or to
which the Manager is a party or which any property of the Manager is subject,
which, if determined adversely to the Manager, would materially affect the
operations or financial position of the Manager or its ability to perform
hereunder.
(g) The Manager is a corporation duly organized, validly existing
and in good standing under the laws of the State of Texas and the Manager
possesses all licenses, permits, variances, exemptions, orders, consents,
approvals, authorizations and qualifications the absence of which would,
individually or in the aggregate, materially adversely affect the business or
properties of the Manager.
(h) Neither the execution and delivery of this Agreement, nor the
performance or compliance with the terms and conditions hereof, conflict
with, or will result in a breach by the Manager of, or constitute a default
under, or result in the creation of any lien, charge or encumbrance upon any
asset of the Manager pursuant to any of the terms, conditions or provisions
of (i) the Certificate of Incorporation or Bylaws of the Manager, (ii) any
mortgage, deed of trust,
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lease, contract, agreement or other instrument to which the Manager is a
party or by which the Manager may be bound or affected, or (iii) any writ,
order, judgment, decree, statute, ordinance, regulation or any other
restriction of any kind or character, to which the Manager is subject, or by
which the Manager may be bound or affected.
(i) All covenants, agreements, representations and warranties made
by the Manager in this Agreement shall survive the execution and delivery of
this Agreement, and all representations and warranties made by the Manager in
this Agreement shall survive the termination of this Agreement for a period
of three years.
ARTICLE XIV
TERM AND TERMINATION OF AGREEMENT
Section 14.1 INITIAL TERM. The initial term of this Agreement shall
be for A ONE-YEAR PERIOD beginning on the Commencement Date; provided,
however, that in the event the Company's Common Stock or securities received
in exchange or substitution thereof whether by merger, reorganization or
otherwise become eligible for trading on the New York Stock Exchange, the
American Stock Exchange or the Nasdaq National Market, then the initial term
of this Agreement shall terminate on the date the Common Stock becomes so
traded. Thereafter, this Agreement shall automatically renew for successive
one-year periods until terminated by either party in accordance with the
provisions of this Article XIV.
Section 14.2 TERMINATION. This Agreement may be terminated on the
first to occur of the following:
(a) In the event the parties shall mutually agree in writing this
Agreement may be terminated on the terms and dates stipulated therein.
(b) At the end of and following the initial term hereof, either
party may, with or without cause, terminate this Agreement on any anniversary
date hereof by giving to the other party at least 30 days' advance written
notice of its intent to terminate, whereupon this Agreement shall terminate
on the future date specified in such notice.
(c) In the event either party shall fail to discharge any of its
material obligations hereunder or shall commit a breach of any material
provision of this Agreement and such default or breach shall continue for a
period of 30 days after the other party has served notice of such default,
this Agreement may then be terminated at the option of the non-breaching
party by notice thereof to the breaching party.
(d) Dissolution or termination of the corporate existence of the
Manager or cessation on the Manager's part to continue to do business, or
bankruptcy, insolvency, foreclosure or conveyance in lieu of foreclosure, or
assignment for the benefit of the creditors of the Manager shall cause an
immediate termination of this Agreement at the election of the Company.
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Section 14.3 EFFECTS OF TERMINATION. The termination of the Agreement
in accordance with the provisions of this Article XIV shall have the
following effects:
(a) Except for the mutual indemnities, covenants or other
provisions herein that by their terms expressly extend beyond the Term of
Agreement, the Parties' obligations hereunder are limited to the Term of
Agreement.
(b) In the event this Agreement is terminated for any reason, the
Manager shall immediately deliver possession to the Company of all assets,
books and records of the Company in its possession.
(c) Upon a termination of this Agreement (for whatever cause other
than termination under Section 14.2(c) hereof), the Company shall pay to the
Manager the amount of any Fee and Expenses accrued to the date of such
termination which are payable by the Company to the Manager in accordance
with the provisions hereof.
(d) Upon termination of this Agreement by the Company other than
termination under Section 14.2(c) hereof, the Company shall reimburse the
Manager for all reasonable amounts incurred by the Manager in connection with
its activities under this Agreement. Without limiting the foregoing, the
Company shall (i) hire or pay the reasonable costs of terminating all of
Manager's employees used to conduct the Company's Business and (ii) lease or
reimburse the Manager for all or a portion of the rental of any facilities or
equipment used by the Manager under the Agreement which use was discontinued
or reduced by termination of this Agreement.
ARTICLE XV
AGENCY WITH RESPECT TO CERTAIN ASSETS
Section 15.1 AGENT AND NOMINEE. The Manager and the Company agree
that the Company will receive the full benefit of the Managed Assets (as
defined below). As used herein "Managed Assets" means (i) the contracts
listed on SCHEDULE I to this Agreement and (ii) any other contracts, rights,
agreements, assets or other rights held by Mercury that relate to the
Business other than the Excluded Assets (as defined below). As used herein
"Excluded Assets" means those contracts and other assets listed on SCHEDULE
II to this Agreement. On the terms set forth in this Agreement, the Manager
shall continue to hold legal and/or beneficial title to the Managed Assets as
agent and nominee for the Benefit of the Company, and the Manager shall have
no legal or beneficial interest in the Managed Assets (which interest is
vested in the Company). The Company hereby authorizes and appoints the
Manager to act on behalf of the Company with respect to the Managed Assets in
accordance with the specific, timely written instructions or, if the
circumstances so require, oral instructions (in which case the same shall be
confirmed in writing as soon as practicable thereafter) from the Company
actually received from time to time by the Manager (which the Company agrees
to provide as needed, and with respect to which the Manager agrees that it
will comply promptly and in good faith), and to exercise such powers
hereunder and thereunder as are specifically delegated to the Manager by the
terms of such instructions, together with such powers as may be reasonably
incidental thereto; PROVIDED HOWEVER, that the foregoing authorization shall
in no way imply or suggest that the Manager shall
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have any duty to the Company except to act in good faith and in strict
accordance with the terms hereof
Section 15.2 DISTRIBUTIONS, EXPENSES AND MANAGEMENT.
(a) Without the prior written consent of the Company, the Manager
shall have no right to sell, encumber or otherwise transfer the Managed
Assets. In the event that the Manager receives monies or other consideration
in respect of the Managed Assets, the Manager shall distribute all such
amounts to the Company or any party designated by the Company, upon written
request from the Company.
(b) All amounts which the Company is entitled to receive from
third parties with respect to the Managed Assets may be distributed to the
Manager for the account of the Company. All parties dealing with the Manager
are authorized and directed to treat and regard the Manager as the party
entitled to deal with the Managed Assets and shall be fully protected in so
treating and regarding the Manager and shall have no obligation to determine
the authority of the Manager to deal with the Managed Assets or for the
proper application of any proceeds received by the Manager. The Manager may
hold itself out to third parties as the agent of the Company solely for the
purposes of this Agreement and in accordance herewith,
(c) The Company shall pay all amounts which the Company may become
obligated to pay with respect to the Managed Assets as the beneficial owner
thereof, and shall pay all appropriate expenses accruing to the Company as
beneficial owner of the Managed Assets.
(d) The Manager promptly shall furnish to the Company copies of
all correspondence, documents, notices and instruments of every kind relating
to the Managed Assets which the Manager may receive, including, without
limitation, rental notices, claims, invoices, leases and contracts. The
Manager shall promptly keep the Company informed of any material developments
affecting the Managed Assets of which the Manager becomes aware, including
the substance of material oral communications between third parties and the
Manager concerning such matters.
(e) Without limiting the generality of the foregoing, the Company
hereby authorizes the Manager to act on behalf of the Company in respect of
the Managed Assets and to take all such actions thereunder necessary or
appropriate with respect to management of the Managed Assets and enforcement
of the rights of the Company thereunder, in each case in accordance with
instructions from the Company. The Manager shall follow all instructions of
the Company relating to the Managed Assets, including without limitation
instructions relating to the execution of and the action to be taken with
respect to notices and instruments relating to the Managed Assets, including
with limitation mortgages, deeds of trust and financing statements.
(f) In connection with any document or instrument executed,
delivered and/or recorded or other action taken by the Manager at the
instruction of the Company, the Manager may assume without inquiry or
investigation that such execution, delivery, recordation or action has been
duly and properly authorized by the Company. The Manager shall not be under
any duty to accept orders or instructions from any Person other than the
Company, except in accordance
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with specific, written instructions from the Company to do so. The Manager
shall be under no obligation to inquire into the authority of any natural
person purporting to act on behalf of the Company or any other Person. The
Manager shall be entitled to assume conclusively that all instruments
delivered to it by the Company under any provision of this Agreement are
valid and proper. The Manager may seek advice of the Company's counsel and
shall be fully protected in any action taken in accordance with such advice
concerning the legality of any action. The Manager shall not be required to
assert or defend any legal actions which may be commenced against it
pertaining to the Managed Assets unless requested in writing to do so by the
Company, and the Company shall assume the defense of any and all legal
actions relating to the Managed Assets unless and until the Manager is so
requested in writing.
(g) The Manager agrees to take reasonable steps to preserve the
confidentiality of all information held by the Manager (whether before or
after the date of this Agreement) relating to the business of the Company
that, in the absence of the Merger Agreement and the transactions entered
into pursuant thereto, would have been treated as confidential by the Manager
during the period when it was the holder of the beneficial interest in the
Managed Assets, or that the Company identifies to the Manager in writing as
confidential. The Manager further agrees to take such reasonable steps as
may be necessary to preserve legal privilege on behalf of the Company in
respect of any information held by the Manager (whether before or after the
date of this Agreement) relating to the business of the Company that has been
or is subject to an assertion by the Manager or the Company of legal
privilege, or that the Company identifies in writing to the Manager as
privileged.
(h) In no event shall the Company be responsible for any
obligations, costs, expenses, losses or damages (i) relating to the Managed
Assets and arising out of events that occurred prior to the date of this
Agreement or (ii) relating to the Excluded Assets.
Section 15.3 APPROVAL OF THE MANAGER. The Manager will consult with
the Company in giving any required consent from the Company which may be
requested pursuant to the or with respect to the Managed Assets and shall, in
connection therewith, act in accordance with the instructions of the Company
(unless such actions shall be excused pursuant to the express provisions of
this Agreement), but shall have no obligation to make any discretionary
decision or form any opinion referred to in the Managed Assets.
ARTICLE XVI
MISCELLANEOUS
Section 16.1 RELATIONSHIP OF PARTIES. This Agreement does not create
a partnership, joint venture or association; nor does this Agreement, or the
operations hereunder, create the relationship of lessor and lessee or bailor
and bailee. Nothing contained in this Agreement or in any agreement made
pursuant hereto shall ever be construed to create a partnership, joint
venture or association, or the relationship of lessor and lessee or bailor
and bailee, or to impose any duty, obligation or liability that would arise
therefrom with respect to either or both of the parties except as otherwise
expressly provided in this Agreement or any agreement made pursuant hereto.
Specifically, but not by way of limitation, except as otherwise expressly
provided for herein,
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nothing contained herein shall be construed as imposing any responsibility on
the Manager for the debts or obligation of the Company or any of its
Affiliates. It is expressly understood that the Manager is hereby engaged by
the Company to manage the Business only as an agent of the Company.
Section 16.2 NO THIRD PARTY BENEFICIARIES. Except to the extent a
third party is expressly given rights herein, any agreement to pay an amount
and any assumption of liability herein contained, expressed or implied, shall
be only for the benefit of the parties and their respective legal
representatives, successors and assigns, and such agreement or assumption
shall not inure to the benefit of the obligers of any indebtedness of any
party whomsoever, it being the intention of the parties hereto that no person
or entity shall be deemed a third party beneficiary of this Agreement except
to the extent a third party is expressly given rights herein.
Notwithstanding the foregoing, the parties hereby expressly grant each of
JEDI and TCW rights as third party beneficiaries of the Manager's
representations, warranties, covenants and agreements contained herein.
Section 16.3 NOTICES. Any notice, demand, or communication required,
permitted, or desired to be given hereunder shall be deemed effectively given
when personally delivered or mailed by prepaid certified mail, return receipt
requested, addressed as follows:
(i) if to the Company, to:
Quicksilver Resources Inc.
1619 Pennsylvania Avenue
Fort Worth, Texas 76104
Attn: Glenn Darden
(ii) if to the Manager, to:
Mercury Exploration Company
1619 Pennsylvania Avenue
Fort Worth, Texas 76104
Attn: Glenn Darden
in either case, with required copies to:
Trust Company of the West
865 South Figueroa Street
Los Angeles, California 90017
Attention: Arthur R. Carlson
Telecopier: (213) 244-0604
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and
TCW Asset Management Company
2175 First Interstate Bank Plaza
1000 Louisiana
Houston, Texas 77002
Attention: George R. Hutchinson
Telecopier: (713) 615-7460
with copies to:
Milbank, Tweed, Hadley & McCloy
601 South Figueroa Street, 30th Floor
Los Angeles, California 90017
Attention: David A. Lamb
Telecopier: (213) 629-5063
and
Joint Energy Development Investments Limited Partnership
c/o Enron Capital Management Limited Partnership
1400 Smith Street
Houston, Texas 77002
Attention: Jeremy M. Blachman
Telecopier: (713) 646-8174
with copies to:
Enron Capital & Trade Resources
Corp. Legal Department
1400 Smith Street
Houston, Texas 77002
Attention: Carol St. Clair and Gareth S. Bahlmann
Telecopier: (713) 646-3393
and
Enron Capital & Trade Resources
Compliance Department
1400 Smith Street
Houston, Texas 77002
Attention: Donna W. Lowry
Telecopier: (713) 646-4039 or (713) 646-4946
or to such other address and to the attention of such other person or officer
as either Party may designate by written notice pursuant to this Section 16.3.
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Section 16.4 GOVERNING LAW. THIS AGREEMENT HAS BEEN EXECUTED AND
DELIVERED IN AND SHALL BE INTERPRETED, CONSTRUED AND ENFORCED PURSUANT TO AND
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
Section 16.5 ASSIGNMENT. No assignment of this Agreement or any of
the rights or obligations set forth herein by either party shall be valid
without the specific written consent of the other party; provided that the
Company may in its discretion assign any of its rights hereunder to any
financial institution providing financing to the Company as collateral
security for such financing.
Section 16.6 WAIVER OF BREACH. The waiver by either party of a breach
or violation of any provision of this Agreement shall not operate as, or be
construed to be, a waiver of any subsequent breach of the same or any other
provision hereof.
Section 16.7 DISPUTE RESOLUTION. Any controversy, dispute or claim
arising out of or relating to this Agreement or any of the other documents
contemplated hereby or the transactions contemplated hereby or thereby (a
"Dispute") shall be resolved by arbitration administered by the American
Arbitration Association (the "AAA") in accordance with the terms of this
Section 16.7, the Commercial Arbitration Rules of the AAA, and, to the
maximum extent applicable, the United Stated Arbitration Act. Judgment on
any matter rendered by arbitrators may be entered in any court having
jurisdiction. Any arbitration shall be conducted before three arbitrators.
The arbitrators shall be individuals knowledgeable in the subject matter of
the Dispute. Each party shall select one arbitrator and the two arbitrators
so selected shall select the third arbitrator. If the third arbitrator is
not selected within 30 days after the request for an arbitration, then any
party may request the AAA to select the third arbitrator. The arbitrators
may engage engineers, accountants or other consultants they deem necessary to
render a conclusion in the arbitration proceeding. To the maximum extent
practicable, an arbitration proceeding hereunder shall be concluded within
180 days of the filing of the Dispute with the AAA. Arbitration proceedings
shall be conducted in Houston, Texas. Arbitrators shall be empowered to
impose sanctions and to take such other actions as the arbitrators deem
necessary to the same extent a judge could impose sanctions or take such
other actions pursuant to the Federal Rules of Civil Procedure and applicable
law. At the conclusion of any arbitration proceeding, the arbitrators shall
make specific written findings of fact and conclusions of law. The
arbitrators shall have the power to award recovery of all costs and fees to
the prevailing party. All fees of the arbitrators and any engineer,
accountant or other consultant engaged by the arbitrators, shall be shared
equally unless otherwise awarded by the arbitrators.
Section 16.8 ADDITIONAL ASSURANCES. The provisions of this Agreement
shall be self-operative and shall not require further accord between the
parties except as may herein specifically be provided to the contrary;
provided, however, that upon the request of either party, the other party
shall execute such additional instruments and take such additional actions as
shall be necessary to effectuate this Agreement.
Section 16.9 SEVERABILITY. In the event any provisions of this
Agreement is held to be unenforceable for any reason, such provision shall be
severable from this Agreement if it is capable of being identified with and
apportioned to reciprocal consideration or to the extent that
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it is a provision that is not essential and the absence of which would not
have prevented the parties from entering into this Agreement. The
unenforceability of a provision that has been performed shall not be grounds
for invalidation of this Agreement under circumstances in which the true
controversy between the parties does not involve such provision.
Section 16.10 ARTICLE AND SECTION HEADINGS. The articles and section
headings contained in this Agreement are for reference purposes only and shall
not effect in any way the meaning or interpretation of this Agreement.
Section 16.11 DISCRETIONARY TERMS. Determination of "necessary",
"appropriate" and other discretionary terms as used herein shall be according to
the judgment and discretion of the respective parties in accordance with
generally accepted standards of the oil and gas industry.
Section 16.12 AMENDMENTS AND CONTRACT EXECUTION. This Agreement
supersedes all previous contracts between the parties and constitutes the entire
Agreement between the parties with respect to the subject matter of this
Agreement. No oral statement or prior written material not specifically
incorporated herein shall be of any force and effect, and no changes in or
additions to this Agreement shall be recognized unless incorporated herein by
amendment, such amendment to become effective on the date stipulated therein.
Section 16.13 ACTION BY THE COMPANY. The Company and the Manager agree
that any discretionary action that may be or is required to be taken by the
Company hereunder may be taken only by the act of the members of the Board of
Directors of the Company who are designated by TCW and JEDI and are not
Affiliates of the Manager, or designated by the Manager or any of its
Affiliates. If there are no such members of the Board of Directors of the
Company, such action may be taken only by the act of the holders of a majority
of the outstanding voting securities of the Company held by persons who are not
Affiliates of the Manager.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed
by their respective duly authorized representatives as of the day and year first
above written.
MERCURY EXPLORATION COMPANY
By: /S/ Glenn Darden
-------------------------------
Name: Glenn Darden
-----------------------------
Title: Vice President
----------------------------
QUICKSILVER RESOURCES INC.
By: /S/ Glenn Darden
-------------------------------
Name: Glenn Darden
-----------------------------
Title: Vice President
----------------------------
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EXHIBIT A
MINIMUM INSURANCE REQUIREMENTS
WORKERS COMPENSATION AND EMPLOYERS LIABILITY INSURANCE
Manager agrees to comply with Workers Compensation laws of the state where the
Work is performed, and to maintain a Workers Compensation and Employers
Liability policy. This policy shall be endorsed to provide: all states
coverage, voluntary compensation coverage and occupational disease.
Workers Compensation Statutory
Employers Liability $1 000,000 Each Accident (Minimum)
$ 500,000 Disease Each Employee (Minimum)
GENERAL LIABILITY INSURANCE
General Liability insurance, endorsed to provide coverage for: explosion,
collapse and underground damage to property of others; Contractual Liability
(particularly the applicable provisions of the "General Indemnity" section of
this contract; and Products and Completed Operations. Watercraft exclusions
deleted (if Work necessitates the use of watercraft of any kind.)
Bodily Injury and $1,000,000 Combined Single Limit Each Occurrence (Minimum)
Property Damage
AUTOMOBILE LIABILITY INSURANCE
Automobile Liability insurance which shall include coverage for all owned,
non-owned and hired vehicles.
Bodily Injury and $1,000,000 Combined Single Limit Each Occurrence (Minimum)
Property Damage
EXCESS UMBRELLA LIABILITY INSURANCE
Bodily Injury and $5,000,000 Combined Single Limit Each Occurrence (Minimum
Property Damage Excess of Primary)
PROPERTY INSURANCE
Property insurance on a replacement cost basis fully covering the property
subject to this agreement. Company shall be named as co-loss payee on any
proceeds received from this policy.
22
<PAGE>
ADDITIONAL REQUIREMENTS
Manager shall require any contractor and subcontractor at any tier, vendor,
supplier, material dealer and others entering the properties irrespective of
their contractual relationship to Manager or Company, to provide and maintain
insurance at all times during the period that their agreement related to Work on
the properties is in force and effect at the contractor's and subcontractor's,
vendor's, supplier's, material dealer's, or others' own cost, with insurance
limits and in form and issuing companies acceptable to Company.
Manager shall submit to Company at the time Manager executes this Contract and
from time to time as requested, a Certificate of Insurance, in form satisfactory
to Company, evidencing that satisfactory coverage of the type and limits set
forth hereinabove are in effect. Policies providing such coverages shall
contain provisions that no cancellation or material changes in the policies
shall become effective except on thirty (30) days advance written notice thereof
to Company. Irrespective of the requirements as to insurance to be carried as
provided for herein, the insolvency, bankruptcy or failure of any insurance
company carrying insurance of Manager, or the failure of any insurance company
to pay claims accruing, or the inadequacy of the limits of the insurance, shall
not affect, negate or waive any of the provisions of this Contract, including,
without exception, the indemnity obligations of Manager.
Manager agrees to require any policies of insurance, except Workers'
Compensation coverages, which are in any way related to the agreement and that
are secured and maintained by Manager or its contractors or subcontractors, to
include Company, its parent and affiliated companies, and their directors,
officers, employees and agents, as Additional Insured. Furthermore, Contractor
shall waive all rights of recovery against Company, its parent and affiliated
companies which Manager may have or acquire because of deductible clauses in or
inadequacy of limits of, any policies of insurance maintained by Manager.
Manager agrees to require all such policies of insurance which are in any way
related to this agreement and that are secured and maintained by Manager or its
subcontractors, to include clauses providing that each underwriter shall waive
its rights of recovery, under subrogation or otherwise, against Company, its
parent and affiliated companies and their directors, officers, employees and
agents.
23
<PAGE>
SCHEDULE I
MANAGED ASSETS
1. Antrim Gas Transportation and Treating Service Agreement dated 2/6/95
between Dominion Reserves, Inc. and Michigan Consolidated Gas Company.
2. Extension and Amendment dated 1/1/96 between Terra Pipeline Company and
Terra Energy, Ltd.
3. Authorization dated 10/13/95 for Dominion Reserves, Inc. to commit certain
Antrim Gas under the Antrim Gas Transportation and Treating Service
Agreement.
4. Gas Sales and Purchase Contract dated 1/1/95 between Destec Fuel Resources,
Inc. and Kristen Corp.
5. Vienna Pipeline Gas Transportation Agreement dated 11/1/95 between Terra
Energy, Ltd. and Michcon Gathering Company.
6. Gas Purchase Agreement dated 10/1/94 between Mercury Exploration Company
and Consumers Power Company.
7. Letter Agreement dated 8/6/97 between Mercury Exploration Company and
Consumers Power Company, for volume and price for the fourth contract year
of the Gas Purchase Agreement dated 10/1/94 between Mercury Exploration
Company and Consumers Power Company.
24
<PAGE>
SCHEDULE II
MERCURY EXCLUDED ASSETS
1. The equity interests of Mercury in the following entities:
a) Wilderness Energy Services Limited Partnership ("Wilderness")
b) Frederic HOF Limited Partnership ("Frederic")
c) QELC
d) Mercury Michigan Inc.
All easements and rights-of-way held of record in the name of Mercury for
the benefit of either Wilderness or Frederic shall be excepted and deemed
Excluded Assets.
2. Vehicles and non-property specific Operating Equipment directly related to
the oil field operations of Mercury.
3. Mercury Exploration Company ("Assignor") has obtained from the Michigan
Public Service Commission certificates authorizing Assignor to construct
and operate two gas transmission pipelines in Otsego County, Michigan: The
Fontinalis Pipeline (Case No. U-11120) and the North Hayes 6 inch Pipeline
(Case No. U-11406) (the "Transmission Pipelines"). Assignor has obtained
the easements and rights of way necessary for the construction of same.
All of the rights and interests of Assignor in and to the certificates
identified above and in all easements, rights of way and other rights and
interests relating to the Transmission Pipelines, the routes of which are
specifically described in the referenced certificates, are excluded from
the operations of this Agreement and reserved by Assignor. In addition,
all easements and rights-of-way held of record in the name of Mercury for
transmission pipelines to be owned and operated by Mercury, or its
designee, shall be deemed Excluded Assets. Notwithstanding the foregoing,
in the event that (i) the Transmission Pipelines or (ii) any other
transmission pipelines certificated in the future which Mercury owns
directly or indirectly (excluding Wilderness), transport natural gas
produced from any of the Mercury Properties, QELC Properties or the MGP
Properties ("QRI Gas Transmission Pipeline"), QRI shall have the right to
purchase a proportionate share of the QRI Gas Transmission Pipelines based
on the percentage of throughput at the estimated peak capacity using a
twelve-month time horizon. The proportionate share shall be offered to QRI
at a price based on Assignor's cost basis therein.
4. Any benefits of any underproduction or the right to receive any payments,
or cash attributable to the Mercury Properties whenever arising to
"balance" any disproportionate allocation of Hydrocarbons under any
operating agreement, gas balancing and storage agreement, gas processing or
dehydration agreement, gas transportation or similar agreements.
25
<PAGE>
SCHEDULE II
(CONTINUED)
QELC EXCLUDED ASSETS
1. All bank accounts of QELC except for the operating and money market
account.
2. Any benefits of any underproduction or the right to receive any payments,
or cash attributable to the QELC Properties whenever arising to "balance"
any disproportionate allocation of Hydrocarbons under any operating
agreement, gas balancing and storage agreement, gas processing or
dehydration agreement, gas transportation or similar agreements.
26
<PAGE>
AGREEMENT REGARDING WARRANTS
This Agreement Regarding Warrants (this "Agreement") dated September 1,
1998 is by and among Quicksilver Resources Inc., a Delaware corporation ("QRI"),
Mercury Exploration Company, a Texas corporation ("Mercury"), Frank Darden,
Thomas F. Darden, Glenn M. Darden, Anne Darden Self, Joint Energy Development
Investments Limited Partnership, a Delaware limited partnership ("JEDI"), and
Trust Company of the West, a California trust company, in the capacity indicated
on the signature pages hereto ("TCW").
WHEREAS, Mercury, Frank Darden, Thomas F. Darden, Glenn M. Darden and Anne
Darden Self (collectively, the "Warrant Holders") are the holders of warrants to
purchase an aggregate of 5,170,000 shares of the common stock, par value $.01
per share (the "MSR Common Stock"), of MSR Exploration Ltd., a Delaware
corporation ("MSR"), at a price per share of $1.25 (the "$1.25 Warrants") and
warrants to purchase an aggregate of 5,170,000 shares of MSR Common Stock at a
price per share of $2.00 (the "$2.00 Warrants" and, together with the $1.25
Warrants, the "Warrants"), and Mercury is the holder of warrants to purchase an
aggregate of 1,250,000 shares of MSR Common Stock at a price per share of $.01,
exercisable only in the event that MSR has certain tax liability (the
"Contingent Warrants"); and
WHEREAS, QRI desires to enter into an Agreement and Plan of Merger and
Reorganization (the "Merger Agreement") with MSR pursuant to which MSR would be
merged with and into QRI (the "Merger"); and
WHEREAS, pursuant to the terms of the Merger Agreement, upon the
consummation of the Merger, the $1.25 Warrants will be converted into warrants
to purchase an aggregate of 517,000 shares of QRI Common Stock at a price per
share of $12.50, and the $2.00 Warrants will be converted into warrants to
purchase 517,000 shares of QRI Common Stock at a price per share of $20.00; as
used hereinafter, the terms "$1.25 Warrants", "$2.00 Warrants" and "Warrants"
include the warrants to purchase shares of QRI Common Stock into which such
Warrants are convertible pursuant to the Merger Agreement; and
WHEREAS, JEDI, TCW and each of the Warrant Holders are holders of common
stock, par value $.01 per share, of QRI (the "QRI Common Stock"), and, pursuant
to Section 8(i) of the Stockholders Agreement dated April 9, 1998 by and among
QRI, JEDI, TCW, each of the Warrant Holders and the other holders of QRI Common
Stock, QRI is prohibited from merging with or into any other corporation or
entity without the prior written consent of JEDI and TCW; and
WHEREAS, JEDI and TCW have agreed to consent to the execution and delivery
of the Merger Agreement and the consummation of the Merger by QRI on the
condition that QRI and each of the Warrant Holders agree with JEDI and TCW as
set forth in this Agreement.
<PAGE>
NOW, THEREFORE, in consideration of the foregoing, the parties hereto agree
as follows:
1. Each of the Warrant Holders agrees that such Warrant Holder will not
exercise, exchange, redeem or otherwise transfer for any value or receive any
value for any $1.25 Warrants (other than such adjustments for reorganizations,
consolidations or mergers as are required under the terms of the $1.25 Warrants)
until both of the following have occurred:
(a) (i) The aggregate Market Value (as defined below) of the JEDI
Shares (as defined below) for any Measurement Period (as defined below)
exceeds the Earn Out Amount (as defined below), (ii) JEDI and its
Affiliates no longer own any of the JEDI Shares or (iii) JEDI has agreed in
writing to such exercise, exchange, redemption, transfer or receipt of
value; and
(b) (i) TCW and its Affiliates no longer own any of the TCW Shares
(as defined below) or (ii) TCW has agreed in writing to such exercise,
exchange, redemption, transfer or receipt of value.
Notwithstanding the foregoing, Mercury shall not be prohibited from exercising
$1.25 Warrants to purchase up to an aggregate of (i) prior to the consummation
of the Merger, 1,000,000 shares of MSR Common Stock or (ii) following the
consummation of the Merger, 100,000 shares of QRI Common Stock, in each case as
adjusted for stock splits, stock dividends, recapitalizations and other similar
transactions (other than any such transaction effected prior to the consummation
of the Merger), solely for the purpose of delivering such shares of MSR Common
Stock or QRI Common Stock to employees, independent consultants or directors of
Mercury upon the exercise of options granted to such persons; provided that
Mercury may not exercise $1.25 Warrants for more than 10% in the aggregate of
such shares for the purpose of delivering shares of MSR Common Stock or QRI
Common Stock upon the exercise of options granted to or otherwise beneficially
owned by any of the Warrant Holders or their Affiliates or family members.
QRI agrees that it will not take any action to facilitate a violation of
the foregoing agreements, including without limitation allowing the $1.25
Warrants to be exercised, exchanged or redeemed except as expressly allowed
above.
As used herein the following terms have the meanings indicated:
"AFFILIATE" has the meaning specified for such term in Rule 405 under
the Securities Act of 1933.
<PAGE>
"DAILY AVERAGE PRICE" means, for any given day, the average of the
high and low sale prices of the QRI Common Stock on such day on the New
York Stock Exchange, the American Stock Exchange or the Nasdaq National
Market, whichever is applicable.
"EARN OUT AMOUNT" means $20,995,205.00; provided, however, that after
the date that is six months after the date on which the Merger becomes
effective, the "EARN OUT AMOUNT" shall mean $20,995,205.00 plus interest at
a compound monthly rate of 1.530948% from the date that is six months after
the date on which the Merger becomes effective through the last day of the
Measurement Period for which the determination as to whether the aggregate
Market Value of the JEDI Shares exceeds the Earn Out Amount is being made.
"JEDI SHARES" means the shares of QRI Common Stock held by JEDI as of
the date of this Agreement plus any additional shares of QRI Common Stock
issued in respect of such shares pursuant to any stock split, stock
dividend, recapitalization or similar transaction.
"MARKET VALUE" means, with respect to a JEDI Share, the average of the
Daily Average Prices of the QRI Common Stock for the trading days during a
Measurement Period.
"MEASUREMENT PERIOD" means any period of thirty consecutive trading
days during which the average daily trading volume of the QRI Common Stock
on the New York Stock Exchange, the American Stock Exchange or the Nasdaq
National Market, whichever is applicable, is at least 50,000 shares,
excluding any shares traded by Mercury or any of its Affiliates and
provided, that if on any of the thirty trading days the trading volume is
greater than 200,000 shares, then only 200,000 shares on such days may be
used in calculating the average volume.
"TCW SHARES" means the shares of QRI Common Stock held by TCW as of
the date of this Agreement plus any additional shares of QRI Common Stock
issued in respect of such shares pursuant to any stock split, stock
dividend, recapitalization or similar transaction.
If JEDI or any of its Affiliates should acquire any additional shares of
QRI Common Stock (other than pursuant to any stock split, stock dividend,
recapitalization or other similar transaction regarding the JEDI Shares)
("Additional JEDI Shares") while any of JEDI or its Affiliates owns any JEDI
Shares, any subsequent sale, transfer or other disposition of shares of QRI
Common Stock by JEDI or any of its Affiliates shall be treated, for purposes of
this Agreement, as a sale, transfer or other disposition of JEDI Shares rather
than Additional JEDI Shares until JEDI and its Affiliates no longer own any JEDI
Shares.
<PAGE>
If TCW or any of its Affiliates should acquire any additional shares of QRI
Common Stock (other than pursuant to any stock split, stock dividend,
recapitalization or other similar transaction regarding the TCW Shares)
("Additional TCW Shares") while any of TCW or its Affiliates owns any TCW
Shares, any subsequent sale, transfer or other disposition of shares of QRI
Common Stock by TCW or any of its Affiliates shall be treated, for purposes of
this Agreement, as a sale, transfer or other disposition of TCW Shares rather
than Additional TCW Shares until TCW and its Affiliates no longer own any TCW
Shares.
2. Each of the Warrant Holders agrees, with respect to the registration
rights granted to such holders under the terms of the Warrants, that the rights
of the Warrant Holders to include any securities in any registration of
securities by QRI shall be subject to the prior right of Holders (as defined in
the Registration Rights Agreement dated April 9, 1998 between QRI, JEDI and TCW
(the "Registration Rights Agreement")) to include any or all of their
Registrable Shares (as defined in the Registration Rights Agreement) before any
Warrant Holder includes any securities in any registration with respect to
which, in the opinion of the managing underwriter (if the method of distribution
is an underwritten public offering) or in the opinion of the Holders owning a
majority of the Registrable Securities requested to be registered (if such
method of distribution is not an underwritten public offering), the inclusion in
the offering of all securities requested to be registered by all persons or
entities holding registration rights would adversely affect the price or
materially jeopardize the successful marketing of the securities (including the
Registrable Securities) to be sold.
3. Mercury agrees that, upon consummation of the Merger, the Contingent
Warrants shall be canceled, without payment of any consideration therefor, and
shall thereafter entitle the holder or holders thereof to no rights whatsoever.
Mercury shall surrender the Contingent Warrants to QRI at the closing of the
Merger.
4. Subject to paragraph 1 above, each of the Warrant Holders agrees that
such Warrant Holder will not transfer any of the Warrants unless the transferee
agrees in writing to be bound by the terms of this Agreement.
5. This Agreement shall inure to the benefit of and be binding upon the
successors and permitted assigns of the parties hereto. The rights and
obligations of a party hereunder shall not be assignable without the prior
written consent of the other parties hereto.
6. This Agreement may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which counterparts,
when so executed and delivered, shall be deemed to be an original and all of
which counterparts, taken together, shall constitute but one and the same
Agreement.
<PAGE>
7. The laws of the State of Texas shall govern this Agreement without
regard to principles of conflict of laws.
9. This Agreement is intended by the parties as a final expression of
their agreement and intended to be a complete and exclusive statement of the
agreement and understanding of the parties hereto in respect of the subject
matter contained herein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter. The
agreements of the parties contained in this Agreement are not intended, and
shall not be interpreted, to confer any benefit on any person other than the
parties hereto.
9. This Agreement may be amended only by means of a written amendment
signed by all of the parties hereto.
10. Each of the parties hereto acknowledges and agrees that the other
parties would be damaged irreparably in the event any of the provisions of this
Agreement are not performed in accordance with their specific terms or otherwise
are breached. Accordingly, each of the parties agrees that the other parties
shall be entitled to an injunction or injunctions to prevent breaches of the
provisions of this Agreement and to enforce specifically this Agreement and the
terms and provisions hereof in any action instituted in any court of the United
States or any state thereof having jurisdiction over the parties and the matter
in addition to any other remedy to which it may be entitled, at law or in
equity, and if any action should be brought in equity to enforce any of the
provisions of this Agreement, none of the parties hereto shall raise the defense
that there is an adequate remedy at law.
11. This Agreement shall terminate at such time as neither JEDI or any of
its Affiliates nor TCW or any of its Affiliates is the holder of any shares of
QRI Common Stock; provided, however, that in the event the Merger Agreement is
terminated prior to the consummation of the Merger, this Agreement shall
terminate upon the termination of the Merger Agreement.
12. From and after the date hereof, each party hereto agrees that it will
execute and deliver such other documents and take such other action as may be
necessary or desirable in order to carry out the purposes of this Agreement.
<PAGE>
EXECUTED as of the date first written above.
QUICKSILVER RESOURCES INC.
By: /s/ Glenn Darden
--------------------------------
Name: Glenn Darden
------------------------------
Title: Vice President
-----------------------------
MERCURY EXPLORATION COMPANY
By: /s/ Glenn Darden
--------------------------------
Name: Glenn Darden
------------------------------
Title: Vice President
-----------------------------
/s/ Frank Darden
-----------------------------------
Frank Darden
/s/ Thomas F. Darden
-----------------------------------
Thomas F. Darden
/s/ Glenn M. Darden
-----------------------------------
Glenn M. Darden
/s/ Anne Darden Self
-----------------------------------
Anne Darden Self
<PAGE>
JOINT ENERGY DEVELOPMENT
INVESTMENTS LIMITED PARTNERSHIP
By: Enron Capital Management, Limited
Partnership, its General Partner
By: Enron Capital Corp., its General Partner
By: /s/ Jesse E. Neyman
--------------------------------
Name: Jesse E. Neyman
------------------------------
Title: Agent and Attorney-in-Fact
-----------------------------
TRUST COMPANY OF THE WEST, a California trust
company, as Sub-Custodian for Mellon Bank for
the benefit of Account No. CPFF 869-3062
By: TCW ASSET MANAGEMENT COMPANY, a
California corporation, as Investment Manager
under that certain Agreement dated as of
June 13, 1994, between TCW Asset Management
Company and Morgan Stanley Group, Inc.
By: /s/ Thomas F. Mehlberg
--------------------------------
Name: Thomas F. Mehlberg
------------------------------
Title: Managing Director
-----------------------------
By: /s/ Marc L. MacAluso
---------------------------------
Name: Marc L. MacAluso
------------------------------
Title: Senior Vice President
-----------------------------
<PAGE>
AGREEMENT
This Agreement dated September 1, 1998 is by and among Quicksilver
Resources Inc., a Delaware corporation ("QRI"), Joint Energy Development
Investments Limited Partnership, a Delaware limited partnership ("JEDI"),
Trust Company of the West, a California trust company, in the capacity
indicated on the signature page hereto ("TCW"), and Mercury Exploration
Company, a Texas corporation ("Mercury").
WHEREAS, JEDI, TCW and Mercury are stockholders of QRI, and, pursuant to
Section 8(i) of the Stockholders Agreement dated April 9, 1998 by and among
QRI, JEDI, TCW, Mercury and the other stockholders of QRI, QRI is prohibited
from merging with or into any other corporation or entity without the prior
written consent of JEDI and TCW; and
WHEREAS, QRI desires to enter into an Agreement and Plan of Merger and
Reorganization (the "Merger Agreement") with MSR Exploration Ltd., a Delaware
corporation ("MSR"), pursuant to which MSR would be merged with and into QRI
(the "Merger"); and
WHEREAS, JEDI and TCW have agreed to consent to the execution and
delivery of the Merger Agreement and the consummation of the Merger by QRI on
the condition that QRI and Mercury agree with JEDI and TCW as set forth in
this Agreement.
NOW, THEREFORE, in consideration of the foregoing, the parties hereto
agree as follows:
1. QRI shall provide to each of JEDI and TCW copies of (a) all notices
and other communications made or given by QRI or received by QRI from any
other person or entity pursuant to the Merger Agreement, (b) all press
releases and other public announcements proposed to be made regarding the
Merger Agreement or the transactions contemplated thereby, including the
Merger, a reasonable time prior to the release thereof to the public, and (c)
the Registration Statement (as defined in the Merger Agreement), and any
amendment thereto, a sufficient amount of time prior to the filing thereof
with the Securities and Exchange Commission to allow JEDI and TCW to review
and comment on such Registration Statement or amendment thereto. QRI shall
not (a) make, or consent to the making of, any such press release or other
public announcement to which JEDI or TCW reasonably objects in writing or (b)
file any such Registration Statement, or amendment thereto, unless QRI shall
have made all modifications thereto reasonably requested by JEDI or TCW.
2. Without the prior written consent of each of JEDI and TCW, QRI
shall not (a) consent to or approve any act or failure to act (including
without limitation approving any document or instrument) that, pursuant to
the Merger Agreement, requires the consent or approval of QRI, (b) waive any
inaccuracy in any representation or warranty made in the Merger Agreement or
any other document delivered pursuant thereto, (c) waive compliance with, or
extend the time for
<PAGE>
performance of, any covenant, agreement or condition contained in the Merger
Agreement or any other document delivered pursuant thereto, (d) agree or
consent to the termination of the Merger Agreement pursuant to Section
8.01(a) of the Merger Agreement, (e) agree to any amendment to the Merger
Agreement, (f) execute, agree or consent to, approve or otherwise be a party
to any agreement, document, instrument or other arrangement relating to the
Merger except for the Merger Agreement and such agreements, documents and
instruments as are expressly contemplated by the Merger Agreement; or (g)
exercise or fail to exercise any other rights of, or modify any obligation
of, QRI under the Merger Agreement except as expressly provided herein.
Notwithstanding the foregoing, QRI shall be entitled to terminate the Merger
Agreement pursuant to the provisions of Section 8.01 of the Merger Agreement
other than Section 8.01(a).
3. In the event that JEDI or TCW believes in good faith that the QRI
is entitled pursuant to Section 8.01 of the Merger Agreement to terminate the
Merger Agreement and delivers to QRI written instructions to terminate the
Merger Agreement, QRI shall immediately take all necessary action to cause
the Merger Agreement to be terminated.
4. Each of the parties hereto represents and warrants to each of the
other parties hereto that, as of the date hereof and the date of the closing
of the Merger, it is not a party to any agreement, document, instrument or
other arrangement in any way related to, or entered into in connection with,
the Merger that has not been fully disclosed in writing to each of the other
parties hereto.
5. This Agreement shall inure to the benefit of and be binding upon
the successors and permitted assigns of the parties hereto. The rights and
obligations of a party hereunder shall not be assignable without the prior
written consent of the other party.
6. This Agreement may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which
counterparts, when so executed and delivered, shall be deemed to be an
original and all of which counterparts, taken together, shall constitute but
one and the same Agreement.
7. The laws of the State of Texas shall govern this Agreement without
regard to principles of conflict of laws.
8. This Agreement is intended by the parties as a final expression of
their agreement and intended to be a complete and exclusive statement of the
agreement and understanding of the parties hereto in respect of the subject
matter contained herein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter. The
agreements of the parties contained in this Agreement are not intended, and
shall not be interpreted, to confer any benefit on any person other than the
parties hereto.
<PAGE>
9. This Agreement may be amended only by means of a written amendment
signed by all of the parties hereto.
10. All notices provided for hereunder shall be given by telecopy
(confirmed by overnight delivery), air courier guaranteeing overnight
delivery or personal delivery at the following addresses:
If to QRI:
Quicksilver Resources, Inc.
1619 Pennsylvania Avenue
Fort Worth, Texas 76104
Attention: Glenn Darden
Telecopier: (817) 332-1883
If to JEDI:
Joint Energy Development Investments Limited Partnership
c/o Enron Capital Management Limited Partnership
1400 Smith Street
Houston, Texas 77002
Attention: Jeremy M. Blachman
Telecopier: (713) 646-8174
with copies to:
Enron Capital & Trade Resources
Corp. Legal Department
1400 Smith Street
Houston, Texas 77002
Attention: Gareth S. Bahlmann
Telecopier: (713) 646-3393
Enron Capital & Trade Resources
Compliance Department
1400 Smith Street
Houston, Texas 77002
Attention: Donna W. Lowry
Telecopier: (713) 646-4039 or (713) 646-4946
<PAGE>
If to TCW:
Trust Company of the West
865 South Figueroa Street
Los Angeles, California 90017
Attention: Arthur R. Carlson
Telecopier: (213) 244-0604
and
TCW Asset Management Company
2175 First Interstate Bank Plaza
1000 Louisiana
Houston, Texas 77002
Attention: George R. Hutchinson
Telecopier: (713) 615-7460
with copies to:
Milbank, Tweed, Hadley & McCloy
601 South Figueroa Street, 30th Floor
Los Angeles, California 90017
Attention: David A. Lamb
Telecopier: (213) 629-5063
If to Mercury:
Mercury Exploration Company
1619 Pennsylvania Avenue
Fort Worth, Texas 76104
Attention: Glenn Darden
Telecopier: (817) 332-1883
or to such other address as any such party may designate by notice in the manner
provided above. All such notices shall be deemed to have been delivered and
received at the time delivered by hand, if personally delivered, when receipt
acknowledged, if telecopied, and on the next business day, if timely delivered
to an air courier guaranteeing overnight delivery.
<PAGE>
11. Each of the parties hereto acknowledges and agrees that the other
parties would be damaged irreparably in the event any of the provisions of this
Agreement are not performed in accordance with their specific terms or otherwise
are breached. Accordingly, each of the parties agrees that the other parties
shall be entitled to an injunction or injunctions to prevent breaches of the
provisions of this Agreement and to enforce specifically this Agreement and the
terms and provisions hereof in any action instituted in any court of the United
States or any state thereof having jurisdiction over the parties and the matter
in addition to any other remedy to which it may be entitled, at law or in
equity, and if any action should be brought in equity to enforce any of the
provisions of this Agreement, none of the parties hereto shall raise the defense
that there is an adequate remedy at law.
<PAGE>
EXECUTED as of the date first written above.
QUICKSILVER RESOURCES INC.
By: /s/ Glenn Darden
---------------------------------------
Name: Glenn Darden
-------------------------------------
Title: Vice President
------------------------------------
JOINT ENERGY DEVELOPMENT
INVESTMENTS LIMITED PARTNERSHIP
By: Enron Capital Management, Limited
Partnership, its General Partner
By: Enron Capital Corp., its General Partner
By: /s/ Jesse E. Neyman
---------------------------------------
Name: Jesse E. Neyman
-------------------------------------
Title: Agent and Attorney-in-Fact
------------------------------------
TRUST COMPANY OF THE WEST, a California trust
company, as Sub-Custodian for Mellon Bank for
the benefit of Account No. CPFF 869-3062
By: TCW ASSET MANAGEMENT COMPANY, a
California corporation, as Investment Manager
under that certain Agreement dated as of
June 13, 1994, between TCW Asset Management
Company and Morgan Stanley Group, Inc.
By: /s/ Thomas F. Mehlberg
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Name: Thomas F. Mehlberg
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Title: Managing Director
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By: /s/ Marc L. MacAluso
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Name: Marc L. MacAluso
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Title: Senior Vice President
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MERCURY EXPLORATION COMPANY
By: /s/ Glenn Darden
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Name: Glenn Darden
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Title: Vice President
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<PAGE>
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT (this "Agreement") is entered into effective as
of the Commencement Date (as hereinafter defined) by and between Mercury
Exploration Company, a Texas corporation ("Manager"), and Quicksilver Resources
Inc., a Delaware corporation (the "Company").
W I T N E S S E T H:
WHEREAS, Manager is primarily engaged in the business of providing
operations, accounting and management services relating to oil and gas assets
for MSR Exploration Ltd. ("MSR") and others and in the acquisition and ownership
of gas processing plants, gathering facilities and pipelines; and
WHEREAS, the Company is primarily engaged in the oil and gas business,
including the acquisition, development and exploration and production of oil and
gas properties; and
WHEREAS, the Company and MSR are entering into an Agreement and Plan of
Merger and Reorganization of even date herewith (the "Merger Agreement") whereby
MSR will be merged into the Company (the "Merger"); and
WHEREAS, the existing Management Agreement between the Manager and the
Company dated as of April 9, 1998 (the "April 1998 Management Agreement") will
terminate upon consummation of the Merger; and
WHEREAS, in order to reduce overhead and operating expenses and in an
effort to manage its affairs in a more cost effective and efficient manner, the
Company desires to retain the Manager to provide certain support services to the
Company, and the Manager desires to render such services to the Company, all
upon the terms and conditions hereinafter set forth;
NOW, THEREFORE, for and in consideration of the mutual covenants and
promises contained herein and other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
DEFINITIONS
Section 1.1 DEFINED TERMS. For the purpose of this Agreement, the
following terms shall have the meaning ascribed thereto below unless otherwise
specified or clearly required by the context in which such term is used:
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AFFILIATES. "Affiliates" means, with respect to any Person, a Person that
directly or indirectly through one or more intermediaries controls, is
controlled by, or is under common control with such Person, and the term
"control" shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management, activities or policies of any
Person or entity, whether through the ownership of voting securities, by
contract, employment or otherwise.
AGREEMENT. "Agreement" means this Management Agreement, as modified from
time to time by any duly adopted amendments.
COMMENCEMENT DATE. "Commencement Date" means the date on which the Merger
occurs.
PERSON. "Person" means any of the following: an individual, corporation,
partnership, limited partnership, limited liability company, unincorporated
association, trust, estate, or other incorporated or unincorporated entity.
TERM OF AGREEMENT. "Term of Agreement" means the period from the
Commencement Date until this Agreement is terminated or otherwise expires
pursuant to Article XIV hereof.
Section 1.2 REFERENCES. Unless otherwise specified, the references herein
to "Sections", "Subsections" or "Articles" refer to the sections, subsections or
articles in this Agreement.
ARTICLE II
APPOINTMENT OF MANAGER
Section 2.1 APPOINTMENT. The Company hereby appoints the Manager to
perform the services hereinafter described ("Services") by and on behalf of,
and for the account of, the Company, pursuant to and as set forth in this
Agreement. The Company shall at all times have and retain ultimate control
over its business and operations.
Section 2.2 ACCEPTANCE. The Manager hereby accepts the appointment and
agrees to perform the duties and obligations herein imposed in a reasonable and
prudent manner, consistent with sound field practices and generally accepted
standards for similar services.
Section 2.3 LEGAL OWNERSHIP RETAINED IN THE COMPANY. The Manager shall
not take title to any properties owned of record or beneficially by the Company
during the Term of Agreement. Any addition to the assets of the Company
purchased, leased, or otherwise acquired with the Company's funds or securities
shall be acquired in the name of the Company.
Section 2.4 DUTIES RETAINED BY THE COMPANY. The Company shall remain
responsible for (i) making all decisions required of the Company under this
Agreement, (ii) such other
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duties as are not herein delegated to the Manager and (iii) authorizing (in
its discretion) and executing all agreements, contracts, and other documents
except as provided in Section 9.1.
ARTICLE III
STATUS OF THE MANAGER
Section 3.1 GENERAL. The Manager shall render Services hereunder as the
Company's agent to the extent specifically provided herein or as further
delegated from time to time by the Company and accepted in writing by the
Manager. The relationship created by this Agreement is one of principal and
agent, and nothing to the contrary shall be inferred from this Agreement.
ARTICLE IV
AUTHORITY AND RESPONSIBILITY OF THE MANAGER
Section 4.1 GENERAL. As agent for the Company, the Manager agrees to
perform the Services in a reasonable and prudent manner, consistent with sound
field practices and generally accepted standards for similar services . Except
as set forth in Sections 5.3 and 7.1, the Manager shall have no obligation to
advance funds for the account of the Company or to pay any sums of its own in
connection with the performance of the actions which it is authorized to take
hereunder. The Manager's management and activities under this Agreement shall
be specifically subject to the terms hereof and the general control, direction
and supervision of the Company.
Section 4.2 COMPLIANCE WITH LAWS. The Manager shall use reasonable best
efforts to ensure full compliance with federal, state and municipal laws,
ordinances, regulations and orders relative to the performance of the Services.
The Manager shall use reasonable best efforts to remedy any violation of any
such law, ordinance, rule, regulation or order which comes to its attention. If
the violation is one for which the Company might be subject to penalty, the
Manager shall promptly notify the Company of such violation to allow actions to
be made to remedy the violation, and the Manager shall transit promptly to the
Company a copy of any citation or other communication received by the Manager
setting forth any such violation.
Section 4.3 COMPLIANCE WITH OBLIGATIONS. The Manager, to the extent such
matters are within its control, shall use reasonable best efforts to cause
compliance with all terms and conditions contained in any contract, agreement,
judicial, administrative or governmental order affecting the operation of the
Company's properties including, but not limited to, joint operating agreements
and service contracts; provided, however, that, except as otherwise set forth
herein, the Manager shall not be required to make any payment or incur any
liability on account thereof. The Manager shall promptly notify the Company of
any violation of any covenant in such instruments or agreements.
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ARTICLE V
SERVICES
Section 5.1 PROVISION OF SERVICES. The Manager shall provide the
following Services to the Company, subject to the general approval and direction
of the Company:
(a) maintaining in good order the books and accounts, ledger and
records of the Company and performing all day-to-day accounting functions of the
Company, including, without limitation, matters related to paying, receiving,
and billings including joint interest billings, and assisting as requested by
the Company in the preparation of all requisite accounting reports and interim
financial statements of the Company, including balance sheets, statements of
operations, changes in stockholders' equities, and cash flow, and also assisting
the Company in coordinating with its independent accounting firm in the conduct
of annual financial audit reviews of the Company;
(b) assisting in the preparation of all reports, forms, documents,
certificates and other instruments required by the Securities and Exchange
Commission, and any national securities exchange on which the Company's
securities are traded, state securities commissions, federal, state and local
tax authorities, regulatory agencies, including federal and state energy
regulatory agencies, and other governmental bodies as required for the lawful
conduct of the Company's business;
(c) performing all of the services and other obligations for which
the Company or the Manager is obligated under operating agreements and other
similar contracts to which the Company or the Manager is a party and which
affect the operation of the Company's properties including, but not limited to,
the Management Agreement dated effective as of December 1, 1997 between the
Manager and MA Gas, LLC (the "MA Gas Agreement") and the Management Agreement
dated effective as of December 1, 1997 between Michigan Gas Partners, Limited
Partnership and MGP Gas LLC (the "MGP Gas Agreement") (the Company having
succeeded to the rights and obligations of Michigan Gas Partners, Limited
Partnership by merger).
In carrying out its duties hereunder, the Manager agrees that, to the
extent the Company has adequate funds available, the Manager will or it will
cause:
(i) a prudent operating and maintenance program designed to drill
and complete or abandon the Company's properties and all other operations to be
conducted on the Company's assets as would a reasonable and prudent operator and
in accordance with sound field practices;
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(ii) the Company's properties to be maintained and operated for the
production of oil and gas in a good and workmanlike manner and in accordance
with sound field practices, applicable operating agreements, contracts of
development, or similar instruments, none of which shall be superseded by this
Agreement, and, in all material respects, with all applicable laws, rules,
regulations, permits, orders, or decrees, except those being contested in good
faith and by appropriate proceedings (provided that no forfeiture or loss of the
Company's property or any part thereof shall result during the pendency or in
the resolution of such contest);
(iii) all rentals and royalties with respect to the Company's
properties to be paid;
(iv) all taxes, assessments, and governmental charges or levies and
all claims asserted or imposed upon the Company's properties that, if unpaid,
may become a lien upon the Company's properties to be paid prior to delinquency;
(v) all machinery, equipment, and facilities of any kind now or
hereafter located on the Company's properties necessary or useful in the
operation thereof or for the production of oil and gas therefrom, to be provided
and to be kept in good and effective operating condition, and all repairs,
renewals, replacements, additions, and improvements thereof or thereto needful
to such end, to be promptly made, all as would a reasonable and prudent operator
acting in accordance with sound field practices;
(vi) notice to be given to the Company of every material adverse
claim or demand made by any Person, affecting the Company's properties or of any
material proceedings instituted with respect thereto, and all reasonably
necessary and proper steps to be diligently taken to protect and defend the
Company's properties against any such adverse claim, demand, or proceeding, all
as would a reasonable and prudent operator;
(vii) the Company's properties to be kept free and clear of liens,
charges, and encumbrances of every character other than those consented to by
the Company;
(viii) insurance of the type and in the amounts not less than those
set forth in Exhibit A hereto to be carried for the Company at the Company's
expense; and
(ix) title opinions in form and substance satisfactory to the
Company to be rendered prior to conducting operations on any Company property
for which no prior satisfactory title opinion has been rendered.
Section 5.2 FEE. As compensation ("Fee") for its Services the Manager
will receive all compensation and overhead payments (COPAS) to which the Manager
or the Company is entitled under existing or future operating agreements and
other contracts to which the Company or the Manager is a party and which relate
to the operation of the Company's properties, including, without limitation, the
MA Gas Agreement and the MGP Gas Agreement.
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Section 5.3 PAYMENT OF OUT-OF-POCKET EXPENSES. The Manager shall pay all
out-of-pocket expenses other than salaries and wages ("Expenses") of the Manager
and its employees, agents and consultants not reimbursed from another source
including the following: travel, food, lodging, entertainment and similar
expenses, reasonably necessary and incurred in the performance of the Services.
The Company shall reimburse the Manager, within thirty days after the end of
each month during the Term of Agreement, for all such Expenses paid by the
Manager on behalf of the Company in connection with the Services of the Manager
during such month.
ARTICLE VI
REQUIRED COMPANY APPROVAL
Section 6.1 REQUIRED COMPANY APPROVAL. The Company must specifically
approve the following matters before they are undertaken by the Manager for the
account of the Company, and, notwithstanding any other provisions hereof, none
of the following shall be undertaken without the Company's prior approval:
(a) the entering into of capital leases or making of expenditures
other than in the ordinary course of business in excess of $20,000 individually
or $100,000 annually in the aggregate;
(b) incurring any indebtedness for the account of the Company
except accounts payable in the ordinary course of performing the Services;
(c) the acquisition or disposition of any material asset with a
value in excess of $10,000;
(d) the execution of any contract whose term extends beyond one
year from its effective date;
(e) use of any of the Company's assets in any way for the
furtherance of business activities of any entity other than the Company or
unrelated to the business of the Company;
(f) the entering into of any agreement that provides for
liquidated damages against the Company in excess of $20,000 or any agreements
that provide in the aggregate for liquidated damages against the Company in
excess of $100,000; and
(g) any agreement, authorization for expenditure, or other
instrument binding the Company to do any of the foregoing.
Notwithstanding any provision of this Agreement to the contrary, the
Manager shall have no authority to take any action that will contravene the
Company's Certificate of Incorporation or Bylaws or result in a breach of, or be
in contravention of any obligation,
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representation, covenant or other agreement of the Manager or the Company
under any of the Basic Documents (as defined in the Agreement and Plan of
Reorganization and Merger dated March 31, 1998 by and among the Company, the
Manager, Quicksilver Energy, L.C., Michigan Gas Partners, Limited
Partnership, Trust Company of the West ("TCW"), and Joint Energy
Development Investments Limited Partnership ("JEDI") (the "Prior Merger
Agreement") or the Prior Merger Agreement.
ARTICLE VII
PERSONNEL ADMINISTRATION
Section 7.1 GENERAL. The Manager shall have in its employ or available to
it at all times during the Term of this Agreement a sufficient number of
personnel to enable it to properly and adequately perform the Services as herein
provided. All matters pertaining to the employment, supervision, compensation,
benefits, promotion and discharge of any employees or personnel of the Manager
are the responsibility of the Manager, which is in all respects the employer of
any such employees. All such employment arrangements are solely the Manager's
concern, and the Company shall have no liability or obligation to reimburse the
Manager with respect thereto.
Section 7.2 CONSULTANTS AND OTHERS. Except as otherwise provided herein,
the Manager shall have the power and authority to retain and pay as independent
contractors, on behalf of and for the account of the Company, contractors,
technical consultants, and others in connection with the performance of that
portion of the Services relating to the operation of the Company's properties
that are customarily performed by independent contractors (as opposed to
employees or personnel) of operators under joint operating agreements which
provide that the cost of independent contractors is reimbursable by working
interest owners under such agreements.
ARTICLE VIII
CASH MANAGEMENT
Section 8.1 CASH MANAGEMENT. The Manager shall maintain separate accounts
for the funds of the Company and shall not commingle the funds of the Company
with its own funds. The Manager shall direct all funds received for the Company
to be deposited into such separate accounts.
ARTICLE IX
CONTRACTS
Section 9.1 CONTRACTS. Subject to Section 6.1, the Services by the
Manager shall include negotiating, signing, administering and terminating
contracts, by and on behalf of the
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Company, in the ordinary course of the operation of the Company's properties.
Contracts that, by their terms, involve amounts in excess of $20,000
individually or $100,000 annually in the aggregate shall not be entered into
without the prior approval of the Company and if so approved shall be
executed by duly authorized officers of the Company.
Section 9.2 PURCHASES FOR THE ACCOUNT OF THE COMPANY.
(a) Subject to Section 6.1, day-to-day operation of the Company's
properties shall include the purchase (or lease) of such equipment, supplies and
other goods necessary for the efficient operation of the properties.
(b) Purchases shall be made only at reasonable costs pursuant to
the "prudent buyer" principle. The Manager is not a merchant, as that term is
defined in the Uniform Commercial Code, and makes no warranty, express or
implied, including, without limitation, that of fitness for a particular
purpose, for any item purchased for the operation of the Company's properties on
behalf of the Company.
(c) In order to facilitate the performance by the Manager of its
obligations hereunder, the Company agrees to make available, upon the request of
the Manager, such additional amounts as may be needed, in the good faith
judgment of the Manager, to perform the Services under the terms hereof.
Section 9.3 AFFILIATE TRANSACTIONS. The Manager shall not make or cause
the Company to make any contract with or purchase or sell goods or services to
or from the Manager or any Affiliate of the Manager except in accordance with
procedures established by the independent members of the Board of Directors of
the Company.
Section 9.4. The Manager shall not make or cause the Company to make any
contract that would have the effect of binding any Affiliate of the Company.
ARTICLE X
INDEMNITIES
Section 10.1 INDEMNIFICATION BY THE MANAGER. The Manager shall protect,
indemnify, defend and hold harmless the Company and its officers, directors,
stockholders and Affiliates from any and all threatened or actual claims,
demands, causes of action, suits, proceedings (formal or informal), losses,
damages, fines, penalties, liabilities, costs and expenses of any nature,
including attorneys' fees and court costs (collectively, "Damages"), sustained
or incurred by or asserted against the Company or its Affiliates by any person,
firm, corporation, governmental authority, partnership or other entity by reason
of or arising out of: (i) any breach of this Agreement or any document or
agreement delivered in connection herewith or therewith by the Manager or its
Affiliates, agents, or employees; or (ii) any act of fraud,
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willful misconduct or gross negligence of the Manager or its Affiliates,
agents or employees, or acts or omissions outside the scope of the Manager's
authorized duties and responsibilities contained herein. In case any action
or proceeding shall be brought against the Company or its Affiliates in
respect of which the indemnification contemplated by this Section 10.1 may be
sought against the Manager, the Manager, upon the receipt of notice from the
Company, shall defend such action or proceeding by counsel reasonably
satisfactory to the Company and the Manager, and the Manager shall pay for
all expenses therefor unless such action or proceeding is resisted and
defended by counsel for any carrier of public liability insurance that
benefits the Company or the Manager. The Company shall promptly give written
notice to the Manager when a claim is made against the Company for which
indemnity is owed to the Company by the Manager pursuant to this Section
10.1. The Manager shall participate at its own expense in defense of such
claims, but the Company shall have the right to employ its own separate
counsel. The Company shall assist the Manager in the defense of any claim
for which the Manager owes indemnification hereunder and is undertaking to
provide a defense, by making available to the Manager such records and
personnel as may be reasonably requested in the defense of such claim.
Section 10.2 INDEMNIFICATION BY THE COMPANY. The Company hereby releases
and agrees to indemnify, defend and hold harmless the Manager and its officers,
directors, shareholders, employees, agents and Affiliates from any and all
Damages (except for costs and expenses that the Manager has agreed to bear under
the terms hereof) sustained or incurred by or asserted against the Manager or
its Affiliates, officers, directors, employees and agents by any person, firm,
corporation, governmental authority, partnership or other entity by reason of or
arising out of: (i) the conduct of the Company, or (ii) the performance of
Services by the Manager pursuant to this Agreement, except in each case to the
extent that such Damages arise out of (x) any breach of or liability/obligation
arising under this Agreement or any document or agreement delivered in
connection herewith or therewith by the Manager or its Affiliates, agents, or
employees, or (y) any act of fraud, willful misconduct or gross negligence of
the Manager or its Affiliates, agents or employees, or acts or omission outside
the scope of the Manager's authorized duties and responsibilities contained
herein. THE PARTIES HERETO EXPRESSLY AGREE THAT THE RELEASE AND INDEMNIFICATION
PROVIDED BY THIS SECTION 10.2 INCLUDES RELEASE AND INDEMNIFICATION FOR THE
ORDINARY NEGLIGENCE OF THE PERSONS ENTITLED TO INDEMNIFICATION PURSUANT TO THIS
SECTION 10.2. In case any action or proceeding shall be brought against the
Manager in respect of which the indemnity contemplated by this Section 10.2 may
be sought against the Company, the Manager shall give notice of such action to
the Company, and the Company shall defend such action or proceeding by counsel
reasonably satisfactory to the Company and the Manager, and the Company shall
pay for all expenses therefor unless such action or proceeding is resisted and
defended by counsel for any carrier of public liability insurance that benefits
the Company or the Manager. The Manager shall promptly give written notice to
the Company when a claim is made against the Manager for which indemnity is owed
to the Manager by the Company pursuant to this Section 10.2. The Company shall
participate in defense of such claims, but the Manager shall have the right to
employ its own separate counsel, and the Manager shall assist the Company in the
defense of any claim for which the Company owes indemnification hereunder and is
undertaking to provide a defense, by making
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available to the Company such- records and personnel of the Manager as may be
reasonably requested.
Section 10.3 NON-ASSUMPTION OF LIABILITIES. The Manager shall not, by
entering into this Agreement, assume or become liable for any of the
obligations, debts or other liabilities of the Company in existence or arising
on or after the date hereof.
Section 10.4 SURVIVAL OF INDEMNIFICATION OBLIGATIONS. The respective
indemnification obligations of the Manager and the Company under this Article X
shall survive the termination of this Agreement. Notwithstanding the foregoing,
no party shall be obligated to provide indemnification pursuant to this Article
X for any claim unless the person seeking indemnification provides notice of
such claim to the party from whom indemnification is being sought within THREE
YEARS after the termination of this Agreement.
ARTICLE XI
ACCESS TO INFORMATION, BOOKS AND RECORDS;
CONFIDENTIALITY; POWER OF ATTORNEY
Section 11.1 ACCESS TO BOOKS AND RECORDS. The Manager and its duly
authorized representative shall have reasonable access to the Company's offices,
facilities and records wherever located, in order to discharge the Manager's
responsibilities hereunder. All records and materials furnished to the Manager
by the Company in performance of this Agreement shall at all times during the
Term of Agreement remain the property of the Company.
Section 11.2 CONFIDENTIALITY. For two years after the Term of Agreement,
the Manager agrees to keep confidential all non-public information concerning
the Company acquired by the Manager or its Affiliates during the Term of
Agreement. For the purpose of this Section 11.2, confidential information shall
not include any information available to or otherwise disclosed by the Company
to third parties generally, provided such disclosure did not involve the breach
of a nondisclosure obligation owed to the Company. Nothing in this Section 11.2
shall prohibit any announcement or disclosure by a party that such party
determines is required to be disclosed by applicable law or court order.
Section 11.3 POWER OF ATTORNEY. By execution of this Agreement, the
Company does hereby irrevocably make, constitute and appoint the Manager, and
its successors, with full power of substitution, as its true and lawful attorney
and agent with full power and authority in its name, place and stead to execute,
swear to, acknowledge, deliver, file, record in the appropriate public offices
and publish any and all contracts and agreements of any kind or nature related
to, arising out of or in connection with the Manager's operation of the
Company's properties pursuant to this Agreement.
During the Term of the Agreement, the power of attorney granted herein
shall be irrevocable and a power coupled with an interest, shall survive the
bankruptcy, dissolution or other termination of the Company, shall extend and be
binding upon the Company's successors
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and assigns and shall continue in full force and effect regardless of the
occurrence of any of the foregoing. The Company hereby agrees to be bound by
any such contracts or agreements executed or otherwise entered into by the
attorney and agent acting in good faith pursuant to such power of attorney,
and hereby waives any and all defenses which may be available to contest,
negate, or disaffirm any action of the attorney and agent taken under such
power of attorney except in cases of bad faith, gross negligence or willful
misconduct.
ARTICLE XII
OTHER ACTIVITIES OF MANAGER
Section 12.1 OTHER ACTIVITIES. The Company acknowledges and agrees that
the Manager and its Affiliates manage and/or operate their own oil and gas
properties as well as the oil and gas properties of others, that Manager and its
Affiliates may continue to do so in the future, and that nothing herein
contained requires Manager to devote its full time and efforts to the
performance of the Services hereunder or to refrain from performing similar
services for itself or others. The Company agrees that the Manager shall have
no liability or accountability to the Company for any such activities or
interests or any profits or value generated therefrom or any duty to refrain
from any such activities in the future. The foregoing shall not be deemed to
impair, limit or otherwise restrict the application of the corporate opportunity
doctrine or related duties owed by the Manager to the Company apart from the
existence of this Agreement with respect to future opportunities of the Company.
ARTICLE XIII
REPRESENTATIONS AND WARRANTIES
Section 13.1 REPRESENTATIONS AND WARRANTIES OF THE MANAGER. The Manager
represents and warrants to the Company as follows:
(a) The Manager has the full power and authority to enter into
this agreement, to perform its obligations contemplated hereunder and to carry
on its business and own its properties.
(b) This Agreement has been duly executed and delivered by the
Manager.
(c) This Agreement is the valid and legally binding obligation of
the Manager enforceable against the Manager in accordance with its terms, and
the Company is entitled to the benefits thereof.
(d) The Manager is not in default with respect to any order, writ,
injunction, decree or demand of any court or any governmental authority, or in
the payment of any indebtedness for borrowed money or under the terms or
provisions of any agreement or instrument evidencing or securing any such
indebtedness.
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(e) No representation or warranty of the Manager contained in this
Agreement and no statement of the Manager contained in any monthly or interim
request for funds, certificate, schedule, list, financial statement or other
instrument furnished to the Company pursuant to this Agreement contains, or will
contain, any untrue statement of a material fact, or omits, or will omit, to
state a material fact necessary to make the statements contained herein or
therein not misleading in view of the circumstances in which they are or were
made.
(f) There are no actions, suits, proceedings or governmental
investigations or inquiries pending or threatened against the Manager or to
which the Manager is a party or which any property of the Manager is subject,
which, if determined adversely to the Manager, would materially affect the
operations or financial position of the Manager or its ability to perform
hereunder.
(g) The Manager is a corporation duly organized, validly existing
and in good standing under the laws of the State of Texas and the Manager
possesses all licenses, permits, variances, exemptions, orders, consents,
approvals, authorizations and qualifications the absence of which would,
individually or in the aggregate, materially adversely affect the business or
properties of the Manager.
(h) Neither the execution and delivery of this Agreement, nor the
performance or compliance with the terms and conditions hereof, conflict with,
or will result in a breach by the Manager of, or constitute a default under, or
result in the creation of any lien, charge or encumbrance upon any asset of the
Manager pursuant to any of the terms, conditions or provisions of (i) the
Certificate of Incorporation or Bylaws of the Manager, (ii) any mortgage, deed
of trust, lease, contract, agreement or other instrument to which the Manager is
a party or by which the Manager may be bound or affected, or (iii) any writ,
order, judgment, decree, statute, ordinance, regulation or any other restriction
of any kind or character, to which the Manager is subject, or by which the
Manager may be bound or affected.
(i) All covenants, agreements, representations and warranties made
by the Manager in this Agreement shall survive the execution and delivery of
this Agreement, and all representations and warranties made by the Manager in
this Agreement shall survive the termination of this Agreement for a period of
three years.
ARTICLE XIV
TERM AND TERMINATION OF AGREEMENT
Section 14.1 INITIAL TERM. The initial term of this Agreement shall be
for a one-year period beginning on the Commencement Date. Thereafter, this
Agreement shall automatically renew for successive one-year periods until
terminated by either party in accordance with the provisions of this Article
XIV.
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Section 14.2 TERMINATION. This Agreement may be terminated on the first to
occur of the following:
(a) in the event the parties shall mutually agree in writing, this
Agreement may be terminated on the terms and dates stipulated therein.
(b) At the end of and following the initial term hereof, either
party may, with or without cause, terminate this Agreement on any anniversary
date hereof by giving to the other party at least 30 days advance written notice
of its intent to terminate, whereupon this Agreement shall terminate on the
future date specified in such notice.
(c) In the event either party shall fail to discharge any of its
material obligations hereunder or shall commit a breach of any material
provision of this Agreement and such default or breach shall continue for a
period of 30 days after the other party has served notice of such default, this
Agreement may then be terminated at the option of the non-breaching party by
notice thereof to the breaching party.
(d) Dissolution or termination of the corporate existence of the
Manager or cessation on the Manager's part to continue to do business, or
bankruptcy, insolvency, foreclosure or conveyance in lieu of foreclosure, or
assignment for the benefit of the creditors of the Manager, or its inability to
pay its debts as they come due, shall cause an immediate termination of this
Agreement at the election of the Company.
(e) If the Merger Agreement is terminated, this Agreement shall
automatically terminate and shall be deemed to have been void AB INITIO.
Section 14.3 EFFECTS OF TERMINATION. Except for termination under Section
14.2(e), the termination of this Agreement in accordance with the provisions of
this Article XIV shall have the following effects:
(a) Except for the mutual indemnities, covenants or other
provisions herein that by their terms expressly extend beyond the Term of
Agreement, the Parties' obligations hereunder are limited to the Term of
Agreement.
(b) In the event this Agreement is terminated for any reason, the
Manager shall immediately deliver possession to the Company of all assets, books
and records of the Company in its possession.
(c) Upon a termination of this Agreement (for whatever cause other
than termination under Section 14.2(c) hereof), the Company shall pay to the
Manager the amount of any Fee and Expenses accrued to the date of such
termination which are payable by the Company to the Manager in accordance with
the provisions hereof.
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ARTICLE XV
AGENCY WITH RESPECT TO CERTAIN ASSETS
Section 15.1 AGENT AND NOMINEE. The Manager and the Company agree that the
Company will receive the full benefit of the Specified Assets (as defined
below). As used herein "Specified Assets" means (i) the contracts listed on
Schedule I to this Agreement and (ii) any other contracts, rights, agreements,
assets or other rights held by Mercury that relate to the Company's properties
other than the Excluded Assets (as defined below). As used herein "Excluded
Assets" means those contracts and other assets listed on Schedule II to this
Agreement. On the terms set forth in this Agreement, the Manager shall continue
to hold legal and/or beneficial title to the Specified Assets as agent and
nominee for the benefit of the Company, and the Manager shall have no legal or
beneficial interest in the Specified Assets (which interest is vested in the
Company). The Company hereby authorizes and appoints the Manager to act on
behalf of the Company with respect to the Specified Assets in accordance with
the specific, timely written instructions or, if the circumstances so require,
oral instructions (in which case the same shall be confirmed in writing as soon
as practicable thereafter) from the Company actually received from time to time
by the Manager (which the Company agrees to provide as needed, and with respect
to which the Manager agrees that it will comply promptly and in good faith), and
to exercise such powers hereunder and thereunder as are specifically delegated
to the Manager by the terms of such instructions, together with such powers as
may be reasonably incidental thereto; provided however, that the foregoing
authorization shall in no way imply or suggest that the Manager shall have any
duty to the Company except to act in good faith and in strict accordance with
the terms hereof.
Section 15.2 DISTRIBUTIONS, EXPENSES AND MANAGEMENT.
(a) Without the prior written consent of the Company, the Manager
shall have no right to sell, encumber or otherwise transfer the Specified
Assets. In the event that the Manager receives monies or other consideration in
respect of the Specified Assets, the Manager shall distribute all such amounts
to the Company, or any party designated in writing by the Company.
(b) Subject to paragraph (a) above, all amounts which the Company
is entitled to receive from third parties with respect to the Specified Assets
may be distributed to the Manager for the account of the Company. All parties
dealing with the Manager are authorized and directed to treat and regard the
Manager as the party entitled to deal with the Specified Assets and shall be
fully protected in so treating and regarding the Manager and shall have no
obligation to determine the authority of the Manager to deal with the Specified
Assets or for the proper application of any proceeds received by the Manager.
The Manager may hold itself out to third parties as the agent of the Company
solely for the purposes of this Agreement and in accordance herewith.
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<PAGE>
(c) The Company shall pay all amounts which the Company may become
obligated to pay with respect to the Specified Assets as the beneficial owner
thereof, and shall pay all appropriate expenses accruing to the Company as
beneficial owner of the Specified Assets.
(d) The Manager promptly shall furnish to the Company copies of
all correspondence, documents, notices and instruments of every kind relating to
the Specified Assets which the Manager may receive, including, without
limitation, rental notices, claims, invoices, leases and contracts. The Manager
shall promptly keep the Company informed of any material developments affecting
the Specified Assets of which the Manager becomes aware, including the substance
of material oral communications between third parties and the Manager concerning
such matters.
(e) Without limiting the generality of the foregoing, the Company
hereby authorizes the Manager to act on behalf of the Company in respect of the
Specified Assets and to take all such actions thereunder necessary or
appropriate with respect to management of the Specified Assets and enforcement
of the rights of the Company thereunder, in each case in accordance with
instructions from the Company. The Manager shall follow all instructions of the
Company relating to the Specified Assets, including without limitation
instructions relating to the execution of and the action to be taken with
respect to notices and instruments relating to the Specified Assets, including
without limitation mortgages, deeds of trust and financing statements.
(f) In connection with any document or instrument executed,
delivered and/or recorded or other action taken by the Manager at the
instruction of the Company, the Manager may assume without inquiry or
investigation that such execution, delivery, recordation or action has been duly
and properly authorized by the Company. The Manager shall not be under any duty
to accept orders or instructions from any Person other than the Company, except
in accordance with specific, written instructions from the Company to do so. The
Manager shall be under no obligation to inquire into the authority of any
natural person purporting to act on behalf of the Company or any other Person.
The Manager shall be entitled to assume conclusively that all instruments
delivered to it by the Company under any provision of this Agreement are valid
and proper. The Manager may seek advice of the Company's counsel and shall be
fully protected in any action taken in accordance with such advice concerning
the legality of any action. The Manager shall not be required to assert or
defend any legal actions which may be commenced against it pertaining to the
Specified Assets unless requested in writing to do so by the Company, and the
Company shall assume the defense of any and all legal actions relating to the
Specified Assets unless and until the Manager is so requested in writing.
(g) The Manager agrees to take reasonable steps to preserve the
confidentiality of all information held by the Manager (whether before or after
the date of this Agreement) relating to the business of the Company that would
have been treated as confidential by the Manager during the period when it was
the holder of the beneficial interest in the Specified Assets, or that the
Company identifies to the Manager in writing as
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<PAGE>
confidential. The Manager further agrees to take such reasonable steps as may
be necessary to preserve legal privilege on behalf of the Company in respect
of any information held by the Manager (whether before or alter the date of
this Agreement) relating to the business of the Company that has been or is
subject to an assertion by the Manager or the Company of legal privilege, or
that the Company identifies in writing to the Manager as privileged.
(h) In no event shall the Company be responsible for any
obligations, costs, expenses, losses or damages (i) relating to the Specified
Assets and arising out of events that occurred prior to April 9, 1998 or (ii)
relating to the Excluded Assets.
Section 15.3 APPROVAL OF THE MANAGER. The Manager will consult with the
Company in giving any required consent from the Company which may be requested
pursuant to the or with respect to the Specified Assets and shall, in connection
therewith, act in accordance with the instructions of the Company (unless such
actions shall be excused pursuant to the express provisions of this Agreement),
but shall have no obligation to make any discretionary decision or form any
opinion referred to in the Specified Assets.
ARTICLE XVI
MISCELLANEOUS
Section 16.1 RELATIONSHIP OF PARTIES. This Agreement does not create a
partnership, joint venture or association; nor does this Agreement, or the
operations hereunder, create the relationship of lessor and lessee or bailor and
bailee. Nothing contained in this Agreement or in any agreement made pursuant
hereto shall ever be construed to create a partnership, joint venture or
association, or the relationship of lessor and lessee or bailor and bailee, or
to impose any duty, obligation or liability that would arise therefrom with
respect to either or both of the parties except as otherwise expressly provided
in this Agreement or any agreement made pursuant hereto. Specifically, but not
by way of limitation, except as otherwise expressly provided for herein, nothing
contained herein shall be construed as imposing any responsibility on the
Manager for the debts or obligation of the Company or any of its Affiliates. It
is expressly understood that the Manager is hereby engaged by the Company to
perform the Services only as an agent of the Company.
Section 16.2 NO THIRD PARTY BENEFICIARIES. Except to the extent a third
party is expressly given rights herein, any agreement to pay an amount and any
assumption of liability herein contained, expressed or implied, shall be only
for the benefit of the parties and their respective legal representatives,
successors and assigns, and such agreement or assumption shall not inure to the
benefit of the obligees of any indebtedness of any party whomsoever, it being
the intention of the parties hereto that no person or entity shall be deemed a
third party beneficiary of this Agreement except to the extent a third party is
expressly given rights herein.
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<PAGE>
Section 16.3 NOTICES. Any notice, demand, or communication required,
permitted, or desired to be given hereunder shall be deemed effectively given
when personally delivered or mailed by prepaid certified mail, return receipt
requested, addressed as follows:
(i) if to the Company to:
Quicksilver Resources Inc.
1619 Pennsylvania Avenue
Fort Worth, Texas 76104
Attn: Glenn Darden
(ii) if to the Manager, to:
Mercury Exploration Company
1619 Pennsylvania Avenue
Fort Worth, Texas 76104
Attn: Glenn Darden
in either case, with required copies to:
Trust Company of the West
865 South Figueroa Street
Los Angeles, California 90017
Attention: Arthur R. Carlson
Telecopier: (213)244-0604
and
TCW Asset Management Company
2175 First Interstate Bank Plaza
1000 Louisiana
Houston, Texas 77002
Attention: George R. Hutchinson
Telecopier: (713)615-7460
with copies to:
Milbank, Tweed, Hadley & McCloy
601 South Figueroa Street, 30th Floor
Los Angeles, California 90017
Attention: David A. Lamb
Telecopier: (213)629-5063
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<PAGE>
and
Joint Energy Development Investments Limited Partnership
c/o Enron Capital Management Limited Partnership
1400 Smith Street
Houston, Texas 77002
Attention: Jeremy M. Blachman
Telecopier: (713)646-8174
with copies to:
Enron Capital & Trade Resources
Corp. Legal Department
1400 Smith Street
Houston, Texas 77002
Attention: Carol St. Clair and Gareth S. Bahlmann
Telecopier: (713)646-3393
Enron Capital & Trade Resources
Compliance Department
1400 Smith Street
Houston, Texas 77002
Attention: Donna W. Lowry
Telecopier: (713)646-4039 or (713)646-4946
or to such other address and to the attention of such other person or officer as
either Party may designate by written notice pursuant to this Section 16.3.
Section 16.4 GOVERNING LAW. THIS AGREEMENT HAS BEEN EXECUTED AND DELIVERED
IN AND SHALL BE INTERPRETED, CONSTRUED AND ENFORCED PURSUANT TO AND IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
Section 16.5 ASSIGNMENT. No assignment of this Agreement or any of the
rights or obligations set forth herein by either party shall be valid without
the specific written consent of the other party; provided that the Company may
in its discretion assign any of its rights hereunder to any financial
institution providing financing to the Company as collateral security for such
financing.
Section 16.6 WAIVER OF BREACH. The waiver by either party of a breach or
violation of any provision of this Agreement shall not operate as, or be
construed to be, a waiver of any subsequent breach of the same or any other
provision hereof.
Section 16.7 DISPUTE RESOLUTION. Any controversy, dispute or claim arising
out of or relating to this Agreement or any of the other documents contemplated
hereby or the
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<PAGE>
transactions contemplated hereby or thereby (a "Dispute") shall be resolved
by arbitration administered by the American Arbitration Association (the
"AAA") in accordance with the terms of this Section 16.7, the Commercial
Arbitration Rules of the AAA, and, to the maximum extent applicable, the
United Stated Arbitration Act. Judgment on any matter rendered by arbitrators
may be entered in any court having jurisdiction. Any arbitration shall be
conducted before three arbitrators. The arbitrators shall be individuals
knowledgeable in the subject matter of the Dispute. Each party shall select
one arbitrator and the two arbitrators so selected shall select the third
arbitrator. If the third arbitrator is not selected within 30 days after the
request for an arbitration, then any party may request the AAA to select the
third arbitrator. The arbitrators may engage engineers, accountants or other
consultants they deem necessary to render a conclusion in the arbitration
proceeding. To the maximum extent practicable, an arbitration proceeding
hereunder shall be concluded within 180 days of the filing of the Dispute
with the AAA. Arbitration proceedings shall be conducted in Houston, Texas.
Arbitrators shall be empowered to impose sanctions and to take such other
actions as the arbitrators deem necessary to the same extent a judge could
impose sanctions or take such other actions pursuant to the Federal Rules of
Civil Procedure and applicable law. At the conclusion of any arbitration
proceeding, the arbitrators shall make specific written findings of fact and
conclusions of law. The arbitrators shall have the power to award recovery of
all costs and fees to the prevailing party. All fees of the arbitrators and
any engineer, accountant or other consultant engaged by the arbitrators,
shall be shared equally unless otherwise awarded by the arbitrators.
Section 16.8 ADDITIONAL ASSURANCES. The provisions of this Agreement shall
be self-operative and shall not require further accord between the parties
except as may herein specifically be provided to the contrary; provided,
however, that upon the request of either party, the other party shall execute
such additional instruments and take such additional actions as shall be
necessary to effectuate this Agreement.
Section 16.9 SEVERABILITY. In the event any provisions of this Agreement
is held to be unenforceable for any reason, such provision shall be severable
from this Agreement if it is capable of being identified with and apportioned to
reciprocal consideration or to the extent that it is a provision that is not
essential and the absence of which would not have prevented the parties from
entering into this Agreement. The unenforceability of a provision that has been
performed shall not be grounds for invalidation of this Agreement under
circumstances in which the true controversy between the parties does not involve
such provision.
Section 16.10 ARTICLE AND SECTION HEADINGS. The articles and section
headings contained in this Agreement are for reference purposes only and shall
not effect in any way the meaning or interpretation of this Agreement.
Section 16.11 DISCRETIONARY TERMS. Determination of "necessary",
"appropriate" and other discretionary terms as used herein shall be according to
the judgment and discretion of the respective parties in accordance with
generally accepted standards of the oil and gas industry.
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<PAGE>
Section 16.12 AMENDMENTS AND CONTRACT EXECUTION. Effective on the
Commencement Date, this Agreement constitutes the entire Agreement between the
parties with respect to the subject matter of this Agreement and supersedes all
prior agreements between the parties with respect thereto, including, without
limitation, the April 1998 Management Agreement and the Management Agreement
between the Manager and MSR. No oral statement or prior written material not
specifically incorporated herein shall be of any force and effect, and no
changes in or additions to this Agreement shall be recognized unless
incorporated herein by amendment, such amendment to become effective on the date
stipulated therein.
Section 16.13 ACTION BY THE COMPANY. The Company and the Manager agree that
any discretionary action that may be or is required to be taken by the Company
hereunder may be taken only by the act of the members of the Board of Directors
of the Company who are not Affiliates of the Manager. If there are no such
members of the Board of Directors of the Company, such action may be taken only
by the act of the holders of a majority of the outstanding voting securities of
the Company held by persons who are not Affiliates of the Manager.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed
by their respective duly authorized representatives this day of September,
1998.
MERCURY EXPLORATION COMPANY
By: /s/ Glenn Darden
---------------------------------------
Name: Glenn Darden
-------------------------------------
Title: Vice President
------------------------------------
QUICKSILVER RESOURCES INC.
By: /s/ Glenn Darden
---------------------------------------
Name: Glenn Darden
-------------------------------------
Title: Vice President
------------------------------------
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<PAGE>
EXHIBIT A
MINIMUM INSURANCE REQUIREMENTS
WORKERS COMPENSATION AND EMPLOYERS LIABILITY INSURANCE
Manager agrees to comply with Workers Compensation laws of the state where the
Work is performed, and to maintain a Workers Compensation and Employers
Liability policy. This policy shall be endorsed to provide: all states coverage,
voluntary compensation coverage and occupational disease.
Workers Compensation Statutory
Employers Liability $1,000,000 Each Accident (Minimum)
$500,000 Disease Each Employee (Minimum)
GENERAL LIABILITY INSURANCE
General Liability insurance, endorsed to provide coverage for: explosion,
collapse and underground damage to property of others; Contractual Liability
(particularly the applicable provisions of the "General Indemnity" section of
this contract; and Products and Completed Operations. Watercraft exclusions
deleted (if Work necessitates the use of watercraft of any kind.)
Bodily Injury and $1,000,000 Combined Single Limit Each Occurrence
Property Damage (Minimum)
AUTOMOBILE LIABILITY INSURANCE
Automobile Liability insurance which shall include coverage for all owned,
non-owned and hired vehicles.
Bodily Injury and $1,000,000 Combined Single Limit Each Occurrence
Property Damage (Minimum)
EXCESS UMBRELLA LIABILITY INSURANCE
Bodily Injury and $5,000,000 Combined Single Limit Each Occurrence
Property Damage (Minimum and Excess of Primary)
<PAGE>
PROPERTY INSURANCE
Property insurance on a replacement cost basis fully covering the property
subject to this agreement. Company shall be named as co-loss payee on any
proceeds received from this policy.
ADDITIONAL REQUIREMENTS
Manager shall require any contractor and subcontractor at any tier, vendor,
supplier, material dealer and others entering the properties irrespective of
their contractual relationship to Manager or Company, to provide and maintain
insurance at all times during the period that their agreement related to Work on
the properties is in force and effect at the contractor's and subcontractor's,
vendor's, supplier's, material dealer's, or others' own cost, with insurance
limits and in form and issuing companies acceptable to Company.
Manager shall submit to Company at the time Manager executes this Contract and
from time to time as requested, a Certificate of Insurance, in form satisfactory
to Company, evidencing that satisfactory coverage of the type and limits set
forth hereinabove are in effect. Policies providing such coverages shall contain
provisions that no cancellation or material changes in the policies shall become
effective except on thirty (30) days advance written notice thereof to Company.
Irrespective of the requirements as to insurance to be carried as provided for
herein, the insolvency, bankruptcy or failure of any insurance company carrying
insurance of Manager, or the failure of any insurance company to pay claims
accruing, or the inadequacy of the limits of the insurance, shall not affect,
negate or waive any of the provisions of this Contract, including, without
exception, the indemnity obligations of Manager.
Manager agrees to require any policies of insurance, except Workers'
Compensation coverages, which are in any way related to the agreement and that
are secured and maintained by Manager or its contractors or subcontractors, to
include Company, its parent and affiliated companies, and their directors,
officers, employees and agents, as Additional Insured. Furthermore, Contractor
shall waive all rights of recovery against Company, its parent and affiliated
companies which Manager may have or acquire because of deductible clauses in or
inadequacy of limits of, any policies of insurance maintained by Manager.
Manager agrees to require all such policies of insurance which are in any way
related to this agreement and that are secured and maintained by Manager or its
subcontractors, to include clauses providing that each underwriter shall waive
its rights of recovery, under subrogation or otherwise, against agents. Company,
its parent and affiliated companies and their directors, officers, employees and
agents.
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<PAGE>
SCHEDULE I
SPECIFIED ASSETS
1. Antrim Gas Transportation and Treating Service Agreement dated 2/6/95
between Dominion Reserves, Inc. and Michigan Consolidated Gas Company.
2. Extension and Amendment dated 1/1/96 between Terra Pipeline Company and
Terra Energy, Ltd.
3. Authorization dated 10/13/95 for Dominion Reserves, Inc. to commit certain
Antrim Gas under the Antrim Gas Transportation and Treating Service
Agreement.
4. Gas Sales and Purchase Contract dated 1/1/95 between Destec Fuel Resources,
Inc. and Kristen Corp.
5. Vienna Pipeline Gas Transportation Agreement dated 11/1/95 between Terra
Energy, Ltd. and Michcon Gathering Company.
6. Gas Purchase Agreement dated 10/1/94 between Mercury Exploration Company
and Consumers Power Company.
7. Letter Agreement dated 8/6/97 between Mercury Exploration Company and
Consumers Power Company, for volume and price for the fourth contract year
of the Gas Purchase Agreement dated 10/1/94 between Mercury Exploration
Company and Consumers Power Company.
<PAGE>
SCHEDULE II
MERCURY EXCLUDED ASSETS
1. The equity interests of Mercury in the following entities:
a) Wilderness Energy Services Limited Partnership ("Wilderness")
b) Frederic HOP Limited Partnership ("Frederic")
c) QELC
d) Mercury Michigan Inc.
All easements and rights-of-way held of record in the name of Mercury for
the benefit of either Wilderness or Frederic shall be excepted and deemed
Excluded Assets.
2. Vehicles and non-property specific Operating Equipment directly related to
the oil field operations of Mercury.
3. Mercury Exploration Company ("Assignor") has obtained from the Michigan
Public Service Commission certificates authorizing Assignor to construct
and operate two gas transmission pipelines in Otsego County, Michigan: The
Fontinalis Pipeline (Case No. U-1 1120) and the North Hayes 6 inch Pipeline
(Case No. U-1 1406) (the "Transmission Pipelines"). Assignor has obtained
the easements and rights of way necessary for the construction of same. All
of the rights and interests of Assignor in and to the certificates
identified above and in all easements, rights of way and other rights and
interests relating to the Transmission Pipelines, the routes of which are
specifically described in the referenced certificates, are excluded from
the operations of this Agreement and reserved by Assignor. In addition, all
easements and rights-of-way held of record in the name of Mercury for
transmission pipelines to be owned and operated by Mercury, or its
designee, shall be deemed Excluded Assets. Notwithstanding the foregoing,
in the event that (i) the Transmission Pipelines or (ii) any other
transmission pipelines certificated in the future which Mercury owns
directly or indirectly (excluding Wilderness), transport natural gas
produced from any of the Mercury Properties (as defined in the Prior Merger
Agreement), QELC Properties (as defined in the Prior Merger Agreement) or
the MGP Properties (as defined in the Prior Merger Agreement) ("QRI Gas
Transmission Pipeline"), QRI shall have the right to purchase a
proportionate share of the QRI Gas Transmission Pipelines based on the
percentage of throughput at the estimated peak capacity using a
twelve-month time horizon. The proportionate share shall be offered to QRI
at a price based on Assignor's cost basis therein.
4. Any benefits of any underproduction or the right to receive any payments,
or cash attributable to the Mercury Properties whenever arising to
"balance" any disproportionate allocation of Hydrocarbons under any
operating agreement, gas balancing and storage agreement, gas processing or
dehydration agreement, gas transportation or similar agreements.
<PAGE>
SCHEDULE II
(CONTINUED)
QELC EXCLUDED ASSETS
1. All bank accounts of QELC except for the operating and money market
account.
2. Any benefits of any underproduction or the right to receive any payments,
or cash attributable to the QELC Properties whenever arising to "balance"
any disproportionate allocation of Hydrocarbons under any operating
agreement, gas balancing and storage agreement, gas processing or
dehydration agreement, gas transportation or similar agreements.
<PAGE>
P. O. Box 830104
Dallas, TX 75283-0104
Tel 214 508-1200
NATIONSBANK
July 7, 1998
Quicksilver Resources Inc.
1619 Pennsylvania Avenue
Fort Worth, Texas 76104
Attention: Mr. Glenn Darden
Vice President
Re: Senior Credit Facility
Dear Glenn:
NationsBank, N.A. ("NationsBank") is pleased to offer to be the
Administrative Agent (in such capacity, the "Agent") for a senior revolving
credit facility to Quicksilver Resources Inc. in an amount up to the lesser
of (i) the Borrowing Base in effect from time to time, or (ii) $200,000,000
(the "Facility"). The initial Borrowing Base will be $85,000,000.
NationsBank is also pleased to offer its commitment to lend up to the full
$85,000,000 initial Borrowing Base upon and subject to the terms and
conditions of this letter and the Summary of Terms and Conditions attached
hereto as Annex I (the "Term Sheet"). All capitalized terms used and not
otherwise defined herein shall have the meanings set forth in the Term Sheet.
Furthermore, NationsBanc Montgomery Securities LLC ("NMS") is pleased to act
as Arranger and Syndication Agent for the Facility to form a syndicate of
financial institutions (the "Lenders") reasonably acceptable to you for the
Facility.
The obligations of NationsBank and NMS hereunder are subject to the
satisfaction of each of the following conditions precedent:
(a) each of the terms and conditions set forth herein;
(b) each of the terms and conditions set forth in the Term Sheet;
(c) execution of a fee letter among the Borrower and NationsBank and NMS
prior to or concurrently with the acceptance of this letter by the
Borrower;
(d) the negotiation, execution and delivery of definitive documentation
with respect to the Facility consistent with the Term Sheet and
otherwise satisfactory to NationsBank and NMS;
<PAGE>
(e) there not having occurred and being continuing since the date hereof a
material adverse change in the market for syndicated bank credit
facilities or a material disruption of, or a material adverse change
in, financial, banking or capital market conditions, in each case as
determined by NationsBank and NMS in their sole discretion; and
(f) MSR Exploration, Ltd. ("MSR") shall have merged with and into
Borrower, with Borrower being the surviving corporation, all on terms
and conditions satisfactory to NationsBank and NMS.
NationsBank will act as Administrative Agent and NMS will act as Arranger and
Syndication Agent for the Facility. No additional agents will be appointed
without the prior approval of NationsBank, NMS and Borrower.
Furthermore, the obligations of NationsBank and NMS hereunder are based upon
the financial and other information regarding the Borrower, MSR and their
subsidiaries previously provided to NationsBank and NMS and are subject to
the condition, among others, that there shall not have occurred after the
date of such information, in the opinion of NationsBank and NMS, any material
adverse change in the business, assets, liabilities (actual or contingent),
operations, condition (financial or otherwise) or prospects of the Borrower,
MSR and their subsidiaries, taken as a whole. If the continuing review by
NationsBank and NMS of the Borrower or MSR discloses information relating to
conditions or events not previously disclosed to NationsBank and NMS or
relating to new information or additional developments concerning conditions
or events previously disclosed to NationsBank and NMS which NationsBank and
NMS in their good faith sole discretion believe could reasonably be expected
to have a material adverse effect on the condition (financial or otherwise),
assets, properties, business, operations or prospects of the Borrower, MSR
and their subsidiaries, taken as a whole, NationsBank and NMS may, in their
sole discretion, suggest alternative financing amounts or structures that
ensure adequate protection for the Lenders or decline to participate in or
arrange the Facility.
You agree to actively assist NationsBank and NMS in achieving a syndication
of the Facility that is satisfactory to NationsBank and NMS and you. In the
event that such syndication can not be achieved in a manner reasonably
satisfactory to NationsBank, NMS and you under the structure outlined in the
Term Sheet and pursuant to the terms set forth in the Credit Agreement, you
agree to reasonably cooperate with NationsBank and NMS in developing such
modifications and/or amendments to the Credit Agreement and the Facility
reasonably satisfactory to the Borrower that will permit a satisfactory
syndication of the Facility. Syndication of the Facility will be accomplished
by a variety of means, including direct contact during the syndication
between senior management and advisors of the Borrower and the proposed
Lenders. To assist NationsBank and NMS in the syndication efforts, you
hereby agree to (a) provide and cause your advisors to provide NationsBank
and NMS and the other Lenders upon request with all information reasonably
deemed necessary by NationsBank and NMS to complete syndication, (b) assist
NationsBank and NMS upon their reasonable request in the preparation of an
Information Memorandum to be used in connection with the syndication of the
Facility and (c) otherwise assist NationsBank and NMS in their syndication
efforts, including by making available officers and advisors of the Borrower
and MSR and its subsidiaries from time to time
<PAGE>
to attend and make presentations regarding the business and prospects of the
Borrower or MSR and their respective subsidiaries, as appropriate, at a
meeting or meetings of prospective Lenders. You further agree to refrain
from engaging in any additional financings for the Borrower or MSR and their
respective subsidiaries during such syndication process unless otherwise
agreed to by NationsBank and NMS.
It is understood and agreed that NationsBank and NMS, after consultation with
you, will manage and control all aspects of the syndication, including
decisions as to the selection of proposed Lenders reasonably acceptable to
you and any titles offered to proposed Lenders, when commitments will be
accepted and the final allocations of the commitments among the Lenders. It
is understood that no Lender participating in the Facility will receive
compensation from you outside the terms contained herein and in the Term
Sheet in order to obtain its commitment. It is also understood and agreed
that the amount and distribution of the fees among the Lenders will be at the
sole discretion of NationsBank and NMS and that any syndication prior to
execution of definitive documentation will reduce the commitment of
NationsBank.
You hereby represent, warrant and covenant that (i) all information, other
than Projections (as defined below), which has been or is hereafter made
available to NationsBank and NMS or the Lenders by you or any of your
representatives in connection with the transactions contemplated hereby
("Information") is and will be complete and correct in all material respects
and does not and will not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements contained
therein not misleading and (ii) all financial projections concerning, the
Borrower that have been or are hereafter made available to NationsBank and
NMS or the Lenders by you or any of your representatives (the "Projections")
have been or will be prepared in good faith based upon reasonable
assumptions. You agree to furnish us with such Information and Projections
as we may reasonably request and to supplement the Information and
Projections from time to time until the closing date for the Facility so that
the representation and warranty in the preceding sentence is correct on such
date. In arranging and syndicating the Facility, NationsBank and NMS will be
using and relying on the Information and the Projections without independent
verification thereof.
By acceptance of this offer, Borrower agrees to pay all reasonable
out-of-pocket fees and expenses (including reasonable attorneys' fees and
expenses) incurred before or after the date hereof by NationsBank and NMS in
connection with the Facility and the syndication thereof
In the event that NationsBank and NMS become involved in any capacity in any
action, proceeding, or investigation in connection with any matter
contemplated by this letter, the Borrower will reimburse NationsBank and NMS
for their legal and other expenses (including the cost of any investigation
and preparation) as they are incurred by NationsBank and NMS. The Borrower
also agrees to indemnify and hold harmless NationsBank and NMS and their
affiliates and their respective directors, officers, employees and agents
(the "Indemnified Parties") from and against any and all losses, damages and
liabilities, joint or several, arising out of any claims, demands or causes
of actions related to or arising out of any matters contemplated by this
letter (including any arising, out of the negligence of any Indemnified
Party), unless and only to the extent that it shall be finally judicially
determined that such losses, claims, damages or liabilities
<PAGE>
resulted primarily from the gross negligence or willful misconduct of the
Indemnified Party seeking indemnification.
The provisions of the immediately preceding two paragraphs shall remain in
full force and effect regardless of whether definitive financing
documentation for the Facility shall be executed and delivered and
notwithstanding the termination of this letter or the obligations of
NationsBank and NMS hereunder.
Neither this offer nor the undertaking and commitment contained herein may be
disclosed to or distributed to any other party in any form other than MSR,
Borrower's attorneys, advisors, directors and shareholders or as otherwise
may be required by applicable law, including disclosure requirements of the
Securities Exchange Commission.
As described herein and in the Term Sheet, NMS will act as Arranger and
Syndication Agent and NationsBank will act as Administrative Agent,
respectively, for the Facility. NationsBank reserves the right to allocate,
in whole or in part, to NMS certain fees payable to NationsBank in such
manner as NationsBank and NMS agree in their sole discretion. You
acknowledge and agree that NationsBank may share with any of its affiliates
(including specifically NMS) any information relating to the Facility, the
Borrower and its subsidiaries and affiliates.
This letter shall be governed by the laws of the State of Texas without
regard to its principles of conflicts of laws. This letter may be modified
or amended only in writing. This letter is not assignable by Borrower
without the prior written consent of NationsBank and NMS. This letter
supersedes and replaces any and all proposals or commitment letters
previously delivered by NationsBank and NMS to Borrower relating to the
Facility.
This offer will expire at 5:00 p.m. CST on July 10, 1998 unless Borrower
executes this letter and returns it to NationsBank and NMS prior to that time
(which may be by facsimile transmission), whereupon this letter shall become
a binding agreement. Thereafter, this undertaking, and commitment will
expire at 5:00 p.m. CST on September 30, 1998 unless definitive Facility
documentation is executed and delivered prior to that time.
<PAGE>
THIS WRITTEN AGREEMENT (WHICH INCLUDES THE SUMMARY OF TERMS AND CONDITIONS)
REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED
BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
Very truly yours,
NATIONSBANK, N.A.,
Individually and as Administrative Agent
By: /s/ J. Scott Fowler
-------------------------
J. Scott Fowler,
Vice President
NATIONSBANC MONTGOMERY SECURITIES LLC
By: /s/ David E. Hunt
---------------------------
Name: David E. Hunt
---------------------------
Its: Managing Director
---------------------------
Accepted and Agreed To:
QUICKSILVER RESOURCES INC.
By: /s/ Glenn Darden
---------------------------
Title: Vice President
---------------------------
<PAGE>
ANNEX I CONFIDENTIAL
QUICKSILVER RESOURCES INC.
SUMMARY OF INDICATIVE/PROPOSED TERMS & CONDITIONS
JULY 7, 1998
- --------------------------------------------------------------------------------
BORROWER: Quicksilver Resources Inc., the survivor of a merger between
Quicksilver Resources Inc. and MSR Exploration, Ltd.
("MSR").
GUARANTORS: The Credit Facility shall be guaranteed by all present and
future subsidiaries of the Borrower. All guarantees shall
be guarantees of payment and not of collection.
ARRANGER &
SYNDICATION AGENT: NationsBanc Montgomery Securities LLC ("NMS").
AGENT: NationsBank, N.A. ("Agent") will act as sole and exclusive
administrative and collateral agent. As such, NationsBank
will negotiate with the Borrower, act as the primary contact
for the Borrower and perform all other duties associated
with the role of exclusive administrative agent. No other
agents or co-agents may be appointed without the prior
written consent of NationsBank and NMS.
LENDERS: A syndicate of financial institutions (including
NationsBank) arranged by NMS, which institutions shall be
acceptable to the Burrower and the Agent (collectively, the
"Lenders").
SENIOR CREDIT
FACILITY: A revolving credit facility under which availability will be
limited to the lesser of (a) $200,000,000, or (b) the
Borrowing Base in effect from time to time.
PURPOSE: The proceeds of the Credit Facility shall be used (a) to
refinance indebtedness owed by Borrower to NationsBank,
N.A., (b) to refinance indebtedness owed by MSR to Banque
Paribas which will be assumed by Borrower as a result of its
merger with MSR, (c) to finance the acquisition and
development of oil and gas properties, (d) the issuance of
letters of credit, and (e) for other lawful corporate
purposes.
MATURITY: The Credit Facility shall terminate and all amounts
outstanding thereunder shall be due and payable in full 5
years from Closing (the "Maturity Date").
- --------------------------------------------------------------------------------
QUICKSILVER RESOURCES INC. 1 NATIONSBANC MONTGOMERY SECURITIES LLC
<PAGE>
AVAILABILITY: Loans and Letters of Credit under the Facility will be
available on a revolving basis until the Maturity Date in an
amount outstanding at any time not to exceed (a) the
Borrowing Base in effect from time to time, or (b)
$200,000,000.
LETTER OF CREDIT
SUBLIMIT: Up to 10% of the Borrowing Base will be available for the
issuance of Letters of Credit issued by the Agent for a term
up to one year, but in all events expiring on or before the
Maturity Date and otherwise in form and substance reasonably
satisfactory to Agent.
BORROWING BASE: The initial Borrowing Base will be $85,000,000. The
Borrowing Base, will be redetermined semi-annually by
Lenders in their sole discretion throughout the duration of
the Credit Facility based on annual third party and semi-
annual in house engineering provided by Borrower, all of
which shall be acceptable to Agent. Any increase in the
Borrowing Base resulting from a redetermination (including
any unscheduled redetermination referenced in the next
succeeding paragraph) shall be approved by all Lenders. Any
decrease or reaffirmation of an existing Borrowing Base
shall be approved by Majority Lenders.
Majority Lenders shall have the right to request an
unscheduled redetermination of the Borrowing Base once
during each period between scheduled redeterminations.
Borrower will have the right to request an unscheduled
redetermination once during each period of twelve
consecutive months.
A borrowing base deficiency will exist if the amount
outstanding under the Credit Facility exceeds the Borrowing
Base in effect at any time. Any deficiency must be
eliminated, at Borrower's option, in either (a) a single
lump sum, or (b) in six equal monthly installments.
SECURITY: The Credit Facility shall be secured by a first priority
mortgage lien on all existing and further acquired oil and
gas properties, related contracts and other rights owned by
Borrower and evaluated for purposes of the Borrowing Base.
The Credit Facility shall also be secured by a first and
prior security interest in the issued and outstanding
capital stock of all existing or hereafter created or
acquired subsidiaries of Borrower.
- --------------------------------------------------------------------------------
QUICKSILVER RESOURCES INC. 2 NATIONSBANC MONTGOMERY SECURITIES LLC
<PAGE>
The foregoing security shall ratably secure the Credit
Facility and any commodity swap, interest rate swap or
similar agreements with a Lender under the Credit Facility.
MANAGEMENT
AGREEMENT: Mercury Exploration Company ("Mercury") shall enter into a
Management Agreement with Borrower (which shall be approved
by Agent) pursuant to which Mercury will (a) act as operator
for all of Borrower's oil and gas properties which Borrower
or Mercury operates, (b) provide general and administrative
services as necessary for the operation of Borrower's
business, and (c) arrange for the sale of gas produced by
Borrower under the Consumers' Power Contract and/or
comparably priced contracts. The services provided under
the Management Agreement will be provided at no cost to
Borrower other than COPAS reimbursements allowed under
applicable joint operating agreements to which Mercury or
Borrower is a party.
OPTIONAL
PREPAYMENTS
AND COMMITMENT
REDUCTIONS: The Borrower may prepay the Credit Facility in whole or in
part at any time without penalty, subject to reimbursement
of the Lenders' breakage and redeployment costs in the case
of prepayment of LIBOR borrowings.
CONDITIONS PRE-
CEDENT TO CLOSING: The initial funding of the Credit Facility will be subject
to satisfaction of the conditions precedent deemed
appropriate by the Agent and the Lenders including, but not
limited to, the following:
The completion of all due diligence with respect to the
Borrower, MSR Exploration, Ltd. and their subsidiaries in
scope and detail satisfactory to NationsBank and NMS in
their sole discretion.
The negotiation, execution and delivery of definitive
documentation with respect to the Credit Facility
satisfactory to NMS, the Agent and the Lenders.
The Agent shall have received (a) satisfactory opinions of
counsel to the Borrower and the other obligors (which shall
cover, among other things, authority, legality, validity,
binding effect and enforceability of the documents for the
Credit Facility) and such
- --------------------------------------------------------------------------------
QUICKSILVER RESOURCES INC. 3 NATIONSBANC MONTGOMERY SECURITIES LLC
<PAGE>
corporate resolutions, certificates and other documents
as the Agent shall reasonably require and (b)
satisfactory evidence that the Agent (on behalf of the
Lenders) holds a perfected, first priority lien in all
collateral for the Credit Facility, subject to no other
liens except for permitted liens to be determined.
The Agent shall have received and, in each case, approved
(a) the consolidated financial statements of the Borrower
(or its predecessors) and MSR and their respective
subsidiaries for the fiscal years ending September 30, 1997
(in the case of Borrower's predecessors) and December 31,
1997 in the case of MSR, including balance sheets, income
and cash flow statements audited by independent public
accountants of recognized national standing and prepared in
conformity with GAAP, and (b) the interim unaudited
consolidated financial statements for Borrower (or its
predecessors) and MSR for the fiscal quarter ended March 31,
1998 (and for the portion of Borrower's or its predecessors)
and MSR's fiscal year then ended, including balance sheets
and income and cash flow statements all prepared in
accordance with GAAP.
There shall not have occurred a material adverse change
since September 30, 1997 (in the case of Borrower) or
December 31, 1997 (in the case of MSR) in the business,
assets, operations, condition (financial or otherwise) or
prospects of the Borrower, MSR or their respective
subsidiaries or in the facts and information regarding such
entities as represented to date.
Agent shall have completed and approved a review of title to
and the status of the environmental condition of Borrower's
oil and gas properties.
Lenders shall have completed a review and approved an
engineering report of Borrower's and MSR's oil and gas
properties.
The absence of any action, suit, investigation or proceeding
pending or threatened in any court or before any arbitrator
or governmental authority that purports to affect the
Borrower or MSR or their respective subsidiaries or any
transaction contemplated hereby, or that could have a
material adverse effect on the Borrower or its subsidiaries
or any transaction contemplated hereby or on the ability of
the Borrower and its subsidiaries to perform their
obligations under the documents to be executed in connection
with the Credit Facility.
- --------------------------------------------------------------------------------
QUICKSILVER RESOURCES INC. 4 NATIONSBANC MONTGOMERY SECURITIES LLC
<PAGE>
Borrower, MSR and their respective subsidiaries shall be in
compliance with all existing financial obligations.
The absence of any disruption or adverse change in the
financial or capital markets generally which the Agent or
NMS, in their sole reasonable discretion, deems material in
connection with the syndication of the Credit Facility.
The Agent's satisfaction that (a) the Borrower and its
subsidiaries are taking all necessary and appropriate steps
to ascertain the extent of, and to quantify and successfully
address, business and financial risks facing the Borrower
and its subsidiaries as a result of what is commonly
referred to as the 'Year 2000 problem' (i.e., the inability
of certain computer applications to recognize correctly and
perform date-sensitive functions involving certain dates
prior to and after December 31, 1999), including risks
resulting from the failure of key vendors and suppliers of
the Borrower and its subsidiaries to successfully address
the Year 2000 problem, and (b) the Borrower's and its
subsidiaries' material computer applications and those of
its key vendors and suppliers will, on a timely basis,
adequately address the Year 2000 problem in all material
respects.
Receipt and review, with results satisfactory to the Agent
and its counsel, of information regarding litigation, tax,
accounting, labor, insurance, pension liabilities (actual or
contingent), real estate leases, material contracts, debt
agreements, property ownership, and contingent liabilities
of the Borrower and its subsidiaries.
MSR shall have merged with and into Borrower with Borrower
being the surviving Corporation, all on terms and conditions
satisfactory to Agent and Lenders.
REPRESENTATIONS &
WARRANTIES: Usual and customary for transactions of this type, to
include without limitation: (i) corporate status; (ii)
corporate power and authority/enforceability; (ii) no
violation of law or contracts or organizational documents;
(iii) no material litigation; (v) correctness of specified
financial statements and no material adverse change; (vi) no
required governmental or third party approvals; (vii) use of
proceeds/compliance with margin regulations; (viii) status
under Investment Company Act; (ix) ERISA; (x) environmental
matters; (xi) perfected liens and security interests; (xii)
Year 2000 matters; and (xiii) payment of taxes.
- --------------------------------------------------------------------------------
QUICKSILVER RESOURCES INC. 5 NATIONSBANC MONTGOMERY SECURITIES LLC
<PAGE>
COVENANTS: Usual and customary for transactions of this type, to
include without limitation: (i) delivery of financial
statements and other reports; (ii) delivery of compliance
certificates; (iii) delivery of annual third party reserve
reports and semi-annual internally prepared reserve reports
and other information Agent or Lenders may request, (iv)
notices of default, material litigation and material
governmental and environmental proceedings; (v) compliance
with laws; (vi) payment of taxes; (vii) maintenance of
insurance; (viii) limitation on liens; (ix) limitations on
mergers, consolidations and sales of assets; (x) limitations
on incurrence of debt; (xi) prohibitions on dividends and
stock redemptions and the redemption and/or prepayment of
other debt; (xii) limitations on investments; (xiii) ERISA;
(xiv) limitation on transactions with affiliates, and (xv)
maintenance of required hedging transactions and limitations
on hedging transactions.
Financial covenants to include (but not limited to)
maintenance of a current ratio of 1.0 to 1.0. Current
maturities of long term debt to be excluded from current
maturities.
EVENTS OF DEFAULT: Usual and customary in transactions of this nature, to
include, without limitation, (i) nonpayment of principal,
interest, fees or other amounts, (ii) violation of
covenants, (iii) inaccuracy of representations and
warranties, (iv) cross-default to other material agreements
and indebtedness, (v) bankruptcy, (vi) material judgments,
(vii) ERISA, (viii) actual or asserted invalidity of any
loan documents or security interests and (ix) Change in
Control of the Borrower, which shall occur if (a) a person
or any group, and any affiliate of any such person other
than the Darden Family Group shall beneficially own,
directly or indirectly, an amount of the outstanding capital
stock, of the Borrower entitled to 40% or more of the voting
power of all the (outstanding capital stock of the Borrower
or (b) unless the Majority Lenders have previously granted
their consent, the Darden Family Group shall; own
beneficially, directly or indirectly (including through
Mercury and Quicksilver Energy L.C. as long as the Darden
Family Group owns voting control of each such entity), an
amount of the outstanding capital stock of the Borrower
entitled to less than 51% of the voting power of all the
outstanding capital stock of the Borrower.
ASSIGNMENTS/
PARTICIPATIONS: Each Lender will be permitted to make assignments in a
minimum amount of $5,000,000 to other financial institutions
approved by the Borrower and the Agent, which approval shall
not be unreasonably
- --------------------------------------------------------------------------------
QUICKSILVER RESOURCES INC. 6 NATIONSBANC MONTGOMERY SECURITIES LLC
<PAGE>
withheld. Lenders will be permitted to sell
participations with voting rights limited to significant
matters such as changes in amount, rate, and maturity
date and releases of collateral and guarantors. An
assignment fee of $3,500 is payable by the Lender to the
Agent upon any such assignment occurring (including, but not
limited to an assignment by a Lender to another Lender).
WAIVERS &
AMENDMENTS: Amendments and waivers of the provisions of the loan
agreement and other definitive credit documentation will
require the approval of Majority Lenders, except that the
consent of all the Lenders shall be required with respect to
(i) increases in commitment amounts, (ii) reductions of
principal, interest, or fees, (iii) extensions of scheduled
maturities or times for payment, (iv) releases of all or
substantially all collateral, (v) releases of guarantors,
and (vi) increases in the Borrowing Base.
INDEMNIFICATION: The Borrower shall indemnify the Lenders from and against
all losses, liabilities, claims, damages or expenses
relating to their loans, the Borrower's use of loan proceeds
or the commitments, including but not limited to reasonable
attorneys' fees and settlements costs. This indemnification
shall survive and continue for the benefit of the Lenders at
all times after the Borrower's acceptance of the Lenders'
commitment for the Credit Facility, notwithstanding any
failure of the Credit Facility to close.
CLOSING: On or before September 30, 1998.
GOVERNING LAW: Texas.
FEES/EXPENSES: As outlined in ADDENDUM I.
OTHER: This term sheet is intended as an outline only and does not
purport to summarize all the conditions, covenants,
representations, warranties and other provisions which would
be contained in definitive legal documentation for the
Credit Facility contemplated hereby. The Borrower shall
waive its right to a trial by jury.
MAJORITY LENDERS: Lenders holding 66.67% of the Loans and Commitment.
COUNSEL FOR AGENT: Vinson & Elkins L.L.P.
- --------------------------------------------------------------------------------
QUICKSILVER RESOURCES INC. 7 NATIONSBANC MONTGOMERY SECURITIES LLC
<PAGE>
THIS SUMMARY OF INDICATIVE TERMS IS CONFIDENTIAL AND MAY NOT BE DISCLOSED TO OR
DISTRIBUTED TO ANY OTHER PARTY IN ANY FORM OTHER THAN BORROWER'S ATTORNEYS,
ADVISORS, DIRECTORS, SHAREHOLDERS AND MSR, OR AS OTHERWISE MAY BE REQUIRED BY
APPLICABLE LAW, INCLUDING DISCLOSURE REQUIREMENTS OF THE SECURITIES EXCHANGE
COMMISSION.
- --------------------------------------------------------------------------------
QUICKSILVER RESOURCES INC. 8 NATIONSBANC MONTGOMERY SECURITIES LLC
<PAGE>
ADDENDUM I
FEES AND EXPENSES
COMMITMENT FEE: A commitment fee equal to the basis points set forth in the
table below (calculated on a per annum basis based on the
actual number of days elapsed in a year of 360 days) shall
be payable on the unused portion of the Borrowing Base. The
commitment fee shall be paid quarterly in arrears following
the Closing.
INTEREST RATES: The Credit Facility shall bear interest at a rate equal to
LIBOR plus the Applicable Margin or the Alternate Base Rate
(defined as the higher of (i) the NationsBank prime rate and
(ii) the Federal Funds rate plus 0.50%); provided, that if
during the 180 day period following the Closing, any
breakage costs, charges or fees are incurred with respect to
LIBOR loans on account of the syndication of the Credit
Facility, the Borrower shall immediately reimburse the Agent
for any such costs, charges or fees. Such right of
reimbursement to be in addition to and not in limitation of
customary cost and yield protection.
The Borrower may select interest periods of 1, 2, 3 or 6
months for LIBOR loans, subject to availability.
A penalty rate shall apply on all loans in the event of
default at a rate per annum of 2% above the applicable
interest rate.
The Applicable Margin, Commitment Fee and Letter of Credit
Fees in effect on any day shall be determined based on the
ratio of usage of the Credit Facility to the Borrowing Base
in effect on such date in accordance with the table below.
LETTER OF
CREDIT FEES: Letter of credit fees are due quarterly in arrears to be
shared proportionately by the Lenders. Fees will be
determined on the date of issue and will be determined on a
per annum basis from the table below plus a fronting fee of
0.125% per annum to be paid to Agent for its own account.
Fees will be calculated on the aggregate stated amount for
each letter of credit for the stated duration thereof.
- --------------------------------------------------------------------------------
QUICKSILVER RESOURCES INC. 9 NATIONSBANC MONTGOMERY SECURITIES LLC
<PAGE>
ADDENDUM I CONFIDENTIAL
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
Applicable Commitment L/C
Tier Usage Margin Fee Fee
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
I Less than or equal to 50% 100 bps 37.5 bps 100 bps
---------------------------------------------------------------------------
II Greater than 50% 125 bps 37.5 bps 125 bps
Less than or equal to 75%
---------------------------------------------------------------------------
III Greater than 75% 150 bps 37.5 bps 150 bps
---------------------------------------------------------------------------
</TABLE>
COST AND YIELD
PROTECTION: The usual for transactions and facilities of this type,
including, without limitation, in respect of prepayments,
changes in capital adequacy and capital requirements or
their interpretation, illegality, withholding taxes,
unavailability, reserves without proration or offset.
EXPENSES: Borrower will pay all reasonable costs and expenses
associated with the preparation, due diligence,
administration, syndication, production of tombstones and
enforcement of all documents executed in connection with the
Credit Facility, including without limitation, the legal
fees of the Agent's counsel regardless of whether or not the
Credit Facility is closed.
- --------------------------------------------------------------------------------
QUICKSILVER RESOURCES INC. 10 NATIONSBANC MONTGOMERY SECURITIES LLC
<PAGE>
P. O. Box 830104
Dallas, TX 75283-0104
Tel 214 508-1200
NATIONSBANK
July 7, 1998
Quicksilver Resources Inc.
1619 Pennsylvania Avenue
Fort Worth, Texas 76104
Attention: Mr. Glenn Darden
Vice President
Re: Senior Credit Facility
Dear Glenn:
This letter sets forth certain fees payable by Quicksilver Resources Inc.
(the "Borrower") to Agent (as hereinafter defined) in connection with the
financing described in the Commitment Letter dated July 7, 1998 (herein so
called) executed by NationsBank, N.A. ("NationsBank" or "Agent"), NationsBanc
Montgomery Securities LLC ("NMS") and you, pursuant to which NationsBank
agreed to lend the entire $85,000,000 initial Borrowing Base of the revolving
credit facility referenced in the Commitment Letter (the "Facility"). Terms
defined in the Commitment Letter and Term Sheet are used herein as therein
defined. By accepting this letter, you agree to pay or cause to be paid the
non-refundable fees set forth in this letter in accordance with its terms and
to abide by the other terms and conditions hereof.
Borrower shall pay the following fees to the Agent:
Underwriting and
Arrangement Fee: An underwriting fee in the amount of $637,500. Agent
acknowledges that such fee has previously been paid in
full by Borrower.
The parties hereto acknowledge that the fee referenced
in this paragraph shall be deemed earned upon
syndication of the facility to one or more Banks (in
addition to NationsBank); provided, however, in no
event shall the failure of the parties to complete
<PAGE>
July 7, 1998
Page 2
such syndication limit the right of NationsBank and
NMS to retain such fees.
Agent's Fee: An annual agent's fee in the amount of $35,000 shall be
payable by the Borrower to the Agent for its own
account on March 31, 1999 and on each March 31
thereafter so long as the Facility is in effect.
The existence and terms of this letter shall be kept confidential to the extent
provided in the Commitment Letter.
Please evidence your receipt of and agreement with this letter by signing a copy
of this letter and returning it to the undersigned, together with the executed
Commitment Letter.
Very truly yours,
NATIONSBANK, N.A.,
Individually and as Administrative Agent
By: /s/ J. Scott Fowler
------------------------------
J. Scott Fowler,
Vice President
NATIONSBANC MONTGOMERY SECURITIES LLC
By: /s/ David E. Hunt
------------------------------
Name: David E. Hunt
------------------------------
Its: Managing Director
------------------------------
Accepted and Agreed To:
QUICKSILVER RESOURCES INC.
By: /s/ Glenn Darden
------------------------------
Glenn Darden,
Vice President
<PAGE>
AGREEMENT REGARDING FUTURE FINANCINGS
This Agreement Regarding Future Financings (this "Agreement") is dated
as of the 9th day of April, 1998, by and between Quicksilver Resources Inc.
("QRI"), Enron Capital & Trade Resources Corp. ("ECT"), Trust Company of the
West, in the capacity indicated on the signature pages hereto ("TCW"), and
NationsBank of Texas, N.A. ("NationsBank"). QRI, ECT, TCW and NationsBank
are sometimes collectively referred to as the "Parties" or individually as a
"Party."
RECITALS
WHEREAS, reference is hereby made for all purposes to that certain
Agreement and Plan of Reorganization and Merger dated as of March 31, 1998 by
and among QRI, Mercury Exploration Company, Quicksilver Energy, L.C.,
Michigan Gas Partners, Limited Partnership, TCW and Joint Energy Development
Investments Limited Partnership ("JEDI"), an affiliate of ECT (the "Merger
Agreement"), and to the Credit Agreement dated April 9, 1998 between QRI and
NationsBank, as Agent;
WHEREAS, to induce JEDI and TCW to enter into the Merger Agreement and
to induce NationsBank to enter into the Credit Agreement, QRI has agreed to
enter into this Agreement; and
WHEREAS, capitalized terms used but not defined herein shall have the
meanings ascribed to them in the Merger Agreement.
NOW, THEREFORE, for and in consideration of the foregoing, the mutual
obligations set forth herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Parties hereby
agree as follows:
1. FINANCINGS.
(a) "Financings" shall mean any transaction to be entered into for
the purpose of financing, refinancing, capitalizing, recapitalizing or
otherwise funding (through indebtedness, equity transactions, production
payments or prepays or other means) an amount greater than $5,000,000.
(b) During the term hereof, if QRI desires to enter into any type of
Financing, it shall notify each of ECT, TCW and NationsBank of the amount
and general nature of such Financing, and shall thereafter provide to each
of ECT, TCW and NationsBank and their respective Affiliates any additional
information that they may reasonably request to evaluate such transaction.
(c) Upon receipt of such notification, any of ECT, TCW and
NationsBank and/or their respective Affiliates may make a proposal to QRI
setting forth in reasonable detail the structure and terms of the Financing
sought by QRI. At QRI's sole discretion, QRI may thereafter negotiate with
any or all of ECT, TCW and NationsBank or their respective Affiliates to
finalize and close a transaction to effectuate such Financing.
<PAGE>
(d) Promptly after QRI obtains an unsolicited proposal for Financing
("Third Party Proposal"), QRI shall notify each of ECT, TCW and NationsBank
(except to the extent that any such Party made such Third Party Proposal)
that the Third Party Proposal has been received but not the terms of the
Third Party Proposal. QRI may thereafter negotiate with any or all of ECT,
TCW and NationsBank or their respective Affiliates to finalize and close a
transaction to effectuate such Financing at QRI's sole discretion.
(e) During the term of this Agreement, QRI shall not grant any
preferential right to participate in any Financing to any entity.
2. TERM. This Agreement shall be effective as of the date hereof and
shall terminate on the earlier of (i) the consummation of the merger of QRI
with or into MSR Exploration Ltd., a Delaware corporation, and (ii) (A) with
respect to NationsBank, such time as NationsBank is no longer a lender to QRI
or (B) with respect to each of TCW and JEDI, such time as TCW and its
Affiliates or JEDI and its Affiliates, as applicable, own less than 5% of the
QRI Common Stock on a fully diluted basis.
3. ASSIGNABILITY. No Party shall assign any of its rights or
interests under this Agreement without the express prior written consent of
the other Parties; provided, however, that each of ECT, TCW and NationsBank
and/or its Affiliates may assign all or a portion of its rights or interests
under this Agreement to an Affiliate.
4. SEVERABILITY. Except as otherwise expressly stated herein, in the
event any provision contained in this Agreement shall for any reason be held
invalid, illegal or unenforceable by a court or regulatory agency of
competent jurisdiction, such invalidity, illegality or unenforceability shall
not affect the remaining provisions of this Agreement.
5. WAIVER. The failure of either Party to insist upon strict
performance of any provision hereof shall not constitute a waiver of or
estoppel against asserting the right to require such specific performance in
the future, nor shall a waiver or estoppel in any one instance constitute a
waiver or estoppel with respect to a later breach of a similar nature or
otherwise.
6. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
7. AMENDMENTS. This Agreement may not be amended, altered, or
modified except pursuant to a written instrument executed by the Parties or
their successors or assigns.
8. ENTIRETIES. This Agreement constitutes the entire agreement of the
Parties and their Affiliates relating to the matters contained herein.
9. BINDING EFFECT. Subject to Section 3 this Agreement shall be
binding upon the Parties and their respective successors and assigns.
10. FURTHER ASSURANCES. In connection with this Agreement, as well as
all transactions contemplated by this Agreement, the Parties agree to execute
and deliver such additional
<PAGE>
documents and instruments and to perform such additional acts as may be
necessary or appropriate to effectuate, carry out, and perform all of the
terms, provisions, and conditions of this Agreement and all such transactions.
11. HEADINGS. The headings of the Sections of the Agreement are for
guidance and convenience of reference only, and shall not limit or otherwise
affect any of the terms or provisions of this Agreement.
EXECUTED as of the date first set forth above.
QUICKSILVER RESOURCES INC.
By: /s/ Glenn Darden
--------------------------------
Name: Glenn Darden
--------------------------------
Title: Vice President
--------------------------------
ENRON CAPITAL &
TRADE RESOURCES CORP.
By: /s/ Jesse E. Neyman
--------------------------------
Name: Jesse E. Neyman
--------------------------------
Title: Agent and Attorney-in-Fact
--------------------------------
<PAGE>
TRUST COMPANY OF THE WEST,
a California trust company, as Sub-Custodian
for Mellon Bank for the benefit of Account
No. CPFF 869-3062
By: TCW ASSET MANAGEMENT COMPANY,
a California corporation, as Investment
Manager under that certain Agreement
dated as of June 13, 1994, between TCW
Asset Management Company and Morgan
Stanley Group, Inc.
By: /s/ Thomas F. Mehlberg
--------------------------------
Name: Thomas F. Mehlberg
--------------------------------
Title: Managing Director
--------------------------------
By: /s/ Marc MacAluso
--------------------------------
Name: Marc MacAluso
--------------------------------
Title: Senior Vice President
--------------------------------
NATIONSBANK OF TEXAS, N.A.
By: /s/ J. Scott Fowler
--------------------------------
Name: J. Scott Fowler
--------------------------------
Title: Vice President
--------------------------------
<PAGE>
November 2, 1998
MSR Exploration Ltd.
1619 Pennsylvania Avenue
Fort Worth, Texas 76104
We have made a review, in accordance with standards established by the
American Institute of Certified Public Accountants, of the unaudited interim
financial information of MSR Exploration Ltd. and subsidiaries for the
periods ended June 30, 1998 and 1997, as indicated in our report dated August
5, 1998; because we did not perform an audit, we expressed no opinion on that
information.
We are aware that our report referred to above, which was included in your
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998, is being
used in this Registration Statement of Quicksilver Resource, Inc. on Form S-4.
We also are aware that the aforementioned report, pursuant to Rule 436(c)
under the Securities Act of 1933, is not considered a part of the
Registration Statement prepared or certified by an accountant or a report
prepared or certified by an accountant within the meaning of Sections 7 and
11 of that Act.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Fort Worth, Texas
<PAGE>
[Weaver and Tidwell Letterhead]
CONSENT OF INDEPENDENT AUDITOR
As independent auditors, we hereby consent to the incorporation by reference
in this Form S-4 Registration Statement of our reports dated (1) October 23,
1998, relating to the statements of revenues and direct operating
expenses/Destec Michigan properties acquired of Mercury Exploration Company
for the years ended September 30, 1997 and 1996, (2) October 23, 1996,
relating to the statements of revenues and direct operating expenses/Shell
Michigan properties acquired of Mercury Exploration Company for the years
ended September 30, 1996 and 1995, (3) October 26, 1998, relating to the
balance sheets of Michigan Gas Partners Limited Partnership as of December
31, 1997 and 1996, and the related statements of operations, partners'
capital and cash flows for each of the three years in the period ended
December 31, 1997, and (4) October 26, 1998 relating to the balance sheets of
Mercury Exploration Company as of September 30, 1997 and 1996, and the
related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended September 30, 1997. We
also consent to the reference to this firm under the heading "Experts" in
this Registration Statement.
/s/ WEAVER AND TIDWELL, L.L.P.
WEAVER AND TIDWELL, L.L.P.
Fort Worth, Texas
November 2, 1998
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Quicksilver Resources,
Inc. on Form S-4 of our report dated October 2, 1998 on the balance sheet of
Quicksilver Resources, Inc. as of January 1, 1998, appearing in the Prospectus,
which is part of this Registration Statement.
We also consent to the incorporation by reference in this Registration Statement
of Quicksilver Resources, Inc. on Form S-4 of our report dated March 25, 1998,
appearing in the Annual Report on Form 10-K of MSR Exploration Ltd. for the year
ended December 31, 1997.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Fort Worth, Texas
November 2, 1998
<PAGE>
EXHIBIT 23.4
Consent of EVEREN Securities, Inc.
We hereby consent to the inclusion in the Prospectus and Proxy Statement
forming part of this Registration Statement on Form S-4 of Quicksilver
Resources Inc. of our opinion attached as Appendix B thereto and to the
reference to such opinion and to our firm therein. We also confirm the
accuracy in all material respects of the description and summary of such
fairness opinion the description and summary of our analyses, observations,
beliefs and conclusions relating thereto set forth under the heading "The
Merger--Opinion of MSR's Financial Advisor" therein. In giving such consent,
we do not admit that we come within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933 and the rules and
regulations of the Securities and Exchange Commission issued thereunder.
EVEREN Securities, Inc.
By: /s/ John Bishop
---------------------------------
Dated October 30, 1998
<PAGE>
[Citadel Engineering Ltd Letterhead]
Securities and Exchange Commission
450 5th Street N.W.
Washington, D.C.
U.S.A. 20549
Gentlemen
Subject: Letter of Consent re: MSR Exploration Ltd.
Prospectus
- ---------------------------------
Whereas Citadel Engineering Ltd. has prepared an appraisal report encompassing
petroleum and natural gas reserves, dated March 5, 1998 (effective January 1,
1998) for MSR Exploration Ltd., Citadel hereby:
(A) Consents to being named as an expert in a Prospectus issued by
MSR Exploration Ltd.
(B) Consents to the use of its appraisal report, or excerpts therefrom,
dated March 5, 1998 (effective January 1, 1998) in a Prospectus
issued by MSR Exploration Ltd.
(C) States that we have read the Prospectus issued by MSR Exploration Ltd.
and has no reason to believe there are any misrepresentations in the
information that is derived from the appraisal report March 5, 1998
(effective January 1, 1998) or that is within the knowledge of Citadel
as a result of its employment.
Yours very truly,
CITADEL ENGINEERING LTD.
/S/ E.P. Webb
Per: E.P. Webb, P. Eng.
President
<PAGE>
MSR EXPLORATION LTD.
P
R 1619 PENNSYLVANIA AVENUE
O FORT WORTH, TEXAS 76104
X
Y
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Glenn M. Darden and Howard S. Boals, and
each of them, as Proxies, each with the power to appoint his substitute, and
hereby authorizes them to represent and vote, as designated on the reverse
side hereof, all of the common stock of MSR Exploration Ltd. (the "Company"),
held of record by the undersigned at the close of business on
_______________, 1998, at the Special Meeting of Stockholders (the "Meeting")
to be held on _______________, 1998, and any adjournment thereof.
This proxy, when properly executed and dated, will be voted in the
manner directed herein by the undersigned holder(s). If no direction is
given, this proxy will be voted FOR Proposal 1 and at the discretion of the
Proxies with respect to any other matter that is properly brought before the
Meeting in accordance with Proposal 2.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
- --------------------------------------------------------------------------------
SEE REVERSE SIDE
- --------------------------------------------------------------------------------
<PAGE>
/X/ PLEASE MARK
VOTES AS IN
THIS EXAMPLE.
PLEASE MARK BOXES IN BLUE OR BLACK INK.
1. Proposal to approve the Agreement and Plan of Merger and Reorganization by
and between the Company and Quicksilver Resources, Inc.
For Against Abstain
/ / / / / /
2. In their discretion, the Proxies are authorized to vote upon such other
business as properly may come before the Meeting or any adjournments
thereof.
For Against Abstain
/ / / / / /
Please execute the Proxy as your name appears hereon. When
shares are held by joint tenants, both should sign, or if
one signs he should attach evidence of his authority. When
signing as attorney, executor, administrator, agent,
trustee or guardian, please give full title as such. If a
corporation, please sign full corporate name by the
president or other authorized officer. If a partnership,
please sign in partnership name by authorized person.
Signature:__________________________Date:______________, 1998
Signature:__________________________Date:______________, 1998
(if held jointly)
- --------------------------------------------------------------------------------
PLEASE MARK, COMPLETE, SIGN AND DATE THIS PROXY AND RETURN PROMPTLY USING THE
ENCLOSED ENVELOPE. TO BE VALID, THIS FORM MUST BE COMPLETED, SIGNED AND
RETURNED SO THAT IT ARRIVES AT THE COMPANY NOT LATER THAN _____P.M. ON
______________, 1998.
- --------------------------------------------------------------------------------
<PAGE>
[Citadel Engineering Ltd Letterhead]
March 5, 1998
MSR Exploration Ltd. File No. 5352
1619 Pennsylvania Avenue
Fort Worth, Texas
U.S.A. 76104
ATTENTION: MR. THOMAS F. DARDEN, CHAIRMAN AND C.E.O.
- ----------------------------------------------------
Gentlemen:
In accordance with your authorization, Citadel Engineering Ltd. has appraised
the petroleum natural gas reserves and prospective land holdings owned by MSR
Exploration Ltd. (referred to as the "Company" herein). This report has been
prepared for submission to the Securities Commission. The effective date of
this report is January 1, 1998. Reserves and associated economics on a constant
dollar basis, are summarized as follows:
TABLE A
TOTAL U.S. RESERVES
NET TO APPRAISED INTEREST (CONSTANT DOLLARS)
CASHFLOW IN THOUSANDS OF DOLLARS (U.S.)
<TABLE>
<CAPTION>
W.I.O. NET DISCOUNTED
----------------- ----------------- ----------------------------------
ROCKY MOUNTAIN OIL GAS OIL GAS
REGION (4) MSTB MMSCF(2) MSTB MMSCF(2) UNDISC. 10% 12% 15% 20%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Proved
Producing 4,153 2,450 3,689 2,114 33,396 13,852 12,435 10,813 8,936
Proved Developed
(NonProducing) 703 8,370 589 7,142 16,631 7,852 7,037 6,063 4,881
Proved
Undeveloped 5,536 6,390 4,955 5,492 44,992 18,630 16,150 13,210 9,720
Probable (3) 6,703 4,500 6,054 3,862 44,704 13,372 11,007 8,369 5,496
Land (Acres) (17,192) 480 480 480 480 480
TOTAL ROCKY
MOUNTAIN 17,095 21,710 15,287 18,610 140,203 54,186 47,109 38,935 29,513
</TABLE>
<PAGE>
Page 2
MSR Exploration Ltd.
March 5, 1998
<TABLE>
<CAPTION>
TABLE B
NET TO APPRAISED INTEREST (CONSTANT DOLLARS)
CASHFLOW IN THOUSANDS OF DOLLARS (U.S.)
W.I.O. NET DISCOUNTED
------------------- ------------------ --------------------------------
EASTERN SHELF
UP.TEXAS GULF OIL GAS OIL GAS
COAST (4) MSTB(1) MMSCF(2) MSTB(1) MMSCF(2) UNDISC. 10% 12% 15% 20%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Proved
Producing 351 6,113 287 4,956 11,398 7,744 7,291 6,710 5,942
Proved Undeveloped 130 120 108 99 584 146 101 49 -11
Probable (3) 295 165 243 136 1,422 543 440 313 157
TOTAL
PERMAIN BASIN 776 6,398 638 5,191 13,404 8,433 7,832 7,072 6,088
TABLE C
TOTAL CANADIAN RESERVES
NET TO APPRAISED INTEREST (CONSTANT DOLLARS)
CASHFLOW IN THOUSANDS OF DOLLARS (CDN.)
<CAPTION>
W.I.O. NET DISCOUNTED
------------------- ------------------ --------------------------------
Canadian OIL GAS OIL GAS
REGION (4) MSTB(1) MMSCF(2) MSTB(1) MMSCF(2) UNDISC. 10% 12% 15% 20%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Proved
Producing 3 296 3 268 412 270 252 228 198
Proved Developed
(NonProducing) 31 1,109 22 940 1,285 552 486 408 316
Proved
Undeveloped 7 248 5 208 271 108 93 74 52
Land (Acres) (107) 3 3 3 3 3
TOTAL ($CDN) 41 1,653 30 1,416 1,971 933 834 713 569
TOTAL
(CAN) ($US) (5) 41 1,653 30 1,416 1,360 644 576 492 393
GRAND TOTAL $(U.S.) 17,912 29,761 15,955 25,217 154,967 63,262 55,517 46,499 35,994
</TABLE>
Notes: (1) Oil volume and cash flow includes NGL's and condensates.
<PAGE>
Page 3
MSR Exploration Ltd.
March 5, 1998
(2) Sales gas volume measured at 14.65 psia and 60DEG. F.
(3) It is Citadel's opinion that the probable additional reserves and
associated economics herein would be subject to a weighted average
risk factor of 50.0 percent. The economic and reserve values shown
have been adjusted for this 50.0 percent risk.
(4) The Rocky Mountain Region encompasses Montana & North Dakota; the
Eastern Shelf, Upper Texas Gulf Coast Region includes the Wilcox Field
and the Winters Capps Field, Texas, and the Canadian Region
encompasses fields in Alberta and British Columbia.
(5) The Canadian Region economic projections have been converted to $U.S.
utilizing a factor of 0.6901$U.S./1.0$Cdn.
(6) The values quoted herein do not necessarily represent
fair-market-value.
Working Interest Ownership (W.I.O.) means those reserves accruing to the Company
after deduction of all working interests, but before deduction of all overriding
and lessor royalties and before Crown royalties. Net reserves as used herein
mean those reserves accruing to the Company after deduction of all outside
working interests, overriding, freehold and lessor royalties and Crown
royalties. The net cash flow forecasts are after direct lifting costs, normal
allocated overhead and future investments, and after State Taxes, but before
income taxes. Crown royalties in the provinces of Alberta and British Columbia,
as applicable to petroleum and natural gas, as revised from time to time, have
also been utilized. The values assigned the individual prospective acreage
blocks are based upon recent land auction prices effected in the respective
areas, known local and regional geological features and exploration activities.
Accordingly, prospective land values as quoted herein should be regarded as
valid on a current basis only. In view of the fact that the majority of the
properties studied herein are on production, depletion analysis was employed to
estimate remaining reserves.
In accordance with the financial institution Regulations, prices, operating and
capital costs utilized herein were not escalated. The product prices used in
the report are summarized on Table 2. These price forecasts were based upon
product prices January 2, 1998. Political and economic uncertainties
domestically and internationally may result in prices different from those used
in the report. Operating costs are summarized on Table 3. Capital costs for
future well workovers and eventual well abandonment have been included in the
economics herein and are summarized on Table 4.
Estimates of reserves and production forecasts were prepared on the basis of
prevailing conditions, and generally accepted engineering methods. Although
these estimates are considered reasonable, future performance may vary from the
forecasts presented herein and may justify either an increase or decrease in the
reserves.
In 1997, the Company acquired the Montana Properties of Mercury Exploration
Company. These properties were purchased by Mercury in a 1995 acquisition from
Union Oil Company of California (UNOCAL). As with the current MSR production,
the majority of the properties purchased are currently on production, and are
considered relatively mature production. There is, however, development
potential on several of the locations. With this in mind, the Company is
currently conducting an extensive geological evaluation of the entire area, with
the emphasis on accurately delineating the known productive zones, in an effort
to maximize both drilling and production efforts. The Company is also
conducting fairly extensive workover operations on the producing properties in
an effort to partially arrest the current decline rate.
<PAGE>
Page 4
MSR Exploration Ltd.
March 5, 1998
All working and royalty interests and other factual data concerning land
ownership used in the preparation of this report have been accepted as
represented by the Company. Citadel Engineering Ltd. has not verified ownership
of the properties studied herein by virtue of a title search. All basic reserve
data, economic parameters, including price and cash flow projections have been
based upon the personal interpretation of Citadel Engineering Ltd. staff members
and represent their opinion. As Citadel Engineering Ltd. has not been apprised
of internal costs, economic projections do not include general and
administration costs (G&A) or capital costs other than lease related capital
expenditures. All basic data employed to derive the values quoted herein is
kept in our permanent files and will be made available to you upon request.
It has been a pleasure to prepare this report and the opportunity to be of
service is appreciated. At such time as you wish to discuss the report in
detail, we would be pleased to do so.
/s/ P.E. Douglas
Yours very truly, Per: P.E. DOUGLAS, C.E.T.
CITADEL ENGINEERING LTD.
/s/ E. P. Webb /s/ L.E. Webb
Per: E.P. Webb, P. Eng. Per: L.E. Webb, P. Eng.
<PAGE>
COMPANY CERTIFICATE OF QUALIFICATION
This is to certify that:
(1) Citadel Engineering Ltd., with offices located at Suite 1000, SunLife Plaza
II, 140 - 4th Avenue S.W., Calgary, Alberta, Canada, prepared an appraisal
report on petroleum and natural gas reserves and prospective land holdings
dated March 5, 1998 (effective date January 1, 1998) for MSR Exploration
Ltd.
(2) Citadel Engineering Ltd. is a company of consulting petroleum engineers
engaged in the appraisal and supervision of petroleum and natural gas
properties.
(3) A field inspection of the company's equipment and wells was not conducted
as it was not considered to have a significant impact on the overall
appraisal. Basic data utilized in the appraisal was derived from Company
files, Citadel Engineering files, applicable Regulatory Authority data
systems and contract data base systems and was personally inspected by the
authors of this report. Reserves and economic projections are based upon
the author's interpretation of the data and represents their opinion.
(4) Citadel Engineering Ltd. does not have any interest directly or indirectly,
nor do they expect to receive an interest directly or indirectly, in any of
the properties or securities owned or issued by MSR Exploration Ltd., their
personnel, associates and/or any affiliates thereof.
(5) The properties studied in this report are located in Canada and the U.S.A.
CITADEL ENGINEERING LTD.
/s/ E.P. WEBB
E.P. WEBB, P. Eng.
President
Calgary, Alberta
January 1, 1998
