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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
Current Report Pursuant to Section 13 or 15(d) of
The Securities Act of 1934
Date of Report (Date of earliest event reported) March 31, 2000
------------------------
Quicksilver Resources Inc.
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(Exact name of registrant as specified in its charter)
Delaware 001-14837 75-2756163
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(State or other (Commission File (I.R.S. Employer
Jurisdiction of Number) Identification No.)
Incorporation)
1619 Pennsylvania Avenue, Fort Worth, Texas 76104
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (817) 877-3151
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(Former name or former address if changed since last report)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On March 31, 2000, Quicksilver Resources Inc. (the "Company") completed an
acquisition of natural gas and crude oil exploration and production properties
and all of the issued and outstanding shares of Terra Energy Ltd., a Michigan
corporation ("Terra"), from CMS Oil and Gas Company ("CMS"), a subsidiary of CMS
Energy Corporation. The purchase price of the CMS properties and the Terra
shares, totaling approximately $163 million, was paid in cash at closing and is
subject to certain post-closing adjustments. The transaction had an effective
date of January 1, 2000.
The CMS properties, including properties held in the name of Terra, are
located primarily in Michigan. They consist of interests in approximately 3,050
gross (650 net) active producing oil and gas wells located on approximately
512,000 gross (450,000 net) acres, of which approximately 180,000 net leasehold
acres is developed acreage. Proved reserves attributable to the CMS properties
are estimated to be 315.1 Bcf of natural gas, 747.8 Mbbls of crude oil and
condensate, and 143.9 Mbbls of natural gas liquids, or a total of 320.4 Bcfe.
Approximately 80% of the proved reserve volumes are classified as proved
developed. Current daily production from the CMS properties is estimated to be
approximately 49 Mmcfe.
Pursuant to the Purchase and Sale Agreement between the Company and CMS,
dated March 4, 2000, the Company issued 3,650,000 shares of its common stock and
paid $1.4 million to CMS as an earnest money performance deposit. Such shares
were returned to the Company at closing of the acquisition and are now held as
treasury shares. The cash portion of the deposit was applied to the purchase
price of the CMS properties.
The Company financed the acquisition and related fees and expenses by the
issuance of $43 million of 14.75% Second Mortgage Notes due March 30, 2009, the
incurrence of $98 million in incremental bank credit facility indebtedness and
the monetization of approximately $30 million of estimated Internal Revenue Code
Section 29 tax credits attributable to the CMS properties. The Company's Second
Mortgage Notes were sold to qualified institutional buyers, for whom TCW Asset
Management Company acts as Collateral Agent, pursuant to Rule 144A of the
Securities Act of 1933. The notes have not been and will not be registered under
the Securities Act of 1933 and may not be offered or sold in the United States
absent registration or an applicable exemption from registration requirements.
Security for the notes consists of a lien on substantially all of the Company's
existing assets, second in priority to the lien securing the approximately $193
million of indebtedness now outstanding under the Company's bank credit
facility, under which Bank of America, N. A. acts as Administrative Agent and is
the primary lender.
To effect the tax credits monetization transaction, the Company entered
into a Purchase and Sale Agreement with Mariner Gas LLC, a Massachusetts limited
liability company ("Mariner"), pursuant to which Mariner purchased specified
economic interests in the CMS properties for a price of $25 million paid in cash
on March 31, 2000. The Company received a production payment burdening the
interests sold to Mariner and retained an undivided 75% reversionary interest.
The Company has the option to purchase not less than all of the interests
conveyed to Mariner exercisable at any time during the 180 day period commencing
September 1, 2002. If the Company does not exercise this option, Mariner will
have the option to buy all or
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a part of the Company's interests in the CMS properties from time to time for a
period of three years beginning June 1, 2003.
A copy of the press release, dated April 3, 2000, issued by the Company to
announce the acquisition of the CMS properties is attached as Exhibit 99.1 and
is incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements.
As of the date of filing of this Current Report on Form 8-K, it is
impracticable for the Registrant to provide the financial statements required by
this Item 7(a). In accordance with Item 7(a)(4) of Form 8-K, such financial
statements shall be filed by amendment to this Form 8-K no later than 60 days
after April 15, 2000.
(b) Pro Forma Financial Information.
As of the date of filing of this Current Report on Form 8-K, it is
impracticable for the Registrant to provide the pro forma financial information
required by this Item 7(b). In accordance with Item 7(b) of Form 8-K, such
financial information shall be filed by amendment to this Form 8-K no later than
60 days after April 15, 2000.
(c) Exhibits.
2.1 Purchase and Sale Agreement, dated March 4, 2000, between CMS Oil and
Gas Company and Quicksilver Resources Inc.
4.1 Note Purchase Agreement, dated March 31, 2000, between the Company
and the Purchasers identified therein.
99.1 Press Release, dated April 3, 2000.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
QUICKSILVER RESOURCES INC.
By: /s/ Bill Lamkin
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Bill Lamkin
Executive Vice President, Chief
Financial Executive Officer
and Secretary
Date: April 15, 2000
EXHIBIT INDEX
Exhibit Description
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2.1 Purchase and Sale Agreement, dated March 4, 2000, between CMS Oil
and Gas Company and Quicksilver Resources Inc.
4.1 Note Purchase Agreement, dated March 31, 2000, between the Company
and the Purchasers identified therein.
99.1 Press Release, dated April 3, 2000
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EXHIBIT 2.1
PURCHASE AND SALE AGREEMENT
BY AND BETWEEN
CMS OIL AND GAS COMPANY, AS SELLER
AND
QUICKSILVER RESOURCES INC, AS PURCHASER
EFFECTIVE JANUARY 1, 2000
MICHIGAN PROPERTIES
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TABLE OF CONTENTS
RECITALS..................................................................... 1
ARTICLE I - SALE AND PURCHASE................................................ 1
1.1. Description of Assets................................................ 1
1.2 Excluded Assets...................................................... 4
1.3 Effective Date and Transfer.......................................... 5
ARTICLE II - DEFINITIONS..................................................... 5
ARTICLE III - PURCHASE PRICE................................................. 9
3.1 Purchase Price....................................................... 9
3.2 Net Cash Payment to CMS.............................................. 9
3.3 Adjustments to Purchase Price........................................ 10
3.4 Payment of Adjusted Purchase......................................... 12
3.5 Over and Under Production............................................ 13
3.6 Purchase Price Allocation............................................ 14
ARTICLE IV - REPRESENTATIONS OF CMS.......................................... 14
4.1 Existence............................................................ 14
4.2 Authorization........................................................ 14
4.3 Brokers.............................................................. 15
4.4 Noncontravention..................................................... 15
4.5 Terra Shares......................................................... 15
4.6 Legal Compliance..................................................... 15
4.7 Excluded Assets...................................................... 15
4.8 Environmental, Health and Safety Matters............................. 16
4.9 Litigation........................................................... 16
4.10 Compliance With Contracts............................................ 16
4.11 Tax Matters.......................................................... 17
4.12 Compliance With Permits and Licenses................................. 18
4.13 Title................................................................ 19
4.14 Consents, Approvals and Rights to Acquire............................ 19
4.15 Gas Contracts........................................................ 19
4.16 Securities Disclosure/Representation................................. 19
ARTICLE V - REPRESENTATIONS OF PURCHASER..................................... 20
5.1 Existence............................................................ 20
5.2 Execution............................................................ 20
5.3 Authorization........................................................ 20
5.4 Brokers.............................................................. 20
5.5 Noncontravention..................................................... 21
5.6 Independent Evaluation and Title Review.............................. 21
5.7 Securities Disclosure/Representation................................. 21
5.8 Bonds and Permits.................................................... 22
5.9 Section 29 Tax Credits............................................... 22
ARTICLE VI - REPRESENTATIONS CONCERNING TERRA................................ 22
6.1 Organization, Qualification and Corporate Power...................... 22
6.2 Capitalization....................................................... 23
6.3 Noncontravention..................................................... 23
6.4 Subsidiaries and Affiliates.......................................... 24
6.5 Financial Statements................................................. 24
6.6 Events Subsequent to Most Recent Fiscal Month End.................... 25
6.7 Legal Compliance..................................................... 25
6.8 Tax Matters.......................................................... 25
6.9 Powers of Attorney................................................... 29
6.10 Litigation........................................................... 29
6.11 Employees and Employee Benefits...................................... 29
6.12 Environmental, Health and Safety Matters............................. 30
6.13 No Guaranties; Extension of Credit................................... 30
6.14 Permits.............................................................. 30
6.15 Compliance With Contracts............................................ 31
6.16 Title................................................................ 31
6.17 Consents, Approvals and Rights to Acquire............................ 31
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6.18 Gas Contracts........................................................ 31
6.19 Material Contracts................................................... 32
6.20 Disclaimer of All Other Representations and Warranties............... 33
ARTICLE VII - OPERATIONS AND CASUALTY LOSS................................... 33
7.1 Revenues and Expenses................................................ 33
7.2 Operations and Loss of Assets and Terra Assets....................... 33
ARTICLE VIII - PRE-CLOSING OBLIGATIONS OF CMS................................ 36
8.1 Encumbrances......................................................... 36
8.2 Approvals/Consents................................................... 36
8.3 Notices and Consents................................................. 37
8.4 Operation of Business................................................ 37
8.5 Full Access.......................................................... 37
8.6 Notice of Developments............................................... 38
ARTICLE IX - PRE-CLOSING OBLIGATIONS OF PURCHASER............................ 38
9.1 Approvals/Consents................................................... 38
9.2 Bonds and Permits.................................................... 39
9.3 Corporate Documentation.............................................. 39
9.4 Notices and Consents................................................. 40
9.5 Notice of Developments............................................... 40
9.6 Notice of Misrepresentation or Breach of Warranty.................... 40
ARTICLE X - CMS'S CONDITIONS OF CLOSING...................................... 40
10.1 Representations...................................................... 41
10.2 Performance.......................................................... 41
10.3 Pending Matters...................................................... 41
10.4 Waiting Periods...................................................... 41
10.5 Opinion of Counsel................................................... 41
10.6 Payment of Purchase Price or Adjusted Purchase Price................. 41
ARTICLE XI - PURCHASER'S CONDITIONS OF CLOSING............................... 41
11.1 Representations...................................................... 42
11.2 Performance.......................................................... 42
11.3 Pending Matters...................................................... 42
11.4 Waiting Periods...................................................... 42
11.5 Opinion of Counsel................................................... 42
ARTICLE XII - ENVIRONMENTAL CONDITION........................................ 42
12.1 Existing Condition................................................... 42
12.2 Environmental Assessment and Access.................................. 43
12.3 Release and Indemnity for Environmental Conditions................... 44
12.4 Confidentiality, Release and Indemnity For Environmental Assessment.. 45
12.5 Insurance for Environmental Assessment............................... 46
12.6 Indemnity Regarding Access........................................... 46
ARTICLE XIII - TITLE EXAMINATION............................................. 47
13.1 Title Examination Period............................................. 47
13.2 Cure of Title........................................................ 47
13.3 Title Adjustments.................................................... 48
13.4 Value of Title Adjustments........................................... 49
13.5 Limits on Title Adjustments.......................................... 50
13.6 Definition of Defensible Title....................................... 50
13.7 Definition of Permitted Encumbrances................................. 50
13.8 Definition of Title Defect........................................... 52
13.9 Back-In Interest Adjustments......................................... 53
13.10 Representations, Warranties or Covenants, and Indemnity.............. 54
13.11 Arbitration.......................................................... 55
ARTICLE XIV - RETAINED LIABILITIES........................................... 55
ARTICLE XV - CLOSING......................................................... 56
15.1. Time and Place of Closing............................................ 56
15.2 Closing Obligations.................................................. 56
15.3 Suspended Accounts................................................... 58
15.4 Termination of Guarantees and Other Commitments...................... 59
ARTICLE XVI - CONTINUING OBLIGATIONS......................................... 59
16.1 Post-Closing Reconciliation.......................................... 59
16.2 Receipts and Credits................................................. 59
16.3 Assumption of Obligations and Indemnities............................ 61
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16.4 Recording............................................................ 63
16.5 State of Michigan Oil and Gas Leases................................. 63
16.6 Further Assurances................................................... 64
16.7 Records.............................................................. 64
16.8 Access to Records.................................................... 64
16.9 Litigation Support................................................... 65
16.10 CMS Employees........................................................ 65
16.11 Transition........................................................... 65
16.12 Plan B............................................................... 66
ARTICLE XVII - TERMINATION................................................... 66
17.1 Right of Termination................................................. 66
17.2 Liabilities Upon Termination or Failure to Close..................... 68
17.3 Deposit.............................................................. 68
17.4 Effect of Termination................................................ 69
ARTICLE XVIII - REMEDIES FOR BREACHES OF THIS AGREEMENT...................... 69
18.1 Survival of Representations and Warranties........................... 69
18.2 Indemnification Provisions for Benefit of the Purchaser.............. 69
18.3 Indemnification Provisions for Benefit of CMS........................ 70
18.4 Matters Involving Third Parties...................................... 71
18.5 Determination of Adverse Consequences................................ 71
18.6 Exclusive Remedy..................................................... 72
ARTICLE XIX - TAXES.......................................................... 72
19.1 Liability for Taxes.................................................. 72
19.2 Tax Returns.......................................................... 73
19.3 Contest Provisions................................................... 73
19.4 Assistance and Cooperation........................................... 74
19.5 Adjustment to Purchase Price For Taxes............................... 75
19.6 Treatment of the Terra Shares........................................ 75
19.7 CMS Tax Allocation Agreement......................................... 75
19.8 Books and Records.................................................... 75
19.9 Sales Taxes.......................................................... 75
19.10 Other Taxes.......................................................... 76
ARTICLE XX - EXERCISE OF PREFERENTIAL PURCHASE RIGHTS........................ 76
ARTICLE XXI - INDEPENDENT INVESTIGATION AND DISCLAIMER....................... 77
21.1 Disclaimer as to Warranties.......................................... 77
21.2 Disclaimer As To Year 2000 Compliance................................ 78
ARTICLE XXII - MISCELLANEOUS................................................. 78
22.1 Like-Kind Exchange................................................... 79
22.2 Governing Law........................................................ 79
22.3 Entire Agreement..................................................... 79
22.4 Amendments and Waivers............................................... 79
22.5 Captions............................................................. 79
22.6 Assignment........................................................... 79
22.7 Notices.............................................................. 80
22.8 Expenses............................................................. 81
22.9 Severability......................................................... 81
22.10 Confidentiality, Publicity and Retention of Data..................... 81
22.11 Use of CMS's Name.................................................... 82
22.12 Conditions........................................................... 82
22.13 No Third-Party Beneficiaries......................................... 82
22.14 Succession and Assignment............................................ 82
22.15 Construction......................................................... 82
22.16 Attachments.......................................................... 83
22.17 Counterparts......................................................... 83
22.18 Execution Deadline................................................... 83
ATTACHMENT A1
ATTACHMENT A2
ATTACHMENT A3
ATTACHMENT A4
ATTACHMENT A5
ATTACHMENT B1
ATTACHMENT B2
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ATTACHMENT B3
ATTACHMENT C
ATTACHMENT D
ATTACHMENT E
ATTACHMENT F
ATTACHMENT G
ATTACHMENT H
ATTACHMENT I
ATTACHMENT J
ATTACHMENT K
ATTACHMENT L
ATTACHMENT M
ATTACHMENT N
ATTACHMENT O
ATTACHMENT P
ATTACHMENT Q
ATTACHMENT R
ATTACHMENT S
ATTACHMENT T
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PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT (this "Agreement") is made as of the
4th day of March, 2000, by and between CMS OIL AND GAS COMPANY, a Michigan
corporation ("CMS"), whose address is 1021 Main Street, Suite 2800, Houston,
Texas 77002, and QUICKSILVER RESOURCES INC., a Delaware corporation
("Purchaser"), whose address is 1619 Pennsylvania Avenue, Fort Worth, Texas
76104. CMS and the Purchaser may hereinafter be referred to collectively as the
"Parties" and individually as a "Party".
RECITALS
WHEREAS, CMS desires to sell and Purchase desires to purchase the
Assets, as hereinafter defined, on the terms and conditions provided in this
Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are acknowledged by both Parties, CMS and Purchaser hereby
agree as follows:
ARTICLE I - SALE AND PURCHASE
1.1. Description of Assets
At the Closing (as defined in Section 15.1, below), CMS shall sell and
Purchaser shall purchase, as hereinafter provided, as of the Effective Date, the
following assets (the "Assets"):
(a) All of CMS's right, title and interest in and to all of the issued and
outstanding capital stock of Terra Energy Ltd., a Michigan corporation
("Terra");
(b) All of CMS's and Terra's right, title and interest in and to the wells
and units described at Attachment A1, the oil and gas leases described
at Attachment A2, the overriding royalties described at Attachment A3
and the fee mineral, fee surface and real property interests and right
of ways described at Attachment A4, all of which Attachments are
attached hereto and made a part hereof and are hereinafter
collectively referred to as Attachment A (including, but not limited
to any working interest, leasehold rights, royalty interests,
overriding royalty interests and reversionary rights held as of the
Effective Date) but excepting, however, the Excluded Assets as defined
below;
(c) All of CMS's and Terra's corresponding right, title and interest in
and to all oil and gas wells, injection wells, disposal wells, water
wells, surface and downhole equipment, personal property, structures,
fixtures, flowlines, pipelines and pumps to the extent used or held
for use in connection with the exploration, development, operation or
maintenance of the assets described at Attachment A1, Attachment A2,
Attachment A3 and Attachment A4, including, but not limited to, the
gas plants, compressors, facilities, systems and pipelines described
at Attachment A5
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hereto, but excepting, however, the Excluded Assets as defined below;
(d) All of CMS's and Terra's corresponding right, title and interest in
easements, rights-of-way, permits, licenses, surface leases and use
agreements, servitudes and other surface rights appurtenant to the
assets, to the extent the same are assignable, and to the extent now
being used or held for use in connection with the exploration,
development, operation and maintenance of the assets, but excepting,
however, the Excluded Assets as defined below, (the interest of CMS in
all of the items listed in Section 1.1(b) and Section 1.1(c), above,
this Section 1.1(d), and at Attachment A, shall occasionally be
hereinafter collectively referred to as the "Subject Property");
(e) All of CMS's corresponding right, title and interest in and to and
under or derived from all presently existing and currently effective
unitization, pooling and communitization agreements, declarations and
orders (including, but not limited to, all units formed under orders,
regulations, rules or other official actions of any federal, state or
other governmental agency having jurisdiction) to which the Subject
Property (or any part thereof) are committed, and all privileges,
benefits and powers, appurtenant thereto;
(f) All of CMS's corresponding right, title and interest in all oil and
gas and other hydrocarbons produced from or (if unitized, pooled or
communitized with other leases or lands) allocable to the Subject
Property after the Effective Date;
(g) All of CMS's corresponding right, title and interest in and to or
derived from all presently existing and effective oil, natural gas and
gas liquid purchase, processing and sales contracts, (but specifically
excepting and excluding the Natural Gas Purchase Agreement effective
May 1, 1989, by and between Midland Cogeneration Venture Limited
Partnership and Northern Michigan Exploration Company and CMS Energy
Corporation), operating agreements, farmin or farmout agreements, and
other contracts (but not including any bonds held by CMS or its
parent, subsidiary or affiliate entities for CMS's benefit),
agreements and instruments to the extent directly related to the
Subject Property and the exploration or development of oil and gas (or
either of them) from or attributable to the Subject Property, only to
the extent the same are assignable, but excepting, however, the
Excluded Assets as defined below; and
(h) Subject to Section 16.7, originals, or in the sole discretion of CMS,
copies of the following files, records and data of CMS, to the extent
directly related to the Subject Property: lease files, well files,
unit files, division order files, lease contract files, geological
and geophysical data, legal files, and tax records and FERC filings
related to section 29 non-
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conventional fuels tax credits, and subject to Section 16.7 and
Section 19.8, all of the files, records and data of Terra. This
agreement by CMS to convey and deliver the aforementioned files,
records and data is granted by CMS to the extent that CMS or Terra has
authority to do so without violating any confidentiality obligation to
a third party, and is without warranty as to the accuracy or
completeness of the information delivered. Any other provision of this
Agreement to the contrary notwithstanding, CMS shall not provide
Purchaser with any files, records or data or access to any files,
records or data which (i) are not in the possession or control of CMS
or Terra, (ii) CMS considers to be privileged, proprietary or
confidential to it and which are not directly related to the
condition, quantity and quality of the Assets, (iii) CMS or Terra
cannot legally provide Purchaser because of third party restrictions
on CMS or Terra, or disclosure of which will violate any agreement to
which CMS or Terra is a party, (iv) are a part of or relate solely to
the Excluded Assets, or (v) relate exclusively to Retained Liabilities
(as defined below).
It is CMS's intent to sell to Purchaser, and it is Purchaser's intent to
purchase from CMS, all of CMS's right, title and interest in and to the
Assets, regardless of whether the Assets are incompletely or incorrectly
described on the Attachments hereto, but specifically excepting, however,
the Excluded Assets as defined below. In order to fully and completely
effectuate the intent of the Parties, CMS further agrees to assign and
convey, and Purchaser further agrees to accept and assume, at any time
whether at Closing or post-Closing, any and all assets, obligations and
liabilities of CMS related thereto, of CMS of the kind described in (a) -
(h), above, which are located in the state of Michigan, and which are not
included at Attachment A, saving and excepting the Excluded Assets.
The Parties further acknowledge that the references to "Terra", and its
right, title and interest in and to the assets referenced in Section
1.1(b), Section 1.1(c) and Section 1.1(d), above, are included in those
sections, and at Attachment A, for identification purposes only. For
purposes of this Agreement the right, title and interest of Terra in and
to these assets shall not be deemed to be Assets, except insofar as
ownership of these items follows the ownership of all of the outstanding
capital stock of Terra as referenced in Section 1.1(a), above.
All of the right, title and interest of Terra in and to all assets
described at Attachment A, shall cumulatively hereinafter be referred to
as the "Terra Property". The Terra Property, as well as Terra's
corresponding right, title and interest (i) in and to and under or
derived from all presently existing or currently effective unitization,
pooling and communitization agreements, declarations and orders
(including, but not limited to, all units formed under orders,
regulations, rules or
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other official actions of any federal, state or other governmental agency
having jurisdiction) to which the Terra Assets (or any part thereof) are
committed and all privileges, benefits and powers appurtenant thereto,
(ii) in all oil and gas and other hydrocarbons produced from or (if
unitized, pooled or communitized with other leases or lands) allocable to
the Terra Property, after the Effective Date, (iii) in all presently
existing and effective oil, natural gas and gas liquid purchase,
processing and sales contracts, operating agreements, farmin or farmout
agreements and other contracts, agreements and instruments directly
related to the Terra Property, and the exploration or development of oil
and gas (or either of them) from or attributable to the Terra Property,
above, and (iv) subject to Section 16.7 and Section 19.8, and further
subject to the limitations set forth in Section 1.1(h), above, in all
lease files, well files, unit files, lease contract files, geophysical
data, financial records, corporate records, legal files, computer
programs, general tax records, samples, test data or any other records,
samples, information, data or documents of Terra, but excepting, however,
the Excluded Assets as defined below, shall cumulatively hereinafter be
referred to as the "Terra Assets".
Purchaser shall accept and assume all burdens and liabilities past,
present and future with respect to the Assets and the Terra Assets,
excepting, however, the Retained Liabilities, as defined and identified
below.
The Parties acknowledge that certain of the Assets and the Terra Assets
may be subject to third party preferential rights to purchase, rights of
reconveyance, consents to sell or assign or confidentiality agreements,
and nothing in this Section 1.1 shall be deemed to constitute a
representation or warranty that the Assets or the Terra Assets are free
and clear of any preferential rights, rights of reconveyance, consents or
confidentiality agreements.
1.2 Excluded Assets
This Agreement does not cover, and any instrument of conveyance or
assignment made pursuant to Section 15.2, below, of this Agreement shall except
and exclude the Excluded Assets. Excluded Assets shall include: (i) the items
that are described at Attachment B1, (ii) the real property, building and
appurtenances commonly known as, and located at 1475 Terra Road, Traverse City,
Michigan as described at Attachment B2, and all fixtures and personal property
located thereon which is not specifically covered in Section 1.1, above, (iii)
the wells, units and leases described at Attachment B3 and all Assets or Terra
Assets insofar as they are used or held for use in connection therewith, (iv)
the Natural Gas Purchase Agreement (effective May 1, 1989) between Midland
Cogeneration Venture Limited Partnership and Northern Michigan Exploration
Company and CMS Energy Corporation and (v) Terra's interest in Thunder Bay
Pipeline Co., LLC. The term Excluded Assets shall also be deemed to include all
items of property, including but not limited to
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vehicles, tools, machines, warehouse stock, equipment, materials, pipelines,
fixtures, facilities and interests which are leased by CMS, or as to which CMS
has only a license or other right of use, and any items of property, including
but not limited to vehicles, tools, machines, warehouse stock, equipment,
materials, pipelines, fixtures, facilities and interests which are owned by
third parties, such as employees, contractors or agents, even if such items of
property are used or held for use in connection with the Assets or the Terra
Assets.
1.3 Effective Date and Transfer
For the purposes of this Agreement, the phrase "Effective Date" shall mean
7:00 o'clock, A.M. local time (where the Assets and the Terra Assets are
located) on January 1, 2000. Unless otherwise provided within this Agreement for
a specific property(s), the phrase "Transfer Date" shall mean 7:00 o'clock A.M.
local time on the next ensuing day after Closing. On the Transfer Date CMS,
subject to Section 7.2, Section 13.10, and Section 15.2(k) hereof, shall
transfer to Purchaser, and Purchaser shall accept the physical, possession,
control, responsibility and, subject to Section 7.2, operations of the portions
of the Assets and the Terra Assets which are operated by CMS or Terra. Nothing
contained in this Section 1.3, or in this Agreement generally, shall be deemed
to be a representation or warranty of CMS that Purchaser is entitled to, nor
that Purchaser will succeed CMS or Terra as operator, nor that Terra shall be
entitled to remain as operator of all or any portion of the Subject Property or
the Terra Property now operated by CMS or Terra.
ARTICLE II - DEFINITIONS
2.1 "Accredited Investor" has the meaning set forth in Regulation D promulgated
-------------------
under the Securities Act.
2.2 "Adverse Consequences" means all actions, suits, proceedings, hearings,
--------------------
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, reasonable
amounts paid in settlement, liabilities, obligations, taxes, liens, losses,
expenses, and fees, including court costs and reasonable attorneys' fees and
expenses.
2.3 "Affiliate" or "Affiliates" means any entity, including any corporation or
--------- ----------
limited liability company with respect to which a specified Person owns less
than a majority of the common stock or less than a majority of the ownership
interest of the entity.
2.4 "Assets" has the meaning set forth in Section 1.1, above.
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2.5 "CMS Disclosure Schedule" has the meaning set forth in Article IV, below.
-----------------------
2.6 "Cash" means cash and cash equivalents (including marketable securities and
----
short term investments) calculated in accordance with GAAP applied on a basis
consistent with the preparation of the Financial Statements.
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2.7 "Claim of Title Defect" has the meaning set forth in Section 13.1, below.
---------------------
2.8 "Claims" means, with respect to the agreement of any Party to defend,
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indemnify and hold harmless another Party, any and all claims, suits, causes of
action, demands, liabilities, judgments, fines, penalties, damages, losses,
expenses or costs, including without limitation court costs and legal and
accounting fees and expenses, arising out of, in respect of or in any manner
related to the subject of such agreement.
2.9 "Closing" has the meaning set forth in Section 15.1, below.
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2.10 "Closing Date" has the meaning set forth in Section 15.1, below.
------------
2.11 "Closing Statement" has the meaning set forth in Section 15.2(e), below.
-----------------
2.12 "Code" means the Internal Revenue Code of 1986, as amended.
----
2.13 "Confidential Information" means any information concerning the businesses
------------------------
and affairs of CMS and Terra, and their Subsidiaries and Affiliates that is not
already generally available to the public.
2.14 "Defensible Title" has the meaning set forth in Section 13.6, below.
----------------
2.15 "Effective Date" has the meaning set forth in Section 1.3, above.
--------------
2.16 "Employee Benefit Plan" means any (a) nonqualified deferred compensation or
---------------------
retirement plan or arrangement, (b) qualified defined contribution retirement
plan or arrangement which is an Employee Pension Benefit Plan, (c) qualified
defined benefit retirement plan or arrangement which is an Employee Pension
Benefit Plan (including any Multiemployer Plan), or (d) Employee Welfare Benefit
Plan or material fringe benefit or other retirement, bonus, or incentive plan or
program.
2.17 "Employee Pension Benefit Plan" has the meaning set forth in ERISA (S)3
-----------------------------
(2).
2.18 "Employee Welfare Benefit Plan" has the meaning set forth in ERISA (S)3
-----------------------------
(1).
2.19 "Environmental Assessment" has the meaning set forth in Section 12.2,
------------------------
below.
2.20 "Environmental, Health, and Safety Requirements" shall mean all federal,
----------------------------------------------
state and local statutes, regulations, and ordinances concerning public health
and safety, worker health and safety, and pollution or protection of the
environment, including without limitation all those relating to the presence,
use, production, generation, handling, transportation, treatment, storage,
disposal, distribution, labeling, testing, processing, discharge, release,
threatened release, control, or cleanup of
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any hazardous materials, substances or wastes, as such requirements are enacted
and in effect on or prior to the Effective Date.
2.21 "ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended.
2.22 "Excluded Assets" has the meaning set forth in Section 1.2, above.
---------------
2.23 "Extended Due Diligence Period" has the meaning set forth in Section 13.1,
-----------------------------
below.
2.24 "Financial Statements" has the meaning set forth in Section 6.5, below.
--------------------
2.25 "GAAP" means United States generally accepted accounting principles as in
----
effect from time to time.
2.26 "Income Tax" means any federal, state or local income tax, including any
----------
interest, penalty, or addition thereto, whether disputed or not.
2.27 "Income Tax Return" means any return, declaration, report, claim for
-----------------
refund, or information return or statement relating to Income Taxes, including
any schedule or attachment thereto.
2.28 "Indemnified Party" has the meaning set forth in Section 18.4(a), below.
-----------------
2.29 "Indemnifying Party" has the meaning set forth in Section 18.4(a), below.
------------------
2.30 "Interim Period" has the meaning set forth in Section 3.3(b), below.
--------------
2.31 "Knowledge" means actual knowledge without independent investigation; and
---------
when used in connection with CMS or Terra shall mean actual knowledge of an
officer of CMS without independent investigation.
2.32 "Most Recent Financial Statements" has the meaning set forth in Section
--------------------------------
6.5, below.
2.33 "Most Recent Fiscal Month End" has the meaning set forth in Section 6.5,
----------------------------
below.
2.34 "Multiemployer Plan" has the meaning set forth in ERISA (S)3 (37).
------------------
2.35 "Ordinary Course of Business" means the ordinary course of business
---------------------------
consistent with past custom and practice (including with respect to quantity and
frequency).
2.36 "Over and Under Production" has the meaning set forth in Section 3.5,
-------------------------
below.
2.37 "Party" or "Parties" has the meaning set forth in the preface above.
----- -------
7
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2.38 "Permits" has the meaning set forth in Section 6.14, below.
-------
2.39 "Person" means an individual, a partnership, a corporation, a limited
------
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization, or a governmental entity (or any
department, agency, or political subdivision thereof).
2.40 "Purchase Price" has the meaning set forth in Section 3.1, below.
--------------
2.41 "Qualifying Wells" means those wells whose production qualifies for the
----------------
credit for producing fuel from nonconventional sources under section 29 of the
Code. The CMS and Terra Qualifying Wells are listed at Attachment C.
2.42 "QRI Stock" has the meaning set forth in Section 3.4(a), below.
---------
2.43 "Retained Liabilities" means those liabilities relating to the Assets or
--------------------
the Terra Assets, which arise out of events which occurred prior to the
Effective Date and as to which CMS expressly agrees to retain all liability or
to indemnify Purchaser as to all liability. All Retained Liabilities are
identified at Attachment D to this Agreement.
2.44 "Securities Act" means the Securities Act of 1933, as amended.
--------------
2.45 "Security Interest" means any mortgage, pledge, lien, encumbrance, charge,
-----------------
or other security interest, other than (a) mechanic's, materialmen's, and
similar liens, (b) liens for taxes not yet due and payable or for taxes that the
taxpayer is contesting in good faith through appropriate proceedings, (c)
purchase money liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business and
not incurred in connection with the borrowing of money.
2.46 "Subject Property" has the meaning set forth in Section 1.1(d), above.
----------------
2.47 "Subsidiary" or "Subsidiaries" means any entity, including any corporation
---------- ------------
or limited liability company with respect to which a specified Person (or a
Subsidiary thereof) owns a majority of the common stock or has the power to vote
or direct the voting of sufficient securities or ownership interest in the
entity to elect or appoint a majority of the directors, or managers.
2.48 "Tax" (and, with correlative meaning, "Taxes" and "Taxable") shall mean (i)
--- ----- -------
any federal, state or local net income, gross income, single business tax, gross
receipts, windfall profits, severance, property, production sales, use, value
added, license, excise, franchise, employment, payroll, withholding, alternative
or add-on minimum, ad valorem, transfer, excise, stamp, or environmental tax, or
any other tax, custom, duty, governmental fee or import or export duty or other
like assessment or charge of any kind whatsoever, together with any
8
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interest or penalty, addition to tax or additional amount imposed by any
governmental authority, and (ii) liability of CMS, Terra or its Subsidiaries for
the payment of amounts with respect to payments of a type described in clause
(i) as a result of being a member of an affiliated, consolidated, combined or
unitary group, or as a result of any obligation of CMS, Terra or its
Subsidiaries under any tax sharing arrangement or Tax indemnity arrangement.
2.49 "Tax Return" shall mean any return, report or similar statement required to
----------
be filed with respect to any Tax (including any attached schedules), including,
without limitation, any information return, claim for refund, amended return and
declaration of estimated Tax.
2.50 "Terra Assets" has the meaning set forth in Section 1.1, above.
------------
2.51 "Terra Disclosure Schedule" has the meaning set forth in Article VI, below.
-------------------------
2.52 "Terra Property" has the meaning set forth in Section 1.1, above.
--------------
2.53 "Terra Shares" means all of the issued and outstanding shares of Common
------------
Stock of Terra.
2.54 "Third Party Claim" has the meaning set forth in Section 18.4(a), below.
-----------------
2.55 "Title Defect" has the meaning set forth in Section 13.8, below.
------------
2.56 "Transfer Date" has the meaning set forth in Section 1.3, above.
-------------
ARTICLE III - PURCHASE PRICE
3.1 Purchase Price
CMS and Purchaser agree that on and subject to the terms of this Agreement,
the purchase price for the Assets shall be the sum of one hundred sixty-three
million seven hundred ten thousand six hundred twenty-five United States dollars
($163,710,625) (the "Purchase Price"), plus or minus the adjustments provided
for in Section 3.3,below.
3.2 Net Cash Payment to CMS
Immediately prior to the Closing, CMS will cause Terra to pay CMS an
aggregate amount (and may cause each Subsidiary and Affiliate of Terra to pay to
Terra any necessary component thereof) equal to the consolidated Cash of Terra
and its Subsidiaries and Affiliates as of the Closing Date. CMS may cause (i)
Terra to make any such payment to CMS in the form of a dividend or a redemption
and (ii) any Subsidiary or Affiliate of Terra to make any such payment to Terra
in the form of a dividend, a redemption, or an intercompany loan.
9
<PAGE>
3.3 Adjustments to Purchase Price
The Purchase Price for the Assets shall be adjusted at Closing as follows
(the "Adjusted Purchase Price"):
(a) an adjustment will be made based on the difference between the average
bid and offer for a five (5) year term for wholesale natural gas
delivered to the Michigan City gate as quoted by Amerex, (the "five-
year strip price"), as of January 7, 2000 (being $2.625/MMBtu), and
the average five-year strip price for the five (5) business days
ending March 24, 2000 ("Average Five-Year Strip Price"). If the
Average Five-Year Strip Price is $2.70/MMBtu or less, or is
$2.55/MMBtu or more, then there shall be no adjustment to the Purchase
Price. If the Average Five-Year Strip Price is greater than
$2.70/MMBtu, or is less than $2.55/MMBtu, the Purchase Price shall be
ratably adjusted in proportion to the respective increase over
$2.70/MMBtu or decrease under $2.55/MMBtu against $2.625/MMBtu. By
way of example, if the Average Five-Year Strip Price is $2.75/MMBtu,
assuming a Purchase Price of $163,000,000, then the Purchase Price
would be approximately $166,000,000.00 ($2.675 divided by $2.625
multiplied by $163,000,000.00). If the Average Five-Year Strip Price
is $2.50/MMBtu, assuming a Purchase Price of $163,000,000, then the
Purchase Price would be approximately $159,900,000.00 ($2.575 divided
by $2.625 multiplied by $163,000,000.00). Notwithstanding the
foregoing, in no event shall the Purchase Price be adjusted by more
than $7,000,000 as a result of an increase or decrease in the Average
Five-Year Strip Price. The foregoing shall be the first adjustment
made to the Purchase Price;
(b) by adding the amount (based on CMS's good faith estimate) of all
expenditures made by CMS or Terra that are attributable to the Assets
transferred to Purchaser, and the Terra Assets, for the period between
the Effective Date and the Closing Date (the "Interim Period"),
including, without limitation, royalties, rentals, operating expenses,
overhead charges (which, except as expressly provided in this
Agreement, shall not exceed the overhead charges provided for in any
applicable operating agreement), all charges billed under operating
agreements (such as, but not limited to, CMS's and Terra's share of
overhead charges), and all prepaid expenses. All amounts so added to
the Purchase Price pursuant to this Section 3.3(b), shall be further
adjusted to reflect the actual amount of all such charges and
expenses, as part of, and in accordance with the post-closing
reconciliation provided for in Section 16.1, below;
(c) by adding the value of all merchantable oil in storage above the
pipeline connection at the Effective Date that is credited to the
Subject Property transferred to Purchaser and the Terra Property. The
value of such oil shall be the most current price received by CMS or
10
<PAGE>
Terra as of the Effective Date, less taxes deducted by the purchaser
of oil, adjusted for BS&W, temperature and quality per the most
current sample measurement for the applicable storage tank, to the
extent not accounted for in Section 3.3(p), below;
(d) by adding the value of all gas produced for which the proceeds have
not been received, attributable to production from the Subject
Property and the Terra Property for all periods prior to the Effective
Date. The value of such gas shall be the most current price received
by CMS or Terra as of the Effective Date, less all third party costs
deducted by the transporter or purchaser of such gas, to the extent
not accounted for in Section 3.3(p), below;
(e) by adding the value of all receivables and all other net income of any
kind or nature (including but not limited to overhead charges)
attributable to the Terra Assets, relating to all periods prior to the
Effective Date, whether from or attributable to hydrocarbon
production, or otherwise, and regardless of when invoiced, collected
and received, to the extent not accounted for in Section 3.3(p),
below;
(f) by subtracting the amount of proceeds received by CMS or Terra that
are attributable to hydrocarbon production from the Subject Property
and the Terra Property after the Effective Date, net of any royalties,
overriding royalties and other payments out of production, and of any
production, severance or sales taxes, and all third party costs not
reimbursed to CMS or Terra by the transporter or purchaser of
production;
(g) by adding the value of all pre-paid royalties and severance tax
relating to production attributable to the Assets and the Terra
Assets, from and after the Effective Date;
(h) by subtracting an amount equal to the value of that portion of the
Subject Property and the Terra Property, determined pursuant to
Article XX ("Exercise of Preferential Purchase Rights") with respect
to which preferential purchase rights have been properly and timely
exercised by third parties;
(i) by adding the amount of accrued interest on the Deposit pursuant to
Section 3.4(a), below;
(j) an adjustment may also be made to the Purchase Price pursuant to
Section 3.5 ("Over and Under Production");
(k) an adjustment may also be made to the Purchase Price pursuant to
Article VII ("Operations and Casualty Loss");
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<PAGE>
(l) an adjustment may also be made to the Purchase Price pursuant to
Section 12.2(d) ("Environmental Assessment and Access");
(m) an adjustment may also be made to the Purchase Price pursuant to
Article XIII ("Title Examination");
(n) an adjustment may also be made to the Purchase Price pursuant to
Section 18.5 ("Determination of Adverse Consequences");
(o) an adjustment may also be made to the Purchase Price pursuant to
Section 19.5 ("Adjustment to Purchase Price for Taxes"), to the extent
not accounted for in Section 3.3(q), below;
(p) an adjustment will be made to the Purchase Price to account for
Terra's consolidated net working capital as of the Effective Date,
determined in accordance with Attachment E;
(q) by subtracting the dollar amount which is the product of (i) the
amount of section 29 tax credit qualified gas (expressed in MMBtus)
that constitutes Assets or Terra Assets and which is produced within
the Interim Period; and (ii) the tax credit rate (expressed in dollars
per MMBtu), as adjusted by inflation for the year 2000 based upon the
same percentage increase in inflation for the calendar year 1999 as
determined by the Internal Revenue Service, all as provided for by
section 29 of the Code; and
(r) by adding or subtracting any other amounts mutually agreed upon in
writing by the Parties.
3.4 Payment of Adjusted Purchase
The Adjusted Purchase Price shall be paid as follows:
(a) Unless previously tendered, upon execution and return of this
Agreement to CMS, Purchaser shall contemporaneously tender to CMS an
earnest money performance deposit (the "Deposit"), consisting of: (i)
three million six hundred fifty thousand (3,650,000) fully non-
assessable shares of unregistered Quicksilver Resources Inc. common
stock, free and clear of any and all claims, liens and encumbrances of
any kind, whatsoever, newly and validly issued in the name of CMS
("QRI Stock"), valued at $4.00 per share, and (ii) the sum of one
million four hundred thousand dollars ($1,400,000.00) in United States
currency. Subject to receipt of the prior written consent of Joint
Energy Development Investments Limited Partnership, a Delaware limited
partnership ("JEDI"), as required by the terms of a Registration
Rights Agreement, dated as of April 9, 1998, between Purchaser and
JEDI, Purchaser and CMS shall enter into a Registration Rights
Agreement substantially in the form of Attachment F hereto pursuant to
which Purchaser shall agree to
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<PAGE>
register the QRI Stock on the terms and subject to the conditions set
forth therein. Purchaser agrees to use its commercially reasonable
best efforts to obtain the consent of JEDI referred to above as soon
as possible following the execution and return of this Agreement. At
Closing, CMS shall return the QRI Stock to Purchaser in exchange for
United States currency equal to fourteen million six hundred thousand
dollars ($14,600,000.00) in United States currency, plus interest
thereon at the rate of eight percent (8%) per annum computed from and
after February 15, 2000, to the Closing Date, and in no event shall
such interest be credited against the Purchase Price or the Adjusted
Purchase Price. In the event that the transaction contemplated by this
Agreement does not close, then and in that event the ultimate
disposition of the Deposit, and the terms and conditions thereof,
shall be governed by the provisions of Section 17.3, below;
(b) At Closing, Purchaser shall pay to CMS, by bank wire transfer in
United States currency either the Purchase Price or Adjusted Purchase
Price as reflected on the Closing Statement referenced in Section
15.2(e), to be mutually agreed upon at least one (1) business day
prior to the Closing Date, or failing such mutual agreement, the
Adjusted Purchase Price, in a manner specified by CMS prior to
Closing. In either event all further adjustments to the Purchase
Price will be reconciled in accordance with Section 16.1, below.
3.5 Over and Under Production
For purposes of this Agreement, the term "Over and Under Production" shall
mean as of the Effective Date the difference between the volume of produced gas
that CMS or Terra took from any portion of the Subject Property or the Terra
Property, and the volume of CMS's or Terra's gas entitlement for such Property
or Terra Property, and shall also include all gas plant and pipeline imbalances.
(a) CMS's current estimate of all Over and Under Production are set forth
at Attachment G hereto (as of the dates set forth therein).
(b) At Closing, CMS will furnish Purchaser with a statement showing the
most current estimate of the Over or Under Production as of the most
recent date available. From and after the Effective Date any and all
benefits, obligations and liabilities associated with Over and Under
Production shall accrue to and be the responsibility of Purchaser.
Purchaser shall assume CMS's and Terra's overproduced and
underproduced positions as of the Effective Date, including but not
limited to the responsibility for the payment of royalties and other
burdens, and all Taxes on the volume of such gas which CMS or Terra
took in excess of its entitlement and any obligation to balance,
whether in cash or in kind. The Section 3.3 Adjustments to the
Purchase Price, and/or the Section 16.1 Final
13
<PAGE>
Settlement Statement shall include an adjustment for any Over and
Under Production existing as of the Effective Date. All production
imbalances shall be calculated employing a settlement price of $2.75
per Mcf. All plant and pipeline imbalances shall be calculated in
accordance with applicable contracts, or if there are no applicable
contracts, by the mutual agreement of the Parties.
(c) In the event CMS or Terra are overproduced as to any well(s) or
unit(s) located on or appurtenant to the Subject Property or the Terra
Property, Purchaser acknowledges and agrees that Purchaser's share of
production from any such overproduced well(s) or unit(s) acquired may
at some point be curtailed by an underproduced working interest
owner(s), or that Purchaser may be required to cash balance the amount
of overproduction. The Parties agree that CMS shall not be liable to
the Purchaser or any third party in the event curtailment or such cash
balancing occurs.
3.6 Purchase Price Allocation
Attached to this Agreement as Attachment H is a schedule setting forth the
agreed allocation of the Purchase Price among the portions of the Assets and the
Terra Assets.
ARTICLE IV - REPRESENTATIONS OF CMS
CMS represents and warrants to Purchaser that, except as set forth in the
CMS Disclosure Schedule delivered by CMS to Purchaser on the date hereof and
initialed by the Parties, a copy of which is attached hereto as Attachment I,
each of the statements and representations contained in this Article IV are
true, correct and complete as of the date of this Agreement, and will be true,
correct and complete as of the Closing Date.
4.1 Existence
CMS is incorporated under the business corporation statute of the State of
Michigan and is in good standing in the state.
4.2 Authorization
The execution, delivery and performance of this Agreement and the
transaction contemplated by it have been authorized by the requisite corporate
action on the part of CMS. This Agreement has been executed by a representative
of CMS empowered by CMS to execute this Agreement, and it has been delivered on
behalf of CMS. At Closing, all documents and instruments required to be executed
and delivered by CMS shall have been so executed and delivered. This Agreement
does, and the documents and instruments executed and delivered shall, constitute
legal, valid and binding obligations of CMS enforceable in accordance with their
terms, subject to effects of bankruptcy, insolvency, reorganization, moratorium
and similar laws in effect relating to the rights and remedies of creditors, as
well as to general principles of equity.
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4.3 Brokers
CMS has not incurred any liability, contingent or otherwise, for broker's
or finder's fees or commissions relating to the transaction contemplated by this
Agreement for which Purchaser shall have any responsibility whatsoever.
4.4 Noncontravention
Neither the execution and the delivery of this Agreement, nor the
consummation of the transaction contemplated hereby, will (i) violate any
constitution, statute, regulation, rule, injunction, judgment, order, decree,
ruling, charge, or other restriction of any government, governmental agency, or
court to which CMS is subject or any provision of its charter or bylaws, or
(ii), except for the third party preferential rights to purchase, rights of
reconveyance, consents to sell or assign or confidentiality agreements, as
referenced in Article XX, conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, any agreement, contract, lease,
license, instrument, or other arrangement to which CMS is a party or by which it
is bound or to which any of the Assets is subject. 4.5 Terra Shares CMS holds of
record and owns beneficially all of the Terra Shares, free and clear of any
restrictions on transfer (other than restrictions under the Securities Act and
state securities laws), taxes, Security Interest, options, warrants, purchase
rights, contracts, commitments, equities, claims, and demands. CMS is not a
party to any option, warrant, purchase right, or other contract or commitment
that could require CMS to sell, transfer, or otherwise dispose of any capital
stock of Terra (other than this Agreement). CMS is not a party to any voting
trust, proxy, or other agreement or understanding with respect to the voting of
any Terra Shares.
4.5 Terra Shares
CMS holds of record and owns beneficially all of the Terra Shares, free and
clear of any restrictions on transfer (other than restrictions under the
Securities Act and state securities laws), taxes, Security Interest, options,
warrants, purchase rights, contracts, commitments, equities, claims, and
demands. CMS is not a party to any option, warrant, purchase right, or other
contract or commitment that could require CMS to sell, transfer, or otherwise
dispose of any capital stock of Terra (other than this Agreement). CMS is not a
party to any voting trust, proxy, or other agreement or understanding with
respect to the voting of any Terra Shares.
4.6 Legal Compliance
To the Knowledge of CMS, CMS has complied with all applicable laws
(including rules, regulations, codes, plans, injunctions, judgments, orders,
decrees, rulings and charges thereunder) of federal, state and local governments
(and all agencies thereof) relating to or affecting the Subject Property, except
where the failure to comply would not have a material adverse effect upon the
affected Asset.
4.7 Excluded Assets
None of the gas reserves that constitute the Assets or the Terra
Assets will be, as of the Closing Date, dedicated to the Natural Gas Purchase
Agreement (effective May 1, 1989) between Midland Cogeneration Venture Limited
Partnership and Northern
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Michigan Exploration Company and CMS Energy Corporation, as referenced in
Section 1.2.
4.8 Environmental, Health and Safety Matters
Except as set forth in Section 4.8 of the CMS Disclosure Schedule, CMS is
in compliance with all Environment, Health and Safety Requirements insofar as
the same pertain to the Assets, except where the failure to comply would not
have a material adverse effect upon the Assets, and except as set forth in
Section 4.8 of the Disclosure Schedule, neither CMS nor the Assets is the
subject of any order, ruling, proceeding, hearing or investigation, either
pending or overtly threatened relating to Environmental, Health and Safety
Requirements. Except as set forth in Section 4.8 of the CMS Disclosure Schedule,
CMS has not received any written notice, report or other information regarding
any actual or alleged material violation of any Environmental, Health and Safety
Requirements with respect to the Assets, and as of the Effective Date no
condition exists with respect to the Assets that could give rise to future
liability or obligations under the Environmental, Health and Safety
Requirements.
4.9 Litigation
Except as set forth in Section 4.9 of the CMS Disclosure Schedule, there is
no outstanding injunction, judgment, order, decree, ruling or charge which could
have a material adverse effect on the Assets, nor, except as set forth in
Section 4.9 of the CMS Disclosure Schedule, CMS a party to any action, suit,
proceeding, hearing or investigation, pending or overtly threatened, which
involves the Assets, or CMS's ownership or operation of the Assets.
4.10 Compliance With Contracts
CMS has performed all of its obligations under the terms of all contracts
and agreements pertaining to the Assets except where the failure to perform
would not have a material adverse effect upon the Assets, and CMS has not
received written notice from any party of an alleged default by CMS under the
terms of any contract or agreement, or that any contract or agreement is not
valid and enforceable in accordance with its terms insofar, and only insofar, as
same relate to the Assets. Anything to the contrary contained herein,
notwithstanding, this Section 4.10 does not, and shall not under any
circumstances be deemed to include or apply to matters constituting a Title
Defect in accordance with Section 13.8, below, whether or not a Claim of Title
Defect has been timely and properly asserted with respect thereto.
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4.11 Tax Matters
(a) To the Knowledge of CMS, except as set forth in Section 4.11(a) of the
CMS Disclosure Schedule, CMS has paid, or will pay in full all taxes
and assessments with respect to the Assets that are due prior to the
Effective Date, including all ad valorem, property, production,
severance and Other Taxes; to the Knowledge of CMS, except as set
forth at Section 4.11(a) of the CMS Disclosure Schedule, all tax
returns and reports required to be filed prior to the Effective Date
have been or will be timely and accurately filed; and to the Knowledge
of CMS, except as set forth in Section 4.11(a) of the CMS Disclosure
Schedule, no tax deficiencies have been assessed, nor is there any
audit in progress or threatened with respect to taxes due on the
Assets.
(b) (i) All applications for well determinations for each Qualifying Well
have been filed with the applicable state and federal agencies
under the Natural Gas Policy Act of 1978, as amended (the "NGPA")
and the rules and regulations of the Federal Energy Regulatory
Commission (the "FERC") under NGPA (the "NGPA Regulations")
requesting a determination that all of the gas produced from each
Qualifying Well is produced from "Devonian shale". Each such
application has been approved by the applicable state agency and
by the FERC and has been finally approved under and in accordance
with section 503 of the NGPA (as evidenced by appropriate FERC
certification). Such applications comply with the requirements of
the NGPA and NGPA Regulations. True and correct copies of such
certifications have been furnished to Buyer. No further
applications are required under the NGPA and the NGPA Regulations
to allow the legal sale of all gas produced from the Qualifying
Wells at a price equal to the price for such gas currently being
received. No production from the Qualifying Wells qualifies for
incentive prices under section 107 of the NGPA or the
deregulation provisions of the NGPA or Subtitle 13 of Title I of
the NGPA.
(ii) A) Except as set forth at Section 4.11(b) of the CMS
Disclosure Schedule, each Qualifying Well was drilled
(within the meaning of section 29(f) of the Code) after
December 31, 1979 and prior to January 1, 1993, and was
completed as a well capable of producing from the
17
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formation described in section 3.01(x) (iii) of the
NGPA; and
B) All gas (except carbon dioxide) produced from each
Qualifying Well is a "qualified fuel" under section
29(c) of the Code.
(iii) Except as set forth at Section 4.11(b) of the CMS
Disclosure Schedule, the Qualifying Wells are perforated
only in the Antrim Formation and the gas produced from each
Qualifying Well is not commingled with any gas from that
Qualifying Well that is not produced from such formation.
(iv) Prior to January 1, 1980, there was no production of coal
seam, Devonian shale, geopressured brine or tight formation
gas in marketable quantities from the "property" (as used in
section 29 of the Code) on which any Qualifying Well is
located.
(v) No oil or gas produced from the Qualifying Wells qualifies
or has qualified for the enhanced oil recovery credit or any
other credit under section 43 of the Code and none has been
claimed or taken on such oil or gas.
(vi) No credits referred to in section 29(b)(4) have been claimed
with respect to any Qualifying Wells.
(vii) None of the special financing arrangements described in
subclauses (I), (II), or (III) of section 29(b) (3)(A)(i) of
the Code have been provided in connection with any project
that includes any of the Qualifying Wells.
4.12 Compliance With Permits and Licenses
To the Knowledge of CMS, CMS possesses all material federal, state and
local governmental and regulatory franchises, rights, privileges, permits,
grants, concessions, licenses, certificates, variances, authorizations and
approvals necessary to own and/or operate the Subject Property.
To the Knowledge of CMS, except as listed at Section 4.12 of the CMS
Disclosure Schedule, all Permits which are to remain in effect after the
Closing, are in full force and effect and will continue in full force and effect
through the Closing Date. To the Knowledge of CMS, except as listed at Section
4.12 of the
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CMS Disclosure Schedule, CMS is not in default in any material respect under the
terms of any Permit which is to survive the Closing, nor to the Knowledge of
CMS, has it received notice of any material default thereunder which has not, or
will not be resolved as of the Closing Date.
4.13 Title
Subject to Section 18.1, below, and except for the Permitted Encumbrances,
as defined in Section 13.7, below, CMS has Defensible Title, as defined in
Section 13.6, below, to the Assets free and clear of all material Title Defects,
as defined in Section 13.8, below.
4.14 Consents, Approvals and Rights to Acquire
Except for consents, required notices to, filings with or other actions by
governmental entities which are customarily obtained subsequent to Closing, and
except as set forth at Section 4.14 of the CMS Disclosure Schedule, to the
Knowledge of CMS, no consent, approval, notice to or filing with any government
or governmental agency, or any other party, is required in connection with the
execution, delivery and performance of this Agreement by CMS, or as a condition
to the validity or enforceability of this Agreement and the consummation of the
transaction contemplated by this Agreement. Subject to the provisions of Article
XX, below, CMS shall identify and properly notify all parties who hold any
preferential right or option to purchase the Assets, or any part thereof, or
whose consent is required to transfer the Assets or any portion thereof.
4.15 Gas Contracts
Except as set forth at Section 4.15 of the CMS Disclosure Schedule, to the
Knowledge of CMS production from or attributable to the Subject Property is not
dedicated to any gas sales contracts, other than those which are terminable upon
thirty (30) day written notice.
4.16 Securities Disclosure/Representation
CMS is acquiring the QRI Stock for its own account and not with a view to
or for offer or resale in connection with any distribution thereof within the
meaning of the Securities Act and the rules and regulations pertaining to the
Securities Act, or a distribution thereof in violation of the Security Act, or
any other applicable federal or state securities laws. CMS is not acting as an
undisclosed agent for any other party or parties. CMS is an Accredited Investor.
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CMS acknowledges that Purchaser has entered into this Agreement and will
consummate the transaction contemplated by this Agreement, in reliance on CMS's
representations and warranties under this Article IV.
ARTICLE V - REPRESENTATIONS OF PURCHASER
Purchaser represents and warrants to CMS that each of the statements and
representations contained in this Article V are true, correct and complete as of
the date of this Agreement, and will be true, correct and complete as of the
Closing Date:
5.1 Existence
Purchaser is incorporated under the business corporation statute of the
State of Delaware and is in good standing in the state, and is qualified to
carry on its business in the State of Michigan and is in good standing as a
foreign corporation under the business corporation statute of the State of
Michigan.
5.2 Execution
The execution, delivery and performance of this Agreement by Purchaser,
and the transaction contemplated by this Agreement, will not violate (i) any
provision of the certificate or articles of incorporation or bylaws of
Purchaser, (ii) any material agreement or instrument to which Purchaser is a
party or by which Purchaser is bound, (iii) any judgment, order, ruling, or
decree applicable to Purchaser as a party in interest, or (iv) any law, rule or
regulation applicable to Purchaser.
5.3 Authorization
The execution, delivery and performance of this Agreement and the
transaction contemplated by it have been authorized by requisite corporate
action on the part of Purchaser. This Agreement has been executed by an officer
or other representative of Purchaser empowered by Purchaser to execute this
Agreement, and it has been delivered by Purchaser. At the Closing, all documents
and instruments required to be executed and delivered by Purchaser shall have
been so executed and delivered. This Agreement does, and the documents and
instruments executed and delivered shall, constitute legal, valid and binding
obligations of Purchaser enforceable in accordance with their terms, subject to
the effects of bankruptcy, insolvency, reorganization, moratorium and similar
laws in effect relating to the rights and remedies of creditors, as well as to
general principles of equity. Purchaser need not give any notice to, make any
filing with, or obtain any authorization, consent or approval of any government
or governmental agency in order to consummate the transaction contemplated by
this Agreement.
5.4 Brokers
Purchaser has not incurred any liability, contingent or otherwise, for
broker's or finder's fees or commissions relating
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to the transaction contemplated by this Agreement for which CMS shall have any
responsibility whatsoever.
5.5 Noncontravention
Neither the execution and the delivery of this Agreement, nor the
consummation of the transaction contemplated hereby, will (i) violate any
constitution, statute, regulation, rule, injunction, judgment, order, decree,
ruling, charge, or other restriction of any government, governmental agency, or
court to which Purchaser is subject or any provision of its charter or bylaws,
or (ii) conflict with, result in a breach of, constitute a default under, result
in the acceleration of, create in any party the right to accelerate, terminate,
modify, or cancel, or require any notice under any agreement, contract, lease,
license, instrument, or other arrangement to which Purchaser is a party or by
which it is bound or to which any of its assets is subject.
5.6 Independent Evaluation and Title Review
Purchaser will be afforded the opportunity, at its own cost and risk, to
inspect the Assets and the Terra Assets and to examine copies of data and
records in CMS's and Terra's possession affecting the Assets and the Terra
Assets. Purchaser will be given access to all title, division order files,
contract and lease records and data, and all production, engineering,
environmental and other technical data, insofar as the foregoing relates to the
Assets and the Terra Assets, (but not including data and records which CMS, in
its sole discretion considers to be privileged, proprietary or confidential to
it and which are not directly related to the condition, quality and quantity of
the Assets, or which CMS or Terra cannot legally provide Purchaser because of
third party restriction on CMS or Terra, or disclosure of which will violate any
agreement to which CMS or Terra is a party). PURCHASER ACKNOWLEDGES THAT EXCEPT
AS OTHERWISE SPECIFIALLY PROVIDED IN THIS AGREEMENT, CMS HAS MADE NO
REPRESENTATIONS OR WARRANTIES AS TO THE CONDITION OF THE ASSETS OR THE TERRA
ASSETS, THE ACCURACY OR COMPLETENESS OF ANY DATA AND RECORDS PROVIDED BY CMS OR
TERRA, OR AS TO CMS'S TITLE TO THE ASSETS OR TERRA'S TITLE TO THE TERRA ASSETS.
IN ENTERING INTO AND PERFORMING THIS AGREEMENT, EXCEPT FOR, AND TO THE EXTENT OF
THE REPRESENATIONS AND WARRANTIES EXPRESSLY SET FORTH IN ARTICLES IV AND VI,
PURCHASER HAS RELIED AND WILL RELY SOLELY UPON ITS INDEPENDENT INVESTIGATION OF,
AND JUDGMENT WITH RESPECT TO THE ASSETS AND THE TERRA ASSETS, THEIR CONDITION,
VALUE AND CMS'S AND TERRA'S TITLE THERETO. The rights of Purchaser under this
Section 5.6 are expressly subject to the provisions of Article XII and Article
XIII, and except as specifically set forth in Article XII and Article XIII there
shall be no contingency to Purchaser completing the transaction contemplated by
this Agreement, with respect to such review and evaluation of the Assets and the
Terra Assets.
5.7 Securities Disclosure/Representation
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Purchaser is acquiring the Assets for its own account and not with a view
to or for offer or resale in connection with any distribution thereof within the
meaning of the Securities Act and the rules and regulations pertaining to the
Securities Act, or a distribution thereof in violation of the Security Act, or
any other applicable federal or state securities laws. Purchaser is not acting
as an undisclosed agent for any other party or parties. Purchaser is an
Accredited Investor. Purchaser is and has been actively involved in the business
of owning and operating producing oil and gas properties for a period in excess
of five (5) years prior to the Effective Date, is knowledgeable about the oil
and gas exploration and production business, and is not relying on CMS with
regard to any expectations Purchaser may have about any future income it may
receive from the Assets or the Terra Assets.
5.8 Bonds and Permits
Purchaser or its designated operator, other than Terra, shall, as of the
Closing Date have all bonds which are designated at Attachment J. Purchaser
shall furnish CMS proof that such bonds are in full force and effect with
respect to the Subject Property and the Terra Property. As to those portions of
the Subject Property and Terra Property for which CMS is named operator on the
State of Michigan well permit, Purchaser agrees, if necessary to take an
assignment of all such well permits in its name or in the name of its designee,
other than Terra.
5.9 Section 29 Tax Credits
Purchaser acknowledges that CMS will take or claim the section 29 tax
credits for production from the Qualifying Wells attributable to the Interim
Period, and Purchaser agrees not to take or claim such tax credits.
Purchaser acknowledges that CMS has entered into this Agreement, and
will consummate the transaction contemplated by this Agreement, in reliance on
Purchaser's representations and warranties under this Article V.
ARTICLE VI - REPRESENTATIONS CONCERNING TERRA
CMS represents and warrants to Purchaser that except as set forth in the
Terra Disclosure Schedule delivered by CMS to Purchaser on the date hereof and
initialed by the Parties, a copy of which is attached hereto as Attachment K,
each of the statements and representations contained in this Article VI are
true, correct and complete as of the date of this Agreement and will be true,
correct and complete as of the Closing Date.
6.1 Organization, Qualification and Corporate Power
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Each of Terra and its Subsidiaries, and to the Knowledge of CMS, Terra's
Affiliates, is a corporation or limited liability company duly organized,
validly existing, and in good standing under the laws of the jurisdiction of its
formation. Each of Terra and its Subsidiaries, and to the Knowledge of CMS,
Terra's Affiliates, is duly authorized to conduct business and is in good
standing under the laws of each jurisdiction where such qualification is
required, except where the lack of such qualification would not have a material
adverse effect on the financial condition of Terra, its Subsidiaries and
Affiliates, taken as a whole. Each of Terra and its Subsidiaries, and to the
Knowledge of CMS, Terra's Affiliates has full power and authority to carry on
the businesses in which it is presently engaged and to own and use the
properties owned and used by it. The Terra Disclosure Schedule, at Section 6.1
thereof, identifies all of the Subsidiaries and Affiliates of Terra, and also
lists the directors and officers of each of Terra and its Subsidiaries.
6.2 Capitalization
The entire authorized capital stock of Terra consists of twenty million
(20,000,000) shares, of which twelve million sixty-five thousand four hundred
and twenty-two (12,065,422) Terra Shares are issued and outstanding. The issued
and outstanding Terra Shares have been duly authorized, are validly issued,
fully paid, and nonassessable, and are held of record by CMS. There are no
outstanding or authorized options, warrants, purchase rights, subscription
rights, conversion rights, exchange rights, or other contracts or commitments
that could require CMS or Terra to issue, sell, or otherwise cause to become
outstanding any of the capital stock of Terra. Except as listed on the Terra
Disclosure Schedule at Section 6.2 thereof, the Terra Shares are free of any
pledge, lien, security interest or other encumbrance, and as of the Closing
Date, the Terra Shares shall be free and clear of any pledge, lien, security
interest or other encumbrance so listed at Section 6.2 of the Terra Disclosure
Schedule. There are no outstanding or authorized stock appreciation, phantom
stock, profit participation, or similar rights with respect to Terra.
6.3 Noncontravention
To the Knowledge of CMS, neither the execution and the delivery of this
Agreement, nor the consummation of the transaction contemplated hereby, will (i)
violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which any of Terra and its Subsidiaries is
subject, or any provision of the charter, bylaws or operating agreement of any
of Terra and its Subsidiaries or (ii) except as listed on the Terra Disclosure
Schedule at Section 6.3 thereof, conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify, or cancel any agreement, contract,
lease, license, instrument, or other arrangement to which any of Terra and its
Subsidiaries is a party or by which it is bound or to which any of the Terra
Assets is subject (or result in the imposition of any Security Interest upon any
of the Terra Assets), except where
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the violation, conflict, breach, default, acceleration, termination,
modification, cancellation, failure to give notice, or Security Interest would
not have a material adverse effect on the financial condition of Terra and its
Subsidiaries taken as a whole or on the ability of the Parties to consummate the
transaction contemplated by this Agreement. To the Knowledge of CMS, except as
listed on the Terra Disclosure Schedule at Section 6.3 thereof, none of Terra
and its Subsidiaries needs to give any notice to, make any filing with, or
obtain any authorization, consent, or approval of any government or governmental
agency in order for the Parties to consummate the transaction contemplated by
this Agreement, except where the failure to give notice, to file, or to obtain
any authorization, consent, or approval would not have a material adverse effect
on the financial condition of Terra and its Subsidiaries taken as a whole or on
the ability of CMS to consummate the transaction contemplated by this Agreement.
6.4 Subsidiaries and Affiliates
The Terra Disclosure Schedule sets forth at Section 6.4 thereof for each
Subsidiary (i) its name, any assumed name under which it conducts business and
jurisdiction of incorporation, (ii) the number of shares of authorized capital
stock of each class of its capital stock, if any, (iii) the number of issued and
outstanding shares of each class of its capital stock, the names of the holders
thereof, and the number of shares held by each such holder, if any, and (iv) the
number of shares of its capital stock held in treasury, if any. All of the
issued and outstanding shares of capital stock of each Subsidiary of Terra, have
been duly authorized and are validly issued, fully paid, and nonassessable.
Terra holds of record and owns beneficially all of the outstanding shares of
each corporate Subsidiary of Terra.
6.5 Financial Statements
Attached hereto at Attachment L are the following financial statements
(collectively the "Financial Statements"): (i) unaudited balance sheets and
statements of income as of and for the fiscal year ended December 31, 1997, for
Terra and its Subsidiaries consolidated; (ii) unaudited balance sheets and
statements of income as of and for the fiscal year ended December 31, 1998 for
Terra and each of its Subsidiaries; (iii) unaudited balance sheets and
statements of income, (the "Most Recent Financial Statements") as of and for the
twelve (12) months ended December 31, 1999 (the "Most Recent Fiscal Month End")
for Terra and each of its Subsidiaries; and (iv) the Consolidated Terra Energy
Pro Forma Balance Sheet dated December 31, 1999. The Terra consolidated
Financial Statements, Terra and each of its Subsidiaries Financial Statements
have been extracted from the CMS audited financial statements which have been
prepared in accordance with GAAP applied on a consistent basis throughout the
periods covered thereby, and accurately, completely and fairly represent the
financial condition of Terra as of December 31, 1999, and Terra has no other
liabilities or obligations, except as set forth at Section 6.5 of the Terra
Disclosure Schedule. However, the Most Recent Financial Statements are subject
to normal year-end adjustments.
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6.6 Events Subsequent to Most Recent Fiscal Month End
Since the Most Recent Fiscal Month End, there has not been any material
adverse change in the financial condition of Terra and its Subsidiaries taken as
a whole. Without limiting the generality of the foregoing, since the Most Recent
Fiscal Month End none of Terra and its Subsidiaries has engaged in any practice,
taken any action, or entered into any transaction outside the Ordinary Course of
Business which may have a material adverse effect on the financial condition of
Terra and its Subsidiaries, taken as a whole.
6.7 Legal Compliance
To the Knowledge of CMS, except as listed on the Terra Disclosure Schedule
at Section 6.7 thereof, each of Terra and its Subsidiaries has complied with all
applicable laws (including rules, regulations, codes, plans, injunctions,
judgments, orders, decrees, rulings, and charges thereunder) of federal, state
and local governments (and all agencies thereof), except where the failure to
comply would not have a material adverse effect upon the financial condition of
Terra and its Subsidiaries taken as a whole, or on the ability of CMS to
consummate the transaction contemplated by this Agreement.
6.8 Tax Matters
(a) Except as set forth on the Terra Disclosure Schedule at Section
6.8(a) thereof, each of Terra and its Subsidiaries has filed on or
before the date hereof (or will timely file) all Tax Returns that are
required to be filed on or before the Closing Date, and has paid all
Taxes shown thereon as owing, except where the failure to file Tax
Returns or to pay Taxes would not have a material adverse effect on
the financial condition of Terra and its Subsidiaries taken as a
whole.
(b) The Terra Disclosure Schedule at Section 6.8(b) thereof, (i)
lists all Tax Returns filed with respect to any of Terra and its
Subsidiaries for taxable periods commencing on or after August 31,
1995, (ii) indicates those Tax Returns that have been audited, and
(iii) indicates those Tax Returns that currently are the subject of
audit. CMS has delivered to Purchaser correct and complete copies of
all Tax Returns, including Federal Income Tax Returns, examination
reports, and statements of deficiencies assessed against or agreed to
by any of Terra and its Subsidiaries since August 31, 1995.
(c) All such Tax Returns for taxable years or periods ending on or
before December 31, 1998 are (or will be) complete and accurate in all
material respects and disclose all Taxes required to be paid by Terra
and its Subsidiaries for the periods covered thereby, except for Taxes
for which adequate reserves have been established by Terra or its
Subsidiaries and such reserves are reflected in the computation of
Terra's
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consolidated net working capital and all Taxes shown to be due on such
Tax Returns have been timely paid or are reflected in the computation
of Terra's consolidated net working capital, and further except for
any adjustments which may be made to the Tax Return for the period
ending December 31, 1998 pursuant to an Internal Revenue Service
audit.
(d) Except as set forth on the Terra Disclosure Schedule at Section
6.8(d) thereof, none of Terra or its Subsidiaries have waived or been
requested to waive any statute of limitations in respect of any Taxes.
(e) Except as set forth on the Terra Disclosure Schedule at Section
6.8(e) thereof, the Tax Returns for taxable years or periods ending on
or before December 31, 1998 have been examined by the Internal Revenue
Service, or the period for assessment of Taxes in respect of which
such Tax Returns were required to be filed has expired.
(f) Except as set forth on the Terra Disclosure Schedule at Section
6.8(f) thereof, there is no action, suit, investigation, audit, claim
or assessment pending or, to the Knowledge of CMS, proposed or
threatened with respect to Taxes of Terra or its Subsidiaries for
taxable years or periods ending on or before December 31, 1998 and, to
the Knowledge of CMS, no basis exists therefor for which adequate
reserves have not been established and such reserves are reflected in
the computation of Terra's consolidated net working capital.
(g) Except as set forth on the Terra Disclosure Schedule at Section
6.8(g) thereof, all deficiencies asserted or assessments made as a
result of any examination of the Tax Returns for taxable years or
periods ending on or before December 31, 1998 have been paid in full
or are reflected in the computation of Terra's consolidated net
working capital.
(h) Except as set forth on the Terra Disclosure Schedule at Section
6.8(h) thereof, there are no Tax indemnity agreements to which Terra
or its Subsidiaries are a party or are bound.
(i) There are no liens for Taxes upon the Terra Assets, except liens
relating to current Taxes not yet due or which are reflected in the
computation of Terra's consolidated net working capital.
(j) All Taxes which Terra or its Subsidiaries are required by law to
withhold or to collect for payment have been duly withheld and
collected, and have been paid or accrued.
(k) To the Knowledge of CMS, any accruals for deferred Taxes are
adequate to cover any deferred tax liability of Terra and its
Subsidiaries determined in accordance with GAAP through the date
thereof.
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(l) There are no Tax rulings, requests for private letter rulings or
requests for technical advice, in each case initiated by Terra or its
Subsidiaries, or requests for a change in method of accounting or
closing agreements relating to Terra or its Subsidiaries for Taxes for
any period after December 31, 1998.
(m) None of Terra or its Subsidiaries has filed a consent under
section 341(f) of the Code or any comparable provision of state
statutes.
(n) Since January 1, 1999, none of Terra or its Subsidiaries have
taken any action not in accordance with past practice that would have
the effect of deferring any Tax liability for Terra or any Subsidiary
from any taxable period ending on or before December 31, 1998 to any
taxable period ending after December 31, 1998.
(o) Except as set forth on the Terra Disclosure Schedule at Section
6.8(o) thereof, no income or gain of Terra or its Subsidiaries has
been deferred pursuant to Treasury Regulations (S)(S) 1.1502-13 or -
14, or Temporary Treasury Regulation (S)(S) 1.1502-13T or -14T.
(p) None of the Terra Assets is required to be treated as owned by
another Person pursuant to section 168(f)(8) of the Code (as in effect
prior to its amendment by the Tax Equity and Fiscal Responsibility Act
of 1982) or is "tax exempt use property" within the meaning of section
168(h) of the Code or is subject to a so-called TRAC lease under
section 7701(h) of the Code or any predecessor provision.
(q) Terra and its Subsidiaries are the owners for Income Tax
purposes of all property which it has leased to any Person.
(r) Neither Terra nor its Subsidiaries have participated in or
cooperated with an international boycott, within the meaning of
section 999 of the Code, and all filing requirements imposed by
section 999 of the Code with respect to Terra and its Subsidiaries
have been and will be complied with.
(s) Neither Terra nor its Subsidiaries have disposed of property in
a transaction being accounted for under the installment method
pursuant to section 453 or 453A of the Code.
(t) Neither Terra nor its Subsidiaries has any corporate acquisition
indebtedness, as described in section 279(b) of the Code.
(u) Except as set forth on the Terra Disclosure Schedule at Section
6.8(u) thereof, no Taxes with respect to any period ending on or
before December 31, 1998 were paid by Terra or its Subsidiaries (or
charged to Terra or its Subsidiaries through any intercompany account
or payment) after December 31, 1998.
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(v) Except as set forth on the Terra Disclosure Schedule at Section
6.8(v) thereof, no portion of the Terra Assets (i) has been
contributed to and is currently owned by a tax partnership; (ii) is
subject to any form of agreement (whether formal or informal, written
or oral) deemed by any state or federal Tax statute, rule or
regulation to be or to have created a tax partnership; or (iii)
otherwise constitutes "partnership property" (as that term is used
throughout Subchapter K of Chapter 1 of Subtitle A of the Code) of a
tax partnership.
(w) (i) All applications for well determinations for each Qualifying
Well have been filed with the applicable state and federal
agencies under the Natural Gas Policy Act of 1978, as amended
(the "NGPA") and the rules and regulations of the Federal Energy
Regulatory Commission (the "FERC") under the NGPA (the "NGPA
Regulations") requesting a determination that all of the gas
produced from each Qualifying Well is produced from "Devonian
shale". Each such application has been approved by the
applicable state agency and by the FERC and has been finally
approved under and in accordance with section 503 of the NGPA
(as evidenced by appropriate FERC certification). Such
applications comply with the requirements of the NGPA and the
NGPA Regulations. True and correct copies of such
certifications have been furnished to Buyer. No further
applications are required under the NGPA and the NGPA
Regulations to allow the legal sale of all gas produced from the
Qualifying Wells at a price equal to the price for such gas
currently being received. No production from the Qualifying
Wells qualifies for incentive prices under section 107 of the
NGPA or the deregulation provisions of the NGPA or Subtitle 13
of Title I of the NGPA.
(ii) A) Except as set forth at Section 6.8(w) of the Terra
Disclosure Schedule, each Qualifying Well was drilled
(within the meaning of section 29(f) of the Code) after
December 31, 1979 and prior to January 1, 1993, and was
completed as a well capable of producing from the formation
described in section 3.01(x)(iii) of the NGPA; and
B) All gas (except carbon dioxide) produced from each
Qualifying Well is a "qualified fuel" under section 29(c) of
the Code.
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(iii) Except as set forth at Section 6.8(w) of the Terra Disclosure
Schedule, the Qualifying Wells are perforated only in the Antrim
formation and the gas produced from each Qualifying Well is not
commingled with any gas from that Qualifying Well that is not
produced from such formation.
(iv) Prior to January 1, 1980, there was no production of coal seam,
Devonian shale, geopressured brine or tight formation gas in
marketable quantities from the "property" (as used in section 29
of the Code) on which any Qualifying Well is located.
(v) No oil or gas produced from the Qualifying Wells qualifies or
has qualified for the enhanced oil recovery credit or any other
credit under section 43 of the Code and none has been claimed or
taken on such oil or gas.
(vi) No credits referred to in section 29(b)(4) have been claimed
with respect to any Qualifying Wells.
(vii) None of the special financing arrangements described in
subclauses (I), (II), or (III) of section 29(b)(3)(A)(i) of the
Code have been provided in connection with any project that
includes any of the Qualifying Wells.
6.9 Powers of Attorney
To the Knowledge of CMS, there are no outstanding powers of attorney
executed on behalf of any of Terra and its Subsidiaries.
6.10 Litigation
Except as set forth in Section 6.10 of the Terra Disclosure Schedule
there is no outstanding injunction, judgment, order, decree, ruling or charge
which could have a material adverse effect on the Terra Assets, nor, except as
set forth in Section 6.10 of the Terra Disclosure Schedule is CMS or Terra a
party to any action, suit, proceeding, hearing or investigation, pending or
overtly threatened which involves the Terra Assets, or Terra's ownership or
operation of the Terra Assets.
6.11 Employees and Employee Benefits
(a) As of the Effective Date, Terra has no employees or any continuing
obligations to any former employee(s) of Terra.
(b) Neither Terra nor its Subsidiaries maintains or contributes to any
Employee Benefit Plan, Employee
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Pension Benefit Plan, Employee Welfare Benefit Plan or Multiemployer
Plan.
(c) There are no claims or actions pending against Terra or its
Subsidiaries asserted by any Person or former employee, or any
governmental agency or body with respect to any employee matter, and
to the Knowledge of CMS there are no claims or actions relating to any
employment matter threatened against Terra or its Subsidiaries.
6.12 Environmental, Health and Safety Matters
Except as set forth in Section 6.12 of the Terra Disclosure Schedule,
Terra is in compliance with all Environmental, Health and Safety Requirements
insofar as the same pertain to the Terra Assets, except where the failure to
comply would not have a material adverse effect upon the Terra Assets; and
except as set forth in Section 6.12 of the Terra Disclosure Schedule, neither
Terra nor the Terra Assets is the subject of any order, ruling, proceeding,
hearing or investigation, either pending or overtly threatened relating to
Environmental, Health and Safety Requirements. Except as set forth in Section
6.12 of the Terra Disclosure Schedule, neither CMS nor Terra has received any
written notice, report or other information regarding any actual or alleged
material violation of any Environmental, Health and Safety Requirements with
respect to the Terra Assets, and as of the Effective Date no condition exists
with respect to the Terra Assets that could give rise to future liability or
obligations under the Environmental, Health and Safety Requirements.
6.13 No Guaranties; Extension of Credit
Except as set forth in the Terra Disclosure Schedule at Section 6.13
thereof, and further except for customary indemnification and guaranty
provisions contained in any operating agreement or other commonly employed oil
and gas agreements, and further except for extensions of credit made in the
Ordinary Course of Business, no material obligations or liabilities of Terra or
its Subsidiaries are guaranteed by or subject to a similar contingent obligation
of any other Person, nor has Terra or its Subsidiaries guaranteed or become
subject to a similar contingent obligation in respect of the obligations or
liabilities of, or extended credit to any other Person. With respect to the CMS
Oil and Gas Company Credit Agreement referenced at Section 6.13 of the Terra
Disclosure Schedule, CMS represents that it will obtain a release of Terra as
guarantor thereunder at or prior to the Closing Date.
6.14 Permits
To the Knowledge of CMS, each of Terra and its Subsidiaries and
Affiliates possesses all material federal, state and local governmental and
regulatory franchises, rights, privileges, permits, grants, concessions,
licenses, certificates, variances, authorizations, approvals, and other material
authorizations (including any amendments to any thereof) necessary to own or
lease and operate the Terra Assets and to conduct its business as now conducted
(collectively, the "Permits").
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To the Knowledge of CMS, except as listed on the Terra Disclosure Schedule
at Section 6.14 thereof, all Permits are in full force and effect and will
continue in full force and effect through the Closing Date. To the Knowledge of
CMS, except as listed on the Terra Disclosure Schedule at Section 6.14 thereof,
neither Terra nor its Subsidiaries and Affiliates is in default in any material
respect under the terms of any Permit nor to the Knowledge of CMS has Terra or
its Subsidiaries and Affiliates received notice of any material default
thereunder which has not, or will not be resolved as of the Closing Date.
6.15 Compliance With Contracts
Terra has performed all of its obligations under the terms of all
contracts and agreements pertaining to the Terra Assets, except where the
failure to perform would not have a material adverse effect upon the Terra
Assets, and neither CMS nor Terra has received written notice from any party of
an alleged default by Terra under the terms of any contract or agreement, or
that any contract or agreement is not valid and enforceable in accordance with
its terms insofar, and only insofar, as same relate to the Terra Assets.
Anything to the contrary contained herein, notwithstanding, this Section 6.15
does not, and shall not under any circumstances be deemed to include or apply to
matters constituting Title Defects in accordance with Section 13.8, below,
whether or not a Claim of Title Defect has been timely and properly asserted
with respect thereto.
6.16 Title
Subject to Section 18.1, below, and except for the Permitted Encumbrances,
as defined in Section 13.7, below, Terra has Defensible Title, as defined in
Section 13.6, below, to the Terra Assets free and clear of all material Title
Defects, as defined in Section 13.8, below.
6.17 Consents, Approvals and Rights to Acquire
Subject to the provisions of Article XX, below, CMS shall identify and
properly notify all parties who hold any preferential right or option to
purchase the Terra Assets, or any part thereof, or whose consent is required to
consummate the transaction contemplated by this Agreement.
6.18 Gas Contracts
Except as set forth at Section 6.18 of the Terra Disclosure Schedule, to
the Knowledge of CMS, production from or attributable to the Terra Property is
not dedicated to any gas sales contracts, other than those which are terminable
upon thirty (30) day written notice.
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6.19 Material Contracts
Except as contemplated by this Agreement, and except as set forth in a
schedule of material contracts to be furnished by CMS to Purchaser on or before
March 27, 2000, or in any Attachment to this Agreement, and except for those
agreements, instruments or documents included in subpart (b) below, to the
extent contained in the files and records, including without limitation computer
files and records, located either at Terra's offices in Traverse City, Michigan
or CMS's offices in Houston, Texas, and made fully available to Purchaser,
neither Terra nor any of its Subsidiaries is a party to or is bound by any
material written or oral contract, agreement, commitment or instrument or
amendment to any of the foregoing (excluding any of the foregoing which has been
fully performed by all parties) of the type or in the nature of those enumerated
below:
(a) for the purchase, sale or lease (except if the scheduled lease
payments are less than $10,000 per year) of real property;
(b) relating to oil and gas leases, licenses, permits and similar
arrangements, operating agreements, farm-out and farm-in agreements,
service contracts and similar agreements, option agreements, pooling
and unitization agreements, production marketing agreements, gas
balancing agreements, gas purchase and sales contracts, production
sales contracts, processing agreements, permits, licenses and orders,
easements, rights of way, pipeline agreements, exploration agreements,
participation agreements, oil sales contracts, and all agreements or
amendments relating to the same, or assignments of rights or
obligations under any such agreements, all relating to the exploration
for or the development, production, treating, processing,
transportation or marketing of hydrocarbons;
(c) which provides for, or relates to, the guarantee by Terra or any of
its Subsidiaries of any obligation of any customers, suppliers,
officers, directors, employees or affiliates of Terra or such
Subsidiaries;
(d) which provides for, or relates to, the incurrence by Terra or any of
its Subsidiaries of debt for borrowed money in excess of $10,000;
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(e) which provides for, or relates to, any non-competition or
confidentiality arrangement with any person, including any current or
former director, officer or employee of Terra or any of its
Subsidiaries;
(f) for capital expenditures in excess of $25,000 for any single project
or related series of projects;
(g) any partnership, joint venture or other similar arrangements or
agreements involving a sharing of profits or losses;
(h) which (other than contracts, agreements, commitments and instruments
of the nature described in clauses (a) through (g) above) involve
payments or receipts by Terra or any of its Subsidiaries of more than
$10,000; and
(i) for any purpose which is material to the business of Terra and its
Subsidiaries taken as a whole.
6.20 Disclaimer of All Other Representations and Warranties
Except as expressly set forth in Article IV and this Article VI, CMS makes
no representation or warranty, express or implied, at law or in equity, in
respect of the Assets, the Terra Assets, or the assets of any of Terra's
Subsidiaries or Affiliates, including, without limitation, with respect to
merchantability or fitness for any particular purpose of the Assets, the Terra
Assets or the assets of any of Terra's Subsidiaries or Affiliates, and any such
other representations or warranties are hereby expressly disclaimed.
ARTICLE VII - OPERATIONS AND CASUALTY LOSS
7.1 Revenues and Expenses
During the Interim Period, CMS shall continue to receive proceeds from the
sale of hydrocarbons produced from or allocated to the Subject Property and the
Terra Property and all other proceeds attributable to the Assets and the Terra
Assets. CMS and Terra will continue to pay expenses attributable to the Assets
and the Terra Assets in the same manner as before the Effective Date. At
Closing, the Purchase Price shall be adjusted for such proceeds and expenses in
the manner set forth in Section 3.3, above.
7.2 Operations and Loss of Assets and Terra Assets
(a) Purchaser acknowledges that portions of the Subject Property and
the Terra Property may be producing oil and/or gas properties, or may
be pooled with producing oil and/or gas properties. Purchaser agrees
that until
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Closing, the Assets and the Terra Assets may continue to be operated
and hydrocarbons will continue to be produced from the Subject
Property and the Terra Property or properties pooled therewith. CMS
and Terra, as to the portions of the Subject Property and the Terra
Property which CMS or Terra now operates, shall continue to operate
the same in a good and workmanlike manner until the Transfer Date,
when such operations, to the extent permitted by applicable contracts
and agreements, shall be turned over to and become the responsibility
of Purchaser; unless an applicable unit, pooling, communitization or
operating agreement otherwise requires, in which case (unless
Purchaser and CMS otherwise agree) CMS or Terra shall continue the
physical operation of such portions of the Subject Property and the
Terra Property, if permitted by, and pursuant to and under the terms
of such applicable contract(s) and agreement(s), until such time after
Closing as such applicable contract(s) and agreement(s) may require;
provided, however, if the transaction contemplated by this Agreement
proceeds to Closing, then Purchaser shall assume all risk of, and CMS
shall have no liability to Purchaser for, losses or damages sustained,
or liabilities incurred, except as may result directly from CMS's
gross negligence or willful misconduct in conducting the operation of
the Subject Property and the Terra Property (or portions thereof)
after the Effective Date. Any such loss, damage or liability which
Purchaser seeks to impose on CMS, shall be limited to the rights and
remedies provided a non-operator under the applicable contract(s) or
agreement(s). Purchaser shall have no recourse against CMS if the
applicable contract(s) or agreement(s) delay or prevent Purchaser from
assuming operation of the operated portions of the Subject Property
and the Terra Property. In no event shall CMS be required to operate
the operated portions of the Subject Property or the Terra Property
for a period longer than two (2) months after the Closing Date. In the
event that Purchaser is unable, for any reason, to assume operatorship
of any of the Subject Properties or the Terra Properties which CMS
continues to operate as of that date, then CMS will appoint Purchaser
as its contract operator, and Purchaser shall, and does hereby agree
to assume all operations on the operated portions of the Subject
Property and the Terra Property. Purchaser shall thereafter assume and
be responsible for, and shall defend, indemnify, and hold CMS, its
parents, affiliates and subsidiary corporations, as well as CMS's and
their officers, directors, shareholders, employees, and agents,
harmless from, against and in respect of any and all Claims based
upon, arising out of or related to operation of the operated portions
of the Subject Property and the Terra Property, including but not
limited to accounting, disbursement of revenues and other general
administrative matters relating thereto. Purchaser shall be entitled
to all applicable fees and charges relating to such operations which
are attributable to periods from and after the date on which Purchaser
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assumes operatorship of each of the wells and units comprising the
operated portions of the Subject Property and the Terra Property.
Operation of any portion of the Subject Property or the Terra Property
from and after the Effective Date by CMS shall be for and on behalf of
Purchaser, and CMS shall make appropriate charges to Purchaser,
including overhead charges, for the share of all such charges
attributable to the Subject Property and the Terra Property, and to
all other working interest owners, which charges shall be retained by
CMS and not paid or credited to Purchaser regardless of when invoiced
and received. Except as otherwise provided in Sections 8.4 and
15.2(k),below, all such charges shall be made in accordance with the
applicable operating agreement for each such property, or the
applicable contract which otherwise controls. If there are no
presently effective operating agreements or contracts, then such
charges will be in accordance with the applicable COPAS rate for the
area and type of well to which the charges apply, as determined by
CMS. Any such charges and expenses due from Purchaser or which are due
from third parties and are received by Purchaser, regardless of when
invoiced and received, may be recovered by CMS as part of the Closing
or Post-Closing Adjustments (pursuant to Sections 15.2(e) and 16.2,
below), as appropriate. Purchaser, its heirs, successors, and
affiliates shall assume the risk of, and shall defend, indemnify, and
hold CMS, its parents, affiliates, and subsidiary corporations, as
well as CMS's and their officers, directors, shareholders, employees
and agents, harmless from, against and in respect of any and all
Claims, based upon, arising out of, or attributable to personal
injury, loss of life or damage to property suffered or sustained as
the result of any action or activity related to operation of the
Subject Property and the Terra Property on or after the Effective
Date, except to the extent that such personal injury, loss of life or
damage to property was exclusively and directly caused by CMS's gross
negligence or willful misconduct.
(b) Purchaser acknowledges and agrees that CMS cannot and does not
covenant or warrant that Purchaser shall become successor operator of
all or any part of the portion of the Subject Property which CMS
currently operates, nor that Terra shall be allowed to continue as
operator of all or any part of the portions of the Terra Property
which it operates, since the Subject Property and the Terra Property
may be subject to unit, pooling, communitization or operating
agreements or other agreements which control the appointment of a
successor operator. Purchaser will take the necessary action to
attempt to succeed CMS, or to allow Terra to continue as operator as
to all properties operated by CMS or Terra as of the Effective Date.
CMS agrees, however, that as to the portion of the Subject Property
which it operates, where it will assist to facilitate the appointment
of a successor operator, CMS will, upon Purchaser's written request,
resign as operator at
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Closing. Purchaser will act expeditiously to take all reasonable
measures, including, but not limited to, taking action prior to
Closing if the Parties mutually agree that such action is appropriate,
to have Purchaser appointed successor operator of those portions of
the Subject Property which CMS operates, or, if the necessary votes
under the applicable agreement(s) cannot be obtained to appoint
Purchaser as successor operator, to have another working interest
owner of such properties appointed successor operator, per the terms
of any applicable operating or other agreement(s).
(c) If the transaction contemplated by this Agreement proceeds to closing,
then the risk of casualty loss of the Assets and the Terra Assets
shall pass to Purchaser as of the Effective Date. CMS shall maintain
its current insurance on the Assets and the Terra Assets through the
Transfer Date, and the Purchase Price shall be adjusted upward to
reflect a prorata share of the paid premiums of all such insurance
attributable to periods after the Effective Date. Attached hereto as
Attachment M is a schedule of the insurance coverages which CMS
presently maintains with respect to the Assets and the Terra Assets.
CMS shall be entitled to receive any and all insurance proceeds
relating to the Assets and the Terra Assets attributable to events
which occurred prior to the Effective Date, and if the transaction
contemplated by this Agreement proceeds to Closing, then Purchaser
shall be entitled to receive any and all insurance proceeds
attributable to events which occur on or after the Effective Date. In
addition, Purchaser shall assume all risk of any change in condition
of the Assets and the Terra Assets which occurs during the Interim
Period, except to the extent any change in condition is exclusively
and directly caused by the gross negligence or willful misconduct of
CMS or Terra.
ARTICLE VIII - PRE-CLOSING OBLIGATIONS OF CMS
8.1 Encumbrances
During the Interim Period, except as otherwise approved by Purchaser and
except for the operation of the Subject Property and the Terra Property and the
production and sale of hydrocarbons from or allocable to the Subject Property
and the Terra Property in the Ordinary Course of Business as otherwise provided
in this Agreement, CMS and Terra shall not transfer, sell, hypothecate, encumber
or otherwise dispose of any of the Assets or the Terra Assets (other than as
required in connection with the exercise by third parties of preferential rights
to purchase or rights of reconveyance or similar rights, applicable to any
portion of the Assets or the Terra Assets as provided in Article XX).
8.2 Approvals/Consents
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During the Interim Period, CMS covenants and agrees that it will use
reasonable efforts to identify and obtain all permissions, approvals and
consents by any governmental authorities or agencies as may be required to
consummate the transaction contemplated hereunder (excluding governmental
permissions, approvals and consents which are customarily obtained after the
assignment of an oil and gas lease or interest). Consistent with Section 9.1,
below, Purchaser shall assist CMS in timely identifying and obtaining all such
items. The Parties shall cooperate to identify all such permissions, approvals
and consents in a timely manner so as to permit the Closing to occur on or
before the Closing Date. Except for an appropriate adjustment to the Purchase
Price, consistent with Attachment H, Purchaser shall have no recourse against
CMS with regard to any loss occasioned by the failure to properly identify or
timely notify any such permission, approval or consent. CMS shall promptly
notify Purchaser of any written claim received by CMS from any third party
relating to such permissions, approvals or consents.
8.3 Notices and Consents
CMS shall, and will cause each of Terra and its Subsidiaries to give any
notices to, make any filings with, and use commercially reasonable efforts to
obtain any authorizations, consents, and approvals of governments and
governmental agencies in connection with the matters referred to in Section 4.4
and Section 6.3, above, if any.
8.4 Operation of Business
CMS will not cause or permit any of Terra and its Subsidiaries to engage in
any practice, take any action, or enter into any transaction outside the
Ordinary Course of Business, which may have a material adverse effect on the
financial condition of Terra and its Subsidiaries taken as a whole. Without
limiting the generality of the foregoing, CMS will not cause or permit any of
Terra and its Subsidiaries to engage in any practice, take any action, or enter
into any transaction outside the Ordinary Course of Business the primary purpose
or effect of which will be to generate or preserve Cash. From and after the date
of this Agreement, neither CMS nor Terra shall incur or consent to any
extraordinary or unusual expense with respect to the Assets or the Terra Assets
in excess of $50,000.00 without first obtaining Purchaser's written consent.
8.5 Full Access
CMS will permit, and CMS will cause each of Terra and its Subsidiaries to
permit representatives of the Purchaser to have full access at all reasonable
times, and in a manner so as not to interfere with the normal business
operations of CMS, Terra and its Subsidiaries, to all premises, properties,
personnel, books, financial and other records (including without limitation tax
records and to the extent prepared, net operating statements for the years 1997,
1998 and 1999), contracts, and documents of or pertaining to each of the Assets
and the Terra Assets. CMS shall also permit representatives of the Purchaser to
have full access at all reasonable times, and in a manner so as not to interfere
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with the normal operations of the Assets and the Terra Assets, to the Subject
Property and the Terra Property. Purchaser shall defend, indemnify and hold CMS,
and its successors and assigns, harmless from, against and in respect of any and
all Claims incurred by CMS by reason of damage or injury to any person or
property caused directly or indirectly as a result of Purchaser's inspection of
the Assets and the Terra Assets. Purchaser will treat and maintain as such any
Confidential Information it receives from CMS, Terra, or its Subsidiaries and
Affiliates in the course of the review contemplated by this Section 8.5, and
will not use any of the materials received from CMS, Terra, and its Subsidiaries
and Affiliates, or any information derived pursuant to this Section 8.5,
including, but not limited to, any Confidential Information, except in
connection with this Agreement. All materials reviewed and the results of all
tests, reviews, data and evaluations shall be maintained confidential through
the Closing Date. In the event the transaction contemplated by this Agreement is
not consummated for any reason whatsoever, then Purchaser shall immediately
provide all such tests, reviews, data and evaluations, and all written
materials, computer materials and other tangible embodiments related thereto to
CMS, and shall not maintain copies thereof, and shall maintain such materials,
tests, reviews, data and evaluations as Confidential Information, all in
accordance and consistent with Section 22.10. Purchaser will treat and hold as
such any Confidential Information it receives from CMS, Terra, or its
Subsidiaries in the course of the reviews contemplated by this Section 8.5, will
not use any of the Confidential Information except in connection with this
Agreement, and, if this Agreement is terminated for any reason whatsoever, will
return to the CMS, Terra, and its Subsidiaries all tangible embodiments (and all
copies) of the Confidential Information which are in its possession, all in
accordance with Section 22.10, below.
8.6 Notice of Developments
CMS will give prompt written notice to Purchaser of any matter which CMS
discovers, or of which CMS is made aware, which causes, or with the passage of
time or the giving of notice, may cause any of the representations or warranties
set forth in Article IV and Article VI to be untrue, incorrect or incomplete.
Subject to the provisions of Sections 9.6 and 17.1(d), below, no disclosures by
CMS pursuant to this Section 8.6, however, shall be deemed to prevent or cure
any misrepresentation or breach of warranty.
ARTICLE IX - PRE-CLOSING OBLIGATIONS OF PURCHASER
9.1 Approvals/Consents
During the Interim Period, Purchaser covenants and agrees it will assist
CMS in identifying and obtaining all permissions, approvals and consents, of any
governmental authorities or agencies as may be required to consummate the
transaction contemplated hereunder (excluding governmental permissions,
approvals and consents which are customarily obtained after the assignment of an
oil and gas lease or interest). The Parties shall cooperate to identify all such
permissions, approvals and
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consents in a timely manner so as to permit the Closing to occur on or before
the Closing Date. Except for an appropriate adjustment to the Purchase Price,
consistent with Attachment H, Purchaser shall have no recourse against CMS with
regard to any loss occasioned by the failure to properly identify or timely
notify any such permission, approval or consent. Purchaser shall promptly notify
CMS of any written claim received by Purchaser from any third party relating to
such permissions, approvals or consents.
9.2 Bonds and Permits
(a) Attached hereto as Attachment J is a list of all bonds held by CMS, or
held by Terra and backed by CMS, relating to the Assets and the Terra
Assets. Purchaser has represented to CMS that it or its designated
operator, other than Terra, shall, as of the Closing Date have all
required federal, state and local lease and operating bonds. Purchaser
shall provide CMS with satisfactory proof that the bonds are in full
force and effect for the Assets and the Terra Assets as of the Closing
Date or as soon thereafter as is reasonably possible. Purchaser hereby
covenants and agrees to defend, indemnify and hold CMS, Terra, its
parent, subsidiary and affiliate entities, and CMS's and their
officers, directors, employees and agents, harmless from and against
any and all Claims in connection with any loss under or claims
relating to any of the bonds listed on Attachment J from and after the
Effective Date.
(b) Purchaser shall be responsible, and shall use its reasonable best
efforts to the extent that it has the ability, to confirm or do all
things necessary so that the transaction contemplated by this
Agreement does not cause the breach of any terms or conditions of the
Permits or the forfeiture or impairment of any rights thereunder and
that no consents, approvals or acts of, or the making of any filing
with, any governmental body, regulatory commission or other party will
be required to be obtained in respect of any Permit as a result of the
consummation of the transaction contemplated by this Agreement. CMS
agrees to use its reasonable commercial best efforts to cooperate with
Purchaser and to assist Purchaser to effectuate the foregoing.
9.3 Corporate Documentation
On or before the Closing Date, Purchaser shall provide CMS the documents
set forth in this Section 9.3. All documents shall be dated no earlier than
thirty (30) days before Closing.
(a) Certificate of Good Standing certified by the Secretary of State
for the state in which Purchaser is incorporated.
(b) A current statement, certified by the Secretary of State for the
State of Michigan, that Purchaser is
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authorized to do business in the State of Michigan and is in good
standing as a foreign corporation.
(c) A copy of a resolution by the board of directors of Purchaser
authorizing the transaction intended by this Agreement and authorizing
the individual who executes this Agreement and any conveyance
instrument on behalf of the corporation to do so, certified by the
corporate secretary or assistant secretary of Purchaser.
(d) A certificate of the secretary or assistant secretary of Purchaser
certifying the incumbency and specimen signature of the officer of
Purchaser who executes this Agreement and any assignments or other
documents required to be executed by Purchaser, pursuant to the terms
of this Agreement.
(e) If Purchaser is a partnership or other entity, Purchaser agrees
to provide CMS such documentation, as CMS requires to verify
Purchaser's status and the authority of its agent prior to Closing.
9.4 Notices and Consents
Purchaser will give any notice to, make any filings with, and use
commercially reasonable efforts to obtain any authorizations, consents and
approvals of governments and governmental agencies in connection with the
matters referred to in Sections 3.4(a) and 5.3, above, or required pursuant to
Section 5.7, above, if any.
9.5 Notice of Developments
Purchaser will give prompt written notice to CMS of any material adverse
development causing a breach of any of its representations and warranties
contained in Article V, above. No disclosure by Purchaser pursuant to this
Section 9.5, however, shall be deemed to prevent or cure any misrepresentation
or breach of warranty.
9.6 Notice of Misrepresentation or Breach of Warranty
Purchaser will give prompt written notice to CMS of any matter which
Purchaser discovers, or of which Purchaser is made aware, which causes, or with
the passage of time or the giving of notice, may cause any of the
representations or warranties set forth in Article IV or Article VI to be
untrue, incorrect or incomplete. No disclosure by Purchaser pursuant to this
Section 9.6, however, shall be deemed to prevent or cure any misrepresentation
or breach of warranty, unless Purchaser fails to give CMS written notice of any
such matter known, discovered or disclosed to Purchaser within four (4) business
days after such matter becomes known by, discovered by or disclosed to
Purchaser, in which case any such misrepresentation or breach of warranty shall
be deemed waived or cured.
ARTICLE X - CMS'S CONDITIONS OF CLOSING
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CMS's obligation to consummate the transaction provided for herein is
subject to the satisfaction by Purchaser or waiver by CMS of the following
conditions set forth in Section 10.1 through Section 10.6, inclusive:
10.1 Representations
The representations and warranties of Purchaser contained in Article V
shall be true and correct in all material respects on the Closing Date as though
made on and as of that date.
10.2 Performance
Purchaser shall have performed in all material respects the obligations,
covenants and agreements to be performed by Purchaser at or prior to the
Closing.
10.3 Pending Matters
No suit, action or other proceeding by a third party or a governmental
authority shall be pending or threatened which seeks substantial damages from
CMS in connection with, or seeks to restrain, enjoin or otherwise prohibit, the
consummation of the transaction contemplated by this Agreement.
10.4 Waiting Periods
All applicable waiting periods (and any extensions thereof) under any
applicable act shall have expired or otherwise been terminated and the Parties,
Terra, and its Subsidiaries shall have received all other authorizations,
consents, and approvals of governments and governmental agencies referred to in
Sections 4.4, 5.5 and 6.3, above.
10.5 Opinion of Counsel
CMS shall have received an Opinion of Counsel, dated as of Closing,
from Purchaser's counsel, in form and substance as set forth at Attachment N.
10.6 Payment of Purchase Price or Adjusted Purchase Price
Purchaser shall have wire transferred to CMS the Purchase Price or
Adjusted Purchase Price due at Closing as described in Section 3.4(b), above,
pursuant to written instructions delivered by CMS.
CMS may waive any condition specified in this Article X, by executing
a statement to that effect at or prior to Closing.
ARTICLE XI - PURCHASER'S CONDITIONS OF CLOSING
Purchaser's obligation to consummate the transaction provided for herein
is subject to the satisfaction by CMS or waiver by Purchaser of the following
conditions set forth in Sections 11.1 through 11.5, inclusive:
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11.1 Representations
The representations and warranties of CMS contained in Article IV,
except Section 4.13, and in Sections 6.2, 6.3, 6.5, 6.7, 6.8(w), 6.10, 6.12,
6.14, 6.15, 6.18, and 6.19 shall be true and correct in all material respects on
the Closing Date as though made on and as of that date.
11.2 Performance
CMS shall have performed in all material respects the obligations,
covenants and agreements to be performed by it at or prior to the Closing.
11.3 Pending Matters
No suit, action or other proceeding by a third party or a governmental
authority shall be pending or threatened which seeks substantial damages from
Purchaser in connection with, or seeks to restrain, enjoin or otherwise
prohibit, the consummation of the transaction contemplated by this Agreement.
11.4 Waiting Periods
All applicable waiting periods (and any extensions thereof) under any
applicable act, shall have expired or otherwise been terminated and the Parties,
Terra, and its Subsidiaries shall have received all other authorizations,
consents, and approvals of governments and governmental agencies referred to in
Sections 4.4, 5.5 and 6.3, above.
11.5 Opinion of Counsel
Purchaser shall have received an Opinion of Counsel, dated as of
Closing from CMS's counsel, in form and substance as set forth at Attachment O.
Purchaser may waive any condition specified in this Article XI, by
executing a statement to that effect at or prior to Closing.
ARTICLE XII - ENVIRONMENTAL CONDITION
12.1 Existing Condition
The Subject Property and the Terra Property have been utilized by CMS,
Terra and/or its Subsidiaries and possibly others for the purposes of
exploration, development, production and transportation of oil and gas.
Purchaser acknowledges that wastes and products, including, but not limited to,
crude oil, natural gas, natural gas liquids, produced water, and other wastes
associated with oil and gas production and exploration operations, may have been
spilled, released or disposed of on-site by, among other ways, placement in
pits, burial, land farming, land spreading and underground injection, into or
onto the Subject Property and the Terra Property. Purchaser acknowledges that
some oilfield production equipment located on the Subject Property and the Terra
Property may contain asbestos
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or naturally-occurring radioactive material ("NORM"). Purchaser expressly
understands that NORM may affix or attach itself to the inside of wells,
materials and equipment as scale or in other forms, and that wells, materials
and equipment located on the Subject Property and the Terra Property may contain
NORM and that NORM-containing materials may be buried or have been otherwise
disposed of on the Subject Property and the Terra Property. Purchaser also
expressly understands that special procedures may be required for the removal
and disposal of asbestos and NORM from the equipment and the Subject Property
and the Terra Property where it may be found.
Attachment P contains a list of those portions of the Subject
Property, the Terra Property and other properties for which CMS has
responsibility or liability which, to the Knowledge of CMS constitute a
"Facility", as defined in 1994 PA No. 451, Sec. 20101(o), and discloses the
general nature and extent of any release. Attachment P is intended to, and
shall constitute notice to Purchaser of the existence of any such Facility, as
may be required by 1994 PA No. 451, Sec. 20116. In the event the transaction
contemplated by this Agreement proceeds to closing, then as of the Effective
Date Purchaser shall assume all responsibility and all liability of CMS with
respect to all Environmental, Health and Safety Requirements relating to the
Facilities listed at Attachment P, and Purchaser agrees to release, defend,
indemnify and hold CMS, its parent, affiliate and subsidiary corporations, as
well as CMS's and their officers, directors, shareholders, employees and agents,
harmless from and against any and all Claims and Adverse Consequences of
whatsoever kind and nature arising out of the matters identified at Attachment
P.
12.2 Environmental Assessment and Access
(a) For the purposes of this Agreement, an "Environmental
Assessment" shall mean the right to enter upon and within the Subject
Property and the Terra Property, and to inspect the structures and
improvements thereon. An Environmental Assessment shall be a Phase I
environmental review only, which shall only consist of (i) a review
and assessment of the adequacy of CMS's or Terra's existing permits
for the Subject Property and the Terra Property; (ii) a review of
historic data to determine prior land uses; (iii) a compilation of
pertinent information related to the Subject Property and the Terra
Property, including interpretation of analytical data in the files
referenced in Section 1.1(h), above, except any such information which
CMS considers to be confidential or proprietary or which CMS or Terra
is prohibited from disclosing due to third party restrictions unless
such information is directly related to the condition, quality or
quantity of the Subject Property or the Terra Property; (iv) a
physical examination of the Subject Property and the Terra Property to
identify potential contaminant sources; and (v) surveys to locate the
boundaries of the Subject Property and the Terra Property.
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(b) Environmental Assessment shall not include soil boring,
collection of samples or analysis of any material on the Subject
Property and the Terra Property without the express written consent of
CMS. If Purchaser performs any borings, collects samples or performs
analysis of material, Purchaser shall assume all liability of the
results, generation of wastes and disposal of any material generated.
Purchaser shall release, defend, indemnify and hold CMS its parent,
affiliate and subsidiary corporations, as well as CMS's officers,
directors, shareholders, employees and agents harmless from, against
and in respect of any and all Claims created by or associated with
boring, sampling or analysis.
(c) Following execution of this Agreement, and upon reasonable
notice to CMS, Purchaser shall have the right, until fifteen (15)
business days preceding the Closing Date, to conduct or have conducted
an Environmental Assessment of the Subject Property and the Terra
Property at its sole cost, risk and expense. Purchaser shall provide
CMS a copy of the Environmental Assessment, including any reports,
data and conclusions prior to Closing. CMS agrees to provide
Purchaser with reasonable access to the Subject Property and the Terra
Property to conduct the Environmental Assessment. CMS shall have the
right to require Purchaser to conform to CMS's safety and industrial
hygiene procedures in the performance of the Environmental Assessment.
(d) In the event Purchaser's Environmental Assessment reveals a
demonstrable violation of any Environmental, Health or Safety
Requirements (other than those matters disclosed at Attachment P),
then Purchaser shall so notify CMS in writing, no later than fifteen
(15) business days prior to Closing. In the event that Purchaser
timely and properly asserts a violation of any Environmental, Health
or Safety Requirements, such violation shall be resolved in accordance
with the procedure contained in Section 17.1(d), below, or CMS, at its
sole and exclusive option, may elect to exclude the affected portion
of the Subject Property or the Terra Property, from the transaction
contemplated by this Agreement with a corresponding downward
adjustment to the Purchase Price in an amount equal to the allocated
value of the affected portion of the Subject Property or the Terra
Property, as reflected at Attachment H. In the event a portion of the
Terra Property is excluded from the transaction contemplated by this
Agreement, CMS shall cause Terra to assign all of its right, title and
interest in the affected portion of the Terra Property to CMS, at or
prior to Closing.
12.3 Release and Indemnity for Environmental Conditions
Purchaser understands that upon Closing the conveyance and assignment of
the Subject Property and the Terra Property will be on an "AS IS" and "WHERE IS"
basis, "WITH ALL FAULTS".
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Purchaser shall assume and discharge any and all liabilities with respect to
Environmental, Health and Safety Requirements relating to the ownership or
operation of the Assets and the Terra Assets whether arising before or after the
Effective Date, except as follows:
(i) Purchaser assumes no liability with respect to Environmental Health
and Safety Requirements unless and until Closing occurs; and
(ii) Except as qualified by Section 18.1, below, Purchaser assumes no
liability with respect to any matters which constitute a breach of
the representations and warranties of CMS contained in Section 4.8
and Section 6.12 , above.
Subject to the provisions of Article XVIII below, as to all other
Environmental, Health and Safety Requirements, Purchaser hereby releases and
shall and does hereby covenant and agree to defend, indemnify and hold CMS, its
parent, subsidiary and affiliate corporations, and CMS's and their officers,
directors, employees and agents harmless from and against any and all Claims and
Adverse Consequences with respect to or related in any manner to any and all
Environmental, Health and Safety Requirements of, or any other condition of the
Subject Property or the Terra Property existing either before or after the
Effective Date or Closing Date. Purchaser agrees that the indemnity provision
of this Section 12.3 shall apply regardless of whether CMS or Terra was wholly
or partially, actively or passively, negligent or otherwise at fault, and
whether or not the Claim or Adverse Consequence is based on a theory of
negligence, negligence per se, strict liability, willful misconduct, products
liability, premises liability or other theory of liability as to the applicable
indemnitee or others.
12.4 Confidentiality, Release and Indemnity For Environmental Assessment
Purchaser agrees that any data, the results of any analysis of data or
information acquired pursuant to the Environmental Assessment shall be deemed to
be Confidential Information subject to the provisions of Section 22.10, below.
Purchaser will not disclose the data, analysis or information to any person or
agency without the prior written approval of CMS. Purchaser waives and releases
all Claims against CMS, its parent, subsidiary and affiliate corporations, and
CMS's and their directors, officers, employees and agents, and to the extent CMS
or Terra may have any liability or duty of contribution, CMS's and Terra's
working interest owners, partners or joint venturers in the Subject Property and
the Terra Property, for any injury to, disease of, or death of persons, or
damage to or loss of property arising in any way from the exercise of
Purchaser's right to conduct the Environmental Assessment, or activities of
Purchaser or its employees or agents on the Subject Property and the Terra
Property while conducting the Environmental Assessment. Purchaser shall defend,
indemnify and hold harmless CMS, its parent, subsidiary and affiliate
corporations, and CMS's and their directors, officers, employees and agents, and
to the extent CMS or Terra may have any liability or duty of
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contribution, CMS's and Terra's lessors, co-lessees, co-working interest owners,
joint venturers and partners in the Subject Property and the Terra Property
(insofar only as CMS or Terra may be obligated to such lessors, co-lessees, co-
working interest owners, joint venturers and partners), harmless from and
against any and all Claims and Adverse Consequences whatsoever, and any and all
statutory or common law liens or other encumbrances for labor or materials
furnished in connection with the Environmental Assessment, and the disposition
of any samples or wastes generated by the Environmental Assessment. Purchaser
agrees that it shall be considered to be the sole generator of any wastes or
samples generated by the Environmental Assessment, and that it shall comply with
all applicable federal, state or local governmental laws, rules, regulations and
ordinances in conducting the Environmental Assessment.
12.5 Insurance for Environmental Assessment
Purchaser shall obtain and maintain comprehensive public liability and
property damage insurance for the performance of the Environmental Assessment by
Purchaser or its contractor or other agents, or for purposes of obtaining
physical access to any of the Subject Property and the Terra Property, or for
any other purpose prior to Closing. The insurance shall: (i) be obtained from
and maintained with an insurer acceptable to CMS; (ii) shall have limits of not
less than one million dollars ($1,000,000) per occurrence for death or injury
and property damage, and five hundred thousand dollars ($500,000) for workers
compensation; (iii) cover Purchaser's obligations under the indemnity provisions
of this Article XII and Section 16.3; (iv) shall be occurrence-based insurance;
(v) shall name CMS as an additional insured; (vi) shall contain a waiver of
subrogation rights as to CMS; and (vii) shall contain a provision pursuant to
which the insurer agrees not to cancel or modify the insurance coverage without
furnishing at least thirty (30) days' prior written notice to CMS. Prior to the
exercise of any right to gain access to the Subject Property and the Terra
Property, Purchaser shall furnish CMS a certificate evidencing the existence of
the insurance required pursuant to this Section 12.5.
12.6 Indemnity Regarding Access
Purchaser hereby releases and shall and does hereby covenant and agree
to defend, indemnify and hold CMS, Terra and its Subsidiaries, its parent,
subsidiary and affiliate corporations, and CMS's and their officers, directors,
employees and agents, and to the extent CMS or Terra may have any liability or
duty of contribution, CMS's and Terra's lessors, co-lessees, co-working interest
owners, partners and co-venturers (insofar only as CMS or Terra may be obligated
to such lessors, co-lessees, co-working interest owners, joint venturers or
partners) in the Subject Property and the Terra Property, harmless from and
against any and all Claims and Adverse Consequences in connection with personal
injuries, including death, or property damage or loss arising out of or relating
to access to the Subject Property or the Terra Property by Purchaser, its
officers, directors, employees, agents and representatives to inspect the
Subject Property and the Terra Property, including access to the Subject
Property and the Terra Property for performing an Environmental
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Assessment. This indemnity obligation includes any access to the Subject
Property and the Terra Property prior to Purchaser's execution of this
Agreement, up through the later of the Closing Date and the date upon which CMS
relinquishes operatorship of any of the Assets or the Terra Assets, for any
purpose relating to the acquisition or proposed acquisition by Purchaser of the
Assets and the Terra Assets. The indemnity obligations of Purchaser under this
Section 12.6 shall survive the Closing or termination of this Agreement.
ARTICLE XIII - TITLE EXAMINATION
13.1 Title Examination Period
Following execution of this Agreement, Purchaser shall have until July 31,
2000 (the "Extended Due Diligence Period") to complete, at Purchaser's sole
cost, risk and expense, all title examinations of the Subject Property and the
Terra Property. On or before the expiration of the Extended Due Diligence
Period, Purchaser shall deliver written notice to CMS ("Claim of Title Defect")
of any claim that CMS's or Terra's title within the presently producing
formations of the Subject Property and the Terra Property is less than
"Defensible Title," as defined in Section 13.6, below. The Claim of Title Defect
shall detail the specific portion(s) of the Subject Property or the Terra
Property affected, and specify any "Title Defect" (as defined at Section 13.8)
which causes title to the specific portion of the Subject Property or the Terra
Property to be less than Defensible Title. Such written notice shall specify all
available information, including but not limited to the action Purchaser deems
necessary for CMS, if it so elects, to cure title so as to allow CMS to deliver
Defensible Title. Any Title Defect as to which Purchaser does not assert a Claim
of Title Defect to CMS within the Extended Due Diligence Period, shall be deemed
waived for all purposes. Purchaser shall be solely responsible for any costs of
title examination, title curative actions (other than those referenced in
Section 13.2, below), landman or broker fees, document preparation and of any
inspections it undertakes, and CMS shall not have to create, update or
supplement any title documents, such as abstracts of title or title opinions, in
its possession. Purchaser will not be given access to data and records which CMS
considers to be proprietary or confidential to it, or which CMS or Terra cannot
legally provide Purchaser because of third party restriction on CMS or Terra,
unless such data or records are directly related to the condition, quality or
quantity of the Subject Property or the Terra Property. During the Extended Due
Diligence Period CMS may deliver written notice to Purchaser claiming upward
adjustments, in accordance with Section 3.3(b), below, as the result of the
interest of CMS in a specific portion of the Subject Property or the Terra
Property being greater than that set forth at Attachment A.
13.2 Cure of Title
CMS shall review any Claim of Title Defect submitted in accordance
with Section 13.1, above, with the option (at CMS's sole cost and expense) of
curing any Title Defect properly identified in the Claim of Title Defect. CMS
shall also have the
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option, but not the obligation to indemnify Purchaser or bond over any alleged
Title Defect, in an amount equal to the diminishment in value of the affected
portion of the Subject Property or the Terra Property caused by such Title
Defect determined in accordance with Section 13.4. If CMS so elects to indemnify
Purchaser or bond over a Title Defect, then Purchaser shall take or retain title
to the affected portion of the Subject Property or the Terra Property, subject
to the Title Defect, without any downward adjustment to the Purchase Price.
13.3 Title Adjustments
(a) Downward Adjustment. If on or before September 30, 2000, CMS
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shall not have cured any Title Defect affecting the Subject Property
or the Terra Property for which a Claim of Title Defect was properly
and timely made, and CMS has elected not to indemnify Purchaser
against or bond over the alleged Title Defect, then subject to Section
13.5, below, CMS shall pay to Purchaser an amount equal to the
diminishment in value represented by such Title Defect, determined in
accordance with Section 13.4,below.
(b) Upward Adjustment. If on or before September 30, 2000, the
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Parties shall determine that, (i) CMS or Terra owns a greater net
revenue interest than is set forth at Attachment A as to the oil and
gas produced, saved and marketed from the presently producing
formations in any of the individual producing well(s) or unit(s)
described at Attachment A, (ii) CMS or Terra owns a greater net
revenue interest, as to all unitized, pooled or communitized
substances presently producing from the applicable unitized, pooled,
or communitized formation(s) within the applicable unitized, pooled or
communitized area(s) allocated to any of the interest(s) set forth at
Attachment A, or (iii) CMS's or Terra's share of expenses or burdens
attributable to the oil and gas produced, saved and marketed from the
presently producing formations in any of the individual producing
well(s) or unit(s) described at Attachment A is less than shown at
Attachment A, without a corresponding reduction in CMS's or Terra's
net revenue interest, then CMS shall send written notice thereof to
Purchaser prior to September 30, 2000. The notice shall state the
specific interest(s) affected and indicate the amount of increase to
the net revenue interest, or decrease in the expenses or burdens, and
specify the reason(s) for the upward adjustment. The Purchase Price
shall be adjusted upward by, or Purchaser shall pay to CMS, the
increased value of the Assets and the Terra Assets as a result of the
increased net revenue interest, or decreased expenses or burdens,
determined consistent with Section 13.4, below. In determining
whether an upward adjustment is called for under this Section 13.3(b),
neither CMS nor Terra shall be deemed to own an interest that such
party holds for the benefit of a third party.
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Any downward or upward adjustment may be accounted for in the Final
Settlement Statement, in the manner provided in Section 16.1, below.
13.4 Value of Title Adjustments
The diminishment in value of the Assets or the Terra Assets resulting
from an asserted Title Defect, as well as the amount of any and all upward
adjustments provided for by Section 13.3(b), above, shall be consistent with the
following:
(a) If a Title Defect is a valid and enforceable lien, encumbrance
or other charge, which is liquidated in amount, the value of the
downward adjustment in the Purchase Price shall be the sum
necessary to be paid to the lienholder to remove the Title
Defect from the portion of the Subject Property or the Terra
Property affected by the Title Defect.
(b) If a Title Defect represents an obligation or burden upon the
Subject Property or the Terra Property for which the economic
detriment to Purchaser is not liquidated but can be estimated
with reasonable certainty, the value of the downward adjustment
in the Purchase Price shall be a sum necessary to compensate
Purchaser for the present value of the adverse economic effect
which the Title Defect will have on the Subject Property or the
Terra Property.
(c) A lien or encumbrance in the form of a judgment secured by a
supersedeas bond or other security approved by the court issuing
the judgment shall not be considered a Title Defect and no
adjustment to the Purchase Price will be made.
(d) If the Title Defect proves CMS or Terra owns a lesser net
revenue interest than that shown at Attachment A, or a greater
working interest than that shown at Attachment A, without a
corresponding proportionate increase in the net revenue interest
attributable to an interest in an oil and gas lease, the amount
of the downward adjustment to the Purchase Price shall be the
value of the decrease in the net revenue interest or increase in
the working interest, consistent with the allocations of value
set forth at Attachment H, which is allocated to the applicable
interest in an oil and gas lease(s) affected by the Title
Defect.
(e) Subject to Section 13.5, below, in no event shall the value of
any Title Defect alleged by Purchaser exceed the value
attributed to the interest affected, as set forth on
Attachment H.
(f) If it is determined that there is an upward adjustment in
accordance with Section 13.3(b), above, the amount of the upward
adjustment to the Purchase Price shall be the value of the
increase in the net revenue interest or decrease in the working
interest, consistent with the allocations of value set forth at
Attachment H,
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which is allocated to the applicable interest in an oil and gas
lease(s) affected.
13.5 Limits on Title Adjustments
Any other provisions of this Agreement to the contrary notwithstanding
in the event the total cumulative title adjustments do not exceed the sum of
three hundred thousand dollars ($300,000.00), there shall be no adjustment to
the Purchase Price for Title Defects, and in no event shall any adjustment be
made for the first $300,000.00 in Title Defects alleged by Purchaser, or upward
adjustment due CMS, regardless of whether the cumulative downward or upward
adjustment exceeds that amount. Further, neither CMS nor Purchaser shall assert
any Title Defects or upward adjustments provided for in this Article XIII, the
value of which, determined in accordance with Section 13.4, above, and
Attachment H, is ten thousand dollars ($10,000.00) or less.
13.6 Definition of Defensible Title
The term "Defensible Title" shall have the meaning as follows: (i) as
to each interest in an oil and gas lease, (or if any such lease is included in a
production unit, then as to such unit) comprising the Assets or the Terra
Assets, Defensible Title is that which entitles CMS or Terra on a leasehold
basis to receive not less than the net revenue interest set forth at Attachment
A for all oil and gas produced, saved and marketed from the presently producing
formations in the Subject Property and the Terra Property as of the Effective
Date; (ii) as to each interest in an oil and gas lease (or if any such lease is
included in a production unit, then as to such unit) comprising the Assets or
the Terra Assets, Defensible Title is that which obligates CMS or Terra on a
leasehold basis to bear costs and expenses relating to the maintenance,
development and operation of the producing wells and units on leased lands and
depths not exceeding the working interest described at Attachment A as of the
Effective Date; and (iii) as to the Assets and the Terra Assets, Defensible
Title is that which as of the Effective Date is marketable title, and as to
those portions of the Assets and Terra Assets which constitute interests in real
property, marketable record title, free and clear of material encumbrances,
liens and defects, other than Permitted Encumbrances, as defined below.
13.7 Definition of Permitted Encumbrances
The term "Permitted Encumbrances" shall include all of the conditions
of title contained in this Section 13.7 as follows:
(a) Permitted Encumbrances include lessors' royalties, overriding
royalties, reversionary interests and similar burdens on any
leasehold working interests described at Attachment A, if the
net cumulative effect of the burdens does not operate to reduce
CMS's or Terra's interest in all oil and gas produced from the
leasehold interests below the net revenue interest on a
leasehold basis as set forth at Attachment A;
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(b) Permitted Encumbrances include division orders and sales
contracts terminable without penalty upon no more than ninety
(90) days' notice to the purchaser;
(c) Permitted Encumbrances include unexercised preferential rights
to purchase, which have been waived or for which the time to
exercise has expired, required third party consents to
assignments, which have been waived or obtained, and similar
agreements;
(d) Permitted Encumbrances include materialmen's, mechanics',
operators', co-working interest owners', repairmen's,
employees', contractors', tax and other liens and charges,
arising in the Ordinary Course of Business, which have not been
filed in compliance with statutes, or, if filed, have not become
delinquent or payment is being withheld as provided by law or
agreement or the validity of which is being contested in good
faith by appropriate action, encumbrances, contracts,
agreements, instruments, and obligations, affecting the Assets
or the Terra Assets arising in the Ordinary Course of Business;
(e) Permitted Encumbrances include all rights to, consent by,
required notices to, filings with or other actions by
governmental entities in connection with the sale or conveyance
of oil and gas leases or interests which are customarily
obtained subsequent to the sale or conveyance;
(f) Permitted Encumbrances include easements, rights-of-way,
servitudes, permits, surface leases and other rights for surface
operations, pipelines, grazing, logging, canals, ditches,
reservoirs or similar surface uses, conditions, covenants or
other restrictions, easements for streets, alleys, highways,
pipelines, telephone lines, power lines, railways and other
easements and rights-of-way, on, over or in respect of any of
the Subject Property or the Terra Property;
(g) Permitted Encumbrances include all rights reserved to or vested
in any governmental, statutory or public authority to control or
regulate any of the Assets or the Terra Assets in any manner,
and all applicable laws, rules and orders of governmental
authority;
(h) Permitted Encumbrances include any Title Defects which Purchaser
may have expressly waived in writing or which are deemed to have
been waived under this Agreement;
(i) Permitted Encumbrances include any production imbalances and
pipeline imbalances;
(j) Permitted Encumbrances include (whether or not recorded), all
leases, unit agreements, communitization agreements, pooling
agreements, governmental orders and other contracts and
agreements, to which CMS or Terra is a party, or to which CMS or
Terra or the Assets or the Terra Assets are subject, and all
assignments of the Subject Property or the Terra Property, and
all
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required consents or rights of reassignment provided for by any
of the foregoing, to the extent the same do not operate to
reduce CMS's or Terra's net revenue interest below that
specified at Attachment A, or to increase the obligations of CMS
or Terra to bea r costs and expenses in excess of the working
interest specified at Attachment A, without a corresponding
increase in the net revenue interest. Permitted Encumbrances
does not include mortgages, liens or encumbrances other than
those that are the subject of Section 13.7(d), above.
13.8 Definition of Title Defect
The term "Title Defect" means any material encumbrance, encroachment,
irregularity, defect in or objection to CMS's or Terra's title to the Subject
Property and the Terra Property listed at Attachment A which, alone or in
combination with other defects, renders CMS's or Terra's title to the Subject
Property or the Terra Property less than Defensible Title. In determining
whether an encumbrance, encroachment, irregularity, defect in or objection to
title is material, due consideration shall be given to the length of time that
the interest involved has been, is or is considered to be in "Pay Status" and
whether the Title Defect is of the type expected to be encountered in the area
involved and is customarily acceptable to prudent operators and interest owners.
An interest shall be considered to be in Pay Status when payment is being made,
whether by CMS, Terra or its Subsidiaries or by a third party, for the
production from or that is otherwise allocated to the Subject Property or the
Terra Property without indemnity from CMS or Terra, except indemnity customarily
made in division orders, transfer orders, product purchase agreements and
similar documents governing the payment of proceeds from production. Title
Defects, which are not material, include, without limitation, defects that have
been cured by possession under applicable statutes of limitation, defects in the
early chain of title such as failure to recite marital status in documents,
omission of heirship or succession proceedings, lack of survey, failure to
record releases of oil and gas leases, failure to obtain subordination of a
lessor mortgage to an oil and gas lease, liens, production payments or mortgages
that have expired of their own terms, matters which are deemed remedied, cured
or otherwise satisfied by the remedial effects of the Michigan Forty Year
Marketable Title Act (MCL 565.101 to 565.109, inclusive; MSA 26.1271 to 26.1279,
inclusive), and matters that are not reasonably expected to result in claims
adversely affecting CMS's or Terra's title to the Subject Property or the Terra
Property. The term Title Defects does not include Permitted Encumbrances.
Matters which occur during the Interim Period and which result in a reduction in
the net revenue, or an increase in the working interest without a corresponding
increase in net revenue interest of CMS or Terra in and to a portion of the
Assets or Terra Assets from that which is shown at Attachment A shall not form
the basis for the assertion of a Title Defect, and shall be deemed Defensible
Title to the affected Asset or Terra Assets, if such matter is the result of an
event or occurrence which is in the Ordinary Course of Business, or is beyond
the control of CMS or Terra.
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13.9 Back-In Interest Adjustments
For purposes of this Section 13.9 the term "Reserve Report" means the
report entitled "Estimated Future Reserves And Income Attributable To Certain
Leasehold And Royalty Interests Beginning January 1, 2000", bearing date of
October 25, 1999, prepared by Ryder Scott Company for CMS, which was made
available to Purchaser. Among other things, the Reserve Report specifies the
Expense Interest (working interest) and the Revenue Interests (net revenue
interests) of CMS and/or Terra in the various individual producing wells and
units, and the various unitized, pooled or communitized areas or units that
comprise the Assets and the Terra Assets, these being the same wells, units and
areas described at Attachment A1 ("Constituent Property or Properties"). The
Reserve Report reflects the Expense Interest and Revenue Interests of CMS and/or
Terra in each Constituent Property at two points in time. The "Initial"
interest is that owned as of January 1, 2000. The "Final" interest, if
different than the Initial interest, reflects an increase or decrease that will
occur at an unspecified time in the future as the result of the provisions of
applicable contracts. The Parties acknowledge and agree that the Reserve Report
valuation is a function of both the Initial and Final Interests.
For purposes of this Section 13.9, the term "Back-In Interests" means,
with respect to a particular Constituent Property, the working and net revenue
interests actually owned by CMS and/or Terra which correlate to the Final
interests shown on the Reserve Report. Notwithstanding anything in Article XIII
to the contrary, the Parties acknowledge and agree that if it is determined by
either Party, within the Extended Due Diligence Period, that the Back-In
Interests owned by CMS and/or Terra in a given Constituent Property vary from
the Final interests as represented in the Reserve Report, such variance shall
constitute a Title Defect if the Reserve Report reflects a larger Final Revenue
Interest than the amount of the Back-In Interests) or the basis for an upward
adjustment in accordance with Section 13.3(b), above, (if the Reserve Report
reflects a smaller Final Revenue Interest than the amount of the Back-In
Interest) for which a corresponding title adjustment will be made, whether
upwards or downwards, in accordance with the remaining provisions of this
Section 13.9.
A Title Defect asserted under this Section 13.9 with respect to a Back-In
Interest, shall be subject to the same limitations and requirements imposed by
Section 13.1, above,
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shall be subject to the right of CMS to cure, indemnify against or bond over, in
accordance with Section 13.2, above, and both Title Defect adjustments and
upward adjustment shall be subject to the same limitations as imposed by Section
13.5, above; provided, however, that in the event of conflict this Section 13.9
shall govern and control. The value of any title adjustment, for any Title
Defect or upward adjustment asserted under this Section 13.9 with regard to a
Back-In Interest, shall be negotiated by the Parties in good faith. In
negotiating the value of any resulting title adjustment, among other things, the
Parties shall consider and take into account the provisions of Sections 13.3 and
13.4, above; provided, however, that the basis for any title adjustment made
with respect to a Back-In Interest, in accordance with this Section 13.9, shall
be the value attributed to the particular Constituent Property by the Reserve
Report, reduced by applying a fraction having a numerator of 161,241,694 and a
denominator of 177,337,178.
13.10 Representations, Warranties or Covenants, and Indemnity
The provisions of this Article XIII shall be deemed to be, and shall
constitute representations, warranties and covenants of title by CMS that will
continue until the expiration of the Extended Due Diligence Period and as to
Title Defects timely and properly asserted, thereafter as provided below.
Subject to the limitations contained in Section 13.5, above, CMS hereby
covenants and agrees to defend, indemnify and hold Purchaser harmless from and
against any and all Claims with respect to or related in any manner to any and
all Title Defects for which Purchaser has timely and properly delivered a Claim
of Title Defect to CMS, consistent with Sections 4.13, 6.16 and 13.9, above, as
qualified by Section 18.1, below. Any and all such representations and
warranties of CMS relating to any and all title matters shall expire and be of
no further force and effect from and after the later of (i) the end of the
Extended Due Diligence Period or (ii) such time as a Title Defect for which a
Claim of Title Defect is properly and timely asserted, is cured, CMS indemnifies
Purchaser, CMS bonds over the Title Defect or a title adjustment is made in
accordance with Section 13.3(a), above. If a Title Defect adjustment is made
pursuant to Section 13.3(a), above, or CMS indemnifies or bonds over a Title
Defect, pursuant to this Article XIII, it shall be Purchaser's sole remedy for
any such Title Defect. All of the Assets and the Terra Assets for which CMS
indemnifies Purchaser or bonds over, shall be transferred to Purchaser at
Closing, and shall be retained by Purchaser after the expiration of the Extended
Due Diligence Period. As to all Assets or Terra Assets for which a Title Defect
adjustment is made, CMS shall be entitled to a conveyance from Purchaser, and
Purchaser hereby agrees to convey to CMS, in recordable form, free and clear of
any liens or claims of Purchaser, or any Person claiming through Purchaser, the
Asset(s) or Terra Asset(s), or portion of either affected by the asserted Title
Defect if the asserted Title Defect consists of failure of title to the Asset or
the Terra Asset, or a portion thereof. CMS shall not be entitled to a
conveyance of the affected Asset or
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Terra Asset if the asserted Title Defect is in the nature of a mortgage, lien or
other encumbrance which may be cured by the payment of a determinable sum of
money. The instruments of conveyance (to be recorded in the applicable county
records) shall not include references to the specific working interest,
overriding royalty or the net revenue interest conveyed or assigned per the
terms of this Agreement, nor shall such instrument or conveyance contain any
warranty of title, but they shall reference and be made subject to the terms of
this Agreement, and the terms of the letter agreement referenced in Section
15.2(b), below. Anything to the contrary contained herein notwithstanding, all
Title Defects not timely raised by Purchaser shall be deemed waived for all
purposes, and Purchaser shall have no recourse as against CMS from and after the
expiration of the Extended Due Diligence Period. In the event an adjustment to
the Purchase Price is made in the Final Settlement Statement pursuant to this
Article XIII, or a Title Defect is otherwise deemed waived, Purchaser shall have
no further rights or remedies against CMS with respect to any Title Defect,
other than a claim pursuant to an indemnity or bond of CMS.
13.11 Arbitration
In the event that the Parties are unable, after good faith negotiations,
to resolve any disagreement with respect to any asserted Title Defect, or any
proposed adjustment provided for in this Article XIII, then the Parties agree to
resolve all such disagreements through binding arbitration. Each Party shall
select an arbitrator with experience evaluating oil and gas title matters, and
the arbitrators shall select a third such arbitrator, to arbitrate any such
unresolved disputes in accordance with the rules of the American Arbitration
Association. The decision of the arbitrators shall be binding on the Parties,
and their successors and assigns.
ARTICLE XIV - RETAINED LIABILITIES
Attachment D lists all wells, litigation and other matters relating to
the Assets and the Terra Assets which constitute the Retained Liabilities. CMS
shall retain responsibility and liability for, and authority and control over
the Retained Liabilities and all actions, which, in its sole discretion are
necessary or desirable related to the Retained Liabilities, including but not
limited to the prosecution, defense, settlement or other resolution of those
matters constituting litigation, and shall be solely responsible for all costs
associated therewith. Purchaser shall and does hereby grant CMS, its officers,
directors, employees, agents and attorneys, access to and use of the Assets and
Terra Assets, including, but not limited to the Subject Property and the Terra
Property, and the records referenced in Section 1.1(h), above, for any and all
purposes related to the Retained Liabilities.
CMS hereby covenants and agrees to defend, indemnify and hold Purchaser
harmless from and against any and all Claims and
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Adverse Consequences with respect to the Retained Liabilities, insofar only as
the event that forms the basis of the Claims or Adverse Consequences arose or
occurred prior to the Effective Date. Notwithstanding the foregoing, the
preceding indemnity provision shall survive until the event giving rise to the
Claim or Adverse Consequences is resolved.
ARTICLE XV - CLOSING
15.1. Time and Place of Closing
If the conditions of Closing referenced in Article X and Article XI, have
been satisfied or waived, the consummation of the transaction contemplated
hereby (the "Closing") shall be held on or before the 31st day of March, 2000
(the "Closing Date") at CMS's offices in Houston, Texas, unless otherwise
mutually agreed in writing between the parties.
15.2 Closing Obligations
CMS and Purchaser shall each be required to perform the various
activities described in this Section 15.2 as follows:
(a) CMS shall execute, acknowledge and deliver an assignment and such
other instruments as may be necessary to convey title to the Subject
Property to Purchaser, without warranty or covenant of title (in
sufficient counterparts to facilitate recording and governmental
consents and filings), in substantially the form of Attachment Q
attached hereto and made a part hereof, and shall execute and
deliver any applicable official federal and state assignment forms
in sufficient numbers to meet applicable governmental requirements;
(b) The Parties shall execute an agreement in substantially the form of
Attachment R, setting forth their agreement as to CMS's limited
warranty of title consistent with Section 13.10, above;
(c) CMS shall endorse and deliver to Purchaser the Terra Shares;
(d) CMS shall execute such other instruments and take such other
actions as may be necessary to carry out its obligations under this
Agreement;
(e) CMS, in conjunction with and after reasonable consultation with
Purchaser, shall prepare and present to Purchaser within four (4)
business days prior to Closing, a closing statement in accordance
with GAAP containing all of the adjustments to the Purchase Price
called for by this Agreement (the "Closing Statement"). The final
Closing Statement shall fairly represent adjustments proposed in
good faith by both Parties;
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(f) Purchaser shall pay CMS the Purchase Price or Adjusted Purchase
Price, as the case may be, as set forth in the Closing Statement, by
wire transfer of funds in United States dollars, pursuant to written
instructions delivered by CMS;
(g) CMS shall endorse and deliver the QRI Stock to Purchaser;
(h) CMS shall deliver to Purchaser the Opinion of Counsel referenced
in Section 11.5, above;
(i) Purchaser shall deliver to CMS the Opinion of Counsel referenced
in Section 10.5, above;
(j) Purchaser shall execute and acknowledge the assignment, and any and
all official federal and state assignment forms, and shall execute
such other instruments and take such other actions as may be
necessary to carry out its obligations under this Agreement;
(k) If Purchaser assumes operatorship of any of the Subject Properties,
and to the extent required for the continued operations by Terra of
the Terra Property, Purchaser shall execute the necessary documents,
such as change of operatorship forms and sundry notices, and shall
post all requisite bonds, in sufficient numbers and amounts for
filing with government officials. During the period of time between
Closing and receipt of all approvals by the State of Michigan
Geological Survey Division-Department of Environmental Quality (GSD-
DEQ) and others, necessary to complete the change of operatorship,
Purchaser agrees to execute any required documentation and to
perform and be responsible for any environmental remediation or
other action required by the GSD-DEQ to obtain such approval. This
provision shall exclude any Environmental, Health and Safety
Requirements addressed in accordance with Article XII. Purchaser
shall bear the risk of loss, and shall be responsible for all loss,
cost, damage and expense which result from operations during the
period prior to receipt of all approvals necessary to effectuate a
change in operatorship of the Subject Property and responsibility
for Terra's continued operation of the Terra Property. Purchaser
shall defend, indemnify and hold CMS, its parent, affiliate and
subsidiary corporations, as well as CMS's and their officers,
directors, shareholders, employees and agents, harmless from and
against any and all Claims arising out of or in any manner related
to operations during the period from the Effective Date to CMS's
relinquishment of, and Purchaser's actual assumption of
operatorship. Purchaser agrees to take assignments of State of
Michigan well permits for those portions of the Subject Property and
the Terra Property which are operated by CMS, in the name of
Purchaser or its designee, other than Terra;
(l) CMS and Purchaser shall execute, acknowledge and deliver any
transfer orders or letters in lieu thereof
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directing all purchasers of production to pay Purchaser all proceeds
attributable to production from or allocable to the Subject
Property;
(m) If CMS is responsible for the disbursement of proceeds of production
from or allocable to the Subject Property to third parties after the
Transfer Date (or is so responsible on behalf of Terra with respect
to the Terra Property), and if Purchaser requires additional time
after the Closing to assume this responsibility from CMS, CMS and
Purchaser shall enter into a letter agreement in the form of
Attachment S to avoid any interruption in the payments to third
parties and the filing of any governmental reports as the result of
the sale of the Assets. The terms of the letter agreement will
provide for CMS to retain responsibility for disbursement of
proceeds for a period not to exceed sixty (60) days from the first
day of the month following the Closing Date. The letter agreement
shall provide for a rate of $50,000.00 per month to be paid to CMS
by Purchaser for CMS's services and shall provide that CMS shall not
be liable for any errors made. Purchaser shall defend, indemnify and
hold CMS harmless from and against any and all Claims, even though
caused by CMS's active or passive, sole or concurrent, negligence
arising from or relating to the services provided by CMS in making
the disbursements per the terms of the letter agreement;
(n) CMS shall cause the board of directors and officers of Terra to
resign, effective as of April 1, 2000, and shall deliver such
documents as may be required to evidence the resignations;
(o) At least seven (7) days prior to Closing, the Parties will use their
reasonable best efforts to deliver to each other a draft of their
proposed press releases to be issued immediately subsequent to
Closing. The Parties will use their reasonable best efforts to
review and approve, in writing, the other Party's press release
prior to Closing; and
(p) The Parties shall execute an agreement, in substantially the form of
Attachment T, setting forth their agreement as to the terms and
conditions of Purchaser's assumption of the Environmental, Health
and Safety Requirements with respect to the Facilities identified at
Attachment P.
15.3 Suspended Accounts
CMS shall transfer to Purchaser all suspended royalty, overriding
royalty and other payments out of production relating to the Subject Property
and the Terra Property which are held by CMS, and attributable to the period
prior to the Effective Date. Included in the Assets described in Section 1.1(h)
will be all files and records documenting and directly relating to all such
suspended accounts. Purchaser shall defend, indemnify and hold
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CMS harmless from and against any and all Claims relating to those suspended
accounts.
15.4 Termination of Guarantees and Other Commitments
Subject to applicable laws, as of the Closing Date, CMS shall terminate
or cancel the following: (i) all undertakings, guarantees, comfort letters by
CMS for itself or on behalf of Terra insofar as they relate to the Assets or the
Terra Assets, except for any undertaking with respect to the Assets or the Terra
Assets set forth in a letter agreement dated February 24, 1992 by and between
CMS and Midland Cogeneration Venture, which undertakings shall be a Retained
Liability; (ii) letters of credit, surety bonds and related indemnity agreements
insofar as they relate to the Assets or the Terra Assets; and (iii) all credit
card accounts, lines of credit and open accounts insofar as they relate to the
Assets or the Terra Assets.
ARTICLE XVI - CONTINUING OBLIGATIONS
16.1 Post-Closing Reconciliation
Not later than one hundred twenty (120) days after Closing, or at such
other date as CMS and Purchaser shall mutually agree upon in writing, CMS shall
issue a "Final Settlement Statement" for the Assets conveyed and assigned to
Purchaser, and for the Terra Assets. The Final Settlement Statement will net
actual revenues against royalties and other lease burdens, operating expenses,
taxes and overhead for the period subsequent to the Effective Date, and such
other adjustments as set forth in this Agreement. The Final Settlement
Statement will include a summary with appropriate supporting documentation. CMS
will accept only written inquiries regarding the Final Settlement Statement.
Within sixty (60) days of its receipt of the Final Settlement Statement,
Purchaser shall either make payment of all amounts due CMS, provide a written
request of payment from CMS of all amounts due Purchaser, or provide a written
statement setting forth those adjustments to which Purchaser objects. Any such
written statement will detail the specific reasons for such objection. In this
regard CMS agrees to provide Purchaser reasonable access to its personnel, files
and records, insofar as they relate to the matters addressed in the Final
Settlement Statement, subject to the limitations expressed in Section 6.11,
below. CMS shall have thirty (30) days from and after its receipt of
Purchaser's written list of objections to rebut same, in writing. If the
Parties are unable to resolve any disagreement with respect to any disputed
adjustment, after good faith negotiations, then the Parties agree to resolve any
disputed adjustment through binding arbitration. Each Party shall select an
arbitrator with a joint interest audit accounting background, and the
arbitrators shall select a third such arbitrator, to arbitrate any such
unresolved disputes in accordance with the rules of the American Arbitration
Association, with respect to the Final Settlement Statement.
16.2 Receipts and Credits
(a) All monies, proceeds, receipts, credits and income attributable to
hydrocarbon production, and other net
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income attributable to ownership of the Assets and the Terra Assets
for all periods of time fr om and after the Effective Date,
regardless of when collected, shall be the sole property and
entitlement of the Purchaser. To the extent received by CMS after
the Closing, CMS shall fully disclose, account for and promptly
transmit same to Purchaser;
(b) All monies, proceeds, receipts, credits and income attributable to
hydrocarbon production from the Subject Property and the Terra
Property for all periods of time prior to the Effective Date,
regardless of when collected shall be the sole property and
entitlement of CMS. To the extent received by Purchaser after the
Closing, Purchaser shall fully disclose, account for and promptly
transmit same to CMS;
(c) All of CMS's and Terra's proportionate share of operating costs and
expenses, for goods delivered and services rendered attributable to
the Assets and the Terra Assets for the period of time prior to the
Effective Date, regardless of when due or payable, shall be the sole
obligation of CMS. CMS shall promptly pay, or if paid by Purchaser,
promptly reimburse Purchaser for such operating costs and expenses
incurred prior to the Effective Date.
(d) All of the proportionate share of operating costs and expenses, for
goods delivered and services rendered attributable to the Subject
Property and the Terra Property for the period of time from and
after the Effective Date, regardless of when due or payable, shall
be the sole obligation of Purchaser. Purchaser shall promptly pay,
or if paid by CMS, promptly reimburse CMS for such operating costs
and expenses incurred by CMS on or after the Effective Date;
(e) CMS shall be entitled to retain all overhead charges and any and all
other fees, charges or reimbursements related to operations it has
collected, billed or which shall be billed or collected at any time,
for the operated portions of the Subject Property or the Terra
Property relating to the period from and after the Effective Date,
to the date on which CMS relinquishes operatorship, or
responsibility for Terra's operation of the Subject Property and the
Terra Property, even if after the Closing Date. Purchaser shall
immediately transfer to CMS any third party overhead charges and
other fees, charges or reimbursements related to operations, which
are collected by Purchaser, attributable to the operated portions of
the Subject Property and the Terra Property, for all periods prior
to the date on which CMS relinquishes operatorship;
(f) Costs or expenses attributable to non-consent penalties under any
contract, law, rule or regulation affecting the Assets or the Terra
Assets are deemed transferred with the Assets and are the sole
responsibility of the Purchaser.
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The obligations of the Parties to disclose, account for, transmit or reimburse
pursuant to subsections (a) - (e), above, shall be limited to the extent that
such items were not previously accounted for as an adjustment to the Purchase
Price.
16.3 Assumption of Obligations and Indemnities
If Closing occurs, Purchaser shall, from and after the expiration of
CMS's obligations with respect to any applicable representation or warranty of
CMS, assume and be solely responsible for the obligations and indemnities set
forth in this Section 16.3, which obligations and indemnities shall survive the
Closing.
(a) Purchaser hereby agrees and shall agree in the instruments assigning
or conveying the Assets, to take the Assets and the Terra Assets
subject to, and to assume, perform, pay for, and comply with all of
the express or implied duties, liabilities, and obligations, except
for the Retained Liabilities, binding upon CMS or Terra that relate
to or are attributable to the Assets and the Terra Assets, whether
existing before or after the Effective Date, including, but not
limited to, all of the following: all of the terms and conditions of
all applicable and valid recorded and unrecorded agreements,
contracts and instruments relating to the Assets and the Terra
Assets (including, but not limited to, those described at Attachment
A); all non-consent penalties under any contract, law, rule or
regulation affecting the Assets and the Terra Assets; all valid
unit, pooling, communitization and operating agreements; all
easements and rights-of-way; paying and accounting for and reporting
all lease rentals and all royalties, overriding royalties and other
oil and gas lease burdens; subject to Article XX, all reassignment
rights held by third parties; subject to Article XX all preferential
purchase rights held by third parties; and all duties imposed by all
valid governmental laws, rules, regulations and orders. Without
limiting the generality of the scope of the foregoing, except as to
wells which form a part of the Retained Liabilities, Purchaser
agrees to and shall assume, perform, pay for and comply with the
obligations (if any) of CMS to properly and timely plug and abandon
all wells now or hereafter located on or appurtenant to the Subject
Property and the Terra Property whether or not such wells are
producing, or are capable of producing hydrocarbons as of the
Effective Date, to properly and timely remove all buildings,
equipment and materials from the Subject Property and the Terra
Property upon cessation of use thereof, and to properly and timely
restore the surface of the Subject Property and the Terra Property
in accordance with all applicable governmental requirements and
agreements with third parties.
(b) Purchaser, and its heirs, successors, principals, officers,
directors and affiliates, shall defend,
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indemnify and hold CMS, its parent, affiliate and subsidiary
corporations, as well as CMS's and their officers, directors,
shareholders, employees and agents, harmless from and against any
and all Claims and Adverse Consequences of whatsoever kind or
nature, that relate to or are attributable to ownership or operation
of the Assets and the Terra Assets, except as to the Retained
Liabilities, whether the Claims arose before or after the Effective
Date, and whether or not the Claims have been specifically disclosed
by CMS to Purchaser prior to Closing, including, without limitation
in any manner by way of enumeration, Claims and Adverse Consequences
relating to the obligations assumed by Purchaser in Section 16.3(a),
above, and Claims and Adverse Consequences relating to the
operations and activities contemplated by Section 16.3(a), above.
(c) Purchaser, and its heirs, successors, principals, officers,
directors and affiliates, shall defend, indemnify and hold CMS, its
parent, affiliate and subsidiary corporations, as well as CMS's and
their officers, directors, shareholders, employees and agents,
harmless from and against any and all Claims and Adverse
Consequences, caused by, relating to or arising out of the
following: (i) any condition of or condition on the Assets or the
Terra Assets, whether or not the condition existed before the
Effective Date, and whether or not caused by CMS or its employees or
agents, including, without limitation by way of enumeration, any
condition which may be considered to be a nuisance or which in any
way adversely affects or threatens to adversely affect natural
resources, the environment, or the health and safety of any person
or animal; and (ii) Environmental, Health and Safety Requirements
applicable to any waste material or Hazardous Substances on or
included with the Assets or the Terra Assets, or the presence,
disposal, release or threatened release of waste material or
Hazardous Substances from the Assets or the Terra Assets into the
atmosphere or into or upon land, subsurface strata or any surface or
subsurface waters, whether or not attributable to CMS's or Terra's
activities or the activities of CMS's officers, employees or agents,
or to the activities of third parties (regardless of whether or not
CMS or Terra was or is aware of such activities) prior to, during,
or after the period of CMS's ownership of the Assets. Purchaser
expressly agrees to assume all liability for any condition of or
upon the Assets and the Terra Assets, including those which may have
been created prior to the Effective Date, and expressly agrees that
the preceding indemnification and agreement to hold harmless shall
apply to liability for voluntary environmental response actions
undertaken pursuant to the federal Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA"), or any other
federal, state or local law.
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(d) Purchaser, its heirs, successors, principals, officers, directors
and affiliates shall defend, indemnify and hold CMS, its parent,
affiliate and subsidiary corporations, as well as CMS's and their
officers, directors, shareholders, employees and agents harmless
from and against any and all Claims and Adverse Consequences arising
out of a violation or alleged violation of sections 61503A, 61503B
or 61503C of Part 615 of the Michigan Natural Resources and
Environmental Protection Act, which occur or are alleged to have
occurred from or after the Effective Date.
(e) The parties agree that, to the extent allowed by applicable law, the
indemnity provisions of this Section 16.3 shall apply regardless of
whether CMS was wholly or partially, actively or passively,
negligent or otherwise at fault, and whether or not the Claims are
based on a theory of negligence, negligence per se, strict
liability, willful misconduct, products liability, premises
liability, liability based on statute, or other theory of liability
as to the applicable indemnitee or others, and regardless of by whom
the Claims are made or brought, including, without limitation,
CMS's, Terra's or Purchaser's employees, agents or representatives,
private citizens, persons or organizations, or any representatives
of federal, state or local government.
(f) The Parties agree that, except with regard to the Retained
Liabilities, and upon the expiration of CMS's obligation with
respect to any applicable representation or warranty of CMS, to the
extent the provisions of any instrument conveying or assigning the
Assets to Purchaser conflict with or appear to limit the provisions
of this Section 16.3, the provisions of this Section 16.3 shall
control.
16.4 Recording
After Closing, Purchaser, at its sole cost and expense shall promptly
record the assignment(s) and all other instruments of conveyance, in the
appropriate offices of the states and/or counties in which the Subject Property
is located. After Closing, Purchaser shall also forward to the applicable
governmental agencies for approval any applicable federal or state assignment
form(s). When available, Purchaser shall thereafter promptly forward to CMS
copies of any recorded or filed instruments which are returned to Purchaser.
After Closing, Purchaser shall forward to the applicable governmental agencies
for approval of any forms, requisite bonds and permit transfers, relating to the
change of operatorship to Purchaser which have not been previously filed, and
Purchaser shall be responsible for all costs associated therewith, if any.
After Closing, Purchaser shall promptly make all necessary governmental
notifications (if any) which have not been previously made concerning the
transfer of all or any part of the Assets.
16.5 State of Michigan Oil and Gas Leases
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Purchaser shall take all actions and file all documents which may be
required to cause the records of the State of Michigan to reflect the transfer
of all State of Michigan oil and gas leases comprising a portion of the Subject
Property, from CMS to Purchaser, and for CMS to be relieved of all
responsibility and liability thereunder. Such actions shall include, but are
not limited to: (i) request of change in lease status with the appropriate
department of the State of Michigan, (ii) the written acceptance and assumption
of responsibility of the lessee under all such leases and post the appropriate
lease performance bond, and (iii) obtain the written approval of the State of
Michigan, and provide same to CMS. Purchaser, and its heirs, successor,
principals, officers, directors and affiliates, shall defend, indemnify and hold
CMS, its parent, affiliate and subsidiary corporations, as well as CMS's and
their officers, directors, shareholders, employees and agents harmless from and
against any and all Claims relating to ownership of an interest in any State of
Michigan oil and gas leases comprising a portion of the Subject Property or the
Terra Property, arising from and after the Effective Date. As to the State of
Michigan oil and gas leases held by Terra, the existing lease performance bond
shall be canceled, and Purchaser's lease performance bond substituted therefore;
or Purchaser shall otherwise assume responsibility for Terra's bond, in a manner
acceptable to CMS, as soon as is reasonably possible. Purchaser, and its heirs,
successor, principals, officers, directors and affiliates, shall defend,
indemnify and hold CMS, its parent, affiliate and subsidiary corporations, as
well as CMS's and their officers, directors, shareholders, employees and agents
harmless from and against any and all Claims relating to CMS's responsibility
with respect to events relating to the foregoing which occur after the Effective
Date.
16.6 Further Assurances
After Closing, CMS and Purchaser agree to take such further actions and
execute, acknowledge and deliver all such further documents that are reasonably
necessary or useful in carrying out the purposes of this Agreement or of any
document delivered pursuant to this Agreement.
16.7 Records
After Closing, CMS will provide the originals, or in CMS's sole
discretion, copies of its files and all files relating to the Terra Assets to
Purchaser pursuant to Section 1.1(h) hereof. If CMS retains any original files,
it shall provide a copy of all such files to Purchaser at CMS's expense, and
shall further provide Purchaser and explanation of the reasons for CMS's
retention of the original file. CMS may retain, at CMS's expense, copies of its
original files so transferred. CMS will return any retained original files upon
its determination that it no longer is required to retain such originals.
Purchaser shall reimburse CMS for all reasonable shipping costs.
16.8 Access to Records
Purchaser, its heirs, successors and assigns, shall, at Purchaser's
expense, preserve and retain all files and records
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relating to the Assets for the period required by all applicable laws and
regulations or seven (7) years, whichever is longer. Purchaser agrees to provide
CMS and its duly designated representatives with access to and the right to copy
and inspect any of the files and records relating to the Assets, at all
reasonable time, upon reasonable advance written notice.
16.9 Litigation Support
In the event and for so long as any Party actively is contesting or
defending against any action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand in connection with (i) any transaction contemplated
under this Agreement or (ii) any fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction on or prior to the Closing Date involving any of
CMS, Terra and its Subsidiaries or the Assets and the Terra Assets, the other
Party shall cooperate with it and its counsel in the defense or contest, make
available their personnel, and provide such testimony and access to their books
and records as shall be necessary in connection with the defense or contest, all
at the sole cost and expense of the contesting or defending Party (unless the
contesting or defending Party is entitled to indemnification therefor under the
provisions of this Agreement).
16.10 CMS Employees
Purchaser agrees (which agreement shall survive the termination of this
Agreement), to refrain from employing, either directly or indirectly, whether as
a salaried or contract employee, or otherwise, or from utilizing in any manner
the services, knowledge or expertise of any person employed by CMS other than
those based out of CMS's Traverse City, Michigan office as of January 14, 2000,
for a period of one (1) year from and after the Closing Date.
16.11 Transition
CMS will not take any action that is designed or intended to have the
effect of discouraging any lessor, licensor, customer, supplier, or other
business associate of any of Terra and its Subsidiaries from maintaining the
same business relationships with Terra and its Subsidiaries after the Closing as
it maintained with Terra and its Subsidiaries prior to the Closing.
After Closing, CMS will permit representatives of Purchaser reasonable
access, during normal business days and hours, and in a manner so as not to
interfere with the normal business operations of CMS, to personnel and financial
books and records of CMS (including, without limitation, tax records, and to the
extent prepared, net operating statements for the years 1997, 1998 and 1999),
insofar only as they relate to the Assets, and are required for Purchaser's
preparation of financial statements required by the Securities Exchange
Commission. CMS shall not be required to provide access to any such books,
records or information which it deems, in its sole discretion to be proprietary
or confidential, or which it may not divulge without violating agreements with
third parties. Purchaser for itself
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and its representatives, agrees to keep all information obtained pursuant to its
review of such books and records, strictly confidential in accordance with the
provisions of Section 22.10, below, except for such Securities Exchange
Commission filing purposes. Purchaser agrees to and shall defend, indemnify and
hold CMS, and its parent, affiliate and subsidiary corporations, as well as
CMS's and their officers, directors, employees and agents, harmless from and
against any and all Claims and Adverse Consequences arising out of or in any
manner related to Purchaser's access to and use of such materials, including,
without limitation by reason of damage or injury to any person or property
caused thereby.
16.12 Plan B
(a) With respect to Northern Michigan Exploration Company (predecessor
to CMS) Employee Well Participation Plans A and B, dated April 1,
1980, and amended as of April 1, 1985 and April 1, 1990, Purchaser
hereby agrees that:
(i) from and after the Effective Date, the Subject Property which
are affected thereby, are and shall remain subject to
"Employee Participation Interests", as defined in Plan B;
(ii) from and after the Closing Date, Purchaser will discharge all
obligations in connection with such Employee Participation
Interests under Plan B, including distribution of revenue
attributable to production from the Subject Property, from and
after the Effective Date; and
(iii) from and after the Closing Date, Purchaser will cause any
subsequent transferees of the Subject Property to agree in
writing to comply with the provisions of Plan B.
(b) Within ninety (90) days after the Closing Date, Purchaser agrees to
make good faith offers to purchase the Employee Participation
Interests from all owners thereof, for a price substantially
equivalent to the price for the applicable portion of the Subject
Property in accordance with Attachment H, taking into account the
size and nature of the Plan B interests, and commensurate with the
applicable terms of this Agreement.
ARTICLE XVII - TERMINATION
17.1 Right of Termination
This Agreement and the transactions contemplated hereby may be terminated
in the following instances:
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(a) If the conditions set forth at Article X are not satisfied by
Purchaser or waived by CMS as of the Closing Date, CMS may terminate
this Agreement;
(b) If the conditions set forth at Sections 11.2 through 11.5, inclusive
are not satisfied by CMS or waived by Purchaser as of the Closing
Date, Purchaser may terminate this Agreement;
(c) At any time by mutual written agreement of CMS and Purchaser, and in
accordance with any other express provision of this Agreement, CMS
and Purchaser may mutually terminate this Agreement;
(d) If there has been a material breach of any of the representations
and warranties of CMS which are specified in Section 11.1, above,
Purchaser may terminate this Agreement unless CMS agrees to
indemnify Purchaser with regard to such breach as provided in this
Section 17.1(d). Within four (4) business days after any such breach
becomes known, discovered or disclosed to Purchaser (whether by CMS
pursuant to Section 8.6 or otherwise consistent with Section 9.6),
Purchaser shall provide to CMS written notice of Purchaser's intent
to terminate this Agreement due to such breach. CMS shall within two
(2) business days of its receipt of any such notice from Purchaser,
provide Purchaser with written notice of CMS's decision of whether
or not CMS will indemnify Purchaser from and against all Adverse
Consequences arising from such breach, without limitation. In the
event CMS elects to indemnify Purchaser, such indemnity shall
terminate upon the cure or satisfaction of the matter, event or
occurrence giving rise to such breach. In the event CMS elects not
to indemnify Purchaser as to the Adverse Consequence arising from
such breach, then Purchaser shall within two (2) business days of
its receipt of written notice of CMS's election, either agree in
writing to consummate the transaction contemplated by this
Agreement, or terminate this Agreement by written notice to CMS.
Failure of Purchaser to respond within two (2) business days of
receipt of CMS's election shall be deemed a waiver of Purchaser's
right to terminate this Agreement on account of such breach. If
Purchaser waives, or is deemed to have waived such breach, the
Parties shall consummate the transaction contemplated herein.
Subject to the provisions of Sections 18.1 and 18.2, no waiver by
Purchaser of its right to terminate this Agreement under this
Section 17.1(d) shall preclude Purchaser from any post-Closing
remedy provided in this Agreement to Purchaser on account of any
breach of the representations and warranties of CMS that are
specified in Section 11.1. Regardless of when any such breach
becomes known, discovered or disclosed to Purchaser, CMS may prevent
Purchaser from asserting the breach as a basis for termination of
this Agreement by agreeing to indemnify Purchaser as provided above.
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(e) By either Party if the Closing shall not have occurred on or
before March 31, 2000, unless the failure to close results from a
material breach or default of this Agreement by the Party seeking
termination.
17.2 Liabilities Upon Termination or Failure to Close
In the event this Agreement is terminated by either Party for any reason
set forth in Section 17.1, then neither Party shall be liable to the other for
any indirect, incidental or consequential damages, except as provided in Section
17.3 as to Purchaser's interference with CMS's rights in the Assets or the Terra
Assets after termination.
17.3 Deposit
(a) If this Agreement is terminated by CMS pursuant to Sections 10.1,
10.2, or 10.6, not having been satisfied by Purchaser or not having
been waived by CMS; or Purchaser's failure to close, as provided in
Section 17.1(e), CMS shall have the right, in addition to all other
rights set forth herein, to retain the Deposit as partial liquidated
damages, and to seek any additional amount of actual damages which
CMS may suffer in excess of the amount of the Deposit. If this
Agreement is terminated for any reason, CMS shall immediately enjoy
all rights of ownership of the Assets and the Terra Assets and to
sell, transfer, encumber or otherwise dispose of the Assets and the
Terra Assets to any party without any restriction under this
Agreement, and Purchaser shall be liable for all damages, including,
but not limited to, direct, indirect, incidental and consequential
damages, if Purchaser attempts to interfere in any way with CMS's
assertion or enjoyment of CMS's rights in the Assets and the Terra
Assets after termination. If this Agreement is terminated for any
other reason, CMS shall return the Deposit to Purchaser, without
interest.
(b) In the event the transaction contemplated by this Agreement does not
close, and CMS is entitled to retain the Deposit, as provided in
Section 17.3(a), above, then and in that event, CMS shall be
entitled to retain the cash component of the Deposit. In this event
CMS shall also have a put option with respect to twenty-five percent
(25%) of the QRI Stock on each of June 30, 2000, September 30, 2000,
December 31, 2000 and March 30, 2001 at $4 1/8 per share, $4 1/4 per
share, $4 3/8 per share and $4 1/2 per share, respectively. The
Parties hereby agree that within fifteen (15) days of delivery of
written notice of CMS's election to exercise a put option, CMS will
deliver the shares of QRI Stock which are the subject of the put
option to Purchaser, and Purchaser will concurrently pay CMS an
amount equal to the number of shares of QRI Stock which are put,
multiplied by the applicable put option share price. Purchaser shall
have a call option on not less than twenty-five percent (25%) of the
QRI Stock, at any time and from ti me to time, at a price that is
the sum
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of $4 per share plus interest at the rate of twelve and one-half
percent (12.5%) per annum computed from the Closing Date to the date
the call option is exercised. CMS agrees to immediately transfer the
affected QRI Stock if Purchaser timely and properly exercises one or
more of its call options.
17.4 Effect of Termination
If any Party terminates this Agreement pursuant to Section 17.1,
above, then except as provided in Section 17.3., above, all rights and
obligations of the Parties hereunder shall terminate without any liability of
any Party to any other Party (except for any liability of any Party then in
breach); provided, however, that the confidentiality provisions contained in
-----------------
Section 22.10, below, shall survive any such termination.
ARTICLE XVIII - REMEDIES FOR BREACHES OF THIS AGREEMENT
18.1 Survival of Representations and Warranties
The representations and warranties of CMS which are contained in
Sections 4.1, 4.2, 4.3, 4.4, 4.16, 6.1, 6.3, 6.4, 6.6, 6.9, 6.11 and 6.13,
above, will expire at, and shall not survive the Closing. In the event that the
transaction contemplated by this Agreement does not proceed to closing, and CMS
is entitled to retain the Deposit in accordance with Section 17.3, above, then
the representation and warranty contained in Section 4.16, above, will survive
until all of the QRI Stock is put or called as provided in Section 17.3(b),
above. The representations and warranties of CMS set forth in Sections 4.13 and
6.16, above, will survive the Closing for a period of four (4) months (until
July 31, 2000), and shall thereafter expire and be of no further force and
effect in accordance with the indemnity provisions of Section 13.10, above, and
subject to the limitations imposed in Sections 13.3(b) and 13.5, above. The
representations and warranties of CMS which are set forth in Sections 4.5, 4.6,
4.7, 4.11, 4.12, 4.14, 4.15, 6.2, 6.5, 6.7, 6.8, 6.14, 6.17, 6.18 and 6.19,
above shall survive the Closing for a period of one (1) year and shall
thereafter expire and be of no further force and effect. The representations
and warranties of CMS set forth in Sections 4.8, 4.9, 4.10, 6.10, 6.12 and 6.15,
above, shall survive the Closing for a period of two (2) years and shall
thereafter expire and be of no further force and effect.
18.2 Indemnification Provisions for Benefit of the Purchaser
(a) In the event CMS breaches any of its representations, warranties,
and covenants contained herein, and, if there is an applicable
survival period pursuant to Section 18.1, above, provided that
Purchaser makes a written claim for indemnification against CMS
pursuant to Section 22.7, below within such survival period, then
CMS agrees to indemnify Purchaser from and against any Claims and
Adverse Consequences Purchaser shall suffer through and after the
date of the claim for indemnification (but excluding any Claims
---------
and Adverse
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Consequences Purchaser shall suffer as to any matter, event or
occurrence which Purchaser does not timely and properly raise prior
to the end of any applicable survival period) caused proximately by
the breach. Purchaser shall not be entitled to any indemnification
for those representations and warranties contained in Sections 4.5
through 4.12, inclusive [except 4.11(b)], Sections 4.14 and 4.15,
Sections 6.2, 6.7, 6.8 [except 6.8(w)], 6.10, 6.12, 6.14, 6.15, 6.17
and 6.18 (the "Limited Representations"), unless the aggregate
amount of the loss or damage to Purchaser resulting from a breach or
breaches exceeds $300,000.00, and anything contained herein to the
contrary notwithstanding, the total aggregate indemnification of
Purchaser by CMS as a result of any and all such breaches of the
Limited Representations shall be limited to the sum of
$5,000,000.00. In no event shall CMS indemnify Purchaser for any
Claims relating to the first $300,000.00 of claims alleged by
Purchaser relating to the Limited Representations, whether or not
the cumulative net amount of all such Claims exceeds that sum. With
respect to any such breach of the representations and warranties
contained in Sections 4.11(b) and 6.8(w), above, the total aggregate
indemnification of Purchaser by CMS shall be limited to the amount
of the tax credit valuation for each of the wells comprising the
Subject Property and the Terra Property.
(b) CMS also agrees to indemnify Purchaser from and against any Adverse
Consequences Purchaser shall suffer as a result of any breach of the
representations and warranties of CMS contained in Sections 6.5 and
6.19, above, provided, however, that Purchaser shall not be entitled
to any indemnification under this Section 18.2(b) unless the
aggregate amount of the loss or damage to Purchaser exceeds
$1,000,000.00, but in no event shall the total aggregate
indemnification of Purchaser by CMS under this Section 18.2(b)
exceed $20,000,000.00.
(c) CMS also agrees to indemnify Purchaser from and against any Adverse
Consequences Purchaser shall suffer as a result of any action, suit,
proceeding, hearing or investigation relating directly to the Assets
or Terra Assets, the basis for which is an event which occurred
prior to the Effective Date, and as to which Purchaser has asserted
a written claim pursuant to Section 22.7, below, within two (2)
years of the Closing Date. The obligations of CMS under this Section
18.2(c) shall be subject to the same limitations expressed in
Section 18.2(a), above, with regard to the Limited Representations.
18.3 Indemnification Provisions for Benefit of CMS
In the event Purchaser breaches any of its representations, warranties,
and covenants contained herein, provided that CMS makes a written claim for
indemnification against Purchaser
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pursuant to Section 22.7, below, within such survival period, then Purchaser
agrees to indemnify CMS from and against the entirety of any Claims and Adverse
Consequences CMS shall suffer through and after the date of the claim for
indemnification (but excluding any Claims and Adverse Consequences CMS shall
---------
suffer after the end of any applicable survival period) caused proximately by
the breach.
18.4 Matters Involving Third Parties
(a) If any third party shall notify any Party (the "Indemnified
-----------
Party") with respect to any matter (a "Third Party Claim") which
------ -----------------
notification may give rise to a claim for indemnification against
any other Party (the "Indemnifying Party") under this Article XVIII,
------------------
then the Indemnified Party shall promptly and in any event within
five (5) business days after receiving notice of the Third Party
Claim notify the Indemnifying Party thereof in writing.
Notwithstanding the foregoing, the provisions of this Section 18.4
shall apply to any notice delivered later than five (5) business
days subsequent to receipt of any Third Party Claim, so long as the
Indemnifying Party is not materially prejudiced by the fact that
such notice is delivered after five (5) business days from receipt
of the Third Party Claim.
(b) The Indemnifying Party will have the right at any time to assume
and thereafter conduct the defense of the Third Party Claim with
counsel of its choice reasonably satisfactory to the Indemnified
Party; provided, however, that the Indemnifying Party will not
-----------------
consent to the entry of any judgment or enter into any settlement
with respect to the Third Party Claim without the prior written
consent of the Indemnified Party (not to be withheld unreasonably)
unless the judgment or proposed settlement involves only the payment
of money damages and does not impose an injunction or other
equitable relief upon the Indemnified Party.
(c) Unless and until the Indemnifying Party assumes the defense of the
Third Party Claim as provided in Section 18.4(b), above, however,
the Indemnified Party may defend against the Third Party Claim in
any manner it reasonably may deem appropriate.
(d) In no event will the Indemnified Party consent to the entry of any
judgment or enter into any settlement with respect to the Third
Party Claim without the prior written consent of the Indemnifying
Parties (not to be withheld unreasonably).
18.5 Determination of Adverse Consequences
The Parties shall make appropriate adjustments for tax benefits and
insurance coverage and take into account the time cost of money (using the prime
interest rate quoted in the Wall Street Journal as the discount rate) in
-------------------
determining Adverse
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Consequences for purposes of this Article XVIII. All indemnification payments
under this Article XVIII shall be deemed adjustments to the Purchase Price.
18.6 Exclusive Remedy
The Parties acknowledge and agree that except as otherwise specifically
provided in this Agreement, the foregoing indemnification provisions in this
Article XVIII shall be the exclusive remedy of Purchaser with respect to CMS,
Terra, its Subsidiaries, and the transaction contemplated by this Agreement.
ARTICLE XIX - TAXES
19.1 Liability for Taxes
(a) Except for taxes which are specifically to be reimbursed by
Purchaser pursuant to Sections 19.5 and 19.9, below, CMS shall be
liable for and indemnify Purchaser for all Taxes imposed on
Purchaser and Terra (or for which Purchaser may otherwise be liable)
arising from the Assets, the Terra Assets or activities of Terra and
its Subsidiaries for any taxable year or period of Terra or its
Subsidiaries that ends as of the end of the day on the Closing Date
and, with respect to any taxable year or period beginning before and
ending after the Closing Date, the portion of such taxable year
ending at the end of the day on the Closing Date.
(b) Purchaser and Terra shall be liable for and indemnify CMS for the
Taxes imposed on the Assets, the Terra Assets or activities of Terra
and its Subsidiaries for any taxable year or period that begins
after the Closing Date and, with respect to any taxable year or
period beginning before and ending after the Closing Date, the
portion of such taxable year or period beginning after the Closing
Date.
(c) For purposes of Sections 19.1(a) and 19.1(b), above, whenever it is
necessary to determine the liability of the Parties for Taxes for a
portion of a taxable year or period that begins before and ends
after the Closing Date, the determination of the Taxes for the
portion of the year or period ending before, and the portion of the
year or period beginning on, and continuing after the Closing Date
shall be determined by assuming a taxable year or period which ended
at the close of the Closing Date, except that exemptions, allowances
or deductions that are calculated on an annual basis, such as the
deduction for depreciation, shall be apportioned on a daily basis.
(d) After the execution of this Agreement, Purchaser or its designee
shall have the right to inspect, at all reasonable times, and upon
forty-eight (48) hours prior written request delivered to CMS, the
following: (i) all Income Tax Returns of Terra and its Subsidiaries
requested by Purchaser; (ii) any other Tax Returns of
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Terra and its Subsidiaries requested by Purchaser, as may be
relevant to Terra and its Subsidiaries, and which relate to the
Terra Assets and operation of the Terra Property; and (iii) any work
papers or other supporting data requested by Purchaser relating to
Tax Returns made available pursuant to (i) or (ii), or relating to
Tax Returns referred to in (i) or (ii) not yet filed, to the extent
copies of such Tax Returns, work papers or other data are in
existence and in the possession of CMS at the time of such request.
(e) CMS shall be entitled to receive any refund or credit of Taxes (and
interest thereon) attributable to a carryback of losses, credits or
other similar items from a taxable year or period that ends on or
before the Closing Date, and Purchaser shall be entitled to such
items attributable to a taxable year or period that ends after the
Closing Date.
(f) CMS shall be entitled to any Tax refunds due Terra or its
Subsidiaries for and attributable to all periods prior to the
Closing Date, and if received by Purchaser, Purchaser shall
immediately deliver all such refunds to CMS.
19.2 Tax Returns
CMS shall file when due (after taking into account all extensions
properly obtained) all Tax Returns that are required to be filed by or with
respect to Terra and its Subsidiaries for the taxable year ending on or before
the Closing Date and shall remit or cause to be remitted any Taxes shown to be
due on such Tax Returns; and Purchaser shall file when due (after taking into
account all extensions properly obtained) all Tax Returns that are required to
be filed by Terra and its Subsidiaries for taxable years beginning after the
Closing Date, and shall remit or cause to be remitted any Taxes due in respect
of such Tax Returns. CMS agrees to file those Tax Returns for periods on or
before the end of the day of Closing Date which CMS is required to file under
applicable rules relating to when the Assets are actually transferred. All Tax
Returns which Purchaser, Terra or CMS are required to file in accordance with
this Section 19.2 shall be prepared and filed in a manner consistent with past
practice and, on such Tax Returns no position shall be taken or method adopted
that is inconsistent with positions taken or methods used in preparing and
filing similar Tax Returns in prior periods except for changes required by law
or changes in facts, or as the Parties otherwise agree.
19.3 Contest Provisions
Purchaser shall notify CMS in writing upon receipt of notice of any
pending or threatened federal, state or local Tax audit or assessment (including
any revenue agent report or notice of proposed adjustment) which may materially
affect the Tax liabilities of Terra or its Subsidiaries for which CMS would be
required to indemnify Purchaser pursuant to Section 19.1(a), above.
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CMS shall have the sole right to represent the interests of Terra and
its Subsidiaries in any Tax audit or administrative or court proceeding relating
to taxable periods ending on or before the Closing Date, and to employ counsel
of their choice at their expense, provided that Purchaser (and their tax
counsel) may, at their own expense, be present at and participate in any such
audit or proceeding. Notwithstanding the foregoing, CMS shall not be entitled
to settle, either administratively or after the commencement of litigation, any
claim for Taxes which would adversely affect the liability for Taxes of
Purchaser for any period after the Closing Date to any extent (including, but
not limited to, the imposition of Income Tax deficiencies, the reduction of
asset basis or cost adjustments, the lengthening of any amortization or
depreciation periods, the denial of amortization, depreciation or depletion
deductions) without the prior written consent of the Purchaser. Such consent
shall not be necessary to the extent that CMS has indemnified Purchaser against
the effects of any such settlement.
A representative of CMS (and their tax counsel) may, at its own expense,
be present at and participate in any audit or proceeding relating to the matters
covered by this Article XIX. Purchaser shall not settle any dispute with respect
to such matters without the consent of CMS, except that Purchaser may settle any
such dispute without the consent of CMS if it agrees to relieve CMS of their
indemnification obligation hereunder with respect to such transaction.
19.4 Assistance and Cooperation
After the Effective Date, each of CMS and the Purchaser shall:
(a) Agree to timely sign and deliver such certificates or forms as may
be necessary or appropriate to establish an exemption from (or
otherwise reduce) or make a report with respect to any Taxes
including those described in Section 19.10, below.
(b) Assist (and cause their respective affiliates to assist) the other
Party in preparing any Tax Returns which such other Party is
responsible for preparing and filing in accordance with Section
19.2, above.
(c) Cooperate fully in preparing for any audits of, or disputes with
taxing authorities regarding, any Tax Returns of Terra and its
Subsidiaries.
(d) Make available to the other Party and to any taxing authority as
reasonably requested, all information, records, and documents
relating to Taxes of Terra and its Subsidiaries.
(e) Provide timely notice to the other Party in writing of any
pending or threatened Tax audits or assessments of Terra and its
Subsidiaries for taxable periods for which the other may have a
liability under this Article XIX.
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(f) Furnish the other Party with copies of all correspondence received
from any taxing authority in connection with any Tax audit or
information request with respect to any such taxable period.
CMS and Purchaser shall provide each other with reasonable access to all
relevant documents, data and other information which may be required for the
purpose of preparing Tax Returns and responding to any audit by any taxing
jurisdiction. CMS and Purchaser shall cooperate with all reasonable requests of
the other made in connection with contesting the imposition of Taxes. Neither
CMS nor Purchaser shall be required at any time to disclose to the other any
Income Tax Returns or other confidential Tax information.
19.5 Adjustment to Purchase Price For Taxes
Purchaser shall reimburse CMS for any Taxes (without taking into account
any section 29 tax credits) payable by CMS with respect to the Assets or
attributable to the operation of Terra for the Interim Period. Any payment by
CMS or Purchaser under this Article XIX shall be considered an adjustment to the
Purchase Price paid in connection with the transaction contemplated by this
Agreement, and to the extent that it cannot be so characterized for Tax
purposes, shall be made on an After-Tax Basis. For purposes of this Agreement,
the term After-Tax Basis means, with respect to any amount which is to be paid
hereunder on an "After-Tax Basis", an amount which, after subtraction of the
amount of all federal, state and local Taxes payable by the recipient thereof as
a result of the receipt or accrual of such payment, and after taking into
account (i) the increase in federal, state and local Taxes (including estimated
Taxes) payable by such recipient for all affected taxable years as a result of
the event or occurrence giving rise to such payment, and (ii) the reduction in
federal, state and local Taxes (including estimated Taxes) payable by the
recipient for all applicable taxable years, including the present value (using
the applicable federal rate as the discount rate) of all reasonably anticipated
future tax reduction for taxable years ending on or after the end of the taxable
year in which such payment is made, shall be sufficient as of the date of
payment to compensate the recipient for such event or occurrence giving rise to
such payment.
19.6 Treatment of the Terra Shares
The Parties hereby acknowledge and agree that transfer of the Terra
Shares shall not be treated or considered to be an asset purchased for purposes
of Code section 338(h)(10).
19.7 CMS Tax Allocation Agreement
The participation of Terra and its Subsidiaries in the CMS Energy
Corporation tax allocation agreement shall only relate to periods prior to the
Effective Date.
19.8 Books and Records
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At Closing, or as soon thereafter as is reasonably practical, CMS shall
deliver to Purchaser all books and records relating to Terra and its
Subsidiaries, except that CMS shall retain originals or copies of all books and
records necessary or convenient for CMS to prepare the Tax Returns it is
required to file pursuant to Section 19.2, above.
19.9 Sales Taxes
The Purchase Price is net of any sales taxes or other transfer taxes in
connection with the sale of the Assets. Purchaser shall be liable for any sales
tax or other transfer tax, as well as any applicable conveyance, transfer and
recording fees, and real estate transfer stamps or taxes imposed on the transfer
of the Assets. Purchaser shall indemnify and hold CMS harmless from liability
for payment of any such Taxes, including any interest or penalties assessed
thereon.
19.10 Other Taxes
All severance, production, conservation, excise, windfall profit, single
business and other Taxes, other than Income Taxes and those Taxes covered by
Section 19.9, above, or fees relating to production of oil, gas and condensate
attributable to the Assets assessed prior to the Effective Date shall be paid by
CMS, except to the extent taken into account under Section 3.3, above. All such
Taxes relating to production of oil, gas and condensate attributable to the
Terra Assets assessed on or after the Effective Date shall be paid by Purchaser,
regardless of the method or basis used for calculating the Tax.
ARTICLE XX - EXERCISE OF PREFERENTIAL PURCHASE RIGHTS
CMS agrees to use commercially reasonable best efforts to identify any
and all parties holding a preferential right to purchase, right to reacquire,
consent to transfer and any other contractual right to acquire or consent to the
transfer of the Assets or the Terra Assets, as contemplated by this Agreement.
CMS will provide the required notice to the holders of all such rights which it
has identified and shall provide a copy of all such notifications to Purchaser
and any and all responses thereto. CMS will thereafter provide to Purchaser a
list which identifies the contracts and agreements giving rise to the notices
which CMS has provided pursuant to this Article XX. If during the Interim Period
any holder of a preferential purchase right or right of reassignment affecting
any portion of the Subject Property or the Terra Property notifies CMS or
Purchaser prior to Closing that the holder intends to exercise the holder's
rights and purchase or reacquire a portion of the Subject Property or the Terra
Property to which a preferential purchase right or right of reassignment
applies, those interests shall be excluded from the Assets to be conveyed to
Purchaser, and the Purchase Price shall be reduced in accordance with the
provision of Section 3.3, above. The value of the downward adjustment to the
Purchase Price shall be a proportionate decrease in the portion of the Purchase
Price allocated to the applicable
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interest in an oil and gas lease affected by the preferential purchase right or
right of reassignment. If the holder of a preferential purchase right or right
of reassignment fails to consummate the purchase or reacquisition of all or a
portion of the Subject Property or the Terra Property affected by the right, CMS
shall so notify Purchaser, and within fifteen (15) days after Purchaser's
receipt of notice from CMS, CMS shall sell to Purchaser, and Purchaser shall
purchase from CMS the applicable interest for a price equal to the portion of
the Purchase Price allocated to the applicable interest and upon the other terms
of this Agreement. All interests comprising the Subject Property or the Terra
Property for which a preferential purchase right or right of reassignment have
not been asserted prior to Closing shall be sold and conveyed to Purchaser at
Closing pursuant to the provisions of this Agreement. If prior to Closing CMS is
unable to timely and properly identify and notify the holders of any
preferential purchase rights, rights to reacquire or consent rights, CMS shall
so notify Purchaser, and CMS will, with reasonable diligence proceed to identify
and notice the holders of such rights. If one or more of the holders of any
preferential purchase rights or rights to reacquire notifies CMS subsequent to
the Closing that it intends to assert its preferential purchase right, CMS shall
give notice thereof to Purchaser. Purchaser shall satisfy all preferential
purchase right and right to reacquire obligations of CMS to the holders thereof.
CMS shall indemnify and hold Purchaser harmless from and against any and all
Claims in connection with any preferential purchase rights, rights to reacquire
or consent rights which are asserted subsequent to Closing, except as to the
value assigned to the affected portion of the Subject Property or the Terra
Property, pursuant to Attachment H. Purchaser agrees to convey any Assets or
Terra Asset to the holder of any preferential purchase right. right to reacquire
or similar contractual rights, which are properly exercised subsequent to
Closing. Purchase shall be entitled to receive, and CMS hereby assigns to
Purchaser all of CMS's rights to all proceeds received from holders of
preferential purchase rights and rights to reacquire which are properly
exercised subsequent to Closing.
ARTICLE XXI - INDEPENDENT INVESTIGATION AND DISCLAIMER
21.1 Disclaimer as to Warranties
The Parties agree that the disclaimer of warranties contained in this
Section 21.1. and in the conveyance instruments to be delivered pursuant to this
Agreement are conspicuous disclaimers for the purposes of any applicable law,
rule or order. PURCHASER ACKNOWLEDGES THAT IN MAKING THE DECISION TO ENTER INTO
THIS AGREEMENT AND CONSUMMATE THE TRANSACTIONS CONTEMPLATED HEREBY, PURCHASER
HAS RELIED SOLELY ON THE BASIS OF ITS OWN EXPERTISE AND INDEPENDENT
INVESTIGATION OF THE ASSETS AND THE TERRA ASSETS, EXCEPT AS OTHERWISE
SPECIFICALLY PROVIDED IN THIS AGREEMENT. PURCHASER ACKNOWLEDGES THAT EXCEPT
FOR, AND TO THE EXTENT OF THE REPRESENTATIONS AND WARRANTIES EXPRESSLY SET FORTH
IN ARTICLES IV AND VI, ABOVE, CMS HAS NOT MADE, AND CMS HEREBY EXPRESSLY
DISCLAIMS AND NEGATES, ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AT
COMMON LAW, BY STATUTE, OR
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OTHERWISE RELATING TO (i) TITLE TO OR THE CONDITION OF THE ASSETS (INCLUDING
WITHOUT LIMITATION, ANY IMPLIED OR EXPRESS WARRANTY OF MERCHANTABILITY, OF
FITNESS FOR A PARTICULAR PURPOSE, OR OF CONFORMITY TO MODELS OR SAMPLES OF
MATERIALS AS TO ANY PERSONAL PROPERTY OR FIXTURES TO BE CONVEYED) AND (ii) ANY
INFORMATION, DATA OR OTHER MATERIALS (WRITTEN OR ORAL) FURNISHED TO PURCHASER BY
OR ON BEHALF OF CMS (INCLUDING, WITHOUT LIMITATION, THE EXISTENCE OR EXTENT OF
OIL, GAS OR OTHER MINERAL RESERVES, THE RECOVERABILITY OF OR THE COST OF
RECOVERING ANY SUCH RESERVES, THE VALUE OF SUCH RESERVES, ANY PRODUCT PRICING
ASSUMPTIONS, PRESENT OR PAST PRODUCTION RATES, COMPLIANCE WITH LEASE TERMS, THE
CONDITION OF ANY WELL, AND THE ABILITY TO SELL OIL OR GAS PRODUCTION AFTER
CLOSING). PURCHASER COVENANTS AND REPRESENTS THAT, SUBJECT TO THE OBLIGATIONS OF
CMS WITH RESPECT TO THE RETAINED LIABILITIES, PURCHASER HAS INSPECTED OR BEFORE
CLOSING WILL INSPECT THE ASSETS AND THE TERRA ASSETS, AND ACCEPTS THE SAME "AS
IS", "WHERE IS" and "WITH ALL FAULTS".
21.2 Disclaimer As To Year 2000 Compliance
Certain of the Assets and the Terra Assets may rely on computer systems,
including embedded chips, to enhance their function. Many of those systems may
have recorded years in a two-digit format. Such computer systems, if not
replaced or modified so as to become "Year 2000 Compliant", may be unable to
properly recognize dates arising in the year 2000 and later. As used herein,
"computer systems" includes, but is not limited to, computer hardware and
software (including macrocode, firmware, embedded chips, application programs,
files, databases, and third-party software embedded therein), and electronic
components and systems. As used herein, the term "Year 2000 Compliant" means
that the computer systems will provide accurate and uninterrupted information
and calculations unaffected by dates (including the dates of 9/9/99, 1/1/00 and
dates arising in the calendar year 2000 and later, including leap years), and
that the performance and functionality of the computer systems will not be
adversely affected by said dates.
With regard to this issue, to the Knowledge of CMS, it has encountered
no material problems or difficulties since the Effective Date. CMS expressly
disclaims and negates any and all other representation or warranty, express or
implied, at common law, by statute, or otherwise, as to whether the Assets or
the Terra Assets and/or such systems are, or are not, "Year 2000 Compliant".
Purchaser agrees to purchase the Assets in their "As Is, Where Is, and With Any
and All Faults and Defects" condition, as related to such Assets, the Terra
Assets and such systems being "Year 2000 Compliant", and covenants and agrees
that it will indemnify and hold CMS harmless from and against any and all
Claims, and all actual, indirect, incidental, and consequential damages, if
any, brought or suffered by it or any third party based upon any failure of the
Assets, the Terra Assets or such systems to be "Year 2000 Compliant".
ARTICLE XXII - MISCELLANEOUS
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22.1 Like-Kind Exchange
CMS shall have the option, at or before Closing, to structure the
Closing of this transaction in such a manner so as to qualify, in whole or in
part, as part of a like-kind exchange pursuant to Section 1031 of the Code.
Purchaser will cooperate with CMS to facilitate a like-kind exchange, including
a three corner or multi-party exchange. In the event CMS desires such an
exchange, CMS shall timely notify Purchaser of its intent within seven (7) days
prior to Closing and CMS shall be responsible for arrangement of the structure
for the exchange, compliance with time limits on like-kind exchanges, the
preparation of appropriate documents to complete the transaction, and all
additional costs directly related thereto.
22.2 Governing Law
This Agreement, the validity of the various conveyances made hereunder
affecting title to real property, the indemnities herein and the other documents
delivered pursuant hereto and the legal relations among the Parties shall be
governed by and construed in accordance with the laws of the State of Michigan.
22.3 Entire Agreement
This Agreement and the Attachments attached hereto constitute the entire
agreement between CMS and Purchaser with respect to the Assets and the Terra
Assets, and supersedes all prior agreements, understandings, negotiations and
discussions, whether oral or written, between CMS and Purchaser. No supplement,
amendment, alteration, modification, waiver or termination of this Agreement
shall be binding unless executed in writing by both CMS and Purchaser.
22.4 Amendments and Waivers
No amendment of any provision of this Agreement shall be valid unless
the same shall be in writing and signed by Purchaser and CMS. No waiver by any
Party of any default, misrepresentation, or breach of warranty or covenant
hereunder, whether intentional or not, shall be deemed to extend to any prior or
subsequent default, misrepresentation, or breach of warranty or covenant
hereunder or affect in any way any rights arising by virtue of any prior or
subsequent such occurrence.
22.5 Captions
The captions in this Agreement are for convenience only and shall not be
considered a part of or affect the construction or interpretation of any
provision of this Agreement.
22.6 Assignment
Purchaser shall not assign this Agreement or any of its rights or
obligations pursuant to this Agreement without CMS's prior written consent. CMS
hereby acknowledges and agrees that
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in the event Purchaser defaults under the terms of its purchase money finance
obligations with respect to the transaction contemplated by this Agreement, then
upon written notice to CMS, Purchaser's rights and obligations under this
Agreement may be assigned to Purchaser's primary lending institution. No such
assignment shall be effective unless and until the assignee agrees in writing to
accept and assume the rights, duties and obligations of Purchaser hereunder. Any
such assignment shall be at no cost or expense to CMS, and shall not be deemed
to extend any of the time periods set forth herein. Unless such written consent
of CMS so specifies, subsequent to any assignment of Purchaser's interest
hereunder including the assignment provided for above, Purchaser shall not be
released from any responsibility or liability for the obligations, covenants,
representations, warranties or indemnities of Purchaser under this Agreement.
Any assignment made without CMS's consent shall be void. This Agreement shall be
binding upon and inure to the benefit of CMS and Purchaser and their respective
successors, heirs and assigns. CMS may, without Purchaser's prior approval,
assign its interest under this Agreement to a qualified intermediary in order to
pursue a like-kind exchange.
22.7 Notices
Any notice provided or permitted to be given under this Agreement shall
be in writing, and may be served by personal delivery, telefacsimile with
confirmation of receipt or by depositing the notice in the United States mail,
addressed to the Party to be notified, postage prepaid, and registered or
certified with a return receipt requested. Notice may also be given by sending
the written notification by courier service. Notice deposited in the mail in the
manner described by this Section 22.7 shall be deemed to have been given and
received on the date of the delivery as shown on the return receipt. Notice
served in any other manner shall be deemed to have been given and received only
if and when actually received by the addressee. For purposes of notice, the
addresses of the parties shall be as follows:
CMS's Mailing Address:
CMS Oil and Gas Company
1021 Main Street, Suite 2800
Houston, Texas 77002
Attention: Michael J. Killelea, Chief Counsel
Phone: 713-230-7221
Fax: 713-651-0622
Purchaser's Mailing Address:
Quicksilver Resources Inc.
1619 Pennsylvania Avenue
Forth Worth, Texas 76104
Attention: Houston Kauffman, Vice-President
Phone: 817-332-9133
Fax: 817-877-8959
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Each Party shall have the right, upon giving ten (10) days prior written
notice to the other to change its address for purposes of notice.
22.8 Expenses
Except as specifically provided otherwise in this Agreement, CMS and
Purchaser shall each be solely responsible for all expenses incurred by it in
connection with this transaction, including, without limitation, fees and
expenses of their own counsel and accountants.
22.9 Severability
If any term or provision (or portion thereof) of this Agreement is held
invalid, illegal or incapable of being enforced under any rule of law or
regulation, all remaining conditions and provisions of this Agreement shall
survive and remain in full force and effect to conform to the Parties' intent,
so long as the economic or legal substance is not affected in a materially
adverse manner with respect to either Party.
22.10 Confidentiality, Publicity and Retention of Data
(a) Until completion of the Closing, and in the event the transaction
contemplated by this Agreement is not consummated for any reason,
whatsoever, except as required by law and with prior notice to CMS,
Purchaser and its agents and representatives will hold in strict
confidence all Confidential Information obtained from CMS, any other
Person, or derived from information provided by CMS, or as a result
of Section 5.6, Section 8.5, Section 12.2, or Section 13.1, above,
whether before or after the execution of this Agreement, except any
data or information which (i) at the time of the disclosure to
Purchaser by CMS is in the public domain; (ii) after disclosure to
Purchaser by CMS becomes part of the public domain by publication or
otherwise, except by breach of this commitment by Purchaser; (iii)
Purchaser can establish by competent proof it was rightfully in its
possession at the time of disclosure to Purchaser by CMS; (iv)
Purchaser rightfully receives from any Person free of any obligation
of confidence; or (v) is developed independently by Purchaser,
provided the Person or Persons developing the information shall not
have had reference to data or information obtained from CMS in
connection with the transaction contemplated by this Agreement. If
this Agreement is terminated for any reason and as to any portion of
the Assets or the Terra Assets not assigned or conveyed to Purchaser
at Closing, Purchaser shall return to CMS all Confidential
Information obtained from CMS related to all or the portion of the
Assets or the Terra Assets not conveyed. Purchaser shall not utilize
or permit utilization of Confidential Information to compete with
CMS or its co-working interest owners in the Assets and the Terra
Assets. The terms of this Section 22.10 shall survive any
termination of this Agreement.
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(b) CMS and Purchaser shall use their reasonable best efforts to provide
one another with drafts of the press releases to be issued
immediately subject to Closing. The Parties will use their
reasonable best efforts to approve such press releases prior to
Closing. Except as required by applicable law or the applicable
rules or regulations of any governmental body or stock exchange,
neither Party shall issue any publicity or other release without the
prior written consent of the other Party, which consent shall not be
unreasonably withheld.
22.11 Use of CMS's Name
No later than ten (10) days after the Closing, Purchaser shall use its
reasonable best efforts to remove or cause to be removed the names and marks
used by CMS and all variations and derivatives and logos from the Assets or the
Terra Assets, if CMS has not already done so. Purchaser shall not make any use
whatsoever of CMS's names, marks and logos after Closing. CMS shall have the
right to enter any premises and remove all signs and logos containing CMS's name
at Purchaser's expense should Purchaser fail to do so in a timely manner.
22.12 Conditions
The inclusion in this Agreement of conditions to either Party's
obligation to close shall not, in and of itself, constitute a covenant of the
other Party to satisfy the conditions to either Party's obligation to close.
22.13 No Third-Party Beneficiaries
This Agreement shall not confer any rights or remedies upon any Person
other than the Parties and their respective successors and permitted assigns.
22.14 Succession and Assignment
This Agreement shall be binding upon and inure to the benefit of the
Parties named herein and their respective successors and permitted assigns.
22.15 Construction
The Parties have participated jointly in the negotiation and drafting
of this Agreement. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the Parties and no presumption or burden of proof shall arise favoring or
disfavoring any Party by virtue of the authorship of any of the provisions of
this Agreement. Any reference to any federal, state or local statute or law
shall be deemed also to refer to all rules and regulations promulgated
thereunder, unless the context requires otherwise.
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22.16 Attachments
A reference to an Attachment throughout this Agreement shall mean and
be construed as referring to an Attachment attached to this Agreement, and all
Attachments shall be deemed to have been fully incorporated into and made a part
of this Agreement.
22.17 Counterparts
This Agreement maybe executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
22.18 Execution Deadline
This Agreement shall be open for acceptance up to, but not after, 5:00
P.M. Central Standard Time on March 6, 2000, and if not accepted by the
execution and return of one (1) original to CMS by such time, shall be null and
void at CMS's option. Acceptance within the time provided shall constitute a
contract of purchase and sale binding upon the Parties hereto and their
respective successors and assigns.
CMS OIL AND GAS COMPANY QUICKSILVER RESOURCES INC.
By: /s/ WILLIAM H. STEPHENS, III By: /s/ HOUSTON KAUFFMAN
------------------------------ --------------------------------
Name: Name:
-------------------------- ---------------------------
Title: Executive Vice President Title: Vice President
------------------------- --------------------------
Tax I.D. No.: Tax I.D. No.:
------------------ -------------------
ACKNOWLEDGMENT
STATE OF )
) ss
COUNTY OF )
On this 4th day of March, 2000 before me, the undersigned, a Notary Public, in
and for the County and State aforesaid, personally appeared William H. Stephens,
known to be the identical person who executed the foregoing instrument as
Executive Vice President of CMS Oil and Gas Company, and acknowledged to me that
he executed the same as his free and voluntary act and deed and as the free and
voluntary act and deed of such corporation, for the uses and purposes therein
set forth.
/s/ ROSEMARY CARUNA
---------------------------------
Notary Public
My Commission Expires: 4/17/02
-----------
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ACKNOWLEDGMENT
STATE OF )
) ss
COUNTY OF )
On this 4th day of March, 2000 before me, the undersigned, a Notary Public, in
and for the County and State aforesaid, personally appeared Houston Kaufman,
known to be the identical person who executed the foregoing instrument as Vice
President of Quicksilver Resources Inc. and acknowledged to me that he executed
the same as his free and voluntary act and deed and as the free and voluntary
act and deed of such corporation, for the uses and purposes therein set forth.
/s/ ROSEMARY CARUNA
---------------------------------
Notary Public
My Commission Expires: 4/17/02
-----------
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ATTACHMENT A1
ATTACHED TO AND MADE A PART OF THAT CERTAIN
PURCHASE AND SALE AGREEMENT DATED THE _____ DAY OF __________, 2000
BY AND BETWEEN ______________________, AS SELLER,
AND __________________________________, AS PURCHASER
<TABLE>
<CAPTION>
STATE OF MICHIGAN DESCRIPTION WORKING NET REVENUE PURCHASE PRICE
WELL/UNIT NAME SEC-TWN-RGE/COUNTY INTEREST (%) INTEREST (%) ALLOCATION ($)
- ---------------------------------- ------------------ ------------ ------------- ---------------
<S> <C> <C> <C> <C>
</TABLE>
TO BE COMPLETED AT A LATER DATE
TOTAL PURCHASE PRICE $__________________
85
<PAGE>
ATTACHMENT A2
ATTACHED TO AND MADE A PART OF THAT CERTAIN
ASSIGNMENT EFFECTIVE _______________, 2000, BETWEEN __________________
AND ____________________________________
SCHEDULE OF LEASES
(The recording references herein are to the records in said county in which
oil, gas and mineral leases are recorded.)
COUNTY:
STATE:
<TABLE>
<CAPTION>
LEASE NO. DATE LESSOR LESSEE RECORDING DATA DESCRIPTION OF PROPERTY
(including depth
limitation, if any)
BOOK PAGE
<S> <C> <C> <C> <C> <C>
</TABLE>
TO BE COMPLETED AT A LATER DATE
86
<PAGE>
ATTACHMENT A3
[overriding royalty interests - Section 1.1(b)]
TO BE COMPLETED AT A LATER DATE
87
<PAGE>
ATTACHMENT A4
[fee mineral, fee surface interests and rights-of-way - Section 1.1(b)]
TO BE COMPLETED AT A LATER DATE
88
<PAGE>
ATTACHMENT A5
[gas plants, facilities, systems and pipelines - Section 1.1(d)]
TO BE COMPLETED AT A LATER DATE
89
<PAGE>
ATTACHMENT B1
(Inventory of Retained Personal Property Assets)
90
<PAGE>
ATTACHMENT B2
(Description of 1475 Terra Road, Traverse City, Michigan - Section 1.2)
Attached to and made a part of that certain Purchase and Sale Agreement by
and between CMS OIL AND GAS COMPANY, as Seller, and QUICKSILVER RESOURCES
INC., as Purchaser, dated _______________, 2000.
The real property and all buildings, structures, fixtures and personal
property (unless specifically included in the Assets or the Terra
Assets) located thereon and all appurtenances thereto, which real
property is situated in the Township of Garfield, County of Grand
Traverse, State of Michigan, and described as:
The North one-half (N/2) of the Southwest one-quarter (SW/4) of
the Northeast one-quarter (NE/4), except the North 20 feet
thereof, Section 23, Township 27 North, Range 11 West, Garfield
Township, Grand Traverse County, Michigan, and commonly known as
1475 Terra Road, Traverse City, Michigan.
91
<PAGE>
ATTACHMENT B3
(Retained Wells, Units, Leases, Pipelines and Facilities)
TO BE COMPLETED AT A LATER DATE
92
<PAGE>
ATTACHMENT C
(Qualifying Wells)
TO BE COMPLETED AT A LATER DATE
93
<PAGE>
ATTACHMENT D
(Retained Liabilities - Section 2.)
TO BE COMPLETED AT A LATER DATE
94
<PAGE>
ATTACHMENT E
[Over and Under Production (current estimated amounts0 - Section 3.5]
TO BE COMPLETED AT A LATER DATE
95
<PAGE>
ATTACHMENT F
(Purchase Price Allocation - Section 3.6)
TO BE COMPLETED AT A LATER DATE
96
<PAGE>
ATTACHMENT G
(CMS Disclosure Schedule - Article IV)
TO BE COMPLETED AT A LATER DATE
97
<PAGE>
ATTACHMENT H
(CMS and Terra Bonds)
TO BE COMPLETED AT A LATER DATE
98
<PAGE>
ATTACHMENT I
(Terra Disclosure Schedule - Article VI)
TO BE COMPLETED AT A LATER DATE
99
<PAGE>
ATTACHMENT J
(Terra Financial Statements - Section 6.5)
TO BE COMPLETED AT A LATER DATE
100
<PAGE>
ATTACHMENT K
(CMS and Terra Insurance Coveragaes)
101
<PAGE>
ATTACHMENT L
(Purchaser's Opinion of Counsel - Section 10.6)
TO BE COMPLETED AT A LATER DATE
102
<PAGE>
ATTACHMENT M
(CMS Opinion of Counsel - Section 11.5)
TO BE COMPLETED AT A LATER DATE
103
<PAGE>
ATTACHMENT N
(Environmental Disclosure - Section 12.1)
TO BE COMPLETED AT A LATER DATE
104
<PAGE>
ATTACHMENT O
[Form Assignment and Conveyances of Subject Properties - Section 14.2(a)]
TO BE COMPLETED AT A LATER DATE
105
<PAGE>
ATTACHMENT P
[Title Warranty Letter - Section 14.2.(b)]
TO BE COMPLETED AT A LATER DATE
106
<PAGE>
ATTACHMENT Q
[Escrow Agreement - Section 14.2.(g)]
TO BE COMPLETED AT A LATER DATE
107
<PAGE>
ATTACHMENT R
[Letter Agreement Regarding Disbursement to Third Parties
from Operated Assets after the Transfer Date - Section 14.2(n)]
TO BE COMPLETED AT A LATER DATE
108
<PAGE>
ATTACHMENT S
[Pending Lawsuits, Actions and Proceedings - Section 15.3(d)]
(Disclosure Schedule)
Attached to and made a part of that certain Purchase and Sale Agreement by
and between CMS OIL AND GAS COMPANY, as Seller, and QUICKSILVER RESOURCES
INC., as Purchaser, dated _______________, 2000.
1. CMS NOMECO Oil & Gas Co. v Antrim Energy, Inc.
------------------------ -------------------
Collection matter under a 1996 gas contract. Case No. 97-6146-CK
in the 46th Judicial District, Lansing, Michigan
2. MacMillan and Englehart v CMS Oil and Gas Company
----------------------- -----------------------
Dispute over acreage computation for royalty purpose relating to
the Bushman Antrim Unit. Case No. 98-17881-CK in the 13th
Judicial Circuit, Grand Traverse County, Michigan
3. Markel Trust v CMS Oil and Gas Company, et al
------------ ------------------------------
Various claims, including claimed preferential right to purchase
on sale of various Antrim gas working interests to Fruehauf
Antrim Limited Partnership. Case No. 97-15902-CD in the 13th
Judicial Circuit, Grand Traverse County, Michigan
4. Marra v Yankee and Terra Energy, Ltd.
----- -----------------------------
Mineral ownership claim under producing unit. Case No.
99-003695-CH in the 26th Judicial Circuit, Montmorency County,
Michigan
5. Hershberger v Terra Energy Ltd.
----------- -----------------
Patent claim regarding method and apparatus for controlling
artificial list of liquids from a gas or oil well
6. Estate of Ernest G. Rea v Terra Energy Ltd. and W. Thomas Rea, et
----------------------- ----------------- -----------------
al v Terra Energy Ltd.
-- -----------------
Companion cases regarding various royalty and surface claims in
the X-Rea Antrim Unit. Case No. 99-005322-NZ and Case No. 99-
003652-NZ in the 26th Judicial Circuit, Montmorency County,
Michigan
109
<PAGE>
7. Theodore Paul Schroeder, et al v Terra Energy Ltd.
------------------------------ -----------------
Post production cost and duty to market claims relating to
Schroeder Antrim Unit. Case No. 93-5626-CM(D) in the 46th
Judicial Circuit, Otsego County, Michigan
8. SHR Limited Partnership v Terra Energy Ltd.
----------------------- -----------------
Computation of post-production costs in Shell Dover and Corwith
Dover Antrim Units. Case No. 99-18653-CK in the 13th Judicial
Circuit, Grand Traverse County, Michigan
9. Terra Energy Ltd. v Starr Energy, Inc., et al, White Pine
----------------- ------------------------- ----------
Enterprises, L.L.C. v Terra Energy Ltd. and Terra Energy Ltd. v
------------------- ----------------- -----------------
White Pine Enterprises and Starr Energy, Inc.
---------------------------------------------
Collection of development costs and claim of breach of contract
relating to operator duties in North and South Kitchen Farms
Unites. Case No. 98-7490-CK and Case No. 99-7582-CK in North and
South Kitchen Farms projects
10. State of Michigan and Michigan Department of Natural Resources v
--------------------------------------------------------------
Terra Energy Ltd., et al
------------------------
Post-production cost and competition of royalties claims. Case
No. 97-16813-CM, Michigan Court of Claims, Ingham County,
Michigan
11. Terra Energy Ltd. v State of Michigan, et al
----------------- ------------------------
Interpleader action on mineral ownership dispute in Vienna 1 and
2, South Rust Never Sleeps and Black Antrim Unites. Case No.
96-003413(K)CZ in 26th Judicial Circuit, Montmorency, County,
Michigan
12. Various Environmental Claims
(a) State Charlton "A" #1-28 well and CPF
(b) Broadwell Hulsapple 1-11
(c) Griner 1-21 (restricted closure)
(d) Houch 2-17 (restricted closure)
(e) Rebman 2-16
(f) Rebman 3-16
(g) Reckow Howes 1-26 (restricted closure)
(h) Salon 1-9C (may be delisted)
(i) Skulina State Cleon 1-20 (may be delisted)
110
<PAGE>
(j) Skulina State Cleon 2-20 (may be delisted)
(k) State Kalkaska D1-13
(l) State Kalkaska 1-21
(m State Wexford 2-6
(n State Wexford 1-17
(o) State Wesford 1-18 (no interest-sold to OIL)
13. Terra Single Business Tax Claims
Issue of whether Michigan Severance Tax law exempts amounts taxed
for Severance Tax purposes from other state and local taxes, such
as SBT. Related to 1990-1994 Terra returns
14. Gage Plant Gas Imbalance
Note: Any pending regulatory matters, including public hearings
before the Michigan Department of Environmental Quality, Michigan
Department of Natural Resources or Michigan Public Service Commission
are not included on this Disclosure Schedule.
111
<PAGE>
ATTACHMENT T
112
<PAGE>
EXHIBIT 4.1
================================================================================
QUICKSILVER RESOURCES INC.
Note Purchase Agreement
for
$63,000,000 14.75% Second Mortgage Notes
Due March 30, 2009
================================================================================
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE I. AUTHORIZATION OF NOTES; CALCULATIONS................................1
Section 1.1. Authorization of Notes....................................1
Section 1.2. Calculations and Determinations...........................1
ARTICLE II. SALE AND PURCHASE OF NOTES; FEES...................................1
Section 2.1. Sale and Purchase of Notes................................1
Section 2.2. Financing Fee.............................................2
ARTICLE III. CLOSING...........................................................2
Section 3.1. Closing...................................................2
ARTICLE IV. CONDITIONS TO CLOSING..............................................2
Section 4.1. Documents to be Delivered.................................2
Section 4.2. General Conditions Precedent..............................4
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.......................6
Section 5.1. Borrower's Representations and Warranties.................6
(a) No Default................................................6
(b) Organization and Good Standing............................6
(c) Authorization.............................................6
(d) No Conflicts or Consents..................................7
(e) Enforceable Obligations...................................7
(f) Initial Financial Statements..............................7
(g) Other Obligations and Restrictions........................7
(h) Full Disclosure...........................................7
(i) Environmental Laws........................................8
(j) Names and Places of Business..............................9
(k) Organization and Ownership of Shares of Subsidiaries......9
(l) Litigation; Observance of Statutes and Orders.............9
(m) Taxes.....................................................9
(n) Title to Property; Leases................................10
(o) Compliance with ERISA....................................11
(p) Private Offering by the Company..........................12
(q) Use of Proceeds; Margin Regulations......................12
(r) Foreign Assets Control Regulations, etc..................12
(s) Status under Certain Statutes............................12
(t) Commodity Price Risk Policy..............................12
(u) Cinnabar.................................................12
ARTICLE VI. REPRESENTATIONS OF THE PURCHASERS.................................13
Section 6.1. Purchase for Investment..................................13
Section 6.2. Source of Funds..........................................13
i
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ARTICLE VII. PAYMENTS OF PRINCIPAL AND INTEREST; PREPAYMENTS; PUT
OPTION...................................................................14
Section 7.1. Regular Interest Payments................................14
Section 7.2. Regular Principal Payments...............................15
Section 7.3. Optional Prepayments.....................................15
(a) Prepayment Premiums......................................15
(b) Allocation of Partial Prepayments........................16
(c) Maturity; Surrender, etc.................................16
(d) Purchase of Notes........................................16
Section 7.4. Change of Control........................................16
Section 7.5. Payments.................................................17
ARTICLE VIII. AFFIRMATIVE COVENANTS; SECURITY.................................17
Section 8.1. Affirmative Covenants....................................17
(a) Payment and Performance..................................17
(b) Books, Financial Statements and Reports..................17
(c) Other Information and Inspections........................19
(d) Notice of Material Events and Change of Address..........19
(e) Maintenance and Operation of Properties..................20
(f) Maintenance of Existence and Qualifications..............20
(g) Payment of Trade Liabilities, Taxes, etc.................20
(h) Bonding and Insurance....................................20
(i) Payment of Expenses......................................21
(j) Performance on the Company's Behalf......................21
(k) Interest.................................................22
(l) Compliance with Agreements and Law.......................22
(m) Evidence of Compliance...................................22
(n) Collateral Coverage Ratio................................22
Section 8.2. The Security.............................................22
Section 8.3. Agreement to Deliver Security Documents..................22
Section 8.4. Perfection and Protection of Security Interests
and Liens................................................................23
Section 8.5. Production Proceeds......................................23
Section 8.6. Guaranties of the Company's Subsidiaries.................23
ARTICLE IX. NEGATIVE COVENANTS................................................24
Section 9.1. Negative Covenants.......................................24
(a) Debt.....................................................24
(b) Limitation on Liens......................................25
(c) Limits on Hedging Contracts..............................25
(d) Limits on Amendments.....................................25
(e) Limits on Mergers and Subsidiary Equity Issuances........25
(f) Limitation on Distributions and Redemptions..............26
(g) Limitation on Sales or Abandonments......................26
(h) Limitation on Investments and New Businesses.............27
(i) Limitation on Credit Extensions..........................27
(j) Transactions with Affiliates.............................27
ii
<PAGE>
(k) ERISA Plans..............................................27
(l) No Public Announcements..................................27
(m) EBITDAX..................................................28
(n) Working Capital..........................................28
(o) Cinnabar.................................................28
ARTICLE X. EVENTS OF DEFAULT..................................................28
Section 10.1. Events of Default........................................29
Section 10.2. Remedies.................................................31
Section 10.3. Rescission...............................................31
ARTICLE XI. REGISTRATION; EXCHANGE; SUBSTITUTION OF
NOTES;RESTRICTIONS ON TRANSFER OF NOTES..................................32
Section 11.1. Registration of Notes....................................32
Section 11.2. Transfer and Exchange of Notes...........................32
Section 11.3. Replacement of Notes.....................................33
Section 11.4. Restriction on Transfer..................................33
ARTICLE XII. COLLATERAL AGENT.................................................34
Section 12.1. Appointment and Authority................................34
Section 12.2. Exculpation, Collateral Agent's Reliance, Etc............34
Section 12.3. Credit Decisions.........................................35
Section 12.4. Indemnification..........................................35
Section 12.5. Rights as Purchaser......................................36
Section 12.6. Sharing of Set-Offs, Collections, and Payments...........36
Section 12.7. Investments..............................................37
Section 12.8. Benefit of Article XII...................................37
Section 12.9. Resignation..............................................37
ARTICLE XIII. MISCELLANEOUS...................................................38
Section 13.1. Place of Payment.........................................38
Section 13.2. Home Office Payment......................................38
Section 13.3. Waivers and Amendments; Acknowledgments..................38
(a) Waivers and Amendments...................................38
(b) Solicitation.............................................39
(c) Payment..................................................39
(d) Acknowledgments and Admissions...........................39
Section 13.4. Survival of Agreements; Cumulative Nature................40
Section 13.5. Indemnity................................................41
Section 13.6. Notices..................................................41
Section 13.7. Parties in Interest......................................42
Section 13.8. Governing Law; Submission to Process.....................42
Section 13.9. Limitation on Interest...................................42
Section 13.10. Termination; Limited Survival............................43
Section 13.11. Reproduction of Documents................................43
Section 13.12. Confidentiality..........................................44
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Section 13.13 Subordination Agreement..................................45
Section 13.14 Severability.............................................45
Section 13.15 Counterparts.............................................45
Section 13.16 Waiver of Jury Trial, Punitive Damages, Etc..............45
SCHEDULES
Schedule A Information Relating to Purchasers
Schedule B Defined Terms
Schedule C Disclosure Schedule
Schedule D Security Schedule
Schedule E Insurance Schedule
EXHIBITS
Exhibit 1 Form of Notes
Exhibit 2 Form of Opinion of Counsel to the Company
Exhibit 3 Form of Certificate Accompanying Financial Statements
Exhibit 4 Form of Accredited Investor Letter
Exhibit 5 Commodity Price Risk Policy
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NOTE PURCHASE AGREEMENT
This Note Purchase Agreement (this "Agreement") is made as of March 31,
2000, by Quicksilver Resources Inc. (the "Company"), TCW Asset Management
Company, as Collateral Agent for the Purchasers, and each other party hereto
that is listed as a Purchaser on Schedule A hereto, all of whom hereby agree as
follows:
ARTICLE I.
AUTHORIZATION OF NOTES; CALCULATIONS
Section I.1. Authorization of Notes. The Company has authorized the
----------------------
issuance and sale of $63,000,000 aggregate principal amount of its 14.75% Second
Mortgage Notes due March 30, 2009 (the "Notes", such term to include any such
notes issued in substitution therefor pursuant to this Agreement). The Notes
shall be substantially in the form set out in Exhibit 1 hereto, with such
changes therefrom, if any, as may be approved by all of the Purchasers and the
Company. Certain capitalized terms and other references used in this Agreement
are defined in Schedule B hereto.
Section I.2. Calculations and Determinations. All calculations under the
-------------------------------
Transaction Documents of interest shall be made on the basis of actual days
elapsed (including the first day but excluding the last) and a year of 360 days
consisting of twelve 30-day months. Each determination by any Purchaser of
amounts to be paid hereunder or any other matters which are to be determined
hereunder by such Purchaser shall, in the absence of manifest error, be
conclusive and binding. Unless otherwise expressly provided herein, all
financial statements and reports furnished to the Purchasers hereunder shall be
prepared and all financial computations and determinations pursuant hereto shall
be made in accordance with GAAP.
ARTICLE II.
SALE AND PURCHASE OF NOTES; FEES
Section II.1. Sale and Purchase of Notes. Subject to the terms and
--------------------------
conditions of this Agreement, the Company will issue and sell to each Purchaser
and each Purchaser will purchase from the Company, at the Closing provided for
in Section 3.1, Notes in the principal amount specified opposite such
Purchaser's name in Schedule A at a purchase price of 100% of the principal
amount thereof. (Although the aggregate principal amount of Notes to be
purchased at the Closing, as specified on Schedule A, is $43,000,000, the total
amount of Notes authorized by the Company is $63,000,000 and this Agreement may
be supplemented within 90 days hereafter to provide for the purchase of such
additional authorized Notes by new Purchasers; provided, however, that after
giving effect to such supplement the definition of "Majority Purchasers" must be
acceptable to all Purchasers.) Any Purchaser shall have the right to substitute
any one of such Purchaser's Affiliates as the purchaser of the Notes that such
Purchaser has agreed to purchase hereunder, by written notice to the Company,
which notice shall be signed by both such Purchaser and such Affiliate, shall
contain such Affiliate's agreement to be bound by this Agreement and shall
contain a confirmation by such Affiliate of the accuracy with respect to it of
<PAGE>
the representations set forth in Section 6.1 and Section 6.2. In the event of
any such substitution, such Affiliate shall be deemed to be a "Purchaser"
hereunder.
Section II.2. Financing Fee. In consideration of each Purchaser's
-------------
purchase of its Notes, the Company agrees to pay to each Purchaser a financing
fee on the date hereof in immediately available funds in the amount of three-
quarters of one percent (.75%) of the principal amount of such Purchaser's Notes
(the "Financing Fee"). The Company agrees to pay the Financing Fee for Life
Insurance Company of Georgia, USG Annuity & Life Company, and Equitable Life
Insurance Company of Iowa to: Sun Trust Bank, Atlanta, Georgia; ABA # 061-000-
104; Account Name: ING Investment Management; Account Number 8800375985. The
Company agrees to pay the Financing Fee for TCW to: Investors Bank & Trust
Company, ABA# 011001438, F/C Client Funds No. 569530395; Account # 76T02327-4;
Attention: Peter Maesher; Reference: D&R VI - Quicksilver.
ARTICLE III.
CLOSING.
Section III.1. Closing. The sale and purchase of the Notes shall occur at
-------
the offices of Thompson & Knight L.L.P.,1200 Smith Street, Suite 3600, Houston,
Texas 77002, at 10:00 a.m., central standard time, at a closing (the "Closing")
on March 31, 2000 or at such other time and place on or prior to March 31, 2000
as may be agreed upon by the Company and the Purchasers. At the Closing the
Company will deliver to each Purchaser the Notes to be purchased by such
Purchaser dated the date of the Closing and registered in such Purchaser's name
(or in the name of such Purchaser's nominee), against delivery by the Purchasers
to the Company or its order of immediately available funds in the aggregate
amount of the purchase prices therefor by wire transfer of immediately available
funds for the account of the Company to: Bank of America; Dallas, Texas; ABA No.
111000012; for the account of Quicksilver Resources Inc.; Account No.
3751032722. If at the Closing the Company shall fail to tender such Notes to the
Purchasers as provided above in this Section 3.1, or if any of the conditions
specified in Article IV shall not have been fulfilled to the Purchasers'
satisfaction, the Purchasers shall, at the election of each, be relieved of all
further obligations under this Agreement, without thereby waiving any rights the
Purchasers may have by reason of such failure or such nonfulfillment.
ARTICLE IV.
CONDITIONS TO CLOSING.
Section IV.1. Documents to be Delivered. No Purchaser shall have any
-------------------------
obligation to purchase the Notes unless the Purchasers shall have received all
of the following, at the Closing or at such other place as may be designated by
the Purchasers, duly executed and delivered and in form, substance and date
satisfactory to the Purchasers:
(a) The Notes.
(b) Each Mortgage and each other Security Document listed in the Security
Schedule.
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(c) An "Omnibus Certificate" of the Secretary and of the President of the
Company, which shall contain the names and signatures of the officers
of the Company authorized to execute Transaction Documents and which
shall certify to the truth, correctness and completeness of the
following exhibits attached thereto: (i) a copy of resolutions duly
adopted by the board of directors of the Company and in full force and
effect at the time this Agreement is entered into, authorizing the
execution of this Agreement and the other Transaction Documents
delivered or to be delivered in connection herewith and the
consummation of the transactions contemplated herein and therein, (ii)
a copy of the articles of incorporation of the Company and all
amendments thereto, certified by the appropriate official of the
Company's state of organization, and (iii) a copy of the bylaws of the
Company.
(d) A certificate (or certificates) of the due formation, valid existence
and good standing of the Company in its state of organization, issued
by the appropriate authorities of such jurisdiction.
(e) A "Compliance Certificate" of the President and of the chief financial
officer of the Company in their capacities as such officers, of even
date herewith, in which such Persons certify to the satisfaction of
the conditions set out in Section 4.2.
(f) A favorable opinion of Cantey & Hanger, L.L.P., counsel for the
Company, substantially in the form set forth in Exhibit 2.
(g) an opinion of Warner Norcross & Judd LLP, special Michigan counsel for
Collateral Agent, dated the Closing Date, favorably opining as to the
enforceability of the Mortgages in Michigan and otherwise in form and
substance satisfactory to Collateral Agent.
(i) an opinion of Herschler, Freudenthal, Salzburg, Bonds & Zerga, P.C.,
special Wyoming counsel for Collateral Agent, dated the Closing Date,
favorably opining as to the enforceability of the Mortgages in Wyoming
and otherwise in form and substance satisfactory to Collateral Agent.
(j) an opinion of Crowley, Haughey, Hanson, Toole & Dietrich, special
Montana counsel for Collateral Agent, dated the Closing Date,
favorably opining as to the enforceability of the Mortgages in Montana
and otherwise in form and substance satisfactory to Collateral Agent.
(k) certificates from the Company's insurance broker setting forth the
insurance maintained by the Company, stating that such insurance is in
full force and effect, and that all premiums due have been paid.
(l) a copy of each of the Closing Documents accompanied by a certificate
executed by an authorized officer of the Company 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
3
<PAGE>
been modified, amended or waived, and (C) subject only to funding
under the Closing Documents and hereunder, the Closing Transactions
have been consummated on the terms set forth in such Closing
Documents.
(m) Certificates of the Company's good standing and due qualification to
do business, issued by appropriate officials in any states in which
the Company owns property subject to the Security Documents.
(n) A Phase One Environmental Report covering the Properties mortgaged
under the initial Mortgage which has been prepared by a consultant
approved by the Purchasers and which is satisfactory to the Purchasers
in form and substance.
(o) Purchasers or their counsel shall have completed a review of title
(including opinions of title) with respect to that portion of the CMS
Properties which is necessary to satisfy the Closing Title Review
Requirement, and such review shall not have revealed any condition or
circumstance which would reflect that the representations and
warranties contained in Section 5.1(n) hereof are inaccurate in any
respect.
(p) The Bank Subordination Agreement.
(q) True and complete copies of the Bank Documents in effect at the time
of the Closing.
(r) The Initial Engineering Reports.
(s) Documents similar to those specified in subsections (c), (d), and (g)
of this Section 4.1 with respect to each Subsidiary of the Company and
the execution by it of the Transaction Documents to which it is a
party.
(t) An opinion of Thompson & Knight L.L.P., counsel for the Purchasers, in
form satisfactory to the Purchasers.
Section IV.2. General Conditions Precedent. No Purchaser shall have any
----------------------------
obligation to purchase the Notes unless the following conditions precedent are
satisfied at the time of the Closing:
(a) All representations and warranties made by the Company or any
Subsidiary of the Company in any Transaction Document shall be true and
correct at and as of the time of the Closing.
(b) No Default shall exist at the time of the Closing, either before
or after giving effect to the sale of the Notes by the Company and the
transactions under the Closing Documents.
4
<PAGE>
(c) No situation or event that could have a Material Adverse Effect
shall have occurred since the date of the Initial Financial Statements.
(d) The Company and its Subsidiaries shall have performed and complied
with all agreements and conditions required in the Transaction Documents to
be performed or complied with by it on or prior to the time of the Closing.
(e) The Collateral Agent and the Purchasers shall have received all
documents and instruments which the Collateral Agent or any Purchaser has
then requested (including opinions of legal counsel for the Company and the
Purchasers; corporate documents and records; documents evidencing
governmental authorizations, consents, approvals, licenses and exemptions;
and certificates of public officials and of officers and representatives of
the Company) as to the accuracy and validity of or compliance with all
representations, warranties and covenants made by the Company or its
Subsidiaries in this Agreement and the other Transaction Documents, the
satisfaction of all conditions contained herein or therein, and all other
matters pertaining hereto and thereto. All such additional documents and
instruments shall be satisfactory to the Collateral Agent and any
requesting Purchaser in form, substance and date.
(f) The Company shall have paid the Financing Fee to each Purchaser in
immediately available funds.
(g) On the date of the Closing each Purchaser's purchase of Notes
shall (i) be permitted by the laws and regulations of each jurisdiction to
which such Purchaser is subject, without recourse to provisions such as
Section 1405(a)(8) of the New York Insurance Law permitting limited
investments by insurance companies without restriction as to the character
of the particular investment, (ii) not violate any applicable law or
regulation (including, without limitation, Regulation U, T or X of the
Board of Governors of the Federal Reserve System) and (iii) not subject
such Purchaser to any tax, penalty or liability under or pursuant to any
applicable law or regulation, which law or regulation was not in effect on
the date hereof. If requested by such Purchaser, such Purchaser shall have
received a certificate of the chief financial officer of the Company
certifying as to such matters of fact as such Purchaser may reasonably
specify to enable such Purchaser to determine whether such purchase is so
permitted.
(h) The Company shall have paid on or before the Closing the
reasonable fees, charges and disbursements of Thompson & Knight L.L.P. then
billed and owing.
(i) A Private Placement number issued by Standard & Poor's CUSIP
Service Bureau (in cooperation with the Securities Valuation Office of the
National Association of Insurance Commissioners) shall have been obtained
for the Notes.
(j) The Company shall have complied in all respects with Section
8.1(g) of the Bank Credit Agreement concerning certain hedge transactions.
5
<PAGE>
Section 4.3. Closing Transactions. Subject only to disbursement and
--------------------
application of the proceeds of the initial sale of the Notes, the Closing
Transactions shall have occurred (or Purchasers shall be satisfied that such
transactions will occur simultaneously therewith). Without limiting the
foregoing, each of the following shall have occurred (or Purchasers shall be
satisfied that each of the following shall occur simultaneously therewith):
(a) the CMS Acquisition shall have been completed pursuant to the
terms of the CMS Acquisition Documents;
(b) the Mariner Section 29 Sale shall have been completed pursuant to
the terms of the Mariner Section 29 Documents, and approximately
$25,000,000 of the proceeds of such sale shall have been applied to finance
in part the CMS Acquisition; and
(c) the transactions contemplated by the Bank Documents shall have
been completed pursuant to the terms of such Bank Documents, and the
Company shall have received not less than $193,000,000 from the loans
thereunder and applied such proceeds to finance in part the CMS
Acquisition.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section V.1. Borrower's Representations and Warranties. To confirm the
-----------------------------------------
Purchasers' understanding concerning the Company, its Subsidiaries, and their
respective business, properties and obligations and to induce each Purchaser to
enter into this Agreement and purchase its Notes, the Company represents and
warrants to each Purchaser and to Collateral Agent that:
(a) No Default. Neither the Company nor any Subsidiary of the Company is
----------
in default in the performance of any of its covenants and agreements contained
herein or in any other Transaction Document or in any of the Bank Documents.
All representations and warranties made by the Company in any other Transaction
Document or in any Bank Document are true and correct as of the date hereof. No
event has occurred and is continuing which constitutes a Default.
(b) Organization and Good Standing. The Company and each of its
------------------------------
Subsidiaries is duly organized, validly existing and in good standing (if
applicable) under the laws of its state of organization, having all powers
required to carry on its business and enter into and carry out the transactions
contemplated hereby. The Company and each of its Subsidiaries is duly
qualified, in good standing, and authorized to do business in all other
jurisdictions within the United States wherein Collateral is located or in which
qualification is otherwise necessary to avoid a Material Adverse Effect.
(c) Authorization. The Company and each of its Subsidiaries has duly
-------------
taken all action necessary to authorize the execution and delivery by it of the
Transaction Documents to which it is a party and to authorize the consummation
of the transactions contemplated thereby and the performance of its obligations
thereunder. The Company is duly authorized to issue and sell the Notes.
6
<PAGE>
(d) No Conflicts or Consents. The execution and delivery by the Company
------------------------
and each of its Subsidiaries of the Transaction Documents to which each is a
party, the performance by each of its obligations under such Transaction
Documents, and the consummation of the transactions contemplated by the various
Transaction Documents, do not and will not (i) conflict with any provision of
any domestic or foreign law, statute, rule or regulation, the articles or
certificate of incorporation, articles of organization, bylaws, charter,
regulations or partnership agreement or certificate of such Person, or any
agreement, judgment, license, order or permit applicable to or binding upon such
Person, (ii) result in the acceleration of any Debt owed by such Person, or
(iii) result in or require the creation of any Lien upon any assets or
properties of the such Person except as expressly contemplated in the
Transaction Documents. Except as expressly contemplated in the Transaction
Documents, no consent, approval, authorization or order of, and no notice to or
filing with, any court or governmental authority or third party is required in
connection with the execution, delivery or performance by the Company or any of
its Subsidiaries of any Transaction Document to which it is a party or to
consummate any transactions contemplated by the Transaction Documents.
(e) Enforceable Obligations. This Agreement is, and the other Transaction
-----------------------
Documents when duly executed and delivered will be, legal, valid and binding
obligations of the Company and each of its Subsidiaries to the extent a party
thereto, enforceable in accordance with their terms except as such enforcement
may be limited by bankruptcy, insolvency or similar laws of general application
relating to the enforcement of creditors' rights.
(f) Initial Financial Statements. The Initial Financial Statements fairly
----------------------------
present the Company's Consolidated financial position at the date thereof and
the results of the Company's Consolidated operations and the Company's
Consolidated cash flows for the period thereof. Since the date of the Initial
Financial Statements, no event has occurred which could reasonably be expected
to have a Material Adverse Effect except as reflected in the Disclosure
Schedule. All Initial Financial Statements were prepared in accordance with
GAAP.
(g) Other Obligations and Restrictions. Except for the Debt and
----------------------------------
Liabilities incurred concurrently herewith under the Closing Documents or
heretofore incurred under the other Section 29 Documents, the Company and its
Subsidiaries do not have any outstanding Debt or other material Liabilities of
any kind (including obligations under farm-in agreements, other obligations to
make capital expenditures, contingent obligations, tax assessments, and unusual
forward or long-term commitments) which are, in the aggregate, material to the
Company and not disclosed in the Disclosure Schedule, in the Initial Financial
Statements, or in the information hereafter from time to time delivered to the
Purchasers or the Collateral Agent pursuant to this Agreement. Except as
disclosed in the Disclosure Schedule, the Company and its Subsidiaries are not
subject to or restricted by any franchise, contract, deed, charter restriction,
or other instrument or restriction which could reasonably be expected to have a
Material Adverse Effect.
(h) Full Disclosure. The Company, through its agent, Banc of America
---------------
Securities LLC, has delivered to the Purchasers a copy of a Memorandum dated
February 2000 (the "Memorandum"), relating to the transactions contemplated
hereby. The Company's principal long-term fixed price production sales
agreements and derivative contracts are described on the Disclosure Schedule.
Except as disclosed in the Disclosure Schedule, this Agreement, or the
7
<PAGE>
Memorandum, neither the Memorandum, nor the Disclosure Schedule, nor any
Transaction Document, certificate, written statement or other information
delivered herewith or heretofore by the Company or any of its Subsidiaries to
any Purchaser or to Collateral Agent in connection with the negotiation of this
Agreement or in connection with any transaction contemplated hereby contains any
untrue statement of a material fact or omits to state any material fact known to
the Company (other than industry-wide risks normally associated with the types
of businesses conducted by the Company) necessary to make the statements
contained herein or therein (taken as a whole) not misleading as of the date
made or deemed made. There is no fact known to the Company (other than
industry-wide risks normally associated with the types of businesses conducted
by the Company) that has not been disclosed to each Purchaser in writing which
could reasonably be expected to have a Material Adverse Effect. There are no
statements or conclusions in any Engineering Report which are based upon or
include misleading information or fail to take into account material information
regarding the matters reported therein, it being understood that each
Engineering Report is necessarily based upon professional opinions, estimates
and projections and that the Company does not warrant that such opinions,
estimates and projections will ultimately prove to have been accurate. The
Company has heretofore delivered to the Purchasers true, correct and complete
copies of the Initial Financial Statements and the Initial Engineering Report.
(i) Environmental Laws. The Company and its Subsidiaries have no
------------------
Liability under any Environmental Laws, or in connection with the release into
the environment, or the storage or disposal, of any Hazardous Materials, which
could reasonably by expected to have a Material Adverse Effect. Except as
disclosed in the Disclosure Schedule: (i) the Company and its Subsidiaries are
conducting their businesses in material compliance with all applicable federal,
state or local laws, including Environmental Laws, (ii) each has complied and is
in compliance with all licenses and permits required under Environmental Laws,
(iii) each has complied and is in compliance in all material respects with all
licenses and permits required under any such other laws; (iv) none of the
operations or properties of the Company or any of its Subsidiaries is the
subject of any federal, state or local investigation evaluating whether any
material remedial action is needed to respond to a release of any Hazardous
Materials into the environment or to the improper storage or disposal (including
storage or disposal at offsite locations) of any Hazardous Materials; (v)
neither the Company nor any of its Subsidiaries has filed any notice under any
federal, state or local law indicating that any of them is responsible for the
improper release into the environment, or the improper storage or disposal, of
any material amount of any Hazardous Materials or that any Hazardous Materials
have been improperly released, or are improperly stored or disposed of, upon any
property of the Company or any of its Subsidiaries; and (vi) neither the Company
nor any of its Subsidiaries (to the best of the Company's knowledge after
reasonable investigation) has transported or arranged for the transportation of
any Hazardous Material to any location which is (1) listed on the National
Priorities List under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, listed for possible inclusion on such
National Priorities List by the Environmental Protection Agency in its
Comprehensive Environmental Response, Compensation and Liability Information
System List, or listed on any similar state list or (2) the subject of federal,
state or local enforcement actions or other investigations which may lead to
claims against the Company or any of its Subsidiaries for clean-up costs,
remedial work, damages to natural resources or for personal injury claims
(whether under Environmental Laws or otherwise).
8
<PAGE>
(j) Names and Places of Business. Neither the Company nor any of its
----------------------------
Subsidiaries (nor any of their predecessor companies) has, during the preceding
five years, had, been known by, or used any other corporate, trade, or
fictitious name except as listed on the Disclosure Schedule. Except as
otherwise disclosed in the Disclosure Schedule or in the information hereafter
from time to time delivered to all Purchasers pursuant to this Agreement: (i)
the chief executive office and principal place of business of the Company and
each of its Subsidiaries are and heretofore have always been located in Texas or
Michigan, and (ii) neither the Company nor any of its Subsidiaries has any other
office or place of business.
(k) Organization and Ownership of Shares of Subsidiaries.
----------------------------------------------------
(i) The Disclosure Schedule contains a complete and correct list of
the Company's Subsidiaries and Excluded Subsidiaries, showing, as to each
Subsidiary or Excluded Subsidiary, the correct name thereof, the
jurisdiction of its organization, and the percentage of shares of each
class of its capital stock or similar equity interests outstanding owned by
the Company and each other Subsidiary of the Company.
(ii) All of the outstanding shares of capital stock or similar equity
interests of each Subsidiary and each Excluded Subsidiary shown in the
Disclosure Schedule as being owned by the Company and its Subsidiaries have
been validly issued, are fully paid and nonassessable and are owned by the
Company or another Subsidiary of the Company free and clear of any Lien,
other than Liens described in subsection (c) of the definition of Permitted
Liens.
(l) Litigation; Observance of Statutes and Orders; Insurance.
--------------------------------------------------------
(i) Except as disclosed in the Disclosure Schedule, there are no
actions, suits or proceedings pending or, to the knowledge of the Company,
threatened against or affecting the Company or any Subsidiary or Excluded
Subsidiary of the Company or any property of the Company or any such
Subsidiary or Excluded Subsidiary in any court or before any arbitrator of
any kind or before or by any Governmental Authority that, individually or
in the aggregate, could reasonably be expected to have a Material Adverse
Effect.
(ii) Neither the Company nor any Subsidiary or Excluded Subsidiary of
the Company is in default under any order, judgment, decree or ruling of
any court, arbitrator or Governmental Authority or is in violation of any
applicable law, ordinance, rule or regulation (including without limitation
Environmental Laws) of any Governmental Authority, which default or
violation, individually or in the aggregate, could reasonably be expected
to have a Material Adverse Effect.
(iii) The Company and its Subsidiaries presently maintain all
insurance policies described in the Insurance Schedule.
(m) Taxes. The Company and its Subsidiaries have filed all tax returns
-----
that are required to have been filed in any jurisdiction, and have paid all
taxes shown to be due and
9
<PAGE>
payable on such returns and all other taxes and assessments payable by them, to
the extent such taxes and assessments have become due and payable and before
they have become delinquent, except for any taxes and assessments, the amount,
applicability or validity of which is currently being contested in good faith by
appropriate proceedings and with respect to which the Company or such
Subsidiary, as the case may be, has established adequate reserves in accordance
with GAAP. The production from the wells subject to the Section 29 Documents is,
to the extent represented by the Company in those documents, entitled to the
benefits of tax credits under Section 29 of the Code.
(n) Title to Property; Leases. Subject only to Immaterial Title
-------------------------
Deficiencies (as herein defined), after giving effect to the CMS Acquisition,
the Company or Terra (as applicable) will have good and defensible title to all
Mineral Interests (as herein defined), free and clear of all Liens except for
Permitted Liens. Subject only to Permitted Liens and Immaterial Title
Deficiencies, all Mineral Interests are valid, subsisting, and in full force and
effect, and all rentals, royalties, and other amounts due and payable in respect
thereof have been duly paid. Without regard to any consent or non-consent
provisions of any joint operating agreement covering any of the Company's or
Terra's (as applicable) Mineral Interests, after giving effect to the CMS
Acquisition, but subject to Permitted Liens and Immaterial Title Deficiencies,
the Company's or Terra's (as applicable) share of (a) the costs for each Mineral
Interest described in the applicable Engineering Report is not greater than the
decimal fraction set forth in such Engineering 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 Mineral
Interest is not less than the decimal fraction set forth in such Engineering
Report, before and after payout, as the case may be, and described therein by
the designations "net revenue interest," "NRI," or similar terms. Each well
drilled in respect of each Mineral Interest described in any Engineering Report
(y) is capable of, and is presently, producing Hydrocarbons in commercially
profitable quantities, and after giving effect to the CMS Acquisition, the
Company and/or Terra (as applicable) 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. As
used herein, the term "Mineral Interests" means all oil and gas properties and
interests that are described in either Initial Engineering Report (or, if this
representation and warranty is ever made after the date of the Closing, in the
Engineering Report then most recently delivered to the Purchasers). As used
herein, the term "Immaterial Title Deficiencies" means (i) minor defects or
deficiencies in title which do not affect, in the aggregate, more than two
percent (2%) (by value) of all Mineral Interests and (ii) prior to June 30,
2000, "Title Defects", as defined in the CMS Purchase and Sale Agreement, with
respect to which the Company can obtain title adjustment payments from CMS that
fairly represent the reduction in value of the Collateral due to such Title
Defects.
10
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(o) Compliance with ERISA.
---------------------
(i) Neither the Company nor any of its Subsidiaries presently
maintain any Plan, or is liable with respect to any Plan, other than (1)
the Quicksilver Resources Inc. 401(k) Plan, (2) the Quicksilver Resources
Inc. Fortis Benefits Life Insurance Plan, (3) the Quicksilver Resources
Inc. Fortis Benefits Health Insurance Plan, (4) the Quicksilver Resources
Inc. Blue Cross Blue Shield of Michigan Health Insurance Plan, and (5) the
Quicksilver Resources Inc. American Medical Security Dental Plan.
(ii) The Company and each ERISA Affiliate have operated and
administered each Plan in compliance with all applicable laws except for
such instances of noncompliance as have not resulted in and could not
reasonably be expected to result in a Material Adverse Effect. Neither the
Company nor any ERISA Affiliate has incurred any liability pursuant to
Title I or IV of ERISA or the penalty or excise tax provisions of the Code
relating to employee benefit plans (as defined in Section 3 of ERISA), and
no event, transaction or condition has occurred or exists that would
reasonably be expected to result in the incurrence of any such liability by
the Company or any ERISA Affiliate, or in the imposition of any Lien on any
of the rights, properties or assets of the Company or any ERISA Affiliate,
in either case pursuant to Title I or IV of ERISA or to such penalty or
excise tax provisions or to Section 401(a)(29) or 412 of the Code, other
than such liabilities or Liens as would not be individually or in the
aggregate material.
(iii) The Company and its ERISA Affiliates do not maintain (and in the
past five (5) years have not maintained) any Plan subject to Title IV of
ERISA or Section 412 of the Code. The Company and its ERISA Affiliates have
made all contributions to, and paid all benefits with respect to, all
Plans, to the extent they are or were required to do so. To the extent that
the Company and its Subsidiaries have any accrued liabilities with respect
to any Plans, such liabilities are properly reported on the Company's
Consolidated balance sheet.
(iv) The Company and its ERISA Affiliates do not maintain and have
never participated in or been required to make contributions to any
Multiemployer Plan, and the Company and its ERISA Affiliates have not
incurred withdrawal liabilities (and are not subject to contingent
withdrawal liabilities) under section 4201 or 4204 of ERISA in respect of
Multiemployer Plans that individually or in the aggregate are material.
(v) The expected postretirement benefit obligation (determined as of
the last day of the Company's most recently ended fiscal year in accordance
with Financial Accounting Standards Board Statement No. 106, without regard
to liabilities attributable to continuation coverage mandated by section
4980B of the Code) of the Company and its Subsidiaries is not material.
(vi) The execution and delivery of this Agreement and the issuance and
sale of the Notes hereunder will not involve any transaction that is
subject to the prohibitions of section 406 of ERISA or in connection with
which a tax could be imposed pursuant to section 4975(c)(1)(A)-(D) of the
Code. The representation by the Company in the first
11
<PAGE>
sentence of this Section 5.1(o)(vi) is made in reliance upon and subject to
the accuracy of each Purchaser's representation in Section 6.2 as to the
sources of the funds to be used to pay the purchase price of the Notes to
be purchased by such Purchaser.
(p) Private Offering by the Company. Neither the Company nor anyone
-------------------------------
acting on its behalf has offered the Notes or any similar securities for sale
to, or solicited any offer to buy any of the same from, or otherwise approached
or negotiated in respect thereof with, any person other than the Purchasers and
not more than 85 other Institutional Investors, each of which has been offered
the Notes at a private sale for investment. Neither the Company nor anyone
acting on its behalf has taken, or will take, any action that would subject the
issuance or sale of the Notes to the registration requirements of Section 5 of
the Securities Act.
(q) Use of Proceeds; Margin Regulations. The Company will apply the
-----------------------------------
proceeds of the sale of the Notes (plus funds from the Mariner Section 29 Sale
and the loans under the Bank Credit Agreement) to finance the CMS Acquisition.
In no event shall the proceeds of the sale of the Notes be used directly or
indirectly by any of the Company or its Subsidiaries for personal, family,
household or agricultural purposes or for the purpose, whether immediate,
incidental or ultimate, of purchasing, acquiring or carrying any "margin stock"
(as such term is defined respectively in Regulation U promulgated by the Board
of Governors of the Federal Reserve System) or to extend credit to others
directly or indirectly for the purpose of purchasing or carrying any such margin
stock, or for the purpose of buying or carrying or trading in any securities
under such circumstances as to involve the Company or any of its Subsidiaries in
a violation of Regulation X of said Board or to involve any broker or dealer in
a violation of Regulation T of said Board. Margin stock does not constitute
more than 25% of the value of the consolidated assets of the Company and its
Subsidiaries and the Company does not have any present intention that margin
stock will constitute more than 25% of the value of such assets.
(r) Foreign Assets Control Regulations, etc. Neither the sale of the
----------------------------------------
Notes by the Company hereunder nor its use of the proceeds thereof will violate
the Trading with the Enemy Act, as amended, or any of the foreign assets control
regulations of the United States Treasury Department (31 CFR, Subtitle B,
Chapter V, as amended) or any enabling legislation or executive order relating
thereto.
(s) Status under Certain Statutes. Neither the Company nor any Subsidiary
-----------------------------
of the Company is subject to regulation under the Investment Company Act of
1940, as amended, the Public Utility Holding Company Act of 1935, as amended,
the Interstate Commerce Act, as amended, or the Federal Power Act, as amended.
(t) Commodity Price Risk Policy. The Company's policy with respect to
---------------------------
commodity price risk as presently in effect, addressing the Company's policies
with respect to Hedging Contracts for Hydrocarbons, is attached hereto as
Exhibit 5. Within 90 days hereafter the Company's Board of Directors will
adopt, as the stated policy of the Company, either the policy attached as
Exhibit 5 or a policy with similar terms that is acceptable to Majority
Purchasers (as so adopted, the "Commodity Price Risk Policy").
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<PAGE>
(u) Cinnabar. The Company owns a 50% membership or other equity
--------
interest in Cinnabar. Cinnabar's business is presently being carried out in
compliance with Section 9.1(o), and Cinnabar has no Debt other than as allowed
in such Section.
ARTICLE VI.
REPRESENTATIONS OF THE PURCHASERS.
Section VI.1. Purchase for Investment. Each Purchaser represents that such
-----------------------
Purchaser is purchasing the Notes for such Purchaser's own account or for one or
more separate accounts maintained by such Purchaser or for the account of one or
more pension or trust funds and not with a view to the distribution thereof,
provided that the disposition of such Purchaser's or their property shall at all
- --------
times be within such Purchaser's or their control. Each Purchaser understands
(a) that the Notes have not been registered under the Securities Act, (b) that
the Notes may be resold only (i) if registered pursuant to the provisions of the
Securities Act or if an exemption from registration is available, except under
circumstances where neither such registration nor such an exemption is required
by law, and (ii) in accordance with Section 11.4, and (c) that the Company is
not required to register the Notes.
Section VI.2. Source of Funds. Each Purchaser represents that at least one
---------------
of the following statements is an accurate representation as to each source of
funds (a "Source") to be used by such Purchaser to pay the purchase price of the
Notes to be purchased by such Purchaser hereunder:
(a) if the Purchaser is an insurance company, the Source does not
include assets allocated to any separate account maintained by the
Purchaser in which any employee benefit plan (or its related trust) has any
interest, other than a separate account that is maintained solely in
connection with the Purchaser's fixed contractual obligations under which
the amounts payable, or credited, to such plan and to any participant or
beneficiary of such plan (including any annuitant) are not affected in any
manner by the investment performance of the separate account; or
(b) the Source is either (i) an insurance company pooled separate
account, within the meaning of Prohibited Transaction Exemption ("PTE")
90-1 (issued January 29, 1990), or (ii) a bank collective investment fund,
within the meaning of the PTE 91-38 (issued July 12, 1991) and, except as
the Purchaser has disclosed to the Company in writing pursuant to this
paragraph (b), no employee benefit plan or group of plans maintained by the
same employer or employee organization beneficially owns more than 10% of
all assets allocated to such pooled separate account or collective
investment fund; or
(c) the Source constitutes assets of an "investment fund" (within the
meaning of Part V of the QPAM Exemption) managed by a "qualified
professional asset manager" or "QPAM" (within the meaning of Part V of the
QPAM Exemption), no employee benefit plan's assets that are included in
such investment fund, when combined with the assets of all other employee
benefit plans established or maintained by the same employer
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<PAGE>
or by an affiliate (within the meaning of Section V(c)(1) of the QPAM
Exemption) of such employer or by the same employee organization and
managed by such QPAM, exceed 20% of the total client assets managed by such
QPAM, the conditions of Part I(c) and (g) of the QPAM Exemption are
satisfied, neither the QPAM nor a person controlling or controlled by the
QPAM (applying the definition of "control" in Section V(e) of the QPAM
Exemption) owns a 5% or more interest in the Company and Tamco is such
QPAM; or
(d) the Source is a governmental plan; or
(e) the Source is one or more employee benefit plans, or a separate
account or trust fund comprised of one or more employee benefit plans, each
of which has been identified to the Company in writing pursuant to this
paragraph (e); or
(f) the Source does not include assets of any employee benefit plan,
other than a plan exempt from the coverage of ERISA; or
(g) the Source is an "insurance company general account" as such term
is defined in PTE 95-60 (issued July 12, 1995), and there is no plan with
respect to which the aggregate amount of such general account's reserves
and liabilities for the contracts held by or on behalf of such plan and all
other plans maintained by the same employer (and affiliates thereof as
defined in section V(a)(1) of PTE 95-60) or by the same employee
organization (in each case determined in accordance with PTE 95-60) exceeds
or will exceed 10% of the total of all reserves and liabilities of such
general account (determined in accordance with PTE 95-60, exclusive of
separate account liabilities, plus any applicable surplus).
As used in this Section 6.2, the terms "employee benefit plan", "governmental
plan", "party in interest" and "separate account" shall have the respective
meanings assigned to such terms in Section 3 of ERISA.
ARTICLE VII.
PAYMENTS OF PRINCIPAL AND INTEREST; PREPAYMENTS; PUT OPTION
Section VII.1. Regular Interest Payments.
-------------------------
(a) On each Quarterly Payment Date, the Company shall pay to the holder of
each Note all unpaid interest which has accrued on such holder's Note to but not
including such Quarterly Payment Date. On each Quarterly Payment Date prior to
the Initial Amortization Date, the Company may, if it so elects, pay in kind all
or any part of the portion of such interest attributable to the applicable
interest rate (either 14.75% or the Default Rate) being in excess of 10%, by
issuing additional Notes in the face amount of such interest paid in kind to
each holder entitled to receive the same. The Company shall deliver such new
Notes to each holder of Notes on the applicable Quarterly Payment Date. To make
such election the Company must give notice thereof to each holder of Notes at
least five Business Days prior to such Quarterly Payment Date, specifying the
amount of such interest to be paid in kind by the issuance of new Notes,
alerting each holder that one or more new Notes will be sent to it, and
specifying the address to which the
14
<PAGE>
Company will send such Notes. The Company will pay all remaining interest in
cash. (For example, if the total interest due on a Purchaser's Note was $147,500
and the Default Rate was not in effect, the Company could elect to pay up to
$47,500 of such interest in kind but would be obligated to pay at least $100,000
in cash.)
(b) On each Quarterly Payment Date commencing with the Initial Amortization
Date, and then continuing on each Quarterly Payment Date thereafter until the
Notes are paid in full, the Company shall pay to the holder of each Note in
immediately available funds all unpaid interest which has accrued on such
holder's Note to but not including such Quarterly Payment Date.
Section VII.2. Regular Principal Payments. On each Quarterly Payment Date,
--------------------------
beginning with the Initial Amortization Date and then continuing on each
Quarterly Payment Date thereafter until the Notes are paid in full, the Company
will make a fixed mandatory payment of principal on the Notes (in addition to
the payment of interest then due on such Quarterly Payment Date) equal to the
aggregate principal balance of the Notes on the day prior to the Initial
Amortization Date times the percentage set out opposite such date in the
following table:
Quarterly
Payment Date Percentage
- ----------------------------- ----------------------------
1st 7.0%
2nd 7.0%
3rd 7.0%
4th 7.0%
5th 8.0%
6th 8.0%
7th 8.5%
8th 8.5%
9th 9.0%
10th 9.0%
11th 10.5%
12th 10.5%
Section VII.3. Optional Prepayments.
--------------------
(a) Prepayment Premiums. The Notes may not be redeemed or prepaid (except
-------------------
as may be required under Section 7.4) prior to March 28, 2003. On any Quarterly
Payment Date on or after March 28, 2003, the Company may prepay the Notes at its
option, together with a premium equal to the amount of principal prepaid times
the percentage set out in the following table opposite the year in which such
Quarterly Payment Date occurs, plus accrued and unpaid interest to the date of
prepayment; provided that (a) each such prepayment may be made only on a
Quarterly Payment Date, and (b) each such prepayment of principal shall be in an
aggregate amount at least equal to $10,000,000 or any integral multiple of
$1,000,000 in excess thereof.
15
<PAGE>
Year Premium Percentage
---- ------------------
2003 6%
2004 5%
2005 4%
2006 3%
2007 3%
2008 3%
All principal prepaid pursuant to this Section 7.3 shall be applied to the
regular payments of principal due under Section 7.2 in the inverse order of
their maturity. The Company will give each holder of Notes written notice of
each optional prepayment under this Section 7.3 not less than 30 days and not
more than 60 days prior to the date fixed for such prepayment. Each such notice
shall specify such date, the aggregate principal amount of the Notes to be
prepaid on such date, and the principal amount of each Note held by such holder
to be prepaid (determined in accordance with Section 7.3(b)).
(b) Allocation of Partial Prepayments. In the case of each partial
---------------------------------
prepayment of the Notes, the principal amount of the Notes to be prepaid shall
be allocated among all of the Notes at the time outstanding in proportion, as
nearly as practicable, to the respective unpaid principal amounts thereof not
theretofore called for prepayment.
(c) Maturity; Surrender, etc. In the case of each prepayment of Notes
------------------------
pursuant to this Section 7.3, the principal amount of each Note to be prepaid
shall mature and become due and payable on the date fixed for such prepayment,
together with interest on such principal amount accrued to such date and the
applicable premium. From and after such date, unless the Company shall fail to
pay such principal amount when so due and payable, together with the interest
and premium as aforesaid, interest on such principal amount shall cease to
accrue. Any Note paid or prepaid in full shall be surrendered to the Company
and canceled and shall not be reissued, and no Note shall be issued in lieu of
any prepaid principal amount of any Note.
(d) Purchase of Notes. The Company will not and will not permit any
-----------------
Affiliate to purchase, redeem, prepay or otherwise acquire, directly or
indirectly, any of the outstanding Notes except upon the payment or prepayment
of the Notes in accordance with the terms of this Agreement and the Notes. The
Company will promptly cancel all Notes acquired by it or any Affiliate pursuant
to any payment, prepayment or purchase of Notes pursuant to any provision of
this Agreement and no Notes may be issued in substitution or exchange for any
such Notes.
Section VII.4. Change of Control. At any time after the occurrence of any
-----------------
Change of Control, each Purchaser will have the right from time to time to cause
the Company to repurchase all of the Notes held by such Purchaser at a purchase
price equal to 101% of the outstanding principal amount of the Notes to be
repurchased plus accrued and unpaid interest, if
16
<PAGE>
any, to the date of purchase as provided herein. Notice of each exercise of such
right by any Purchaser, specifying the date on which such repurchase will occur,
will be given to the Company within 90 days after such Change of Control and at
least 30 days but not more than 60 days before such repurchase date. In the case
of each repurchase of Notes pursuant to this Section 7.4, the foregoing purchase
price for the Notes to be repurchased shall be due and payable on the date fixed
for such repurchase, together with all accrued and unpaid interest on such
Notes. From and after such date, unless the Company shall fail to pay such
repurchase price when so due and payable, together with interest as aforesaid,
interest on such Notes shall cease to accrue. Any Note so repurchased shall be
surrendered to the Company and canceled and shall not be reissued.
Section VII.5. Payments. The Company will make each payment which it owes
--------
under the Transaction Documents to the Person to whom such payment is owed, in
lawful money of the United States of America, without set-off, deduction or
counterclaim, and in immediately available funds (or by issuing additional Notes
to the extent permitted under Section 7.1(a)). Each such payment must be
received by such Person not later than 11:00 a.m., Dallas, Texas time, on the
date such payment becomes due and payable in accordance with the instructions
contained on Schedule A hereto. Any payment received by such Person after such
time will be deemed to have been made on the next following Business Day.
Anything in this Agreement or the Notes to the contrary notwithstanding, any
payment of principal, premium, if any, or interest on any Note that is due on a
date other than a Business Day shall be made on the next succeeding Business Day
without including the additional days elapsed in the computation of the interest
payable on such next succeeding Business Day.
ARTICLE VIII.
AFFIRMATIVE COVENANTS; SECURITY
Section VIII.1. Affirmative Covenants. To confirm the Purchasers'
---------------------
understanding concerning the Company, its Subsidiaries, and their respective
business, properties and obligations and to induce each Purchaser to enter into
this Agreement and purchase its Notes, the Company covenants and agrees with
each Purchaser and with Collateral Agent that:
(a) Payment and Performance. The Company and each of its Subsidiaries
-----------------------
will pay all amounts due under the Transaction Documents in accordance with the
terms thereof and will observe, perform and comply with every covenant, term and
condition expressed or implied in the Transaction Documents.
(b) Books, Financial Statements and Reports. The Company and its
---------------------------------------
Subsidiaries will at all times maintain full and accurate books of account and
records and a standard system of accounting and will furnish the following
statements and reports to each Purchaser at the Company's expense:
(i) Audited Financials. As soon as available, and in any event
------------------
within ninety (90) days after the end of each Fiscal Year, complete
Consolidated and consolidating financial statements of the Company,
together with all notes thereto and prepared in reasonable detail in
accordance with GAAP, together with an opinion, based on an audit
17
<PAGE>
using generally accepted auditing standards, by Deloitte and Touche, LLP,
or other independent certified public accountants selected by the Company
and reasonably acceptable to the Majority Purchasers, stating that such
Consolidated financial statements have been so prepared. These financial
statements shall contain a balance sheet as of the end of such Fiscal Year
and statements of earnings, of cash flows, and of changes in owners' equity
for such Fiscal Year, each setting forth in comparative form the
corresponding figures for the preceding Fiscal Year.
(ii) Quarterly Financials. As soon as available, and in any event
--------------------
within forty-five (45) days after the end of each Fiscal Quarter, the
Company's Consolidated and consolidating financial statements for such
Fiscal Quarter, consisting of a balance sheet as of the end of such Fiscal
Quarter and statements of earnings and cash flows for the period from the
beginning of the then current Fiscal Year to the end of such Fiscal
Quarter, all in reasonable detail and prepared in accordance with GAAP
(subject to minor changes resulting from normal year-end adjustments), plus
a detailed accounts payable aging report (prepared as of the end of such
Fiscal Quarter in form reasonably satisfactory to the Majority Purchasers).
In addition the Company will, together with each such set of financial
statements and each set of financial statements furnished under subsection
(i) of this subsection (b), furnish a certificate in the form of Exhibit 3
signed by the chief financial officer of the Company stating that such
financial statements are accurate and complete, stating that he has
reviewed the Transaction Documents, containing calculations showing
compliance (or non-compliance) at the end of such Fiscal Quarter with the
requirements of Sections 8.1(n) and 9.1(m) and (n) stating that no Default
exists at the end of such Fiscal Quarter or at the time of such certificate
or specifying the nature and period of existence of any such Default.
(iii) Shareholder and Lender Reports. Promptly upon their becoming
-------------------------------
available, copies of all financial statements, reports, notices and proxy
statements sent by the Company to its members, partners or stockholders or
to the lenders or Agent Bank under the Bank Credit Agreement and all
registration statements, periodic reports and other statements and
schedules filed by the Company with any securities exchange, the Securities
and Exchange Commission or any similar Governmental Authority.
(iv) Mandatory Engineering Reports. By March 1 of each year
-----------------------------
(beginning March 1, 2001), an Engineering Report prepared as of the
preceding December 31 or January 1 by Schlumberger Holditch - Reservoir
Technologies Consulting Services or other independent petroleum engineers
chosen by the Company and acceptable to the Majority Purchasers concerning
the Properties. Each Engineering Report delivered pursuant to this section
8.1(b)(iv) or the following section 8.1(b)(v) shall distinguish (or shall
be delivered together with a certificate from an appropriate officer of the
Company which distinguishes) those Properties treated in such report which
are Eligible Mortgaged Properties from those properties treated in such
report which are not Eligible Mortgaged Properties.
(v) Optional Engineering Reports. Promptly upon request therefor by
----------------------------
Majority Purchasers (provided that only one such request may be made in any
calendar
18
<PAGE>
year), or upon the Company's election (provided that the Company may make
only one such election in any calendar year), or from time to time as the
Company and Majority Purchasers may agree, an additional Engineering Report
prepared (as of the first day of the month in which such Engineering Report
is delivered) by Schlumberger Holditch -Reservoir Technologies Consulting
Services or other independent petroleum engineers chosen by the Company and
acceptable to the Majority Purchasers concerning the Properties.
(c) Other Information and Inspections. The Company will furnish to each
---------------------------------
Purchaser any information which such Purchaser may from time to time request
concerning any covenant, provision or condition of the Transaction Documents or
any matter in connection with the Company's or its Subsidiaries' businesses and
operations. The Company and each Subsidiary of the Company will permit
representatives appointed by each Purchaser (including independent accountants,
engineers, agents, attorneys, appraisers and any other Persons) upon reasonable
notice to visit and inspect any of the Company's or its Subsidiaries' property
(such inspections may be made as frequently as monthly), including its books of
account, other books and records, and any facilities or other business assets,
and to make extra copies therefrom and photocopies and photographs thereof, and
to write down and record any information such representatives obtain, and shall
further permit each Purchaser or its representatives to investigate and verify
the accuracy of the information furnished in connection with the Transaction
Documents and to discuss all such matters with its officers, employees and
representatives.
(d) Notice of Material Events and Change of Address. The Company will
-----------------------------------------------
promptly notify the Purchasers:
(i) of the occurrence of any event, or the existence of any state of
affairs, which could reasonably be expected to have a Material Adverse
Effect,
(ii) of the occurrence of any Default,
(iii) of the acceleration of the maturity of any Debt owed by the
Company or any of its Subsidiaries, of any "Default" or other breach by the
Company or any of its Subsidiaries under any of the Bank Documents, or of
any material default by the Company, any of its Subsidiaries, or any other
party under any other indenture, mortgage, agreement, contract or other
instrument to which the Company or any of its Subsidiaries is a party or by
which any of them or any of their properties is bound,
(iv) of the occurrence of any Termination Event,
(v) of any claim of $50,000 or more, any notice of potential
liability under any Environmental Laws, or any other claim asserted against
the Company or any of its Subsidiaries that could reasonably be expected to
have a Material Adverse Effect, or
(vi) of the filing of any suit or proceeding against the Company or
any Subsidiary of the Company in which an adverse decision could reasonably
be expected to have a Material Adverse Effect.
19
<PAGE>
Upon the occurrence of any of the foregoing the Company will take all necessary
or appropriate steps to remedy promptly any such Material Adverse Effect,
Default, acceleration, "Default," breach or Termination Event, to protect
against any such adverse claim, to defend any such suit or proceeding, and to
resolve all controversies on account of any of the foregoing. The Company will
also notify the Purchasers and the Purchasers' counsel in writing at least
twenty Business Days prior to the date that it or any of its Subsidiaries
changes its name or the location of its chief executive office or principal
place of business or the place where it keeps its books and records concerning
the Collateral, furnishing with such notice any necessary financing statement
amendments or requesting the Purchasers and their counsel to prepare the same.
(e) Maintenance and Operation of Properties. Each of the Company and its
---------------------------------------
Subsidiaries will maintain, preserve, protect, and keep all Properties, all
other Collateral, and any other property used or useful in the conduct of its
business in good condition (normal wear and tear excepted) and in compliance
with all applicable laws, rules and regulations, and will from time to time make
all repairs, renewals and replacements needed to enable the business and
operations carried on in connection therewith to be conducted at all times
consistent with prudent industry practices. The Company and its Subsidiaries
will operate the Properties in a good and workmanlike manner in conformity with
good oil field practice.
(f) Maintenance of Existence and Qualifications. Each of the Company and
-------------------------------------------
its Subsidiaries will maintain and preserve its existence and its rights and
franchises in full force and effect and will qualify to do business in all
states or jurisdictions where required by applicable law, except that it shall
not be required hereunder so to qualify in any jurisdiction where no Collateral
is located if the failure so to qualify could not reasonably be expected to have
any Material Adverse Effect.
(g) Payment of Trade Liabilities, Taxes, etc. Each of the Company and its
----------------------------------------
Subsidiaries will (i) timely file all required tax returns; (ii) timely pay all
taxes, assessments, and other governmental charges or levies imposed upon it or
upon its income, profits or property; (iii) within 90 days after the same
becomes due (or, if earlier, after the applicable invoice date) pay all
Liabilities owed by it on ordinary trade terms to vendors, suppliers and other
Persons providing goods and services used by it in the ordinary course of its
business; (iv) pay and discharge when due all other Liabilities now or hereafter
owed by it; and (v) maintain appropriate accruals and reserves for all of the
foregoing taxes or other Liabilities in accordance with GAAP. The Company may,
however, delay paying or discharging any such taxes or other Liabilities so long
as it is in good faith contesting the validity thereof by appropriate
proceedings and has set aside on its books adequate reserves therefor.
(h) Bonding and Insurance. Each of the Company and its Subsidiaries will
---------------------
maintain all bonds and letters of credit in lieu of bonds which are required (by
law, lease terms, or consistent with prudent industry practices) in order to
carry out development and production operations on the Properties. Each of the
Company and its Subsidiaries will keep or cause to be kept adequately insured by
financially sound and reputable insurers its vehicles and all other property in
accordance with Insurance Schedule. Any insurance policies covering Collateral
shall be endorsed (i) to provide for payment of losses to the Collateral Agent
(for the benefit of
20
<PAGE>
the Purchasers) as its interests may appear, pursuant to a mortgagee clause
(without contribution) of standard form made part of the applicable policy, (ii)
to provide that such policies may not be canceled, reduced or adversely affected
in any manner for any reason without thirty days prior notice to Purchasers,
(iii) to provide for any other matters specified in any applicable Security
Document or which the Majority Purchasers may reasonably require; and (iv) to
provide for insurance against fire, casualty and any other hazards normally
insured against, in the amount of the full value (less a reasonable deductible
not to exceed amounts customary in the industry for similarly situated
businesses and properties) of the property insured. (To the extent that any
Mortgage contains other additional requirements for such endorsement, the
mortgagor thereunder shall also comply with such additional requirements.) The
Company shall at all times maintain adequate insurance against its and its
Subsidiaries' liability for injury to persons or property, which insurance shall
be by financially sound and reputable insurers and shall without limitation
provide the following coverages: comprehensive general liability (including
coverage for damage to underground resources and equipment, damage caused by
blowouts or cratering, damage caused by explosion, damage to underground
minerals or resources caused by saline substances, broad form property damage
coverage, broad form coverage for contractually assumed liabilities and broad
form coverage for acts of independent contractors), worker's compensation and
automobile liability. The Company and its Subsidiaries shall at all times
maintain cost of control of well insurance with respect to all wells being
drilled or deepened, which shall insure against the following costs: cost of
control of well; fires, blowouts, etc.; redrilling expense; and seepage and
pollution expense.
(i) Payment of Expenses. Whether or not the transactions contemplated by
-------------------
this Agreement are consummated, the Company will promptly (and in any event,
within 30 days after any invoice or other statement or notice) pay: (A) all
transfer, stamp, mortgage, documentary or other similar taxes, assessments or
charges levied by any governmental or revenue authority in respect of this
Agreement or any of the other Transaction Documents or any other document
referred to herein or therein, (B) all reasonable out-of-pocket costs and
expenses incurred by or on behalf of any Purchaser or Collateral Agent
(including without limitation attorneys' fees, consultants' fees and engineering
fees, travel costs and miscellaneous expenses) in connection with (1) the
negotiation, preparation, execution and delivery of the Transaction Documents,
and any and all consents, waivers, amendments, or other documents or instruments
relating thereto, (2) the filing, recording, refiling and re-recording of any
Transaction Documents and any other documents or instruments or further
assurances required to be filed or recorded or refiled or re-recorded by the
terms of any Transaction Document, (3) the purchases hereunder of the Notes and
other action reasonably required in the course of administration hereof, or (4)
monitoring or confirming (or preparation or negotiation of any document related
to) the Company's and it Subsidiaries' compliance with any covenants or
conditions contained in this Agreement or in any other Transaction Document, and
(C) all reasonable costs and expenses incurred by or on behalf of any Purchaser
or Collateral Agent (including without limitation attorneys' fees, consultants'
fees and accounting fees) in connection with the defense or enforcement of any
of the Transaction Documents (including this Section 8.1(i)) or the defense of
any such Person's exercise of its rights thereunder.
(j) Performance on the Company's Behalf. If the Company or any of its
-----------------------------------
Subsidiaries fails to pay any taxes, insurance premiums, delay rentals, lease
maintenance costs, attorneys'
21
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fees, or other expenses or amounts it is required to pay under any Transaction
Document, the Collateral Agent or any Purchaser may pay the same. The Company
shall immediately reimburse the Collateral Agent or such Purchaser for any such
payments and each amount paid by the Collateral Agent or such Purchaser shall
constitute an obligation owed under this Agreement which is due and payable on
the date such amount is paid by the Collateral Agent or such Purchaser.
(k) Interest. The Company hereby promises to pay interest at the Default
--------
Rate on all amounts which the Company has in this Agreement promised to pay
(including obligations to pay fees or to make reimbursements or
indemnifications) and which are not paid when due. Such interest shall accrue
from the date such amounts become due until they are paid.
(l) Compliance with Agreements and Law. The Company and each of its
----------------------------------
Subsidiaries will perform all material obligations it is required to perform
under the terms of the Bank Documents, and each other indenture, mortgage, deed
of trust, security agreement, lease, franchise, agreement, contract or other
instrument or obligation to which it is a party or by which it or any of its
properties is bound. The Company and each of its Subsidiaries will conduct its
business and affairs in compliance in all material respects with all laws,
regulations, and orders applicable thereto, including Environmental Laws.
(m) Evidence of Compliance. The Company will furnish to the Purchasers at
----------------------
the Company's expense all evidence which any Purchaser from time to time may
reasonably request as to the accuracy and validity of or compliance with all
representations, warranties and covenants made by the Company or its
Subsidiaries in the Transaction Documents, the satisfaction of all conditions
contained therein, and all other matters pertaining thereto.
(n) Collateral Coverage Ratio. The Company will at all times maintain a
-------------------------
Collateral Coverage Ratio of at least 150%.
Section VIII.2. The Security. The Notes will be secured by the Security
------------
Documents listed in the Security Schedule and by any additional Security
Documents hereafter delivered by the Company or any Subsidiary of the Company
and accepted by the Purchasers.
Section VIII.3. Agreement to Deliver Security Documents. The Company agrees
---------------------------------------
to deliver, or to cause its Subsidiaries to deliver, to further secure the Notes
whenever requested by the Collateral Agent or any Purchaser in its sole and
absolute discretion, deeds of trust, mortgages, chattel mortgages, security
agreements, financing statements and other Security Documents in form and
substance satisfactory to the Collateral Agent and such Purchaser for the
purpose of granting, confirming, and perfecting first and prior liens or
security interests in any real or personal property of the Company or any
wholly-owned Subsidiary of the Company, subject only to Permitted Liens. The
Company also agrees to deliver, whenever requested by the Collateral Agent or
any Purchaser in its sole and absolute discretion, favorable title opinions from
legal counsel acceptable to the Collateral Agent and such Purchaser with respect
to Properties designated by the Collateral Agent or such Purchaser, based upon
abstract or record examinations to dates acceptable to the Collateral Agent and
such Purchaser and (a) stating that the Company or its Subsidiaries, as
applicable, has good and defensible title thereto, subject only
22
<PAGE>
to Permitted Liens, (b) confirming that such properties and interests are
subject to Security Documents securing the Notes that constitute and create
legal, valid and duly perfected deed of trust or mortgage Liens in such
properties and interests and assignments of and security interests in the oil
and gas attributable thereto and in the proceeds thereof, subject, in each case,
to no prior Liens other than Permitted Liens, and (c) covering such other
matters as the Collateral Agent or such Purchaser may request. As used in this
Section 8.3 and the following Sections 8.4, 8.5, and 8.6, from and after January
1, 2001, the term "Subsidiary" and "Subsidiaries" shall include each Excluded
Subsidiary other than MGV Energy Inc.
Section VIII.4. Perfection and Protection of Security Interests and Liens.
---------------------------------------------------------
The Company will, and will cause each of its Subsidiaries, from time to time
deliver to the Collateral Agent any financing statements, continuation
statements, extension agreements and other documents, properly completed and
executed (and acknowledged when required) in form and substance satisfactory to
the Collateral Agent, which the Collateral Agent or any Purchaser requests for
the purpose of perfecting, confirming, or protecting any Liens or other rights
in Collateral securing the Notes.
Section VIII.5. Production Proceeds. Notwithstanding that, by the terms
-------------------
of the Mortgages, the Company and its Subsidiaries are or will be assigning to
the Collateral Agent all of the "Production Proceeds" (as defined therein)
accruing to the property covered thereby, so long as no Default has occurred
each such assignor may continue to receive from the purchasers of production all
such Production Proceeds, subject, however, to the Liens created under the
Security Documents, which Liens are hereby affirmed and ratified. Upon the
occurrence of a Default, the Collateral Agent may (unless otherwise restricted
by the Bank Subordination Agreement) exercise all rights and remedies granted
under the Security Documents, including the right to obtain possession of all
Production Proceeds then held by the Company or any of its Subsidiaries and to
receive directly from the purchasers of production all other Production
Proceeds. In no case shall any failure, whether purposed or inadvertent, by the
Collateral Agent to collect directly any such Production Proceeds constitute in
any way a waiver, remission or release of any of its rights under the Security
Documents, nor shall any release of any Production Proceeds by the Collateral
Agent to the Company or any of its Subsidiaries constitute a waiver, remission,
or release of any other Production Proceeds or of any rights of the Collateral
Agent to collect other Production Proceeds thereafter.
Section VIII.6. Guaranties of the Company's Subsidiaries. Each Subsidiary
----------------------------------------
of the Company created, acquired or coming into existence after the date hereof
shall, promptly thereafter, execute and deliver to the Collateral Agent an
absolute and unconditional guaranty of the timely repayment of the Notes and the
due and punctual performance of the obligations of the Company hereunder, which
guaranty shall be substantially in the form executed by Terra on the date of
this Agreement. Each Subsidiary of the Company existing on the date hereof shall
duly execute and deliver such a guaranty prior to the sale and purchase of the
Notes hereunder. The Company will cause each of its Subsidiaries to deliver to
the Purchasers, simultaneously with its delivery of such a guaranty (a) written
evidence satisfactory to the Purchasers and their counsel that such Subsidiary
has taken all corporate or partnership action necessary to duly approve and
authorize its execution, delivery and performance of such guaranty and any other
documents which it is required to execute and (b) a favorable opinion from legal
counsel acceptable to the
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<PAGE>
Purchasers with respect to each such guaranty covering such matters as the
Purchasers may request.
Section 8.7. Post-Closing Title Opinions. As soon as available, and in
---------------------------
any event on or prior to June 30, 2000, the Company shall deliver opinions of
title and other evidence of title in form and substance acceptable to Purchasers
and their counsel regarding that portion of the CMS Properties which is
necessary to satisfy the Post-Closing Title Review Requirement.
ARTICLE IX.
NEGATIVE COVENANTS.
Section IX.1. Negative Covenants. To confirm the Purchasers' understanding
------------------
concerning the Company, its Subsidiaries, and their respective business,
properties and obligations and to induce each Purchaser to enter into this
Agreement and purchase its Notes, the Company covenants and agrees with each
Purchaser and with Collateral Agent that:
(a) Debt. The Company and its Subsidiaries will not in any manner owe or
----
be liable for any Debt except:
(i) Debt evidenced by the Notes;
(ii) Debt now or hereafter outstanding under the Bank Credit Agreement
(the "Bank Debt"), provided that (1) no part of the Debt for principal
owing under the Bank Credit Agreement is subordinated in right or payment
to any other Debt for principal owing under the Bank Credit Agreement, and
(2) at the time each such item of Debt is incurred (A) the aggregate amount
thereof does not exceed the "Borrowing Base" then in effect under the Bank
Credit Agreement (or, if such "Borrowing Base" ever ceases to exist or
diverges materially from a conventional commercial bank borrowing base,
does not exceed a conventional commercial bank borrowing base), and (B)
after giving effect to the incurrence of such Debt, no Default then exists
under Section 8.1(n);
(iii) [intentionally omitted];
(iv) unsecured Debt of the Company with no principal payments
scheduled before March 31, 2010, that is subordinated to the Debt evidenced
by the Notes on terms satisfactory to the Majority Purchasers in their sole
and absolute discretion;
(v) Debt of Terra (but not guaranties thereof by the Company) that
exists on the Closing Date and is described in the Disclosure Schedule; and
(vi) miscellaneous items of Debt (other than for borrowed money) not
described in the foregoing subsections (i) through (v) which do not in the
aggregate (taking into account all such Debt of the Company and its
Subsidiaries) exceed $2,000,000.
24
<PAGE>
The Company will not enter into any "take-or-pay" contract or other contract or
arrangement for the purchase of goods or services which obligates it to pay for
such goods or service regardless of whether they are delivered or furnished to
it.
(b) Limitation on Liens. Except for Permitted Liens, neither the Company
-------------------
nor any of its Subsidiaries will create, assume or permit to exist any Lien upon
any of the properties or assets which it now owns or hereafter acquires.
(c) Limits on Hedging Contracts. The Company will not be a party to or in
---------------------------
any manner be liable on any Hedging Contract other than: (i) interest rate
Hedging Contracts with investment grade counterparties entered into for the
purpose of protecting the Company against increases in the rate of interest
payable on its actual and reasonably anticipated Bank Debt; and (ii) Hedging
Contracts with investment grade counterparties entered into in compliance with
the Commodity Price Risk Policy for the purpose of protecting the Company
against decreases in the prices obtainable for its actual and reasonably
anticipated production of oil, gas and natural gas liquids. The Company will
not materially amend the Commodity Price Risk Policy after the same is adopted
as contemplated in Section 5.1(t).
(d) Limits on Amendments. The Company will not amend, waive or release
--------------------
any Mariner Section 29 Sale Document. The Company will not amend, waive or
release any contract or lease if the effect thereof is to release, qualify,
limit, make contingent or otherwise detrimentally affect the rights and benefits
of Collateral Agent or the Purchasers under or acquired pursuant to any Security
Documents. The Company will not amend, waive, unwind, reverse, or release any
long-term fixed price production sales agreements or derivative contracts
described on the Disclosure Schedule if the effect thereof is to materially
decrease the sales revenues or other payments receivable thereunder.
(e) Limits on Mergers and Subsidiary Equity Issuances. Neither the Company
-------------------------------------------------
nor any Subsidiary of the Company will merge or consolidate with or into any
other Person except that any Subsidiary of the Company may be merged into or
consolidated with (i) another Subsidiary of the Company, so long as a Guarantor
is the surviving business entity, or (ii) the Company, so long as the Company is
the surviving business entity, and, in either case, provided that the Company
has given the Purchasers at least thirty (30) days prior written notice of such
merger or consolidation, and such surviving entity executes and delivers to the
Collateral Agent all documents and instruments as may be requested by any
Purchaser to protect the Purchasers' and the Collateral Agent's rights under the
Transaction Documents. Notwithstanding the foregoing sentence, the Company may
merge or consolidate with or into another Person so long as
(1) such merger or consolidation does not result in a Change of
Control or a reduction of $5,000,000 or more in the Company's "Borrowing
Base" or other available credit under the Bank Credit Agreement;
(2) the successor formed by such consolidation or the survivor of such
merger shall be a solvent corporation organized and existing under the laws
of the United States or any State thereof (including the District of
Columbia), and, if the Company is not such
25
<PAGE>
corporation, (A) such corporation shall have executed and delivered to each
holder of any Notes its assumption of the due and punctual performance and
observance of each covenant and condition of this Agreement, the Notes and
the Transaction Documents and such other documents and instruments as may
be requested by the Majority Purchasers to protect the Purchasers' and the
Collateral Agent's rights under the Transaction Documents, and (B) such
corporation shall have caused to be delivered to each holder of any Notes
an opinion of independent counsel (with both the form of such opinion and
such counsel being satisfactory to Majority Purchasers) to the effect that
the Transaction Documents are the binding instruments and agreements of
such corporation, enforceable in accordance with their terms and without
conflict with any law, agreement or other legal obligation of such
corporation and that all agreements or instruments effecting such
assumption are enforceable in accordance with their terms and comply with
the terms hereof; and
---
(3) immediately after giving effect to such consolidation or merger,
no Default shall have occurred and be continuing.
No Subsidiary of the Company will issue any additional shares of its capital
stock or other securities or any options, warrants or other rights to acquire
such additional shares or other securities except to the Company and only to the
extent not otherwise forbidden under the terms hereof. No Subsidiary of the
Company which is a partnership will allow any diminution of the Company's
interest (direct or indirect) therein.
(f) Limitation on Distributions and Redemptions. Neither the Company nor
-------------------------------------------
any Subsidiary of the Company will declare or make any distribution in respect
of any equity interest in such Person, nor will the Company nor any Subsidiary
of the Company directly or indirectly purchase, redeem, acquire or retire any
equity interest in it (whether such interests are now or hereafter issued,
outstanding or credited) or cause or permit any reduction or retirement of such
equity interests; provided, however, that no Subsidiary of the Company shall be
prohibited from declaring or making any distribution in respect of any equity
interest in it to the Company; and further provided, however, that the Company
shall be permitted to declare and pay dividends (but not redemptions,
acquisitions, or retirements) in respect of any preferred stock issued by the
Company so long as after the paying of such dividends no Default exists. Except
as expressly provided in the Transaction Documents, no Subsidiary of the Company
will, directly or indirectly, enter into, create, or otherwise allow to exist
any contract or other consensual restriction on the ability of any such Person
to (i) pay dividends or make other distributions to the Company, (ii) to redeem
equity interests held in it by the Company, (iii) to repay Liabilities owing by
it to the Company, or (iv) to transfer any of its assets to the Company.
(g) Limitation on Sales or Abandonments. Neither the Company nor any of
-----------------------------------
its Subsidiaries will sell, transfer, lease, exchange, discount, assign,
abandon, alienate or dispose of (collectively in this section "sell") any of its
assets or properties or any interest therein except for sales or abandonments of
property or assets in the ordinary course of business to which no Proved
Reserves are attributed; provided, however, that the Company may, in good faith
arms' length transactions with non-Affiliated third party buyers, sell
Properties to which Proved Reserves are attributed if: (i) such sale is made
during the existence of any "Event of Default" or
26
<PAGE>
"Borrowing Base Deficiency" (as such terms are defined in the Bank Credit
Agreement) and all proceeds of such sale (net only of costs of sale and taxes on
such sale) are applied to the payment of the Bank Debt or (ii) after giving
effect to such sale and to the application of any proceeds thereof, no Default
or Event of Default and no such Borrowing Base Deficiency exists. In no event,
however, shall the Company or any of its Subsidiaries (i) sell any Hydrocarbons
under Advance Payment Contracts (as defined below), (ii) sell or securitize any
of their accounts receivable (other than those deemed doubtful or
uncollectible), (iii) sell any production payment or other term royalty, (iv)
purchase property subject to any production payment or term royalty created
within 180 days prior to such purchase, or (v) sell assets and then lease them
back (or commit to lease them back) within 180 days after such sale. As used
herein, "Advance Payment Contracts" means any contract whereby any of the
Company or any of its Subsidiaries 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 such Person and which Advance
Payment is, or is 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 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.
(h) Limitation on Investments and New Businesses. Neither the Company nor
--------------------------------------------
any of its Subsidiaries will (i) make any expenditure or commitment or incur any
obligation or enter into or engage in any transaction except in the ordinary
course of the businesses of acquiring and developing oil and gas properties,
exploring for and producing oil and gas, and gathering, processing, transporting
and selling the crude oil, condensate and natural gas so produced, (ii) purchase
any material capital assets other than oil and gas properties and equipment
associated therewith, or (iii) form or acquire any Subsidiary or make any other
acquisitions of or capital contributions to or Investments in any Person, other
than Permitted Investments.
(i) Limitation on Credit Extensions. Except for Permitted Investments,
-------------------------------
neither the Company nor any of its Subsidiaries will extend credit, make
advances or make loans, other than normal and prudent extensions of credit to
customers buying goods and services in the ordinary course of business, which
extensions shall not be for longer periods than those extended by similar
businesses operated in a normal and prudent manner.
(j) Transactions with Affiliates. The Company will not and will not
----------------------------
permit any Subsidiary to engage in any transaction with any of its Affiliates
except pursuant to the reasonable requirements of the Company's or such
Subsidiary's business and then only on terms which are not less favorable to it
than those which would have been obtainable at the time in arm's-length dealing
with Persons other than Affiliates.
27
<PAGE>
(k) ERISA Plans. Neither the Company nor any of its Subsidiaries will
-----------
incur any obligation to contribute to any "multiemployer plan" as defined in
Section 4001 of ERISA.
(l) No Public Announcements. The Company may not make any public
-----------------------
announcement or disclosure of the transactions contemplated by this Agreement or
any other Transaction Document, except as required by law or approved by the
Purchasers prior to the making of any such public announcement or disclosure.
(m) EBITDAX. On March 31, 2000, and on the last day of each Fiscal
-------
Quarter thereafter, the ratio of (i) the Company's EBITDAX for the four Fiscal
Quarter period ending on such day to (ii) the Company's Consolidated Fixed
Charges for the same four Fiscal Quarter Period, shall not be less than 1.25 to
1.0. (If the Company or any of its Subsidiaries has merged with or acquired any
Person during such four Fiscal Quarter Period, the Company's EBITDAX and
Consolidated Fixed Charges for such period shall be calculated as if such merger
or acquisition had occurred on the first day of the Fiscal Quarter in which it
actually occurred.)
(n) Working Capital. Working Capital will never be less than $3,000,000 at
---------------
any time. As used herein, "Working Capital" means the Company's Consolidated
current assets minus the Company's Consolidated current liabilities, provided
that for the purposes of determining Working Capital, (i) current assets will be
calculated by including amounts then available for borrowing under the Bank
Credit Agreement, and (ii) current assets will be calculated without including
any accounts receivable or other rights to payment arising from:
(A) the sale of gas production, unless the same are due and payable
(and reasonably expected by the Company to be paid) within sixty (60) days
after the month in which gas is produced;
(B) the sale of oil production, unless the same are due and payable
(and reasonably expected by the Company to be paid) within thirty (30) days
after the month in which gas is produced; or
(C) Excluded Accounts.
(o) Cinnabar. In marketing the Hydrocarbons of the Company and its
--------
Subsidiaries, Cinnabar shall act as their marketing agent, and the Company and
its Subsidiaries shall not permit Cinnabar to claim or take title to any
Hydrocarbons which Cinnabar markets on their behalf or to claim or take title to
any accounts receivable resulting from the sale of such Hydrocarbons, and all
payments for the sale of such Hydrocarbons by the purchasers obtained by
Cinnabar shall be made directly to the Company or to the Subsidiary of the
Company selling such Hydrocarbons. For so long as any guaranty by the Company of
any Cinnabar Marketing Obligations is in effect, the Company will not permit
Cinnabar to: (i) incur Debt, or (ii) grant a Lien on its accounts receivable or
other assets to anyone other than the Company (provided that Cinnabar may grant
such a Lien to any other guarantor of Cinnabar Marketing Obligations in
proportion to the amount guarantied by such other guarantor). The Company may
guaranty a percentage of the Cinnabar Marketing Obligations (provided, however,
that the percentage referred to in any such Guarantee shall not exceed the
percentage of Cinnabar's common equity owned by the Company at the time such
Guarantee is executed).
28
<PAGE>
ARTICLE X.
EVENTS OF DEFAULT.
Section X.1. Events of Default. An "Event of Default" shall exist if any of
-----------------
the following conditions or events shall occur and be continuing:
(a) the Company defaults in the payment or prepayment of any principal
or premium, if any, on any Note when the same becomes due and payable,
whether at maturity or at a date fixed for prepayment or by declaration or
otherwise, or fails to pay any purchase price required to be paid under
Section 7.4 when the same becomes due and payable; or
(b) the Company defaults in the payment of any interest on any Note,
or any other amounts due and payable under the Transaction Documents to any
Purchaser or to Collateral Agent, for more than five Business Days after
the same becomes due and payable; or
(c) any "default" or "event of default" occurs under any Transaction
Document which defines either such term, and the same is not remedied
within the applicable period of grace (if any) provided therein; or
(d) the Company or any of its Subsidiaries fails to duly observe,
perform or comply with any covenant, agreement or provision of Section
8.1(d) or Section 9.1; or
(e) the Company or any of its Subsidiaries fails to duly comply with
its covenant in Section 8.1(n) and such failure is not remedied within 30
days after the first occurrence thereof; or
(f) the Company or any of its Subsidiaries defaults in the performance
of or compliance with any term contained herein or in the other Transaction
Documents (other than those referred to in paragraphs (a), (b), (c), (d),
and (e) of this Section 10.1) and such default is not remedied within 30
days after the Company receives written notice of such default from any
Purchaser (any such written notice to be identified as a "notice of
default" and to refer specifically to this paragraph (f) of Section 10.1);
or
(g) any representation or warranty previously, presently or hereafter
made in writing by or on behalf of the Company or any of its Subsidiaries
in connection with any Transaction Document shall prove to have been false
or incorrect in any material respect on any date on or as of which made, or
any Transaction Document at any time ceases to be valid, binding and
enforceable as warranted herein for any reason other than its release or
subordination by the Collateral Agent with the consent of Majority
Purchasers; or
(h) the Company or any of its Subsidiaries (i) fails to pay any
portion, when such portion is due, of any of its Debt under the Bank Credit
Agreement or of any other
29
<PAGE>
Debt in excess of $250,000 or (ii) breaches or defaults in the performance
of any term or condition of any Bank Document or any other instrument or
agreement with any Person by which any such Debt is issued, evidenced,
governed or secured, and any such failure, breach or default continues
beyond any applicable period of grace therefor; or
(i) the Company or any of its Subsidiaries fails to duly observe,
perform, or comply in any material respect with any other agreement with
any Person or any term or condition of any instrument, if such agreement or
instrument is materially significant to the Company or to the Company and
its Subsidiaries on a Consolidated basis, and such failure is not remedied
within the applicable period of grace (if any) provided in such other
agreement or instrument; or
(j) if (i) any Plan shall fail to satisfy the minimum funding
standards of ERISA or the Code for any plan year or part thereof or a
waiver of such standards or extension of any amortization period is sought
or granted under section 412 of the Code, (ii) a notice of intent to
terminate any Plan shall have been or is reasonably expected to be filed
with the PBGC or the PBGC shall have instituted proceedings under ERISA
section 4042 to terminate or appoint a trustee to administer any Plan or
the PBGC shall have notified the Company or any ERISA Affiliate that a Plan
may become a subject of any such proceedings, (iii) the aggregate "amount
of unfunded benefit liabilities" (within the meaning of section 4001(a)(18)
of ERISA) under all Plans, determined in accordance with Title IV of ERISA,
shall exceed $250,000, (iv) the Company or any ERISA Affiliate shall have
incurred or is reasonably expected to incur any liability pursuant to Title
I or IV of ERISA or the penalty or excise tax provisions of the Code
relating to employee benefit plans, (v) the Company or any ERISA Affiliate
withdraws from any Multiemployer Plan, or (vi) the Company or any
Subsidiary establishes or amends any employee welfare benefit plan that
provides post-employment welfare benefits in a manner that would increase
the liability of the Company or any Subsidiary thereunder; and any such
event or events described in clauses (i) through (vi) above, either
individually or together with any other such event or events, could
reasonably be expected to have a Material Adverse Effect (as used in this
subsection (h), the terms "employee benefit plan" and "employee welfare
benefit plan" shall have the respective meanings assigned to such terms in
Section 3 of ERISA); or
(k) the Company or any Subsidiary of the Company:
(i) suffers the entry against it of a judgment, decree or order
for relief by a court of competent jurisdiction in an involuntary
proceeding commenced under any applicable bankruptcy, insolvency or
other similar law of any jurisdiction now or hereafter in effect,
including the federal Bankruptcy Code, as from time to time amended, or
has any such proceeding commenced against it which remains undismissed
for a period of sixty days; or
(ii) commences a voluntary case under any applicable bankruptcy,
insolvency or similar law now or hereafter in effect, including the
federal Bankruptcy Code, as from time to time amended; or applies for
or consents to the
30
<PAGE>
entry of an order for relief in an involuntary case under any such law;
or makes a general assignment for the benefit of creditors; or fails
generally to pay (or admits in writing its inability to pay) its
indebtedness as such indebtedness becomes due; or takes corporate or
other action to authorize any of the foregoing; or
(iii) suffers the appointment of or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestration or
similar official of all or a substantial part of its assets or of any
part of the Collateral in a proceeding brought against or initiated by
it, and such appointment or taking possession is neither made
ineffective nor discharged within thirty days after the making thereof,
or such appointment or taking possession is at any time consented to,
requested by, or acquiesced to by it;
(iv) suffers the entry against it of a final judgment for the
payment of money in excess of $250,000, unless the same is discharged
within thirty days after the date of entry thereof or an appeal or
appropriate proceeding for review thereof is taken within such period
and a stay of execution pending such appeal is obtained prior to the
first date on which such execution is allowed; or
(v) suffers a writ or warrant of attachment or any similar
process to be issued by any court against all or any substantial part
of its assets or any part of the Collateral, and such writ or warrant
of attachment or any similar process is not stayed or released within
thirty days after the entry or levy thereof or after any stay is
vacated or set aside.
Upon the occurrence of an Event of Default described in subsection (k)(i),
(k)(ii) or (k)(iii) of this Section with respect to the Company, the entire
unpaid principal amount of the Notes, plus all accrued and unpaid interest
thereon, shall all be immediately due and payable, without demand, presentment,
notice of demand or of dishonor and nonpayment, protest, notice of protest,
notice of intention to accelerate, declaration or notice of acceleration, or any
other notice or declaration of any kind, all of which are hereby expressly
waived by the Company. During the continuance of any other Event of Default,
Majority Purchasers at any time and from time to time may without notice to the
Company declare the entire unpaid principal amount of the Notes, plus all
accrued and unpaid interest thereon, to be immediately due and payable without
demand, presentment, notice of demand or of dishonor and nonpayment, protest,
notice of protest, notice of intention to accelerate, declaration or notice of
acceleration, or any other notice or declaration of any kind, all of which are
hereby expressly waived by the Company.
Section X.2. Remedies. If any Default or Event of Default has occurred and
--------
is continuing, and irrespective of whether any Notes have become or have been
declared immediately due and payable under Section 10.1, the holder of any Note
at the time outstanding may proceed to protect and enforce the rights of such
holder by an action at law, suit in equity or other appropriate proceeding,
whether for the specific performance of any agreement contained herein or in any
of the Notes, or for an injunction against a violation of any of the terms
hereof or thereof, or in aid of the exercise of any power granted hereby or
thereby or by law or otherwise. All rights, remedies and powers conferred upon
the Purchasers and Collateral Agent under the
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Transaction Documents shall be deemed cumulative and not exclusive of any other
rights, remedies or powers available under the Transaction Documents or at law
or in equity.
Section X.3. Rescission. At any time after any of the Notes have been
----------
declared due and payable pursuant to Section 10.1, Majority Purchasers may, by
written notice to the Company, rescind and annul any such declaration and its
consequences if (a) the Company has paid all overdue interest on the Notes, all
principal and premium, if any, on any Notes that is then due and payable and is
unpaid other than by reason of such declaration, and all interest on such
overdue principal and premium and (to the extent permitted by applicable law)
any overdue interest in respect of the Notes, at the Default Rate, (b) all
Events of Default and Defaults, other than non-payment of amounts that have
become due solely by reason of such declaration, have been cured or have been
waived, and (c) no judgment or decree has been entered for the payment of any
monies due pursuant hereto or to the Notes. No rescission and annulment under
this Section 10.3 will extend to or affect any subsequent Event of Default or
Default or impair any right consequent thereon.
ARTICLE XI.
REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES;
RESTRICTIONS ON TRANSFER OF NOTES
Section XI.1. Registration of Notes. The Company shall keep at its
---------------------
principal executive office a register for the registration and registration of
transfers of Notes. The name and address of each holder of one or more Notes,
each transfer thereof and the name and address of each transferee of one or more
Notes shall be registered in such register. Prior to due presentment for
registration of transfer, the Person in whose name any Notes shall be registered
shall be deemed and treated as the owner and holder thereof for all purposes
hereof, and the Company shall not be affected by any notice or knowledge to the
contrary. The Company shall give to any holder of a Note that is an
Institutional Investor promptly upon request therefor, a complete and correct
copy of the names and addresses of all registered holders of Notes.
Section XI.2. Transfer and Exchange of Notes. Upon surrender of any Notes
------------------------------
at the principal executive office of the Company for registration of transfer or
exchange (and in the case of a surrender for registration of transfer, duly
endorsed or accompanied by a written instrument of transfer duly executed by the
registered holder of such Notes or its attorney duly authorized in writing and
accompanied by the address for notices of each transferee of such Notes or part
thereof), the Company shall execute and deliver, at the Company's expense
(except as provided below), one or more new Notes (as requested by the holder
thereof) in exchange therefor, in an aggregate principal amount equal to the
unpaid principal amount of the surrendered Notes. Each such new Note shall be
payable to such Person as such holder may request and shall be substantially in
the form of Exhibit 1. Each such new Note shall be dated and bear interest from
the date to which interest shall have been paid on the surrendered Notes or
dated the date of the surrendered Notes if no interest shall have been paid
thereon. The Company may require payment of a sum sufficient to cover any stamp
tax or governmental charge imposed in respect of any such transfer of Notes.
Notes shall not be transferred in amounts of less than
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$100,000, provided that (a) if necessary to enable the registration of transfer
--------
by a holder of its entire holding of Notes, one Note may be in a denomination of
less than $100,000, and (b) TCW may transfer Notes in any amount to its
investors as required by the terms of its agreements with and obligations to its
investors in the event of any distribution of its assets to investors that are
withdrawing from their investment relationships with TCW. Any transferee, by its
acceptance of a Note registered in its name (or the name of its nominee), shall
be deemed to have made the representation set forth in Section 6.1.
Section XI.3. Replacement of Notes. Upon receipt by the Company of evidence
--------------------
reasonably satisfactory to it of the ownership of and the loss, theft,
destruction or mutilation of any of the Notes (which evidence shall be, in the
case of an Institutional Investor, notice from such Institutional Investor of
such ownership and such loss, theft, destruction or mutilation), and
(a) in the case of loss, theft or destruction, of indemnity reasonably
satisfactory to it (provided that if the holder of such Notes is, or is a
--------
nominee for, an original Purchaser or another holder of a Note with a minimum
net worth of at least $25,000,000, such Person's own unsecured agreement of
indemnity shall be deemed to be satisfactory), or
(b) in the case of mutilation, upon surrender and cancellation thereof,
the Company at its own expense shall execute and deliver, in lieu thereof, one
or more new Notes, dated and bearing interest from the date to which interest
shall have been paid on such lost, stolen, destroyed or mutilated Notes or dated
the date of such lost, stolen, destroyed or mutilated Notes if no interest shall
have been paid thereon.
Section XI.4. Restriction on Transfer.
-----------------------
(a) Each Purchaser agrees that it will not solicit offers for, offer, or
sell the Notes to any Person other than (i) in the case of offers inside the
United States (A) to Persons whom such Purchaser reasonably believes to be a QIB
or, if such Person is buying for one or more institutional accounts for which
such Person is acting as fiduciary or agent, only when such Person has
represented to such Purchaser that each such account is a QIB, to whom notice
has been given that such sale or delivery is being made in reliance on Rule 144A
under the Securities Act or (B) to a limited number of other institutional
accredited investors (as defined in Rule 501(a)(1), (2), (3), or (7) under the
Securities Act; such accredited investors are each herein referred to as an
"Accredited Investor") reasonably believed by such Purchaser to be Accredited
Investors that, prior to such transfer or sale of the Notes, deliver to such
Purchaser a letter in the form of Exhibit 4 hereto and (ii) in the case of
offers outside the United States, to Persons other than United States Persons
(including dealers or other professional fiduciaries in the United States acting
on a discretionary basis for foreign beneficial owners (other than an estate or
trust)). As used herein, "QIB" means a "qualified institutional buyer" as
defined in Rule 144A under the Securities Act.
(b) Each Purchaser agrees that it will not solicit offers for, offer, or
sell the Notes by any form of general solicitation or general advertising (as
those terms are used in Regulation D
33
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under the Securities Act) or in any manner involving a public offering within
the meaning of Section 4(2) of the Securities Act.
(c) Notwithstanding the foregoing provisions of this Article XI, TCW may
transfer Notes to its investors as required by the terms of its agreements with
and obligations to its investors in the event of any distribution of its assets
to investors that are withdrawing from their investment relationships with TCW.
ARTICLE XII.
COLLATERAL AGENT.
Section XII.1. Appointment and Authority. Each Purchaser hereby appoints
-------------------------
Tamco as collateral agent (herein, together with its successors and assigns in
such capacity, "Collateral Agent") under the Transaction Documents, to exercise
such powers under the Transaction Documents as are delegated to Collateral Agent
by the terms thereof, together with all such powers as are reasonably incidental
thereto, including taking, holding and disposing of the Collateral. Tamco hereby
accepts such appointment. Collateral Agent shall act for and on behalf of the
Purchasers in connection with all Collateral and all Security Documents,
including serving as mortgagee under each Mortgage and exercising rights and
remedies provided thereunder. Each Mortgage, as well as the Bank Subordination
Agreement, contemplates that Collateral Agent may release Collateral in
accordance with the terms thereof and Collateral Agent is hereby authorized to
do so as required thereunder or hereunder or if Collateral Agent has otherwise
received the prior consent of Majority Purchasers, it being understood that no
Purchaser itself need be a party to any such release. In its administration of
this Agreement and the other Transaction Documents, Collateral Agent will
exercise the same care that a commercial bank would exercise in the
administration or handling of transactions for its own account. The relationship
of Collateral Agent to the Purchasers is only that of one investor acting to
hold collateral on behalf of itself and others as a convenience to all, and
nothing in the Transaction Documents shall be construed to constitute Collateral
Agent a trustee or other fiduciary for any holder of any of the Notes or of any
participation therein nor to impose on Collateral Agent any duties and
obligations other than those expressly provided for in the Transaction
Documents. With respect to any matters not expressly provided for in the
Transaction Documents and any matters which the Transaction Documents place
within the discretion of Collateral Agent, Collateral Agent shall not be
required to exercise any discretion or take any action, and it may request
instructions from the Purchasers with respect to any such matter, in which case
it shall be required to act or to refrain from acting (and shall be fully
protected and free from liability to all Purchasers in so acting or refraining
from acting) upon the instructions of Majority Purchasers, provided, however,
that Collateral Agent shall not be required to take any action which exposes it
to a risk of personal liability that it considers unreasonable or which is
contrary to the Transaction Documents or to applicable law. Each Purchaser
hereby authorizes Collateral Agent to execute an Intercreditor Agreement with
the Agent Bank and Mariner and First Amendment to Intercreditor Agreement with
the Agent Bank and MAG.
Section XII.2. Exculpation, Collateral Agent's Reliance, Etc. Neither
---------------------------------------------
Collateral Agent nor any of its directors, officers, agents, attorneys, or
employees shall be liable for any action
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<PAGE>
taken or omitted to be taken by any of them under or in connection with the
Transaction Documents, INCLUDING THEIR NEGLIGENCE OF ANY KIND, except that each
shall be liable for its own gross negligence or willful misconduct. Without
limiting the generality of the foregoing, Collateral Agent (a) may treat the
registered holder of any Note as the holder thereof until Collateral Agent
receives written notice of the assignment or transfer thereof in accordance with
this Agreement; (b) may consult with legal counsel (including counsel for the
Company), independent public accountants and other experts selected by it and
shall not be liable for any action taken or omitted to be taken in good faith by
it in accordance with the advice of such counsel, accountants or experts; (c)
makes no warranty or representation to any Purchaser and shall not be
responsible to any Purchaser for any statements, warranties or representations
made in or in connection with the Transaction Documents; (d) shall not have any
duty to ascertain or to inquire as to the performance or observance of any of
the terms, covenants or conditions of the Transaction Documents on the part of
the Company or any Subsidiary of the Company or to inspect the property
(including the books and records) of the Company or any Subsidiary of the
Company or to forward notices to the Purchasers on behalf of the Company or any
of its Subsidiaries; (e) shall not be responsible to any Purchaser for the due
execution, legality, validity, enforceability, genuineness, sufficiency or value
of any Transaction Document or any instrument or document furnished in
connection therewith; (f) may rely upon the representations and warranties of
each of the Company and each Subsidiary of the Company and the Purchasers in
exercising its powers hereunder; and (g) shall incur no liability under or in
respect of the Transaction Documents by acting upon any notice, consent,
certificate or other instrument or writing (including any telecopy, telegram,
cable or telex) believed by it to be genuine and signed or sent by the proper
Person or Persons.
Section XII.3. Credit Decisions. Each Purchaser acknowledges that it has,
----------------
independently and without reliance upon any other Purchaser or Collateral Agent,
made its own analysis of the Company and the transactions contemplated hereby
and its own independent decision to enter into this Agreement and the other
Transaction Documents. Each Purchaser also acknowledges that it will,
independently and without reliance upon any other Purchaser or Collateral Agent
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 Transaction Documents.
Section XII.4. Indemnification. Each Purchaser agrees to indemnify
---------------
Collateral Agent (to the extent not reimbursed by the Company within ten (10)
days after demand) from and against such Purchaser's Percentage Share of any and
all liabilities, obligations, claims, losses, damages, penalties, fines,
actions, judgments, suits, settlements, costs, expenses or disbursements
(including reasonable fees of attorneys, accountants, experts and advisors) of
any kind or nature whatsoever (in this Section collectively called "liabilities
and costs") which to any extent (in whole or in part) may be imposed on,
incurred by, or asserted against Collateral Agent growing out of, resulting from
or in any other way associated with any of the Collateral, the Transaction
Documents and the transactions and events (including the enforcement thereof) at
any time associated therewith or contemplated therein (including any violation
or noncompliance with any Environmental laws by any Person or any liabilities or
duties of any Person with respect to Hazardous Materials found in or released
into the environment).
35
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The foregoing indemnification shall apply whether or not such liabilities and
costs are in any way or to any extent owed, in whole or in part, under any claim
or theory of strict liability, or are caused, in whole or in part, by any
negligent act or omission of any kind by Collateral Agent,
provided only that no Purchaser shall be obligated under this Section to
indemnify Collateral Agent for that portion, if any, of any liabilities and
costs which is proximately caused by Collateral Agent's own individual gross
negligence or willful misconduct, as determined in a final judgment. Cumulative
of the foregoing, each Purchaser agrees to reimburse Collateral Agent promptly
upon demand for such Purchaser's Percentage Share of any costs and expenses to
be paid to Collateral Agent by the Company under Section 8.1(i) to the extent
that Collateral Agent is not timely reimbursed for such expenses by the Company
as provided in such section. As used in this Section the term "Collateral Agent"
shall refer not only to the Person designated as such in Section 12.1 but also
to each director, officer, agent, attorney, employee, representative and
Affiliate of such Person.
Section XII.5. Rights as Purchaser. In its capacity as a Purchaser,
-------------------
Collateral Agent and each Affiliate of Collateral Agent shall have the same
rights and obligations as any Purchaser and may exercise such rights as though
it were not Collateral Agent or an Affiliate of Collateral Agent. Collateral
Agent and its Affiliates may generally engage in any kind of business with the
Company or any Subsidiary or Affiliate of the Company, all as if it were not
Collateral Agent hereunder and without any duty to account therefor to any
Purchaser.
Section XII.6. Sharing of Set-Offs, Collections, and Payments.
----------------------------------------------
(a) Each Purchaser agrees that if it shall, whether through the exercise of
rights under Security Documents or rights of banker's lien, set off, or
counterclaim against the Company or otherwise, obtain payment of a portion of
the aggregate Obligations owed to it which, taking into account all
distributions made by Collateral Agent under this Agreement, causes such
Purchaser to have received more than it would have received had such payment
been made pro rata to each Purchaser in accordance with the following subsection
(b), then (i) it shall be deemed to have simultaneously purchased and shall be
obligated to purchase interests in the Obligations as necessary to cause all
Purchasers to share all payments as if such payments had been made pro rata to
each Purchaser in accordance with the following subsection (b), and (ii) such
other adjustments shall be made from time to time as shall be equitable to
ensure that Collateral Agent and all Purchasers share all payments of
Obligations as if such payments had been made pro rata to each Purchaser in
accordance with the following subsection (b); provided, however, that nothing
herein contained shall in any way affect the right of any Purchaser to obtain
payment (whether by exercise of rights of banker's lien, set-off or counterclaim
or otherwise) of Liabilities other than the Obligations. The Company expressly
consents to the foregoing arrangements and agrees that any holder of any such
interest or other participation in the Obligations, whether or not acquired
pursuant to the foregoing arrangements, may to the fullest extent permitted by
law exercise any and all rights of banker's lien, set-off, or counterclaim as
fully as if such holder were a holder of the Obligations in the amount of such
interest or other participation. If all or any part
36
<PAGE>
of any funds transferred pursuant to this Section is thereafter recovered from
the seller under this Section which received the same, the purchase provided for
in this Section shall be deemed to have been rescinded to the extent of such
recovery, together with interest, if any, if interest is required pursuant to an
order of a Governmental Authority to be paid on account of the possession of
such funds prior to such recovery.
(b) If Collateral Agent collects or receives money on account of the
Collateral, Collateral Agent shall distribute all money so collected or received
as follows:
(i) first, for the payment of all amounts owing to Collateral Agent
under Section 8.1(i) or Section 13.5 of this Agreement or any similar
provisions of other Transaction Documents; and
(ii) then to each Purchaser in accordance with such Purchaser's
Percentage Share.
Section XII.7. Investments. Whenever Collateral Agent in good faith
-----------
determines that it is uncertain about how to distribute to Purchasers any funds
which it has received, or whenever Collateral Agent in good faith determines
that there is any dispute among Purchasers about how such funds should be
distributed, Collateral Agent may choose to defer distribution of the funds
which are the subject of such uncertainty or dispute. If Collateral Agent in
good faith believes that the uncertainty or dispute will not be promptly
resolved, or if Collateral Agent is otherwise required to invest funds pending
distribution to Purchasers, Collateral Agent shall invest such funds pending
distribution in one or more separate accounts not commingled with other assets
of the Collateral Agent; all interest on any such investment shall be
distributed upon the distribution of such investment and in the same proportion
and to the same Persons as such investment. All moneys received by Collateral
Agent for distribution to Purchasers (other than to a Person who is Collateral
Agent in its separate capacity as a Purchaser) shall be held by Collateral Agent
pending such distribution solely as Collateral Agent for such Purchasers, and
Collateral Agent shall have no equitable title to any portion thereof.
Section XII.8. Benefit of Article XII. The provisions of this Article are
----------------------
intended solely for the benefit of Purchasers and Collateral Agent, and neither
the Company nor any Subsidiary of the Company shall be entitled to rely on any
such provision or assert any such provision in a claim or defense against any
Purchaser or Collateral Agent. Purchasers and Collateral Agent may waive or
amend such provisions as they desire without any notice to or consent of the
Company or any Subsidiary of the Company.
Section XII.9. Resignation. Collateral Agent may resign at any time by
-----------
giving written notice thereof to the Purchasers and the Company. Each such
notice shall set forth the date of such resignation. Upon any such resignation
the Majority Purchasers shall designate a successor Collateral Agent. A
successor must be appointed for any retiring Collateral Agent, and such
Collateral Agent's resignation shall become effective when such successor
accepts such appointment. If, within thirty days after the date of the retiring
Collateral Agent's resignation, no successor Collateral Agent has been appointed
and has accepted such appointment, then the retiring Collateral Agent may
appoint a successor Collateral Agent. Upon the acceptance of any
37
<PAGE>
appointment as Collateral Agent hereunder by a successor Collateral Agent, the
retiring Collateral Agent shall be discharged from its duties and obligations
under this Agreement and the other Transaction Documents. After any retiring
Collateral Agent's resignation hereunder the provisions of this Article XII and
Section 13.5 shall continue to inure to its benefit as to any actions taken or
omitted to be taken by it while it was Collateral Agent under the Transaction
Documents. The Company hereby agrees to pay all fees, if any, as may be charged
by any successor Collateral Agent that is a national or state bank or trust
company which such Person may reasonably charge for its services as Collateral
Agent, and to enter into or consent to such documents and instruments as such
successor Collateral Agent may request in connection with its service and
appointment as Collateral Agent.
ARTICLE XIII.
MISCELLANEOUS.
Section XIII.1. Place of Payment. Subject to Section 13.2, payments of
----------------
principal, premium and repurchase price, if any, and interest becoming due and
payable on the Notes shall be made in Dallas, Dallas County, Texas at the
principal office of Bank of America, N.A., in such jurisdiction (presently 901
Main Street, Dallas, Texas 75202). The Company may at any time, by notice to
each holder of a Note, change the place of payment of the Notes so long as such
place of payment shall be either the principal office of the Company in Tarrant
or Dallas Counties, Texas, or the principal office of a bank or trust company in
either of such jurisdictions.
Section XIII.2. Home Office Payment. So long as any Purchaser originally
-------------------
party hereto, or any nominee of such Purchaser, shall be the holder of any Note,
and notwithstanding anything contained in Section 13.1 or in such Note to the
contrary, the Company will pay all sums becoming due on such Note for principal,
premium or repurchase price, if any, and interest by the method and at the
address specified for such purpose below such Purchaser's name in Schedule A, or
by such other method or at such other address as such Purchaser shall have from
time to time specified to the Company in writing for such purpose, without the
presentation or surrender of such Note or the making of any notation thereon,
except that upon written request of the Company made concurrently with or
reasonably promptly after payment or prepayment in full of any Note, such
Purchaser shall surrender such Note for cancellation, reasonably promptly after
any such request, to the Company at its principal executive office or at the
place of payment most recently designated by the Company pursuant to Section
13.1. Prior to any sale or other dispo sition of any Note held by such Purchaser
or such Purchaser's nominee, such Purchaser will, at such Purchaser's election,
either endorse thereon the amount of principal paid thereon and the last date to
which interest has been paid thereon or surrender such Note to the Company in
exchange for a new Note or Notes pursuant to Section 11.2. The Company will
afford the benefits of this Section to any Institutional Investor that is the
direct or indirect transferee of any Note purchased by such Purchaser under this
Agreement and that has made the same agreement relating to such Note as such
Purchaser has made in this Section.
Section XIII.3. Waivers and Amendments; Acknowledgments.
---------------------------------------
38
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(a) Waivers and Amendments. No failure or delay (whether by course of
----------------------
conduct or otherwise) by Purchasers or Collateral Agent in exercising any right,
power or remedy which any of them may have under any of the Transaction
Documents shall operate as a waiver thereof or of any other right, power or
remedy, nor shall any single or partial exercise by Purchasers or Collateral
Agent of any such right, power or remedy preclude any other or further exercise
thereof or of any other right, power or remedy. No waiver, consent, release,
modification or amendment of or supplement to this Agreement or the other
Transaction Documents shall be valid or effective against any party hereto
unless the same is in writing and signed by (a) if such party is the Company, by
the Company, (b) if such party is Collateral Agent, by Collateral Agent, and
(c) if such party is a Purchaser, by Majority Purchasers or, in connection with
any Collateral or Security Document, by Collateral Agent on behalf of Purchasers
with the written consent of Majority Purchasers (which consent has already been
given with respect to certain releases as provided in Section 12.1 and with
respect to the termination of the Transaction Documents as provided in Section
13.10). Notwithstanding the foregoing or anything to the contrary herein, (i)
no amendment or waiver of any of the provisions of Sections 1.1, 2.1, 2.2, 4.1,
4.2, 6.1, and 6.2 hereof, or any defined term (as it is used therein), will be
effective as to any Purchaser unless consented to by such Purchaser, and (ii) no
such amendment or waiver may, without the written consent of the holder of each
Note at the time outstanding affected thereby, (1) subject to the provisions of
Sections 10.1, 10.2, and 10.3 relating to acceleration or rescission, change the
amount or time of any prepayment or payment of principal of, or reduce the rate
or change the time of payment or method of computation of interest on the Notes,
(2) change the percentage of the principal amount of the Notes the holders of
which are required to consent to any such amendment or waiver, or (3) amend any
of Sections 7.1, 7.2, 7.3, 7.4, 7.5, and this Section 13.3(a). Any amendment or
waiver consented to as provided in this subsection applies equally to all
Purchasers and is binding upon them and upon each future Purchaser and upon the
Company without regard to whether such Note has been marked to indicate such
amendment or waiver.
(b) Solicitation. The Company will provide each Purchaser (irrespective
------------
of the amount of Notes then owned by it) with sufficient information,
sufficiently far in advance of the date a decision is required, to enable such
Purchaser to make an informed and considered decision with respect to any
proposed amendment, waiver or consent in respect of any of the pro visions
hereof or of the Transaction Documents. The Company will deliver executed or
true and correct copies of each amendment, waiver or consent effected pursuant
to the provisions of this Section 13.3 to each Purchaser promptly following the
date on which it is executed and delivered by, or receives the consent or
approval of, the requisite Purchasers.
(c) Payment. The Company will not directly or indirectly pay or cause to
-------
be paid any remuneration, whether by way of supplemental or additional interest,
fee or otherwise, or grant any security, to any Purchaser as consideration for
or as an inducement to the entering into by any Purchaser or any waiver or
amendment of any of the terms and provisions hereof unless such remuneration is
concurrently paid, or security is concurrently granted, on the same terms,
ratably to or for the benefit of each Purchaser then outstanding even if such
Purchaser did not consent to such waiver or amendment.
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(d) Acknowledgments and Admissions. The Company represents, warrants,
------------------------------
acknowledges and admits that (i) it has been advised by counsel in the
negotiation, execution and delivery of the Transaction Documents to which it is
a party, (ii) it has made an independent decision to enter into this Agreement
and the other Transaction Documents to which it is a party, without reliance on
any representation, warranty, covenant or undertaking by Purchasers or
Collateral Agent whether written, oral or implicit, other than as expressly set
out in this Agreement or in another Transaction Document delivered on or after
the date hereof, (iii) there are no representations, warranties, covenants,
undertakings or agreements by Purchasers or Collateral Agent as to the
Transaction Documents except as expressly set out in this Agreement or in
another Transaction Document delivered on or after the date hereof, (iv) neither
Purchasers nor Collateral Agent owes any fiduciary duty to the Company with
respect to any Transaction Document or the transactions contemplated thereby,
(v) the relationship pursuant to the Transaction Documents between the Company,
on one hand, and Purchasers and Collateral Agent, on the other hand, is and
shall be solely that of debtor and creditor, respectively, (vi) no partnership
or joint venture exists with respect to the Transaction Documents between the
Company and any of the Purchasers or Collateral Agent, (vii) should an Event of
Default or Default occur or exist each Purchaser and Collateral Agent will
determine in its sole and absolute discretion and for its own reasons what
remedies and actions it will or will not exercise or take at that time, (viii)
without limiting any of the foregoing, the Company is not relying upon any
representation or covenant by any Purchaser or Collateral Agent, or any
representative thereof, and no such representation or covenant has been made,
that Purchasers or Collateral Agent at the time of an Event of Default or
Default, or at any other time, waive, negotiate, discuss, or take or refrain
from taking any action permitted under the Transaction Documents with respect to
any such Event of Default or Default or any other provision of the Transaction
Documents, and (ix) each Purchaser has relied upon the truthfulness of the
acknowledgments in this Section in deciding to execute and deliver this
Agreement and to purchase the Notes.
This written agreement and the other Transaction Documents represent 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.
Section XIII.4. Survival of Agreements; Cumulative Nature. All of the
-----------------------------------------
various representations, warranties, covenants and agreements in the Transaction
Documents shall survive the execution and delivery of this Agreement and the
other Transaction Documents and the performance hereof and thereof, including
the sale, purchase, and delivery of the Notes and the other Transaction
Documents, and shall further survive until all of the Obligations are paid in
full to Purchasers and Collateral Agent. All statements and agreements contained
in any certificate or other instrument delivered by the Company to Purchasers or
Collateral Agent under any Transaction Document shall be deemed representations
and warranties by the Company or
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agreements and covenants of the Company under this Agreement. The
representations, warranties, and covenants made by the Company in the
Transaction Documents, and the rights, powers, and privileges granted to
Purchasers and Collateral Agent in the Transaction Documents, are cumulative,
and, except for expressly specified waivers and consents, no Transaction
Document shall be construed in the context of another to diminish, nullify, or
otherwise reduce the benefit to Purchasers or Collateral Agent of any such
representation, warranty, covenant, right, power or privilege. In particular and
without limitation, no exception set out in this Agreement to any
representation, warranty or covenant herein contained shall apply to any similar
representation, warranty or covenant contained in any other Transaction
Document, and each such similar representation, warranty or covenant shall be
subject only to those exceptions which are expressly made applicable to it by
the terms of the various Transaction Documents.
Section XIII.5. Indemnity. The Company agrees to indemnify each Purchaser
----------
Entity, upon demand, from and against any and all liabilities, obligations,
claims, losses, damages, penalties, fines, actions, judgments, suits,
settlements, costs, expenses or disbursements (including reasonable fees of
attorneys, accountants, experts and advisors) of any kind or nature whatsoever
(in this Section collectively called "liabilities and costs") which to any
extent (in whole or in part) may be imposed on, incurred by, or asserted against
such Purchaser Entity growing out of, resulting from or in any other way
associated with any of the Collateral, the Transaction Documents, or the
transactions and events (including the enforcement or defense thereof) at any
time associated therewith or contemplated therein (including any violation or
noncompliance with any Environmental Laws by the Company or any liabilities or
duties of the Company or of any Purchaser Entity with respect to Hazardous
Materials found in or released into the environment).
The foregoing indemnification shall apply whether or not such liabilities and
costs are in any way or to any way or to any extent owed, in whole or in part,
under any claim or theory of strict liability or are in any extent caused, in
whole or in part, by any negligent act or omission of any kind by any Purchaser
Entity,
provided only that no Purchaser Entity shall be entitled under this Section to
receive indemnification for that portion, if any, of any liabilities and costs
which is proximately caused by its own individual gross negligence or willful
misconduct, as determined in a final judgment, or by its own individual actions
with respect to Collateral in its possession. As used in this Section the term
"Purchaser Entity" refers to each Purchaser, to Collateral Agent, and to each
director, officer, agent, trustee, manager, attorney, employee, representative
and Affiliate of any such Person.
Section XIII.6. Notices. All notices, requests, consents, demands and other
-------
communications required or permitted under any Transaction Document shall be in
writing, unless otherwise specifically provided in such Transaction Document,
and shall be deemed sufficiently given or furnished if delivered by personal
delivery, by telecopy, by delivery service
41
<PAGE>
with proof of delivery, or by registered or certified United States mail,
postage prepaid, to each party hereto at the address of such party specified on
the signature pages hereto (unless changed by similar notice in writing given by
the particular Person whose address is to be changed). 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 during
normal business hours at the address and in the manner provided herein, (b) in
the case of telecopy, upon receipt, or (c) in the case of registered or
certified United States mail, three days after deposit in the mail.
Section XIII.7. Parties in Interest. All grants, covenants and agreements
-------------------
contained in the Transaction Documents shall bind and inure to the benefit of
the parties thereto and their respective successors and assigns; provided,
however, that the Company may not assign or transfer any of its rights or
delegate any of its duties or obligations under any Transaction Document without
the prior consent of Purchasers as required under Section 13.3.
Section XIII.8. Governing Law; Submission to Process. Except to the extent
------------------------------------
that the law of another jurisdiction is expressly elected in a transaction
document, the Transaction Documents shall be construed and enforced in
accordance with and governed by the laws of the State of Texas and of the United
States of America (without regard to Texas principles of conflicts of law) with
respect to all other matters. The Company hereby irrevocably submits itself to
the non-exclusive jurisdiction of the state and federal courts sitting in the
State of Texas and the County of Dallas, and the Company agrees and consents
that service of process may be made upon it in any legal proceeding relating to
the Transaction Documents or the Obligations by any means allowed under Texas or
federal law. The Company irrevocably waives, to the fullest extent permitted by
applicable law, any objection that it may now or hereafter have to the laying of
the venue of any such proceeding brought in any such court and any claim that
any such proceeding brought in any such court has been brought in an
inconvenient forum.
42
<PAGE>
Section XIII.9. Limitation on Interest. Purchasers, Collateral
----------------------
Agent, the Company and any other parties to the Transaction Documents intend to
contract in strict compliance with applicable usury law from time to time in
effect. In furtherance thereof such Persons stipulate and agree that none of the
terms and provisions contained in the Transaction Documents shall ever be
construed to create a contract to pay, for the use, forbearance or detention of
money, interest in excess of the maximum amount of interest permitted to be
charged by applicable law from time to time in effect. Neither the Company nor
any present or future guarantors, endorsers, or other Persons hereafter becoming
liable for payment of any Obligation shall ever be liable for unearned interest
thereon or shall ever be required to pay interest thereon in excess of the
maximum amount that may be lawfully charged under applicable law from time to
time in effect, and the provisions of this Section shall control over all other
provisions of the Transaction Documents which may be in conflict or apparent
conflict herewith. Purchasers and Collateral Agent expressly disavow any
intention to charge or collect excessive unearned interest or finance charges in
the event the maturity of any Obligation is accelerated. If (a) the maturity of
any Obligation is accelerated for any reason, (b) any Obligation is prepaid and
as a result any amounts held to constitute interest are determined to be in
excess of the legal maximum, or (c) any Purchaser or any other holder of any or
all of the Obligations shall otherwise collect moneys which are determined to
constitute interest which would otherwise increase the interest on any or all of
the Obligations to an amount in excess of that permitted to be charged by
applicable law then in effect, then all such sums determined to constitute
interest in excess of such legal limit shall, without penalty, be promptly
applied to reduce the then outstanding principal of the related Obligations or,
at such Purchaser's or such holder's option, promptly returned to the Company or
the other payor thereof upon such determination. In determining whether or not
the interest paid or payable, under any specific circumstance, exceeds the
maximum amount permitted under applicable law, Purchasers, Collateral Agent and
the Company (and any other payors or payees thereof) shall to the greatest
extent permitted under applicable law, (i) characterize any non-principal
payment as an expense, fee or premium rather than as interest, (ii) exclude
voluntary prepayments and the effects thereof, and (iii) amortize, prorate,
allocate, and spread the total amount of interest throughout the entire
contemplated term of the instruments evidencing the Notes in accordance with the
amounts outstanding from time to time thereunder and the maximum legal rate of
interest from time to time in effect under applicable law in order to lawfully
charge the maximum amount of interest permitted under applicable law.
Section XIII.10. Termination; Limited Survival. In its sole and
-----------------------------
absolute discretion the Company may at any time after all Obligations have been
paid in full elect in a notice delivered to all Purchasers to terminate this
Agreement and the other Transaction Documents. Upon receipt by Purchasers of
such a notice, if no Obligations are then owing then this Agreement and all
other Transaction Documents shall thereupon be terminated, the Liens thereunder
released, and the parties thereto released from all prospective obligations
thereunder. Notwithstanding the foregoing or anything herein to the contrary,
any waivers or admissions made by the Company in any Transaction Document, and
any other obligations which any Person may have to indemnify or compensate
Collateral Agent, any Purchaser or any or their respective Affiliates or related
Persons shall survive any termination of this Agreement or any other Transaction
Document. At the request and expense of the Company, Purchasers and
43
<PAGE>
Collateral Agent shall prepare and execute all necessary instruments to reflect
and effect such termination of the Transaction Documents.
Section XIII.11. Reproduction of Documents. This Agreement and all
-------------------------
documents relating thereto, including, without limitation, (a) consents, waivers
and modifications that may hereafter be executed, (b) documents received by
Collateral Agent or any Purchaser at the Closing (except the Notes themselves),
and (c) financial statements, certificates and other information previously or
hereafter furnished to Collateral Agent or such Purchaser, may be reproduced by
Collateral Agent or such Purchaser by any photographic, photostatic, microfilm,
microcard, miniature photographic or other similar process and Collateral Agent
or such Purchaser may destroy any original document so reproduced. The Company
agrees and stipulates that, to the extent permitted by applicable law, any such
reproduction shall be admissible in evidence as the original itself in any
judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made by Collateral Agent or
such Purchaser in the regular course of business) and any enlargement, facsimile
or further reproduction of such reproduction shall likewise be admissible in
evidence. This Section shall not prohibit the Company or Collateral Agent or any
Purchaser from contesting any such reproduction to the same extent that it could
contest the original, or from introducing evidence to demonstrate the inaccuracy
of any such reproduction.
Section XIII.12. Confidentiality. For the purposes of this Section,
---------------
"Confidential Information" means information delivered to any Purchaser by or on
behalf of the Company or any Subsidiary of the Company in connection with the
transactions contemplated by or otherwise pursuant to this Agreement that is
proprietary in nature and that was clearly marked or labeled or otherwise
adequately identified when received by such Purchaser as being confidential
infor mation of the Company or such Subsidiary, provided that such term does not
include information that (a) was publicly known or otherwise known to such
Purchaser prior to the time of such disclosure, (b) subsequently becomes
publicly known through no act or omission by such Purchaser or any Person acting
on such Purchaser's behalf, (c) otherwise becomes known to such Purchaser other
than through disclosure by the Company or any Subsidiary or (d) constitutes
financial statements delivered to such Purchaser hereunder that are otherwise
publicly available. Such Purchaser will maintain the confidentiality of such
Confidential Information in accordance with procedures adopted by such Purchaser
in good faith to protect confidential information of third parties delivered to
such Purchaser, provided that such Purchaser may deliver or disclose
Confidential Information to (i) such Purchaser's directors, officers, employees,
agents, attorneys, investors, and affiliates (to the extent such disclosure
reasonably relates to the administration of the investment represented by such
Purchaser's Notes), (ii) such Purchaser's Affiliates, auditors, attorneys, and
other professional advisors who agree to hold confidential the Confidential
Information substantially in accordance with the terms of this Section, (iii)
any other Purchaser, (iv) any Institutional Investor to which such Purchaser may
sell or offer to sell such Note or any part thereof or any participation therein
(if such Person has agreed in writing prior to its receipt of such Confidential
Information to be bound by the provisions of this Section), (v) any Person from
which such Purchaser may offer to purchase any security of the Company (if such
Person has agreed in writing prior to its receipt of such Confidential
Information to be bound by the provisions of this Section), (vi) any federal or
state regulatory authority having jurisdiction over such Purchaser, (vii) the
National Association of Insurance Commissioners or any similar
44
<PAGE>
organization, or any nationally recognized rating agency that requires access to
information about such Purchaser's investment portfolio or (viii) any other
Person to which such delivery or disclosure may be necessary or appropriate (1)
to effect compliance with any law, rule, regulation or order applicable to such
Purchaser, (2) in response to any subpoena or other legal process, (3) in
connection with any litigation to which such Purchaser is a party or (4) if an
Event of Default has occurred and is continuing, to the extent such Purchaser
may reasonably determine such delivery and disclosure to be necessary or
appropriate in the enforcement or for the protection of the rights and remedies
under such Purchaser's Notes and this Agreement. Each holder of a Note, by its
acceptance of such Note, will be deemed to have agreed to be bound by and to be
entitled to the benefits of this Section as though it were a party to this
Agreement. On reasonable request by the Company in connection with the delivery
to any Purchaser of information required to be delivered to such Purchaser under
this Agreement or requested by such Purchaser (other than a Purchaser that is a
party to this Agreement or its nominee), such Purchaser will enter into an
agreement with the Company embodying the provisions of this Section. (References
to "Purchaser" in this Section 13.12 also refer to Collateral Agent.)
Section 13.13 Subordination Agreement. The rights of Purchasers and
-----------------------
Collateral Agent under the Transaction Documents are subject to the Bank
Subordination Agreement.
Section 13.14 Severability. If any term or provision of any Transaction
------------
Document shall be determined to be illegal or unenforceable all other terms and
provisions of the Transaction Documents shall nevertheless remain effective and
shall be enforced to the fullest extent permitted by applicable law.
Section 13.15 Counterparts. This Agreement may be separately executed in
------------
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to constitute one
and the same Agreement.
Section 13.16 Waiver of Jury Trial, Punitive Damages, Etc. Each of the
--------------------------------------------
Company, Collateral Agent and each Purchaser hereby (a) knowingly, voluntarily,
intentionally, and irrevocably waives, to the maximum extent not prohibited by
law, any right it may have to a trial by jury in respect of any litigation based
hereon, or directly or indirectly at any time arising out of, under or in
connection with the Transaction Documents or any transaction contemplated
thereby or associated therewith, before or after maturity; (b) irrevocably
waives, to the maximum extent not prohibited by law, any right it may have to
claim or recover in any such litigation any "Special Damages", as defined below;
(c) certifies
45
<PAGE>
that no party hereto nor any representative or agent or counsel for any party
hereto has represented, expressly or otherwise, or implied that such party would
not, in the event of litigation, seek to enforce the foregoing waivers, and (d)
acknowledges that it has been induced to enter into this Agreement, the other
Transaction Documents and the transactions contemplated hereby and thereby by,
among other things, the mutual waivers and certifications contained in this
section. As used in this section, "Special Damages" includes all special,
consequential, exemplary, or punitive damages (regardless of how named), but
does not include any payments or funds which any party hereto has expressly
promised to pay or deliver to any other party hereto.
46
<PAGE>
IN WITNESS WHEREOF, this Agreement is executed as of the date first
written above.
COMPANY: QUICKSILVER RESOURCES INC.
By: /s/ Glenn Darden
---------------------------------------------
Glenn Darden
President and Chief Executive Officer
Address:
777 West Rosedale St.**
Fort Worth, Texas 76104
Attention: Glenn M. Darden
Telephone: (817) 877-3151
Telecopy: (817) 877-3829
** Until May 1, 2000, the Company's address is 1619
Pennsylvania Avenue, Fort Worth, Texas 76104.
<PAGE>
COLLATERAL AGENT: TCW ASSET MANAGEMENT COMPANY,
a California corporation, as Collateral Agent
By: /s/ Thomas F. Mehlberg
---------------------------------------------
Thomas F. Mehlberg
Managing Director
By: /s/ Kurt A. Talbot
---------------------------------------------
Kurt A. Talbot
Senior Vice President
PURCHASERS: TCW DEBT AND ROYALTY FUND VI, L.P., a
California limited partnership, as a Purchaser
By: TCW Asset Management Company, a California
corporation, as General Partner
By: /s/ Thomas F. Mehlberg
-----------------------------------------
Thomas F. Mehlberg
Managing Director
By: /s/ Kurt A. Talbot
----------------------------------------
Kurt A. Talbot
Senior Vice President
TCW DEBT AND ROYALTY FUND VIB, L.P., a
California limited partnership, as a Purchaser
By: TCW Asset Management Company, a California
corporation, as General Partner
By: /s/ Thomas F. Mehlberg
----------------------------------------
Thomas F. Mehlberg
Managing Director
By: /s/ Kurt A. Talbot
----------------------------------------
Kurt A. Talbot
Senior Vice President
<PAGE>
TCW ASSET MANAGEMENT COMPANY, a California
corporation, as Investment Manager pursuant to the
Investment Management and Custody Agreement dated
as of May 19, 1997 between Allmerica Asset
Management, Inc. as agent for First Allmerica
Financial Life Insurance company, TCW Asset
Management Company and Trust Company of the West,
as a Purchaser
By: /s/ Thomas F. Mehlberg
----------------------------------------
Thomas F. Mehlberg
Managing Director
By: /s/ Kurt A. Talbot
----------------------------------------
Kurt A. Talbot
Senior Vice President
TCW ASSET MANAGEMENT COMPANY, a California
corporation, as Investment Manager pursuant to the
Investment Management and Custody Agreement dated
as of October 27, 1997 between University of
Chicago, TCW Asset Management Company and Trust
Company of the West, as a Purchaser
By: /s/ Thomas F. Mehlberg
----------------------------------------
Thomas F. Mehlberg
Managing Director
By: /s/ Kurt A. Talbot
----------------------------------------
Kurt A. Talbot
Senior Vice President
TCW ASSET MANAGEMENT COMPANY, a California
corporation, as Investment Manager pursuant to the
Investment Management and Custody Agreement dated
as of October 27, 1997 between University of Notre
Dame du Lac, TCW Asset Management Company and
Trust Company of the West, as a Purchaser
By: /s/ Thomas F. Mehlberg
----------------------------------------
Thomas F. Mehlberg
Managing Director
By: /s/ Kurt A. Talbot
----------------------------------------
<PAGE>
Kurt A. Talbot
Senior Vice President
TCW ASSET MANAGEMENT COMPANY, a California
corporation, as Investment Manager pursuant to the
Investment Management and Custody Agreement dated
as of October 24, 1997 between William N.
Pennington Separate Property Trust dated January
1, 1991, TCW Asset Management Company and Trust
Company of the West, as a Purchaser
By: /s/ Thomas F. Mehlberg
----------------------------------------
Thomas F. Mehlberg
Managing Director
By: /s/ Kurt A. Talbot
----------------------------------------
Kurt A. Talbot
Senior Vice President
TCW ASSET MANAGEMENT COMPANY, a California
corporation, as Investment Manager pursuant to the
Investment Management Agreement dated as of
October 27, 1997 between Delta Air Lines, Inc.,TCW
Asset Management Company and Trust Company of the
West, as a Purchaser
By: /s/ Thomas F. Mehlberg
----------------------------------------
Thomas F. Mehlberg
Managing Director
By: /s/ Kurt A. Talbot
----------------------------------------
Kurt A. Talbot
Senior Vice President
<PAGE>
LION II CUSTOM INVESTMENTS LLC
INSURANCE COMPANY OF GEORGIA
SECURITY LIFE OF DENVER INSURANCE
COMPANY
SOUTHLAND LIFE INSURANCE COMPANY
By: ING Investment Management Inc., their agent
By: TCW Asset Management Company, a
California corporation
Its: Authorized Signatory
By: /s/ Thomas F. Mehlberg
--------------------------------------
Thomas F. Mehlberg
Managing Director
By: /s/ Kurt A. Talbot
--------------------------------------
Kurt A. Talbot
Senior Vice President
Address for Notices:
TCW Asset Management Company
865 S. Figueroa
Los Angeles, California 90017
Attention: Thomas F. Mehlberg
Telephone: (213) 244-0702
Telecopy: (213) 244-0604
with a copy to:
TCW Asset Management Company
1000 Louisiana, Suite 2175
Houston, Texas 77002
Attention: Kurt Talbot
Telephone: (713) 615-7413
Telecopy: (713) 615-7460
<PAGE>
LIFE INSURANCE COMPANY OF GEORGIA, as
a Purchaser
USG ANNUITY & LIFE COMPANY, as a
Purchaser
EQUITABLE LIFE INSURANCE COMPANY OF IOWA, as a Purchaser
By: ING INVESTMENT MANAGEMENT LLC, as agent
By: /s/ Randall W. Ralph
---------------------------------------------------------------------------
Randall W. Ralph
Senior Vice President
Address for all notice relating to payments:
ING Investment Management LLC
5780 Powers Ferry Road, N.W., Suite 300
Atlanta, Georgia 30327-4349
Attention: Securities Accounting
Fax: (770) 690-4899
Address for all other communications and notices:
ING Investment Management LLC
5780 Powers Ferry Road, N.W., Suite 300
Atlanta, Georgia 30327-4349
Attention: Private Placements
Fax: (770) 690-4899
<PAGE>
SCHEDULE A
INFORMATION RELATING TO PURCHASERS
Principal Amount of
Name of Purchaser Notes to be Purchased
- ----------------- ---------------------
Life Insurance Company of Georgia $3,000,000
All payments on account of Notes held by such purchaser shall be made by wire
transfer of immediately available funds for credit to:
The Bank of New York
ABA# 021-000-018
BNF: IOC 566
Attention: PP P&I Department
Reference: Life Insurance Company of Georgia and 74837R
USG Annuity and Life Company $5,000,000
All payments on account of Notes held by such purchaser shall be made by wire
transfer of immediately available funds for credit to:
The Bank of New York
ABA# 021-000-018
BNF: IOC 566 - Income Collections
Attention: William Cashman
Reference: USG Annuity & Life Company - Account #368520 and 74837R
Equitable Life Insurance Company of Iowa $5,000,000
All payments on account of Notes held by such purchaser shall be made by wire
transfer of immediately available funds for credit to:
The Bank of New York
ABA# 021-000-018
BNF: IOC 566 - Income Collections
Attention: William Cashman
Reference: Equitable Life Insurance Company of Iowa - Account #068071 and
74837R
<PAGE>
TCW Debt and Royalty Fund VI, L.P. $9,495,335
TCW Debt and Royalty Fund VIB, L.P. $3,438,364
TCW Asset Management Company, $3,403,980
a California corporation, as Investment Manager
pursuant to the Investment Management and Custody Agreement
dated as of May 19, 1997 between Allmerica Asset Management, Inc.
as agent for First Allmerica Financial Life Insurance company,
TCW Asset Management Company and Trust Company of the West
TCW Asset Management Company, $1,300,731
a California corporation, as Investment Manager
pursuant to the Investment Management and Custody Agreement
dated as of October 27, 1997 between University of Chicago,
TCW Asset Management Company and Trust Company of the West
TCW Asset Management Company, a California corporation, $2,032,559
as Investment Manager pursuant to the Investment Management
and Custody Agreement dated as of October 27, 1997
between University of Notre Dame du Lac,
TCW Asset Management Company and Trust Company of the West
TCW Asset Management Company, a California corporation, $2,966,201
as Investment Manager pursuant to the Investment Management
and Custody Agreement dated as of October 24, 1997
between William N. Pennington Separate Property Trust
dated January 1, 1991, TCW Asset Management Company
and Trust Company of the West
TCW Asset Management Company, a California corporation, $3,387,599
as Investment Manager pursuant to the Investment Management
Agreement dated as of October 27, 1997 between Delta Air Lines, Inc.,
TCW Asset Management Company and Trust Company of the West
Lion II Custom Investments LLC $795,046
Insurance Company of Georgia $397,523
Security Life of Denver Insurance Company $1,987,616
Southland Life Insurance Company $795,047
All payments on account of Notes held by such Purchasers shall be made by a
single wire transfer of immediately available funds for credit to:
Investors Bank & Trust Company
ABA# 011001438, F/C Client Funds No. 569530395
Account # 76T02327-4
Attention: Peter Maesher; Reference: D&R VI - Quicksilver.
<PAGE>
SCHEDULE B
DEFINED TERMS
-------------
As used in this Schedule and in the Agreement to which this Schedule is
attached (the "Agreement"), each of the following terms has the meaning set
forth below or set forth in the section of the Agreement referred to in the
following definition of such term:
"Affiliate" means, at any time, and with respect to any Person, any other
Person that at such time directly or indirectly through one or more
intermediaries Controls, or is Controlled by, or is under common Control with,
such first Person. As used in this definition, "Control" means (a) the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise, or (b) the ownership
of ten percent (10%) or more of the outstanding voting power of the issued and
outstanding capital stock or other equity interests of such Person. Unless the
context otherwise clearly requires, any reference to an "Affiliate" is a
reference to an Affiliate of the Company.
"Agent Bank" means Bank of America, N.A., as Administrative Agent for the
Banks under and as defined in the Bank Credit Agreement, and its successors and
assigns in such capacity.
"Antrim Shale Properties" means Devonian Shale properties located in
Michigan and designated as such by Schlumberger Holditch - Reservoir
Technologies Consulting Services or its successor in the Engineering Report most
recently delivered at the time in question.
"Bank Credit Agreement" means, collectively, that certain Third Amended and
Restated Credit Agreement of even date herewith among the Company, Bank of
America, N.A., as Administrative Agent and a Bank, and the financial
institutions listed therein from time to time as Banks, as from time to time
amended, supplemented, or restated, and any agreements representing the
refinancing, replacement, or substitution in whole or in part of the revolving
credit loans and letter of credit liabilities made or incurred under such Third
Amended and Restated Credit Agreement. (While there may be multiple successor
credit agreements to such Third Amendment and Restated Credit Agreement, only
one such agreement at a time will be the "Bank Credit Agreement" described
herein.)
"Bank Debt" has the meaning given such term in Section 9.1(a)(ii).
"Bank Documents" means, collectively, the Bank Credit Agreement and each of
the other the "Loan Papers" as such term is defined in the Bank Credit
Agreement, including any Hedging Contract that is one of such "Loan Papers".
"Bank Subordination Agreement" means that certain Subordination Agreement
of even date herewith by and between the Purchasers that are originally parties
hereto, Collateral Agent, Agent Bank, and the Banks under and as defined in the
Bank Credit Agreement and
1
<PAGE>
acknowledged and agreed to by the Company, as from time to time amended,
supplemented, or restated.
"Business Day" means a day, other than a Saturday or Sunday, on which
commercial banks are open for business with the public in the States of
California, Georgia and Texas.
"Change of Control" means that, for any reason either (a) any Person or
group (as defined in Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act") other than the Darden Group shall
become the legal and beneficial owner (as defined in Rule 13d-3 under the
Exchange Act) of greater than thirty percent (30%) of the outstanding voting
power (to elect directors) of the issued and outstanding capital stock of every
class issued by the Company or (b) the Darden Group shall cease to be the legal
and beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of more
than twenty percent (20%) of the outstanding voting power (to elect directors)
of the issued and outstanding capital stock of every class issued by the
Company.
"Cinnabar" means Cinnabar Energy Services and Trading, LLC, a Michigan
limited liability company.
"Cinnabar Marketing Obligations" means obligations of Cinnabar to pay (a)
to third party producers or marketers of Hydrocarbons the purchase price of any
Hydrocarbons bought by Cinnabar from such third parties and then aggregated for
resale with Hydrocarbons produced by the Company and its Subsidiaries and (b) to
third party providers the costs of storage, pipeline and processing services
with respect to such aggregated Hydrocarbons.
"Closing" is defined in Section 3.1.
"Closing Date" means March 31, 2000.
"Closing Documents" means the CMS Acquisition Documents, the Mariner
Section 29 Documents, the Bank Documents and all other material documents,
instruments and agreements executed or delivered by the Company or any of its
Subsidiaries in connection with or otherwise pertaining to the Closing
Transactions.
"Closing Title Review Requirement" means with respect to any requirement
contained herein for delivery to Purchasers or their counsel of title opinions
or other evidence of title to Mineral Interests purported to be owned by the
Company, a requirement that such title opinions be delivered in form and
substance acceptable to Purchasers and their counsel with respect to Borrowing
Base Properties (as such term is defined in the Bank Credit Agreement) with an
aggregate Recognized Value (as such term is defined in the Bank Credit
Agreement) at least equal to thirty three percent (33%) of the Recognized Value
of all Borrowing Base Properties.
"Closing Transactions" means the transactions to occur on the Closing Date
pursuant to the Closing Documents and this Agreement, including, without
limitation, (a) the completion of the CMS Acquisition pursuant to the terms of
the CMS Acquisition Documents, (b) the completion of the Mariner Section 29 Sale
pursuant to the terms of the Mariner Section 29
2
<PAGE>
Documents and the application of not less than $25,000,000 of the proceeds
thereof to finance in part the CMS Acquisition, and (c) the completion of the
transactions contemplated by the Bank Documents pursuant to the terms of such
Bank Documents, and the receipt by Borrower of not less than $___,000,000 from
the loans thereunder and the application thereof to finance in part the CMS
Acquisition (including, without limitation, the amendment and restatement of the
Existing Credit Agreement (as defined in the Bank Credit Agreement) and the
refinancing of all Debt of the Company under such Existing Credit Agreement with
proceeds of the initial loan under the Bank Credit Agreement).
"CMS Acquisition" means the purchase by the Company of the CMS Properties
pursuant to the CMS Purchase and Sale Agreement, which purchase shall be on
terms and conditions reasonably acceptable to Purchasers, which shall include,
without limitation, the purchase by the Company of all of the outstanding equity
of Terra.
"CMS Acquisition Documents" means the CMS Purchase and Sale Agreement and
all other material documents, instruments and agreements executed or delivered
by the Company or any of its Subsidiaries in connection with or otherwise
pertaining thereto.
"CMS Properties" means, collectively, the "Assets" and the "Terra Assets"
as each such term is defined in the CMS Purchase and Sale Agreement.
"CMS Purchase and Sale Agreement" means that certain Purchase and Sale
Agreement dated as of January 1, 2000 by and between CMS Oil and Gas Company
("CMS") and the Company.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and the rules and regulations promulgated thereunder from time to time.
"Collateral" means all property of any kind which is subject to a Lien in
favor of the Purchasers or Collateral Agent or which, under the terms of any
Security Document, is purported to be subject to such a Lien.
"Collateral Agent" is defined in Section 12.1.
"Collateral Coverage Ratio" means at any time in question the quotient
obtained by dividing the Modified Total NPV as determined from the Engineering
Report most recently prepared as of such time in question by all Debt
outstanding as of such time in question.
"Commodity Price Risk Policy" is defined in Section 5.1(t).
"Company" means Quicksilver Resources Inc. a Delaware corporation.
"Consolidated" refers to the consolidation of any Person, in accordance
with GAAP, with its properly consolidated subsidiaries. References to a
Person's Consolidated financial statements, financial position, financial
condition, liabilities, etc. refer to the consolidated
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financial statements, financial position, financial condition, liabilities, etc.
of such Person and its properly consolidated subsidiaries.
"Consolidated Fixed Charges" means, for any period, the sum of (a) all
interest paid or accrued during such period on Debt (excluding only interest
paid in kind pursuant to Section 7.1(a) but including amortization of original
issue discount and the interest component of any deferred payment obligations
and capital lease obligations) which was deducted in determining the Company's
Consolidated Net Income during such period plus (b) all current maturities of
the Company's Consolidated Debt plus (c) all dividends declared or paid on any
preferred stock of the Company. As used herein, "current maturities of the
Company's Consolidated Debt" shall include all past due principal payments on
Debt of the Company or any of its Subsidiaries and all other payments of
principal on Debt that the Company or any of its Subsidiaries is obligated to
pay.
"Consolidated Net Income" means, for any period, the net income (or loss)
of the Company and its Subsidiaries for such period determined in accordance
with GAAP, but excluding: (a) the income of any other Person (other than the
Company's Subsidiaries) in which the Company or any of its Subsidiaries has an
ownership interest, unless received by the Company or its Subsidiaries in a cash
distribution; (b) any after-tax gains attributable to asset dispositions; and
(c) to the extent not included in clauses (a) and (b) above, any after-tax (i)
extraordinary gains (net of extraordinary losses) or (ii) non-cash nonrecurring
gains.
"Darden Group" means, collectively, Mercury Exploration Corporation, a
Texas corporation; Quicksilver Energy, L.C., a Michigan limited liability
company; Frank Darden; Anne Darden Self; Glenn Darden; and Thomas Darden and
their respective designees, heirs, and estates.
"Debt" means for any Person at any time, without duplication, (a) all
Liabilities of such Person for borrowed money, (b) all Liabilities of such
Person evidenced by bonds, debentures, notes or other similar instruments, (c)
all other Liabilities (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 Liabilities 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 Liabilities of such Person secured by a Lien on any property or
asset owned or held by such Person regardless of whether the Liabilities secured
thereby shall have been assumed by such Person or are non-recourse to the credit
of that Person, and (h) all Liabilities of such Person as a general partner of a
partnership for Liabilities of such partnership of the nature described in (a)
through (g) preceding.
"Default" means an Event of Default or an event or condition the occurrence
or existence of which would, with the lapse of time or the giving of notice or
both, become an Event of Default.
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"Default Rate" means the rate of 16.75% per annum.
"Disclosure Schedule" means Schedule C hereto.
"EBITDAX" means, for any period, Consolidated Net Income for such period,
plus each of the following determined for the Company and its Subsidiaries for
such period: (a) any provision for (or less any benefit from) income or
franchise taxes included in determining Consolidated Net Income; (b) interest
expense or charges deducted in determining Consolidated Net Income; (c)
depreciation, depletion, and amortization expense deducting in determining
Consolidated Net Income; (d) other noncash charges deducted in determining
Consolidated Net Income to the extent not already included in clauses (b) and
(c) of this definition; and (e) costs and expenses for seismic, geological, and
geophysical services performed in the course of oil and gas exploration, to the
extent deducted in determining Consolidated Net Income.
"Eligible Mortgaged Properties" means, collectively, those Properties (a)
which are owned by the Company or a Subsidiary of the Company and mortgaged to
Collateral Agent under a Mortgage, and (b) for which Collateral Agent has
received title opinions and other title information concerning such Properties
in form, substance and authorship satisfactory to Collateral Agent.
"Engineering Reports" means the Initial Engineering Reports and each
engineering report hereafter delivered by the Company pursuant to Section
8.1(b)(iv) or (v), provided that each such report hereafter delivered must (a)
separately report on Proved Producing Reserves, Proved Developed Nonproducing
Reserves, Proved Undeveloped Reserves and probable reserves and separately
calculate the NPV of each such category of Proved Reserves for the Company's
interest, (b) use Purchaser Pricing and a 10% discount factor (or any other
pricing assumptions to which the Company and Majority Purchasers may agree), (c)
take into account the Company's actual experiences with leasehold operating
expenses and other costs in determining projected leasehold operating expenses
and other costs, (d) identify and take into account any "over-produced" or
"under-produced" status under gas balancing arrangements, (e) contain
information and analysis comparable in scope to that contained in the Initial
Engineering Report, and (f) otherwise be in form and substance satisfactory to
the Majority Purchasers.
"Environmental Laws" means any and all federal, state, local, and foreign
statutes, laws, regulations, ordinances, rules, judgments, orders, decrees,
permits, concessions, grants, franchises, licenses, agreements or governmental
restrictions relating to pollution and the protection of the environment or the
release of any materials into the environment, including but not limited to
those related to hazardous substances or wastes, air emissions and discharges to
waste or public systems.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the rules and regulations promulgated thereunder
from time to time in effect.
"ERISA Affiliate" means any trade or business (whether or not incorporated)
that is treated as a single employer together with the Company under section 414
of the Code.
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"Event of Default" is defined in Section 10.1.
"Excluded Accounts" means, collectively, all accounts receivable or other
Liabilities which are owed to the Company by its directors, Affiliates,
employees, or shareholders (each, a "Related Party") other than those which
arise in the ordinary course of business as a result of sales of goods to, or
rendering of services to, a Related Party who has the ability to pay, and is
expected to pay, the same.
"Excluded Subsidiary" means each of (a) MGV Energy Inc., (b) Energy
Acquisition Operating Corporation, (c) Kristen Corporation, and (d) Terra
Pipeline Company.
"Existing Section 29 Documents" means each of the following documents,
instruments and agreements (as the same may have been amended, modified,
extended or supplemented):
(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) Assignment by and between Mercury, as assignor, and the Company,
as assignee, and recorded in the county records of (i) Antrim County,
Michigan, April 15, 1998, under Liber 485, Page 1046, and Liber 485, Page
1087, (ii) Crawford County, Michigan, April 15, 1998, under Liber 451, Page
251, (iii) Montmorency County, Michigan, April 15, 1998, under Liber 408,
Page 0008, and (iv) Otsego County, Michigan, April 15, 1998, under Liber
675, Page 217;
(c) Partial Assignment of Reversionary Interest, dated effective as
of December 1, 1997, by and between the Company, as assignor, and MAG, as
assignee, and recorded in the county records of Antrim, Crawford,
Montmorency and Otsego Counties, Michigan;
(d) 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;
(e) Amendment to Conveyance of Production Payment, dated effective as
of December 1, 1997, by and between MAG, as assignor, and the Company, as
assignee, and recorded in the county records of Antrim, Crawford,
Montmorency and Otsego Counties, Michigan;
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(f) Second Amendment to Conveyance of Production Payment, dated
effective as of March 1, 1997, by and between MAG and the Company, and
recorded in the county records of Antrim, Crawford, Montmorency and Otsego
Counties, Michigan;
(g) 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, Michigan, December 22, 1997, under Liber
134, Page 528, and (iv) Otsego County, Michigan, December 22, 1997, under
Liber 662, Page 760;
(h) 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;
(i) Partial Assignment of Reversionary Interest, dated effective as
of December 1, 1997, by and between the Company, as assignor, and MGPG, as
assignee, and recorded in the county records of Antrim and Otsego Counties,
Michigan;
(j) 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 ;
(k) Amendment to Conveyance of Production Payment, dated effective as
of December 1, 1997, by and between MGPG, as assignor, and the Company, as
assignee, and recorded in the county records of Antrim and Otsego Counties,
Michigan;
(l) 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;
(m) Purchase and Sale Agreement, dated as of December 1, 1997, by and
between Mercury, as Seller, and MAG, as buyer;
(n) Amendment of Purchase and Sale Agreement, dated effective as of
December 1, 1997, by and among Mercury, the Company and MAG;
(o) Second Amendment to Purchase Agreement, dated as of March 31,
2000, by and between the Company and MAG;
(p) Credit Payment Note, dated December 1, 1997, executed by MAG, as
maker, payable to the order of Mercury, as payee;
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<PAGE>
(q) Amended and Restated Credit Payment Note, dated as of December 1,
1997, executed by MAG, as maker, payable to the order of the Company, as
payee;
(r) 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;
(s) Amended and Restated Fixed Payment Note, dated as of December 1,
1997, executed by MAG, as maker, payable to the order of the Company, as
payee;
(t) 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 Corporation;
(u) Management Agreement, dated as of December 1, 1997, by and
between MAG and Mercury, as manager;
(v) Purchase and Sale Agreement, dated as of December 1, 1997, by and
between MGP, as seller, and MGPG, as buyer;
(w) Credit Payment Note, dated December 1, 1997, executed by MGPG, as
maker, payable to the order of MGP, as payee;
(x) 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;
(y) 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 Corporation; and
(z) Management Agreement, dated as of December 1, 1997, by and
between MGPG and MGP, as manager.
"Fiscal Quarter" means a three-month period ending on March 31, June 30,
September 30, or December 31 of any year.
"Fiscal Year" means a twelve-month period ending on December 31 of any
year.
"GAAP" means generally accepted accounting principles as in effect from
time to time in the United States of America.
"Governmental Authority" means
(a) the government of
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(i) the United States of America or any State or other
political subdivision thereof, or
(ii) any jurisdiction in which the Company or any Subsidiary
conducts all or any part of its business, or which asserts
jurisdiction over any properties of the Company or any Subsidiary, or
(b) any entity exercising executive, legislative, judicial,
regulatory or administrative functions of, or pertaining to, any such
government.
"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 or in part), provided that the term Guarantee shall
-------- ----
not include endorsements for collection or deposit in the ordinary course of
business.
"Guarantor" means any Person who has guaranteed some or all of the
Company's obligations to repay the Notes and who has been accepted by Collateral
Agent as a Guarantor or any Subsidiary of the Company which now or hereafter
executes and delivers a guaranty to Collateral Agent pursuant to Section 8.6.
"Hazardous Materials" means any substances regulated under any
Environmental Law, whether as pollutants, contaminants, or chemicals, or as
industrial, toxic or hazardous substances or wastes, or otherwise.
"Hedging Contract" means (a) any rate swap agreement, basis swap agreement,
forward rate agreement, commodity swap agreement, interest rate option, forward
foreign exchange agreement, cap agreement, floor agreement, collar agreement,
cross-currency rate swap agreement, or currency option, (b) any option, futures
or forward contract traded on an exchange, (c) any other derivative agreement or
similar agreement or arrangement, and (d) any sales contract, purchase contract,
exchange contract, or other contract or arrangement which obligates the Company
to pay or suffer penalties or damages for failure to purchase, sell or deliver
specified quantities of Hydrocarbons (excluding only normal imbalance penalties
imposed by pipelines for failure to meet monthly nominations made in the
ordinary course of business).
"Hydrocarbons" means crude oil, natural gas or other liquid or gaseous
hydrocarbons.
"Initial Amortization Date" means the earlier of (a) June 28, 2006 or (b)
the first Quarterly Payment Date occurring after the principal balance of the
Bank Debt has been paid in full.
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"Initial Engineering Reports" means (a) the engineering report concerning
oil and gas properties of the Company as of January 1, 2000, and (b) the reserve
engineering report concerning oil and gas properties of Terra as of January 1,
2000, each of which was prepared by Schlumberger Holditch - Reservoir
Technologies Consulting Services.
"Initial Financial Statements" means the audited annual Consolidated
financial statements of the Company dated as of December 31, 1999.
"Institutional Investor" means (a) any original Purchaser of a Note, (b)
any holder of Notes holding more than 5% of the aggregate principal amount of
the Notes then outstanding, and (c) any bank, trust company, savings and loan
association or other financial institution, any pension plan, any investment
company, any insurance company, any broker or dealer, or any other similar
financial institution or entity, regardless of legal form.
"Insurance Schedule" means Schedule E hereto.
"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 customer and trade accounts which are payable in
accordance with customary trade terms.
"Liabilities" means, as to any Person, all indebtedness, liabilities and
obligations of such Person, whether matured or unmatured, liquidated or
unliquidated, primary or secondary, direct or indirect, absolute, fixed or
contingent, and whether or not required to be considered pursuant to GAAP.
"Lien" means, with respect to any property or assets, any right or interest
therein of a creditor to secure Liabilities owed to it or any other arrangement
with such creditor which provides for the payment of such Liabilities out of
such property or assets or which allows such creditor to have such Liabilities
satisfied out of such property or assets prior to the general creditors of any
owner thereof, including any lien, mortgage, security interest, pledge, deposit,
production payment, rights of a vendor under any title retention or conditional
sale agreement or lease substantially equivalent thereto, tax lien, mechanic's
or materialman's lien, or any other charge or encumbrance for security purposes,
whether arising by law or agreement or otherwise, but excluding any right of
offset which arises without agreement in the ordinary course of business.
"Lien" also means any filed financing statement, any registration of a pledge
(such as with an issuer of uncertificated securities), or any other arrangement
or action which would serve to perfect a Lien described in the preceding
sentence, regardless of whether such financing statement is filed, such
registration is made, or such arrangement or action is undertaken before or
after such Lien exists.
"Majority Purchasers" means Purchasers whose aggregate Percentage Shares
equal or exceed 70%.
"Mariner" means Mariner Gas LLC, a Massachusetts limited liability company.
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"Mariner Section 29 Documents" means each of the following documents,
instruments and agreements (as the same may have been amended, modified,
extended or supplemented):
(a) Assignment, dated effective as of April 1, 2000, by and between
the Company, as assignor, and Mariner, as assignee, and recorded in the
county records of (i) Antrim County, Michigan, (ii) Crawford County,
Michigan, (iii) Montmorency County, Michigan, and (iv) Otsego County,
Michigan;
(b) Conveyance of Production Payment, dated as of March 31, 2000, by
and between Mariner, as assignor, and the Company, as assignee, and
recorded in the county records of (i) Antrim County, (ii) Crawford County,
Michigan, (iii) Montmorency County, Michigan, and (iv) Otsego County,
Michigan;
(c) Mortgage, dated as of March 31, 2000, by and between Mariner, as
mortgagor, and the Company, as mortgagee, and recorded in the county
records of (i) Antrim County, Michigan, (ii) Crawford County, Michigan,
(iii) Montmorency County, Michigan, and (iv) Otsego County, Michigan;
(d) Purchase and Sale Agreement, dated as of March 31, 2000, by and
between the Company, as Seller, and Mariner, as buyer;
(e) Fixed Payment Note, dated April 1, 2000, executed by Mariner, as
maker, payable to the order of the Company, as payee, in the original
principal amount of $________;
(f) Assignment of Enforcement Rights, dated effective March 31, 2000,
by and between Mariner and the Company, and acknowledged and consented to
by State Street;
(g) Management Agreement, dated as of March 31, 2000, by and between
Mariner and the Company, as manager; and
(h) Intercreditor Agreement, dated as of March 31, 2000, by and among
Agent Bank, Collateral Agent and Mariner.
"Mariner Section 29 Sale" means the purchase by Mariner of 99.5% of (i) the
interests to be acquired by the Company from CMS pursuant to the Purchase and
Sale Agreement, and (ii) the interests owned by Terra, in each case in Devonian
shale gas production from certain gas wells located in Michigan and described in
the Mariner Section 29 Documents, together with certain other rights and
interests described in, and all pursuant to the terms and conditions contained
in, the Mariner Section 29 Documents, which sale shall be on terms and
conditions acceptable to Purchasers.
"Material Adverse Effect" means a material adverse effect on (a) the
business, operations, affairs, financial condition, assets or properties of the
Company and its Subsidiaries taken as a whole, (b) the ability of the Company to
timely perform its obligations under this
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Agreement and the other Transaction Documents, (c) the validity or
enforceability of this Agreement or the other Transaction Documents, or (d) the
value of the Collateral, as a whole. To say that a situation or event "could
reasonably be expected to have a Material Adverse Effect" means that such
situation or event has more than a remote probability of having or causing a
Material Adverse Effect.
"Memorandum" is defined in Section 5.1(h).
"Mercury" means Mercury Exploration Company, a Texas corporation.
"MGP" means Michigan Gas Partners, Limited Partnership, formerly a Texas
limited partnership prior to its merger with and into the Company.
"Modified PDNP NPV" means the NPV of 85% (or 95% in the case of Antrim
Shale Properties) of the Proved Developed Nonproducing Reserves attributable to
the Eligible Mortgaged Properties, provided that (a) Majority Purchasers have
concurred with the amount of such reserves as reflected in the Engineering
Report most recently given prior to the calculation of such NPV, (b) the capital
expenditures necessary to bring such reserves onto production (as contemplated
in such Engineering Report) have actually been scheduled by the Company to be
made at or prior to the time contemplated in such Engineering Report, and (c)
both the Company and Majority Purchasers reasonably expect that the Company will
have funds available to make such capital expenditures.
"Modified PDP NPV" means at any time in question the sum of the NPV of 100%
of all Proved Developed Producing Reserves attributable to the Eligible
Mortgaged Properties.
"Modified PUD NPV" means the NPV of 70% (or 95% in the case of Antrim Shale
Properties) of any Proved Undeveloped Reserves attributable to the Eligible
Mortgaged Properties, provided that (a) Majority Purchasers have concurred with
the amount of such reserves as reflected in the Engineering Report most recently
given prior to the calculation of such NPV, (b) the capital expenditures
necessary to bring such reserves onto production (as contemplated in such
Engineering Report) have actually been scheduled by the Company to be made at or
prior to the time contemplated in such Engineering Report, and (c) both the
Company and Majority Purchasers reasonably expect that the Company will have
funds available to make such capital expenditures.
"Modified Total NPV" means, at the time in question, the sum of Modified
PDP NPV, Modified PDNP NPV, and Modified PUD NPV as each has been most recently
determined. No category of reserves other than Proved Reserves shall be taken
into account in determining Modified Total NPV.
"Mortgage" means each deed of trust or mortgage now or hereafter given by
the Company or any of its Subsidiaries to Collateral Agent (or any trustee
acting on behalf of the Purchasers or Collateral Agent) to secure the Notes.
"Multiemployer Plan" means any Plan that is a "multiemployer plan" (as such
term is defined in section 4001(a)(3) of ERISA).
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"Notes" is defined in Section 1.1.
"NPV" means, with respect to any Proved Reserves expected to be produced
from any Properties, the net present value, discounted at 10% per annum, of the
future net revenues expected to accrue to the Company's and its Subsidiaries'
collective interests in such reserves during the remaining expected economic
lives of such reserves. NPV means, with respect to the Company's and its
Subsidiaries' separate interests in such Proved Reserves, the net present value,
discounted at 10% per annum, of the future net revenues expected to accrue to
such separate interests in such reserves during the remaining expected economic
lives of such reserves. Each calculation of such expected future net revenues
shall be made in accordance with the then existing standards of the Society of
Petroleum Engineers, provided that in any event (a) appropriate deductions shall
be made for severance and ad valorem taxes, and for operating, gathering,
transportation and marketing costs required for the production and sale of such
reserves, escalated at 3% per annum for each year after the then current year,
and (b) the pricing assumptions and escalations used in determining NPV for any
particular reserves shall be the Purchaser Pricing (or any other pricing
assumptions to which the Company and Majority Purchasers may agree). NPV shall
be calculated hereunder in connection with each Engineering Report, either by
the Company, by Majority Purchasers or by the engineering firm who prepares such
Engineering Report; in the event of any conflict, Majority Purchasers'
calculation shall be conclusive and final.
"Obligations" means all Liabilities from time to time owing by the Company
or any Subsidiary of the Company to any Purchaser or to Collateral Agent under
or pursuant to any of the Transaction Documents. "Obligation" means any part of
the Obligations.
"Percentage Share" means with respect to any Purchaser (other than the
Company or any Affiliate of the Company that may at any time be the holder of a
Note) the percentage obtained by dividing (a) the sum of the unpaid principal
balance of such Purchaser's Notes at the time in question by (b) the sum of the
aggregate unpaid principal balance of all Notes at such time (other than Notes
directly or indirectly owned by the Company or any of its Affiliates).
"Permitted Investments" means Investments
(a) in 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) in 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) in 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,
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<PAGE>
(d) existing as of the date hereof by the Company in its Subsidiaries
or Excluded Subsidiaries or in the other Persons listed in the Disclosure
Schedule as being owned, in part, by the Company or Terra,
(e) by the Company after the date hereof in Terra, so long as the
guaranty and other Security Documents given by Terra for the benefit of the
Purchasers remain in full force and effect; and
(f) by the Company and its Subsidiaries not described in the
foregoing subsections (a) through (e) which do not in the aggregate exceed
$500,000 (measured on a cost basis).
"Permitted Liens" means:
(a) statutory Liens for taxes, assessments or other governmental
charges or levies which are not yet delinquent or which are being contested
in good faith by appropriate action and for which adequate reserves have
been maintained in accordance with GAAP;
(b) landlords', operators', carriers', warehousemen's, repairmen's,
mechanics', materialmen's Liens which do not secure Debt, in each case only
to the extent arising in the ordinary course of business and only to the
extent securing obligations which are not delinquent or which are being
contested in good faith by appropriate proceedings and for which adequate
reserves have been maintained in accordance with GAAP;
(c) Liens under the Security Documents or under the Bank Documents;
(d) with respect only to property subject to any particular Security
Document, Liens burdening such property which are expressly allowed by such
Security Document;
(e) minor defects and irregularities in title to any property, so
long as such defects and irregularities neither secure Debt nor materially
impair the value of such property or the use of such property for the
purposes for which such property is held;
(f) deposits of cash or securities to secure the performance of bids,
trade contracts, leases, statutory obligations and other obligations of a
like nature (excluding appeal bonds and Debt) incurred in the ordinary
course of business;
(g) easements, zoning restrictions, or other charges or restrictions
on the use of real property which do not materially impair the use of the
property by the Company or its Subsidiaries in the conduct of its
operations or business;
(h) Liens under the Section 29 Documents that are expressly
subordinated to the Liens under the Security Documents; and
(i) Liens perfected or purportedly perfected under the following
financing statements: (A) file # C975864 naming Terra, as debtor, filed
with the Secretary of State
14
<PAGE>
of Michigan on May 30, 1995; (B) file # C982828 naming Terra, as debtor,
filed with the Secretary of State of Michigan on June 16, 1995; (C) file #
C971103, naming Guardian Energy Management Corporation and Terra, as
debtors, filed with the Secretary of State of Michigan on May 17, 1995; (D)
file # C998172, naming Guardian Energy Management Corporation and Terra, as
debtors, filed with the Secretary of State of Michigan on August 1, 1995;
(E) file # C998173, naming Guardian Energy Management Corporation and
Terra, as debtors, filed with the Secretary of State of Michigan on August
1, 1995; (F) file # C971101, naming Guardian Energy Management Corporation
and Terra, as debtors, filed with the Secretary of State of Michigan on May
17, 1995; and (G) file # D4D2038, naming Guardian Energy Management
Corporation and Terra, as debtors, filed with the Secretary of State of
Michigan on July 23, 1998.
"Person" means an individual, partnership, corporation, limited liability
company, association, trust, unincorporated organization, or a government or
agency or political subdivision thereof.
"Plan" means an "employee benefit plan" (as defined in section 3(3) of
ERISA) that is or, within the preceding five years, has been established or
maintained, or to which contributions are or, within the preceding five years,
have been made or required to be made, by the Company or any ERISA Affiliate or
with respect to which the Company or any ERISA Affiliate may have any liability.
"Post-Closing Title Review Requirement" means with respect to any
requirement contained herein for delivery to Purchasers or their counsel of
title opinions or other evidence of title to Mineral Interests purported to be
owned by the Company, a requirement that such title opinions be delivered in
form and substance acceptable to Purchasers and their counsel with respect to
Borrowing Base Properties (as such term is defined in the Bank Credit Agreement)
with an aggregate Recognized Value (as such term is defined in the Bank Credit
Agreement) at least equal to eighty percent (80%) of the Recognized Value of all
Borrowing Base Properties.
"Properties" means, collectively, those undivided interests in oil and gas
properties and interests which are, at the time in question, owned by the
Company or any of its Subsidiaries.
"Proved Reserves" means "Proved Reserves" as defined in the Definitions for
Oil and Gas Reserves (in this paragraph, the "Definitions") promulgated by the
Society of Petroleum Engineers (or any generally recognized successor) as in
effect at the time in question. "Proved Developed Producing Reserves" means
-----------------------------------
Proved Reserves which are categorized as both "Developed" and "Producing" in the
Definitions, "Proved Developed Nonproducing Reserves" means Proved Reserves
--------------------------------------
which are categorized as both "Developed" and "Nonproducing" in the Definitions,
and "Proved Undeveloped Reserves" means Proved Reserves which are categorized as
---------------------------
"Undeveloped" in the Definitions.
"Purchaser" means each Person that originally purchases a Note hereunder
and each of its successor and assigns (other than the Company or any Affiliate
of the Company) as holder of a Note.
"Purchaser Pricing" means:
15
<PAGE>
(a) for anticipated sales of Hydrocarbons that are fixed in a firm
fixed price sales contract with an investment grade counterparty (or
another counterparty approved by Majority Purchasers), the fixed price or
prices provided for in such sales contract during the term thereof; and
(b) for anticipated sales of Hydrocarbons that are hedged by a fixed
price Hedging Contract with an investment grade counterparty, the fixed
price or prices provided for in such Hedging Contract during the term
thereof, as modified by any necessary adjustment specified by Majority
Purchasers for quality and geographical differentials; and
(c) for anticipated sales of Hydrocarbons that are hedged by a
Hedging Contract with an investment grade counterparty which Hedging
Contract provides for a range of prices between a floor and a ceiling, the
prices provided for in subsection (d) below, provided that during the term
of such Hedging Contract such prices shall in no event be less than such
floor or exceed such ceiling, as such floor and ceiling are modified by any
necessary adjustment specified by Majority Purchasers for quality and
geographical differentials; and
(d) for anticipated sales of Hydrocarbons, if such sales are not
hedged by a Hedging Contract or sales contract that is described in
paragraphs (a), (b), or (c) above, the price which is one-half of the sum
of the following:
(i) the average price received by the Company for Hydrocarbons
of such kind produced from the Eligible Mortgaged Properties during
the twelve months preceding the date of calculation, plus
(ii) the average of the prices on the New York Mercantile
Exchange (or any successor organization), as reported in the Wall
Street Journal for the date of calculation (or, if such date is not a
Business Day, for the first Business Day thereafter) under the twelve
"nearby" futures contracts which are listed therein as the first to
expire after such date of calculation, with any necessary adjustment
specified by Majority Purchasers for quality and geographical
differentials.
The applicable price determined pursuant to the preceding clause (d) shall
be escalated at 3% per annum for each year after the then current year.
"QPAM Exemption" means Prohibited Transaction Class Exemption 84-14 issued
by the United States Department of Labor.
"Quarterly Payment Date" means the next to last Business Day in each Fiscal
Quarter.
"Section 29 Documents" means, collectively, the Existing Section 29
Documents and the Mariner Section 29 Documents.
"Securities Act" means the Securities Act of 1933, as amended from time to
time.
16
<PAGE>
"Security Documents" means the instruments listed in the Security Schedule
and all other Mortgages, security agreements, deeds of trust, mortgages, chattel
mortgages, pledges, guaranties, financing statements, continuation statements,
extension agreements and other agreements or instruments now, heretofore, or
hereafter delivered by any Person to or for the benefit of Collateral Agent or
all of the Purchasers in connection with this Agreement or any transaction
contemplated hereby to secure or guarantee the payment of any part of the Notes
or the performance of any Person's other duties and obligations under the
Transaction Documents.
"Security Schedule" means Schedule D hereto.
"State Street" means State Street Bank and Trust Company, a Massachusetts
trust company.
"Subsidiary" means, as to any Person, any corporation, association or other
business entity in which such Person or one or more of its Subsidiaries or such
Person and one or more of its Subsidiaries owns sufficient equity or voting
interests to enable it or them (as a group) ordinarily, in the absence of
contingencies, to elect a majority of the directors (or Persons performing
similar functions) of such entity, and any partnership or joint venture if more
than a 50% interest in the profits or capital thereof is owned by such Person or
one or more of its Subsidiaries or such Person and one or more of its
Subsidiaries (unless such partnership can and does ordinarily take major
business actions without the prior approval of such Person or one or more of its
Subsidiaries). Unless the context otherwise clearly requires, any reference to
a "Subsidiary" is a reference to a Subsidiary of the Company. Unless otherwise
expressly stated herein, no Excluded Subsidiary shall be deemed to be a
Subsidiary of the Company.
"Tamco" means TCW Asset Management Company, a California corporation.
"TCW" means all of the following, collectively, who are at the time in
question Purchasers: TCW Debt and Royalty Fund VI, L.P., a California limited
partnership; TCW Debt and Royalty Fund VIB, a California limited partnership;
TCW Asset Management Company, a California corporation, as Investment Manager
pursuant to the Investment Management and Custody Agreement dated as of May 19,
1997 between Allmerica Asset Management, Inc. as agent for First Allmerica
Financial Life Insurance company, TCW Asset Management Company and Trust Company
of the West; TCW Asset Management Company, a California corporation, as
Investment Manager pursuant to the Investment Management and Custody Agreement
dated as of October 27, 1997 between University of Chicago, TCW Asset Management
Company and Trust Company of the West; TCW Asset Management Company, a
California corporation, as Investment Manager pursuant to the Investment
Management and Custody Agreement dated as of October 24, 1997 between William N.
Pennington Separate Property Trust dated January 1, 1991, TCW Asset Management
Company and Trust Company of the West; and TCW Asset Management Company, a
California corporation, as Investment Manager pursuant to the Investment
Management Agreement dated as of October 27, 1997 between Delta Air Lines,
Inc.,TCW Asset Management Company and Trust Company of the West.
"Termination Event" means (a) the occurrence with respect to any Plan of
(i) a reportable
17
<PAGE>
event described in Sections 4043(b)(5) or (6) of ERISA or (ii) any other
reportable event described in Section 4043(b) of ERISA other than a reportable
event not subject to the provision for 30-day notice to the Pension Benefit
Guaranty Corporation pursuant to a waiver by such corporation under Section
4043(a) of ERISA, or (b) the withdrawal of the Company or any Affiliate of the
Company from an Plan during a plan year in which it was a "substantial employer"
as defined in Section 4001(a)(2) of ERISA, or (c) the filing of a notice of
intent to terminate any Plan or the treatment of any Plan amendment as a
termination under Section 4041 of ERISA, or (d) the institution of proceedings
to terminate any Plan by the Pension Benefit Guaranty Corporation under Section
4042 of ERISA, or (e) any other event or condition which might constitute
grounds under Section 4042 of ERISA for the termination of, or the appointment
of a trustee to administer, any Plan.
"Terra" means Terra Energy Ltd., a Michigan corporation.
"Transaction Documents" means this Agreement, the Notes, the Security
Documents, and all other agreements, certificates, documents, instruments and
writings at any time delivered in connection herewith or therewith (exclusive of
term sheets and commitment letters).
"Working Capital" has the meaning given such term in Section 9.1(n).
References in this Schedule and in the Agreement to Exhibits, Schedules,
Articles, Sections, subsections and other subdivisions refer to the Exhibits,
Schedules, Articles, Sections, subsections and other subdivisions of the
Agreement unless expressly provided otherwise. Titles appearing at the
beginning of any subdivisions are for convenience only and do not constitute any
part of such subdivisions and shall be disregarded in construing the language
contained in such subdivisions. The words "this Agreement", "this instrument",
"herein", "hereof", "hereby", "hereunder" and words of similar import refer to
the Agreement as a whole and not to any particular subdivision unless expressly
so limited. The phrases "this Section" and "this subsection" and similar
phrases refer only to the Sections or subsections hereof in which such phrases
occur. The word "or" is not exclusive, and the word "including" (in its various
forms) means "including without limitation". Pronouns in masculine, feminine
and neuter genders shall be construed to include any other gender, and words in
the singular form shall be construed to include the plural and vice versa,
unless the context otherwise requires.
18
<PAGE>
SCHEDULE C
DISCLOSURE SCHEDULE
Section and subsection references below correspond to the section and subsection
designations in the Agreement.
5.1
(f) Nothing to disclose.
(g) Terra has Debt of approximately $2,100,000.00 which CMS has
agreed to retain because it relates to an asset that is excluded
from the CMS Acquisition.
(h) The Company's principal long-term fixed production sales
agreements and derivative contracts are described in the Exhibit
to this Schedule C.
(i) Nothing to disclose.
(j) Terra has used the name Rachael Exploration in the State of New
Mexico.
(k) (i) the Company owns:
(a) Fifty percent (50%) equity in Beaver Creek Pipeline,
LLC, a Michigan limited liability company;
(b) Fifty percent (50%) equity in Cinnabar Energy Services
and Trading, LLC, a Michigan limited liability company;
(c) One Hundred percent (100%) equity in Terra Energy Ltd.,
a Michigan corporation;
(d) Approximately ninety percent (90%) equity in MGV Energy
Inc., an Alberta, Canada corporation, (the exact equity
interest varies by agreement based on rate of return);
Terra Owns:
(a) One hundred percent (100%) equity in Energy Acquisition
Operating Corporation, a Michigan corporation;
(b) One hundred percent (100%) equity in Kristen
Corporation, a Michigan corporation;
<PAGE>
(c) One hundred percent (100%) equity in Terra Pipeline
Company, a Michigan corporation;
(d) Minority equity in each of the following:
State 26 Production Company, Inc.
J.R. Productions, Inc.
Eagle Productions, Inc.
Northwest Operations, Inc.
Phoenix Operating Company, Inc.
Terra-Westside Processing Company Partnership
Terra-Hayes Pipeline General Partnership
(l) Nothing to disclose.
<PAGE>
SCHEDULE D
SECURITY SCHEDULE
1. Security Agreement by the Company in favor of Collateral Agent
2. UCC-1 Financing Statements naming the Company, as debtor, relating to item 1
3. Security Agreement by Terra in favor of Collateral Agent
4. UCC-1 Financing Statements naming Terra, as debtor, relating to item 3
5. Assignment of Production, Accounts, and Proceeds by the Company in favor of
Collateral Agent
6. UCC-1 Financing Statements naming the Company, as debtor, relating to item 5
7. Assignment of Production, Accounts, and Proceeds by Terra in favor of
Collateral Agent
8. UCC-1 Financing Statements naming Terra, as debtor, relating to item 7
9. Mortgage by the Company in favor of Collateral Agent
10. UCC-1 Financing Statements naming the Company, as debtor, relating to item 9
11. Mortgage by Terra in favor of Collateral Agent
12. UCC-1 Financing Statements naming Terra, as debtor, relating to item 11
13. Mortgage, Assignment, Security Agreement, Fixture Filing, and Financing
Statement by the Company in favor of Collateral Agent
14. UCC-1 Financing Statements naming the Company, as debtor, relating to item
13
15. Stock Pledge Agreement by the Company
16. UCC-1 Financing Statements naming the Company, as debtor, relating to item
15
17. Guaranty by Terra
<PAGE>
SCHEDULE E
INSURANCE SCHEDULE
<PAGE>
EXHIBIT 1
THE RIGHTS, TITLE AND INTERESTS OF ANY HOLDER OF THIS INSTRUMENT ARE SUBJECT TO
THE RIGHTS, TITLE AND INTERESTS OF BANK OF AMERICA, N.A., AS ADMINISTRATIVE
AGENT, AND THE BANKS AND THEIR SUCCESSORS UNDER AND PURSUANT TO THAT CERTAIN
SUBORDINATION AGREEMENT DATED AS OF MARCH __, 2000 BY AND AMONG BANK OF AMERICA,
N.A., AS ADMINISTRATIVE AGENT, QUICKSILVER RESOURCES INC., TCW ASSET MANAGEMENT
COMPANY AND OTHER PARTIES.
PROMISSORY NOTE
Dallas, Texas
No. [_____] [Date]
$[_______] PPN 74837R
FOR VALUE RECEIVED, the undersigned, Quicksilver Resources Inc. (herein
called the "Company"), a Delaware corporation, hereby promises to pay to
[___________________________], or its registered assigns, the principal sum of
[___________________________] Dollars, together with interest on the unpaid
principal balance thereof (computed on the basis of a 360-day year of twelve 30-
day months) as hereinafter set forth pursuant to the terms of the Note Purchase
Agreement (as hereinafter defined), both principal and interest payable as
herein provided in lawful money of the United States of America at the offices
of Bank of America, N.A., 901 Main Street, Dallas, Dallas County, Texas 75202,
or at such other place within Dallas County, Texas, as from time to time may be
designated by the holder of this Note.
The principal amount of this Note, together with all interest accrued
hereon, shall be due and payable in full on March 30, 2009.
This Note (a) is issued and delivered under that certain Note Purchase
Agreement of even date herewith among the Company, TCW Asset Management Company,
as Collateral Agent, and various Purchasers (herein, as from time to time
supplemented, amended or restated, called the "Note Purchase Agreement"), and is
a "Note" as defined therein, (b) is subject to the terms and provisions of the
Note Purchase Agreement, which contains provisions for payments and prepayments
hereunder and acceleration of the maturity hereof upon the happening of certain
stated events, and (c) is secured by and entitled to the benefits of certain
Security Documents (as identified and defined in the Note Purchase Agreement).
Payments on this Note shall be made and applied as provided herein and in the
Note Purchase Agreement. Reference is hereby made to the Note Purchase
Agreement for a description of certain rights, limitations of rights,
obligations and duties of the parties hereto and for the meanings assigned to
terms used and not defined herein and to the Security Documents for a
description of the nature and extent of the security thereby provided and the
rights of the parties thereto.
<PAGE>
The unpaid principal of this Note (exclusive of any past due principal or
interest) from time to time outstanding shall bear interest on each day
outstanding at the rate of fourteen and three-quarters percent (14.75%) per
annum, payable on each Quarterly Payment Date. All principal and interest owed
under this Note and which has not been paid when due shall bear interest on each
day outstanding at the Default Rate in effect on such day, and such interest
shall be due and payable daily as it accrues.
Notwithstanding the foregoing paragraph and all other provisions of this
Note, in no event shall the interest payable hereon, whether before or after
maturity, exceed the maximum amount of interest which, under applicable law, may
be charged on this Note, and this Note is expressly made subject to the
provisions of the Note Purchase Agreement which more fully set out the
limitations on how interest accrues hereon.
The Company promises to pay (a) the required prepayments of principal and
interest hereon on the dates and in the amounts specified in the Note Purchase
Agreement (and any fees associated therewith) and (b) any premium associated
with any optional prepayment of the principal balance of this Note, in each case
as further described in the Note Purchase Agreement.
If this Note is placed in the hands of an attorney for collection after
default, or if all or any part of the indebtedness represented hereby is proved,
established or collected in any court or in any bankruptcy, receivership, debtor
relief, probate or other court proceedings, the Company and all endorsers,
sureties and guarantors of this Note jointly and severally agree to pay
reasonable attorneys' fees and collection costs to the holder hereof in addition
to the principal and interest payable hereunder.
The Company and all endorsers, sureties and guarantors of this Note hereby
severally waive demand, presentment, notice of demand and of dishonor and
nonpayment of this Note, protest, notice of protest, notice of intention to
accelerate the maturity of this Note, declaration or notice of acceleration of
the maturity of this Note, diligence in collecting, the bringing of any suit
against any party and any notice of or defense on account of any extensions,
renewals, partial payments or changes in any manner of or in this Note or in any
of its terms, provisions and covenants, or any releases or substitutions of any
security, or any delay, indulgence or other act of any trustee or any holder
hereof, whether before or after maturity.
This Note and the rights and duties of the parties hereto shall be governed
by the laws of the State of Texas as provided in the Note Purchase Agreement.
QUICKSILVER RESOURCES INC.
By
--------------------------------------------
2
<PAGE>
Name:
Title:
EXHIBIT 2
FORM OF OPINION OF COUNSEL TO THE COMPANY
3
<PAGE>
EXHIBIT 3
CERTIFICATE ACCOMPANYING
FINANCIAL STATEMENTS
--------------------
Reference is made to that certain Note Purchase Agreement dated as of March
__, 2000, (as from time to time amended, the "Agreement"), by and among
Quicksilver Resources Inc. (the "Company"), _________________________________,
which Agreement is in full force and effect on the date hereof. Terms which are
defined in the Agreement are used herein with the meanings given them in the
Agreement.
This Certificate is furnished pursuant to Section 8.1(b)(ii) of the
Agreement. Together herewith the Company is furnishing to the Purchasers the
Company's *[audited/unaudited] financial statements (the "Financial Statements")
as at ____________ (the "Reporting Date"). The Company hereby represents,
warrants, and acknowledges to the Collateral Agent and to all Purchasers that:
(a) the officer of the Company signing this instrument is the duly
elected, qualified and acting ____________ of the Company and as such is
the Company's chief financial officer;
(b) the Financial Statements fairly present, in accordance with GAAP
and in all material respects, the matters set forth therein and satisfy the
requirements of the Agreement;
(c) attached hereto is a schedule of calculations showing the Company's
compliance as of the Reporting Date with the requirements of Sections
8.1(n) and 9.1(m) and (n) of the Agreement *[and non-compliance as of such
date with the requirements of Section(s) ____________ of the Agreement];
(d) on the Reporting Date the Company was, and on the date hereof the
Company is, in full compliance with the disclosure requirements of Section
8.1(d) of the Agreement, and no Default otherwise existed on the Reporting
Date or otherwise exists on the date of this instrument *[except for
Default(s) under Section(s) ____________ of the Agreement, which [is/are]
more fully described on a schedule attached hereto].
The officer of the Company signing this instrument hereby certifies that he
has reviewed the Transaction Documents and the Financial Statements and has
otherwise undertaken such inquiry as is in his opinion necessary to enable him
to express an informed opinion with respect to the above representations,
warranties and acknowledgments of the Company and, to the best of his knowledge,
such representations, warranties, and acknowledgments are true, correct and
complete.
<PAGE>
IN WITNESS WHEREOF, this instrument is executed as of ____________, 200__.
QUICKSILVER RESOURCES INC.
By:
----------------------------------
Name:
Title:
2
<PAGE>
EXHIBIT 4
FORM OF ACCREDITED INVESTOR LETTER
[TCW]
Ladies and Gentlemen:
In connection with our proposed purchase of $____________________ of 14.75%
Senior Subordinated Notes due March __, 2009 (the "Notes") of Quicksilver
Resources Inc. (the "Company"), we confirm that:
1. We have received a copy of the Note Purchase Agreement dated as of March
___, 2000 (as amended, the "Agreement"), between the Company and
_________________, relating to the Notes and such other information as we
deem necessary in order to make our investment decision. We acknowledge
that we have read and agreed to the matters stated in Section 11.4 of the
Agreement.
2. We understand that any subsequent transfer of the Notes is subject to
certain restrictions and conditions set forth in Section 11.4 of the
Agreement and we agree to be bound by, and not to sell the Notes except in
compliance with, such restrictions and conditions and the Securities Act of
1933, as amended (the "Securities Act").
3. We understand that the offer and sale of the Notes have not been registered
under the Securities Act, and that the Notes may not be offered or sold
except as permitted in the following sentence. We agree, on our own behalf
and on behalf of any accounts for which we are acting as hereinafter
stated, that if we should sell or otherwise transfer any Notes prior to the
date which is two years after the original issuance of the Notes, we will
do so only (i) to the Company or any of its subsidiaries, (ii) inside the
United States in accordance with Rule 144A under the Securities Act to a
"qualified institutional buyer" (as defined in Rule 144A under the
Securities Act), (iii) inside the United States to an institutional
"accredited investor" (as defined below) that, prior to such transfer,
furnishes (or has furnished on its behalf by a United States broker-dealer)
to us, a signed letter containing certain representations and agreements
relating to the restrictions on transfer of the Notes (the form of which
letter is attached to the Agreement as Exhibit 5), (iv) outside the United
States in accordance with Rule 904 of Regulation S under the Securities
Act, (v) pursuant to an exemption from registration provided by Rule 144
under the Securities Act (if available), or (vi) pursuant to an effective
registration statement under the Securities Act, and we further agree to
provide to any person purchasing any of the Notes from us a notice advising
such purchaser that resales of the Notes are restricted as stated herein.
<PAGE>
4. We hereby make for your benefit the representations and warranties
contained in Section 6.2 of the Note Purchase Agreement.
5. We are an institutional "accredited investor" (as defined in Rule 501 (a)
(1), (2), (3) or (7) of Regulation D under the Securities Act) and have
such knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of our investment in the Notes,
and we and any accounts for which we are acting are each able to bear the
economic risk of our or their investment, as the case may be.
6. We are acquiring the Notes purchased by us for our account or for one or
more accounts (each of which is an institutional "accredited investor") as
to each of which we exercise sole investment discretion.
You are entitled to rely upon this letter and are irrevocably authorized to
produce this letter or a copy hereof to any interested party in any
administrative or legal proceeding or official inquiry with respect to the
matters covered hereby.
Very truly yours,
By
---------------------------------------
Name:
Title:
<PAGE>
EXHIBIT 99.1
QUICKSILVER RESOURCES COMPLETES
ACQUISITION OF CMS MICHIGAN PROPERTIES
FORT WORTH, TEXAS (April 3, 2000) Quicksilver Resources Inc. (AMEX:KWK)
announced today that it had completed its acquisition from CMS Energy
Corporation (NYSE:CMS) of all of CMS's natural gas and crude oil exploration and
production properties in Michigan, including the stock of Terra Energy Ltd., as
well as other smaller interests in Ohio, Kentucky, and Indiana. The sale
includes approximately 180,000 net leasehold acres producing approximately
49,000 Mcf equivalent (Mcfe) net per day from the Antrim Shale, as well as from
the Niagaran and Prairie du Chien formations. The transaction had an effective
date of January 1, 2000.
Total consideration was approximately $163 million, subject to certain
post-closing adjustments. Financing for the acquisition was accomplished through
restructuring Quicksilver's senior bank facility, the sale of $43 million in
subordinated notes, and the monetization of a portion of the accompanying
Section 29 tax credits to major financial institution.
Houston Kauffman, Quicksilver's Vice President of Acquisitions, Divestments &
Trades, stated: "This acquisition has significantly strengthened our position in
Michigan. We are now the largest independent gas producer in the state, and this
purchase will enhance our operating and marketing efficiencies. It has also
significantly increased our development drilling inventory. We are going to be
very busy in Michigan for a long time."
Bill Lamkin, Quicksilver's Executive Vice President and Chief Financial Officer,
commented on the effect the transaction will have on the company's financial
picture: "This acquisition should be significantly accretive to Quicksilver's
2000 cash flow and net income. We are very pleased that we have been able to
increase the proved producing component of our reserves to almost 70% and double
the company's reserve base, which is now estimated by Schlumberger Holditch, our
Independent reservoir engineers, to be 610 Bcfe."
Quicksilver, headquartered in Fort Worth, is a natural gas and crude oil
production company engaged in the acquisition, exploitation, and development of
long-lived producing natural gas and crude oil properties. The Company, whose
main predecessor was established In 1963, began trading publicly in March of
1999. It has U. S. offices in Gaylord, Michigan, Cut Bank, Montana, and Casper,
Wyoming, and a Canadian office in Calgary, Alberta.
The statements in this press release regarding projections of revenues or
income or reserves or similar items, such as statements pertaining to
future revenues, future capital expenditures, future cash flows, future
operations or results, and other statements, which are not historical facts,
are forward looking statements. Such statements involve risks of declining
oil and gas prices, competition for prospects, possible increases in lifting
costs and other factors detailed in the Company's filings with the Securities
and Exchange Commission. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove
incorrect, actual outcomes may vary materially from those indicated.
