<PAGE>
As filed with the Securities and Exchange Commission on September 27, 1999
Registration No. 333-83093
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
Amendment No. 4
to
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
----------------
Spinnaker Exploration Company
(Exact name of registrant as specified in its charter)
DELAWARE 1311 76-0560101
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction Classification Code Number) Identification No.)
of incorporation or
organization)
1200 Smith Street, Suite 800
Houston, Texas 77002
(713) 759-1770
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
James M. Alexander
Vice President, Chief Financial Officer and Secretary
Spinnaker Exploration Company
1200 Smith Street, Suite 800
Houston, Texas 77002
(713) 759-1770
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
Scott N. Wulfe Walter J. Smith
Vinson & Elkins L.L.P. Baker & Botts, L.L.P.
2300 First City Tower 3000 One Shell Plaza
1001 Fannin 910 Louisiana
Houston, Texas 77002 Houston, Texas 77002
(713) 758-2222 (713) 229-1234
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this registration statement becomes effective.
If any of the securities registered on this form are being offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
section 8(a) of the Securities Act of 1933 or until the registration statement
shall become effective on such date as the Commission, acting pursuant to said
section 8(a), may determine.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED SEPTEMBER 27, 1999
8,000,000 Shares
[LOGO OF SPINNAKER EXPLORATION APPEARS HERE]
Spinnaker Exploration Company
Common Stock
--------
Prior to this offering, there has been no public market for our common stock.
The initial public offering price of the common stock is expected to be between
$16.00 and $18.00 per share. We have applied to list our common stock on The
Nasdaq Stock Market's National Market under the symbol "SPNX."
The underwriters have an option to purchase a maximum of 1,200,000 additional
shares to cover over-allotments of shares.
Investing in our common stock involves risks. See "Risk Factors" on page 11.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions Spinnaker
-------- ------------- -----------
<S> <C> <C> <C>
Per Share.................................. $ $ $
Total...................................... $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about , 1999.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
Credit Suisse First Boston Donaldson, Lufkin & Jenrette
Banc of America Securities LLC
Prudential Securities
Nesbitt Burns Securities Inc.
The date of this prospectus is , 1999.
<PAGE>
[Map of the onshore U.S. gulf coast and U.S. Gulf of Mexico showing the
location of our existing lease blocks, our discoveries and the coverage area of
the 3-D seismic data to which we have licenses.]
2
<PAGE>
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.................................................... 4
Risk Factors.......................................................... 11
Cautionary Statement About Forward-
Looking Statements................................................... 20
Use of Proceeds....................................................... 21
Dividend Policy....................................................... 21
Dilution.............................................................. 22
Capitalization........................................................ 23
Selected Consolidated Financial
Data................................................................. 24
Management's Discussion and Analysis
of Financial Condition and Results
of Operations........................................................ 26
Business and Properties............................................... 33
Management............................................................ 50
Certain Transactions.................................................. 57
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Security Ownership of Management and Certain Beneficial Holders....... 59
Description of Capital Stock.......................................... 61
Shares Eligible for Future Sale....................................... 65
Underwriting.......................................................... 66
Notice to Canadian Residents.......................................... 68
Legal Matters......................................................... 69
Experts............................................................... 69
Where You Can Find More Information................................... 69
Glossary of Natural Gas and Oil Terms................................. 70
Index to Consolidated Financial Statements............................ F-1
Report of Independent Petroleum Engineers............................. A-1
</TABLE>
------------
You should rely only on the information contained in this prospectus or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may be used only where it is legal
to sell these securities. The information in this prospectus may only be
accurate on the date of this prospectus.
Dealer Prospectus Delivery Obligation
Until , 1999 (25 days after commencement of this offering), all dealers
that effect transactions in these securities, whether or not participating in
this offering, may be required to deliver a prospectus. This is in addition to
the dealer's obligation to deliver a prospectus when acting as an underwriter
and with respect to unsold allotments or subscriptions.
3
<PAGE>
PROSPECTUS SUMMARY
This summary highlights selected information from this prospectus, but does
not contain all information that may be important to you. This prospectus
includes specific terms of this offering, information about our business and
financial data. We encourage you to read this prospectus in its entirety before
making an investment decision. Unless otherwise indicated, the information
contained in this prospectus gives effect to the two-for-one common stock split
effective September 1, 1999. Also, this prospectus assumes no exercise of the
underwriters' over-allotment option. We have provided definitions for some of
the natural gas and oil industry terms used in this prospectus in the "Glossary
of Natural Gas and Oil Terms" on page 70 of this prospectus.
About Spinnaker
Spinnaker Exploration Company is an independent energy company engaged in
the exploration, development and production of natural gas and oil in the U.S.
Gulf of Mexico. We currently have licenses to approximately 5,700 blocks of
mostly contiguous, recent vintage 3-D seismic data in the Gulf of Mexico,
including approximately 4,100 blocks from our 3-D seismic data agreement with
Petroleum Geo-Services ASA. This database covers an area of approximately 29
million acres, which we believe is one of the largest recent vintage 3-D
seismic databases of any independent exploration and production company in the
Gulf of Mexico. We consider recent vintage 3-D seismic data to be data that was
generated in the 1990s. We currently have a leasehold interest in approximately
100 of these blocks. We believe that broad regional 3-D seismic analysis allows
us to create a large inventory of high-quality prospects and provides the
opportunity to enhance our exploration success. We also believe our licenses to
large quantities of high-quality seismic data and our management and technical
staff are important factors for our current and future success.
Our chief executive officer, Petroleum Geo-Services and Warburg, Pincus
Ventures, L.P. formed Spinnaker in December 1996. Petroleum Geo-Services, a
leader in acquiring 3-D seismic data, received most of its equity ownership in
Spinnaker in exchange for providing us with access to its inventory of 3-D
seismic data covering a substantial portion of the natural gas and oil
producing area of the Gulf of Mexico. We plan to continue to grow our inventory
of 3-D seismic data through our agreement with Petroleum Geo-Services and
through acquisitions of 3-D seismic data from other seismic data vendors.
Since our inception, we have participated in drilling 26 exploratory wells
in the Gulf of Mexico, with 18 of these wells being completed as discoveries.
As of August 31, 1999, Ryder Scott Company, L.P. estimated our net proved
reserves at approximately 81.1 Bcfe, 83% of which was natural gas, representing
an increase of approximately 500% over our estimated net proved reserves of
13.4 Bcfe at December 31, 1997. Our daily production has increased from
approximately 600 Mcfe at December 31, 1997 to approximately 48,000 Mcfe at
August 31, 1999. Within our current inventory of approximately 100 lease
blocks, we have identified approximately 49 exploratory prospects and 23 leads.
We expect to drill approximately 25 of these prospects during the remainder of
1999 and 2000. Based on 3-D seismic analysis on blocks where we currently have
no leasehold interest, we also have identified over 100 additional leads that
may result in additional prospects. Our capital expenditure budget for 1999 and
2000 includes approximately $180 million for exploration, development,
leasehold acquisitions and other capital expenditures, of which we have
incurred $36.8 million through June 30, 1999.
Our Strategy
Our goals are to expand our reserve base, cash flow and net income and to
generate an attractive return on capital. We emphasize the following elements
in our strategy to achieve these goals:
Focus on the Gulf of Mexico. We have chosen to assemble a large 3-D seismic
database and focus our exploration activities in the Gulf of Mexico because we
believe this area represents one of the most attractive exploration regions in
North America. We also believe our geographic focus provides us with an
excellent
4
<PAGE>
opportunity to develop and maintain competitive advantages through the
combination of our 3-D seismic database, regional exploration and operating
expertise, and joint venture relationships.
Maintain a large database of 3-D seismic data. We believe our large database
of 3-D seismic data allows us to generate high-quality exploratory prospects.
We believe the 3-D seismic data we have received from Petroleum Geo-Services
will continue to serve as the foundation for our exploration program. We also
intend to supplement that data with 3-D seismic data acquisitions from other
seismic data vendors. In addition to data acquisitions made directly by us, we
expect to continue to enter into joint ventures with other companies to share
the costs of data acquisitions and associated exploratory drilling.
Employ a rigorous prospect selection process. We leverage our large
inventory of contiguous areas of 3-D seismic data to select prospects by tying
regional 3-D seismic analysis to actual drilling results. Through this process,
we enhance our understanding of the geology before selecting prospects and
increase the probability of accurately identifying hydrocarbon-bearing zones.
Emphasize technical expertise. Our 10 explorationists have an average of
approximately 20 years experience in exploration in the Gulf of Mexico. In our
efforts to attract and retain explorationists, we offer an entrepreneurial
culture, an extensive 3-D seismic database, state-of-the-art computer-aided
exploration technology and other technical tools. All of our explorationists
have purchased equity in Spinnaker.
As Spinnaker matures, we are moving towards retaining larger working
interests in prospects located in water depths of less than 2,000 feet. The
combination of larger working interests and our technical expertise should
allow us to act as the operator for an increasing number of these prospects,
providing us with more control of costs, timing and amount of capital
expenditures, and the selection of technology.
Sustain a balanced, diversified exploration effort. We believe that our
exploration approach results in portfolio balance and diversity among:
. shallow water, or water depths of less than 600 feet, and deep water
prospects;
. shallow drilling depth, or drilling depths of less than 12,000 feet, and
deep drilling depth prospects; and
. lower-risk, lower-potential prospects and higher-risk, higher-potential
prospects.
We have used joint ventures to help diversify our exploration activities.
Our 3-D seismic data's broad coverage of the Gulf of Mexico allows us to
participate in a variety of geologically diverse exploration opportunities and
create a diversified prospect portfolio. We intend to manage our exposure in
deep water exploration activities by focusing on prospects where commercial
feasibility of the prospect can be evaluated with one or two wells and where we
believe 3-D seismic analysis provides attractive risk/reward benefits. We also
strive to diversify our exploration efforts by seeking to limit the budgeted
amount of the leasehold acquisition and drilling cost of the first exploratory
well on any one prospect to less than 10 percent of our annual capital budget.
We believe that maintaining continuity in our exploration activity during
all phases of the commodity price cycles is an important element to balance and
diversification. By positioning Spinnaker to continue exploring during periods
of low natural gas and oil prices, we potentially can take advantage of reduced
competition for prospects and lower drilling and other oil field service costs.
5
<PAGE>
Risks related to our strategy. Prospective investors should carefully
consider the matters set forth under the caption "Risk Factors," as well as the
other information set forth in this prospectus, including that our future
operating results are difficult to forecast because of our limited operating
history, the 3-D seismic data and other technologies we use cannot eliminate
exploration risk, our ability to find additional reserves could be materially
impaired if Petroleum Geo-Services terminates our data agreement or chooses not
to acquire any further data, our relatively small number of offshore properties
increases our exposure to production problems, reserve estimate inaccuracies
and our Gulf of Mexico focus subjects us to higher reserve replacement needs
and the natural gas and oil business involves many operating and financial
risks, especially in the deep waters of the Gulf of Mexico. One or more of
these matters could negatively impact our ability to implement successfully our
business strategy.
Significant Exploration Discoveries
Since our inception, we have concentrated on the exploration for natural gas
and oil in the Gulf of Mexico. Our most significant exploration discoveries as
of August 31, 1999 are summarized in the table below. Please also read
"Business and Properties--Exploration Activities--Significant Exploration
Discoveries" for a more detailed discussion of these discoveries.
<TABLE>
<CAPTION>
Percent of
Spinnaker Approximate Date Production Spinnaker
Working Water Depth Commenced/ Total Net
Discovery Block Operator Interest (feet) Expected Present Value
--------------- ------------ --------- ----------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
Brazos A-19............. Shell 15% 130 4th Quarter 1999 15%
Garden Banks 367
(Dulcimer)............. Mariner 33 1/3% 1,100 April 1999 14%
South Timbalier 219..... Spinnaker 72 3/4% 150 1st Quarter 2000 12%
East Cameron 152........ Ocean Energy 50% 80 April 1999 10%
South Timbalier 220..... Samedan 33 1/3% 150 August 1998 10%
West Cameron 39......... Spinnaker 60% 30 January 1999 9%
Mississippi Canyon 496
(Zia).................. Shell 12 1/2% 1,800 4th Quarter 2001 7%
High Island 235......... Spinnaker 50% 60 April 1999 6%
Vermilion 375........... Spinnaker 70% 300 2nd Quarter 2000 5%
South Pelto 18.......... Hall-Houston 25% 50 December 1998 5%
West Cameron 522........ Newfield 46% 180 March 1998 4%
</TABLE>
Our Executive Offices
Our principal executive offices are located at 1200 Smith Street, Suite 800,
Houston, Texas 77002, and our telephone number is (713) 759-1770.
6
<PAGE>
The Offering
<TABLE>
<S> <C>
Common stock offered by Spinnaker.. 8,000,000 shares
Common stock to be outstanding
after this offering............... 20,235,026 shares(1)
Use of proceeds.................... We intend to use the net proceeds of this
offering to repay all outstanding
indebtedness under our credit facility and
to fund a portion of our exploration and
development activities.
Proposed Nasdaq National Market
symbol............................ SPNX
</TABLE>
- --------
(1) Excludes 2,673,242 shares of common stock issuable on exercise of
outstanding options at a weighted average exercise price of $9.58 per share
and 633,824 shares of common stock issuable on exercise of options to be
granted on completion of this offering at an exercise price equal to the
initial public offering price.
7
<PAGE>
Summary Consolidated Financial Data
(in thousands, except share and per share data)
The following table sets forth some of our historical consolidated financial
data. You should read the following data in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our consolidated financial statements included elsewhere in this prospectus.
<TABLE>
<CAPTION>
Period from
Inception
(December 20, Year Ended Six Months Ended
1996) through December 31, June 30,
December 31, -------------------- --------------------
1996 1997 1998 1998 1999
------------- --------- --------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Natural gas and oil
revenues............... $ -- $ 201 $ 3,298 $ 961 $ 9,583
--------- --------- --------- --------- ---------
Expenses:
Lease operating
expenses.............. -- 72 474 331 1,183
Depreciation,
depletion and
amortization--natural
gas and oil
properties............ -- 68 2,738 648 7,619
Depreciation and
amortization--other... 10 349 437 136 98
Impairment of natural
gas and oil
properties............ -- -- 2,642 -- --
General and
administrative........ 318 1,965 3,809 1,959 2,244
Stock appreciation
rights expense........ -- -- -- 904 1,651
--------- --------- --------- --------- ---------
Total expenses....... 328 2,454 10,100 3,978 12,795
--------- --------- --------- --------- ---------
Loss from operations.... (328) (2,253) (6,802) (3,017) (3,212)
--------- --------- --------- --------- ---------
Other income (expense):
Interest income........ -- 91 221 133 85
Interest expense....... -- -- (516) -- (2,007)
Capitalized interest... -- -- 237 -- 634
--------- --------- --------- --------- ---------
Loss before income
taxes.................. (328) (2,162) (6,860) (2,884) (4,500)
Income tax provision... -- -- -- -- --
--------- --------- --------- --------- ---------
Loss before cumulative
effect of change in
accounting principle... (328) (2,162) (6,860) (2,884) (4,500)
Cumulative effect of
change in accounting
principle (1).......... -- -- -- -- (395)
--------- --------- --------- --------- ---------
Net loss................ $ (328) $ (2,162) $ (6,860) $ (2,884) $ (4,895)
========= ========= ========= ========= =========
Accrual of dividends on
preferred stock........ (16) (1,326) (7,094) (2,498) (5,088)
--------- --------- --------- --------- ---------
Net loss available to
common stockholders.... $ (344) $ (3,488) $ (13,954) $ (5,382) $ (9,983)
========= ========= ========= ========= =========
Basic and diluted loss
per common share (2):
Loss before cumulative
effect of change in
accounting
principle............. $ (0.09) $ (0.88) $ (3.44) $ (1.33) $ (2.33)
Cumulative effect of
change in accounting
principle (1)......... -- -- -- -- (0.10)
--------- --------- --------- --------- ---------
Net loss per common
share................. $ (0.09) $ (0.88) $ (3.44) $ (1.33) $ (2.43)
========= ========= ========= ========= =========
Weighted average number
of common shares
outstanding--basic and
diluted (2)............ 3,960,000 3,960,000 4,059,020 4,054,514 4,112,795
========= ========= ========= ========= =========
Other Data:
Adjusted EBITDA (3)..... $ (318) $ (1,836) $ (985) $ (1,329) $ 6,156
Net cash provided by
(used in) operating
activities............. (12) (5,523) (2,776) 241 4,508
Net cash used in
investing activities... -- (15,236) (68,503) (35,515) (47,673)
Net cash provided by
financing activities... 4,590 18,863 70,738 34,000 45,000
Capital expenditures.... -- 15,578 85,681 38,691 33,575
<CAPTION>
December 31, June 30, 1999
---------------------------------- --------------------
As
1996 1997 1998 Actual Adjusted
------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents............ $ 4,578 $ 2,682 $ 2,141 $ 3,976 $ 66,413
Current assets.......... 4,588 6,348 6,737 15,156 77,593
Total assets............ 5,241 22,358 102,769 139,552 201,989
Short-term debt......... -- -- 19,000 64,000 --
Other current
liabilities............ 1,858 2,096 18,378 10,005 10,005
Accrued preferred
dividends payable...... 16 1,383 8,478 13,566 --
Other long-term
liabilities............ -- -- -- -- --
Total equity............ 3,367 18,879 56,913 51,981 191,984
</TABLE>
8
<PAGE>
- --------
(1) The cumulative effect of change in accounting principle represents our
adoption of Statement of Position 98-5--Reporting on the Costs of Start-Up
Activities.
(2) Spinnaker was originally formed as a limited liability company, and we
issued common units and preferred units. In connection with our conversion
to a corporation in January 1998, we exchanged common stock for all then
outstanding common units and preferred stock for all then outstanding
preferred units. We express all historical unit data in shares.
(3) As used in this prospectus, Adjusted EBITDA means earnings before interest,
income taxes, depreciation, depletion and amortization, impairment of
natural gas and oil properties, and stock appreciation rights expense.
Adjusted EBITDA is not a calculation based upon generally accepted
accounting principles. Adjusted EBITDA should not be considered as an
alternative to net income as an indicator of our operating performance, or
as an alternative to cash flow as a better measure of liquidity. Adjusted
EBITDA measures presented in this prospectus may not be comparable to other
similarly titled measures reported by other companies. In evaluating
Adjusted EBITDA, Spinnaker believes that investors should consider, among
other things, the amount by which Adjusted EBITDA exceeds interest costs,
how Adjusted EBITDA compares to principal repayments on debt and how
Adjusted EBITDA compares to capital expenditures for each period.
The "As Adjusted" balance sheet data:
. gives effect to the application of the $126.5 million of estimated net
proceeds from the sale of common stock in this offering and the issuance
of shares of common stock to our preferred stockholders in lieu of
payment of accrued cash dividends; and
. assumes an initial public offering price for our common stock equal to
the mid-point of the range appearing on the cover page of this
prospectus.
Pro Forma Data
(in thousands, except share and per share data)
The pro forma net loss data presented in the following table gives effect
to:
. the conversion of all outstanding shares of our preferred stock into
common stock as if the conversion had occurred as of the beginning of the
period presented;
. the issuance of shares of common stock to holders of approximately 99.5%
of our preferred stock in lieu of payment of accrued cash dividends as if
the issuance had occurred as of the beginning of the period presented;
and
. the use of a portion of the estimated net proceeds of this offering at an
assumed offering price of $17.00 per share to pay all outstanding
indebtedness all as if the transaction had occurred at the beginning of
the period presented.
<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31, 1998 June 30, 1999
----------------- ----------------
<S> <C> <C>
Pro forma net loss......................... $ (6,344) $ (2,888)
========== ==========
Pro forma basic and diluted loss per common
share:
Loss before cumulative effect of change
in accounting principle................. $ (0.45) $ (0.13)
Cumulative effect of change in accounting
principle............................... -- (0.02)
---------- ----------
Pro forma net loss per common share...... $ (0.45) $ (0.15)
========== ==========
Pro forma weighted average number of common
shares outstanding--basic and diluted..... 14,063,234 18,704,071
========== ==========
</TABLE>
9
<PAGE>
Summary Reserve Information
The table below presents our summary reserve information as of August 31,
1999. Estimates of proved reserves are based on the August 31, 1999 reserve
report prepared by Ryder Scott Company, L.P., our independent petroleum
engineering consultants. Appendix A to this prospectus contains a letter
prepared by Ryder Scott summarizing the reserve report. For additional
information relating to our natural gas and oil reserves, please read "Business
and Properties--Natural Gas and Oil Reserves" and note 13 of the notes to our
consolidated financial statements.
The present value of future net cash flows attributable to our proved
reserves on a pre-tax basis using prices and costs in effect at August 31,
1999, discounted at 10% per annum, was determined by using the August 31, 1999
prices of $2.83 per MMBtu of natural gas at Henry Hub, Louisiana and $22.11 per
Bbl of oil at the Cushing NYMEX Pricing Hub. If the present value of future net
cash flows were calculated on an after-tax basis, this amount would not change
because of our tax basis in natural gas and oil properties and our net
operating loss carryforwards. Please read note 13 of the notes to our
consolidated financial statements.
<TABLE>
<CAPTION>
As of
August 31,
1999
----------
<S> <C>
Estimated proved reserves:
Natural gas (MMcf)................................................. 67,302
Oil and condensate (MBbls)......................................... 2,307
Total (MMcfe).................................................... 81,144
Proved developed reserves as a percentage of proved reserves......... 46%
Present value (in thousands)......................................... $152,223
</TABLE>
Summary Operating Data
<TABLE>
<CAPTION>
Year Ended Six Months
December Ended June
31, 30,
----------- -----------
1997 1998 1998 1999
----- ----- ----- -----
<S> <C> <C> <C> <C>
Production:
Natural gas (MMcf)................................... 70 1,675 482 4,258
Oil and condensate (MBbls)........................... -- 12 1 49
Total (MMcfe)........................................ 70 1,747 488 4,552
Average sales price per unit:
Natural gas (per Mcf)................................ $2.87 $1.89 $1.97 $2.09
Oil and condensate (per Bbl)......................... 18.51 11.61 13.24 14.70
Total (per Mcfe)..................................... 2.87 1.89 1.97 2.11
Expenses (per Mcfe):
Lease operating expense.............................. $1.03 $0.27 $0.68 $0.26
Depreciation, depletion and amortization--natural gas
and oil properties.................................. 0.97 1.57 1.33 1.67
</TABLE>
10
<PAGE>
RISK FACTORS
Investing in our common stock will provide you with an equity ownership in
Spinnaker. As one of our stockholders, you will be subject to risks inherent in
our business. The trading price of your shares will be affected by the
performance of our business relative to, among other things, competition,
market conditions and general economic and industry conditions. The value of
your investment may decrease, resulting in a loss. You should carefully
consider the following factors as well as other information contained in this
prospectus before deciding to invest in shares of our common stock.
Because we have a limited operating history and have incurred losses from
operations since our formation, our future operating results are difficult to
forecast. Our failure to achieve or sustain profitability in the future could
adversely affect the market price of our common stock.
We were formed in December 1996 and, as a result, we have a limited
operating history. Our limited operating history and the unpredictable results
of our exploration and development strategy make it difficult to forecast our
operating results. In addition, we have incurred losses from operations each
year since our formation. Our failure to achieve or sustain profitability in
the future could adversely affect the market price of our common stock.
In considering whether to invest in our common stock, you should consider
the limited historical financial and operating information available on which
to base your evaluation of our performance. In addition, because we are less
experienced and have fewer financial resources than many companies in our
industry, we may be at a disadvantage in bidding for exploratory prospects and
producing natural gas and oil properties. Please read "Business and
Properties--Competition" for a description of the competition we face in our
business.
We incurred net losses of $328,000 in 1996, $2.2 million in 1997, $6.9
million in 1998 and $4.9 million in the first six months of 1999. We expect to
incur a loss for the third quarter of 1999. Our development of and
participation in an increasingly larger number of prospects has required and
will continue to require substantial capital expenditures. We cannot assure you
that we will achieve or sustain profitability or positive cash flows from
operating activities in the future.
Exploration is a high-risk activity, and the 3-D seismic data and other
advanced technologies we use cannot eliminate exploration risk and require
experienced technical personnel whom we may be unable to attract or retain.
Our future success will depend on the success of our exploratory drilling
program. Exploration activities involve numerous risks, including the risk that
no commercially productive natural gas or oil reservoirs will be discovered. In
addition, we often are uncertain as to the future cost or timing of drilling,
completing and producing wells. Furthermore, our drilling operations may be
curtailed, delayed or canceled as a result of the additional exploration time
and expense associated with a variety of factors, including:
. unexpected drilling conditions;
. pressure or irregularities in formations;
. equipment failures or accidents;
. adverse weather conditions;
. compliance with governmental requirements; and
. shortages or delays in the availability of drilling rigs and the delivery
of equipment.
Even when used and properly interpreted, 3-D seismic data and visualization
techniques only assist geoscientists in identifying subsurface structures and
hydrocarbon indicators. They do not allow the interpreter to know conclusively
if hydrocarbons are present or economically producible. We could incur losses
as a result
11
<PAGE>
of these expenditures. Poor results from our exploration activities could
affect our future cash flows and results of operations materially and
adversely.
Our exploratory drilling success will depend, in part, on our ability to
attract and retain experienced explorationists and other professional
personnel. Competition for explorationists and engineers with experience in the
Gulf of Mexico is extremely intense. If we cannot retain our current personnel
or attract additional experienced personnel, our ability to compete in the Gulf
of Mexico could be adversely affected.
If Petroleum Geo-Services terminates our data agreement or chooses not to
acquire any further data, our ability to find additional reserves could be
materially impaired.
Our success depends heavily on our access to 3-D seismic data, and our
primary source for 3-D seismic data is our data agreement with Petroleum Geo-
Services. If Petroleum Geo-Services terminates our agreement, we would lose
substantially all of our current access to 3-D seismic data which loss would
have a material adverse effect on our ability to find additional reserves.
Petroleum Geo-Services may terminate our data agreement on several grounds,
including if a Petroleum Geo-Services competitor acquires control of us or we
breach the agreement subject to specified exceptions. For a description of
these exceptions, please read "Business and Properties--Petroleum Geo-Services
Data Agreement--Termination Events."
Although we currently have received under our Petroleum Geo-Services data
agreement 3-D seismic data covering approximately 4,100 blocks in the Gulf of
Mexico, we anticipate obtaining additional 3-D seismic data to be acquired or
processed by Petroleum Geo-Services between now and March 31, 2002. However,
there are a number of scenarios under which we might not receive significant
additional data from Petroleum Geo-Services. Our agreement does not require
Petroleum Geo-Services to acquire or process any further data. Petroleum Geo-
Services could elect to substantially reduce or cease activities in the Gulf of
Mexico during the remaining term of our agreement. Among other things, such an
election could result from a change of control of Petroleum Geo-Services or
changes in Petroleum Geo-Services' competitive, financial or technological
status.
Alternatively, Petroleum Geo-Services could significantly increase the
acquisition or processing of data in the Gulf of Mexico that it is not required
to share with us. For example, Petroleum Geo-Services could focus on acquiring
and processing data on an exclusive contractual basis and not for sale to
multiple customers. In addition, if Petroleum Geo-Services were to engage new
marketing vendors who would not agree to the terms of our agreement with
Petroleum Geo-Services, then we would not have access to the data marketed
through those vendors. Petroleum Geo-Services could also elect to acquire or
process other seismic data, including future generations of seismic data, to
which we are not entitled or for which our rights are limited. Our right to
enhanced data could also be adversely affected if Petroleum Geo-Services were
to elect to sell the right to enhance and market its data without retaining a
material royalty or similar interest.
Natural gas and oil prices fluctuate widely, and low prices could have a
material adverse impact on our business.
Our revenues, profitability and future growth depend substantially on
prevailing prices for natural gas and oil. Prices also affect the amount of
cash flow available for capital expenditures and our ability to borrow and
raise additional capital. The amount we can borrow under our credit facility is
subject to periodic re-determination based in part on changing expectations of
future prices. Lower prices may also reduce the amount of natural gas and oil
that we can economically produce.
Prices for natural gas and oil fluctuate widely. For example, natural gas
and oil prices declined significantly in 1998 and, for an extended period of
time, remained substantially below prices obtained in previous years. Among the
factors that can cause this fluctuation are:
12
<PAGE>
. the level of consumer product demand;
. weather conditions;
. domestic and foreign governmental regulations;
. the price and availability of alternative fuels;
. political conditions in natural gas and oil producing regions;
. the domestic and foreign supply of natural gas and oil;
. the price of foreign imports; and
. overall economic conditions.
Reserve estimates depend on many assumptions that may turn out to be
inaccurate. Any material inaccuracies in these reserve estimates or underlying
assumptions will materially affect the quantities and present value of our
reserves.
The process of estimating natural gas and oil reserves is complex. It
requires interpretations of available technical data and various assumptions,
including assumptions relating to economic factors. Any significant
inaccuracies in these interpretations or assumptions could materially affect
the estimated quantities and present value of reserves shown in this
prospectus. Please read "Business and Properties--Natural Gas and Oil Reserves"
for a discussion of our proved natural gas and oil reserves.
In order to prepare these estimates we must project production rates and
timing of development expenditures. We must also analyze available geological,
geophysical, production and engineering data, and the extent, quality and
reliability of this data can vary. The process also requires economic
assumptions such as natural gas and oil prices, drilling and operating
expenses, capital expenditures, taxes and availability of funds. Therefore,
estimates of natural gas and oil reserves are inherently imprecise.
Actual future production, natural gas and oil prices, revenues, taxes,
development expenditures, operating expenses and quantities of recoverable
natural gas and oil reserves most likely will vary from our estimates. Any
significant variance could materially affect the estimated quantities and
present value of reserves shown in this prospectus. In addition, we may adjust
estimates of proved reserves to reflect production history, results of
exploration and development, prevailing natural gas and oil prices and other
factors, many of which are beyond our control. At August 31, 1999, 70% of our
proved reserves were either proved undeveloped or proved non-producing.
Moreover, the producing wells included in our reserve report had produced for a
relatively short period of time as of August 31, 1999. Because most of our
reserve estimates are not based on a lengthy production history and are
calculated using volumetric analysis, these estimates are less reliable than
estimates based on a lengthy production history.
You should not assume that the present value of future net cash flows from
our proved reserves referred to in this prospectus is the current market value
of our estimated natural gas and oil reserves. In accordance with SEC
requirements, we generally base the estimated discounted future net cash flows
from our proved reserves on prices and costs on the date of the estimate.
Actual future prices and costs may differ materially from those used in the
present value estimate.
A significant part of the value of our production and reserves is concentrated
in a small number of offshore properties. Because of this concentration, any
production problems or inaccuracies in reserve estimates related to those
properties are more likely to adversely impact our business.
During August 1999, over 88% of our daily production came from four of our
properties in the Gulf of Mexico. If mechanical problems, storms or other
events curtailed a substantial portion of this production, our cash flow would
be adversely affected. In addition, at August 31, 1999, our proved reserves
were located on 15
13
<PAGE>
properties in the Gulf of Mexico, with approximately 50% of our proved reserves
attributable to four of these properties. If the actual reserves associated
with any one of these properties are less than our estimated reserves, our
results of operations and financial condition could be adversely affected.
We are vulnerable to operational, regulatory and other risks associated with
the Gulf of Mexico because we currently explore and produce exclusively in that
area.
Our operations and revenues are impacted acutely by conditions in the Gulf
of Mexico because we currently explore and produce exclusively in that area.
This concentration of activity makes us more vulnerable than many of our
competitors to the risks associated with the Gulf of Mexico, including delays
and increased costs relating to:
. adverse weather conditions;
. increased oil field service costs;
. difficulties securing oil field services; and
. compliance with environmental and other laws and regulations.
Relatively short production periods for Gulf of Mexico properties subject us to
higher reserve replacement needs and may impair our ability to reduce
production during periods of low natural gas and oil prices.
Production of reserves from reservoirs in the Gulf of Mexico generally
declines more rapidly than from reservoirs in many other producing regions of
the world. This results in recovery of a relatively higher percentage of
reserves from properties in the Gulf of Mexico during the initial few years of
production, and as a result, our reserve replacement needs from new prospects
are greater.
Also, our revenues and return on capital will depend significantly on prices
prevailing during these relatively short production periods. Our potential need
to generate revenues to fund ongoing capital commitments or reduce indebtedness
may limit our ability to slow or shut-in production from producing wells during
periods of low prices for natural gas and oil.
The failure to replace our reserves would adversely affect our production and
cash flows.
Our future natural gas and oil production depends on our success in finding
or acquiring additional reserves. If we fail to replace reserves, our level of
production and cash flows would be adversely impacted. In general, production
from natural gas and oil properties declines as reserves are depleted, with the
rate of decline depending on reservoir characteristics. Our total proved
reserves decline as reserves are produced unless we conduct other successful
exploration and development activities or acquire properties containing proved
reserves, or both. Our ability to make the necessary capital investment to
maintain or expand our asset base of natural gas and oil reserves would be
impaired to the extent cash flow from operations is reduced and external
sources of capital become limited or unavailable. We may not be successful in
exploring for, developing or acquiring additional reserves. If we are not
successful, our future production and revenues will be adversely affected.
The natural gas and oil business involves many operating risks that can cause
substantial losses.
The natural gas and oil business involves a variety of operating risks,
including:
. fires;
. explosions;
. blow-outs and surface cratering;
. uncontrollable flows of underground natural gas, oil and formation water;
14
<PAGE>
. natural disasters;
. pipe or cement failures;
. casing collapses;
. embedded oil field drilling and service tools;
. abnormally pressured formations; and
. environmental hazards such as natural gas leaks, oil spills, pipeline
ruptures and discharges of toxic gases.
If any of these events occur, we could incur substantial losses as a result
of:
. injury or loss of life;
. severe damage to and destruction of property, natural resources and
equipment;
. pollution and other environmental damage;
. clean-up responsibilities;
. regulatory investigation and penalties;
. suspension of our operations; and
. repairs to resume operations.
If we experience any of these problems, it could affect well bores,
platforms, gathering systems and processing facilities, which could adversely
affect our ability to conduct operations.
Offshore operations are also subject to a variety of operating risks
peculiar to the marine environment, such as capsizing, collisions and damage or
loss from hurricanes or other adverse weather conditions. These conditions can
cause substantial damage to facilities and interrupt production. As a result,
we could incur substantial liabilities that could reduce or eliminate the funds
available for exploration, development or leasehold acquisitions, or result in
loss of properties.
We do not carry business interruption insurance. For some risks, we may not
obtain insurance if we believe the cost of available insurance is excessive
relative to the risks presented. In addition, pollution and environmental risks
generally are not fully insurable. If a significant accident or other event
occurs and is not fully covered by insurance, it could adversely affect our
operations.
Exploration for natural gas and oil in the deep waters of the Gulf of Mexico
involves greater operational and financial risks than exploration in shallower
waters, and our expansion into the deep water could result in substantial
losses.
As part of our strategy, we intend to explore for natural gas and oil in the
deep waters of the Gulf of Mexico where operations are more difficult and
costly than in shallower waters. For example, near surface geologic conditions
in the deep waters create unique operational challenges. Deep water drilling
and operations also require the application of relatively untested technologies
that involve a higher risk of mechanical failure and generally have
significantly higher drilling and operating costs. Furthermore, the deep waters
of the Gulf of Mexico lack the physical and oil field service infrastructure
present in the shallower waters of the Gulf of Mexico. As a result, deep water
operations may require a significant amount of time between a discovery and the
time that we can market the natural gas or oil, increasing the risk involved
with these operations.
15
<PAGE>
We cannot control the activities on properties we do not operate.
Other companies operate most of the properties in which we have an interest.
As a result, we have a limited ability to exercise influence over operations
for these properties or their associated costs. Our dependence on the operator
and other working interest owners for these projects and our limited ability to
influence operations and associated costs could materially adversely affect the
realization of our targeted returns on capital in drilling or acquisition
activities. The success and timing of our drilling and development activities
on properties operated by others therefore depend upon a number of factors that
are outside of our control, including:
. timing and amount of capital expenditures;
. the operator's expertise and financial resources;
. approval of other participants in drilling wells; and
. selection of technology.
Our success depends on our Chief Executive Officer and other key personnel, the
loss of whom could disrupt our business operations.
We depend to a large extent on the efforts and continued employment of our
President and Chief Executive Officer, Roger L. Jarvis, and other key
personnel. If Mr. Jarvis or these other key personnel resign or become unable
to continue in their present role and if they are not adequately replaced, our
business operations could be adversely affected. Please read "Management" for
information regarding Mr. Jarvis and other members of our management team.
We may have difficulty financing our planned growth.
We have experienced and expect to continue to experience substantial capital
expenditure and working capital needs, particularly as a result of our drilling
program. In the future, we will require additional financing, in addition to
cash generated from our operations, to fund our planned growth. We cannot be
certain that additional financing will be available to us on acceptable terms
or at all. In the event additional capital resources are unavailable, we may
curtail our drilling, development and other activities or be forced to sell
some of our assets on an untimely or unfavorable basis.
Competition in our industry is intense, and we are smaller and have a more
limited operating history than most of our competitors in the Gulf of Mexico.
We compete with major and independent natural gas and oil companies for
property acquisitions. We also compete for the equipment and labor required to
operate and develop these properties. Most of our competitors have
substantially greater financial and other resources than us. In addition,
larger competitors may be able to absorb the burden of any changes in federal,
state and local laws and regulations more easily than we can, which would
adversely affect our competitive position. These competitors may be able to pay
more for exploratory prospects and productive natural gas and oil properties
and may be able to define, evaluate, bid for and purchase a greater number of
properties and prospects than we can. Our ability to explore for natural gas
and oil prospects and to acquire additional properties in the future will
depend on our ability to conduct operations, to evaluate and select suitable
properties and to consummate transactions in this highly competitive
environment. In addition, most of our competitors have been operating in the
Gulf of Mexico for a much longer time than we have and have demonstrated the
ability to operate through industry cycles.
Our competitors may use superior technology which we may be unable to afford or
which would require costly investment by us in order to compete.
Our industry is subject to rapid and significant advancements in technology,
including the introduction of new products and services using new technologies.
As our competitors use or develop new technologies, we may be placed at a
competitive disadvantage, and competitive pressures may force us to implement
new
16
<PAGE>
technologies at a substantial cost. In addition, our competitors may have
greater financial, technical and personnel resources that allow them to enjoy
technological advantages and may in the future allow them to implement new
technologies before we can. We cannot be certain that we will be able to
implement technologies on a timely basis or at a cost that is acceptable to us.
One or more of the technologies that we currently use or that we may implement
in the future may become obsolete, and we may be adversely affected. For
example, marine seismic acquisition technology has been characterized by rapid
technological advancements in recent years and further significant
technological developments could substantially impair our 3-D seismic data's
value.
One customer currently purchases all of our natural gas production. As a
result, if this customer defaults on its payment obligations, our near-term
earnings and cash flows would be adversely affected.
Currently, Columbia Energy Services purchases all of our natural gas
production at current market prices. The terms of our arrangement with Columbia
require Columbia to pay us within 60 to 90 days after we deliver our production
to Columbia. As a result, if Columbia were to default on its payment
obligations to us, our near-term earnings and cash flows would be adversely
affected.
We are subject to complex laws and regulations, including environmental
regulations, that can adversely affect the cost, manner or feasibility of doing
business.
Exploration for and development, production and sale of natural gas and oil
in the U.S. and especially in the Gulf of Mexico are subject to extensive
federal, state and local laws and regulations, including environmental laws and
regulations. We may be required to make large expenditures to comply with
environmental and other governmental regulations. Matters subject to regulation
include:
. discharge permits for drilling operations;
. drilling bonds;
. reports concerning operations; and
. taxation.
Under these laws and regulations, we could be liable for personal injuries,
property damage, oil spills, discharge of hazardous materials, remediation and
clean-up costs and other environmental damages. We do not believe that full
insurance coverage for all potential environmental damages is available at a
reasonable cost. Failure to comply with these laws and regulations also may
result in the suspension or termination of our operations and subject us to
administrative, civil and criminal penalties. Moreover, these laws and
regulations could change in ways that substantially increase our costs. For
example, Congress or the Minerals Management Service could decide to limit
exploratory drilling or natural gas production in some areas of the Gulf of
Mexico. Accordingly, any of these liabilities, penalties, suspensions,
terminations or regulatory changes could materially adversely affect our
financial condition and results of operations.
Hedging our production may result in losses.
To reduce our exposure to fluctuations in the prices of natural gas and oil,
we have recently begun to enter into hedging arrangements. Hedging arrangements
expose us to risk of financial loss in some circumstances including the
following:
. production is less than expected;
. the other party to the hedging contract defaults on its contract
obligations; or
. there is a change in the expected differential between the underlying
price in the hedging agreement and actual prices received.
17
<PAGE>
In addition, these hedging arrangements may limit the benefit we would
receive from increases in the prices for natural gas and oil. Furthermore, if
we choose not to engage in hedging arrangements in the future, we may be more
adversely affected by changes in natural gas and oil prices than our
competitors who engage in hedging arrangements.
Petroleum Geo-Services, Warburg, Pincus Ventures and our management own a
significant amount of common stock giving them influence or control in
corporate transactions and other matters, and the interest of Warburg, Pincus
Ventures or Petroleum Geo-Services could differ from those of other
stockholders.
On completion of this offering, Warburg, Pincus Ventures, Petroleum Geo-
Services, and our executive officers will beneficially own approximately 62% of
our outstanding shares of common stock, assuming no exercise of the
underwriters' over-allotment option. As a result, these stockholders will be in
a position to significantly influence or control the outcome of matters
requiring a stockholder vote, including the election of directors, the adoption
of an amendment to our certificate of incorporation or bylaws and the approval
of mergers and other significant corporate transactions. In addition, on
completion of this offering representatives of Petroleum Geo-Services and
Warburg, Pincus Ventures will constitute a majority of our board of directors.
Their control of Spinnaker may have the effect of delaying or preventing a
change of control of Spinnaker and may adversely affect the voting and other
rights of other stockholders.
Furthermore, conflicts of interest could arise in the future between
Spinnaker, on the one hand, and Warburg, Pincus Ventures or Petroleum Geo-
Services, on the other hand, concerning, among other things, potential
competitive business activities or business opportunities. Except for the
limited restrictions placed on Petroleum Geo-Services in our data agreement
with Petroleum Geo-Services, neither Warburg, Pincus Ventures nor Petroleum
Geo-Services are restricted from competitive natural gas and oil exploration
and production activities or investments. Warburg, Pincus Ventures currently
has significant equity interests in other public and private natural gas and
oil companies. The interest of Warburg, Pincus Ventures or Petroleum Geo-
Services could differ from those of our other stockholders. Please read
"Certain Transactions" for a discussion of agreements with those stockholders.
Substantially all of our outstanding shares may be sold into the market in the
near future. This could cause the market price of our common stock to drop
significantly, even if our business is doing well.
The market price of our common stock could drop due to sales of a large
number of shares of our common stock in the market after the offering or the
perception that such sales could occur. This could make it more difficult to
raise funds through future offerings of common stock. Please read "Shares
Eligible for Future Sale."
On completion of this offering, we will have outstanding 20,235,026 shares
of our common stock, assuming no exercise of the underwriters' over-allotment
option. This includes the 8,000,000 shares we are selling in this offering,
which may be resold in the public market immediately. Of the remaining shares,
12,191,740 shares will become available for resale in the public market after a
period of 180 days after the date of this prospectus, with some exceptions. All
shares of our stock outstanding prior to this offering could be sold following
the 180-day period either in transactions registered under the Securities Act
or exempt from registration. In addition, our current stockholders collectively
have rights that provide for the registration of the resale of their shares of
common stock at our expense. Please read "Certain Transactions" and
"Description of Capital Stock--Registration Rights" for a description of these
registration rights.
Options to purchase approximately 2,673,242 shares of common stock are
currently outstanding, and we anticipate granting additional options to
purchase up to 633,824 shares of common stock to some of our
18
<PAGE>
directors, officers and employees on completion of this offering. After this
offering, we intend to file a registration statement covering the sale of the
common stock issuable upon exercise of those options. The shares received upon
exercise generally will be freely transferable. Please read "Management--1998
Stock Option Plan" and "--1999 Stock Incentive Plan."
Our certificate of incorporation and bylaws contain provisions that could
discourage an acquisition or change of control of Spinnaker.
Our certificate of incorporation authorizes our board of directors to issue
preferred stock without stockholder approval. If our board of directors elects
to issue preferred stock, it could be more difficult for a third party to
acquire control of us, even if that change of control might be beneficial to
stockholders. In addition, provisions of the certificate of incorporation and
bylaws, such as no stockholder action by written consent and limitations on
stockholder proposals at meetings of stockholders, could also make it more
difficult for a third party to acquire control of us. Please read "Description
of Capital Stock" for additional details concerning the provisions of our
certificate of incorporation and bylaws.
Our computer systems and the computer systems of our business partners may not
be Year 2000 compliant, which may cause system failures and disruptions
adversely affecting our operations.
The "Year 2000" issue is a general term used to refer to the business
implications of the arrival of the new millennium. In simple terms, on January
1, 2000, all computer hardware and software systems that use the two-digit year
convention could fail completely or create erroneous data as a result of the
system failing to recognize the two-digit internal date "00" as representing
the Year 2000. Our computer systems and the computer systems of our business
partners may not be Year 2000 compliant, which may cause system failures and
disruptions adversely affecting our operations. Please read "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Year
2000 Compliance."
We cannot assure you that our internal operations do not have any material
issues with respect to Year 2000 compliance. In addition, we may not properly
identify all potential problems or all potentially affected systems or remedy
all problems in our systems. Furthermore, the Year 2000 issue also affects our
customers, the suppliers of our 3-D seismic data, and other third parties with
whom we do business. The failure of any of these entities to become Year 2000
compliant could adversely affect our operations. The most reasonably likely
"worst case" impacts would be:
. impairment of our ability to deliver our production to, or receive
payment from, third parties gathering and/or purchasing our production
from affected facilities;
. impairment of the ability of third-party suppliers or service companies
to provide needed materials or services to our planned or ongoing
operations, necessitating deferral or shut-in of exploration, development
or production operations;
. impairment of our ability to receive and process 3-D seismic data, which
would hinder our ability to generate and drill exploratory prospects; and
. our inability to execute financial transactions with our banks or other
third parties whose systems fail or malfunction.
19
<PAGE>
CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS
Some of the information in this prospectus contains forward-looking
statements. These statements express, or are based on, our expectations about
future events. These include such matters as:
. amount, nature and timing of capital expenditures;
. drilling of wells;
. timing and amount of future production of natural gas and oil;
. operating costs and other expenses;
. cash flow and anticipated liquidity;
. prospect development and property acquisitions;
. marketing of natural gas and oil; and
. Year 2000 compliance activities.
There are many factors that could cause these forward-looking statements to
be incorrect, including, but not limited to, the risks described under "Risk
Factors" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations." These factors include, among others:
. the risks associated with exploration;
. our ability to find, acquire, market, develop and produce new properties;
. natural gas and oil price volatility;
. uncertainties in the estimation of proved reserves and in the projection
of future rates of production and timing of development expenditures;
. operating hazards attendant to the natural gas and oil business;
. downhole drilling and completion risks that are generally not recoverable
from third parties or insurance;
. potential mechanical failure or under performance of significant wells;
. climatic conditions;
. availability and cost of material and equipment;
. delays in anticipated start-up dates;
. actions or inactions of third-party operators of our properties;
. our ability to find and retain skilled personnel;
. availability of capital;
. the strength and financial resources of our competitors;
. regulatory developments;
. environmental risks;
. Year 2000 compliance actions; and
. general economic conditions.
When you consider these forward-looking statements, you should keep in mind
these risk factors and the other cautionary statements in this prospectus. Our
forward-looking statements speak only as of the date made.
20
<PAGE>
USE OF PROCEEDS
We estimate that we will receive net proceeds of $126.5 million, or $145.6
million if the underwriters exercise their over-allotment option in full, from
the sale of the 8,000,000 shares of common stock offered by this prospectus,
after deducting underwriting discounts and commissions and estimated offering
expenses. This estimate assumes a public offering price of $17.00 per share,
which is the mid-point of the offering price range on the cover page of this
prospectus.
We intend to use the net proceeds as follows:
. approximately $72.0 million to repay all of our outstanding debt under
our credit facility; and
. approximately $54.5 million to fund a portion of our exploration and
development activities.
Pending use for these purposes, we plan to invest the net proceeds in short-
term investment-grade interest-bearing securities.
Through 2000, we expect to use cash generated from operations to fund the
remaining portion of our exploration and development activities not funded from
the proceeds of this offering.
The weighted average interest rate for outstanding borrowings under our
credit facility as of June 30, 1999 was 5.79%. The credit facility has a
maturity of December 31, 1999. We have used borrowings under our current credit
facility to fund a portion of our exploration and development activities and
for other corporate purposes. Please read "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources--Credit Agreement" for a discussion of our current credit agreement.
DIVIDEND POLICY
We have never declared or paid any dividends on our common stock. We
currently intend to retain future earnings, if any, for the operation and
development of our business and do not anticipate paying any dividends on our
common stock in the foreseeable future. In addition, our current credit
agreement prohibits us from paying cash dividends on our common stock. Any
future dividends may also be restricted by any loan agreements which we may
enter into from time to time.
21
<PAGE>
DILUTION
The pro forma net tangible book value of our common stock on June 30, 1999
was approximately $5.43 per share of common stock, assuming conversion of all
outstanding shares of our preferred stock into common stock and the issuance of
847,226 shares of common stock to holders of approximately 99.5% of our
preferred stock on completion of this offering in lieu of payment of accrued
cash dividends. Pro forma net tangible book value per share is determined by
dividing our tangible net worth, or tangible assets less total liabilities, by
the total number of outstanding shares of common stock. After giving effect to
the sale of common stock offered by this prospectus and the receipt of the
estimated net proceeds, after deducting underwriting discounts and commissions
and estimated offering expenses, our net tangible book value at June 30, 1999
would have been approximately $9.58 per share. This represents an immediate and
substantial increase in the net tangible book value of $4.15 per share to
existing stockholders and an immediate dilution, resulting from the difference
between the initial public offering price and the pro forma net tangible book
value after this offering, to new investors purchasing common stock in this
offering. The following table illustrates the per share dilution to new
investors purchasing common stock in this offering at $17.00 per share:
<TABLE>
<S> <C> <C>
Assumed public offering price per share...................... $17.00
Pro forma net tangible book value per share at June 30,
1999...................................................... 5.43
Increase per share attributable to new investors........... 4.15
----
Pro forma net tangible book value per share after this
offering.................................................... 9.58
------
Dilution per share to new investors.......................... $ 7.42
======
</TABLE>
This table excludes all shares of common stock issuable on exercise of
options that will remain outstanding on completion of this offering. The
exercise of outstanding options with an exercise price less than the offering
price would increase the dilutive effect to new investors. Please read notes 5
and 6 of the notes to our consolidated financial statements.
The following table sets forth, at June 30, 1999, the number of shares of
common stock purchased from us, assuming the conversion of all shares of our
preferred stock into common stock, the total consideration and average price
per share paid by existing stockholders and by the new investors before
deducting expenses payable by us, assuming an initial public offering price of
$17.00 per share:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------ -------------------- Price
Number Percent Amount Percent Per Share
---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders......... 12,041,266 60% $ 93,253,000 41% $ 7.74
New investors................. 8,000,000 40 136,000,000 59 17.00
---------- --- ------------ ---
Total....................... 20,041,266 100% $229,253,000 100%
========== === ============ ===
</TABLE>
If the underwriters' over-allotment option is exercised in full, the number
of shares held by new investors will be increased to 9,200,000, or
approximately 43% of the total number of shares of our common stock, assuming
the conversion of all shares of our preferred stock into common stock.
The information presented in the above tables excludes:
. 168,760 shares of common stock we expect to issue to holders of our
preferred stock on completion of this offering in lieu of payment of
accrued cash dividends for the three months ending September 30, 1999;
and
. a total of 25,000 shares of common stock we expect to issue to Warburg,
Pincus Ventures and Petroleum Geo-Services on completion of this offering
for their agreement to guarantee our obligations under our current credit
agreement.
22
<PAGE>
CAPITALIZATION
The following table presents our capitalization as of June 30, 1999 on three
bases:
. on an actual basis;
. on a pro forma basis giving effect to:
. the conversion of all outstanding shares of our preferred stock into
common stock on completion of this offering;
. the issuance of shares of common stock to holders of approximately
99.5% of our preferred stock in lieu of payment of accrued cash
dividends on completion of this offering; and
. on a pro forma basis as adjusted to reflect our anticipated use of the
estimated net proceeds of this offering at an assumed offering price of
$17.00 per share.
Also, the table assumes an initial public offering price for our common
stock equal to the mid-point of the range appearing on the cover page of this
prospectus. The table excludes 168,760 shares of common stock we expect to
issue to holders of our preferred stock on completion of this offering in lieu
of payment of accrued cash dividends for the three months ending September 30,
1999. The table also excludes a total of 25,000 shares of common stock we
expect to issue to Warburg, Pincus Ventures and Petroleum Geo-Services on
completion of this offering for their agreement to guarantee our obligation
under our credit agreement. You should read the table in conjunction with "Use
of Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and our consolidated financial statements included in
this prospectus.
<TABLE>
<CAPTION>
June 30, 1999
--------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands)
<S> <C> <C> <C>
Cash and cash equivalents.................... $ 3,976 $ 3,913 $ 66,413
======== ======== ========
Short-term debt.............................. $ 64,000 $ 64,000 $ --
Accrued preferred dividends payable.......... 13,566 -- --
Stockholders' equity:
Preferred stock, $.01 par value, 3,030,920
shares authorized; 3,030,920 shares issued
and outstanding, actual; no shares issued
and outstanding, pro forma and pro forma as
adjusted.................................... 30 -- --
Common stock, $.01 par value, 22,000,000
shares authorized; 5,132,200 shares issued
and outstanding, actual; 12,041,266 shares
issued and outstanding, pro forma;
20,041,266 shares issued and outstanding,
pro forma as adjusted....................... 26 120 200
Additional paid-in capital................... 79,694 93,133 219,553
Accumulated deficit.......................... (27,769) (27,769) (27,769)
-------- -------- --------
Total stockholders' equity................. 51,981 65,484 191,984
-------- -------- --------
Total capitalization..................... $129,547 $129,484 $191,984
======== ======== ========
</TABLE>
23
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except share and per share data)
The following table sets forth some of our historical consolidated financial
data. You should read the following data in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our consolidated financial statements included elsewhere in this prospectus.
<TABLE>
<CAPTION>
Period from
Inception
(December 20, Year Ended December Six Months Ended
1996) through 31, June 30,
December 31, -------------------- --------------------
1996 1997 1998 1998 1999
------------- --------- --------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Natural gas and oil
revenues............... $ -- $ 201 $ 3,298 $ 961 $ 9,583
--------- --------- --------- --------- ---------
Expenses:
Lease operating
expenses.............. -- 72 474 331 1,183
Depreciation,
depletion and
amortization--natural
gas and oil
properties............ -- 68 2,738 648 7,619
Depreciation and
amortization--other... 10 349 437 136 98
Impairment of natural
gas and oil
properties............ -- -- 2,642 -- --
General and
administrative........ 318 1,965 3,809 1,959 2,244
Stock appreciation
rights expense........ -- -- -- 904 1,651
--------- --------- --------- --------- ---------
Total expenses....... 328 2,454 10,100 3,978 12,795
--------- --------- --------- --------- ---------
Loss from operations.... (328) (2,253) (6,802) (3,017) (3,212)
--------- --------- --------- --------- ---------
Other income (expense):
Interest income........ -- 91 221 133 85
Interest expense....... -- -- (516) -- (2,007)
Capitalized interest... -- -- 237 -- 634
--------- --------- --------- --------- ---------
Loss before income
taxes.................. (328) (2,162) (6,860) (2,884) (4,500)
Income tax provision -- -- --- -- --
--------- --------- --------- --------- ---------
Loss before cumulative
effect of change in
accounting principle... (328) (2,162) (6,860) (2,884) (4,500)
Cumulative effect of
change in accounting
principle (1).......... -- -- -- -- (395)
--------- --------- --------- --------- ---------
Net loss................ $ (328) $ (2,162) $ (6,860) $ (2,884) $ (4,895)
========= ========= ========= ========= =========
Accrual of dividends on
preferred stock........ (16) (1,326) (7,094) (2,498) (5,088)
--------- --------- --------- --------- ---------
Net loss available to
common stockholders.... $ (344) $ (3,488) $ (13,954) $ (5,382) $ (9,983)
========= ========= ========= ========= =========
Basic and diluted loss
per common share (2):
Loss before cumulative
effect of change in
accounting
principle............. $ (0.09) $ (0.88) $ (3.44) $ (1.33) $ (2.33)
Cumulative effect of
change in accounting
principle (1)......... -- -- -- -- (0.10)
--------- --------- --------- --------- ---------
Net loss per common
share................. $ (0.09) $ (0.88) $ (3.44) $ (1.33) $ (2.43)
========= ========= ========= ========= =========
Weighted average number
of common shares
outstanding--basic and
diluted (2)............ 3,960,000 3,960,000 4,059,020 4,054,514 4,112,795
========= ========= ========= ========= =========
Other Data:
Adjusted EBITDA (3)..... $ (318) $ (1,836) $ (985) $ (1,329) $ 6,156
Net cash provided by
(used in) operating
activities............. (12) (5,523) (2,776) 241 4,508
Net cash used in
investing activities... -- (15,236) (68,503) (35,515) (47,673)
Net cash provided by
financing activities... 4,590 18,863 70,738 34,000 45,000
Capital expenditures.... -- 15,578 85,681 38,691 33,575
<CAPTION>
December 31, June 30,
---------------------------------- --------------------
1996 1997 1998 1998 1999
------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents............ $ 4,578 $ 2,682 $ 2,141 $ 1,408 $ 3,976
Current assets.......... 4,588 6,348 6,737 4,665 15,156
Total assets............ 5,241 22,358 102,769 58,582 139,552
Short-term debt......... -- -- 19,000 -- 64,000
Other current
liabilities............ 1,858 2,096 18,378 6,300 10,005
Accrued preferred
dividends payable...... 16 1,383 8,478 3,881 13,566
Other long-term
liabilities............ -- -- -- -- --
Total equity............ 3,367 18,879 56,913 48,401 51,981
</TABLE>
24
<PAGE>
- --------
(1) The cumulative effect of change in accounting principle represents our
adoption of Statement of Position 98-5--Reporting on the Costs of Start-Up
Activities.
(2) Spinnaker was originally formed as a limited liability company, and we
issued common units and preferred units. In connection with our conversion
to a corporation in January 1998, we exchanged common stock for all then
outstanding common units and preferred stock for all then outstanding
preferred units. We express all historical unit data in shares.
(3) As used in this prospectus, Adjusted EBITDA means earnings before interest,
income taxes, depreciation, depletion and amortization, impairment of
natural gas and oil properties, and stock appreciation rights expense.
Adjusted EBITDA is not a calculation based upon generally accepted
accounting principles. Adjusted EBITDA should not be considered as an
alternative to net income as an indicator of our operating performance, or
as an alternative to cash flow as a better measure of liquidity. Adjusted
EBITDA measures presented in this prospectus may not be comparable to other
similarly titled measures reported by other companies. In evaluating
Adjusted EBITDA, Spinnaker believes that investors should consider, among
other things, the amount by which Adjusted EBITDA exceeds interest costs,
how Adjusted EBITDA compares to principal repayments on debt and how
Adjusted EBITDA compares to capital expenditures for each period.
Pro Forma Data
(in thousands, except share and per share data)
The pro forma net loss data presented in the following table gives effect
to:
. the conversion of all outstanding shares of our preferred stock into
common stock as if the conversion had occurred as of the beginning of the
period presented;
. the issuance of shares of common stock to holders of approximately 99.5%
of our preferred stock in lieu of payment of accrued cash dividends as if
the issuance had occurred as of the beginning of the period presented;
and
. the use of a portion of the estimated net proceeds of this offering at an
assumed offering price of $17.00 per share to pay all outstanding
indebtedness all as if the transaction had occurred at the beginning of
the period presented.
<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31, 1998 June 30, 1999
----------------- ----------------
<S> <C> <C>
Pro forma net loss......................... $ (6,344) $ (2,888)
========== ==========
Pro forma basic and diluted loss per common
share:
Loss before cumulative effect of change
in accounting principle................. $ (0.45) $ (0.13)
Cumulative effect of change in accounting
principle............................... -- (0.02)
---------- ----------
Pro forma net loss per common share...... $ (0.45) $ (0.15)
========== ==========
Pro forma weighted average number of common
shares outstanding--basic and diluted..... 14,063,234 18,704,071
========== ==========
</TABLE>
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Spinnaker is an independent energy company engaged in the exploration,
development and production of natural gas and oil in the Gulf of Mexico. Since
our inception in December 1996, we have focused our efforts on 3-D seismic
exploration in the Gulf of Mexico and have participated in drilling 26
exploratory wells in the Gulf of Mexico, with 18 of these wells being completed
as discoveries. As of August 31, 1999, Ryder Scott estimated our net proved
reserves at approximately 81.1 Bcfe, 83% of which was natural gas, representing
an approximately 500% increase over our net proved reserves of 13.4 Bcfe at
December 31, 1997. We currently have an interest in approximately 100 lease
blocks in the Gulf of Mexico, within which we have identified approximately 49
exploratory prospects and 23 leads. We expect to drill approximately 25 of
these prospects during the remainder of 1999 and 2000. Based on 3-D seismic
analysis on blocks where we currently have no leasehold interest, we also have
identified over 100 additional leads that may result in additional prospects.
We have acquired our portfolio through lease sales, farm-ins and trades based
on 3-D seismic data. Our future operating results will depend substantially on
the success of our exploratory drilling program.
Our revenue, profitability and future growth rate also substantially depend
on factors beyond our control, such as economic, political and regulatory
developments and competition from other sources of energy. The energy markets
historically have been very volatile, and natural gas and oil prices may
fluctuate widely in the future. Sustained periods of low prices for natural gas
and oil could materially and adversely affect our financial position, our
results of operations, the quantities of natural gas and oil reserves that we
can economically produce and our access to capital.
We use the full cost method of accounting for our investment in natural gas
and oil properties. Under this method, we capitalize all acquisition,
exploration and development costs incurred for the purpose of finding natural
gas and oil reserves, including salaries, benefits and other related general
and administrative costs directly attributable to these activities. We
capitalized general and administrative costs of $1.3 million in 1997, $2.5
million in 1998 and $1.1 million during the first six months of 1999. We
expense costs associated with production and general corporate activities in
the period incurred. We capitalize interest costs related to unproved
properties and properties under development. Sales of natural gas and oil
properties are accounted for as adjustments of capitalized costs, with no gain
or loss recognized, unless such adjustments would significantly alter the
relationship between capitalized costs and proved reserves of natural gas and
oil.
We compute the provision for depreciation, depletion and amortization of
natural gas and oil properties using the unit-of-production method of
accounting based on production and estimates of proved reserve quantities. We
exclude unevaluated costs and related carrying costs from the amortization base
until we evaluate the properties associated with these costs. We periodically
assess the unamortized costs for possible impairments or reductions in value.
An impairment to our value may occur in the event of:
. decreases in natural gas and oil prices;
. downward adjustments to our estimated proved reserves;
. increases in our estimates of development costs; and
. deterioration in our exploration results.
If a reduction in value has occurred, we increase our amortization base by
the amount of this impairment. The amortization base includes estimated future
development costs and dismantlement, restoration and abandonment costs, net of
estimated salvage values. The capitalized costs of proved natural gas and oil
properties, net of accumulated depreciation, depletion and amortization, may
not exceed a ceiling limit that is based on the estimated future net cash flows
from proved natural gas and oil reserves discounted at 10% per annum. If
capitalized costs exceed this limit, we charge the excess to depreciation,
depletion and amortization
26
<PAGE>
in the quarter in which the excess occurs. We may not reverse these write-downs
even if natural gas and oil prices increase in subsequent periods. At December
31, 1998, we recognized a non-cash impairment of natural gas and oil properties
in the amount of approximately $2.6 million in connection with the ceiling
limitation required by the full cost method of accounting for natural gas and
oil properties. The write-down is primarily the result of the decline in
natural gas prices experienced in 1998. As permitted by applicable SEC rules,
in calculating the amount of the write-down, we used post-year end natural gas
and oil price increases of $0.26 per MMBtu of natural gas from December 31,
1998 to April 9, 1999, and $4.52 per Bbl of oil from December 31, 1998 to April
9, 1999. If we had used only December 31, 1998 natural gas and oil prices, we
would have recognized a total non-cash impairment of natural gas and oil
properties of approximately $13.0 million. At June 30, 1999, we recognized no
impairment of natural gas and oil properties; however, if we had used only June
30, 1999 natural gas and oil prices, we would have recognized a non-cash
impairment of natural gas and oil properties of approximately $1.5 million. As
permitted by applicable SEC rules, we used post-June 30, 1999 price increases
of $0.83 per MMBtu of natural gas and $3.89 per Bbl of oil for June 30, 1999 to
August 23, 1999.
We conduct substantially all of our exploration activities jointly with
others and, accordingly, recorded amounts for our natural gas and oil
properties reflect only our proportionate interest in such activities.
Effective January 1998, we completed the conversion of Spinnaker from a
limited liability company to a corporation and now account for income taxes in
accordance with Statement on Financial Accounting Standards No. 109,
"Accounting for Income Taxes." Under Statement No. 109, we must recognize
deferred income taxes at each year-end for the future tax consequences of
differences between the tax bases of assets and liabilities and their financial
reporting amounts based on enacted tax laws and statutory tax rates applicable
to the periods in which the differences are expected to affect taxable income.
We will establish valuation allowances when necessary to reduce deferred tax
assets to the amount to be realized.
Results of Operations
Six Months Ended June 30, 1999 as Compared to the Six Months Ended June 30,
1998
We had natural gas and oil revenues of $9.6 million for the six months ended
June 30, 1999 as compared to $1.0 million for the six months ended June 30,
1998. This increase in revenues resulted primarily from increased production
attributable to eight new wells which commenced production subsequent to June
30, 1998. Our production substantially increased to 4,552 MMcfe in the first
six months of 1999 from 488 MMcfe in the first six months of 1998. The average
price we received for our natural gas production was $2.09 per Mcf during the
six months ended June 30, 1999 as compared to $1.97 per Mcf during the six
months ended June 30, 1998, which also contributed to our increase in revenues.
Lease operating expenses for the six months ended June 30, 1999 were $1.2
million as compared to $331,000 for the six months ended June 30, 1998. This
increase in lease operating expenses primarily resulted from operating expenses
attributable to properties that commenced production subsequent to June 30,
1998. Lease operating expenses per Mcfe decreased to $0.26 per Mcfe during the
six months ended June 30, 1999 from $0.68 per Mcfe during the six months ended
June 30, 1998.
General and administrative expenses for the six months ended June 30, 1999
were $2.2 million as compared to $2.0 million for the six months ended June 30,
1998. This increase in general and administrative expenses was primarily due to
employment-related costs associated with an increase in personnel subsequent to
June 30, 1998.
Stock appreciation rights expense for the six months ended June 30, 1999 was
$1.7 million as compared to $0.9 million for the six months ended June 30,
1998. Stock appreciation rights expense was based on management's estimate of
the share values of Spinnaker at June 30, 1999 and 1998 and increased primarily
as a result of vesting of the related stock options.
27
<PAGE>
Depreciation, depletion and amortization--natural gas and oil properties for
the six months ended June 30, 1999 was $7.6 million as compared to $648,000 for
the six months ended June 30, 1998. Of the $7.0 million increase, $5.4 million
was attributable to a substantial increase in production and $1.6 million was
due to an increase in the unit depletion rate to $1.67 per Mcfe during the six
months ended June 30, 1999 from $1.33 per Mcfe during the six months ended June
30, 1998. Depreciation and amortization--other decreased to $98,000 for the six
months ended June 30, 1999 from $136,000 for the six months ended June 30,
1998, primarily due to the change in accounting principle related to the write-
off of previously capitalized organization costs.
Net loss for the six months ended June 30, 1999 was $4.9 million as compared
to $2.9 million for the six months ended June 30, 1998. The increase in net
loss was due to the factors described above and our adoption during the first
quarter of 1999 of Statement of Position 98-5, "Reporting on the Costs of
Start-Up Activities," which requires that we expense and not capitalize the
costs for start-up activities and organization costs as incurred. Approximately
$395,000 of this increase is attributable to our adoption of Statement of
Position 98-5.
Year Ended December 31, 1998 as Compared to the Year Ended December 31, 1997
We had natural gas and oil revenues of $3.3 million for the year ended
December 31, 1998 as compared to $201,000 for the year ended December 31, 1997.
This increase in natural gas and oil revenues was due primarily to production
commencing in 1998 from wells located at West Cameron 522 and South Timbalier
220. Primarily as a result of these wells, our production substantially
increased to 1,747 MMcfe in 1998 from 70 MMcfe in 1997. This increased
production more than offset the decrease in the average price we received for
our natural gas production to $1.89 per Mcf for 1998 from $2.87 per Mcf for
1997.
Lease operating expenses were $474,000 in 1998 as compared to $72,000 in
1997. The increase in lease operating expenses was primarily the result of
operating expenses attributable to properties that commenced production during
the second half of 1997 and during 1998.
General and administrative expenses were $3.8 million in 1998 as compared to
$2.0 million in 1997. The increase in general and administrative expenses was
primarily due to an increase of $1.2 million in expenses related to personnel
during the latter part of 1997 and during 1998 and to an increase of $0.3
million primarily related to legal and accounting services associated with the
conversion of Spinnaker from a limited liability company to a corporation.
Depreciation, depletion and amortization--natural gas and oil properties in
1998 was $2.7 million as compared to $68,000 in 1997. Of the $2.6 million
increase, $1.6 million was attributable to a substantial increase in production
and $1.0 million was due to an increase in the unit depletion rate during 1998.
Depreciation and amortization--other increased to $437,000 in 1998 from
$349,000 in 1997. The increase was attributable to the purchase of additional
computer hardware and software.
Additionally, as described above we recognized a non-cash impairment of
natural gas and oil properties of $2.6 million due to a decline in prices
during 1998.
Net loss for the year ended December 31, 1998 was $6.9 million as compared
to $2.2 million for the year ended December 31, 1997. The increase in net loss
was due primarily to the factors described above.
December 20, 1996 (inception) through December 31, 1996
We commenced operations on December 20, 1996 and, through December 31, 1996,
had no natural gas and oil revenues or lease operating expenses. We had
$318,000 of general and administrative expenses relating primarily to start-up
costs.
Liquidity and Capital Resources
We have funded our activities primarily with the proceeds from private
placements of our equity securities and borrowings under our credit facility.
From inception through June 30, 1999, we raised an aggregate of approximately
$75 million from sales of our equity securities. In addition, from inception
through June 30, 1999, we borrowed an aggregate of $64 million.
28
<PAGE>
From inception through June 30, 1999, we incurred capital expenditures
totaling approximately $139.1 million, including $4.3 million of non-cash
activity. Of these expenditures, $61.4 million were for exploration, $39.0
million were for development, $35.6 million were for leasehold acquisitions and
$3.1 million for other capital expenditures.
We have experienced and expect to continue to experience substantial working
capital requirements and at June 30, 1999 had a working capital deficit of
approximately $58.8 million, primarily due to our active exploration and
development programs. While we believe that the net proceeds from this
offering, our cash flow from operations and borrowings under either our current
credit facility or a replacement facility should allow us to implement our
present business strategy during 1999 and 2000, additional financing may be
required in the future to fund our growth and exploration and development
programs. In the event these capital resources are not available to us, we may
have to curtail our exploration and other activities or sell some of our assets
on an untimely or unfavorable basis.
We have budgeted to spend approximately $180 million during 1999 and 2000
for exploration, development, leasehold acquisitions and other capital
expenditures. During the first six months of 1999, we incurred capital
expenditures of $36.8 million, including $3.2 million of non-cash expenditures.
Of these expenditures, we incurred $7.7 million for exploration, $13.5 million
for development, $15.3 million for leasehold acquisitions and $0.3 million for
other capital expenditures.
Our budget includes development costs that are contingent on the success of
future exploratory drilling. We do not anticipate that our budgeted leasehold
acquisition activities will include the acquisition of producing properties. We
do not anticipate any significant abandonment or dismantlement costs through
2000. Actual levels of capital expenditures may vary significantly due to many
factors, including drilling results, natural gas and oil prices, industry
conditions, decisions of operators and other industry owners and the prices of
oil field goods and services. We anticipate that these capital expenditures
will be funded through net proceeds from this offering and cash flows from our
operations.
We intend to use cash flows from operations to fund a portion of our future
acquisition, exploration and development activities. Net cash provided by (used
in) operating activities was $4.5 million for the six months ended June 30,
1999, ($2.8 million) for 1998 and ($5.5 million) for 1997. Net cash flow used
in operating activities in 1997 and 1998 was generally attributable to our
limited production during the periods. The fact that operating activities in
the first half of 1999 no longer used net cash but provided net cash was
generally attributable to increasing levels of production in that period. As of
August 31, 1999, we produced approximately 48 MMcfe per day as compared to
average production of 4.8 MMcfe per day in 1998 and 0.6 MMcfe per day in 1997.
Our cash flow from operations will depend on the prices of natural gas and oil
and on our ability to increase production through our exploration and
development drilling program.
Hedging Transactions
We currently sell most of our natural gas and oil production under price
sensitive or market price contracts. To reduce our exposure to fluctuations in
natural gas and oil prices, we have recently begun to enter into hedging
arrangements. However, these contracts also limit the benefits we would realize
if prices increase.
Through August 31, 1999, Spinnaker had entered into the following collar
arrangements covering the period beginning October 1, 1999. One MMBtu
approximates one Mcf of gas.
<TABLE>
<CAPTION>
Gas Collars Oil Collars
------------------------------- ---------------------------
Average Average Average Average Average
Daily Average NYMEX Daily NYMEX NYMEX
Volume NYMEX Floor Ceiling Volume Floor Ceiling
Time Period (MMBtu) Price/MMBtu Price/MMBtu (Bbl) Price/Bbl Price/Bbl
----------- ------- ----------- ----------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
10/1/99-12/31/99... 25,000 $2.93 $3.14 500 $20.23 $22.26
1/1/00-3/31/00..... 25,000 2.86 3.06 500 19.28 21.35
4/1/00-6/30/00..... 25,000 2.40 2.60 500 18.48 20.58
7/1/00-9/30/00..... 25,000 2.36 2.57 500 17.90 20.01
</TABLE>
29
<PAGE>
Credit Agreement
In September 1998, we entered into an $85.0 million credit agreement with
Credit Suisse First Boston, New York Branch, Bank of Montreal and Bank of
America, N.A. (formerly NationsBank, N.A.) each of which is an affiliate of one
of the underwriters for this offering. Simultaneously with the completion of
this offering, we will repay all outstanding borrowings under the credit
facility, which were $72.0 million as of September 27, 1999. We intend to
replace this credit facility following the completion of this offering with a
credit facility not in excess of $25 million which is not expected to be
guaranteed by any of our stockholders. Bank of Montreal has provided us with a
preliminary commitment for this new facility.
The credit agreement is secured by substantially all of our assets,
including our interests in our natural gas and oil properties, and in part
supported by guarantees of Petroleum Geo-Services and Warburg, Pincus Ventures,
our principal stockholders. The initial stockholder guarantee for the credit
agreement was $75.0 million, split evenly between Petroleum Geo-Services and
Warburg, Pincus Ventures. On a semi-annual basis, our proved reserves are
required to be evaluated to redetermine the borrowing base.
The credit agreement is comprised of three tranches, each with a specified
interest rate. The weighted average interest rate for the Petroleum Geo-
Services and Warburg, Pincus Ventures tranches for the year ended December 31,
1998 was 5.7%, and the weighted average interest rate for the borrowing base
tranche for the year ended December 31, 1998 was 8.2%. The overall weighted
average interest rate for borrowings outstanding under the credit agreement for
the year ended December 31, 1998 was 6.5%. At June 30, 1999, borrowings
outstanding under the credit agreement were $64.0 million, of which $59.0
million was guaranteed by Petroleum Geo-Services and Warburg, Pincus Ventures.
The credit agreement matures on December 31, 1999.
We are obligated to pay Warburg, Pincus Ventures and Petroleum Geo-Services
a fee for their agreeing to guarantee our obligations under the credit
agreement equal to two percent per year of the total amount they have offered
to guarantee, currently $75.0 million, whether this amount is outstanding or
not, and payable in shares of our common stock valued for purposes of the
agreement at $15.00 per share. The guarantees will terminate on the completion
of this offering. We will then be allowed to borrow only up to our borrowing
base, which is currently $10.0 million.
The credit agreement contains covenants and restrictive provisions,
including the following limitations, subject to some exceptions:
. we may not incur any other indebtedness from borrowings;
. we may not incur any liens upon our properties or assets other than
permitted liens securing indebtedness of up to $1 million and other liens
in the ordinary course of business;
. we may not enter into any amalgamation, demerger or merger;
. we may not dispose of all or substantially all of our property, business
or assets;
. we may not dispose of any properties valued in the borrowing base except
obsolete equipment, inventory sold in the ordinary course of business,
some interests in natural gas and oil properties included in the
borrowing base in an aggregate amount not to exceed $500,000, and sales
of interests in natural gas and oil properties not included in the
borrowing base in an aggregate amount not to exceed $4 million;
. we may not make or pay any dividend, distribution or payment in respect
of our capital stock nor purchase, redeem, retire, or permit any
reduction or retirement of our capital stock;
. we must maintain the ratio of our consolidated current assets as of the
end of each fiscal quarter to our consolidated current liabilities other
than debt under the credit agreement as of the end of such fiscal quarter
so that it is not less than 1.00 to 1.00;
. we must ensure that our consolidated tangible net worth as of the end of
each fiscal quarter is not less than the sum of $40 million plus 50% of
our adjusted consolidated net income for each fiscal quarter,
30
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if positive, and zero percent if negative, determined on a cumulative
basis, for the period beginning September 30, 1998 and ending on the last
day of the most recent fiscal quarter plus 75% of the net proceeds of
equity and equity capital contributions from sponsors received after the
closing date;
. we must ensure that the ratio of EBITDA, as defined, to our consolidated
interest expense is not less than 2.5 to 1.0 for any period of four
consecutive fiscal quarters ending on or subsequent to June 30, 1999; and
. we may not enter into any hedging agreement unless we meet specified
requirements including limits on the aggregate amounts maturing in any
month under any floor hedging contracts and under any forward sales
transactions, and at no time can any hedging agreement of any nature
contain a term to put up money or other assets against the event of its
nonperformance.
Year 2000 Compliance
The "Year 2000" issue is a general term used to refer to the business
implications of the arrival of the new millennium. In simple terms, on January
1, 2000, all computer hardware and software systems that use the two-digit year
convention could fail completely or create erroneous data as a result of the
system failing to recognize the two digit internal date "00" as representing
the Year 2000.
State of Readiness
We were formed recently and are engaged solely in the exploration,
development and production of natural gas and oil. Our computer hardware and
software systems were recently acquired. Based upon our analysis, evaluations
and written communications from vendors and licensors of our financial and
seismic interpretation software, we do not believe that any equipment or
programming modifications are necessary and that all these systems are or are
expected to be Year 2000 compliant. Additionally, we have assessed other less
critical information technology systems and we believe them to be compliant. We
do not believe that the risks of system malfunction resulting from the
interrelationship of our systems with those of customers, suppliers and
contractors are significant.
The Year 2000 issue affects our customers, the suppliers of our 3-D seismic
data, and other third parties with whom we do business. We are currently
investigating how the Year 2000 issue will affect computer systems controlling
pipelines and distribution facilities with which we directly or indirectly
connect and the availability of 3-D seismic data. We either have received or
are in the process of receiving written documentation from these third parties
regarding their Year 2000 readiness and issues. We have also reviewed publicly
available information, if any, as to whether their systems are Year 2000
compliant.
We expect to complete our Year 2000 assessments by September 30, 1999;
however, we plan to continue reviewing the Year 2000 issue on an on-going basis
throughout 1999.
Costs to Address Year 2000 Issues
Costs directly related to assessing Year 2000 issues through June 30, 1999
are less than $100,000 and have been expensed. We do not expect to incur
significant additional costs related to Year 2000 compliance during the
remainder of 1999. These estimated costs are based on management's best
estimates; however, there is no guarantee that these estimates will be
achieved, and actual results could differ materially from those anticipated.
Year 2000 Risk Factors
We cannot assure you that our internal operations do not have any material
issues with respect to Year 2000 compliance. In addition, we may not properly
identify all potential problems or all potentially affected systems or remedy
all problems in our systems. We have no means of ensuring that third parties
will be Year 2000 ready. The inability of third parties to complete their Year
2000 resolution process in a timely fashion
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could materially impact our results of operations and cash flows. The effect of
non-compliance by third parties is not determinable. The most reasonably likely
"worst case" impacts would be:
. impairment of our ability to deliver our production to, or receive
payment from, third parties gathering and/or purchasing our production
from affected facilities;
. impairment of the ability of third-party suppliers or service companies
to provide needed materials or services to our planned or ongoing
operations, necessitating deferral or shut-in of exploration, development
or production operations;
. impairment of our ability to receive and process 3-D seismic data, which
would hinder our ability to generate and drill exploratory prospects; and
. our inability to execute financial transactions with our banks or other
third parties whose systems fail or malfunction.
Contingency Plans
We have investigated alternatives to our computer hardware and software and
have determined that no commercially reasonable alternatives exist. Therefore,
we have been unable to develop a contingency plan other than working with our
computer hardware and software vendors to remedy any Year 2000-related problems
as quickly as possible.
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BUSINESS AND PROPERTIES
Overview
Spinnaker is an independent energy company engaged in the exploration,
development and production of natural gas and oil in the U.S. Gulf of Mexico.
We currently have licenses to approximately 5,700 blocks of mostly contiguous,
recent vintage 3-D seismic data in the Gulf of Mexico. This includes
approximately 4,100 blocks of 3-D seismic data under our agreement with
Petroleum Geo-Services ASA and 1,000 blocks of 3-D seismic data we acquired in
September 1999 from another provider of 3-D seismic data. Each of our material
licenses has a duration of at least 25 years. Our 3-D seismic database covers
an area of approximately 29 million acres, which we believe is one of the
largest recent vintage 3-D seismic databases of any independent exploration and
production company in the Gulf of Mexico. We currently have a leasehold
interest in approximately 100 of these blocks. We believe that broad regional
3-D seismic analysis allows us to create a large inventory of high-quality
prospects and provides the opportunity to enhance our exploration success. We
also believe our licenses to large quantities of high-quality seismic data and
our management and technical staff are important factors for our current and
future success.
Our chief executive officer, Petroleum Geo-Services and Warburg, Pincus
Ventures, L.P. formed Spinnaker in December 1996. Petroleum Geo-Services, a
leader in acquiring 3-D seismic data, received most of its equity ownership in
Spinnaker in exchange for providing us with access to its inventory of 3-D
seismic data covering a substantial portion of the natural gas and oil
producing area of the Gulf of Mexico. We plan to continue to grow our inventory
of 3-D seismic data through our agreement with Petroleum Geo-Services and
through acquisitions of 3-D seismic data from other seismic data vendors.
Since our inception, we have participated in drilling 26 exploratory wells
in the Gulf of Mexico, with 18 of these wells being completed as discoveries.
As of August 31, 1999, Ryder Scott estimated our net proved reserves at
approximately 81.1 Bcfe, 83% of which was natural gas, representing an increase
of approximately 500% over our estimated net proved reserves of 13.4 Bcfe at
December 31, 1997. Our daily production has increased from approximately 600
Mcfe at December 31, 1997 to approximately 48,000 Mcfe at August 31, 1999.
Within our current inventory of approximately 100 lease blocks, we have
identified approximately 49 exploratory prospects and 23 leads. We expect to
drill approximately 25 of these prospects during the remainder of 1999 and
2000. Based on 3-D seismic analysis on blocks where we currently have no
leasehold interest, we also have identified over 100 additional leads that may
result in additional prospects. Our capital expenditure budget for 1999 and
2000 includes approximately $180 million for exploration, development,
leasehold acquisitions and other capital expenditures, of which we have
incurred $36.8 million through June 30, 1999.
Our Strategy
Our goals are to expand our reserve base, cash flow and net income and to
generate an attractive return on capital. We emphasize the following elements
in our strategy to achieve these goals:
. Focus on the Gulf of Mexico
. Maintain a large database of 3-D seismic data
. Employ a rigorous prospect selection process
. Emphasize technical expertise
. Sustain a balanced, diversified exploration effort
Focus on the Gulf of Mexico. We have chosen to assemble a large 3-D seismic
database and focus our exploration activities in the Gulf of Mexico because we
believe this area represents one of the most attractive exploration regions in
North America. The Gulf of Mexico has the following characteristics which make
it attractive to exploration and production companies:
. Prolific exploration and production history
. Open access to acreage
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. Substantial existing oil field service infrastructure
. Attractive taxation and royalty rates
. Relatively high-productivity wells
. Geographic proximity to well-developed markets for natural gas and oil
. Geologic diversity that offers a variety of exploration opportunities
We also believe our geographic focus provides us with an excellent
opportunity to develop and maintain competitive advantages through the
combination of our 3-D seismic database, regional exploration and operating
expertise, and joint venture relationships.
Maintain a large database of 3-D seismic data. We believe our large database
of 3-D seismic data allows us to generate high-quality exploratory prospects.
We believe the 3-D seismic data we have received from Petroleum Geo-Services
will continue to serve as the foundation for our exploration program. We also
intend to supplement that data with 3-D seismic data acquisitions from other
seismic data vendors. In addition to data acquisitions made directly by us, we
expect to continue to enter into joint ventures with other companies to share
the costs of data acquisitions and associated exploratory drilling.
Employ a rigorous prospect selection process. We leverage our large
inventory of contiguous areas of 3-D seismic data to select prospects by tying
regional 3-D seismic analysis to actual drilling results. Through this process,
we enhance our understanding of the geology before selecting prospects and
increase the probability of accurately identifying hydrocarbon bearing zones.
Emphasize technical expertise. Our 10 explorationists have an average of
approximately 20 years experience in exploration in the Gulf of Mexico. In our
efforts to attract and retain explorationists, we offer an entrepreneurial
culture, an extensive 3-D seismic database, state-of-the-art computer-aided
exploration technology and other technical tools. All of our explorationists
have purchased equity in Spinnaker.
As Spinnaker matures, we are moving towards retaining larger working
interests in prospects located in water depths of less than 2,000 feet. The
combination of larger working interests and our technical expertise should
allow us to act as the operator for an increasing number of these prospects,
providing us with more control of costs, timing and amount of capital
expenditures, and the selection of technology.
Sustain a balanced, diversified exploration effort. We believe that our
exploration approach results in portfolio balance and diversity among:
. shallow water, or water depths of less than 600 feet, and deep water
prospects;
. shallow drilling depth, or drilling depths of less than 12,000 feet, and
deep drilling depth prospects; and
. lower-risk, lower-potential prospects and higher-risk, higher-potential
prospects.
We have used joint ventures to help diversify our exploration activities.
Our 3-D seismic data's broad coverage of the Gulf of Mexico allows us to
participate in a variety of geologically diverse exploration opportunities and
create a diversified prospect portfolio. We intend to manage our exposure in
deep water exploration activities by focusing on prospects where commercial
feasibility of the prospect can be evaluated with one or two wells and where we
believe 3-D seismic analysis provides attractive risk/reward benefits. We also
strive to diversify our exploration efforts by seeking to limit the budgeted
amount of the leasehold acquisition and drilling cost of the first exploratory
well on any one prospect to less than 10 percent of our annual capital budget.
We believe that maintaining continuity in our exploration activity during
all phases of the commodity price cycles is an important element to balance and
diversification. By positioning Spinnaker to continue
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exploring during periods of low natural gas and oil prices, we potentially can
take advantage of reduced competition for prospects and lower drilling and
other oil field service costs.
Plan of Operations
For information regarding our proposed plan of operations through the year
2000, please read "Use of Proceeds," "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources"
and "Business and Properties--Overview."
Petroleum Geo-Services Data Agreement
We originally entered into our data agreement with Petroleum Geo-Services as
of December 20, 1996. We amended the agreement as of January 6, 1998 when we
converted from a limited liability company to a corporation. We amended the
agreement again as of June 30, 1999 to modify the amount, type and geographic
coverage of the data and related information made available to us. In
connection with that second amendment we issued 1,000,000 shares of common
stock to Petroleum Geo-Services. The agreement has been included as an exhibit
to the registration statement of which this prospectus is a part. The following
summary of this agreement discusses material provisions of this agreement and
is qualified by reference to such exhibit which we incorporate in this
prospectus by reference.
Data Covered by the Agreement
Subject to the exceptions discussed below, we are entitled to receive and
use all of Petroleum Geo-Services' standard and enhanced multi-client 3-D
seismic data covering the Gulf of Mexico including its bays, channels,
tributaries, estuaries and transition zones. We are entitled to data that
Petroleum Geo-Services acquires or processes for itself prior to March 31, 2002
or is in the process of acquiring or processing as of that date. We are also
entitled to enhanced data processed by third parties if Petroleum Geo-Services
retains a material royalty or similar interest in that data.
As part of its business activities, Petroleum Geo-Services acquires both
proprietary and multi-client marine seismic data. When Petroleum Geo-Services
acquires proprietary data, it does so on an exclusive contractual basis for its
customers. In this case, Petroleum Geo-Services simply provides acquisition
services. When Petroleum Geo-Services acquires multi-client data, however, it
owns the data itself and transferred the possession and use of copies of this
data to the industry at large. We are entitled to receive only multi-client
data from Petroleum Geo-Services.
Standard data is the basic 3-D, time-migrated seismic data, and dragged
array and vertical cable data as now provided as the standard product to
Petroleum Geo-Services' 3-D seismic survey customers. Enhanced data is data
created through additional computer processing of Petroleum Geo-Services'
standard data. Enhanced data includes processed data referred to as pre-stack
depth migrated data and pre-stack time migrated data. As of August 31, 1999, we
had received approximately 4,100 blocks of standard data and had received 42
blocks of enhanced data under our Petroleum Geo-Services agreement.
Petroleum Geo-Services has begun acquiring an advanced form of 3-D marine
seismic data, sometimes referred to as multi-component data, that requires the
simultaneous recording of information with instruments located on the ocean
floor and instruments dragged behind a marine seismic vessel. We are entitled
to select for our use up to 60 blocks of multi-component data that Petroleum
Geo-Services acquires prior to March 31, 2002 or is in the process of acquiring
as of that date. We must select multi-component data in groups of blocks which
are all contiguous on at least one side and which include at least five blocks.
Petroleum Geo-Services markets Gulf of Mexico seismic data through seismic
data marketing vendors. We have entered into agreements with some of these
marketing vendors which modify to some extent our rights under our agreement
with Petroleum Geo-Services. Material modifications of our rights resulting
from these
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agreements are noted below. If Petroleum Geo-Services enters into a marketing
agreement with a new party, then Petroleum Geo-Services has agreed to use good
faith efforts to obtain the consent of the new party to our rights under our
agreement with Petroleum Geo-Services. If Petroleum Geo-Services does not
obtain the consent of this new party, however, then we may not be entitled to
the future data of Petroleum Geo-Services that is marketed by that party. A
majority of the data we have received is subject to agreements with marketing
vendors.
Petroleum Geo-Services is not obligated under our agreement to acquire any
further data of any kind. However, Petroleum Geo-Services is in the process of
acquiring approximately 200 blocks of multi-client standard data in the Gulf of
Mexico that will be covered by the agreement.
Rights to Use the Data
We may use the data received under our agreement as follows:
. for our internal needs, including using the data in connection with the
drilling of wells or the acquiring of interests in natural gas or oil
properties;
. make maps and other work products from the data;
. make the data and work product available to our consultants and
contractors for interpretation, analysis, evaluation, mapping and
additional processing; provided, that the data and work product, other
than maps, may not be removed from our premises and must be held in
confidence by those individuals; and
. show data and work products to prospective and existing investors and
participants in farm-outs and exploration or development groups for the
sole purpose of evaluating their participation in such ventures;
provided, that the data and work product, other than maps, may not be
removed from our premises and must be held in confidence by those
individuals.
Our agreement with Petroleum Geo-Services provides that our rights to use
data are perpetual subject to the termination provisions discussed below.
However, our related agreements with Petroleum Geo-Services' marketing vendors
provide that our rights terminate automatically after 25 years. The data we
receive under the Petroleum Geo-Services agreement remains the property of
Petroleum Geo-Services subject to the rights granted to us in the agreement.
Restrictions on Transfer and Assignment
We have the limited right to transfer a copy of standard or enhanced data to
a qualified transferee. A qualified transferee is a party with which we have
entered into a joint venture or other contractual arrangement with respect to
the property relating to the copied data. A qualified transferee must have
substantial business interests other than this joint venture or contractual
relationship, must not have been formed to acquire the copied data and must
have executed a customary license agreement with Petroleum Geo-Services or one
of its vendors. A transfer of a copy of standard data with enhanced data
covering one block counts as the transfer of 1.5 blocks. We may transfer copies
only up to an aggregate of 568.6 blocks. We must transfer copies of data in
groups of blocks that are contiguous on at least one side and which include at
least 20 blocks.
We may assign our rights under our agreement with Petroleum Geo-Services,
directly or by merger, to a successor to all or substantially all of our
business or assets or the business or assets of Spinnaker Exploration Company,
L.L.C., our principal subsidiary, as long as the successor is not a Petroleum
Geo-Services competitor. A Petroleum Geo-Services competitor is a company that
provides 3-D marine seismic data in the Gulf of Mexico as a significant part of
its business or an affiliate of such company. If the successor to our business
or assets is not a Petroleum Geo-Services major customer, then that successor
may in turn transfer the rights under our agreement with Petroleum Geo-Services
to a successor of all of its business or assets as long as that successor is
not a Petroleum Geo-Services competitor. A Petroleum Geo-Services major
customer is a
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customer that has purchased from Petroleum Geo-Services products and services
at least equal to 7.5% of Petroleum Geo-Services' prior 12 months gross
receipts for all seismic data sales and related services in the Gulf of Mexico
or an affiliate of that customer. No other transfers by us or our successors
are permitted. In addition, one of our agreements with a Petroleum Geo-Services
marketing vendor provides that we may not assign our rights to Petroleum Geo-
Services data marketed by that vendor without the consent of that vendor.
Termination Events
Petroleum Geo-Services may terminate substantially all of our rights under
the agreement by giving us notice after any of the following events:
. we transfer data or our rights under the agreement in violation of the
agreement;
. a Petroleum Geo-Services competitor acquires control of us or our
principal subsidiary;
. a Petroleum Geo-Services major customer acquires control of us or our
principal subsidiary after another Petroleum Geo-Services major customer
has previously acquired control of us or our principal subsidiary;
. we knowingly breach one of the provisions of the agreement relating to
the use, transfer or disclosure of the data and the breach results in
significant damages to Petroleum Geo-Services;
. we unknowingly breach one of these provisions of the agreement, the
breach results in significant damages to Petroleum Geo-Services and we
fail to diligently prevent a subsequent breach after we receive notice of
the breach;
. we commit a material breach of one of the other provisions of the
agreement and fail to remedy the breach within 90 days after notice to
us; or
. we commence a voluntary bankruptcy or similar proceeding or an
involuntary bankruptcy or similar proceeding is commenced against us and
remains undismissed for 30 days.
Non-Compete
Petroleum Geo-Services has agreed that it will not disclose data covering
the majority of the blocks in any survey in the Gulf of Mexico that is marketed
by Petroleum Geo-Services as a single survey in exchange for interests in any
natural gas or oil property or natural gas and oil company. This restriction
terminates on March 31, 2002.
Additional Services
Under our data agreement with Petroleum Geo-Services , we have access to 3-D
seismic data to March 31, 2003 through the proprietary high technology data
archival and retrieval system of PGS Data Management Inc., a subsidiary of
Petroleum Geo-Services.
We have agreed to purchase $2,000,000 of seismic related services from
Petroleum Geo-Services prior to December 31, 2002. We paid to Petroleum Geo-
Services $45,500 in 1997, $78,000 in 1998 and $39,000 in the first six months
of 1999 for seismic related services.
Limitation of Liability
The aggregate liability of Petroleum Geo-Services under the agreement for
all claims made by us is limited to $45,000,000. Our liability for claims made
against us by Petroleum Geo-Services under the agreement is not limited.
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Use of Computer-Aided Exploration Technology
Computer-aided exploration is the process of using a computer workstation
and common database to accumulate and analyze seismic, production and other
data regarding a geographic area. In general, computer-aided exploration
involves accumulating various 2-D and 3-D seismic data with respect to a
potential drilling location and correlating that data with historical well
control and production data from similar properties. The available data is then
analyzed using computer software and modeling techniques to project the likely
geologic setting of a potential drilling location and potential locations of
undiscovered natural gas and oil reserves. This process relies on a comparison
of actual data for the potential drilling location and historical data for the
density and sonic characteristics of different types of rock formations,
hydrocarbons and other subsurface minerals, resulting in a projected three-
dimensional image of the subsurface. This modeling is performed through the use
of advanced interactive computer workstations and various combinations of
available computer software developed solely for this application.
We have invested extensively in the advanced computer hardware and software
necessary for 3-D seismic exploration. We currently have 14 workstations in-
house to analyze seismic data. Our explorationists can access a diverse
software tool kit including modeling, mapping, well path description, time
slice analysis, pre- and post-stack seismic processing, synthetic generation,
third replacement studies and seismic attribute analyses. Additionally, we have
invested in direct-link telecommunications technology that provides us with
disk-to-disk downloading of data volumes directly from Petroleum Geo-Services
that allows very rapid loading on our in-house storage. This capability has
benefitted us when new data sets are made available only a short time prior to
state and federal lease sales.
Joint Ventures with Gulf of Mexico Partners
Early Joint Venture Agreements
We have entered into a number of joint ventures with several companies
operating in the Gulf of Mexico. In our early joint venture agreements, in
return for our access to 3-D seismic data and our exploration expertise, our
joint venture partners provided us with established Gulf of Mexico exploration
and operating track records, as well as capital. Our partners typically acted
as operator, which freed us to concentrate on exploring for new prospects.
Each of our early joint venture agreements established an area of mutual
interest covering blocks in the Gulf of Mexico for the purpose of jointly
evaluating 3-D seismic data, securing leasehold interests, evaluating natural
gas and oil prospects and drilling on those prospects. If either party acquires
an interest in any natural gas and oil lease in the area of mutual interest,
the other party may acquire a specific percentage ownership interest in that
lease. Our percentage ownership interest ranges from 25% to 65%. Our joint
venture partners are entitled to serve as the operator for any acquired lease
that is not operated by a third party.
Through our Petroleum Geo-Services agreement, we have rights to 3-D seismic
data covering substantially all of the areas of mutual interest established by
these joint venture agreements. We have licensed or provided access to this
data to our joint venture partners. In return, our joint venture partners must
reimburse us for a portion of the value of this data.
Six of these agreements are currently active. They will expire between
October 1999 and May 2000.
Recent Joint Venture Agreements
As Spinnaker matures, we intend to enter new joint ventures in order to:
. leverage our 3-D seismic database into access to additional data and new
opportunities;
. share data, risks and expenses; and
. gain access to expertise in water depths greater than 2,000 feet.
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The following is a description of two recent agreements which represent
examples of the first two joint venture benefits described above.
In January 1999, we entered into related participation agreements with two
companies. These agreements establish an identical area of mutual interest
covering approximately 1,000 blocks in the Gulf of Mexico for the purpose of
evaluating 3-D seismic data, securing leases, evaluating natural gas and oil
prospects and drilling on those prospects.
In January 1999, we also entered into an agreement with TGS-NOPEC
Geophysical Company to purchase licensing rights to data covering 435 of the
blocks in the 1,000-block area of mutual interest. We have rights to
approximately 455 additional blocks of data in this area of mutual interest
under our agreement with Petroleum Geo-Services. Each of our participation
agreements provides our joint venture partners with access rights to all our
data covering the area of mutual interest. In return, each of our joint venture
partners has agreed to reimburse us, at 50% each, for our costs to acquire
licensing rights to the data covering the 435 blocks described above.
We are responsible for evaluating the 3-D seismic data and identifying
prospects for exploration, development and production activities within the
area of mutual interest. If we acquire a leasehold interest in any of the
blocks in the area of mutual interest, one of our joint venture partners can
acquire a 25% interest and the other joint venture partner can acquire up to a
25% interest in our leasehold interest. We generally will serve as the operator
of any leases that are not operated by third parties. The parties share
exploration, development and production costs based on their respective
ownership interests.
One of the agreements requires us to allow our joint venture partner to
participate in any leasehold interest that we acquire in the area of mutual
interest, but does not give us a similar right. The other agreement provides
that each party can acquire a specific ownership interest in any leasehold
interest acquired by the other party in the area of mutual interest.
Both of the participation agreements terminate in April 2002, except that
each of our joint venture partners may extend its agreement for one year upon
payment of a $500,000 fee. The agreements also will be extended for a period of
two years for any prospects identified at the end of the term.
Exploration Activities
Significant Exploration Discoveries
Brazos A-19. Brazos A-19 is located approximately 32 miles off the Texas
coast in approximately 130 feet of water. We participated as non-operator with
a 15% working interest in drilling this discovery. The discovery well was
drilled to a total measured depth of 18,800 feet in May 1998 and encountered
150 net feet of pay. As of August 31, 1999, this discovery accounted for
approximately 15% of the present value of future net cash flows from our proved
reserves. We expect production from this discovery to begin in the fourth
quarter of 1999. We believe that no other wells will need to be drilled to
fully produce the proved reserves related to this discovery.
Garden Banks 367 (Dulcimer). Dulcimer is located approximately 159 miles off
the Louisiana coast in approximately 1,100 feet of water. We participated as
non-operator with a 33 1/3% working interest in drilling this discovery. The
discovery well was drilled to a total measured depth of 11,400 feet in February
1998 and encountered 124 net feet of pay. As of August 31, 1999, this discovery
accounted for approximately 14% of the present value of future net cash flows
from our proved reserves. Production from this discovery began in April 1999.
We believe that no other wells will need to be drilled to fully produce the
proved reserves related to this discovery.
South Timbalier 219. South Timbalier 219 is located approximately 52 miles
off the Louisiana coast in approximately 150 feet of water. We participated as
operator with a 72 3/4% working interest in drilling this
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discovery. The discovery well was drilled to a total measured depth of 10,800
feet in August 1999 and encountered 76 net feet of pay. As of August 31, 1999,
this discovery accounted for approximately 12% of the present value of future
net cash flows from our proved reserves. We expect production from this
discovery to begin in the first quarter of 2000. We are currently drilling a
second well to fully produce the proved reserves related to this discovery.
East Cameron 152. East Cameron 152 is located approximately 51 miles off the
Louisiana coast in approximately 80 feet of water. We participated as non-
operator with a 50% working interest in drilling this discovery. The discovery
well was drilled to a total measured depth of 10,000 feet in December 1998 and
encountered 74 net feet of pay. As of August 31, 1999, this discovery accounted
for approximately 10% of the present value of future net cash flows from our
proved reserves. Production from this discovery began in April 1999. We believe
that no other wells will need to be drilled to fully produce the proved
reserves related to this discovery.
South Timbalier 220. South Timbalier 220 is located approximately 40 miles
off the Louisiana coast in approximately 150 feet of water. We participated as
non-operator with a 33 1/3% working interest in drilling this discovery. The
discovery well was drilled to a total measured depth of 14,600 feet in
September 1997 and encountered 149 net feet of pay. As of August 31, 1999, this
discovery accounted for approximately 10% of the present value of future net
cash flows from our proved reserves. Production from this discovery began in
August 1998. We believe that no other wells will need to be drilled to fully
produce the proved reserves related to this discovery.
West Cameron 39. West Cameron 39 is located approximately seven miles off
the Louisiana coast in approximately 30 feet of water. We participated as
operator with a 60% working interest in drilling this discovery. The # 1 well
was drilled to a total measured depth of 11,000 feet in August 1998 and
encountered 140 net feet of pay. The # 2 well was drilled to a total measured
depth of 12,600 feet in March 1999 and encountered 236 net feet of pay. The # 3
well was drilled to a total measured depth of 12,000 feet in May 1999 and
encountered 45 net feet of pay. As of August 31, 1999, the wells accounted for
approximately 9% of the present value of future net cash flows from our proved
reserves. Production from the # 1 well began in January 1999, and we expect
production to commence from the # 2 and # 3 wells in the fourth quarter of
1999. We believe that no other wells will need to be drilled to fully produce
the proved reserves related to this discovery.
Mississippi Canyon 496 (Zia). Zia is located approximately 33 miles off the
Louisiana coast in approximately 1,800 feet of water. We participated as non-
operator with a 12 1/2% working interest in drilling this discovery. The
discovery well was drilled to a total measured depth of 21,800 feet in November
1998 and encountered 217 net feet of pay. As of August 31, 1999, this discovery
accounted for approximately 7% of the present value of future net cash flows
from our proved reserves. A second well is planned by the second quarter of
2000. We expect production from this discovery to begin by the fourth quarter
of 2001.
High Island 235. High Island 235 is located approximately 37 miles off the
Texas coast in approximately 60 feet of water. We participated as operator with
a 50% working interest in drilling this discovery. The discovery well was
drilled to a total measured depth of 15,400 feet in January 1999 and
encountered 125 net feet of pay. As of August 31, 1999, this discovery
accounted for approximately 6% of the present value of future net cash flows
from our proved reserves. Production from this discovery began in April 1999.
We believe that no other wells will need to be drilled to fully produce the
proved reserves related to this discovery.
Vermilion 375. Vermilion 375 is located approximately 87 miles off the
Louisiana coast in approximately 300 feet of water. We participated as operator
with a 70% working interest in drilling this discovery. The discovery well was
drilled to a total measured depth of 10,500 feet in June 1999 and encountered
284 net feet of pay. As of August 31, 1999, this discovery accounted for
approximately 5% of the present value of future net cash flows from our proved
reserves. We expect production from this discovery to begin by the second
quarter of 2000. We believe that no other wells will need to be drilled to
fully produce the proved reserves related to this discovery.
40
<PAGE>
South Pelto 18. South Pelto 18 is located approximately 14 miles off the
Louisiana coast in approximately 50 feet of water. We participated as non-
operator with a 25% working interest in drilling this discovery. The discovery
well was drilled to a total measured depth of 17,100 feet in June 1998 and
encountered 145 net feet of pay. As of August 31, 1999, this discovery
accounted for approximately 5% of the present value of future net cash flows
from our proved reserves. Production from this discovery began in December
1998. We are currently evaluating the need for a development well for this
discovery.
West Cameron 522. West Cameron 522 is located approximately 90 miles off the
Louisiana coast in approximately 180 feet of water. We participated as non-
operator with a 46% working interest in drilling this discovery. The #1 well
was drilled to a total measured depth of 10,500 feet in February 1997 and
encountered 136 net feet of pay. The #2 well was drilled to a total measured
depth of 11,300 feet in January 1998 and encountered 74 net feet of pay. As of
August 31, 1999, the wells accounted for approximately 4% of the present value
of future net cash flows from our proved reserves. Production from these
discoveries began in March 1998. We believe that no other wells will need to be
drilled to fully produce the proved reserves related to this discovery.
Other Discoveries. From inception through August 31, 1999, we participated
in the successful drilling of an additional three exploratory wells. As of
August 31, 1999, these discoveries accounted for approximately 3% of the
present value of future net cash flows from our proved reserves.
Planned Exploration Prospects
We expect to drill 25 exploration prospects during the remainder of 1999 and
2000. We have analyzed 3-D seismic data covering each of these prospects. We
continue to review and interpret data covering these prospects and believe that
many of the prospects have the potential for additional drill sites. We operate
seven of these prospects. We typically have participated in prospects with
industry partners to share the up-front costs associated with our exploration
activities, to mitigate our exploration risk and to increase the number of
prospects in which we can participate.
Although we expect to drill these prospects, there can be no assurance that
these wells will be drilled at all or within the expected time frame. Please
read "Risk Factors" for a discussion of some factors that may affect the timing
of drilling.
Natural Gas and Oil Reserves
The following table presents our estimated net proved natural gas and oil
reserves and the present value of our reserves at August 31, 1999 based on a
reserve report prepared by Ryder Scott. Appendix A to this prospectus contains
a letter prepared by Ryder Scott summarizing the reserve report. The present
values, discounted at 10% per annum, of estimated future net cash flows before
income taxes shown in the table are not intended to represent the current
market value of the estimated natural gas and oil reserves Spinnaker owns. For
further information concerning the present value of future net cash flows from
these proved reserves, please read note 13 of the notes to our consolidated
financial statements.
The present value of future net cash flows before income tax as of August
31, 1999 was determined by using the August 31, 1999 prices of $2.83 per MMBtu
of natural gas at Henry Hub, Louisiana and $22.11 per Bbl of oil at the Cushing
NYMEX Pricing Hub.
<TABLE>
<CAPTION>
Proved Reserves
------------------------------
Developed Undeveloped Total
--------- ----------- --------
<S> <C> <C> <C>
Natural gas (MMcf)........................ 34,413 32,889 67,302
Oil and condensate (MBbls)................ 503 1,804 2,307
Total proved reserves (MMcfe)............. 37,433 43,711 81,144
Present value (in thousands).............. $79,735 $72,488 $152,223
</TABLE>
41
<PAGE>
The process of estimating natural gas and oil reserves is complex. It
requires various assumptions, including assumptions relating to natural gas and
oil prices, drilling and operating expenses, capital expenditures, taxes and
availability of funds. We must project production rates and timing of
development expenditures. We need to analyze available geological, geophysical,
production and engineering data, and the extent, quality and reliability of
this data can vary. Therefore, estimates of natural gas and oil reserves are
inherently imprecise.
Actual future production, natural gas and oil prices, revenues, taxes,
development expenditures, operating expenses and quantities of recoverable
natural gas and oil reserves most likely will vary from our estimates. Any
significant variance could materially affect the estimated quantities and
present value of reserves shown in this prospectus. In addition, we may adjust
estimates of proved reserves to reflect production history, results of
exploration and development, prevailing natural gas and oil prices and other
factors, many of which are beyond our control. At August 31, 1999, 70% of our
proved reserves were either proved undeveloped or proved non-producing. Because
most of our reserve estimates are not based on a lengthy production history and
are calculated using volumetric analysis, these estimates are less reliable
than estimates based on a lengthy production history.
At August 31, 1999, approximately 54% of our estimated equivalent net proved
reserves were undeveloped. Recovery of undeveloped reserves generally requires
significant capital expenditures and successful drilling operations. The
reserve data assumes that we will make these expenditures. Although we estimate
our reserves and the costs associated with developing them in accordance with
industry standards, the estimated costs may be inaccurate, development may not
occur as scheduled and results may not be as estimated.
You should not assume that the present value of future net cash flows
referred to in this prospectus is the current market value of our estimated
natural gas and oil reserves. In accordance with SEC requirements, we generally
base the estimated discounted future net cash flows from proved reserves on
prices and costs on the date of the estimate. Actual future prices and costs
may differ materially from those used in the present value estimate.
Volumes, Prices and Operating Expenses
The following table presents information regarding the production volumes
of, average sales prices received for and average production costs associated
with our sales of natural gas and oil for the periods indicated:
<TABLE>
<CAPTION>
Year Ended Six Months
December Ended June
31, 30,
----------- -----------
1997 1998 1998 1999
----- ----- ----- -----
<S> <C> <C> <C> <C>
Production:
Natural gas (MMcf)................................... 70 1,675 482 4,258
Oil and condensate (MBbls)........................... -- 12 1 49
Total (MMcfe)........................................ 70 1,747 488 4,552
Average sales price per unit:
Natural gas (per Mcf)................................ $2.87 $1.89 $1.97 $2.09
Oil and condensate (per Bbl)......................... 18.51 11.61 13.24 14.70
Total (per Mcfe)..................................... 2.87 1.89 1.97 2.11
Expenses (per Mcfe):
Lease operating expense.............................. $1.03 $0.27 $0.68 $0.26
Depreciation, depletion and amortization--natural gas
and oil properties.................................. 0.97 1.57 1.33 1.67
</TABLE>
42
<PAGE>
Development, Exploration and Acquisition Capital Expenditures
The following table presents information regarding our net costs incurred in
the purchase of proved and unproved properties and in exploration and
development activities:
<TABLE>
<CAPTION>
Year Ended
December 31, Six Months
--------------- Ended June
1997 1998 30, 1999
------- ------- ----------
(in thousands)
<S> <C> <C> <C>
Acquisition costs:
Unproved properties.......................... $ 4,458 $15,791 $15,349
Proved properties............................ -- -- --
Exploration.................................... 7,116 46,620 7,676
Development.................................... 2,422 23,067 13,502
------- ------- -------
Total costs incurred........................... $13,996 $85,478 $36,527
======= ======= =======
</TABLE>
Drilling Activity
The following table shows our drilling activity for the years ended December
31, 1997 and 1998 and the six months ended June 30, 1999. In the table, "gross"
refers to the total wells in which we have a working interest and "net" refers
to gross wells multiplied by our working interest in such wells.
<TABLE>
<CAPTION>
Six
Months
Ended
June 30,
1997 1998 1999
--------- --------- ---------
Gross Net Gross Net Gross Net
----- --- ----- --- ----- ---
<S> <C> <C> <C> <C> <C> <C>
Exploratory Wells:
Productive................................ 4 1.5 9 2.9 3 2.0
Nonproductive............................. -- -- 6 2.3 2 1.0
--- --- --- --- --- ---
Total................................... 4 1.5 15 5.2 5 3.0
=== === === === === ===
Development Wells:
Productive................................ -- -- -- -- -- --
Nonproductive............................. -- -- -- -- -- --
--- --- --- --- --- ---
Total................................... -- -- -- -- -- --
=== === === === === ===
</TABLE>
Since June 30, 1999, we have drilled two gross (1.4 net) productive
exploratory wells and no nonproductive exploratory wells. We have drilled one
gross (1.0 net) exploratory well which has been temporarily abandoned. As of
September 27, 1999, we were drilling four gross (1.5 net) wells.
Productive Wells
The following table sets forth the number of productive natural gas and oil
wells in which we owned an interest as of June 30, 1999:
<TABLE>
<CAPTION>
Total
Productive
Wells
------------
Gross Net
------ -----
<S> <C> <C>
Natural gas.................................................. 15 6.3
Oil.......................................................... 1 0.1
----- -----
Total...................................................... 16 6.4
===== =====
</TABLE>
Productive wells consist of producing wells and wells capable of production,
including natural gas wells awaiting pipeline connections to commence
deliveries and oil wells awaiting connection to production facilities.
43
<PAGE>
Acreage Data
The following table presents information regarding our developed and
undeveloped lease acreage as of June 30, 1999. Developed acreage refers to
acreage within producing units and undeveloped acreage refers to acreage that
has not been placed in producing units.
<TABLE>
<CAPTION>
Developed Undeveloped
Acreage Acreage Total
------------- --------------- ---------------
Gross Net Gross Net Gross Net
------ ------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Offshore Louisiana................ 34,020 16,047 217,969 75,626 251,989 91,673
Offshore Texas.................... 23,040 6,966 115,200 40,090 138,240 47,056
Texas State Waters................ 1,200 300 27,866 11,553 29,066 11,853
------ ------ ------- ------- ------- -------
Total........................... 58,260 23,313 361,035 127,269 419,295 150,582
====== ====== ======= ======= ======= =======
</TABLE>
Our lease agreements generally terminate if wells have not been drilled on
the acreage within a period of five years from the date of the lease if located
on the shelf in less than 200 meters of water or 10 years if located in deeper
waters of the Gulf of Mexico.
Marketing
Most of our natural gas and oil production is sold by our operators under
price sensitive or market price contracts. Our revenues, profitability and
future growth depend substantially on prevailing prices for natural gas and
oil. The price received by us for our natural gas and oil production fluctuates
widely. For example, natural gas and oil prices declined significantly in 1998
and, for an extended period of time, remained substantially below prices
obtained in previous years. Among the factors that can cause this fluctuation
are:
. the level of consumer product demand;
. weather conditions;
. domestic and foreign governmental regulations;
. the price and availability of alternative fuels;
. political conditions in natural gas and oil producing regions;
. the domestic and foreign supply of natural gas and oil;
. the price of foreign imports; and
. overall economic conditions.
Decreases in the prices of natural gas and oil could adversely affect the
carrying value of our proved reserves and our revenues, profitability and cash
flow. Although we currently are not experiencing any significant involuntary
curtailment of our natural gas or oil production, market, economic and
regulatory factors may in the future materially affect our ability to sell our
natural gas or oil production. For the year ended December 31, 1998, sales to
Cokinos Energy Corporation were 100% of our natural gas and oil revenues.
Currently, all of our natural gas production is sold at current market prices
to Columbia Energy Services. Columbia generally is not required to pay us for
our production until 60 to 90 days after we deliver the production. As a
result, if Columbia were to default on its payment obligations to us for our
production, our near-term earnings and cash flows would be adversely affected.
However, due to the availability of other markets and pipeline connections, we
do not believe that the loss of Columbia or any other customer would adversely
affect our ability to market our production.
44
<PAGE>
To reduce our exposure to fluctuations in the prices of natural gas and oil,
we have recently begun to enter into hedging arrangements. Hedging arrangements
expose us to risk of financial loss in some circumstances including the
following:
. production is less than expected;
. the other party to the hedging contract defaults on its contract
obligations; or
. there is a change in the expected differential between the underlying
price in the hedging agreement and actual prices received.
In addition, these hedging arrangements may limit the benefit we would
receive from increases in the prices for natural gas and oil. We cannot assure
you that the hedging transactions we have entered into, or will enter into,
will adequately protect us from fluctuations in the prices of natural gas and
oil.
On the other hand, we may choose not to engage in hedging transactions in
the future. As a result, we may be more adversely affected by changes in
natural gas and oil prices than our competitors who engage in hedging
transactions. For further information concerning our hedging transactions,
please read "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources--Hedging Transactions."
Competition
We compete with major and independent natural gas and oil companies for
property acquisitions. We also compete for the equipment and labor required to
operate and develop these properties. Most of our competitors have
substantially greater financial and other resources. In addition, larger
competitors may be able to absorb the burden of any changes in federal, state
and local laws and regulations more easily than we can, which would adversely
affect our competitive position. These competitors may be able to pay more for
exploratory prospects and productive natural gas and oil properties and may be
able to define, evaluate, bid for and purchase a greater number of properties
and prospects than we can. Our ability to explore for natural gas and oil
prospects and to acquire additional properties in the future will depend upon
our ability to conduct operations, to evaluate and select suitable properties
and to consummate transactions in this highly competitive environment. In
addition, most of our competitors have been operating in the Gulf of Mexico for
a much longer time than we have and have demonstrated the ability to operate
through industry cycles.
Regulation
Federal Regulation of Sales and Transportation of Natural Gas. Historically,
the transportation and sale for resale of natural gas in interstate commerce
have been regulated pursuant to the Natural Gas Act of 1938, the Natural Gas
Policy Act of 1978 and the regulations promulgated thereunder by the Federal
Energy Regulatory Commission. In the past, the federal government has regulated
the prices at which natural gas could be sold. Deregulation of natural gas
sales by producers began with the enactment of the Natural Gas Policy Act. In
1989, Congress enacted the Natural Gas Wellhead Decontrol Act, which removed
all remaining Natural Gas Act and Natural Gas Policy Act price and non-price
controls affecting producer sales of natural gas effective January 1, 1993.
Congress could, however, reenact price controls in the future.
Our sales of natural gas are affected by the availability, terms and cost of
pipeline transportation. The price and terms for access to pipeline
transportation remain subject to extensive federal regulation. Commencing in
April 1992, the Federal Energy Regulatory Commission issued Order No. 636 and a
series of related orders, which required interstate pipelines to provide open-
access transportation on a basis that is equal for all natural gas suppliers.
The Federal Energy Regulatory Commission has stated that it intends for Order
No. 636 to foster increased competition within all phases of the natural gas
industry. Although Order No. 636 does not directly regulate our production and
marketing activities, it does affect how buyers and sellers gain access to the
necessary transportation facilities and how we and our competitors sell natural
gas in the marketplace. The courts have largely affirmed the significant
features of Order No. 636 and the numerous
45
<PAGE>
related orders pertaining to individual pipelines, although some appeals remain
pending and the Federal Energy Regulatory Commission continues to review and
modify its regulations regarding the transportation of natural gas. For
example, the Federal Energy Regulatory Commission has recently begun a broad
review of its transportation regulations, including how its regulations operate
in conjunction with state proposals for retail natural gas marketing
restructuring, whether to eliminate cost-of-service based rates for short-term
transportation, whether to allocate all short-term capacity on the basis of
competitive auctions, and whether changes to its long-term transportation
service policies may be appropriate to avoid a market bias toward short-term
contracts. We cannot predict what action the Federal Energy Regulatory
Commission will take on these matters, nor can we accurately predict whether
the Federal Energy Regulatory Commission's actions will achieve the goal of
increasing competition in markets in which our natural gas is sold. However, we
do not believe that any action taken will affect us in a way that materially
differs from the way it affects other natural gas producers, gatherers and
marketers.
The Outer Continental Shelf Lands Act requires that all pipelines operating
on or across the Outer Continental Shelf provide open-access, non-
discriminatory service. Although the Federal Energy Regulatory Commission has
opted not to impose the regulations of Order No. 509, in which the Federal
Energy Regulatory Commission implemented the Outer Continental Shelf Lands Act,
on gatherers and other non-jurisdictional entities, the Federal Energy
Regulatory Commission has retained the authority to exercise jurisdiction over
those entities if necessary to permit non-discriminatory access to service on
the Outer Continental Shelf.
Commencing in May 1994, the Federal Energy Regulatory Commission issued a
series of orders that, among other matters, slightly narrowed its statutory
tests for establishing gathering status and reaffirmed that, except in
situations in which the gatherer acts in concert with an interstate pipeline
affiliate to frustrate the Federal Energy Regulatory Commission's
transportation policies, it does not have pervasive jurisdiction over natural
gas gathering facilities and services, and that such facilities and services
located in state jurisdictions are most properly regulated by state
authorities. This Federal Energy Regulatory Commission action may further
encourage regulatory scrutiny of natural gas gathering by state agencies. We do
not believe that we will be affected by the Federal Energy Regulatory
Commission's new gathering policy any differently than other natural gas
producers, gatherers and marketers.
Additional proposals and proceedings that might affect the natural gas
industry are pending before Congress, the Federal Energy Regulatory Commission
and the courts. The natural gas industry historically has been very heavily
regulated; therefore, there is no assurance that the less stringent regulatory
approach recently pursued by the Federal Energy Regulatory Commission and
Congress will continue.
Federal Leases. A substantial portion of our operations are located on
federal natural gas and oil leases, which are administered by the Minerals
Management Service. Such leases are issued through competitive bidding, contain
relatively standardized terms and require compliance with detailed Minerals
Management Service regulations and orders pursuant to the Outer Continental
Shelf Lands Act which are subject to interpretation and change by the Minerals
Management Service. For offshore operations, lessees must obtain Minerals
Management Service approval for exploration plans and development and
production plans prior to the commencement of such operations. In addition to
permits required from other agencies such as the Coast Guard, the Army Corps of
Engineers and the Environmental Protection Agency, lessees must obtain a permit
from the Minerals Management Service prior to the commencement of drilling. The
Minerals Management Service has promulgated regulations requiring offshore
production facilities located on the Outer Continental Shelf to meet stringent
engineering and construction specifications. The Minerals Management Service
also has regulations restricting the flaring or venting of natural gas, and has
proposed to amend such regulations to prohibit the flaring of liquid
hydrocarbons and oil without prior authorization. Similarly, the Minerals
Management Service has promulgated other regulations governing the plugging and
abandonment of wells located offshore and the installation and removal of all
production facilities. To cover the various obligations of lessees on the Outer
Continental Shelf, the Minerals Management Service generally requires that
lessees have substantial net worth or post bonds or other acceptable assurances
that such obligations will be met. The cost of these bonds or other surety can
be substantial, and there is no assurance that bonds or other surety can be
46
<PAGE>
obtained in all cases. We currently have two supplemental bonds in place. Under
some circumstances, the Minerals Management Service may require any of our
operations on federal leases to be suspended or terminated. Any such suspension
or termination could materially adversely affect our financial condition and
results of operations.
The Minerals Management Service has recently issued a notice of proposed
rulemaking in which it proposes to amend its regulations governing the
calculation of royalties and the valuation of crude oil produced from federal
leases. This proposed rule would modify the valuation procedures for both
arm's-length and non-arm's-length crude oil transactions, establish a new form
for collecting value differential data, and amend the valuation procedure for
the sale of federal royalty oil. We cannot predict what action the Minerals
Management Service will take on this matter. We believe that these rules, if
adopted as proposed, will not have a material impact on our financial
condition, liquidity or results of operations.
State and Local Regulation of Drilling and Production. We own interests in
properties located in the state waters of the Gulf of Mexico offshore Texas and
Louisiana and occasionally may conduct operations in the state waters offshore
Mississippi. These states regulate drilling and operating activities by
requiring, among other things, drilling permits and bonds and reports
concerning operations. The laws of these states also govern a number of
environmental and conservation matters, including the handling and disposing of
waste materials, unitization and pooling of natural gas and oil properties and
establishment of maximum rates of production from natural gas and oil wells.
Some states prorate production to the market demand for natural gas and oil.
Oil Price Controls and Transportation Rates. Sales of crude oil, condensate
and natural gas liquids by us are not currently regulated and are made at
market prices. Effective as of January 1, 1995, the Federal Energy Regulatory
Commission implemented regulations establishing an indexing system for
transportation rates for oil that could increase the cost of transporting oil
to the purchaser. Other factors being equal, this order may tend to increase
transportation costs or reduce wellhead prices for crude oil. However, we do
not believe that these regulations affect us any differently than other natural
gas producers, gatherers and marketers.
Environmental Regulations. Our operations are subject to numerous laws and
regulations governing the discharge of materials into the environment or
otherwise relating to environmental protection. Public interest in the
protection of the environment has increased dramatically in recent years.
Offshore drilling in some areas has been opposed by environmental groups and,
in some areas, has been restricted. To the extent laws are enacted or other
governmental action is taken that prohibits or restricts offshore drilling or
imposes environmental protection requirements that result in increased costs to
the natural gas and oil industry in general and the offshore drilling industry
in particular, our business and prospects could be adversely affected.
The Oil Pollution Act of 1990 and regulations thereunder impose a variety of
regulations on "responsible parties" related to the prevention of oil spills
and liability for damages resulting from such spills in United States waters. A
"responsible party" includes the owner or operator of a facility or vessel, or
the lessee or permittee of the area in which an offshore facility is located.
The Oil Pollution Act assigns liability to each responsible party for oil
removal costs and a variety of public and private damages. While liability
limits apply in some circumstances, a party cannot take advantage of liability
limits if the spill was caused by gross negligence or willful misconduct or
resulted from violation of a federal safety, construction or operating
regulation. If the party fails to report a spill or to cooperate fully in the
cleanup, liability limits likewise do not apply. Even if applicable, the
liability limits for offshore facilities require the responsible party to pay
all removal costs, plus up to $75 million in other damages. Few defenses exist
to the liability imposed by the Oil Pollution Act.
The Oil Pollution Act also requires a responsible party to submit proof of
its financial responsibility to cover environmental cleanup and restoration
costs that could be incurred in connection with an oil spill. As amended by the
Coast Guard Authorization Act of 1996, the Oil Pollution Act requires parties
responsible for offshore facilities to provide financial assurance in the
amount of $35 million to cover potential Oil Pollution Act liabilities. This
amount can be increased up to $150 million if a study by the Minerals
Management Service
47
<PAGE>
indicates that an amount higher than $35 million should be required. On August
11, 1998, the Minerals Management Service adopted a rule implementing these Oil
Pollution Act financial responsibility requirements. We are in compliance with
this new rule.
The Oil Pollution Act also imposes other requirements, such as the
preparation of an oil spill contingency plan. We have such a plan in place. We
are also regulated by the Clean Water Act and similar state laws. The Clean
Water Act prohibits any discharge into waters of the United States except in
strict conformance with permits issued by federal and state agencies. Failure
to comply with the ongoing requirements of these laws or inadequate cooperation
during a spill event may subject a responsible party to civil or criminal
enforcement actions.
In addition, the Outer Continental Shelf Lands Act authorizes regulations
relating to safety and environmental protection applicable to lessees and
permittees operating on the Outer Continental Shelf. Specific design and
operational standards may apply to Outer Continental Shelf vessels, rigs,
platforms, vehicles and structures. Violations of lease conditions or
regulations issued pursuant to the Outer Continental Shelf Lands Act can result
in substantial civil and criminal penalties, as well as potential court
injunctions curtailing operations and the cancellation of leases. Such
enforcement liabilities can result from either governmental or private
prosecution.
The Comprehensive Environmental Response, Compensation, and Liability Act
("CERCLA"), also known as the "Superfund" law, imposes liability, without
regard to fault or the legality of the original conduct, on some classes of
persons that are considered to have contributed to the release of a "hazardous
substance" into the environment. These persons include the owner or operator of
the disposal site or sites where the release occurred and companies that
disposed or arranged for the disposal of the hazardous substances found at the
site. Persons who are or were responsible for releases of hazardous substances
under CERCLA may be subject to joint and several liability for the costs of
cleaning up the hazardous substances that have been released into the
environment and for damages to natural resources, and it is not uncommon for
neighboring landowners and other third parties to file claims for personal
injury and property damage allegedly caused by the hazardous substances
released into the environment.
Our operations are also subject to regulation of air emissions under the
Clean Air Act, comparable state and local requirements and the Outer
Continental Shelf Lands Act. Implementation of these laws could lead to the
gradual imposition of new air pollution control requirements on our operations.
Therefore, we may incur capital expenditures over the next several years to
upgrade our air pollution control equipment. We do not believe that our
operations would be materially affected by any such requirements, nor do we
expect such requirements to be any more burdensome to us than to other
companies our size involved in natural gas and oil exploration and production
activities.
In addition, legislation has been proposed in Congress from time to time
that would reclassify some natural gas and oil exploration and production
wastes as "hazardous wastes," which would make the reclassified wastes subject
to much more stringent handling, disposal and clean-up requirements. If
Congress were to enact this legislation, it could increase our operating costs,
as well as those of the natural gas and oil industry in general. Initiatives to
further regulate the disposal of natural gas and oil wastes are also pending in
some states, and these various initiatives could have a similar impact on us.
Our management believes that we are in substantial compliance with current
applicable environmental laws and regulations and that continued compliance
with existing requirements will not have a material adverse impact on us.
Operating Hazards and Insurance
The natural gas and oil business involves a variety of operating risks,
including:
. fires;
48
<PAGE>
. explosions;
. blow-outs and surface cratering;
. uncontrollable flows of underground natural gas, oil and formation water;
. natural disasters;
. pipe or cement failures;
. casing collapses;
. embedded oil field drilling and service tools;
. abnormally pressured formations; and
. environmental hazards such as natural gas leaks, oil spills, pipeline
ruptures and discharges of toxic gases.
If any of these events occur, we could incur substantial losses as a result
of:
. injury or loss of life;
. severe damage to and destruction of property, natural resources and
equipment;
. pollution and other environmental damage;
. clean-up responsibilities;
. regulatory investigation and penalties;
. suspension of our operations; and
. repairs to resume operations.
If we experience any of these problems, it could affect well bores,
platforms, gathering systems and processing facilities, which could adversely
affect our ability to conduct operations.
Offshore operations also are subject to a variety of operating risks
peculiar to the marine environment, such as capsizing, collisions, and damage
or loss from hurricanes or other adverse weather conditions. These conditions
can cause substantial damage to facilities and interrupt production. As a
result, we could incur substantial liabilities that could reduce or eliminate
the funds available for exploration, development or leasehold acquisitions, or
result in loss of properties.
In accordance with industry practice, we maintain insurance against some,
but not all, potential risks and losses. We do not carry business interruption
insurance. For some risks, we may not obtain insurance if we believe the cost
of available insurance is excessive relative to the risks presented. In
addition, pollution and environmental risks generally are not fully insurable.
If a significant accident or other event occurs and is not fully covered by
insurance, it could adversely affect us.
Employees
At August 31, 1999, we had 32 full-time employees. We believe that our
relationships with our employees are satisfactory. None of our employees is
covered by a collective bargaining agreement. From time to time, we use the
services of independent consultants and contractors to perform various
professional services, particularly in the areas of construction, design, well-
site surveillance, permitting and environmental assessment. Independent
contractors usually perform field and on-site production operation services for
us, including pumping, maintenance, dispatching, inspection and testing.
Legal Proceedings
From time to time, we may be a party to various legal proceedings. We
currently are not a party to any material litigation.
49
<PAGE>
MANAGEMENT
Executive Officers and Directors
The following table sets forth the names, ages and positions of our
executive officers and directors.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Roger L. Jarvis......... 45 Chairman, President, Chief Executive Officer and Director
James M. Alexander...... 47 Vice President, Chief Financial Officer and Secretary
William D. Hubbard...... 55 Vice President--Exploration
Kelly M. Barnes......... 45 Vice President--Land
L. Scott Broussard...... 41 Vice President--Drilling and Production
Jeffrey C. Zaruba....... 35 Treasurer
Reidar Michaelsen....... 55 Director
Bjarte Bruheim.......... 43 Director
Howard H. Newman........ 52 Director
Jeffrey A. Harris....... 43 Director
Michael E. McMahon...... 51 Director Appointee
</TABLE>
The following biographies describe the business experience of our executive
officers and directors.
Roger L. Jarvis has served as President, Chief Executive Officer and
Director of Spinnaker since 1996 and as Chairman of Spinnaker since 1998. From
1986 to 1994, Mr. Jarvis served in various capacities with King Ranch Inc. and
its subsidiary, King Ranch Oil and Gas, Inc., including Chief Executive
Officer, President and Director of King Ranch Inc. and Chief Executive Officer
and President of King Ranch Oil and Gas, Inc., where he expanded its activities
in the Gulf of Mexico. Mr. Jarvis served as Chief Executive Officer, President
and Principal of (American) Barrick Exploration from 1981 to 1986. In 1979, he
co-founded an engineering and geological consulting firm, Lawson Engineering
Incorporated, where he worked until 1981. From 1976 to 1979, Mr. Jarvis worked
for Amoco Production Company as a petroleum engineer.
James M. Alexander has served as Vice President, Chief Financial Officer and
Secretary of Spinnaker since 1996. Mr. Alexander served as President of
Alexander Consulting from 1992 to 1994, and again from 1995 to 1996. From 1994
to 1995, he served as Chief Financial Officer and then President of Enron
Global Power and Pipeline L.L.C. Mr. Alexander also has served in various
positions within the corporate finance departments of Howard, Weil, Labouisse,
Friedrichs; Drexel Burnham Lambert; Lehman Brothers; and The First Boston
Corporation. Mr. Alexander is a director of Dril-Quip, Inc.
William D. Hubbard has served as Vice President--Exploration of Spinnaker
since 1996. He served as Senior Vice President--Exploration at Global Natural
Resources Corp. from 1992 to 1996, where he was responsible for both onshore
and offshore exploration. From 1987 to 1992, Mr. Hubbard served as Vice
President--Exploration at Adobe Resources Corporation, which merged into Santa
Fe Energy Resources, Inc. in 1992.
Kelly M. Barnes has served as Vice President--Land of Spinnaker since 1997.
From 1992 to 1997, he served as Vice President--Land and Assistant Corporate
Secretary of Global Natural Resources Corporation of Nevada and its affiliated
corporations. Prior to joining Global Natural Resources Corporation of Nevada,
Mr. Barnes held various managerial positions with Adobe Resources Corporation.
L. Scott Broussard has served as Vice President--Drilling and Production of
Spinnaker since August 1999 after joining the Company as Operations Manager in
1998. Mr. Broussard served as Vice President and co-owner of HTK Consultants,
Inc., an engineering consulting firm, from 1994 to 1998. From 1990 to 1994, he
served as Drilling Engineer for Samedan Oil Corporation, supervising operations
in the Gulf of Mexico. From 1981 to 1990, he served in various capacities with
Placid Oil Company, including the position of Senior Drilling Engineer and
supervising operations in the deepwater Gulf of Mexico.
50
<PAGE>
Jeffrey C. Zaruba has served as Treasurer since joining Spinnaker in August
1999. From 1992 to 1999, Mr. Zaruba served as Assistant Controller and held
various financial and tax reporting positions with Cliffs Drilling Company,
which merged with R&B Falcon Corporation in 1998. From 1987 to 1992, he was an
Audit Manager and held senior and staff audit positions with Arthur Young.
Reidar Michaelsen has served as a director of Spinnaker since 1996. He has
served as the Chairman of the Board and Chief Executive Officer of Petroleum
Geo-Services since 1993. He was President of Petroleum Geo-Services from 1991
to 1993. Mr. Michaelsen served as managing director of Norsk Vekst AAS from
1989 to 1991. He headed the Selmer Sande Group from 1986 to 1989 and was with
Geco Geophysical Company, Inc., Houston from 1982 to 1986, reaching the
position of managing director.
Bjarte Bruheim has served as a director of Spinnaker since 1996. Mr. Bruheim
has served as the President and Chief Operating Officer of Petroleum Geo-
Services since March 1993 and was President of PGS Exploration (U.S.), Inc.
from 1991 to 1994. Mr. Bruheim was employed with Geco Geophysical Company,
Inc., Houston from 1981 to 1991, most recently as Vice President, Marine
Operations North/South America.
Howard H. Newman has served as a director of Spinnaker since 1996. Mr.
Newman has been a Member and Managing Director of the investment firm of E.M.
Warburg, Pincus & Co., LLC and a general partner of Warburg, Pincus & Co. since
1987. He is currently a member of that firm's Operating Committee. Prior to
joining Warburg, Pincus Ventures, he held various positions with Morgan Stanley
& Co., Incorporated. Mr. Newman serves on the board of directors of ADVO, Inc.,
Newfield Exploration Company, EEX Corporation, RenaissanceRe Holdings, Ltd.,
Cox Insurance Holdings, Plc, Eagle Family Foods Holdings, Inc., and several
private companies, including Encore Acquisition Partners, Inc.
Jeffrey A. Harris has served as a director of Spinnaker since 1996. Mr.
Harris has been a Member and Managing Director of E.M. Warburg, Pincus & Co.,
LLC and a general partner of Warburg, Pincus & Co. since 1988, where he has
been employed since 1983. He is currently a member of that firm's Operating
Committee. Mr. Harris serves on the board of directors of Industri-Matematik
International, ECsoft Group plc, Knoll, Inc. and several privately held
companies, including Lariat Petroleum, Inc.
Michael E. McMahon was appointed as a director of Spinnaker in July 1999
effective on completion of this offering. Mr. McMahon has served as a partner
in RockPort Partners LLC, an investment company, since June 1998. From July
1997 to June 1998, Mr. McMahon was a Managing Director of Chase Securities,
Inc., and from October 1994 until July 1997, Mr. McMahon was a Managing
Director of Lehman Brothers. Prior to joining Lehman Brothers, Mr. McMahon had
been a partner in Aeneas Group, Inc., a subsidiary of Harvard Management
Company, Inc., since January 1993. Harvard Management Company, Inc. is a
private investment company responsible for managing the endowment fund of
Harvard University. Mr. McMahon was primarily responsible for the fund's energy
and commodities investments. Mr. McMahon also has served as a director of
Triton Energy Limited since 1993.
Our board of directors currently has five members. Our stockholders have
entered into an agreement to elect our board of directors, electing two members
designated by Petroleum Geo-Services, two members designated by Warburg, Pincus
Ventures and one member designated by our chief executive officer. This
agreement will terminate on completion of this offering. Our directors are
elected annually and hold office until the next annual meeting of stockholders
and until their successors are duly elected and qualified. Our executive
officers serve at the discretion of our board of directors. We have appointed
Mr. McMahon to our board of directors effective on completion of this offering.
In addition, we intend to appoint an additional independent director after
completion of this offering, at which time our board of directors would consist
of seven members.
51
<PAGE>
Committees of the Board of Directors
Our board of directors has established an audit committee and a compensation
committee.
Audit Committee
The audit committee currently consists of Messrs. Michaelsen, Bruheim,
Newman and Harris. The audit committee is responsible for:
. recommending the selection of our independent accountants;
. reviewing and approving the scope of our independent accountants' audit
activity and extent of non-audit services;
. reviewing with management and the independent accountants the adequacy of
our basic accounting systems and the effectiveness of our internal audit
plan and activities;
. reviewing our financial statements with management and the independent
accountants and exercising general oversight of our financial reporting
process; and
. reviewing our litigation and other legal matters that may affect our
financial condition and monitoring compliance with our business ethics
and other policies.
Compensation Committee
The compensation committee currently consists of Messrs. Michaelsen,
Bruheim, Newman and Harris. This committee's responsibilities include:
. administering and granting awards under our 1998 Stock Option Plan and
1999 Stock Incentive Plan;
. reviewing the compensation of our Chief Executive Officer and
recommendations of the Chief Executive Officer as to appropriate
compensation for our other executive officers and key personnel;
. examining periodically our general compensation structure; and
. supervising our welfare and pension plans and compensation plans.
Compensation Committee Interlocks and Insider Participation
None of our executive officers serves as a member of the board of directors
or compensation committee of any entity that has one or more of its executive
officers serving as a member of our board of directors or compensation
committee. Prior to July 1998, compensation matters were addressed by our
entire board of directors, on which Mr. Jarvis serves. Mr. Jarvis purchased
shares of our common stock and preferred stock in 1996, 1997 and 1998. Mr.
Jarvis also is a party to an agreement pursuant to which we granted him
registration rights for those shares. For a description of these transactions,
please read "Certain Transactions."
Compensation of Directors
We paid no compensation to any non-employee director in 1998. Following this
offering, non-employee directors unaffiliated with Warburg, Pincus Ventures or
Petroleum Geo-Services are expected to receive director fees of $18,000 per
year. In addition, these directors also will be awarded options to purchase
4,000 shares of common stock per year, granted quarterly with an exercise price
equal to the closing price at the end of each quarter.
52
<PAGE>
Executive Compensation
The following table sets forth information regarding the compensation of our
Chief Executive Officer, and each of our three other most highly compensated
executive officers for 1998. The annual compensation amounts in the table
exclude perquisites and other personal benefits because they did not exceed the
lesser of $50,000 or 10% of the total annual salary and bonus reported for each
executive officer:
1998 Summary Compensation Table
<TABLE>
<CAPTION>
Annual
Compensation
----------------
Name and Principal Position Salary Bonus
--------------------------- -------- -------
<S> <C> <C>
Roger L. Jarvis, Chairman, President and Chief Executive
Officer..................................................... $265,000 $91,498
James M. Alexander, Vice President, Chief Financial Officer
and Secretary............................................... 184,000 67,342
William D. Hubbard, Vice President--Exploration.............. 175,000 56,042
Kelly M. Barnes, Vice President--Land........................ 118,000 37,789
</TABLE>
Each of the bonus amounts shown in the table was awarded by the board of
directors after consideration of the performance of each of the officers and
bonuses paid to similarly-situated executives of companies of comparable size
in the natural gas and oil industry.
Stock Option Grants
Since our inception, our four most highly compensated executive officers
were granted the following options:
. Mr. Jarvis was granted options to purchase 608,000 shares at $5.00 per
share and 384,000 shares at $15.63 per share in December 1996;
. Mr. Alexander was granted options to purchase 243,200 shares at $5.00 per
share and 153,600 shares at $15.63 per share in December 1996;
. Mr. Hubbard was granted options to purchase 152,000 shares at $5.00 per
share and 96,000 shares at $15.63 per share in April 1997; and
. Mr. Barnes was granted options to purchase 68,400 shares at $5.00 per
share and 43,200 shares at $15.63 per share in April 1997 and 30,000
shares at $15.63 per share in January 1999.
The options granted to each of our four most highly compensated executive
officers vest 20% on the grant date and 20% on each anniversary of the grant
date.
In addition, if Mr. Jarvis or Mr. Alexander terminates his employment with
us for good reason, all of the options granted to him will become immediately
exercisable. Good reasons for termination include:
. an unremedied material breach of the employment agreement by Spinnaker;
. relocation of Spinnaker's executive offices outside the Houston, Texas
metropolitan area; and
. in the case of Mr. Alexander, the termination by Mr. Jarvis of his own
employment.
If we terminate Mr. Jarvis or Mr. Alexander without cause, he may exercise
the number of options to which he would otherwise be entitled under the vesting
schedule of the options described above plus an additional 20%. For other
general terms of these options, please read "Management--1998 Stock Option
Plan."
On completion of this offering, options to purchase the following number of
shares at the initial public offering price are expected to be granted to our
four most highly compensated executive officers: 244,529 to Mr. Jarvis; 95,898
to Mr. Alexander; 59,960 to Mr. Hubbard; and 33,593 to Mr. Barnes.
53
<PAGE>
Employment Agreements
Mr. Jarvis entered into an employment agreement with Spinnaker effective
December 20, 1996. The agreement provides that Mr. Jarvis will receive a
minimum annual base salary equal to $250,000. Under the agreement, Mr. Jarvis
also may receive bonuses, at the discretion of the board of directors, and will
be allowed to participate in all benefit plans offered by Spinnaker to
similarly situated employees.
Either the board of directors or Mr. Jarvis can terminate the employment
agreement at any time. If the employment agreement, which has an initial term
ending on December 31, 2000, is not terminated on or before December 15, 2000,
and on or before each December 15th thereafter, the term of the agreement shall
automatically be extended for one additional year. If we terminate the
employment agreement prior to the expiration of the initial term without cause
or if Mr. Jarvis terminates his employment prior to the expiration of the
initial term for good reason as discussed above under "--Stock Option Grants",
then we will continue to pay his then current base salary and continue, at our
cost, his coverages under our group health plans, for the greater of the
balance of the initial term or one year. In addition, if any payment or
distribution by Spinnaker or its affiliates to Mr. Jarvis is subject to Section
4999 of the Internal Revenue Code, Spinnaker is required to compensate him for
the amount of any excise tax imposed on any payments or distributions pursuant
to Section 4999 of the Internal Revenue Code and for any taxes imposed on that
additional payment. Section 4999 of the Internal Revenue Code addresses
additional taxes payable in the event of a change in control of Spinnaker.
Mr. Alexander entered into an employment agreement with Spinnaker effective
December 20, 1996. The agreement provides that he will receive a minimum annual
base salary equal to $175,000. The other terms of Mr. Alexander's employment
agreement are substantially similar to the terms of Mr. Jarvis' employment
agreement.
Mr. Hubbard entered into an employment agreement with Spinnaker effective
December 20, 1996. The agreement provides that he will receive a minimum annual
base salary equal to $165,000. The other terms of Mr. Hubbard's employment
agreement are substantially similar to the terms of the employment agreements
described above. However, on December 31, 1998, Mr. Hubbard's employment
agreement became a year-to-year employment agreement. As a result, if his
employment is not terminated before December 15, 1999, and on each year
thereafter, the term of the agreement will automatically be extended for one
additional year.
Mr. Barnes entered into an employment agreement with Spinnaker effective
December 20, 1996. The agreement provides that he will receive a minimum annual
base salary equal to $110,000. The other terms of Mr. Barnes' employment
agreement are substantially similar to the terms of Mr. Hubbard's employment
agreement.
1998 Stock Option Plan
In January 1998, we adopted a stock option plan. The plan was amended and
restated in September 1999. The plan permits grants of both incentive stock
options and nonqualified stock options. No option will be treated as an
incentive stock option unless the purchase price equals or exceeds the fair
market value of common stock subject to the option on the grant date for the
option. The stock option plan authorizes for issuance 2,673,242 shares of our
common stock, with adjustment in the case of changes in our capitalization
affecting the options. The compensation committee of our board of directors
administers the plan. Unless terminated by our board of directors, the plan
continues for 10 years from the date of adoption.
The purchase price of an aggregate of 1,520,608 shares of common stock
issuable under options authorized under the plan is $5.00 per share, and the
purchase price of an aggregate of 1,152,634 shares of common stock issuable
under options authorized under the plan is $15.63 per share. Messrs. Jarvis and
Alexander were granted stock appreciation rights in connection with their
options. On July 12, 1999, Messrs. Jarvis and Alexander each agreed to
eliminate his stock appreciation rights.
In the event of certain significant changes in Spinnaker, all options then
outstanding generally will become immediately exercisable in full. Significant
changes include:
. any merger, consolidation or other reorganization in which Spinnaker is
not the surviving entity, or which Spinnaker survives, but only as a
subsidiary of an entity;
54
<PAGE>
. any sale, lease or exchange of all or substantially all our assets;
. the dissolution and liquidation of Spinnaker; or
. a change in control of Spinnaker.
This offering does not constitute a significant change in Spinnaker under the
plan.
At August 31, 1999, we had outstanding options to purchase a total of
2,673,242 shares of common stock, of which 1,520,608 are exercisable at $5.00
per share and 1,152,634 are exercisable at $15.63 per share. All outstanding
options are currently exercisable for a term of up to 10 years from the date of
each grant.
1999 Stock Incentive Plan
In September 1999, our board of directors and the stockholders of Spinnaker
adopted the Spinnaker 1999 Stock Incentive Plan. The purpose of the plan is to
provide directors, employees and consultants of Spinnaker additional incentive
and reward opportunities designed to enhance the profitable growth of
Spinnaker. The plan provides for the granting of incentive stock options
intended to qualify under Section 422 of the Internal Revenue Code, options
that do not constitute incentive stock options and restricted stock awards. In
general, the compensation committee of our board of directors administers the
plan and is authorized to select the recipients of awards and the terms and
conditions of awards. However, the board of directors is expected to administer
the plan with respect to awards to directors.
The number of shares of our common stock that may be issued under the plan
may not exceed 1,300,000 shares, subject to adjustment to reflect stock
dividends, stock splits, recapitalizations and similar changes in Spinnaker's
capital structure. Shares of our common stock which are attributable to awards
which have expired, terminated or been canceled or forfeited are available for
issuance or use in connection with future awards. The maximum number of shares
of our common stock that may be subject to awards granted under the plan to any
one individual during any calendar year may not exceed 300,000 shares, subject
to adjustment to reflect stock dividends, stock splits, recapitalizations and
similar changes in our capital structure.
The compensation committee determines the price at which a share of our
common stock may be purchased upon exercise of an option granted under the
plan. However, in the case of an incentive stock option, the purchase price
will not be less than the fair market value of a share of our common stock on
the date the option is granted. In addition, in the case of an option that does
not constitute an incentive stock option, the purchase price will not be less
than the fair market value of a share of our common stock on the date the
option is granted. Shares of our common stock that are the subject of a
restricted stock award under the plan will be subject to restrictions on
disposition by the holder of the award and an obligation of the holder to
forfeit and surrender the shares under some circumstances. These obligations to
forfeit or surrender the shares, or forfeiture restrictions, will be determined
by the compensation committee in its sole discretion, and the compensation
committee may provide that these forfeiture restrictions will lapse upon:
. the attainment of one or more performance targets established by the
compensation committee;
. the award holder's continued employment with Spinnaker or continued
service as a consultant or director for a specified period of time;
. the occurrence of any event or the satisfaction of any other condition
specified by the compensation committee in its sole discretion; or
. a combination of any of the foregoing.
If Spinnaker is involved in a merger or consolidation in which its
stockholders beneficially own less than 50% of the voting stock of the
surviving entity or any person, entity or group acquires beneficial ownership
of more than 50% of the voting stock of Spinnaker, then all options will become
immediately exercisable and forfeiture restrictions or restricted stock awards
will lapse.
55
<PAGE>
No awards under the plan may be granted after ten years from the date the
plan was adopted by our board of directors. The plan will remain in effect
until all awards granted under it have been satisfied or expired. Our board of
directors in its discretion may terminate the plan at any time with respect to
any shares of our common stock for which awards have not been granted. The plan
may be amended, other than to increase the maximum aggregate number of shares
that may be issued under the plan or to change this class of individuals
eligible to receive awards under the plan, by the board of directors without
the consent of the stockholders of Spinnaker. No change in any award previously
granted under the plan may be made which would impair the rights of the holder
of the award without the approval of the holder.
On completion of this offering, options under the 1999 plan to purchase
633,824 shares of common stock will be granted with an exercise price equal to
the initial public offering price. Each of the options will be 20% vested
immediately on grant and will generally vest an additional 20% on each
anniversary of the grant date.
1999 Employee Stock Purchase Plan
Our board of directors adopted our 1999 Employee Stock Purchase Plan, and
our stockholders approved this plan, in September 1999. A total of 100,000
shares of common stock has been reserved for issuance under the purchase plan
plus annual increases equal to the lesser of 25,000 shares or a lesser amount
determined by our board of directors. Participants may purchase common stock
through payroll deductions of up to 15% of the participant's compensation,
subject to some limits. The price of stock purchased under the purchase plan is
85% of the lower of the fair market value of the common stock at the beginning
of each applicable offering period and at the end of each purchase period.
56
<PAGE>
CERTAIN TRANSACTIONS
Following is a discussion of transactions between us and our officers,
directors and stockholders owning more than 5% of the outstanding shares of
common stock.
Registration Rights
We, Petroleum Geo-Services, Warburg, Pincus Ventures and our other
stockholders, each of whom is a current or former employee of Spinnaker,
together holding 100% of our common stock prior to this offering, are parties
to a registration rights agreement. This registration rights agreement is
described under "Description of Capital Stock--Registration Rights."
Petroleum Geo-Services Data Agreement
On December 20, 1996, we entered into the data agreement with Petroleum Geo-
Services. We amended the agreement as of January 6, 1998 when we converted from
a limited liability company to a corporation. We amended the agreement again as
of June 30, 1999 to modify the amount, type and geographic coverage of the data
and related information made available to us. In connection with that second
amendment we issued 1,000,000 shares of common stock to Petroleum Geo-Services.
We have agreed to purchase $2,000,000 of seismic related services from
Petroleum Geo-Services prior to December 31, 2002. Our purchases of seismic
related services from Petroleum Geo-Services were $45,500 in 1997, $78,000 in
1998, and $39,000 for the six months ended June 30, 1999. We believe the terms
of the data agreement are at least as fair to us as we could have obtained from
an unaffiliated third party. The Petroleum Geo-Services data agreement, as
amended, is described under "Business and Properties--Petroleum Geo-Services
Data Agreement."
Investments in Spinnaker
Since our inception, our executive officers, directors and 5% stockholders
have invested cash and other property in Spinnaker in exchange for shares of
our preferred stock and our common stock. The following table summarizes the
shares of our common stock and preferred stock acquired from us by our
executive officers, directors and 5% stockholders since our inception.
<TABLE>
<CAPTION>
Preferred Common
Executive Officers, Directors and 5% Stockholders Stock Stock
------------------------------------------------- --------- ---------
<S> <C> <C>
Warburg, Pincus Ventures, L.P. (1).................. 2,399,500 1,037,500
Petroleum Geo-Services ASA (2)...................... 599,500 3,934,700
Roger L. Jarvis (3)................................. 12,704 134,400
James M. Alexander (4).............................. 5,107 25,600
William D. Hubbard (5).............................. 3,192 16,000
Kelly M. Barnes (6)................................. 1,436 7,200
</TABLE>
- --------
(1) Warburg, Pincus Ventures paid us approximately $60 million for the shares
listed above. Excludes 12,500 shares of common stock that are deliverable
to Warburg, Pincus Ventures as consideration for Warburg, Pincus Ventures'
agreement to guarantee a portion of our obligations under our credit
facility for the quarter ending September 30, 1999. Please read
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources--Credit Agreement" for a
description of our credit facility. Two of our directors, Howard H. Newman
and Jeffrey A. Harris, are affiliated with Warburg, Pincus Ventures. Please
read "Security Ownership of Management and Certain Beneficial Owners" for a
description of Messrs. Newman's and Harris' affiliations with Warburg,
Pincus Ventures.
(2) Petroleum Geo-Services received the shares listed above as consideration
for the rights granted to us under the Petroleum Geo-Services Data
Agreement and for an additional $15 million. Please read "Business and
Properties--Petroleum Geo-Services Data Agreement" for a description of the
Petroleum Geo-Services Data Agreement. Excludes 12,500 shares of common
stock that are deliverable to Petroleum Geo-Services as consideration for
Petroleum Geo-Services' agreement to guarantee a portion of our obligations
under
57
<PAGE>
our credit facility for the quarter ending September 30, 1999. Please read
"Certain Transactions--Credit Agreement" for a description of our credit
facility. Two of our directors, Reidar Michaelsen and Bjarte Bruheim, are
affiliated with Petroleum Geo-Services. Please read "Security Ownership of
Management and Certain Beneficial Owners" for a description of Messrs.
Michaelsen's and Bruheim's affiliations with Petroleum Geo-Services.
(3) As consideration for the shares listed above, Mr. Jarvis paid us
approximately $70,270 in cash and contributed to Spinnaker the intangible
assets owned by him associated with his creation of Spinnaker, including
rights to Spinnaker's name and related patents, copyrights and goodwill.
Mr. Jarvis has sold 48,800 shares of common stock to employees of
Spinnaker.
(4) Mr. Alexander paid us approximately $128,000 for the shares listed above.
(5) Mr. Hubbard paid us approximately $80,000 for the shares listed above.
(6) Mr. Barnes paid us approximately $36,000 for the shares listed above.
Each share of preferred stock is convertible into two shares of common
stock. Each of the persons named in the table above will convert all of their
shares of preferred stock into shares of common stock upon consummation of our
initial public offering. In addition, Warburg, Pincus Ventures, Petroleum Geo-
Services, Mr. Jarvis and Mr. Alexander have agreed to receive additional
shares of our common stock upon consummation of our initial public offering in
lieu of receiving accrued cash dividends on the preferred stock. For purposes
of determining the number of shares of common stock that each person will
receive in lieu of the cash dividends, the common stock to be issued to these
persons will be valued at the initial public offering price less the
underwriters' discounts and commissions per share.
Credit Agreement
In September 1998, we entered into an $85.0 million credit agreement with
Credit Suisse First Boston, New York Branch, Bank of Montreal and Bank of
America, N.A. (formerly NationsBank, N.A.) each of which is an affiliate of
one of the underwriters for this offering. Borrowings under the credit
agreement were used to fund exploration and development activities. The credit
agreement is secured by substantially all of our assets, including our
interests in our natural gas and oil properties, and supported by guarantees
of Petroleum Geo-Services and Warburg, Pincus Ventures, our principal
stockholders. Please read "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources--Credit
Agreement" for a more detailed description of the credit agreement.
Indemnification Agreements
We have entered into indemnification agreements with our officers and
directors containing provisions requiring us to, among other things, indemnify
our officers and directors against liabilities that may arise by reason of
their status or service as officers or directors, other than liabilities
arising from willful misconduct of a culpable nature, and to advance expenses
they incur as a result of any proceeding against them as to which they could
be indemnified.
58
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
AND CERTAIN BENEFICIAL HOLDERS
The following table presents information regarding beneficial ownership of
our common stock as of June 30, 1999 and as adjusted to reflect the sale of
common stock in this offering by:
. each person who we know owns beneficially more than 5% of our common
stock;
. each of our directors;
. our chief executive officer and each of our three other most highly
compensated executive officers; and
. all our executive officers and directors as a group.
Unless otherwise indicated, each person listed has sole voting and
dispositive power over the shares indicated as owned by that person, and the
address of each stockholder is the same as our address. Furthermore, under the
regulations of the SEC, shares are deemed to be "beneficially owned" by a
person if he directly or indirectly has or shares the power to vote or dispose
of these shares, whether or not he has any pecuniary interest in these shares,
or if he has the right to acquire the power to vote or dispose of these shares
within 60 days, including any right to acquire through the exercise of any
option, warrant or right. Therefore, in this table the shares beneficially
owned by Messrs. Jarvis, Alexander, Hubbard and Barnes include 595,200,
238,080, 148,800 and 72,960 shares, respectively, that may be acquired within
60 days through the exercise of stock options. The table does not reflect
beneficial ownership of shares issuable upon exercise of stock options expected
to be granted upon completion of this offering. Please note that the address of
Warburg, Pincus Ventures, L.P. and Messrs. Newman and Harris is 466 Lexington
Avenue, 10th Floor, New York, New York 10017, and the address of Petroleum Geo-
Services and Messrs. Michaelsen and Bruheim is Strandvein 50E, P.O. Box 89, N-
1325, Lysaker, Norway.
<TABLE>
<CAPTION>
Beneficial Ownership
----------------------------
Percent
-----------------
Before After
Beneficial Owner Shares Offering Offering
---------------- ---------- -------- --------
<S> <C> <C> <C>
Warburg, Pincus Ventures, L.P.(1)............ 6,657,091 54.4% 32.9%
Petroleum Geo-Services ASA(2)................ 5,348,097 43.7 26.4
Roger L. Jarvis(3)........................... 710,486 5.5 3.4
James M. Alexander........................... 275,614 2.2 1.3
William D. Hubbard........................... 171,184 1.4 *
Kelly M. Barnes.............................. 83,032 * *
Reidar Michaelsen(2)......................... 5,348,097 43.7 26.4
Bjarte Bruheim(2)............................ 5,348,097 43.7 26.4
Howard H. Newman(1).......................... 6,657,091 54.4 32.9
Jeffrey A. Harris(1)......................... 6,657,091 54.4 32.9
All executive officers and directors as a
group
(10 persons)................................ 13,275,020 99.7 62.3
</TABLE>
- --------
* Represents beneficial ownership of less than 1%.
(1) The sole general partner of Warburg, Pincus Ventures, L.P. is Warburg,
Pincus & Co., a New York general partnership. E. M. Warburg, Pincus & Co.,
LLC, a New York limited liability company, manages Warburg. The members of
E. M. Warburg, Pincus & Co., LLC are substantially the same as the partners
of Warburg, Pincus & Co. Lionel I. Pincus is the managing partner of
Warburg, Pincus & Co. and the managing member of E. M. Warburg, Pincus &
Co., LLC and may be deemed to control both Warburg, Pincus & Co. and E. M.
Warburg, Pincus & Co., LLC. Messrs. Newman and Harris are Managing
Directors and members of E.M. Warburg, Pincus & Co., LLC and general
partners of Warburg, Pincus & Co. As such, Messrs. Newman and Harris may be
deemed to have an indirect pecuniary interest in an indeterminate portion
of the shares beneficially owned by Warburg, Pincus Ventures. Messrs.
Newman and Harris disclaim beneficial ownership of the shares owned by
Warburg, Pincus Ventures.
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(2) The shares are owned directly by Petroleum Geo-Services or by a wholly
owned subsidiary of Petroleum Geo-Services. Mr. Michaelsen serves as
Chairman of the Board and Chief Executive Officer and Mr. Bruheim serves as
President and Chief Operating Officer of Petroleum Geo-Services. As such,
Messrs. Michaelsen and Bruheim may be deemed to have an indirect pecuniary
interest in an indeterminate portion of the shares beneficially owned by
Petroleum Geo-Services. Messrs. Michaelsen and Bruheim disclaim beneficial
ownership of the securities owned by Petroleum Geo-Services.
(3) Mr. Jarvis has granted options to purchase 21,920 shares of common stock
owned by him at $2.50 per share to employees of Spinnaker.
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DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 50,000,000 shares of common stock,
par value $.01 per share, and 10,000,000 shares of preferred stock, par value
$.01 per share. As of June 30, 1999, we had outstanding 5,132,200 shares of
common stock and 3,030,920 shares of preferred stock. Immediately prior to
completion of this offering, each outstanding share of our preferred stock will
be converted into two shares of common stock. On completion of this offering,
we will have outstanding 20,235,026 shares of common stock and no shares of
preferred stock.
Common Stock
Subject to any special voting rights of any series of preferred stock that
we may issue in the future, each share of common stock has one vote on all
matters voted on by our stockholders, including the election of our directors.
No share of common stock affords any cumulative voting or preemptive rights or
is convertible, redeemable, assessable or entitled to the benefits of any
sinking or repurchase fund. Holders of common stock will be entitled to
dividends in the amounts and at the times declared by our board of directors in
its discretion out of funds legally available for the payment of dividends.
Holders of common stock will share equally in our assets on liquidation
after payment or provision for all liabilities and any preferential liquidation
rights of any preferred stock then outstanding. All outstanding shares of
common stock are fully paid and non-assessable.
Preferred Stock
At the direction of our board, we may issue shares of preferred stock from
time to time. Our board of directors may, without any action by holders of the
common stock:
. adopt resolutions to issue preferred stock in one or more classes or
series;
. fix or change the number of shares constituting any class or series of
preferred stock; and
. establish or change the rights of the holders of any class or series of
preferred stock.
The rights any class or series of preferred stock may evidence may include:
. general or special voting rights;
. preferential liquidation or preemptive rights;
. preferential cumulative or noncumulative dividend rights;
. redemption or put rights; and
. conversion or exchange rights.
We may issue shares of, or rights to purchase, preferred stock the terms of
which might:
. adversely affect voting or other rights evidenced by, or amounts
otherwise payable with respect to, the common stock;
. discourage an unsolicited proposal to acquire us; or
. facilitate a particular business combination involving us.
Any of these actions could discourage a transaction that some or a majority
of our stockholders might believe to be in their best interests or in which our
stockholders might receive a premium for their stock over its then market
price.
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Registration Rights
We, Petroleum Geo-Services, Warburg, Pincus Ventures and our other
stockholders are parties to a registration rights agreement. That agreement
grants Petroleum Geo-Services and Warburg, Pincus Ventures the right to require
us to file a registration statement covering all or part of their shares at our
expense, subject to the following restrictions:
. we are not required to respond to a request until 180 days after the
closing of this offering;
. we are not required to register the shares if Petroleum Geo-Services or
Warburg, Pincus Ventures proposes to sell them at an aggregate price to
the public of less than $20 million;
. we are not required to effect more than one requested registration for an
underwritten offering in any six-month period; and
. we generally are not required to effect more than two requested
registrations for underwritten offerings and more than one requested
registration covering the resale of securities for either Petroleum Geo-
Services or Warburg, Pincus Ventures unless we are then eligible to
register the requested sale on SEC Form S-3.
Our stockholders also have rights to include their shares, at our expense,
in a registration statement filed by us for purposes of a public offering. An
underwriter participating in these offerings may limit the number of shares
offered, and the number will be allocated first to us, then to our stockholders
on a pro rata basis.
Anti-Takeover Provisions of our Certificate of Incorporation and Bylaws
Business Combinations under Delaware Law
We are a Delaware corporation and are subject to Section 203 of the Delaware
General Corporation Law. Section 203 prevents an interested stockholder, a
person who owns 15% or more of our outstanding voting stock, from engaging in
business combinations with Spinnaker for three years following the time that
the person becomes an interested stockholder. These restrictions do not apply
if:
. before the person becomes an interested stockholder, our board of
directors approves the transaction in which the person becomes an
interested stockholder or the business combination;
. upon completion of the transaction that results in the person becoming an
interested stockholder, the interested stockholder owns at least 85% of
our outstanding voting stock at the time the transaction commenced,
excluding for purposes of determining the number of shares outstanding
those shares owned by persons who are directors and also officers and
employee stock plans in which employee participants do not have the right
to determine confidentially whether shares held subject to the plan will
be tendered in a tender or exchange offer; or
. following the transaction in which the person became an interested
stockholder, the business combination is approved by our board of
directors and authorized at an annual or special meeting of our
stockholders, and not by written consent, by the affirmative vote of at
least two-thirds of our outstanding voting stock not owned by the
interested stockholder.
In addition, the law does not apply to interested stockholders, such as
Petroleum Geo-Services and Warburg, Pincus Ventures, who become interested
stockholders before common stock of the company is listed on The Nasdaq Stock
Market's National Market.
The law defines the term "business combination" to encompass a wide variety
of transactions with or caused by an interested stockholder, including mergers,
asset sales and other transactions in which the interested stockholder receives
or could receive a benefit on other than a pro rata basis with other
stockholders. This law could have an anti-takeover effect with respect to
transactions not approved in advance by our board of directors, including
discouraging takeover attempts that might result in a premium over the market
price for the shares of our common stock.
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Written Consent of Stockholders
Our certificate of incorporation provides that any action by our
stockholders must be taken at an annual or special meeting of stockholders.
Special meetings of the stockholders may be called only by the board of
directors.
Advance Notice Procedure for Stockholder Proposals
Our bylaws establish an advance notice procedure for the nomination of
candidates for election as directors as well as for stockholder proposals to be
considered at annual meetings of stockholders. In general, notice of intent to
nominate a director must be delivered to or mailed and received at our
principal executive offices as follows:
. With respect to an election to be held at the annual meeting of
stockholders, not less than 90 days nor more than 120 days prior to
the anniversary date of the proxy statement for the immediately
preceding annual meeting of stockholders.
. With respect to an election to be held at a special meeting of
stockholders for the election of directors, not later than the close
of business of the 10th day following the day on which such notice of
the date of the meeting was mailed or public disclosure of the date
of the meeting was made, whichever first occurs, and must contain
specified information concerning the person to be nominated.
Notice of stockholders' intent to raise business at an annual meeting must
be delivered to or mailed and received at our principal executive offices not
less than 90 days nor more than 120 days prior to the anniversary date of the
proxy statement for the preceding annual meeting of stockholders. These
procedures may operate to limit the ability of stockholders to bring business
before a stockholders meeting, including with respect to the nomination of
directors or considering any transaction that could result in a change of
control.
Limitation of Liability and Indemnification of Officers and Directors
Limitation of Liability. Delaware law authorizes corporations to limit or
eliminate the personal liability of their officers and directors to them and
their stockholders for monetary damages for breach of officers' and directors'
fiduciary duty of care. The duty of care requires that, when acting on behalf
of the corporation, officers and directors must exercise an informed business
judgment based on all material information reasonably available to them. Absent
the limitations authorized by Delaware law, officers and directors are
accountable to corporations and their stockholders for monetary damages for
conduct constituting gross negligence in the exercise of their duty of care.
Delaware law enables corporations to limit available relief to equitable
remedies such as injunction or rescission.
Our certificate of incorporation limits the liability of our directors to us
or our stockholders to the fullest extent permitted by Delaware law.
Specifically, our directors will not be personally liable for monetary damages
for breach of a director's fiduciary duty in such capacity, except for
liability
. for any breach of the director's duty of loyalty to Spinnaker or our
stockholders,
. for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law,
. for unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the Delaware General
Corporation Law, or
. for any transaction from which the director derived an improper personal
benefit.
Indemnification. Delaware law also authorizes corporations to indemnify its
officers, directors, employees and agents for liabilities, other than
liabilities to the corporation, arising because such individual was an officer,
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director, employee or agent of the corporation so long as the individual acted
in good faith and in a manner he or she reasonably believed to be in the best
interests of the corporation and not unlawful.
Our bylaws provide that our officers and directors will be indemnified by us
for liabilities arising because such individual was an officer or director of
Spinnaker to the fullest extent permitted by Delaware law. Our bylaws also
provide that we may, by action of our board of directors, provide similar
indemnification to our employees and agents.
The inclusion of these provisions in our certificate of incorporation and
our bylaws may reduce the likelihood of derivative litigation against our
officers and directors and may discourage or deter our stockholders or
management from bringing a lawsuit against our officers and directors for
breach of their duty of care, even though the action, if successful, might
otherwise have benefited us and our stockholders.
These provisions in our certificate of incorporation and bylaws do not alter
the liability of our officers and directors under federal securities laws and
do not affect the right to sue under federal securities laws for violations
thereof.
We have entered into indemnification agreements with each of our directors
and officers. These agreements require us to, among other things, indemnify the
director or officer against expenses and costs incurred by the individual in
connection with any action, suit or proceeding arising out of the individual's
status or service as a director or officer of Spinnaker, other than liabilities
arising from willful misconduct or conduct that is knowingly fraudulent or
deliberately dishonest. The agreement also requires us to advance expenses
incurred by the individual in connection with any proceeding against the
individual with respect to which he or she may be entitled to indemnification
by us. Following completion of this offering, we also will maintain directors'
and officers' liability insurance.
At present, we are not aware of any pending litigation or proceeding
involving any director, officer, employee or agent of Spinnaker where
indemnification will be required or permitted. Furthermore, we are not aware of
any threatened litigation or proceeding that might result in a claim for
indemnification.
Transfer Agent and Registrar
The transfer agent and registrar of our common stock is Harris Trust and
Savings Bank.
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SHARES ELIGIBLE FOR FUTURE SALE
On completion of this offering, we will have 20,235,026 shares of common
stock outstanding, or 21,435,026 shares if the underwriters' over-allotment
option is exercised in full. Of these outstanding shares of common stock, the
shares sold in this offering will be freely tradeable without restriction. Any
shares sold on exercise of the underwriters' over-allotment option also would
be freely tradeable. None of the remaining outstanding shares of common stock
have been registered under the Securities Act, which means that they may be
resold only in transactions registered under the Securities Act or exempt from
registration. However, holders of 12,191,740 shares of the remaining
outstanding common stock have agreed with the underwriters not to sell any of
these shares for a period of 180 days after the date of this prospectus,
subject to some exceptions.
Prior to this offering, there has been no public market for our common
stock. The market price of our common stock could drop because of sales of a
large number of shares in the open market following this offering or the
perception that those sales may occur. These factors also could make it more
difficult for us to raise capital through future offerings of common stock.
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UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 1999, we have agreed to sell to the underwriters named
below the following respective numbers of shares of common stock:
<TABLE>
<CAPTION>
Number
Underwriter of Shares
----------- ---------
<S> <C>
Credit Suisse First Boston Corporation.............................
Donaldson, Lufkin & Jenrette Securities Corporation................
Banc of America Securities LLC.....................................
Prudential Securities Incorporated.................................
Nesbitt Burns Securities Inc.......................................
---------
Total............................................................ 8,000,000
=========
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in this offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or this
offering of common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to 1,200,000 additional shares from us at the initial public
offering price less the underwriting discounts and commissions. The option may
be exercised only to cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $ per share. The
underwriters and selling group members may allow a discount of $ per share on
sales to other broker/dealers. After the initial public offering, the public
offering price and concession and discount to broker/dealers may be changed by
the underwriters.
The following table summarizes the compensation and estimated expenses we
will pay.
<TABLE>
<CAPTION>
Per Share Total
----------------------------- -----------------------------
Without With Without With
Over-allotment Over-allotment Over-allotment Over-allotment
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting discounts
and commissions payable
by us.................. $ $ $ $
Expenses payable by us.. $ $ $ $
</TABLE>
The underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
We intend to use more than 50% of the net proceeds from the sale of our
common stock to repay indebtedness owed by us to Credit Suisse First Boston,
New York Branch, Bank of America, N.A. and Bank of Montreal, each an affiliate
of one of the underwriters. Credit Suisse First Boston, New York Branch, is an
affiliate of Credit Suisse First Boston Corporation, Bank of America is an
affiliate of Banc of America Securities LLC and Bank of Montreal is an
affiliate of Nesbitt Burns Securities Inc. Accordingly, this offering is being
made in compliance with the requirements of Rule 2710(c)(8) of the National
Association of Securities Dealers, Inc. Conduct Rules. This rule provides
generally that if more than 10% of the net proceeds from the sale of common
stock, not including underwriting compensation, is paid to the underwriters or
their affiliates, the initial public offering price of the common stock may not
be higher than that recommended by a "qualified independent underwriter"
meeting specified standards. Accordingly, Donaldson, Lufkin & Jenrette
Securities
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Corporation is assuming the responsibilities of acting as the qualified
independent underwriter in pricing this offering and conducting due diligence.
The initial public offering price of the shares of common stock will be no
higher than the price recommended by Donaldson, Lufkin & Jenrette Securities
Corporation. We have agreed to pay $5,000 to Donaldson, Lufkin & Jenrette
Securities Corporation as compensation for its services as qualified
independent underwriter in this offering.
We currently comply in all material respects with the terms of the credit
agreement we entered into with the affiliates of the underwriters. The
underwriters decided to participate in the distribution of common stock in this
offering independent of their affiliates who currently are lenders to Spinnaker
and who will receive a portion of the net proceeds of this offering. The
lenders affiliated with underwriters in this offering had no involvement in
determining whether or when to sell common stock in this offering or the terms
of this offering. Excluding the proceeds to the lenders affiliated with
underwriters as previously described, the underwriters will not receive any
benefit from this offering other than their portions of the underwriting
discounts and commissions described in this prospectus.
Credit Suisse First Boston Corporation, one of the underwriters for this
offering, is a subsidiary of Credit Suisse Group, which indirectly holds a
19.9% passive minority interest in Warburg, Pincus & Co., the general partner
of Warburg, Pincus Ventures, one of our principal stockholders.
We, Warburg, Pincus Ventures, Petroleum Geo-Services and our officers and
directors who own shares of our common stock have agreed not to offer, sell,
contract to sell, pledge or otherwise dispose of, directly or indirectly, or
file with the Securities and Exchange Commission a registration statement under
the Securities Act relating to, any shares of our common stock or securities
convertible into or exchangeable or exercisable for any shares of our common
stock, or publicly disclose the intention to make any such offer, sale, pledge,
disposition or filing, without the prior written consent of Credit Suisse First
Boston Corporation for a period of 180 days after the date of this prospectus,
except, in our case, issuances pursuant to the exercise of employee stock
options outstanding on the date of this prospectus.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act, or to contribute to payments that the underwriters may be
required to make in that respect.
We have made application to list the shares of common stock on The Nasdaq
Stock Market's National Market under the symbol "SPNX."
Before this offering, there has been no public market for our common stock.
The initial public offering price will be determined by negotiations between us
and the underwriters. The principal factors considered in determining the
initial public offering price include:
. the information in this prospectus and available to the underwriters;
. the history of and prospects for the industry in which we compete;
. the ability of our management;
. our past results of operations and the prospects for our future earnings;
. the present state of our development and our current financial condition;
. the general condition of the securities markets at the time of this
offering; and
. the recent market prices of, and the demand for, publicly traded common
stock of generally comparable companies.
The underwriters may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation
M under the Securities Exchange Act of 1934.
. Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
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. Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
. Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions.
. Penalty bids permit the underwriters to reclaim a selling concession from
a syndicate member when the common stock originally sold by the syndicate
member is purchased in a stabilizing transaction or in a syndicate
covering transaction to cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty
bids may cause the price of our common stock to be higher than it would
otherwise be in the absence of these transactions. These transactions may be
effected on The Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
NOTICE TO CANADIAN RESIDENTS
Resale Restrictions
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common
stock in Canada must be made in accordance with applicable securities laws
which will vary depending on the relevant jurisdiction, and which may require
resales to be made in accordance with available statutory exemptions or
pursuant to a discretionary exemption granted by the applicable Canadian
securities regulatory authority. Purchasers are advised to seek legal advice
prior to any resale of the common stock.
Representations of Purchasers
Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom such
purchase confirmation is received that (i) such purchaser is entitled under
applicable provincial securities laws to purchase such common stock without the
benefit of a prospectus qualified under such securities laws, (ii) where
required by law, that such purchaser is purchasing as principal and not as
agent and (iii) such purchaser has reviewed the text above under "Resale
Restrictions."
Rights of Action (Ontario Purchasers)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
Enforcement of Legal Rights
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be
possible for Canadian purchasers to effect service of process within Canada
upon the issuer or such persons. All or a substantial portion of the assets of
the issuer and such persons may be located outside of Canada and, as a result,
it may not be possible to satisfy a judgment against the issuer or such persons
in Canada or to enforce a judgment obtained in Canadian courts against such
issuer or persons outside of Canada.
Notice to British Columbia Residents
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the
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sale of any common stock acquired by such purchaser pursuant to this offering.
Such report must be in the form attached to British Columbia Securities
Commission Blanket Order BOR #95/17, a copy of which may be obtained from us.
Only one such report must be filed in respect of common stock acquired on the
same date and under the same prospectus exemption.
Taxation and Eligibility for Investment
Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.
LEGAL MATTERS
The validity of the issuance of the shares of common stock offered by this
prospectus will be passed on for us by Vinson & Elkins L.L.P., Houston, Texas.
Certain legal matters relating to the common stock offered by this prospectus
will be passed on by Baker & Botts, L.L.P., Houston, Texas, as counsel for the
underwriters. Baker & Botts, L.L.P. has represented and continues to represent
Petroleum Geo-Services in connection with various matters not related to this
offering.
EXPERTS
The audited consolidated financial statements included in this prospectus
and elsewhere in the registration statement have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in accounting and auditing in giving said report.
The estimated reserve evaluations and related calculations of Ryder Scott
Company, L.P., independent petroleum engineering consultants, included in this
prospectus have been included in reliance on the authority of said firm as
experts in petroleum engineering.
WHERE YOU CAN FIND MORE INFORMATION
This prospectus is part of a registration statement we have filed with the
SEC relating to our common stock. As permitted by SEC rules, this prospectus
does not contain all of the information we have included in the registration
statement and the accompanying exhibits and schedules we filed with the SEC.
You may refer to the registration statement, exhibits and schedules for more
information about us and our common stock. You can read and copy the
registration statement, exhibits and schedules at the SEC's Public Reference
Room at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the SEC's
regional offices located at Seven World Trade Center, New York, New York 10048,
and at 500 West Madison Street, Chicago, Illinois 60661. You can obtain
information about the operation of the SEC's Public Reference Room by calling
the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site that
contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC. The address of that
site is http://www.sec.gov.
Following this offering, we will be required to file current reports,
quarterly reports, annual reports, proxy statements and other information with
the SEC. You may read and copy those reports, proxy statement and other
information at the SEC's Public Reference Room and regional offices or through
its Internet site. We intend to furnish our stockholders with annual reports
that will include a description of our operations and audited consolidated
financial statements certified by an independent public accounting firm.
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GLOSSARY OF NATURAL GAS AND OIL TERMS
The following is a description of the meanings of some of the natural gas
and oil industry terms used in this prospectus. The meanings of the terms
"proved reserves," "proved developed reserves," "proved developed producing
reserves," "proved developed non-producing reserves" and "proved undeveloped
reserves" are provided in Appendix A to this prospectus.
Bbl. One stock tank barrel, or 42 U.S. gallons liquid volume, used in this
prospectus in reference to crude oil or other liquid hydrocarbons.
Bcf. Billion cubic feet.
Bcfe. Billion cubic feet equivalent, determined using the ratio of six Mcf
of natural gas to one Bbl of crude oil, condensate or natural gas liquids.
Block. A block depicted on the Outer Continental Shelf Leasing and Official
Protraction Diagrams issued by the U.S. Mineral Management Services or a
similar depiction on official protraction or similar diagrams issued by a state
bordering on the Gulf of Mexico.
Btu or British Thermal Unit. The quantity of heat required to raise the
temperature of one pound of water by one degree Fahrenheit.
Completion. The installation of permanent equipment for the production of
natural gas or oil, or in the case of a dry hole, the reporting of abandonment
to the appropriate agency.
Condensate. Liquid hydrocarbons associated with the production of a
primarily natural gas reserve.
Developed acreage. The number of acres that are allocated or assignable to
productive wells or wells capable of production.
Development well. A well drilled into a proved natural gas or oil reservoir
to the depth of a stratigraphic horizon known to be productive.
Dry hole. A well found to be incapable of producing hydrocarbons in
sufficient quantities such that proceeds from the sale of such production
exceed production expenses and taxes.
Exploratory well. A well drilled to find and produce natural gas or oil
reserves not classified as proved, to find a new reservoir in a field
previously found to be productive of natural gas or oil in another reservoir or
to extend a known reservoir.
Farm-in or farm-out. An agreement under which the owner of a working
interest in a natural gas and oil lease assigns the working interest or a
portion of the working interest to another party who desires to drill on the
leased acreage. Generally, the assignee is required to drill one or more wells
in order to earn its interest in the acreage. The assignor usually retains a
royalty or reversionary interest in the lease. The interest received by an
assignee is a "farm-in" while the interest transferred by the assignor is a
"farm-out."
Field. An area consisting of a single reservoir or multiple reservoirs all
grouped on or related to the same individual geological structural feature
and/or stratigraphic condition.
Gross acres or gross wells. The total acres or wells, as the case may be, in
which a working interest is owned.
Lead. A specific geographic area which, based on supporting geological,
geophysical or other data, is deemed to have potential for the discovery of
commercial hydrocarbons.
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MBbls. One thousand barrels of crude oil or other liquid hydrocarbons.
Mcf. One thousand cubic feet of natural gas.
Mcfe. One thousand cubic feet equivalent, determined using the ratio of six
Mcf of natural gas to one Bbl of crude oil, condensate or natural gas liquids.
MMBls. One million barrels of crude oil or other liquid hydrocarbons.
MMBtu. One million British Thermal Units.
MMcf. One million cubic feet of natural gas.
MMcfe. One million cubic feet equivalent, determined using the ratio of six
Mcf of natural gas to one Bbl of crude oil, condensate or natural gas liquids.
Net acres or net wells. The sum of the fractional working interest owned in
gross acres or wells, as the case may be.
Net feet of pay. The true vertical thickness of reservoir rock estimated to
both contain hydrocarbons and be capable of contributing to producing rates.
Productive well. A well that is found to be capable of producing
hydrocarbons in sufficient quantities such that proceeds from the sale of such
production exceed production expenses and taxes.
Prospect. A specific geographic area which, based on supporting geological,
geophysical or other data and also preliminary economic analysis using
reasonably anticipated prices and costs, is deemed to have potential for the
discovery of commercial hydrocarbons.
Reservoir. A porous and permeable underground formation containing a natural
accumulation of producible natural gas and/or oil that is confined by
impermeable rock or water barriers and is individual and separate from other
reservoirs.
Undeveloped acreage. Lease acreage on which wells have not been drilled or
completed to a point that would permit the production of commercial quantities
of natural gas and oil regardless of whether such acreage contains proved
reserves.
Working interest. The operating interest that gives the owner the right to
drill, produce and conduct operating activities on the property and receive a
share of production.
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<PAGE>
SPINNAKER EXPLORATION COMPANY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants................................. F-2
Consolidated Balance Sheets as of December 31, 1997 and 1998 and June 30,
1999 (unaudited)........................................................ F-3
Consolidated Statements of Operations for the period from Inception
(December 20, 1996) through December 31, 1996, for the years ended
December 31, 1997and 1998 and for the six months ended June 30, 1998
(unaudited) and 1999 (unaudited)........................................ F-4
Consolidated Statements of Equity for the period from Inception (December
20, 1996) through December 31, 1996, for the years ended December 31,
1997 and 1998 and for the six months ended June 30, 1999 (unaudited).... F-5
Consolidated Statements of Cash Flows for the period from Inception
(December 20, 1996) through December 31, 1996, for the years ended
December 31, 1997and 1998 and for the six months ended June 30, 1998
(unaudited) and 1999 (unaudited)........................................ F-6
Notes to Consolidated Financial Statements............................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Spinnaker Exploration Company:
We have audited the accompanying consolidated balance sheets of Spinnaker
Exploration Company (a Delaware corporation), as of December 31, 1997 and 1998,
and the related consolidated statements of operations, equity and cash flows
for the period from inception (December 20, 1996) through December 31, 1996 and
for each of the two years in the period ended December 31, 1998. These
financial statements are the responsibility of Spinnaker Exploration Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Spinnaker
Exploration Company, as of December 31, 1997 and 1998, and the results of its
operations and its cash flows for the period from inception (December 20, 1996)
through December 31, 1996, and for each of the two years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
April 13, 1999 (except with
respect to the Stock Split
discussed in Notes 2 and 5, as
to which the date is
September 1, 1999)
F-2
<PAGE>
SPINNAKER EXPLORATION COMPANY
CONSOLIDATED BALANCE SHEETS
(In Thousands Except Unit/Share Data)
<TABLE>
<CAPTION>
As of December
31, As of
----------------- June 30,
1997 1998 1999
------- -------- ----------
ASSETS (Unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents...................... $ 2,682 $ 2,141 $ 3,976
Accounts receivable............................ 3,603 3,821 10,691
Other.......................................... 63 775 489
------- -------- --------
Total current assets........................ 6,348 6,737 15,156
------- -------- --------
PROPERTY AND EQUIPMENT:
Oil and gas, on the basis of full-cost
accounting--
Proved properties............................. 6,452 71,091 104,026
Unproved properties and properties under
development, not being amortized............. 7,544 28,383 31,975
Furniture and fixtures......................... 1,940 2,798 3,108
------- -------- --------
15,936 102,272 139,109
Less--Accumulated depreciation, depletion and
amortization.................................. (484) (6,665) (14,744)
------- -------- --------
Total property and equipment................ 15,452 95,607 124,365
------- -------- --------
OTHER ASSETS:
Organization costs and other, net.............. 558 425 31
------- -------- --------
Total assets................................ $22,358 $102,769 $139,552
======= ======== ========
<CAPTION>
LIABILITIES AND EQUITY
<S> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable and accrued liabilities....... $ 2,096 $ 18,378 $ 10,005
Short-term debt................................ -- 19,000 64,000
------- -------- --------
Total current liabilities................... 2,096 37,378 74,005
------- -------- --------
ACCRUED PREFERRED DIVIDENDS PAYABLE............. 1,383 8,478 13,566
OTHER LONG-TERM LIABILITIES..................... -- -- --
COMMITMENTS AND CONTINGENCIES (Note 11)
EQUITY:
Preferred units, without par value; authorized
3,030,720 units; issued 958,921 units at
December 31, 1997; stated value $25 (net of
issuance costs of $1,291)..................... 22,682 -- --
Preferred stock, $.01 par value; authorized
3,030,920 shares; issued 3,030,920 shares at
December 31, 1998 and June 30, 1999........... -- 30 30
Common units, without par value; authorized
14,701,440 units; 3,960,000 units outstanding
at December 31, 1997.......................... -- -- --
Common stock, $.01 par value; authorized
22,000,000 shares; 4,082,200 shares and
5,132,200 shares outstanding at December 31,
1998 and June 30, 1999, respectively.......... -- 20 26
Additional paid-in capital..................... 29 74,649 79,694
Accumulated deficit............................ (3,832) (17,786) (27,769)
------- -------- --------
Total equity................................ 18,879 56,913 51,981
------- -------- --------
Total liabilities and equity................ $22,358 $102,769 $139,552
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
SPINNAKER EXPLORATION COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands Except Unit/Share and Per Unit/Share Data)
<TABLE>
<CAPTION>
For the
Period from
Inception
(December 20, For the Year Ended For the Six Months
1996) through December 31, Ended June 30,
December 31, -------------------- --------------------
1996 1997 1998 1998 1999
------------- --------- --------- --------- ---------
(Unaudited)
<S> <C> <C> <C> <C> <C>
REVENUES.................. $ -- $ 201 $ 3,298 $ 961 $ 9,583
--------- --------- --------- --------- ---------
EXPENSES:
Depreciation, depletion
and amortization--
natural gas & oil
properties............. -- 68 2,738 648 7,619
Impairment of natural
gas & oil properties... -- -- 2,642 -- --
Depreciation and
amortization--other.... 10 349 437 136 98
General and
administrative......... 318 1,965 3,809 1,959 2,244
Stock appreciation
rights expense......... -- -- -- 904 1,651
Lease operating
expenses............... -- 72 474 331 1,183
--------- --------- --------- --------- ---------
Total expenses........ 328 2,454 10,100 3,978 12,795
--------- --------- --------- --------- ---------
LOSS FROM OPERATIONS...... (328) (2,253) (6,802) (3,017) (3,212)
--------- --------- --------- --------- ---------
OTHER INCOME (EXPENSE):
Interest income......... -- 91 221 133 85
Interest expense........ -- -- (516) -- (2,007)
Capitalized interest.... -- -- 237 -- 634
--------- --------- --------- --------- ---------
Total other income
(expense)............ -- 91 (58) 133 (1,288)
--------- --------- --------- --------- ---------
LOSS BEFORE INCOME TAXES.. (328) (2,162) (6,860) (2,884) (4,500)
Income tax provision.... -- -- -- -- --
--------- --------- --------- --------- ---------
LOSS BEFORE CUMULATIVE
EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE..... (328) (2,162) (6,860) (2,884) (4,500)
Cumulative effect of
change in accounting
principle (Note 2)....... -- -- -- -- (395)
--------- --------- --------- --------- ---------
NET LOSS.................. (328) (2,162) (6,860) (2,884) (4,895)
ACCRUAL OF DIVIDENDS ON
PREFERRED UNITS/STOCK.... (16) (1,326) (7,094) (2,498) (5,088)
--------- --------- --------- --------- ---------
NET LOSS AVAILABLE TO
COMMON
UNITHOLDERS/STOCKHOLDERS.. $ (344) $ (3,488) $ (13,954) $ (5,382) $ (9,983)
========= ========= ========= ========= =========
BASIC LOSS PER COMMON
UNIT/SHARE:
Loss before cumulative
effect of change in
accounting principle... $ (0.09) $ (0.88) $ (3.44) $ (1.33) $ (2.33)
Cumulative effect of
change in accounting
principle.............. -- -- -- -- (0.10)
--------- --------- --------- --------- ---------
NET LOSS PER COMMON
UNIT/SHARE............... $ (0.09) $ (0.88) $ (3.44) $ (1.33) $ (2.43)
========= ========= ========= ========= =========
DILUTED LOSS PER COMMON
UNIT/SHARE
Loss before cumulative
effect of change in
accounting principle... $ (0.09) $ (0.88) $ (3.44) $ (1.33) $ (2.33)
Cumulative effect of
change in accounting
principle.............. -- -- -- -- (0.10)
--------- --------- --------- --------- ---------
NET LOSS PER COMMON
UNIT/SHARE............... $ (0.09) $ (0.88) $ (3.44) $ (1.33) $ (2.43)
========= ========= ========= ========= =========
WEIGHTED AVERAGE NUMBER OF
COMMON UNITS/SHARES
OUTSTANDING:
Basic................... 3,960,000 3,960,000 4,059,020 4,054,514 4,112,795
========= ========= ========= ========= =========
Diluted................. 3,960,000 3,960,000 4,059,020 4,054,514 4,112,795
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
SPINNAKER EXPLORATION COMPANY
CONSOLIDATED STATEMENTS OF EQUITY
(In Thousands Except Units/Shares and Unit/Share Dividend Data)
<TABLE>
<CAPTION>
Units/Shares Par Value Preferred Additional Unitholder/
------------------- ---------------- Unit Paid-In Stockholder Accumulated
Preferred Common Preferred Common Subscriptions Capital Receivables Deficit Total
--------- --------- --------- ------ ------------- ---------- ----------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of preferred
and common units....... 198,921 3,960,000 $-- $-- $54,480 $ 29 $(50,798) $ -- $ 3,711
Net loss.............. -- -- -- -- -- -- -- (328) (328)
Preferred unit
dividends ($3 per
preferred unit)...... -- -- -- -- -- -- -- (16) (16)
--------- --------- --- --- ------- ------- -------- -------- -------
Balance, December 31,
1996................... 198,921 3,960,000 -- -- 54,480 29 (50,798) (344) 3,367
Net loss.............. -- -- -- -- -- -- -- (2,162) (2,162)
Preferred unit
dividends ($3 per
preferred unit)...... -- -- -- -- -- -- -- (1,326) (1,326)
Preferred unit
payments............. 760,000 -- -- -- -- -- 19,000 -- 19,000
--------- --------- --- --- ------- ------- -------- -------- -------
Balance, December 31,
1997................... 958,921 3,960,000 -- -- 54,480 29 (31,798) (3,832) 18,879
Conversion to
Spinnaker Exploration
Company.............. -- 97,200 10 20 (54,480) 54,450 -- -- --
--------- --------- --- --- ------- ------- -------- -------- -------
958,921 4,057,200 10 20 -- 54,479 (31,798) (3,832) 18,879
Net loss.............. -- -- -- -- -- -- -- (6,860) (6,860)
Common Stock
issuance............. -- 25,000 -- -- 188 -- -- 188
Preferred stock
subscriptions........ -- -- -- -- -- 19,982 (19,982) -- --
Preferred stock
dividends ($3 per
share)............... -- -- -- -- -- -- -- (7,094) (7,094)
Preferred stock
payments............. 2,071,999 -- 20 -- -- -- 51,780 -- 51,800
--------- --------- --- --- ------- ------- -------- -------- -------
Balance, December 31,
1998................... 3,030,920 4,082,200 30 20 -- 74,649 -- (17,786) 56,913
Net loss (unaudited).. -- -- -- -- -- -- (4,895) (4,895)
Common Stock issuance
(unaudited).......... -- 1,050,000 -- 6 -- 3,394 -- -- 3,400
Stock appreciation
rights expense
(unaudited).......... -- -- -- -- -- 1,651 -- -- 1,651
Preferred stock
dividends ($3 per
share) (unaudited)... -- -- -- -- -- -- -- (5,088) (5,088)
--------- --------- --- --- ------- ------- -------- -------- -------
Balance, June 30, 1999
(unaudited)............ 3,030,920 5,132,200 $30 $26 $ -- $79,694 $ -- $(27,769) $51,981
========= ========= === === ======= ======= ======== ======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
SPINNAKER EXPLORATION COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
For the
Period from
Inception
(December 20, Year Ended Six Months Ended
1996) through December 31, June 30,
December 31, ------------------ ------------------
1996 1997 1998 1998 1999
------------- -------- -------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net loss............... $ (328) $ (2,162) $ (6,860) $ (2,884) $ (4,895)
Adjustments to
reconcile net loss to
net cash provided by
(used in) operating
activities--
Depletion,
depreciation and
amortization......... 277 417 3,175 784 7,717
Impairment of oil and
gas properties....... -- -- 2,642 -- --
Stock appreciation
rights expense....... -- -- -- 904 1,651
Cumulative effect of
change in accounting
principle............ -- -- -- -- 395
Change in components
of working capital--
(Increase)/decrease
in accounts
receivable.......... (10) (3,593) (218) 1,970 (6,870)
Increase/(decrease)
in accounts payable
and accrued
liabilities......... 566 (63) (896) 1,028 5,725
Change in other
current assets and
other............... (517) (122) (619) (1,561) 785
------ -------- -------- -------- --------
Net cash provided by
(used in) operating
activities......... (12) (5,523) (2,776) 241 4,508
------ -------- -------- -------- --------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Oil and gas
properties............ -- (13,638) (84,823) (38,067) (33,265)
Change in property
related payables...... -- 342 17,178 3,176 (14,098)
Purchase of furniture
and fixtures.......... -- (1,940) (858) (624) (310)
------ -------- -------- -------- --------
Net cash used in
investing
activities......... -- (15,236) (68,503) (35,515) (47,673)
------ -------- -------- -------- --------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from
borrowings............ -- -- 19,000 -- 45,000
Proceeds from issuance
of preferred stock,
net................... -- -- 51,738 34,000 --
Preferred unit
subscription payments,
net................... 4,590 18,863 -- -- --
------ -------- -------- -------- --------
Net cash provided by
financing
activities......... 4,590 18,863 70,738 34,000 45,000
------ -------- -------- -------- --------
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS............ 4,578 (1,896) (541) (1,274) 1,835
CASH AND CASH
EQUIVALENTS, beginning
of period.............. -- 4,578 2,682 2,682 2,141
------ -------- -------- -------- --------
CASH AND CASH
EQUIVALENTS, end of
period................. $4,578 $ 2,682 $ 2,141 $ 1,408 $ 3,976
====== ======== ======== ======== ========
SUPPLEMENTAL CASH FLOW
DISCLOSURES:
Cash paid for interest,
net of amounts
capitalized........... $ -- $ -- $ 84 $ -- $ 1,196
Cash paid for income
taxes................. -- -- -- -- --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
SPINNAKER EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization, Formation and Nature of Operations:
Organization and Nature of Operations
Spinnaker Exploration Company, L.L.C. (Spinnaker), a Delaware limited
liability company, was formed on December 20, 1996, and has been engaged in the
exploration, development and production of natural gas and oil properties in
the U.S. Gulf of Mexico. Spinnaker was formed by WP Spinnaker Holdings, Inc.
(Holdings), a subsidiary of Warburg, Pincus Ventures L.P. (Warburg), Seismic
Energy Holdings, Inc. (SEHI), a subsidiary of Petroleum Geo-Services ASA (PGS),
a Norwegian joint-stock company, and certain members of management of Spinnaker
(collectively known as the Investors).
Formation
As a part of the formation of Spinnaker, Warburg purchased 1,000,000 common
units (Common Units) at $0.0125 per Common Unit and agreed to subscriptions on
preferred units (Preferred Units) of up to $50 million at a price of $25 per
unit, of which 151,476 Preferred Units were purchased at formation. PGS
purchased 1,000,000 Common Units at $0.0125 per Common Unit and subscribed for
up to $15 million of Preferred Units also at a price of $25 per unit, of which
45,093 Preferred Units were purchased at formation. PGS was only obligated to
purchase an aggregate of $5 million Preferred Units unless Spinnaker sold
additional Preferred Units to other investors. As a result, preferred stock
subscriptions were recorded at approximately $54.5 million at inception.
Additionally, PGS entered into a seismic data agreement with Spinnaker dated
December 20, 1996, whereby it agreed to transfer to Spinnaker certain rights to
3-D seismic data in consideration of Common Units (see Note 4). Management
purchased 160,000 Common Units and agreed to subscriptions on Preferred Units
of up to $798,000 at $25 per unit of which 2,352 units were purchased at
formation. Property contributed by management related to this formation
included cash of $9,726 and property resulting from expenditures made by Mr.
Jarvis in anticipation of the formation of the Company. The total value, for
purposes of the agreement, of the initial management contributions was $60,790.
The 198,921 Preferred Units purchased at inception resulted in consideration
received of approximately $5 million and net of $1.3 million in offering costs
resulted in net proceeds of $3.7 million. Upon completion of the formation,
beneficial ownership of the Common Units was 71 percent, 25 percent and 4
percent for PGS, Warburg, and management, respectively. Spinnaker accounted for
the contribution of the seismic data agreement at PGS' cost, which was
immaterial (see Note 4).
Change in Reporting Entity
On January 6, 1998, Spinnaker Exploration Corp. (Spinco), a Delaware
corporation, was formed by Spinnaker Exploration Company, LLC, with Mr. Jarvis
acting as sole director until a board was elected. Contemporaneous with the
formation of Spinco, the Investors, other than Warburg, contributed their
respective Preferred Units and Common Units to Spinco and in exchange for such
contributions, Spinco issued a like number of its shares of common stock, par
value $0.01 per share (Common Stock), and Series A Convertible Preferred Stock
(Preferred Stock), par value $0.01 per share. Warburg contributed all of its
issued and outstanding common shares of Holdings to Spinco in exchange for
shares of Common Stock and Preferred Stock of Spinco. As of January 6, 1998,
the equity owners of Spinnaker were Spinco and Spinco's wholly owned
subsidiary, Holdings. On April 27, 1998, Spinco filed an amendment to its
certificate of incorporation with the State of Delaware to change its name from
Spinco to Spinnaker Exploration Company (Spinnaker or the Company). As a part
of the change in entity, SEHI was issued an additional 97,200 shares of Common
Stock.
F-7
<PAGE>
SPINNAKER EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. Summary of Significant Accounting Policies:
General
The accompanying consolidated financial statements of Spinnaker Exploration
Company have been prepared in accordance with generally accepted accounting
principles and pursuant to the rules and regulations of the Securities and
Exchange Commission (the Commission).
Interim Financial Data
The unaudited consolidated financial statements as of June 30, 1999, and for
the six-month periods ended June 30, 1998 and 1999, and all related footnote
information for these periods have been prepared on the same basis as the
audited financial statements and, in the opinion of management, include all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation of financial position, results of operations and cash flows in
accordance with generally accepted accounting principles.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Other Current Assets
As of December 31, 1998, other current assets includes debt financing costs
of $465,000 incurred by the Company related to the $85 million credit agreement
(see Note 3), which are being amortized to interest expense over the term of
the related debt. Amortization included in interest expense for the year ended
December 31, 1998 was $116,000.
Natural Gas and Oil Properties
The Company uses the full cost method of accounting for its investment in
natural gas and oil properties. Under this method, all acquisition, exploration
and development costs, including certain related employee costs, incurred for
the purpose of finding oil and gas are capitalized. Such amounts include the
cost of drilling and equipping productive wells, dry hole costs, lease
acquisition costs, delay rentals, and costs related to such activities.
Employee costs associated with production operations and general corporate
activities are expensed in the period incurred. Exclusive of field-level costs,
Spinnaker capitalized $2.5 million and $1.3 million of internal costs in 1998
and 1997, respectively. Costs associated with production and general corporate
activities are expensed in the period incurred. Interest costs related to
unproved properties and properties under development are also capitalized to
natural gas and oil properties. Sales of natural gas and oil properties,
whether or not being amortized currently, are accounted for as adjustments of
capitalized costs, with no gain or loss recognized, unless such adjustments
would significantly alter the relationship between capitalized costs and proved
reserves of natural gas and oil.
The Company computes the provision for depreciation, depletion and
amortization (DD&A) of natural gas and oil properties using the unit-of-
production method based upon production and estimates of proved reserve
quantities. Unevaluated costs and related carrying costs are excluded from the
amortization base until the properties associated with these costs are
evaluated. The amortization base includes estimated future development costs
and dismantlement, restoration and abandonment costs, net of estimated salvage
values.
Spinnaker limits the capitalized costs of natural gas and oil properties,
net of accumulated DD&A and related deferred taxes, to the estimated future net
cash flows from proved natural gas and oil reserves
F-8
<PAGE>
SPINNAKER EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
discounted at ten percent, plus the lower of cost or fair value of unproved
properties, as adjusted for related income tax effects (the full cost ceiling).
If capitalized costs exceed this limit, the excess is charged to DD&A in the
quarter in which the excess occurs. At December 31, 1998, the Company
recognized a non-cash impairment of natural gas and oil properties in the
amount of $2,642,000 pursuant to the ceiling limitation required by the full
cost method of accounting for natural gas and oil properties, using prices as
of April 9, 1999. The write-down is primarily the result of the precipitous
decline in natural gas prices experienced in 1998. Using December 31, 1998
prices, the Company would have recognized a non-cash impairment of natural gas
and oil properties in the amount of $12,951,000. The write-down was reduced due
to the increase in natural gas and oil prices from December 31, 1998 through
April 9, 1999. At June 30, 1999, the Company recognized no impairment of
natural gas and oil properties using prices as of August 23, 1999. Using June
30, 1999 prices, the Company would have recognized a non-cash impairment of
natural gas and oil properties in the amount of $1,518,000. The write-down was
unnecessary due to the increase in natural gas and oil prices from June 30,
1999 to August 23, 1999.
The costs of certain unevaluated leasehold acreage and wells drilled, but
currently under evaluation, are not being amortized. Costs not being amortized
are periodically assessed for possible impairments or reduction in value. If a
reduction in value has occurred, costs being amortized are increased.
Of the $28,383,000 of net unproved property costs at December 31, 1998
excluded from the amortizable base, $22,670,000 was incurred in 1998 and
$5,713,000 was incurred in 1997. The majority of the costs will be evaluated
over the next two years.
Substantially all the Company's exploration activities are conducted jointly
with others and, accordingly, the natural gas and oil property balances reflect
only its proportionate interest in such activities.
Furniture and Fixtures
Furniture and fixtures consists of office furniture, computer hardware and
software and leasehold improvements. The Company is depreciating these assets
using the straight-line method based upon estimated useful lives ranging from
three to five years.
Revenue Recognition Policy
The Company records as revenue only that portion of production sold and
allocable to its ownership interest in the related property. Imbalances arise
when a purchaser takes delivery of more or less volume from a property than the
Company's actual interest in the production from that property. Such imbalances
are reduced either by subsequent recoupment of over-and-under deliveries or by
cash settlement, as required by applicable contracts. Under-deliveries are
included in Other assets and over-deliveries are included in Other liabilities.
Income Taxes
Prior to January 6, 1998, the Company was not a taxpaying entity for federal
income tax purposes. The profit or loss of the Company for federal income tax
reporting purposes was included in the income tax returns of the Investors.
Accordingly, no recognition has been given to income taxes in the accompanying
1997 and 1996 financial statements.
Effective January 6, 1998, with the formation of Spinco (see Note 1), the
Company became subject to federal income taxes and began to apply the
provisions of Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes" (see Note 10). Under SFAS No. 109, deferred
income taxes are recognized at each year-end for the future tax consequences of
differences between the tax bases of assets and
F-9
<PAGE>
SPINNAKER EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
liabilities and their financial reporting amounts based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
The total provision for income taxes is the sum of taxes payable for the year
and the change during the year in deferred tax assets and liabilities.
Stock Split
On September 1, 1999, the Company declared a two-for-one stock split on the
Common Stock (the Stock Split). All references to the number of common
units/shares and per share amounts elsewhere in the consolidated financial
statements and related footnotes have been restated as appropriate to reflect
the effect of the Stock Split for all periods presented.
Financial Instruments
The Company's financial instruments consist of cash and cash equivalents,
receivables, payables and debt. The carrying amount of cash and cash
equivalents, receivables, payables and debt approximates fair value because of
the short-term nature of these items.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Significant
estimates include depreciation, depletion and amortization of proved natural
gas and oil properties. Natural gas and oil reserve estimates, which are the
basis for unit-of-production DD&A and the full cost ceiling test, are
inherently imprecise and are expected to change as future information becomes
available.
Stock Options
In October 1995, the Financial Accounting Standards Board (FASB) issued SFAS
No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123 encourages,
but does not require, companies to record compensation cost for stock-based
employee compensation plans at fair value. The Company has chosen to account
for stock-based compensation using the intrinsic value method prescribed in
Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued
to Employees," and related interpretations. Accordingly, compensation cost for
stock options is measured as the excess, if any, of the fair value of the
Company's Common Stock at the date of the grant over the amount an employee
must pay to acquire the Common Stock (see Note 6).
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration
of credit risk consist principally of cash equivalents and trade accounts
receivable. Management believes that the credit risk posed by this
concentration is offset by the creditworthiness of the Company's customer base.
Risk Factors
The Company's revenue, profitability, cash flow and future rate of growth is
substantially dependent upon the price of and demand for natural gas, oil and
natural gas liquids. Prices for natural gas and oil are subject to wide
fluctuations in response to relatively minor changes in the supply of and
demand for natural gas and crude oil, market uncertainty and a variety of
additional factors that are beyond the control of the Company. Other factors
that could affect the revenue, profitability, cash flow and future growth of
the Company include the
F-10
<PAGE>
SPINNAKER EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Company's limited operating history and the incurrence of losses since
formation, the inherent uncertainties in reserve estimates, the concentration
of production and reserves in a small number of offshore properties, the
ability to finance growth, and the ability to replace reserves. Spinnaker is
also dependent upon the continued success of an exploratory drilling program
and its ability to realize value from its seismic data agreement with SEHI (see
Note 4).
The Company had working capital deficits at both December 31, 1998 and June
30, 1999, totaling $30.6 million and $58.8 million, respectively. Short-term
borrowings under the Credit Agreement of $19 million and $64 million at
December 31, 1998 and June 30, 1999, respectively, contributed to the deficits.
The Company has historically had significant amounts of net cash used in
operating and investing activities funded through short-term borrowings from
financial institutions and the issuance of Preferred Stock. Management believes
its access to cash through additional borrowings under its Credit Agreement and
operations are sufficient to satisfy the current cash requirements. PGS and
Warburg have guaranteed repayment of the Company's existing bank debt if the
Company's funds are not sufficient for repayment. Any payments under the
guarantees immediately and automatically convert into equity of the Company
(see Note 3).
Organization Costs
As of December 31, 1998 and 1997, other assets include capitalized
organization costs incurred by the Company in its initial formation. The
Company was amortizing the start-up costs over a period of five years.
Amortization expense for each of the years ended December 31, 1998 and 1997,
was $132,000 and $126,000, respectively, and for the period from inception
(December 20, 1996) through December 31, 1996, was $10,000.
On April 3, 1998, the AICPA issued Statement of Position 98-5 (SOP 98-5),
"Reporting on the Costs of Start-Up Activities", which requires that costs for
start-up activities and organization costs be expensed as incurred and not
capitalized as had previously been allowed. SOP 98-5 is effective for financial
statements for fiscal years beginning after 1998. The Company adopted this
policy in first quarter 1999 and recorded a charge related to this accounting
change of $395,000 in conjunction with the write-off of previously capitalized
organization costs.
New Accounting Policies
In June 1997, the FASB issued SFAS No.131, "Disclosures about Segment of an
Enterprise and Related Information." This statement requires the reporting of
expanded information of a company's operating segments and expands the
definition of what constitutes an entity's operating segments. This statement
is effective for the year ended December 31, 1998. This statement did not have
an impact on the Company's disclosure as the Company has only one reportable
operating segment as defined by SFAS No. 131.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This statement requires the reporting of comprehensive income which
includes net income plus all other changes in equity during the period not
reflected in net income. This statement is effective for the fiscal year ended
December 31, 1998. The Company had no items of other comprehensive income for
any of the periods presented herein.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 established accounting and
reporting standards requiring that all derivative instruments be recorded in
the balance sheet as either an asset or liability measured at its fair value.
The SFAS requires that changes in a derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met.
Accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement and requires
a company to formally document, designate and assess the effectiveness of
transactions that qualify for hedge accounting. SFAS No. 133 was originally
effective for fiscal years beginning after June 15, 1999; however, SFAS No.
137, "Accounting for
F-11
<PAGE>
SPINNAKER EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Derivative Instruments and Hedging Activities--Deferral of the Effective Date
of FASB Statement No. 133--An Amendment of FASB Statement No. 133" extended
implementation to fiscal years beginning after June 15, 2000. Early adoption is
permitted. Currently, the Company has not entered into any hedging activities
that would require adoption of SFAS No. 133.
3. Debt:
In September 1998, the Company entered into a $85 million credit agreement
(Credit Agreement) with certain financial institutions. Proceeds from
borrowings under the Credit Agreement are used to fund exploration and
development activities. The Credit Agreement is secured by the Company's
interests in natural gas and oil properties and by certain guarantees of PGS
and Warburg. The stockholder guarantees for the Credit Agreement are $75
million, split evenly between PGS and Warburg. On a semi-annual basis, the
Company's proved reserves are required to be evaluated to redetermine the
borrowing base. If the borrowing base increases, the guarantees are permanently
decreased dollar for dollar. No borrowing base increases have been made to date
by the financial institutions. If payments are made under a guarantee, the
balance due to the guarantor is immediately and automatically converted into
equity of the Company at a rate of $30 per share.
The Credit Agreement is comprised of three tranches, each with a specified
interest rate. The weighted average interest rate for each of the PGS and the
Warburg tranches for December 31, 1998 was 5.67 percent. The weighted average
interest rate for the borrowing base tranche for December 31, 1998 was 8.23
percent. The overall weighted average interest rate for borrowings outstanding
under the Credit Agreement for the year ended December 31, 1998 was 6.54
percent. Borrowings outstanding under the Credit Agreement at December 31, 1998
were $19 million, of which $14 million was guaranteed by PGS and Warburg.
Interest expense for the year ended December 31, 1998, excluding amounts
related to the stock issuances for guarantees, as described below, was
$212,000. The Credit Agreement matures on December 31, 1999.
In consideration for providing guarantees under the Credit Agreement, PGS
and Warburg are entitled to receive, from time to time, Common Stock. Any
related stock issuances are accounted for at the fair value of the guarantees
provided. Such amounts were $187,500 for 1998 and $500,000 for the first six
months of 1999, and have been included in interest expense in the accompanying
statements of operations.
The Credit Agreement contains certain covenants and restrictive provisions,
including limitations on the incurrence of additional debt or liens, the sales
of property, the declaration or payment of dividends and the repurchase or
redemption of capital stock, and including the maintenance of certain financial
ratios.
Through June 30, 1999, borrowings outstanding increased to $64 million
primarily to finance exploration and development activities.
4. Seismic Data Agreement:
As part of the Company's formation, SEHI agreed to transfer to Spinnaker
certain rights to 3-D seismic data in exchange for issuing 1,800,000 Common
Units to SEHI pursuant to a seismic data agreement dated December 20, 1996 (see
Notes 1 and 5). The Company also had the ability under this seismic data
agreement to acquire additional rights to 3-D seismic data in exchange for
issuing additional Common Units to SEHI. SEHI's obligation to the Company in
connection with the seismic data agreement is guaranteed by its parent,
Petroleum Geo-Services ASA. In addition, we have agreed to purchase $2,000,000
of seismic related services from PGS prior to December 31, 2002. Spinnaker paid
to PGS $45,500 and $78,000 in 1997 and 1998, respectively, and $39,000 in each
of the six-month periods ended June 30, 1998 and 1999, for seismic services
under this agreement.
F-12
<PAGE>
SPINNAKER EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The seismic data agreement was amended effective June 30, 1999. The amended
agreement modified the amount, type and geographic coverage of the data and
related information made available to Spinnaker. In exchange for the amended
rights under this seismic data agreement, Spinnaker issued to PGS an additional
1,000,000 shares of Common Stock. This transaction has been accounted for at
PGS' cost of $2.9 million, pursuant to Staff Accounting Bulletin No. 48.
5. Equity:
Redeemable Convertible Preferred Units/Stock
On December 20, 1996, Spinnaker authorized 3,030,720 units of Series A
Convertible Preferred Units, and on the same day sold 198,921 Preferred Units
to the Investors for consideration of approximately $5 million, composed of
cash and certain previously incurred organization costs. Offering costs of $1.3
million, consisting principally of investment banking fees, were incurred in
connection with this transaction. In 1997, Spinnaker sold an additional 760,000
Preferred Units to the Investors for consideration of approximately $19
million.
The Investors initially committed, subject to certain conditions, to
purchase a total of up to approximately $65.8 million of Preferred Units. In
1998, the total capital commitment for the Investors was increased to $75.8
million, allocated as follows: $15 million to SEHI, $60 million to Holdings and
$0.8 million to management.
On January 6, 1998, concurrent with the formation of Spinco, Spinco
authorized 3,030,920 shares of Preferred Stock with a par value of $.01. All
Preferred Units of Spinnaker, except those issued to Holdings, were contributed
to Spinco in exchange for a like number of shares in Spinco's Preferred Stock.
The Preferred Stock has a liquidation preference of $25 per share plus accrued
dividends. Each share of Preferred Stock is convertible into two shares of
Common Stock subject to certain antidilution provisions, upon one of the
following: (a) at the holder's option, (b) by a vote of a majority of the board
of directors and holders of the Preferred Stock representing at least 65% of
the voting power of the Preferred Stock, or (c) a qualified public offering. In
the event of a qualified public offering, the Company, at its option, can
automatically convert the Preferred Stock into Common Stock if the Common Stock
is sold for not less than 150 percent of the conversion price of $12.50,
subject to adjustments in the event of stock dividends, stock splits, and
issuance of shares below the $12.50 conversion price, etc.
Dividends accrue at the rate of $3 per share (and unpaid dividends compound
quarterly at a rate of 12% per annum) until December 31, 2006, at which time,
the rate decreases to $2 per share per annum thereafter if all dividends for
the then prior periods have been declared and paid in full. Otherwise, the
dividend rate increases to $5 per share per annum and the rate at which the
dividends compound quarterly increases to an annual rate of 20 percent after
December 31, 2006. At December 31, 1998 and 1997, accrued dividends on the
Preferred Stock were $8.5 million and $1.4 million, respectively. Dividends are
payable in cash on the earliest to occur of a qualified initial public
offering, a merger or consolidation involving the Company, a sale of all or
substantially all of the assets of the Company or a change of control of the
Company. The Preferred Stock is currently entitled to one vote per share and is
entitled to vote together with the Common Stock on an as converted basis. The
Preferred Stock may be redeemed by the Company on or after January 21, 2018 at
a redemption price of $25 per share plus any accrued and unpaid dividends
through the redemption date.
The Preferred Stock has substantially the same economic terms as the
Preferred Units had except that the dividend rate on the Preferred Units
increased after December 31, 2006 to $5 per share and the Preferred Units could
be redeemed by the Company after December 31, 2006.
During 1998, Preferred Stock subscriptions increased by approximately $20
million as a result of Warburg increasing its Preferred Unit subscriptions by
$10 million and PGS agreeing that it would be obligated to purchase an
aggregate of $15 million of Preferred Stock rather than $5 million.
F-13
<PAGE>
SPINNAKER EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In 1998, Spinnaker sold an additional 2,071,999 shares of Preferred Stock to
the Investors for consideration of approximately $51.8 million, of which $11
million was sold during the first quarter. At December 31, 1997 and 1996,
receivables on the conditional commitments for the sale of Preferred
Units/Stock to the Investors were approximately $31.8 million and $50.8
million, respectively, and are presented as a reduction in equity. At December
31, 1998, all commitments from Investors for Preferred Stock had been
fulfilled.
Common Units/Stock
In December 1996, Spinnaker authorized 14,701,440 Common Units, of which
3,960,000 were sold to the Investors on December 21, 1996, for consideration of
$25,000 of cash, certain organization costs and a seismic data contribution
agreement (see Note 4). The Common Units were subject to certain transfer
restrictions, and holders of Common Units were bound by certain tax-sharing
arrangements which had the effect of providing economic benefits to Holdings
greater than would be expected in the absence of such agreement.
During 1998, an additional 25,000 shares of Spinnaker common stock were
issued to PGS and Warburg under terms of the Credit Agreement related to the
Guarantor commitments of both parties.
On January 6, 1998, concurrent with the formation of Spinco, Spinco
authorized 14,399,040 shares of Common Stock with a par value of $.01. All
issued Common Units of Spinnaker, except for those issued to Holdings, were
contributed to Spinco in exchange for a like number of shares in Spinco's
Common Stock. In September 1998, the Company amended its certificate of
incorporation and increased the number of authorized shares of Common Stock to
22,000,000.
Common Stock Split
On August 31, 1999, the Company approved a two-for-one stock split on the
Common Stock effective September 1, 1999. One additional share will be issued
for each share of Common Stock. Par value will remain unchanged at $0.01 per
share. The number of shares outstanding at June 30, 1999, after giving effect
to the Stock Split, was 5,132,200 (2,566,100 shares outstanding before the
Stock Split). In connection with the Stock Split, the Company amended its
certificate of incorporation to increase the authorized number of shares of
Common Stock to 50,000,000 shares.
6. Unit/Stock Option Agreements:
On December 27, 1996, Spinnaker adopted its unit option plan, authorizing
nonqualified options for the benefit of Spinnaker's officers and other key
employees to acquire up to 2,480,000 Common Units, 1,520,000 at $5.00 per
Common Unit and 960,000 at $15.63 per Common Unit. The maximum period for
exercise of an option may not be more than ten years from the date of grant.
Options granted vest and become exercisable in general at dates determined by
the compensation committee, subject to the specific terms of the individual
option agreements.
On January 6, 1998, the unit options in the unit option plan were exchanged
for stock options in Spinco. In connection with the exchange, all benefits,
rights and obligations of the unit options were transferred to the stock
options. In August 1998, the Company authorized additional options for the
benefit of Spinnaker's officers and other key employees to acquire up to 3,040
shares of Common Stock at $5.00 per share and 356,920 shares of Common Stock at
$15.63 per share.
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its employee stock-based compensation. In accordance with APB
Opinion No. 25, no compensation expense was charged
F-14
<PAGE>
SPINNAKER EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
against income for the stock plan for 1998 or 1997. Had compensation cost for
the Company's stock option compensation plans been determined based on the fair
value at the grant dates for awards under this plan consistent with the method
of SFAS No. 123, "Accounting for Stock-Based Compensation," the Company's pro
forma net loss available to common unitholders/stockholders and loss per common
unit/share would have been $(14,172,000) and $(3,517,000) and $(3.49) and
$(0.89) in 1998 and 1997, respectively. In 1996, the impact on the net loss was
not material and, therefore, no pro forma disclosure is provided.
For purposes of the SFAS No. 123 disclosure, the fair value of each option
grant is estimated on the date of grant using the Black-Scholes option-pricing
model with weighted average assumptions for grants in 1998 and 1997 which,
among others, include the following: (a) no dividend yield, (b) risk-free
interest rate ranging from 4.96 to 5.96 percent in 1998 and 6.89 percent in
1997, and (c) expected lives of 10 years.
Presented below is a summary of stock option activity.
<TABLE>
<CAPTION>
1996 1997 1998
------------------ ------------------ ------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Shares/ Exercise
Units Price Units Price Units Price
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at the
beginning of period.... -- $ -- 1,388,800 $9.12 2,194,800 $9.12
Granted............... 851,200 5.00 494,000 5.00 177,840 5.00
Granted............... 537,600 15.63 312,000 15.63 132,320 15.63
--------- --------- ---------
Outstanding at end of
period................. 1,388,800 9.12 2,194,800 9.12 2,504,960 9.17
========= ===== ========= ===== ========= =====
Exercisable at end of
period................. 277,760 9.12 716,720 9.12 1,217,712 9.14
========= ===== ========= ===== ========= =====
Available for grant..... 1,091,200 285,200 335,000
========= ========= =========
</TABLE>
The 2,504,960 options outstanding at December 31, 1998, have a weighted
average remaining contractual life of eight years. Of these options as of
December 31, 1998, 1,388,800 are 60 percent exercisable, 806,000 are 40 percent
exercisable and 310,160 are 20 percent exercisable. Stock option grants
generally vest ratably over five years and vest fully in the event of a change
in control of the Company.
Additionally, these options provide that two of the Company's officers may
elect to have the Company deliver shares equal to the appreciation in the value
of the stock over the option price in lieu of purchasing the amount of shares
under option. Based on management's estimate of the share/unit value of the
Company, compensation expense of $0, $0, $904,000 and $1,651,000 in 1997, 1998,
and the six months ended June 30, 1998 and 1999, respectively, has been
recorded related to the stock appreciation rights of the stock option
agreements. In July 1999, these two officers agreed to eliminate the stock
appreciation rights feature of the two stock option agreements.
F-15
<PAGE>
SPINNAKER EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. Earnings Per Share:
Basic and diluted net income (loss) per share is computed based on the
following information (in thousands, except unit, share and per unit/share
amounts):
<TABLE>
<CAPTION>
For the
period from
Inception
(December 20, For the year ended For the Six Months
1996) through December 31, Ended June 30,
December 31, -------------------- --------------------
1996 1997 1998 1998 1999
------------- --------- --------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net loss available to
common
unitholders/stockholders.. $ (344) $ (3,488) $ (13,954) $ (5,382) $ (9,983)
========= ========= ========= ========= =========
BASIC:
Basic weighted average
units/shares........... 3,960,000 3,960,000 4,059,020 4,054,514 4,112,795
========= ========= ========= ========= =========
DILUTED:
Basic weighted average
units/shares........... 3,960,000 3,960,000 4,059,020 4,054,514 4,112,795
Dilutive securities:
Preferred Units/Stock.. -- -- -- -- --
--------- --------- --------- --------- ---------
Diluted weighted average
units/shares........... 3,960,000 3,960,000 4,059,020 4,054,514 4,112,795
========= ========= ========= ========= =========
NET LOSS PER UNIT/SHARE:
BASIC:
Loss before cumulative
effect of change in
accounting principle... $ (0.09) $ (0.88) $ (3.44) $ (1.33) $ (2.33)
Cumulative effect of
change in accounting
principle.............. -- -- -- -- (0.10)
--------- --------- --------- --------- ---------
Net loss per common
unit/share............... $ (0.09) $ (0.88) $ (3.44) $ (1.33) $ (2.43)
========= ========= ========= ========= =========
DILUTED:
Loss before cumulative
effect of change in
accounting principle... $ (0.09) $ (0.88) $ (3.44) $ (1.33) $ (2.33)
Cumulative effect of
change in accounting
principle.............. -- -- -- -- (0.10)
--------- --------- --------- --------- ---------
Net loss per common
unit/share............... $ (0.09) $ (0.88) $ (3.44) $ (1.33) $ (2.43)
========= ========= ========= ========= =========
</TABLE>
For purposes of the diluted earnings per share calculation, the Preferred
Stock and stock options are considered anti-dilutive and are therefore not
considered in the above calculation.
8. Major Customers:
The Company had natural gas and oil sales of $3,298,232 (100 percent) and
$201,000 (100 percent) to one customer for the years ended December 31, 1998
and 1997, respectively.
F-16
<PAGE>
SPINNAKER EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9. Related-Party Transactions:
As part of the Company's formation, SEHI agreed to transfer limited rights
to 3-D seismic data to Spinnaker in exchange for issuing Common Units to SEHI.
The Common Units were exchanged for shares of Common Stock upon the formation
of Spinco. Additionally, Spinnaker paid to PGS $45,500 and $78,000 in 1997 and
1998, respectively, and $39,000 in each of the six-month periods ended June 30,
1998 and 1999 for seismic related services. See also Note 4 concerning the
amendment of the data agreement.
PGS and Warburg, stockholders of the Company, have provided certain
guarantees for the Credit Agreement in an initial amount totaling $75 million
(see Note 3).
10. Income Taxes:
Effective with the formation of Spinco, the Company became subject to
federal income taxes. The formation of Spinco required the Company to establish
a deferred tax liability, which resulted in a one-time noncash charge to income
of $1,668,000. During 1998, the Company generated additional operating losses
and the related tax benefits offset this amount. No net income tax benefit was
recognized due to the uncertainty of future operating income as the Company has
not established a history of net operating income.
The significant items giving rise to the deferred income tax assets and
liabilities at December 31, 1998, are as follows (in thousands):
<TABLE>
<S> <C>
Deferred income tax assets:
Net operating losses........................................... $20,789
Other.......................................................... 274
-------
Total deferred income tax assets............................. 21,063
Deferred income tax liabilities:
Basis differences in natural gas and oil properties............ (20,193)
Other.......................................................... (138)
-------
Total deferred income tax liabilities........................ (20,331)
-------
Valuation allowance.............................................. (732)
-------
Net deferred tax liabilities..................................... $ --
=======
</TABLE>
The difference between the provision for income taxes and the amount that
would be determined by applying the statutory federal income tax rate to the
loss before income taxes for the year ended December 31, 1998, is analyzed as
below (in thousands):
<TABLE>
<S> <C>
Federal income tax benefit at statutory rates................... $(2,400)
Increase resulting from change in tax status.................... 1,668
Valuation allowance............................................. 732
-------
Total provision............................................... $ --
=======
</TABLE>
11. Commitments and Contingencies:
The Company is, from time to time, party to certain legal actions and claims
arising in the ordinary course of business. While the outcome of these events
cannot be predicted with certainty, management does not expect these matters to
have a materially adverse effect on the financial position, results of
operations or cash flows of the Company.
F-17
<PAGE>
SPINNAKER EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Employment Contracts
As of December 31, 1998 and 1997, the Company had employment contracts with
its chief executive officer and chief financial officer which provide for
annual base salaries, bonus compensation and various benefits. The contracts
provide for the continuation of salary and benefits for the respective terms of
the agreements in the event of termination of employment for various reasons,
and whether by the Company or the employee. These agreements initially expire
on December 31, 2000, but are subject to automatic annual extensions unless
terminated. Compensation expense pertaining to officers of the Company is
charged against operating income.
Employee 401(k) Retirement Plan
In July 1998, the Company instituted a 401(k) retirement and profit sharing
plan (Plan) for its employees. The Plan provides that all qualified employees
may defer the maximum income allowed under current tax law. The Plan covers all
employees at least 21 years of age who have completed at least six months of
service subsequent to employment. The Company may make discretionary
contributions allocated to eligible participants. No discretionary
contributions were made for fiscal 1998.
Leases
The Company leases administrative offices under noncancellable operating
leases expiring 2002. Certain of the lease agreements require that the Company
pay for utilities, maintenance and other operational expenses of the building.
Additionally, the leases contain escalation clauses. The Company is liable
under noncancellable leases for future minimum lease commitments as follows (in
thousands):
<TABLE>
<S> <C>
1999............................................................... $ 331
2000............................................................... 330
2001............................................................... 326
2002............................................................... 134
------
$1,121
======
</TABLE>
12. Noncash Investing and Financing Activities:
In 1996, SEHI's capital account was credited for approximately $361,000 of
consideration for prior unreimbursed expenditures incurred in the formation of
the Company, of which $216,000 was expensed during 1996 with the remainder to
be amortized over a period of five years. In 1998, in conjunction with the
formation of Spinco, the remaining amount of the unreimbursed expenditures was
expensed. Additionally, in 1996, management was granted an allowance of
$250,000 to be credited to its capital account for prior unreimbursed out-of-
pocket expenses and uncompensated time spent for the benefit of the Company.
Through 1998, the entire amount of the allowance has been credited to
management's capital account as additional capital contributions were
requested. At December 31, 1998, 1997 and 1996, approximately $62,000, $137,000
and $51,000, respectively, in noncash contributions were expensed.
In connection with the amendment of the seismic data agreement on June 30,
1999, Spinnaker issued to PGS 1,000,000 shares of Common Stock. This
transaction has been accounted for at PGS' cost of $2.9 million.
F-18
<PAGE>
SPINNAKER EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
13. Supplementary Financial Information on Natural Gas and Oil Exploration,
Development and Production Activities (Unaudited):
The following tables set forth certain historical costs and operating
information related to the Company's natural gas and oil producing activities.
As of and for the period from inception (December 20, 1996) through December
31, 1996, the Company had no natural gas and oil reserves.
Costs Incurred
Costs incurred in natural gas and oil property acquisition, exploration and
development activities are summarized below (in thousands):
<TABLE>
<CAPTION>
For the year
ended
December 31,
---------------
1997 1998
------- -------
<S> <C> <C>
Property acquisition costs --
Unproved............................................... $ 4,458 $15,791
Proved................................................. -- --
Exploration costs........................................ 7,116 46,620
Development costs........................................ 2,422 23,067
------- -------
Total costs incurred................................. $13,996 $85,478
======= =======
</TABLE>
Natural Gas and Oil Reserves
Proved reserves are estimated quantities of natural gas and oil which
geological and engineering data demonstrate with reasonable certainty to be
recoverable in future years from known reservoirs under existing economic and
operating conditions. Proved developed reserves are proved reserves that can
reasonably be expected to be recovered through existing wells with existing
equipment and operating methods.
Proved natural gas and oil reserve quantities at December 31, 1997 and 1998,
and the related discounted future net cash flows before income taxes are based
on estimates prepared by Ryder Scott Company, independent petroleum engineers.
Such estimates have been prepared in accordance with guidelines established by
the Commission.
F-19
<PAGE>
SPINNAKER EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company's net ownership in estimated quantities of proved natural gas
and oil reserves and changes in net proved reserves, all of which are located
in the Gulf of Mexico, are summarized below:
<TABLE>
<CAPTION>
Millions of
Cubic Feet of
Natural Gas at
December 31,
----------------
1997 1998
------- -------
<S> <C> <C>
Proved developed and undeveloped reserves--
Beginning of year....................................... -- 12,607
Extensions and discoveries.............................. 12,677 40,014
Production.............................................. (70) (1,675)
------- -------
End of year............................................. 12,607 50,946
======= =======
Proved developed reserves at the end of year............ 5,615 30,806
======= =======
<CAPTION>
Barrels of Oil,
Condensate, and
Natural Gas
Liquids at
December 31,
----------------
1997 1998
------- -------
<S> <C> <C>
Proved developed and undeveloped reserves--
Beginning of year....................................... -- 125,128
Extensions and discoveries.............................. 125,230 356,982
Production.............................................. (102) (12,087)
------- -------
End of year............................................. 125,128 470,023
======= =======
Proved developed reserves at the end of year............ 46,122 318,087
======= =======
</TABLE>
Standardized Measure
The standardized measure of discounted future net cash flows relating to the
Company's ownership interests in proved natural gas and oil reserves as of
year-end is shown below (in thousands):
<TABLE>
<CAPTION>
For the year
ended
December 31,
-------------------
1997 1998
------- -------
<S> <C> <C>
Future cash inflows............................. $31,086 $99,436
Future operating expenses....................... (1,460) (16,562)
Future development costs........................ (6,424) (18,059)
------- -------
Future net cash flows........................... 23,202 64,815
10% annual discount per annum................... (4,221) (12,706)
------- -------
Standardized measure of discounted future net
cash flows..................................... $18,981 (1) $52,109 (1)
======= =======
</TABLE>
- --------
(1) Net operating loss carryforwards and basis in natural gas and oil
properties have eliminated the requirement for future income taxes.
Future cash flows are computed by applying year-end prices of natural gas
and oil to year-end quantities of proved natural gas and oil reserves. Future
operating expenses and development costs are computed primarily by the
Company's petroleum engineers by estimating the expenditures to be incurred in
developing and producing the Company's proved natural gas and oil reserves at
the end of the year, based on the year-end
F-20
<PAGE>
SPINNAKER EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
costs and assuming continuation of existing economic conditions. Future income
taxes are based on year-end statutory rates, adjusted for tax basis and
applicable tax credits. A discount factor of 10 percent was used to reflect the
timing of future net cash flows. The standardized measure of discounted future
net cash flows is not intended to represent the replacement cost or fair market
value of the Company's natural gas and oil properties. An estimate of fair
value would also take into account, among other things, the recovery of
reserves not presently classified as proved, anticipated future changes in
prices and costs, and a discount factor more representative of the time value
of money and the risks inherent in reserve estimates.
Change in Standardized Measure
Changes in the standardized measure of future net cash flows relating to
proved natural gas and oil reserves are summarized below (in thousands):
<TABLE>
<CAPTION>
For the year
ended
December 31,
----------------
1997 1998
------- -------
<S> <C> <C>
Standardized measure, beginning of year..................... $ -- $18,981
Extensions and discoveries, net of related costs............ 19,110 35,952
Sales of natural gas and oil produced, net of production
costs...................................................... (129) (2,824)
Net changes in prices and production costs.................. -- (4,329)
Change in future development costs.......................... -- 2,713
Development costs incurred during the period that reduced
future development costs................................... -- 2,246
Accretion of discount....................................... -- 1,898
Change in production rates and other........................ -- (2,528)
------- -------
Standardized measure, end of year........................... $18,981 $52,109
======= =======
</TABLE>
Sales of natural gas and oil, net of natural gas and oil operating expenses,
are based on historical pretax results. Sales of natural gas and oil
properties, extensions and discoveries, purchases of minerals in place and the
changes due to revisions in standardized variables are reported on a pretax
discounted basis, while the accretion of discount is presented on an after-tax
basis.
F-21
<PAGE>
September 10, 1999
Spinnaker Exploration Company
1200 Smith Street, Suite 800
Houston, Texas 77002
Gentlemen:
At your request, we have prepared an estimate of the proved reserves, future
production, and income attributable to certain leasehold interests of Spinnaker
Exploration Company (Spinnaker) as of August 31, 1999. The subject properties
are located in the federal waters offshore Louisiana and in the state and
federal waters offshore Texas. The income data were estimated using the
Securities and Exchange Commission (SEC) guidelines for future price and cost
parameters.
The estimated proved reserves and future income amounts presented in this
report are related to hydrocarbon prices. August 1999 hydrocarbon prices were
used in the preparation of this report as required by SEC guidelines; however,
actual future prices may vary significantly from August 1999 prices. Therefore,
volumes of reserves actually recovered and amounts of income actually received
may differ significantly from the estimated quantities presented in this
report. The results of this study are summarized below.
SEC PARAMETERS
Estimated Net Reserves and Income Data
Certain Leasehold Interests of
Spinnaker Exploration Company
As of August 31, 1999
<TABLE>
<CAPTION>
Proved
---------------------------------------------------
Developed
-------------------------
Producing Non-Producing Undeveloped Total Proved
----------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Net Remaining Reserves
Oil/Condensate--Barrels... 395,967 107,440 1,803,582 2,306,989
Gas--MMCF................. 22,080 12,333 32,889 67,302
Income Data
Future Gross Revenue...... $74,212,541 $38,224,260 $132,460,361 $244,897,162
Deductions................ 10,101,713 8,059,937 38,356,087 56,517,737
----------- ----------- ------------ ------------
Future Net Income (FNI)... $64,110,828 $30,164,323 $ 94,104,274 $188,379,425
Discounted FNI @ 10%...... $57,583,316 $22,151,944 $ 72,487,620 $152,222,880
</TABLE>
Liquid hydrocarbons are expressed in standard 42 gallon barrels. All gas
volumes are sales gas expressed in millions of cubic feet (MMCF) at the
official temperature and pressure bases of the areas in which the gas reserves
are located.
The future gross revenue is after the deduction of production taxes. The
deductions are comprised of the normal direct costs of operating the wells, ad
valorem taxes, recompletion costs, development costs, certain gas, oil and
condensate processing and transportation fees which are shown as "other"
deductions, and certain abandonment costs net of salvage. The future net income
is before the deduction of state and federal income taxes and general
administrative overhead, and has not been adjusted for outstanding loans that
may exist nor does it include any adjustment for cash on hand or undistributed
income. No attempt was made to quantify or otherwise account for any
accumulated gas production imbalances that may exist. Gas reserves account for
approximately 80 percent and liquid hydrocarbon reserves account for the
remaining 20 percent of total future gross revenue from proved reserves.
A-1
<PAGE>
The discounted future net income shown above was calculated using a discount
rate of 10 percent per annum compounded monthly. This discounted future net
income should not be construed as our estimate of fair market value.
Reserves Included in This Report
The proved reserves included herein conform to the definition as set forth
in the Securities and Exchange Commission's Regulation S-X Part 210.4-10 (a) as
clarified by subsequent Commission Staff Accounting Bulletins. The definition
of proved reserves is included in the section entitled "Definitions of
Reserves" which is attached with this report.
The proved developed non-producing reserves included herein are comprised of
the behind pipe category. The various reserve status categories are defined in
the section entitled "Reserve Status Categories" which is attached with this
report.
Estimates of Reserves
In general, the proved producing reserves included herein were estimated by
performance methods which utilized various extrapolations of historical
production and pressure data available through August 1999; however, certain of
the producing reserves were estimated by the volumetric method in those cases
where there were inadequate historical performance data to establish a
definitive trend and where the use of production performance data as a basis
for the reserve estimates was considered to be inappropriate. The proved behind
pipe and undeveloped reserves included herein were estimated by the volumetric
method which utilized all pertinent wells and 3-D seismic data available
through August 1999.
The reserves included in this report are estimates only and should not be
construed as being exact quantities. They may or may not be actually recovered,
and if recovered, the revenues therefrom and the actual costs related thereto
could be more or less than the estimated amounts. Moreover, estimates of
reserves may increase or decrease as a result of future operations.
Future Production Rates
Initial production rates are based on the current producing rates for those
wells now on production. Test data and other related information were used to
estimate the anticipated initial production rates for those wells or locations
which are not currently producing. Where applicable the estimated future
production rates were held constant until a decline in ability to produce was
anticipated. An estimated rate of decline was then applied to depletion of the
reserves. For reserves not yet on production, sales were estimated to commence
at an anticipated date furnished by Spinnaker.
The future production rates from the wells and locations included herein may
be more or less than estimated because of changes in market demand or
allowables set by regulatory bodies. Wells or locations which are not currently
producing may start producing earlier or later than anticipated in our
estimates of their future production rates.
Hydrocarbon Prices
Spinnaker furnished us with prices in effect at August 31, 1999 and these
prices were held constant throughout the life of the properties. These prices
were $2.825 per MMBTU of gas at Henry Hub, Louisiana, and $22.11 per barrel at
the Cushing NYMEX Pricing Hub based on light sweet crude on August 31, 1999.
The product prices used for each property reflect adjustments to these initial
prices for BTU content, liquid gravity and quality, local conditions, and/or
distance from market. Certain additional gas, oil and condensate processing and
transportation fees are included in this report as costs and are shown as
"other" deductions. In accordance with Securities and Exchange Commission
guidelines, changes in liquid and gas prices subsequent to August 31, 1999 were
not taken into account in this report. Future prices used in this report are
discussed in more detail in the section entitled "Hydrocarbon Pricing
Parameters" which is attached with this report.
A-2
<PAGE>
Costs
The operating cost for the producing wells included herein were based on the
operating expense reports of Spinnaker since the inception of production. The
estimates of future operating costs furnished by Spinnaker for the non-
producing and undeveloped wells and locations included herein were accepted as
reasonable. The estimates of future operating costs include only those costs
directly applicable to the leases and wells. When applicable, the operating
costs include a portion of general and administrative costs allocated directly
to the leases and wells under terms of operating agreements. No deduction was
made for indirect costs such as general administration and overhead expenses,
loan repayments, interest expenses, and exploration and development prepayments
that are not charged directly to the leases or wells.
Development costs were furnished to us by Spinnaker and are based on
authorizations for expenditure for the proposed work or actual costs for
similar projects. Certain gas, oil and condensate processing and transportation
fees are included in this report as "other" deductions. The estimated net cost
of abandonment after salvage was included for the offshore properties included
herein where abandonment costs net of salvage are significant. The estimates of
the net abandonment costs furnished by Spinnaker were accepted without
independent verification.
Current costs were held constant throughout the life of the properties.
General
The estimates of reserves presented herein were based upon a detailed study
of the properties in which Spinnaker owns an interest; however, we have not
made any field examination of the properties. No consideration was given in
this report to potential environmental liabilities which may exist nor were any
costs included for potential liability to restore and clean up damages, if any,
caused by past operating practices. Spinnaker has informed us that they have
furnished us all of the accounts, records, geological and engineering data, and
reports and other data required for this investigation. The ownership
interests, prices, and other factual data furnished by Spinnaker were accepted
without independent verification. The estimates presented in this report are
based on data available through August 1999.
While it may reasonably be anticipated that the future prices received for
the sale of production and the operating costs and other costs relating to such
production may increase or decrease from existing levels, such changes were
omitted from consideration in making this evaluation.
Neither we nor any of our employees have any interest in the subject
properties and neither the employment to make this study nor the compensation
is contingent on our estimates of reserves and future income for the subject
properties.
Very truly yours,
RYDER SCOTT COMPANY, L.P.
/s/ John E. Hodgin
-------------------------------------
John E. Hodgin, C.P.G.
Senior Vice President
JEH/sw
Approved:
/s/ Ronald Harrell
- -------------------------------
Ronald Harrell, P.E.
President
A-3
<PAGE>
DEFINITIONS OF RESERVES
PROVED RESERVES (SEC DEFINITION)
Proved reserves of crude oil, condensate, natural gas, and natural gas
liquids are estimated quantities that geological and engineering data
demonstrate with reasonable certainty to be recoverable in the future from
known reservoirs under existing operating conditions, i.e., prices and costs as
of the date the estimate is made. Prices include consideration of changes in
existing prices provided only by contractual arrangements, but not on
escalation based on future conditions.
Reservoirs are considered proved if economic producibility is supported by
either actual production or conclusive formation test. In certain instances,
proved reserves are assigned on the basis of a combination of core analysis and
electrical and other type logs which indicate the reservoirs are analogous to
reservoirs in the same field which are producing or have demonstrated the
ability to produce on a formation test. The area of a reservoir considered
proved includes (1) that portion delineated by drilling and defined by fluid
contacts, if any, and (2) the adjoining portions not yet drilled that can be
reasonably judged as economically productive on the basis of available
geological and engineering data. In the absence of data on fluid contacts, the
lowest known structural occurrence of hydrocarbons controls the lower proved
limit of the reservoir.
Reserves that can be produced economically through the application of
improved recovery techniques are included in the proved classification when
these qualifications are met: (1) successful testing by a pilot project or the
operation of an installed program in the reservoir provides support for the
engineering analysis on which the project or program was based, and (2) it is
reasonably certain the project will proceed. Improved recovery includes all
methods for supplementing natural reservoir forces and energy, or otherwise
increasing ultimate recovery from a reservoir, including (1) pressure
maintenance, (2) cycling, and (3) secondary recovery in its original sense.
Improved recovery also includes the enhanced recovery methods of thermal,
chemical flooding, and the use of miscible and immiscible displacement fluids.
Proved natural gas reserves are comprised of non-associated, associated and
dissolved gas. An appropriate reduction in gas reserves has been made for the
expected removal of natural gas liquids, for lease and plant fuel, and for the
exclusion of non-hydrocarbon gases if they occur in significant quantities and
are removed prior to sale. Estimates of proved reserves do not include crude
oil, natural gas, or natural gas liquids being held in underground or surface
storage.
Proved reserves are estimates of hydrocarbons to be recovered from a given
date forward. They may be revised as hydrocarbons are produced and additional
data become available.
A-4
<PAGE>
RESERVE STATUS CATEGORIES (SEC)
Reserve status categories define the development and producing status of
wells and/or reservoirs.
Proved Developed
Proved developed oil and gas reserves are reserves that can be expected to
be recovered through existing wells with existing equipment and operating
methods. Additional oil and gas expected to be obtained through the application
of fluid injection or other improved recovery techniques for supplementing the
natural forces and mechanisms of primary recovery should be included as "proved
developed reserves" only after testing by a pilot project or after the
operation of an installed program has confirmed through production response
that increased recovery will be achieved.
Developed reserves may be subcategorized as producing or non-producing using
the SPE/WPC Definitions:
Producing
Reserves sub-categorized as producing are expected to be recovered from
completion intervals which are open and producing at the time of the
estimate. Improved recovery reserves are considered producing only after
the improved recovery project is in operation.
Non-Producing
Reserves sub-categorized as non-producing include shut-in and behind pipe
reserves. Shut-in reserves are expected to be recovered from (1) completion
intervals which are open at the time of the estimate but which have not
started producing, (2) wells which were shut-in awaiting pipeline
connections or as a result of a market interruption, or (3) wells not
capable of production for mechanical reasons. Behind pipe reserves are
expected to be recovered from zones in existing wells, which will require
additional completion work or future recompletion prior to the start of
production.
Proved Undeveloped
Proved undeveloped oil and gas reserves are reserves that are expected to be
recovered from new wells on undrilled acreage, or from existing wells where a
relatively major expenditure is required for recompletion. Reserves on
undrilled acreage shall be limited to those drilling units offsetting
productive units that are reasonably certain of production when drilled. Proved
reserves for other undrilled units can be claimed only where it can be
demonstrated with certainty that there is continuity of production from the
existing productive formation. Estimates for proved undeveloped reserves are
attributable to any acreage for which an application of fluid injection or
other improved technique is contemplated, only when such techniques have been
proved effective by actual tests in the area and in the same reservoir.
A-5
<PAGE>
HYDROCARBON PRICING PARAMETERS
Securities and Exchange Commission Parameters
Oil and Condensate
Spinnaker furnished us with oil and condensate prices in effect at August
31, 1999 and these prices were held constant to depletion of the properties. In
accordance with the Securities and Exchange Commission guidelines, changes in
liquid prices subsequent to August 31, 1999 were not considered in this report.
Product prices which were actually used for each property reflect adjustment
for gravity, quality, local conditions, and/or distance from market. Certain
additional oil and condensate processing and transportation fees are included
in this report as costs and are shown as "other" deductions.
Gas
Spinnaker furnished us with gas prices in effect at August 31, 1999. The
prices which were actually used for each property reflect adjustment for the
BTU content, local conditions, and/or distance from market. Certain additional
gas processing and transportation fees are included in this report as costs and
are shown as "other" deductions. In accordance with SEC guidelines, the future
gas prices used in this report make no allowances for future gas price
increases which may occur as a result of inflation nor do they make any
allowance for seasonal variations in gas prices which may cause future yearly
average gas prices to differ somewhat from the August 31, 1999 gas prices used
herein.
A-6
<PAGE>
[LOGO OF SPINNAKER EXPLORATION APPEARS HERE]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The expenses of this offering are estimated to be as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee................. $ 46,037
NASD filing fee..................................................... 17,060
NASDAQ listing fee.................................................. 95,000
Legal fees and expenses............................................. 250,000
Accounting fees and expenses........................................ 400,000
Engineering fees and expenses....................................... 60,000
Blue Sky fees and expenses (including legal fees)................... 10,000
Printing expenses................................................... 115,000
Transfer Agent fees................................................. 5,000
Miscellaneous....................................................... 1,903
----------
TOTAL............................................................. $1,000,000
==========
</TABLE>
- --------
* To be provided by amendment.
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law ("DGCL") provides that a
corporation may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding whether civil, criminal, administrative or investigative (other than
an action by or in the right of the corporation) by reason of the fact that he
is or was a director, officer, employee or agent of the corporation, or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
Section 145 further provides that a corporation similarly may indemnify any
such person serving in any such capacity who was or is a party or is threatened
to be made a party to any threatened, pending or completed action or suit by or
in the right of the corporation to procure a judgment in its favor by reason of
the fact that he is or was a director, officer, employee or agent of the
corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees) actually and reasonably incurred in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Delaware Court
of Chancery or such other court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all of the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Delaware Court of
Chancery or such other court shall deem proper.
Spinnaker's bylaws provide that indemnification shall be to the fullest
extent permitted by the DGCL for all current or former directors or officers of
Spinnaker.
As permitted by the DGCL, the certificate of incorporation provides that
directors of Spinnaker shall have no personal liability to Spinnaker or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except (1) for any breach of the director's duty of loyalty to Spinnaker or its
stockholders, (2) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (3) for
II-1
<PAGE>
unlawful payments of dividends or unlawful stock repurchases or redemptions as
provided under Section 174 of the DGCL or (4) for any transaction from which a
director derived an improper personal benefit.
In addition, we have entered into indemnification agreements with our
directors and officers containing provisions which are in some respects broader
than the specific indemnification provisions contained in the Delaware General
Corporation Law. The indemnification agreements may require us, among other
things, to indemnify our directors against certain liabilities that may arise
by reason of their status or service as directors, other than liabilities
arising from willful misconduct of culpable nature, to advance their expenses
incurred as a result of any proceeding against them as to which they could be
indemnified, and to obtain directors' insurance if available on reasonable
terms.
Howard H. Newman and Jeffrey A. Harris, each directors of Spinnaker and
Managing Directors and members of E.M. Warburg, Pincus & Co., LLC and general
partners of Warburg, Pincus & Co., are indemnified by affiliates of E.M.
Warburg, Pincus & Co., LLC and Warburg, Pincus & Co. against certain
liabilities that they may incur as a result of their serving as a director of
Spinnaker.
The Underwriting Agreement that Spinnaker will enter into with respect to
the offer and sale of the common stock covered by this registration statement
will contain certain provisions for the indemnification of directors and
officers of Spinnaker and the underwriters, as applicable, against civil
liabilities under the Securities Act.
Item 15. Recent Sales of Unregistered Securities
The Registrant has sold and issued (without payment of any selling
commission to any person) the following securities since January 6, 1998:
(1) On January 16, 1998, we issued 958,921 shares of preferred stock and
3,960,000 shares of common stock in connection with our conversion from a
limited liability company to a corporation in exchange for, directly or
indirectly, an equal number of preferred and common units of the limited
liability company.
(2) From January 1998 to September 1998, we issued 2,051,969 shares of
preferred stock for $25.00 per share to a total of two accredited investors
in exchange for cash.
(3) From January 1998 to September 1998, we issued a total of 20,030
shares of preferred stock for $25.00 per share to a total of 26 of our
employees in exchange for cash and notes.
(4) From December 31, 1998 to June 30, 1999, we issued a total of 75,000
shares of common stock to a total of two accredited investors in
consideration for the guaranteeing of our indebtedness.
(5) On June 30, 1999, we issued 1,000,000 shares of common stock to one
accredited investor in consideration for entering into an amendment to our
seismic data agreement.
The sale of the above securities described in Item 15 were exempt from
registration under the Securities Act in reliance on Section 4(2) of the
Securities Act.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits:
<TABLE>
<C> <C> <S>
1.1 -- Form of Underwriting Agreement
3.1 -- Certificate of Incorporation of Spinnaker, as amended
3.2 -- Restated Bylaws of Spinnaker
4.1 -- Specimen Common Stock certificate
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <C> <S>
5.1 -- Opinion of Vinson & Elkins L.L.P.
10.1 -- Second Amended and Restated Data Contribution Agreement between
Petroleum Geo-Services ASA, Seismic Energy Holdings, Inc.,
Spinnaker Exploration Company, L.L.C. and Spinnaker dated June 30,
1999
10.2 -- Amended and Restated 1998 Spinnaker Stock Option Plan
10.3 -- Amended and Restated Stockholders Agreement by and among Spinnaker,
Warburg, Pincus Ventures, Petroleum Geo-Services, Roger L. Jarvis,
James M. Alexander, William D. Hubbard, Kelly M. Barnes and the
other stockholders of Spinnaker (including the Registration Rights
Agreement as Exhibit A to the Stockholders Agreement)
10.4 -- Credit Agreement for an $85 million credit facility between
Spinnaker and Credit Suisse First Boston, Bank of Montreal and Bank
of America dated September 30, 1998, as amended
+10.5 -- Form of Lock-Up Agreement
10.6 -- Employment Agreement between Spinnaker and Roger L. Jarvis dated
December 20, 1996, as amended
10.7 -- Employment Agreement between Spinnaker and James M. Alexander dated
December 20, 1996, as amended
10.8 -- Employment Agreement between Spinnaker and William D. Hubbard dated
February 24, 1997, as amended
10.9 -- Employment Agreement between Spinnaker and Kelly M. Barnes dated
February 24, 1997, as amended
10.10 -- 1999 Spinnaker Stock Incentive Plan
10.11 -- 1999 Spinnaker Employee Stock Purchase Plan
10.12 -- Form of Indemnification Agreement
21.1 -- Subsidiaries of Spinnaker Exploration Company
23.1 -- Consent of Arthur Andersen LLP
+23.2 -- Consent of Ryder Scott Company, L.P.
23.3 -- Consent of Vinson & Elkins L.L.P. (contained in Exhibit 5.1 hereto)
+23.4 -- Consent of Director Appointee
+24.1 -- Power of Attorney (included on the signature page to this
Registration Statement)
+27 -- Financial Data Schedule
</TABLE>
- --------
+ Previously filed
(b) Consolidated Financial Statement Schedules:
All schedules are omitted because the required information is inapplicable
or the information is presented in the Consolidated Financial Statements or
related notes.
Item 17. Undertakings
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-3
<PAGE>
The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 4 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Houston, State of Texas, on the 27th day of September, 1999.
SPINNAKER EXPLORATION COMPANY
By: /s/ Roger L. Jarvis
---------------------------------------
Name: Roger L. Jarvis
Title: Chairman, President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 4 to Registration Statement has been signed below by the
following persons in the capacities and on the 27th day of September, 1999.
<TABLE>
<S> <C>
Signature Title
/s/ Roger L. Jarvis Chairman, President and Chief Executive
Officer and Director (Principal
- ----------------------------------- Executive Officer)
Roger L. Jarvis
/s/ James M. Alexander Vice President, Chief Financial Officer
and Secretary (Principal Financial and
- ----------------------------------- Accounting Officer)
James M. Alexander
* Director
- -----------------------------------
Reidar Michaelsen
* Director
- -----------------------------------
Bjarte Bruheim
* Director
- -----------------------------------
Howard H. Newman
* Director
- -----------------------------------
Jeffrey A. Harris
*By: /s/ Roger L. Jarvis
- -----------------------------------
Roger L. Jarvis
as attorney-in-fact
</TABLE>
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <C> <S>
1.1 -- Form of Underwriting Agreement
3.1 -- Certificate of Incorporation of Spinnaker, as amended
3.2 -- Restated Bylaws of Spinnaker
4.1 -- Specimen Common Stock certificate
5.1 -- Opinion of Vinson & Elkins L.L.P.
10.1 -- Second Amended and Restated Data Contribution Agreement between
Petroleum Geo-Services ASA, Seismic Energy Holdings, Inc.,
Spinnaker Exploration Company, L.L.C. and Spinnaker dated June 30,
1999
10.2 -- Amended and Restated 1998 Spinnaker Stock Option Plan
10.3 -- Amended and Restated Stockholders Agreement by and among
Spinnaker, Warburg, Pincus Ventures, Petroleum Geo-Services, Roger
L. Jarvis, James M. Alexander, William D. Hubbard, Kelly M. Barnes
and the other stockholders of Spinnaker (including the
Registration Rights Agreement as Exhibit A to the Stockholders
Agreement)
10.4 -- Credit Agreement for an $85 million credit facility between
Spinnaker and Credit Suisse First Boston, Bank of Montreal and
Bank of America dated September 30, 1998, as amended
+10.5 -- Form of Lock-Up Agreement
10.6 -- Employment Agreement between Spinnaker and Roger L. Jarvis dated
December 20, 1996, as amended
10.7 -- Employment Agreement between Spinnaker and James M. Alexander
dated December 20, 1996, as amended
10.8 -- Employment Agreement between Spinnaker and William D. Hubbard
dated February 24, 1997, as amended
10.9 -- Employment Agreement between Spinnaker and Kelly M. Barnes dated
February 24, 1997, as amended
10.10 -- 1999 Spinnaker Stock Incentive Plan
10.11 -- 1999 Spinnaker Employee Stock Purchase Plan
10.12 -- Form of Indemnification Agreement
21.1 -- Subsidiaries of Spinnaker Exploration Company
23.1 -- Consent of Arthur Andersen LLP
+23.2 -- Consent of Ryder Scott Company, L.P.
23.3 -- Consent of Vinson & Elkins L.L.P. (contained in Exhibit 5.1
hereto)
+23.4 -- Consent of Director Appointee
+24.1 -- Power of Attorney (included on the signature page to this
Registration Statement)
+27 -- Financial Data Schedule
</TABLE>
- --------
+ Previously filed
<PAGE>
EXHIBIT 1.1
8,000,000 Shares
SPINNAKER EXPLORATION COMPANY
Common Stock
UNDERWRITING AGREEMENT
----------------------
[ ], 1999
Credit Suisse First Boston Corporation
Donaldson, Lufkin & Jenrette Securities Corporation
Banc of America Securities LLC
Prudential Securities Incorporated
Nesbitt Burns Securities Inc.
c/o Credit Suisse First Boston Corporation
Eleven Madison Avenue
New York, N.Y. 10010-3629
Dear Sirs:
1. Introductory. Spinnaker Exploration Company, a Delaware corporation
("Company"), proposes to issue and sell 8,000,000 shares ("Firm Securities") of
its common stock, par value $.01 per share ("Securities"), and also proposes to
issue and sell to the Underwriters, at the option of the Underwriters, an
aggregate of not more than 1,200,000 additional shares ("Optional Securities")
of its Securities as set forth below. The Firm Securities and the Optional
Securities are herein collectively called the "Offered Securities". The Company
hereby agrees with the several Underwriters named in Schedule A hereto
("Underwriters") as follows:
2. Representations and Warranties of the Company. The Company represents and
warrants to, and agrees with, the several Underwriters that:
(a) A registration statement (No. 333-83093) relating to the Offered
Securities, including a form of prospectus, has been filed with the Securities
and Exchange Commission ("Commission") and either (i) has been declared
effective under the Securities Act of 1933 ("Act") and is not proposed to be
amended or (ii) is proposed to be amended by amendment or post-effective
amendment. If such registration statement ("initial registration statement")
has been declared effective, either (i) an additional registration statement
("additional registration statement") relating to the Offered Securities may
have been filed with the Commission pursuant to Rule 462(b) ("Rule 462(b)")
under the Act and, if so filed, has become effective upon filing pursuant to
such Rule and the Offered Securities all have been duly registered under the
Act pursuant to the initial registration statement and, if applicable, the
additional registration statement or (ii) such an additional registration
statement is proposed to be filed with the Commission pursuant to Rule 462(b)
and will become effective upon filing pursuant to such Rule and upon such
filing the Offered Securities will all have been duly registered under the Act
pursuant to the initial registration statement and such additional
registration statement. If the Company does not propose to amend the initial
registration statement or if an additional registration statement has been
filed and the Company does not propose to
<PAGE>
amend it, and if any post-effective amendment to either such registration
statement has been filed with the Commission prior to the execution and
delivery of this Agreement, the most recent amendment (if any) to each such
registration statement has been declared effective by the Commission or has
become effective upon filing pursuant to Rule 462(c) ("Rule 462(c)") under the
Act or, in the case of the additional registration statement, Rule 462(b). For
purposes of this Agreement, "Effective Time" with respect to the initial
registration statement or, if filed prior to the execution and delivery of
this Agreement, the additional registration statement means (i) if the Company
has advised the Underwriters that it does not propose to amend such
registration statement, the date and time as of which such registration
statement, or the most recent post-effective amendment thereto (if any) filed
prior to the execution and delivery of this Agreement, was declared effective
by the Commission or has become effective upon filing pursuant to Rule 462(c),
or (ii) if the Company has advised the Underwriters that it proposes to file
an amendment or post-effective amendment to such registration statement, the
date and time as of which such registration statement, as amended by such
amendment or post-effective amendment, as the case may be, is declared
effective by the Commission. If an additional registration statement has not
been filed prior to the execution and delivery of this Agreement but the
Company has advised the Underwriters that it proposes to file one, "Effective
Time" with respect to such additional registration statement means the date
and time as of which such registration statement is filed and becomes
effective pursuant to Rule 462(b). "Effective Date" with respect to the
initial registration statement or the additional registration statement (if
any) means the date of the Effective Time thereof. The initial registration
statement, as amended at its Effective Time, including all information
contained in the additional registration statement (if any) and deemed to be a
part of the initial registration statement as of the Effective Time of the
additional registration statement pursuant to the General Instructions of the
Form on which it is filed and including all information (if any) deemed to be
a part of the initial registration statement as of its Effective Time pursuant
to Rule 430A(b) ("Rule 430A(b)") under the Act, is hereinafter referred to as
the "Initial Registration Statement". The additional registration statement,
as amended at its Effective Time, including the contents of the initial
registration statement incorporated by reference therein and including all
information (if any) deemed to be a part of the additional registration
statement as of its Effective Time pursuant to Rule 430A(b), is hereinafter
referred to as the "Additional Registration Statement". The Initial
Registration Statement and the Additional Registration Statement are herein
referred to collectively as the "Registration Statements" and individually as
a "Registration Statement". The form of prospectus relating to the Offered
Securities, as first filed with the Commission pursuant to and in accordance
with Rule 424(b) ("Rule 424(b)") under the Act or (if no such filing is
required) as included in a Registration Statement, is hereinafter referred to
as the "Prospectus". No document has been or will be prepared or distributed
in reliance on Rule 434 under the Act.
(b) If the Effective Time of the Initial Registration Statement is prior
to the execution and delivery of this Agreement: (i) on the Effective Date of
the Initial Registration Statement, the Initial Registration Statement
conformed in all respects to the requirements of the Act and the rules and
regulations of the Commission ("Rules and Regulations") and did not include
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading, (ii) on the Effective Date of the Additional Registration
Statement (if any), each Registration Statement conformed, or will conform, in
all respects to the requirements of the Act and the Rules and Regulations and
did not include, or will not include, any untrue statement of a material fact
and did not omit, or will not omit, to state any material fact required to be
stated therein or necessary to make the statements therein not misleading and
(iii) on the date of this Agreement, the Initial Registration Statement and,
if the Effective Time of the Additional Registration Statement is prior to the
execution and delivery of this Agreement, the Additional Registration
Statement each conforms, and at the time of filing of the Prospectus pursuant
to Rule 424(b) or (if no such filing is required) at the Effective Date of the
Additional Registration Statement in which the Prospectus is included, each
Registration Statement and the Prospectus will conform, in all respects to the
requirements of the Act and the Rules and Regulations, and neither of such
documents includes, or will include, any untrue statement of a material fact
or omits, or will omit, to state any material fact required to be stated
therein or necessary to make the statements therein not
2
<PAGE>
misleading. If the Effective Time of the Initial Registration Statement is
subsequent to the execution and delivery of this Agreement: on the Effective
Date of the Initial Registration Statement, the Initial Registration Statement
and the Prospectus will conform in all respects to the requirements of the Act
and the Rules and Regulations, neither of such documents will include any
untrue statement of a material fact or will omit to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading, and no Additional Registration Statement has been or will be
filed. The two preceding sentences do not apply to statements in or omissions
from a Registration Statement or the Prospectus based upon written information
furnished to the Company by any Underwriter through Credit Suisse First Boston
Corporation ("CSFBC") specifically for use therein, it being understood and
agreed that the only such information is that described as such in Section
7(b) hereof.
(c) The Company has been duly incorporated and is an existing corporation
in good standing under the laws of the State of Delaware, with power and
authority (corporate and other) to own its properties and conduct its business
as described in the Prospectus; and the Company is duly qualified to do
business as a foreign corporation in good standing in all other jurisdictions
in which its ownership or lease of property or the conduct of its business
requires such qualification.
(d) Each subsidiary of the Company has been duly incorporated or
otherwise organized and is an existing corporation or other entity in good
standing under the laws of the jurisdiction of its incorporation or
organization, with power and authority (corporate and other) to own its
properties and conduct its business as described in the Prospectus; and each
subsidiary of the Company is duly qualified to do business as a foreign
corporation or other entity in good standing in all other jurisdictions in
which its ownership or lease of property or the conduct of its business
requires such qualification; all of the issued and outstanding capital stock
or other ownership interest of each subsidiary of the Company has been duly
authorized and validly issued and is fully paid and nonassessable; and the
capital stock or other ownership interest of each subsidiary owned by the
Company, directly or through subsidiaries, is owned free from liens,
encumbrances and defects.
(e) The Offered Securities and all other outstanding shares of capital
stock of the Company have been duly authorized; all outstanding shares of
capital stock of the Company are, and, when the Offered Securities have been
delivered and paid for in accordance with this Agreement on each Closing Date
(as defined below), such Offered Securities will have been, validly issued,
fully paid and nonassessable and will conform to the description thereof
contained in the Prospectus; and the stockholders of the Company have no
preemptive rights with respect to the Securities.
(f) Except as disclosed in the Prospectus, there are no contracts,
agreements or understandings between the Company and any person that would
give rise to a valid claim against the Company or any Underwriter for a
brokerage commission, finder's fee or other like payment in connection with
this offering.
(g) Except as disclosed in the Prospectus, there are no contracts,
agreements or understandings between the Company and any person granting such
person the right to require the Company to file a registration statement under
the Act with respect to any securities of the Company owned or to be owned by
such person or to require the Company to include such securities in the
securities registered pursuant to a Registration Statement (the relevant
provisions of which have not been waived) or in any securities being
registered pursuant to any other registration statement filed by the Company
under the Act.
(h) The Offered Securities have been approved for listing on the Nasdaq
Stock Market's National Market, subject to notice of issuance.
(i) No consent, approval, authorization, or order of, or filing with, any
governmental agency or body or any court is required for the consummation of
the transactions contemplated by this Agreement in
3
<PAGE>
connection with the issuance and sale of the Offered Securities by the
Company, except such as have been obtained and made under the Act and such as
may be required under state securities laws.
(j) The execution, delivery and performance of this Agreement, and the
issuance and sale of the Offered Securities will not result in a breach or
violation of any of the terms and provisions of, or constitute a default
under, any statute, any rule, regulation or order of any governmental agency
or body or any court, domestic or foreign, having jurisdiction over the
Company or any subsidiary of the Company or any of their properties, or any
agreement or instrument to which the Company or any such subsidiary is a party
or by which the Company or any such subsidiary is bound or to which any of the
properties of the Company or any such subsidiary is subject, or the charter,
by-laws or other organizational documents of the Company or any such
subsidiary, and the Company has full power and authority to authorize, issue
and sell the Offered Securities as contemplated by this Agreement.
(k) This Agreement has been duly authorized, executed and delivered by
the Company.
(l) Except as disclosed in the Prospectus, the Company and its
subsidiaries have good and marketable title to all real properties and all
other properties and assets owned by them, in each case free from liens,
encumbrances and defects that would materially affect the value thereof or
materially interfere with the use made or to be made thereof by them; and
except as disclosed in the Prospectus, the Company and its subsidiaries hold
any leased real or personal property under valid and enforceable leases with
no exceptions that would materially interfere with the use made or to be made
thereof by them.
(m) The Company and its subsidiaries possess adequate certificates,
authorities or permits issued by appropriate governmental agencies or bodies
necessary to conduct the business now operated by them and have not received
any notice of proceedings relating to the revocation or modification of any
such certificate, authority or permit that, if determined adversely to the
Company or any of its subsidiaries, would individually or in the aggregate
have a material adverse effect on the condition (financial or other),
business, properties or results of operations of the Company and its
subsidiaries taken as a whole ("Material Adverse Effect").
(n) No labor dispute with the employees of the Company or any subsidiary
exists or, to the knowledge of the Company, is imminent that might have a
Material Adverse Effect.
(o) The Company and its subsidiaries own, possess or can acquire on
reasonable terms, adequate trademarks, trade names and other rights to
inventions, know-how, patents, copyrights, confidential information and other
intellectual property (collectively, "intellectual property rights") necessary
to conduct the business now operated by them, or presently employed by them,
and have not received any notice of infringement of or conflict with asserted
rights of others with respect to any intellectual property rights that, if
determined adversely to the Company or any of its subsidiaries, would
individually or in the aggregate have a Material Adverse Effect.
(p) Except as disclosed in the Prospectus, neither the Company nor any of
its subsidiaries is in violation of any statute, any rule, regulation,
decision or order of any governmental agency or body or any court, domestic or
foreign, relating to the use, disposal or release of hazardous or toxic
substances or relating to the protection or restoration of the environment or
human exposure to hazardous or toxic substances (collectively, "environmental
laws"), owns or operates any real property contaminated with any substance
that is subject to any environmental laws, is liable for any off-site disposal
or contamination pursuant to any environmental laws, or is subject to any
claim relating to any environmental laws, which violation, contamination,
liability or claim would individually or in the aggregate have a Material
Adverse Effect; and the Company is not aware of any pending investigation
which might lead to such a claim.
4
<PAGE>
(q) Except as disclosed in the Prospectus, there are no pending actions,
suits or proceedings against or affecting the Company, any of its subsidiaries
or any of their respective properties that, if determined adversely to the
Company or any of its subsidiaries, would individually or in the aggregate
have a Material Adverse Effect, or would materially and adversely affect the
ability of the Company to perform its obligations under this Agreement, or
which are otherwise material in the context of the sale of the Offered
Securities; and no such actions, suits or proceedings are threatened or, to
the Company's knowledge, contemplated.
(r) The financial statements included in each Registration Statement and
the Prospectus present fairly the financial position of the Company and its
consolidated subsidiaries as of the dates shown and their results of
operations and cash flows for the periods shown, and such financial statements
have been prepared in conformity with the generally accepted accounting
principles in the United States applied on a consistent basis; and the
assumptions used in preparing the pro forma financial information included in
each Registration Statement and the Prospectus provide a reasonable basis for
presenting the significant effects directly attributable to the transactions
or events described therein, the related pro forma adjustments give
appropriate effect to those assumptions, and the pro forma columns therein
reflect the proper application of those adjustments to the corresponding
historical financial statement amounts.
(s) Except as disclosed in the Prospectus, since the date of the latest
audited financial statements included in the Prospectus there has been no
material adverse change, nor any development or event involving a prospective
material adverse change, in the condition (financial or other), business,
properties or results of operations of the Company and its subsidiaries taken
as a whole, and, except as disclosed in or contemplated by the Prospectus,
there has been no dividend or distribution of any kind declared, paid or made
by the Company on any class of its capital stock.
(t) The information on the basis of which the reserve estimates and
related information included in each Registration Statement and the Prospectus
or incorporated by reference therein that was prepared by the Company, its
subsidiaries, Ryder Scott Company, L.P., independent oil and natural gas
engineers, or any other person, is true and correct in all material respects.
(u) The Company and each of its subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurances that
(i) transactions are executed in accordance with management's general or
specific authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability; (iii) access to
assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared
with the existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
(v) The Company and each of its subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as are prudent and customary in the businesses in which they are
engaged; neither the Company nor any of its subsidiaries have been refused any
insurance coverage sought or applied for; and neither the Company nor any of
its subsidiaries have any reason to believe that they will not be able to
renew their existing insurance coverage as and when such coverage expires or
to obtain similar coverage from similar insurers as may be necessary to
continue its business at a cost that would not materially and adversely affect
the condition (financial or otherwise), business prospects, net worth or
results of operations of the Company and its subsidiaries, except as described
in or contemplated by the Prospectus.
(w) The Company is not and, after giving effect to the offering and sale
of the Offered Securities and the application of the proceeds thereof as
described in the Prospectus, will not be an "investment company" as defined in
the Investment Company Act of 1940.
5
<PAGE>
(x) The Company has reviewed its operations and those of its subsidiaries
and has made inquiry or reviewed publicly available information of any third
parties with which the Company or any of its subsidiaries has a material
relationship to evaluate the extent to which the business or operations of the
Company or any of its subsidiaries will be affected by the Year 2000 Problem.
As a result of such review and inquiry, the Company has no reason to believe,
and does not believe, that the Year 2000 Problem will have a material adverse
effect on the Company and its subsidiaries taken as a whole or result in any
material loss or interference with the Company's business or operations. The
"Year 2000 Problem" as used herein means any significant risk that computer
hardware or software used in the receipt, transmission, processing,
manipulation, storage, retrieval, retransmission or other utilization of data
or in the operation of mechanical or electrical systems of any kind will not,
in the case of dates or time periods occurring after December 31, 1999,
function at least as effectively as in the case of dates or time periods
occurring prior to January 1, 2000.
3. Purchase, Sale and Delivery of Offered Securities. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company agrees to sell to the
Underwriters, and the Underwriters agree, severally and not jointly, to purchase
from the Company, at a purchase price of $ per share, the respective
numbers of shares of Firm Securities set forth opposite the names of the
Underwriters in Schedule A hereto.
The Company will deliver the Firm Securities to CSFBC for the accounts of the
Underwriters, against payment of the purchase price in Federal (same day) funds
by official bank check or checks or wire transfer to an account at a bank
acceptable to CSFBC drawn to the order of at the office of Baker &
Botts, L.L.P., One Shell Plaza, 910 Louisiana, Houston, Texas 77002, at A.M.,
New York time, on , or at such other time not later than seven full
business days thereafter as CSFBC and the Company determine, such time being
herein referred to as the "First Closing Date". For purposes of Rule 15c6-1
under the Securities Exchange Act of 1934, the First Closing Date (if later than
the otherwise applicable settlement date) shall be the settlement date for
payment of funds and delivery of securities for all the Offered Securities sold
pursuant to the offering. The certificates for the Firm Securities so to be
delivered will be in definitive form, in such denominations and registered in
such names as CSFBC requests and will be made available for checking and
packaging at the above office of Baker & Botts, L.L.P. at least 24 hours prior
to the First Closing Date.
In addition, upon written notice from CSFBC given to the Company from time to
time not more than 30 days subsequent to the date of the Prospectus, the
Underwriters may purchase all or less than all of the Optional Securities at the
purchase price per Security to be paid for the Firm Securities. The Company
agrees to sell to the Underwriters the number of shares of Optional Securities
specified in such notice and the Underwriters agree, severally and not jointly,
to purchase such Optional Securities. Such Optional Securities shall be
purchased for the account of each Underwriter in the same proportion as the
number of shares of Firm Securities set forth opposite such Underwriter's name
bears to the total number of shares of Firm Securities (subject to adjustment by
CSFBC to eliminate fractions) and may be purchased by the Underwriters only for
the purpose of covering over-allotments made in connection with the sale of the
Firm Securities. No Optional Securities shall be sold or delivered unless the
Firm Securities previously have been, or simultaneously are, sold and delivered.
The right to purchase the Optional Securities or any portion thereof may be
exercised from time to time and to the extent not previously exercised may be
surrendered and terminated at any time upon notice by CSFBC to the Company.
Each time for the delivery of and payment for the Optional Securities, being
herein referred to as an "Optional Closing Date", which may be the First Closing
Date (the First Closing Date and each Optional Closing Date, if any, being
sometimes referred to as a "Closing Date"), shall be determined by CSFBC but
shall be not later than five full business days after written notice of election
to purchase Optional Securities is given. The Company will deliver the Optional
Securities being purchased on each Optional Closing Date to CSFBC for the
accounts of the Underwriters, against payment of the purchase price therefor in
Federal (same day) funds by official bank check or checks or wire transfer to an
account at a bank acceptable to CSFBC drawn to the order of _________________,
at the above office of Baker & Botts, L.L.P.
6
<PAGE>
The certificates for the Optional Securities being purchased on each Optional
Closing Date will be in definitive form, in such denominations and registered in
such names as CSFBC requests upon reasonable notice prior to such Optional
Closing Date and will be made available for checking and packaging at the above
office of Baker & Botts, L.L.P. at a reasonable time in advance of such Optional
Closing Date.
The Company hereby confirms its engagement of Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ") as, and DLJ hereby confirms its agreement with
the Company to render services as, a "qualified independent underwriter," within
the meaning of Section (b)(15) of Rule 2720 of the Conduct Rules of the National
Association of Securities Dealers, Inc. with respect to the offering and sale of
the Offered Securities. DLJ, solely in its capacity as qualified independent
underwriter and not otherwise, is referred to herein as the "QIU." As
compensation for the services of the QIU hereunder, the Company agrees to pay
the QIU $5,000 on the First Closing Date. The price at which the Offered
Securities will be sold to the public will not be higher than the maximum price
recommended by DLJ acting as QIU.
4. Offering by Underwriters. It is understood that the several Underwriters
propose to offer the Offered Securities for sale to the public as set forth in
the Prospectus.
5. Certain Agreements of the Company. The Company agrees with the several
Underwriters that:
(a) If the Effective Time of the Initial Registration Statement is prior
to the execution and delivery of this Agreement, the Company will file the
Prospectus with the Commission pursuant to and in accordance with subparagraph
(1) (or, if applicable and if consented to by CSFBC, subparagraph (4)) of Rule
424(b) not later than the earlier of (A) the second business day following the
execution and delivery of this Agreement or (B) the fifteenth business day
after the Effective Date of the Initial Registration Statement.
The Company will advise CSFBC promptly of any such filing pursuant to Rule
424(b). If the Effective Time of the Initial Registration Statement is prior
to the execution and delivery of this Agreement and an additional registration
statement is necessary to register a portion of the Offered Securities under
the Act but the Effective Time thereof has not occurred as of such execution
and delivery, the Company will file the additional registration statement or,
if filed, will file a post-effective amendment thereto with the Commission
pursuant to and in accordance with Rule 462(b) on or prior to 10:00 P.M., New
York time, on the date of this Agreement or, if earlier, on or prior to the
time the Prospectus is printed and distributed to any Underwriter, or will
make such filing at such later date as shall have been consented to by CSFBC.
(b) The Company will advise CSFBC promptly of any proposal to amend or
supplement the initial or any additional registration statement as filed or
the related prospectus or the Initial Registration Statement, the Additional
Registration Statement (if any) or the Prospectus and will not effect such
amendment or supplementation without CSFBC's consent; and the Company will
also advise CSFBC promptly of the effectiveness of each Registration Statement
(if its Effective Time is subsequent to the execution and delivery of this
Agreement) and of any amendment or supplementation of a Registration Statement
or the Prospectus and of the institution by the Commission of any stop order
proceedings in respect of a Registration Statement and will use its best
efforts to prevent the issuance of any such stop order and to obtain as soon
as possible its lifting, if issued.
(c) If, at any time when a prospectus relating to the Offered Securities
is required to be delivered under the Act in connection with sales by any
Underwriter or dealer, any event occurs as a result of which the Prospectus as
then amended or supplemented would include an untrue statement of a material
fact or omit to state any material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, or if it is necessary at any time to amend the Prospectus to
comply with the Act, the Company will promptly notify CSFBC of such event and
will promptly prepare and file with the Commission, at its own expense, an
amendment or supplement which will correct such
7
<PAGE>
statement or omission or an amendment which will effect such compliance.
Neither CSFBC's consent to, nor the Underwriters' delivery of, any such
amendment or supplement shall constitute a waiver of any of the conditions set
forth in Section 6.
(d) As soon as practicable, but not later than the Availability Date (as
defined below), the Company will make generally available to its
securityholders an earnings statement covering a period of at least 12 months
beginning after the Effective Date of the Initial Registration Statement (or,
if later, the Effective Date of the Additional Registration Statement) which
will satisfy the provisions of Section 11(a) of the Act. For the purpose of
the preceding sentence, "Availability Date" means the 45th day after the end
of the fourth fiscal quarter following the fiscal quarter that includes such
Effective Date, except that, if such fourth fiscal quarter is the last quarter
of the Company's fiscal year, "Availability Date" means the 90th day after the
end of such fourth fiscal quarter.
(e) The Company will furnish to the Underwriters copies of each
Registration Statement (6 of which will be signed and will include all
exhibits), each related preliminary prospectus, and, so long as a prospectus
relating to the Offered Securities is required to be delivered under the Act
in connection with sales by any Underwriter or dealer, the Prospectus and all
amendments and supplements to such documents, in each case in such quantities
as CSFBC requests. The Prospectus shall be so furnished on or prior to 3:00
P.M., New York time, on the business day following the later of the execution
and delivery of this Agreement or the Effective Time of the Initial
Registration Statement. All other documents shall be so furnished as soon as
available. The Company will pay the expenses of printing and distributing to
the Underwriters all such documents.
(f) The Company will arrange for the qualification of the Offered
Securities for sale under the laws of such jurisdictions as CSFBC designates
and will continue such qualifications in effect so long as required for the
distribution.
(g) During the period of five years hereafter, the Company will furnish
to the Underwriters as soon as practicable after the end of each fiscal year,
a copy of its annual report to stockholders for such year; and the Company
will furnish to the Underwriters (i) as soon as available, a copy of each
report and any definitive proxy statement of the Company filed with the
Commission under the Securities Exchange Act of 1934 or mailed to
stockholders, and (ii) from time to time, such other information concerning
the Company as CSFBC may reasonably request.
(h) The Company will pay all expenses incident to the performance of its
obligations under this Agreement, for any filing fees and other expenses
(including fees and disbursements of counsel) incurred in connection with
qualification of the Offered Securities for sale under the laws of such
jurisdictions as CSFBC designates and the printing of memoranda relating
thereto, for the filing fee incident to, and the reasonable fees and
disbursements of counsel to the Underwriters in connection with, the review by
the National Association of Securities Dealers, Inc. of the Offered
Securities, for any travel expenses of the Company's officers and employees
and any other expenses of the Company in connection with attending or hosting
meetings with prospective purchasers of the Offered Securities, for expenses
incurred in distributing preliminary prospectuses and the Prospectus
(including any amendments and supplements thereto) to the Underwriters and for
fees and expenses of the QIU (including the fees and disbursements of counsel
to the QIU).
(i) For a period of 180 days after the date of the initial public
offering of the Offered Securities, the Company will not offer, sell, contract
to sell, pledge or otherwise dispose of, directly or indirectly, or file with
the Commission a registration statement under the Act relating to, any
additional shares of its Securities or securities convertible into or
exchangeable or exercisable for any shares of its Securities, or publicly
disclose the intention to make any such offer, sale, pledge, disposition or
filing, without the prior written consent of CSFBC, except grants of employee
stock options pursuant to the terms of a plan in
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effect on the date hereof, issuances of Securities pursuant to the exercise
of such options or the exercise of any other employee stock options
outstanding on the date hereof.
6. Conditions of the Obligations of the Underwriters. The obligations of
the several Underwriters to purchase and pay for the Firm Securities on the
First Closing Date and the Optional Securities to be purchased on each Optional
Closing Date will be subject to the accuracy of the representations and
warranties on the part of the Company herein, to the accuracy of the statements
of Company officers made pursuant to the provisions hereof, to the performance
by the Company of its obligations hereunder and to the following additional
conditions precedent:
(a) The Underwriters shall have received a letter, dated the date of
delivery thereof (which, if the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement, shall
be on or prior to the date of this Agreement or, if the Effective Time of
the Initial Registration Statement is subsequent to the execution and
delivery of this Agreement, shall be prior to the filing of the amendment
or post-effective amendment to the registration statement to be filed
shortly prior to such Effective Time), of Arthur Andersen LLP confirming
that they are independent public accountants within the meaning of the Act
and the applicable published Rules and Regulations thereunder and stating
to the effect that:
(i) in their opinion the financial statements examined by them
and included in the Registration Statements comply as to form in
all material respects with the applicable accounting requirements
of the Act and the related published Rules and Regulations;
(ii) they have performed the procedures specified by the
American Institute of Certified Public Accountants for a review of
interim financial information as described in Statement of
Auditing Standards No. 71, Interim Financial Information, on the
unaudited financial statements included in the Registration
Statements;
(iii) on the basis of the review referred to in clause (ii)
above, a reading of the latest available interim financial
statements of the Company, inquiries of officials of the Company
who have responsibility for financial and accounting matters and
other specified procedures, nothing came to their attention that
caused them to believe that:
(A) the unaudited financial statements included in the
Registration Statements do not comply as to form in all
material respects with the applicable accounting
requirements of the Act and the related published Rules and
Regulations or any material modifications should be made to
such unaudited financial statements for them to be in
conformity with generally accepted accounting principles;
(B) at the date of the latest available balance sheet
read by such accountants, or at a subsequent specified date
not more than three business days prior to the date of such
letter, there was any change in the capital stock or any
increase in short-term indebtedness or long-term debt of the
Company and its consolidated subsidiaries or, at the date of
the latest available balance sheet read by such accountants,
there was any decrease in consolidated net current assets or
net assets, as compared with amounts shown on the latest
balance sheet included in the Prospectus; or
(C) for the period from the closing date of the latest
statement of operations included in the Prospectus to the
closing date of the latest available statement of operations
read by such accountants there were any decreases, as
compared with the corresponding period of the previous year,
in consolidated net sales or net operating income in the
total or per share amounts of consolidated net income
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except in all cases set forth in clauses (B) and (C) above
for changes, increases or decreases which the Prospectus
discloses have occurred or may occur or which are described
in such letter; and
they have compared specified dollar amounts (or percentages
derived from such dollar amounts) and other financial
information contained in the Registration Statements (in
each case to the extent that such dollar amounts,
percentages and other financial information are derived from
the general accounting records of the Company and its
subsidiaries subject to the internal controls of the
Company's accounting system or are derived directly from
such records by analysis or computation) with the results
obtained from inquiries, a reading of such general
accounting records and other procedures specified in such
letter and have found such dollar amounts, percentages and
other financial information to be in agreement with such
results, except as otherwise specified in such letter.
For purposes of this subsection, (i) if the Effective Time of the Initial
Registration Statement is subsequent to the execution and delivery of this
Agreement, "Registration Statements" shall mean the initial registration
statement as proposed to be amended by the amendment or post-effective
amendment to be filed shortly prior to its Effective Time, (ii) if the
Effective Time of the Initial Registration Statement is prior to the
execution and delivery of this Agreement but the Effective Time of the
Additional Registration is subsequent to such execution and delivery,
"Registration Statements" shall mean the Initial Registration Statement and
the additional registration statement as proposed to be filed or as
proposed to be amended by the post-effective amendment to be filed shortly
prior to its Effective Time, and (iii) "Prospectus" shall mean the
prospectus included in the Registration Statements.
(b) The Company shall have received from Arthur Andersen LLP (and
furnished to the Underwriters) an examination report with respect to
Management's Discussion and Analysis of Financial Condition and Results of
Operations of the Company for the fiscal years ending December 31, 1997 and
1998 and review report with respect to Management's Discussion and Analysis
of Financial Condition and Results of Operations of the Company for the
six-month period ending June 30, 1999 and the corresponding period for the
prior fiscal year, each in accordance with Statement on Standards for
Attestation Engagement No. 8 issued by the Auditing Standards Board of the
American Institute of Certified Public Accountants, and such examination
report shall be included in the Registration Statement.
(c) If the Effective Time of the Initial Registration Statement is not
prior to the execution and delivery of this Agreement, such Effective Time
shall have occurred not later than 10:00 P.M., New York time, on the date
of this Agreement or such later date as shall have been consented to by
CSFBC. If the Effective Time of the Additional Registration Statement (if
any) is not prior to the execution and delivery of this Agreement, such
Effective Time shall have occurred not later than 10:00 P.M., New York
time, on the date of this Agreement or, if earlier, the time the Prospectus
is printed and distributed to any Underwriter, or shall have occurred at
such later date as shall have been consented to by CSFBC. If the Effective
Time of the Initial Registration Statement is prior to the execution and
delivery of this Agreement, the Prospectus shall have been filed with the
Commission in accordance with the Rules and Regulations and Section 5(a) of
this Agreement. Prior to such Closing Date, no stop order suspending the
effectiveness of a Registration Statement shall have been issued and no
proceedings for that purpose shall have been instituted or, to the
knowledge of the Company or the Underwriters, shall be contemplated by the
Commission.
(d) Subsequent to the execution and delivery of this Agreement, there
shall not have occurred (i) any change, or any development or event
involving a prospective change, in the condition (financial or other),
business, properties or results of operations of the Company and its
subsidiaries taken as one enterprise which, in the judgment of a majority
in interest of the Underwriters including CSFBC, is material and adverse
and makes it impractical or inadvisable to proceed with completion of the
public offering or the sale of and payment for the Offered Securities; (ii)
any downgrading in the rating of any
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debt securities of the Company by any "nationally recognized statistical
rating organization" (as defined for purposes of Rule 436(g) under the
Act), or any public announcement that any such organization has under
surveillance or review its rating of any debt securities of the Company
(other than an announcement with positive implications of a possible
upgrading, and no implication of a possible downgrading, of such rating);
(iii) any material suspension or material limitation of trading in
securities generally on the New York Stock Exchange, or any setting of
minimum prices for trading on such exchange, or any suspension of trading
of any securities of the Company on any exchange or in the over-the-counter
market; (iv) any banking moratorium declared by U.S. Federal or New York
authorities; or (v) any outbreak or escalation of major hostilities in
which the United States is involved, any declaration of war by Congress or
any other substantial national or international calamity or emergency if,
in the judgment of a majority in interest of the Underwriters including
CSFBC, the effect of any such outbreak, escalation, declaration, calamity
or emergency makes it impractical or inadvisable to proceed with completion
of the public offering or the sale of and payment for the Offered
Securities.
(e) The Underwriters shall have received from Warburg, Pincus
Ventures, L.P., Petroleum Geo-Services ASA and each person who is a
director or officer of the Company who owns shares of Securities on the
First Closing Date an agreement to the effect that, for a period of 180
days after the date of the Prospectus, such person or entity will not
offer, sell, contract to sell, pledge or otherwise dispose of, directly or
indirectly, any shares of Securities or securities convertible into or
exchangeable or exercisable for any shares of Securities, or publicly
disclose the intention to make any such offer, sale, pledge or disposal,
without the prior written consent of CSFBC.
(f) The Underwriters shall have received an opinion, dated such
Closing Date, of Vinson & Elkins L.L.P., counsel for the Company, to the
effect that:
(i) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Delaware,
with corporate power and authority to own its properties and conduct
its business as described in the Prospectus; and the Company is duly
qualified to do business as a foreign corporation in good standing in
all other jurisdictions in which its ownership or lease of property or
the conduct of its business requires such qualification;
(ii) The Offered Securities delivered on such Closing Date and
all other outstanding shares of the Common Stock of the Company have
been duly authorized and validly issued, are fully paid and
nonassessable and conform to the description thereof contained in the
Prospectus; and the stockholders of the Company have no preemptive
rights with respect to the Securities;
(iii) Except as disclosed in the Prospectus, there are no
contracts, agreements or understandings known to such counsel between
the Company and any person granting such person the right to require
the Company to file a registration statement under the Act with
respect to any securities of the Company owned or to be owned by such
person or to require the Company to include such securities in the
securities registered pursuant to the Registration Statement (the
relevant provisions of which have not been waived) or in any
securities being registered pursuant to any other registration
statement filed by the Company under the Act;
(iv) No consent, approval, authorization or order of, or filing
with, any governmental agency or body or any court is required for the
consummation of the transactions contemplated by this Agreement in
connection with the issuance or sale of the Offered Securities by the
Company, except such as have been obtained and made under the Act and
such as may be required under state securities laws;
(v) The execution, delivery and performance of this Agreement
and the issuance and sale of the Offered Securities will not result in
a breach or violation of any of the terms and
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<PAGE>
provisions of, or constitute a default under, any statute, any rule,
regulation or order of any governmental agency or body or any court
having jurisdiction over the Company or any subsidiary of the Company
or any of their properties, or any agreement or instrument to which
the Company or any such subsidiary is a party or by which the Company
or any such subsidiary is bound or to which any of the properties of
the Company or any such subsidiary is subject, or the charter, by-laws
or other organizational documents of the Company or any such
subsidiary, and the Company has full power and authority to authorize,
issue and sell the Offered Securities as contemplated by this
Agreement;
(vi) The Initial Registration Statement was declared effective
under the Act as of the date and time specified in such opinion, the
Additional Registration Statement (if any) was filed and became
effective under the Act as of the date and time (if determinable)
specified in such opinion, the Prospectus either was filed with the
Commission pursuant to the subparagraph of Rule 424(b) specified in
such opinion on the date specified therein or was included in the
Initial Registration Statement or the Additional Registration
Statement (as the case may be), and, to the best of the knowledge of
such counsel, no stop order suspending the effectiveness of a
Registration Statement or any part thereof has been issued and no
proceedings for that purpose have been instituted or are pending or
contemplated under the Act, and each Registration Statement and the
Prospectus, and each amendment or supplement thereto, as of their
respective effective or issue dates, complied as to form in all
material respects with the requirements of the Act and the Rules and
Regulations; such counsel have no reason to believe that any part of a
Registration Statement or any amendment thereto, as of its effective
date or as of such Closing Date, contained any untrue statement of a
material fact or omitted to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading or that the Prospectus or any amendment or supplement
thereto, as of its issue date or as of such Closing Date, contained
any untrue statement of a material fact or omitted to state any
material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not
misleading; the descriptions in the Registration Statements and
Prospectus of statutes, legal and governmental proceedings and
contracts and other documents are accurate and fairly present the
information required to be shown; and such counsel do not know of any
legal or governmental proceedings required to be described in a
Registration Statement or the Prospectus which are not described as
required or of any contracts or documents of a character required to
be described in a Registration Statement or the Prospectus or to be
filed as exhibits to a Registration Statement which are not described
and filed as required; it being understood that such counsel need
express no opinion as to the financial statements or other financial
data contained in the Registration Statements or the Prospectus; and
(vii) This Agreement has been duly authorized, executed and
delivered by the Company.
(g) The Underwriters shall have received from Baker & Botts, L.L.P.,
counsel for the Underwriters, such opinion or opinions, dated such Closing
Date, with respect to the incorporation of the Company, the validity of the
Offered Securities delivered on such Closing Date, the Registration
Statements, the Prospectus and other related matters as CSFBC may require,
and the Company shall have furnished to such counsel such documents as they
request for the purpose of enabling them to pass upon such matters.
(h) The Underwriters shall have received a certificate, dated such
Closing Date, of the President or any Vice President and a principal
financial or accounting officer of the Company in which such officers, to
the best of their knowledge after reasonable investigation, shall state
that: the representations and warranties of the Company in this Agreement
are true and correct; the Company has complied with all agreements and
satisfied all conditions on its part to be performed or satisfied hereunder
at or prior to such Closing Date; no stop order suspending the
effectiveness of any Registration Statement has been issued and
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<PAGE>
no proceedings for that purpose have been instituted or are contemplated by
the Commission; the Additional Registration Statement (if any) satisfying
the requirements of subparagraphs (1) and (3) of Rule 462(b) was filed
pursuant to Rule 462(b), including payment of the applicable filing fee in
accordance with Rule 111(a) or (b) under the Act, prior to the time the
Prospectus was printed and distributed to any Underwriter; and, subsequent
to the date of the most recent financial statements in the Prospectus,
there has been no material adverse change, nor any development or event
involving a prospective material adverse change, in the condition
(financial or other), business, properties or results of operations of the
Company and its subsidiaries taken as a whole except as set forth in or
contemplated by the Prospectus or as described in such certificate.
(i) The Underwriters shall have received a letter, dated such Closing
Date, of Arthur Andersen LLP which meets the requirements of subsection (a)
of this Section, except that the specified date referred to in such
subsection will be a date not more than three days prior to such Closing
Date for the purposes of this subsection.
(j) The Underwriters shall have received from Ryder Scott Company,
L.P., independent natural gas and oil engineers, a letter or letters dated,
respectively, the date of this Agreement and of the Closing Date, in form
and substance satisfactory to the Underwriters, each stating, as of the
date of such letter (or, with respect to matters involving changes or
developments since the respective dates as of which information regarding
the natural gas and oil reserves and future net cash flows is given in the
Prospectus, as of the date not more than three days prior to the date of
such letter), the conclusions and findings of such firm with respect to the
natural gas and oil reserves of the Company and such other matters as the
Underwriters reasonably may request.
(k) All accumulated dividends on the Company's outstanding capital
stock shall have been converted into Securities.
(l) All outstanding shares of the Company's preferred stock, par value
$.01 per share, shall have been converted into Securities.
The Company will furnish the Underwriters with such conformed copies of such
opinions, certificates, letters and documents as CSFBC reasonably requests.
CSFBC may in its sole discretion waive on behalf of the Underwriters compliance
with any conditions to the obligations of the Underwriters hereunder, whether in
respect of an Optional Closing Date or otherwise.
7. Indemnification and Contribution. (a) The Company will indemnify and
hold harmless each Underwriter, its partners, directors and officers and each
person, if any, who controls such Underwriter within the meaning of Section 15
of the Act, against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any Registration Statement,
the Prospectus, or any amendment or supplement thereto, or any related
preliminary prospectus, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse
each Underwriter for any legal or other expenses reasonably incurred by such
Underwriter in connection with investigating or defending any such loss, claim,
damage, liability or action as such expenses are incurred; provided, however,
that the Company will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement in or omission or alleged omission from
any of such documents in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through CSFBC
specifically for use therein, it being understood and agreed that the only such
information furnished by any Underwriter consists of the information described
as such in subsection (b) below.
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(b) Each Underwriter will severally and not jointly indemnify and hold
harmless the Company, its directors and officers and each person, if any who
controls the Company within the meaning of Section 15 of the Act, against any
losses, claims, damages or liabilities to which the Company may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any Registration Statement, the Prospectus, or any amendment or supplement
thereto, or any related preliminary prospectus, or arise out of or are based
upon the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in reliance upon and in conformity with written information furnished to the
Company by such Underwriter through CSFBC specifically for use therein, and will
reimburse any legal or other expenses reasonably incurred by the Company in
connection with investigating or defending any such loss, claim, damage,
liability or action as such expenses are incurred, it being understood and
agreed that the only such information furnished by any Underwriter consists of
(i) the following information in the Prospectus furnished on behalf of each
Underwriter: the concession and reallowance figures appearing in the 4th
paragraph under the caption "Underwriting" and the information contained in the
6th paragraph under the caption "Underwriting" and (ii) the following
information in the Prospectus appearing in the 9th paragraph under the caption
"Underwriting" furnished on behalf of Credit Suisse First Boston Corporation:
"Credit Suisse First Boston Corporation, one of the underwriters for this
offering, is a subsidiary of Credit Suisse Group, which indirectly holds a 19.9%
passive minority interest in Warburg, Pincus & Co."
(c) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under
subsection (a) or (b) above notify the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise than
under subsection (a) or (b) above. In case any such action is brought against
any indemnified party and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein and, to
the extent that it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel satisfactory to such
indemnified party (who shall not, except with the consent of the indemnified
party, be counsel to the indemnifying party), and after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party will not be liable to such indemnified
party under this Section for any legal or other expenses subsequently incurred
by such indemnified party in connection with the defense thereof other than
reasonable costs of investigation. No indemnifying party shall, without the
prior written consent of the indemnified party, effect any settlement of any
pending or threatened action in respect of which any indemnified party is or
could have been a party and indemnity could have been sought hereunder by such
indemnified party unless such settlement (i) includes an unconditional release
of such indemnified party from all liability on any claims that are the subject
matter of such action and (ii) does not include a statement as to, or an
admission of, fault, culpability or a failure to act by or on behalf of an
indemnified party.
(d) If the indemnification provided for in this Section is unavailable or
insufficient to hold harmless an indemnified party under subsection (a) or (b)
above, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities referred to in subsection (a) or (b) above (i) in such proportion as
is appropriate to reflect the relative benefits received by the Company on the
one hand and the Underwriters on the other from the offering of the Securities
or (ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company on the one hand and the Underwriters on the other in connection with
the statements or omissions which resulted in such losses, claims, damages or
liabilities as well as any other relevant equitable considerations. The relative
benefits received by the Company on the one hand and the Underwriters on the
other shall be deemed to be in the same proportion as the total net proceeds
from the offering (before deducting expenses) received by the Company bear to
the total underwriting discounts and commissions received by the Underwriters.
The relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or
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the omission or alleged omission to state a material fact relates to information
supplied by the Company or the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
untrue statement or omission. The amount paid by an indemnified party as a
result of the losses, claims, damages or liabilities referred to in the first
sentence of this subsection (d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any action or claim which is the subject of this
subsection (d). Notwithstanding the provisions of this subsection (d), no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Securities underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations in
this subsection (d) to contribute are several in proportion to their respective
underwriting obligations and not joint.
(e) The obligations of the Company under this Section shall be in addition
to any liability which the Company may otherwise have and shall extend, upon the
same terms and conditions, to each person, if any, who controls any Underwriter
within the meaning of the Act; and the obligations of the Underwriters under
this Section shall be in addition to any liability which the respective
Underwriters may otherwise have and shall extend, upon the same terms and
conditions, to each director of the Company, to each officer of the Company who
has signed a Registration Statement and to each person, if any, who controls the
Company within the meaning of the Act.
8. Default of Underwriters. If any Underwriter or Underwriters default in
their obligations to purchase Offered Securities hereunder on either the First
or any Optional Closing Date and the aggregate number of shares of Offered
Securities that such defaulting Underwriter or Underwriters agreed but failed to
purchase does not exceed 10% of the total number of shares of Offered Securities
that the Underwriters are obligated to purchase on such Closing Date, CSFBC may
make arrangements satisfactory to the Company for the purchase of such Offered
Securities by other persons, including any of the Underwriters, but if no such
arrangements are made by such Closing Date, the non-defaulting Underwriters
shall be obligated severally, in proportion to their respective commitments
hereunder, to purchase the Offered Securities that such defaulting Underwriters
agreed but failed to purchase on such Closing Date. If any Underwriter or
Underwriters so default and the aggregate number of shares of Offered Securities
with respect to which such default or defaults occur exceeds 10% of the total
number of shares of Offered Securities that the Underwriters are obligated to
purchase on such Closing Date and arrangements satisfactory to CSFBC and the
Company for the purchase of such Offered Securities by other persons are not
made within 36 hours after such default, this Agreement will terminate without
liability on the part of any non-defaulting Underwriter or the Company, except
as provided in Section 10 (provided that if such default occurs with respect to
Optional Securities after the First Closing Date, this Agreement will not
terminate as to the Firm Securities or any Optional Securities purchased prior
to such termination). As used in this Agreement, the term "Underwriter" includes
any person substituted for an Underwriter under this Section. Nothing herein
will relieve a defaulting Underwriter from liability for its default.
9. Indemnification of Qualified Independent Underwriter. (a) The Company
agrees to indemnify and hold harmless the QIU, its directors, its officers and
each person, if any, who controls the QIU within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act, from and against any and all losses,
claims, damages, liabilities and judgments (including, without limitation, any
legal or other expenses incurred in connection with defending or investigating
any matter, including any action that could give rise to any such losses,
claims, damages, liabilities or judgments) related to, based upon or arising out
of (i) any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement (or any amendment thereto), the
Prospectus (or any amendment or supplement thereto) or any preliminary
prospectus, or any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading or (ii) the QIU's activities as QIU under its engagement pursuant to
Section 3 hereof, except in the case of this clause (ii) insofar as any such
losses, claims, damages, liabilities or judgments are found in a final judgment
by a court of competent jurisdiction, not subject to further appeal, to have
resulted solely from the willful misconduct or gross negligence of the QIU.
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(b) In case any action shall be commenced involving any person in respect
of which indemnity may be sought pursuant to paragraph (a) of this Section 9
(the "QIU Indemnified Party"), the QIU Indemnified Party shall promptly notify
the Company in writing and the Company shall assume the defense of such action,
including the employment of counsel reasonably satisfactory to the QIU
Indemnified Party and the payment of all fees and expenses of such counsel, as
incurred. Any QIU Indemnified Party shall have the right to employ separate
counsel in any such action and participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of the QIU Indemnified
Party unless (i) the employment of such counsel shall have been specifically
authorized in writing by the Company, (ii) the Company shall have failed to
assume the defense of such action or employ counsel reasonably satisfactory to
the QIU Indemnified Party or (iii) the named parties to any such action
(including any impleaded parties) include both the QIU Indemnified Party and the
Company, and the QIU Indemnified Party shall have been advised by such counsel
that there may be one or more legal defenses available to it which are different
from or additional to those available to the Company (in which case the Company
shall not have the right to assume the defense of such action on behalf of the
QIU Indemnified Party). In any such case, the Company shall not, in connection
with any one action or separate but substantially similar or related actions in
the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the fees and expenses of more than one separate
firm of attorneys (in addition to any local counsel) for all QIU Indemnified
Parties, which firm shall be designated by the QIU, and all such fees and
expenses shall be reimbursed as they are incurred. The Company shall indemnify
and hold harmless the QIU Indemnified Party from and against any and all losses,
claims, damages, liabilities and judgments by reason of any settlement of any
action (i) effected with its written consent or (ii) effected without its
written consent if the settlement is entered into more than ten business days
after the Company shall have received a request from the QIU Indemnified Party
for reimbursement for the fees and expenses of counsel (in any case where such
fees and expenses are at the expense of the Company) and, prior to the date of
such settlement, the Company shall have failed to comply with such reimbursement
request. The Company shall not, without the prior written consent of the QIU
Indemnified Party, effect any settlement or compromise of, or consent to the
entry of judgment with respect to, any pending or threatened action in respect
of which the QIU Indemnified Party is or could have been a party and indemnity
or contribution may be or could have been sought hereunder by the QIU
Indemnified Party, unless such settlement, compromise or judgment (i) includes
an unconditional release of the QIU Indemnified Party from all liability on
claims that are or could have been the subject matter of such action and (ii)
does not include a statement as to or an admission of fault, culpability or a
failure to act by or on behalf of the QIU Indemnified Party.
(c) To the extent the indemnification provided for in this Section 9 is
unavailable to a QIU Indemnified Party or insufficient in respect of any losses,
claims, damages, liabilities or judgments referred to therein, then the Company,
in lieu of indemnifying such QIU Indemnified Party, shall contribute to the
amount paid or payable by such QIU Indemnified Party as a result of such losses,
claims, damages, liabilities and judgments (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand and the QIU on the other hand from the offering of the Offered Securities
or (ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company and the QIU in connection with the statements or omissions which
resulted in such losses, claims, damages, liabilities or judgments, as well as
any other relevant equitable considerations. The relative benefits received by
the Company and the QIU shall be deemed to be in the same proportion as the
total net proceeds from the offering (before deducting expenses) received by the
Company as set forth in the table on the cover page of the Prospectus, and the
fee received by the QIU pursuant to Section 3 hereof, bear to the sum of such
total net proceeds and such fee. The relative fault of the Company and the QIU
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company or the
QIU and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission and whether the
QIU's activities as QIU under its engagement pursuant to Section 3 hereof
involved any willful misconduct or gross negligence on the part of the QIU.
The Company and the QIU agree that it would not be just and equitable if
contribution pursuant to this Section 9(c) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the
16
<PAGE>
equitable considerations referred to in the immediately preceding paragraph. The
amount paid or payable by a QIU Indemnified Party as a result of the losses,
claims, damages, liabilities or judgments referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses incurred by such QIU Indemnified Party
in connection with investigating or defending any matter that could have given
rise to such losses, claims, damages, liabilities or judgments. In no event
shall any QIU Indemnified Party be required to contribute in the aggregate an
amount exceeding the fee received by DLJ pursuant to Section 3 hereof. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution form any person who was not guilty of
such fraudulent misrepresentation.
(d) The remedies provided for in this Section 9 are not exclusive and shall
not limit any rights or remedies which may otherwise be available to any QIU
Indemnified Party at law or in equity.
10. Survival of Certain Representations and Obligations. The respective
indemnities, agreements, representations, warranties and other statements of the
Company or its officers, of the several Underwriters and the QIU set forth in or
made pursuant to this Agreement will remain in full force and effect, regardless
of any investigation, or statement as to the results thereof, made by or on
behalf of any Underwriter, the Company, the QIU or any of their respective
representatives, officers or directors or any controlling person, and will
survive delivery of and payment for the Offered Securities. If this Agreement is
terminated pursuant to Section 8 or if for any reason the purchase of the
Offered Securities by the Underwriters is not consummated, the Company shall
remain responsible for the expenses to be paid or reimbursed by it pursuant to
Section 5 and the respective obligations of the Company and the Underwriters
pursuant to Section 7 and the obligations of the Company pursuant to Section 9
shall remain in effect, and if any Offered Securities have been purchased
hereunder the representations and warranties in Section 2 and all obligations
under Section 5 shall also remain in effect. If the purchase of the Offered
Securities by the Underwriters is not consummated for any reason other than
solely because of the termination of this Agreement pursuant to Section 8 or the
occurrence of any event specified in clause (iii), (iv) or (v) of Section 6(d),
the Company will reimburse the Underwriters for all out-of-pocket expenses
(including fees and disbursements of counsel) reasonably incurred by them in
connection with the offering of the Offered Securities.
11. Notices. All communications hereunder will be in writing and, if sent
to the Underwriters, will be mailed, delivered or telegraphed and confirmed to
the Underwriters, c/o Credit Suisse First Boston Corporation, Eleven Madison
Avenue, New York, N.Y. 10010-3629, Attention: Investment Banking
Department--Transactions Advisory Group, or, if sent to the Company, will be
mailed, delivered or telegraphed and confirmed to it at 1200 Smith Street, Suite
800, Houston, Texas 77002, Attention: James M. Alexander; provided, however,
that any notice to an Underwriter pursuant to Section 7 will be mailed,
delivered or telegraphed and confirmed to such Underwriter.
12. Successors. This Agreement will inure to the benefit of and be binding
upon the parties hereto and their respective successors and the officers and
directors and controlling persons referred to in Section 7, and no other person
will have any right or obligation hereunder.
13. Representation of Underwriters. CSFBC will act for the several
Underwriters in connection with this financing, and any action under this
Agreement taken by CSFBC will be binding upon all the Underwriters.
14. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
15. Applicable Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York, without regard to principles
of conflicts of laws.
The Company hereby submits to the non-exclusive jurisdiction of the Federal
and state courts in the Borough of Manhattan in The City of New York in any suit
or proceeding arising out of or relating to this Agreement or the transactions
contemplated hereby.
17
<PAGE>
If the foregoing is in accordance with the Underwriters' understanding of
our agreement, kindly sign and return to the Company one of the counterparts
hereof, whereupon it will become a binding agreement between the Company and the
several Underwriters in accordance with its terms.
Very truly yours,
SPINNAKER EXPLORATION COMPANY
By:______________________________
Title:___________________________
The foregoing Underwriting Agreement is hereby confirmed
and accepted as of the date first above written.
Credit Suisse First Boston Corporation
Donaldson, Lufkin & Jenrette Securities Corporation
Banc America Securities LLC
Prudential Securities Incorporated
Nesbitt Burns Securities Inc.
By: Credit Suisse First Boston Corporation
By:_________________________________________
Title:______________________________________
In its capacity as qualified independent underwriter:
Donaldson, Lufkin & Jenrette Securities Corporation
By:_________________________________________
Title:______________________________________
18
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Underwriter Firm Securities
----------- ----------------
<S> <C>
Credit Suisse First Boston Corporation..................................
Donaldson, Lufkin & Jenrette Securities Corporation.....................
Banc of America Securities LLC..........................................
Prudential Securities Incorporated......................................
Nesbitt Burns Securities Inc............................................
---------
Total.................................................... 8,000,000
=========
</TABLE>
19
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
SPINCO EXPLORATION CORP.
FIRST: The name of the corporation is Spinco Exploration Corp.
SECOND: The address of its registered office in the State of Delaware is
1209 Orange Street, in the City of Wilmington, County of New Castle 19801. The
name of its registered agent at such address is The Corporation Trust Comany.
THIRD: The nature of the business or purposes to be conducted or promoted
is to engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
FOURTH: The total number of shares of capital stock of the corporation
shall be Six Million One Hundred Ten Thousand Seven Hundred Twenty shares
(6,110,720), which shall consist of Three Million Thirty Thousand Seven Hundred
Twenty (3,030,720) shares of Preferred Stock of the par value One Cent ($0.01)
per share and Three Million Eighty Thousand (3,080,000) shares of Common Stock
of the par value of One Cent ($0.01) per share.
The following is a statement fixing certain of the designations,
preferences and relative, participating, optional or other special rights
of the Preferred Stock and the Common Stock of the corporation, and the
qualifications, limitations or restrictions thereof, and the authority with
respect thereto expressly granted to the Board of Directors of the
corporation to fix any such provisions not fixed by this Certificate:
I. Preferred Stock
The Preferred Stock may be divided into and issued from time to time
in one or more series as may be fixed and determined by the Board of
Directors. The relative rights and preferences of the Preferred Stock of
each series shall be such as shall be stated in any resolution or
resolutions adopted by the Board of Directors setting forth the
designations of the series and fixing and determining the relative rights
and preferences thereof, any such resolution or resolutions being herein
called a "Directors' Resolution". The Board of Directors is hereby
authorized to fix and determine such variations in the designations,
preferences, and relative, participating, optional or other special rights
(including, without limitation, special voting rights, preferential rights
to receive dividends or assets upon liquidation, rights of conversion into
Common Stock or other securities, redemption provisions or sinking fund
provisions) as between series and as between the Preferred Stock or any
series thereof and the Common Stock, and the qualifications, limitations or
restrictions of such rights (collectively, "Series Terms"), all as shall be
stated in a Directors' Resolution, and the shares of Preferred Stock or any
series thereof may have full or
<PAGE>
limited voting powers, or be without voting powers, all as shall be stated
in a Directors' Resolution.
Any of the Series Terms, including without limitation voting rights,
of any series may be made dependent upon facts ascertainable outside the
Certificate of Incorporation and the Directors' Resolution, provided that
the manner in which such facts shall operate upon such Series Terms is
clearly and expressly set forth in the Certificate of Incorporation or in
the Directors' Resolution.
II. Common Stock
1. Dividends. Subject to the provisions of any Directors'
Resolution, the Board of Directors may, in its discretion, out of funds
legally available for the payment of dividends and at such times and in
such manner as determined by the Board of Directors, declare and pay
dividends on the Common Stock of the corporation.
No dividend (other than a dividend in capital stock ranking on a
parity with the Common Stock or cash in lieu of fractional shares with
respect to such stock dividend) shall be declared or paid on any share or
shares of any class of stock or series thereof ranking on a parity with the
Common Stock in respect of payment of dividends for any dividend period
unless there shall have been declared, for the same dividend period, like
proportionate dividends on all shares of Common Stock and such shares
ranking on a parity then outstanding.
2. Liquidation. In the event of any liquidation, dissolution or
winding up of the corporation, whether voluntary or involuntary (each, a
"Liquidation Event"), after payment or provision for payment of the debts
and other liabilities of the corporation and payment or setting aside for
payment of any preferential amount due to the holders of any other class or
series of stock, the holders of the Common Stock and any shares of any
class of stock or series thereof ranking on a parity with Common Stock upon
a Liquidation Event shall be entitled to receive ratably any or all assets
remaining to be paid or distributed.
3. Voting Rights. The holders of the Common Stock of the corporation
shall be entitled to one vote for each share of such stock held by them.
III. Prior, Parity or Junior Stock
Whenever reference is made in this Article Fourth to shares "ranking
prior to" another class of stock or "on a parity with" another class of
stock, such reference shall mean and include all other shares of the
corporation in respect of which the rights of the holders thereof as to the
payment of dividends or as to distributions upon a Liquidation Event, as
the case may be, are given preference over, or rank on an equality with, as
the case may be, the rights of the holders of such other class of stock.
<PAGE>
Whenever reference is made to shares "ranking junior to" another class of
stock, such reference shall mean and include all shares of the corporation
in respect of which the rights of the holders thereof as to the payment of
dividends or as to distributions upon a Liquidation Event, as the case may
be, are junior and subordinate to the rights of the holders of such class
of stock.
Except as otherwise provided herein or in any Directors' Resolution,
each series of Preferred Stock ranks on a parity with each other and each
ranks prior to the Common Stock, in each case with respect to the payment
of dividends or as to distributions upon a Liquidation Event. Except as
otherwise provided herein or in any Directors' Resolution, Common Stock
ranks junior to Preferred Stock with respect to the payment of dividends or
as to distributions upon a Liquidation Event.
IV. Reservation and Retirement of Shares
The corporation shall at all times reserve and keep available, out of
its authorized but unissued shares of Common Stock or out of shares of
Common Stock held in its treasury, the full number of shares of Common
Stock into which all shares of any series of Preferred Stock having
conversion privileges from time to time outstanding are convertible.
Unless otherwise provided in a Directors' Resolution with respect to a
particular series of Preferred Stock, all shares of Preferred Stock
redeemed or acquired (as a result of conversion or otherwise) shall be
retired and restored to the status of authorized but unissued shares.
V. No Preemptive Rights
No holder of shares of stock of the corporation shall have any
preemptive or other rights, except as such rights are expressly provided by
contract, to purchase or subscribe for or receive any shares of any class,
or series thereof, of stock of the corporation, whether now or hereafter
authorized, or any warrants, options, bonds, debentures or other securities
convertible into, exchangeable for or carrying any right to purchase any
shares of any class, or series thereof, of stock; but such additional
shares of stock and such warrants, options, bonds, debentures or other
securities convertible into, exchangeable for or carrying any right to
purchase any shares of any class, or series thereof, of stock may be issued
or disposed of by the Board of Directors to such persons, and on such terms
and for such lawful consideration, as in its discretion it shall deem
advisable or as to which the corporation shall have by binding contract
agreed.
<PAGE>
FIFTH: The name and mailing address of the director, who shall serve until
the first annual meeting of stockholders or until his successors are elected and
qualified, is as follows:
Name Address
Roger L. Jarvis 1200 Smith Street
TwoAllen Center, Suite 800
Houston, Texas 77002
The number of directors of the corporation shall be as specified in, or
determined in the manner provided in, the bylaws. Election of directors need
not be by written ballot.
SIXTH: Whenever a compromise or arrangement is proposed between the
corporation and its creditors or any class of them and/or between the
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the corporation under the
provisions of Section 291 of Title 8 of the Delaware Code or on the application
of trustees in dissolution or of any receiver or receivers appointed for the
corporation under the provisions of Section 279 of Title 8 of the Delaware Code
order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the corporation, as the case may be, to
be summoned in such manner as the said court directs. If a majority in number
representing three-fourths in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the corporation, as the
case may be, agree to any compromise or arrangement and to any reorganization of
the corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of the corporation, as the case may be, and also on the
corporation.
SEVENTH: To the fullest extent permitted by the General Corporation Law as
same exists or may hereafter be amended, a director of the corporation shall not
be liable to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director.
EIGHTH: The corporation shall have the right, subject to any express
provisions or restrictions contained in the certificate of incorporation or
bylaws of the corporation, from time to time, to amend the certificate of
incorporation or any provision thereof in any manner now or hereafter provided
by law, and all rights and powers of any kind conferred upon a director or
stockholder of the corporation by the certificate of incorporation or any
amendment thereof are subject to such right of the corporation.
NINTH: The name of the incorporator is Bruce C. Herzog, and his mailing
address is c/o Vinson & Elkins L.L.P., 2300 First City Tower, 1001 Fannin,
Houston, Texas 77002-6760.
<PAGE>
I, the undersigned, being the incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, do make this certificate, hereby declaring that this is my
act and deed and that the facts herein stated are true, and accordingly have
hereunto set my hand this 31st day of December, 1997.
/s/ BRUCE C. HERZOG
----------------------------------------
Bruce C. Herzog, Incorporator
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
SPINCO EXPLORATION CORP.
The undersigned, being all of the directors of Spinco Exploration Corp., a
Delaware corporation (the "Corporation") hereby certify:
FIRST: That it is deemed advisable to amend the Certificate of
Incorporation of the Corporation as follows:
NOW, THEREFORE, BE IT RESOLVED, that the first paragraph of Article
FOURTH of the Certificate of Incorporation of the Corporation be amended to
read as follows:
"FOURTH: The total number of shares of capital stock of the
corporation shall be Ten Million Three Hundred Eighty One Thousand
Four Hundred Forty (10,230,440), which shall consist of Three Million
Thirty Thousand Nine Hundred Twenty (3,030,920) shares of Preferred
Stock of the par value One Cent ($0.01) per share and Seven Million
Three Hundred Fifty Thousand Five Hundred Twenty (7,199,520) shares of
Common Stock of the par value of One Cent ($0.01) per share."
FURTHER RESOLVED, that the following Article TENTH be added as
follows:
"TENTH: In furtherance of, and not in limitation of, the powers
conferred by statute, the Board of Directors is expressly authorized
to adopt, amend or repeal the bylaws of the corporation."
FURTHER RESOLVED, that the following Article ELEVENTH be added as
follows:
"ELEVENTH: No director of the corporation shall be liable to the
corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach
of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the Delaware General Corporation Law, or (iv) for
any transaction from which the director derived an improper personal
benefit."
<PAGE>
SECOND, That the Corporation has not received any payment for any of its
stock.
THIRD, That said amendment was duly adopted in accordance with the
provisions of Section 241 of the Delaware General Corporation Law.
IN WITNESS WHEREOF, the undersigned has caused this certificate to be
signed this 15th day of January, 1998.
/s/ ROGER L. JARVIS
-----------------------------------
Roger L. Jarvis
<PAGE>
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND
RIGHTS OF SERIES A CONVERTIBLE PREFERRED STOCK
Pursuant to Section 151 of the
Delaware General Corporation Law
The undersigned President and Secretary, respectively, of Spinco
Exploration Corp., a Delaware corporation (the "Corporation") certify that
pursuant to authority granted to and vested in the Board of Directors of the
Corporation by the provisions of the Certificate of Incorporation and in
accordance with the provisions of Section 151 of the General Corporation Law of
the State of Delaware, its Board of Directors has duly adopted the following
resolutions creating the Series A Convertible Preferred Stock:
RESOLVED, that pursuant to the authority vested in the Board of Directors
of the Corporation by Article IV of the Corporation's Certificate of
Incorporation, a series of preferred stock of the Corporation be, and it hereby
is, created out of the authorized but unissued shares of the capital stock of
the Corporation, such series to be designated Series A Convertible Preferred
Stock (the "Series A Preferred Stock"), to consist of 3,030,920 shares, par
value $.01 per share, of which the preferences and relative and other rights,
and the qualifications, limitations or re strictions thereof, shall be (in
addition to those set forth in the Corporation's Certificate of Incorporation)
as follows:
1. Certain Definitions.
Unless the context otherwise requires, when used herein the following terms
shall have the meanings indicated:
"Common Stock" means shares of the common stock, par value $.01 per share,
of the Corporation.
"Contribution Agreement" means the Contribution Agreement dated as of
January 6, 1998, among Spinco Exploration Corp. and each of the parties named
therein.
"Conversion Date" The term "Conversion Date" shall have the meaning set
forth in subparagraph 5(e).
"Conversion Price" The term "Conversion Price," at any time of
determination, shall mean the conversion price set forth in subparagraph 5(d).
"Current Market Price" shall have the meaning set forth in Section 5(h).
<PAGE>
"Dividend Payment Date" The term "Dividend Payment Date" shall have the
meaning set forth in subparagraph 2(a).
"Dividend Period" The term "Dividend Period" shall have the meaning set
forth in subparagraph 2(a).
"Excluded Shares" shall have the meaning set forth in Section 5(g)(ii).
"Final Redemption Date" The term "Final Redemption Date" shall have the
meaning set forth in subparagraph 4(d).
"Issue Date" shall mean the date the shares of Series A Preferred Stock in
question are issued by the Corporation.
"Junior Stock" means the Common Stock and any other class or series of
securities of the Corporation (i) not entitled to receive any distributions
unless all distributions required to have been paid or declared and set apart
for payment on the Series A Preferred Stock shall have been so paid or declared
and set apart for payment, (ii) not entitled to receive any assets upon the
liquidation, dissolution or winding up of the affairs of the Corporation until
the Series A Preferred Stock shall have received the entire amount to which such
Shares are entitled upon such liquidation, dissolution or winding up, and (iii)
not entitled to redemption until the Series A Preferred Stock shall have been
redeemed in full.
"Liquidation Preference" The term "Liquidation Preference" shall mean
Twenty-Five Dollars ($25) per share of the Series A Preferred Stock.
"Parity Stock" means, (i) any class or series of securities of the
Corporation entitled to receive payment of dividends on a parity with the Series
A Preferred Stock and (ii) any class or series of securities of the Corporation
entitled to receive assets upon the liquidation, dissolution or winding up of
the affairs of the Corporation on a parity with the Series A Preferred Stock.
"Qualified Merger" means a merger of the Corporation with another
corporation that is taxable as an association for federal income tax purposes or
a merger of a wholly-owned subsidiary of the Corporation with a Qualified Public
Company, and in either such case either (i) the holders of Common Stock
immediately preceding such merger or consolidation receive in such merger in
respect of each share of Common Stock common stock of a Qualified Public Company
with a fair market value of not less than one and one-half times the Conversion
Price then in effect (in which case such merger may provide that each share of
Series A Preferred Stock shall be converted in such merger into the number of
shares of such common stock that such holder of Series A Preferred Stock would
have received if such Series A Preferred Stock had been converted into Common
Stock immediately prior to the consummation of such merger), (ii) the
Corporation is the surviving corporation and becomes as a result of such merger
a Qualified Public Company or the Corporation becomes a Qualified Public Company
as a result of the merger of the wholly-owned subsidiary of the Corporation with
a Qualified Public Company and, in either case, the holders of Common Stock
-2-
<PAGE>
immediately preceding such merger retain such Common Stock and additional shares
of Common Stock are issued to the holders of some or all of the capital stock of
such other corporation with the result that the fair market value of each share
of Common Stock immediately after such merger is not less than one and one-half
times the Conversion Price then in effect (in which case such merger may provide
that each share of Series A Preferred Stock shall be converted in such merger
into the number of shares of such Common Stock that such holder of Series A
Preferred Stock would have received if such Series A Preferred Stock had been
converted into Common Stock immediately prior to the consummation of such
merger), (iii) the holders of Series A Preferred Stock immediately preceding
such merger or consolidation receive in such merger in respect of each share of
Series A Preferred Stock a share of preferred stock of the surviving corporation
(or if the holders of Common Stock receive in the merger common stock in a
parent corporation of such surviving corporation, then a share of preferred
stock in such parent corporation) having substantially similar rights,
preferences, limitations and qualifications as the Series A Preferred Stock have
as provided for in this Certificate of Designation and the Stockholders
Agreement or (iv) the Corporation is the surviving corporation and becomes as a
result of such merger a Qualified Public Company and the holders of Common Stock
immediately preceding such merger retain such Common Stock and the holders of
Series A Preferred Stock retain such Series A Preferred Stock and such merger
does not affect, and no amendment or alteration is made to, the rights,
preferences, limitations and qualifications of the Series A Preferred Stock.
"Qualified Public Company" means a corporation whose common stock is
authorized and approved for listing on a national securities exchange or
admitted to trading and quoted in the Nasdaq National Market or comparable
system and the market value of the outstanding common stock of which corporation
owned by non-affiliates of such corporation is in excess of $20,000,000.
"Qualified Public Offering" means the first closing of one or more
underwritten public offerings pursuant to effective registration statements
under the Securities Act of 1933, as amended, covering the offer and sale of
common stock for the account of the Corporation to the public generally, for
which the aggregate net proceeds to the Corporation are not less than Twenty
Million Dollars ($20,000,000), and pursuant to which such shares of common stock
are authorized and approved for listing on a national securities exchange or
admitted to trading and quoted in the Nasdaq National Market or comparable
system.
"Redemption Agent" The term "Redemption Agent" shall have the meaning set
forth in subparagraph 4(c).
"Redemption Date" The term "Redemption Date" shall have the meaning set
forth in subparagraph 4(b).
"Redemption Price" The term "Redemption Price" shall mean the per share
price to be paid upon redemption of the Series A Preferred Stock, which shall
equal the Liquidation Preference, plus accrued and unpaid dividends (including
any accrued but unpaid dividends thereon) to and including the Redemption Date.
-3-
<PAGE>
"Restricted Payment" means (i) any distribution on any Junior Stock (other
than distributions payable solely in such Junior Stock) or (ii) any payment on
account of the purchase, redemption, retirement or acquisition of (a) any Junior
Stock or (b) any option, warrant, convertible or exchangeable security or other
right to acquire Junior Stock.
"SEHI" means Seismic Energy Holdings, Inc.
"Senior Stock" means (i) any class or series of securities of the
Corporation ranking senior to the Series A Preferred Stock in respect of the
right to receive payment of distributions and (ii) any class or series of
securities of the Corporation ranking senior to the Series A Preferred Stock in
respect of the right to receive assets upon the liquidation, dissolution or
winding up of the affairs of the Corporation.
"Shares" means the Common Stock and Series A Preferred Stock, collectively,
and any "Share" shall refer to any one of the foregoing.
"Spinnaker Change of Control" means the first to occur of the following:
(i) the acquisition by any Person, other than WPV, of the power, directly or
indirectly, to vote or direct the voting of securities having more than fifty
percent (50%) of the ordinary voting power for the election of Directors of the
Corporation; (ii) the acquisition by any Person, other than WPV of a majority of
the outstanding Series A Preferred Stock; or (iii) the acquisition by any
Person, other than WPV of Shares of the Corporation that would entitle such
Person upon the liquidation of the Corporation to a majority of the proceeds
attributable to the holders of the Corporation's Shares assuming all Shares that
are convertible or exchangeable for Common Stock or other Shares were so
converted or exchanged immediately prior to such liquidation. Notwithstanding
the foregoing, a Spinnaker Change of Control shall be deemed to not have
occurred as a result of SEHI or an Affiliate thereof having the power to vote or
direct the voting referred to in clause (i) above or acquiring Shares having the
right to proceeds referred to in clause (iii) above if SEHI or such Affiliate
has such power or owns such Shares by reason of the acquisition of Shares, or
the timing of such acquisitions, under the Contribution Agreement.
"Stockholders Agreement" means the Stockholders Agreement dated as of
January 6, 1998 among Spinco Exploration Corp., Warburg, Pincus Ventures, L.P.,
Seismic Energy Holdings, Inc., Roger L. Jarvis, James M. Alexander and the other
parties thereto.
"WPV" means Warburg, Pincus Ventures, L.P.
2. Dividends.
(a) Subject to the prior preferences and other rights of any Senior Stock,
the holders of the Series A Preferred Stock shall be entitled to receive, out of
funds legally available for that purpose, cash dividends in an amount equal to
$3 per annum per share for any period on or prior to December 31, 2006 and the
Applicable Amount (as defined below) per annum for any period thereafter and,
subject to the provisions hereof, no more. Subject to the provisions of
-4-
<PAGE>
subparagraph 2(c) below, such dividends shall be cumulative from their Issue
Date and shall be payable in arrears, when and as declared by the Board of
Directors, on March 31, June 30, September 30 and December 31 of each year (each
such date being herein referred to as a "Dividend Payment Date"), commencing on
the Dividend Payment Date next succeeding their Issue Date. The quarterly
period between consecutive Dividend Payment Dates shall hereinafter be referred
to as a "Dividend Period." Each such dividend shall be paid to the holders of
record of the Series A Preferred Stock as their names appear on the share
register of the Corporation on the corresponding Record Date. As used above,
the term "Record Date" means, with respect to the dividend payable on March 31,
June 30, September 30 and December 31, respectively, of each year, the preceding
March 15, June 15, September 15 and December 15, or such other record date
designated by the Board of Directors of the Corporation with respect to the
dividend payable on such respective Dividend Payment Date. Dividends on account
of arrears for any past Dividend Periods may be declared and paid, together with
any accrued but unpaid dividends thereon to and including the date of payment,
at any time, without reference to any Dividend Payment Date, to holders of
record on such date, not exceeding fifty (50) days preceding the payment date
thereof, as may be fixed by the Board of Directors. For each share of Series A
Preferred Stock issued in connection with the initial contributions under the
Contribution Agreement, there shall be an accrued dividend of $1.572702 (the
"Initial Accrual"). The "Applicable Amount" shall be $2 per annum per share for
any Dividend Period if, as of the applicable Dividend Payment Date, all
dividends for all then prior Dividend Periods have been declared and paid in
full, and otherwise, $5 per annum per share.
(b) If, on any Dividend Payment Date, the holders of the Series A Preferred
Stock shall not have received the full dividends provided for the benefit of
such holders, including the Initial Accrual, then such dividends shall cumulate
and shall accrue additional dividends to and including the date of payment
thereof at the rate, prior to December 31, 2006, of twelve percent (12%) per
annum compounded quarterly, and on or after December 31, 2006 at the rate of
twenty percent (20%) per annum compounded quarterly, in either case whether or
not earned or declared. Unpaid dividends for any period less than a full
Dividend Period shall cumulate on a day-to-day basis and shall be computed on
the basis of a 365-day year.
(c) Upon consummation of (i) a Qualified Public Offering, (ii) a merger or
consolidation involving the Corporation, (iii) a sale of all or substantially
all of the assets of the Corporation or (iv) a Spinnaker Change of Control, the
Corporation shall pay on the date of such consummation all accrued and unpaid
dividends as of such date on all outstanding Series A Preferred Stock.
3. Distributions Upon Liquidation, Dissolution or Winding Up.
In the event of any voluntary or involuntary liquidation, dissolution or
other winding up of the affairs of the Corporation, subject to the prior
preferences and other rights of any Senior Stock, but before any distribution or
payment shall be made to the holders of Junior Stock, the holders of the Series
A Preferred Stock shall be entitled to be paid the Liquidation Preference of all
outstanding shares of the Series A Preferred Stock as of the date of such
liquidation or dissolution or such other winding up, plus any accrued but unpaid
dividends (including any accrued but unpaid dividends thereon), if any, to such
date, and no more. If such payment shall have been made in full to the holders
of the Series A Preferred Stock, and if payment shall have been made in full to
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the holders of any Senior Stock and Parity Stock of all amounts to which such
holders shall be entitled, the remaining assets and funds of the Corporation
shall be distributed among the holders of Junior Stock, according to their
respective shares and priorities. If, upon any such liquidation, dissolution or
other winding up of the affairs of the Corporation, the net assets of the
Corporation distributable among the holders of all outstanding shares of the
Series A Preferred Stock and of any Parity Stock shall be insufficient to permit
the payment in full to such holders of the preferential amounts to which they
are entitled, then the entire net assets of the Corporation remaining after the
distributions to holders of any Senior Stock of the full amounts to which they
may be entitled shall be distributed among the holders of the Series A Preferred
Stock and of any Parity Stock ratably in proportion to the full amounts to which
they would otherwise be respectively entitled. Neither the consolidation or
merger of the Corporation into or with another corporation or corporations, nor
the sale of all or substantially all of the assets of the Corporation to another
corporation or corporations shall be deemed a liquidation, dissolution or
winding up of the affairs of the Corporation within the meaning of this
paragraph 3.
4. Redemption by the Corporation.
(a) The Series A Preferred Stock shall not be redeemed in whole or in part
on or prior to January 31, 2018. After January 31, 2018, the Corporation may,
at its option, redeem in cash at any time in whole but not in part the Series A
Preferred Stock at the Redemption Price per share.
(b) Notice of redemption of the Series A Preferred Stock shall be sent by
or on behalf of the Corporation, by first class mail, postage prepaid, to the
holders of record of the outstanding shares of Series A Preferred Stock at their
respective addresses as they shall appear on the records of the Corporation, not
less than ten (10) days nor more than thirty (30) days prior to the date fixed
for redemption (the "Redemption Date") (i) notifying such holders of the
election of the Corporation to redeem such shares and of the Redemption Date,
(ii) stating the date on which the shares cease to be convertible, and the
Conversion Price, (iii) the place or places at which the shares called for
redemption shall, upon presentation and surrender of the certificates evidencing
such shares, be redeemed, and the Redemption Price therefor, and (iv) stating
the name and address of any Redemption Agent selected by the Corporation in
accordance with subparagraph 4(c) below, and the name and address of the
Corporation's transfer agent for the Series A Preferred Stock. The Corporation
may act as the transfer agent for the Series A Preferred Stock.
(c) The Corporation may act as the redemption agent to redeem the Series A
Preferred Stock. The Corporation may also appoint as its agent for such purpose
a bank or trust company in good standing, organized under the laws of the United
States of America or any jurisdiction thereof, and having capital, surplus and
undivided profits aggregating at least Two Hundred Million Dollars
($200,000,000), and may appoint any one or more additional such agents which
shall in each case be a bank or trust company in good standing organized under
the laws of the United States of America or of any jurisdiction thereof, having
an office or offices in the City of New York, New York, or such other place as
shall have been designated by the Corporation, and having capital, surplus and
undivided profits aggregating at least Two Hundred Million Dollars
($200,000,000). The Corporation or such bank or trust company is hereinafter
referred to as the "Redemption Agent." Following such appointment and prior to
any redemption, the Corporation shall deliver to the
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Redemption Agent irrevocable written instructions authorizing the Redemption
Agent, on behalf and at the expense of the Corporation, to cause such notice of
redemption to be duly mailed as herein provided as soon as practicable after
receipt of such irrevocable instructions and in accordance with the above
provisions. All funds necessary for the redemption shall be deposited with the
Redemption Agent in trust at least two (2) business days prior to the Redemption
Date, for the pro rata benefit of the holders of the shares so called for
redemption, so as to be and continue to be available therefor. Neither failure
to mail any such notice to one or more such holders nor any defect in any notice
shall affect the sufficiency of the proceedings for redemption as to other
holders.
(d) If notice of redemption shall have been given as hereinbefore provided,
and the Corporation shall not default in the payment of the Redemption Price,
then each holder of shares called for redemption shall be entitled to all
preferences, relative and other rights accorded by this resolution until and
including the Redemption Date. If the Corporation shall default in making
payment or delivery as aforesaid on the Redemption Date, then each holder of the
shares called for redemption shall be entitled to all preferences, relative and
other rights accorded by this resolution until and including the date (the
"Final Redemption Date") when the Corporation makes payment or delivery as
aforesaid to the holders of the Series A Preferred Stock. From and after the
Redemption Date or, if the Corporation shall default in making payment or
delivery as aforesaid, the Final Redemption Date, the shares called for
redemption shall no longer be deemed to be outstanding, and all rights of the
holders of such shares shall cease and terminate, except the right of the
holders of such shares, upon surrender of certificates therefor, to receipt of
amounts to be paid hereunder. The deposit of monies in trust with the
Redemption Agent shall be irrevocable except that the Corporation shall be
entitled to receive from the Redemption Agent the interest or other earnings, if
any, earned on any monies so deposited in trust, and the holders of any shares
redeemed shall have no claim to such interest or other earnings, and any balance
of monies so deposited by the Corporation and unclaimed by the holders of the
Series A Preferred Stock entitled thereto at the expiration of two (2) years
from the Redemption Date or, if the Corporation shall default in making payment
or delivery as aforesaid, the Final Redemption Date shall be repaid, together
with any interest or other earnings thereon, to the Corporation, and after any
such repayment, the holders of the shares entitled to the funds so repaid to the
Corporation shall look only to the Corporation for such payment, without
interest.
5. Conversion Rights. The Series A Preferred Stock shall be convertible into
Common Stock as follows:
(a) Conversion at Holder's Option. The holder of any shares of the Series
A Preferred Stock shall have the right at such holder's option, at any time
after the Issue Date and without the payment of any additional consideration, to
convert any or all of such shares of the Series A Preferred Stock into fully
paid and nonassessable shares of Common Stock at the Conversion Price (as
provided in subparagraph 5(d) below) in effect on the Conversion Date (as
provided in subparagraph 5(e) below) upon the terms hereinafter set forth.
(b) Conversion by Super Majority. In the event a majority of all of the
Directors of the Corporation and the holders of shares representing at least
sixty-five percent (65%) of the voting power of the Series A Preferred Stock
then outstanding, acting separately as one class, vote to
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convert all of the shares of the Series A Preferred Stock into fully paid and
nonassessable shares of Common Stock, all of such shares of the Series A
Preferred Stock shall automatically be converted, without further act of the
Corporation, or its shareholders, into fully paid and nonassessable shares of
Common Stock of the Corporation at the Conversion Price in effect on the
Conversion Date upon the terms hereinafter set forth.
(c) Qualified Public Offering Conversion. The Corporation shall have the
right, at the Corporation's option, to convert shares of the Series A Preferred
Stock, without any further act of the Corporation or its shareholders, into
fully paid and nonassessable shares of Common Stock of the Corporation at the
Conversion Price in effect on the Conversion Date upon the terms hereinafter set
forth upon the closing of a firm commitment underwritten Qualified Public
Offering at an initial public offering price per share not less than one and
one-half times the Conversion Price then in effect.
(d) Number of Shares. In the event of a conversion pursuant to
subparagraph 5(a), 5(b) or 5(c) above, each share of the Series A Preferred
Stock so converted shall be converted into such number of shares of Common Stock
as is determined by dividing (x) Twenty-Five Dollars ($25) by (y) the Conversion
Price in effect on the Conversion Date. The initial Conversion Price shall be
Twenty-Five Dollars ($25) per share of Common Stock. Such initial Conversion
Price shall be subject to adjustment in order to adjust the number of shares of
Common Stock into which the Series A Preferred Stock is convertible, as
hereinafter provided.
(e) Mechanics of Conversion. The holder of any shares of the Series A
Preferred Stock may exercise the conversion right specified in subparagraph 5(a)
by surrendering to the Corporation or any transfer agent of the Corporation the
certificate or certificates representing the shares of the Series A Preferred
Stock to be converted, accompanied by written notice specifying the number of
such shares to be converted. Upon a mandatory conversion pursuant to
subparagraphs 5(b) or 5(c), then on the Conversion Date, the outstanding shares
of the Series A Preferred Stock shall be converted automatically without any
action by the holders of such shares and whether or not the certificates
representing such shares are surrendered to the Corporation or its transfer
agent; provided that the Corporation shall not be obligated to issue to any
holder certificates representing the shares of Common Stock issuable upon such
conversion unless certificates representing the shares of Series A Preferred
Stock, endorsed directly or through stock powers to the Corporation or in blank
and accompanied when appropriate with evidence of the signatory's authority, are
delivered to the Corporation or any transfer agent of the Corporation. If the
certificate representing shares of Common Stock issuable upon conversion of
shares of the Series A Preferred Stock is to be issued in a name other than the
name on the face of the certificate representing such shares of the Series A
Preferred Stock, such certificate shall be accompanied by such evidence of the
assignment and such evidence of the signatory's authority with respect thereto
as deemed appropriate by the Corporation or its transfer agent and such
certificate shall be endorsed directly or through stock powers to the
Corporation or in blank. Conversion shall be deemed to have been effected (i)
with respect to conversions pursuant to subparagraph 5(a), on the date when
delivery of notice of an election to convert pursuant to subparagraph 5(a) and
of certificates representing the shares being converted is made, or (ii) with
respect to mandatory conversion pursuant to subparagraph 5(b) or 5(c), on the
(x) closing date of the Qualified Public Offering or (y) the date as of which
the super majority of
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outstanding shares of the Series A Preferred Stock shall vote for such
conversion of the total number of shares of the Series A Preferred Stock, as the
case may be, and each such applicable date is referred to herein as the
"Conversion Date." Subject to the provisions of subparagraph 5(g)(vi), as
promptly as practicable after the Conversion Date (and after surrender of the
certificate or certificates representing shares of the Series A Preferred Stock
to the Corporation or any transfer agent of the Corporation in the case of any
such conversion), the Corporation shall issue and deliver to or upon the written
order of such holder a certificate or certificates for the number of full shares
of Common Stock to which such holder is entitled upon such conversion, and a
check or cash with respect to any fractional interest in a share of Common
Stock, as provided in subparagraph 5(f). Subject to the provisions of
subparagraph 5(g)(vi), the person in whose name the certificate or certificates
for Common Stock are to be issued shall be deemed to have become a holder of
record of such Common Stock on the applicable Conversion Date. Upon conversion
of only a portion of the number of shares covered by a certificate representing
shares of Series A Preferred Stock surrendered for conversion (in the case of
conversion pursuant to subparagraph 5(a)), the Corporation shall issue and
deliver to or upon the written order of the holder of the certificate so
surrendered for conversion, at the expense of the Corporation, a new certificate
representing the number of shares of the Series A Preferred Stock representing
the unconverted portion of the certificate so surrendered. The Corporation shall
pay on any Conversion Date the accrued and unpaid dividends (including any
accrued but unpaid dividends thereon) to and including such date on all shares
of Series A Preferred Stock to be so converted.
(f) Fractional Shares. No fractional shares of Common Stock or scrip shall
be issued upon conversion of shares of the Series A Preferred Stock. If more
than one share of the Series A Preferred Stock shall be surrendered for
conversion at any one time by the same holder, the number of full shares of
Common Stock issuable upon conversion thereof shall be computed on the basis of
the aggregate number of shares of the Series A Preferred Stock so surrendered.
Instead of any fractional shares of Common Stock which would otherwise be
issuable upon conversion of any shares of the Series A Preferred Stock, the
Corporation shall pay a cash adjustment in respect of such fractional interest
in an amount equal to that fractional interest of the then Current Market Price,
as defined in subparagraph 5(h) below.
(g) Conversion Price Adjustments. The Conversion Price shall be subject to
adjustment from time to time as follows:
(i) Common Stock Issued at Less Than the Conversion Price. If the
Corporation shall issue any Common Stock, other than Excluded Stock (as
hereinafter defined), without consideration or for consideration per share
less than the Conversion Price in effect immediately prior to such
issuance, the Conversion Price in effect immediately prior to each such
issuance shall immediately (except as otherwise expressly provided below)
be reduced to the price determined by dividing (1) an amount equal to the
sum of (A) the number of shares of Common Stock outstanding on a fully
diluted basis immediately prior to such issuance multiplied by the
Conversion Price in effect immediately prior to such issuance, and (B) the
consideration received by the Corporation upon such issuance, by (2) the
total number of shares of Common Stock outstanding on a fully diluted basis
immediately after such issuance.
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(a) Issuance for Cash. In the case of the issuance of Common
Stock for cash, the amount of the consideration received by the
Corporation shall be deemed to be the amount of the cash proceeds
received by the Corporation for such Common Stock before deducting
therefrom any discounts, commissions, taxes or other expenses allowed,
paid or incurred by the Corporation for any underwriting or otherwise
in connection with the issuance and sale thereof.
(b) Consideration Other Than Cash. In the case of the issuance
of Common Stock (otherwise than upon the conversion of shares of
capital stock or other securities of the Corporation) for a
consideration in whole or in part other than cash, including
securities acquired in exchange therefor (other than securities that
by their terms are exchangeable for such Common Stock), the
consideration other than cash shall be deemed to be the fair value
thereof as determined in good faith by the Board, irrespective of any
accounting treatment; provided that such fair value as determined by
the Board shall not exceed the aggregate Current Market Price of the
shares of Common Stock being issued as of the date the Board
authorizes the issuance of such shares.
(c) Options and Convertible Securities. In the case of the
issuance of (i) options, warrants or other rights to purchase or
acquire Common Stock (whether or not at the time exercisable), (ii)
securities by their terms convertible into or exchangeable for Common
Stock (whether or not at the time so convertible or exchangeable) or
(iii) options, warrants or rights to purchase such convertible or
exchangeable securities (whether or not at the time exercisable),
other than in each case Excluded Stock as defined in subparagraph
5(g)(ii) below:
(1) the aggregate maximum number of shares of Common Stock
deliverable upon exercise of such options, warrants or other
rights to purchase or acquire Common Stock shall be deemed to
have been issued at the time such options, warrants or rights
were issued and for a consideration equal to the consideration
(determined in the manner provided in subparagraphs 5(g)(i)(a)
and (b) above), if any, received by the Corporation upon the
issuance of such options, warrants or rights plus the minimum
purchase price provided in such options, warrants or rights for
the Common Stock covered thereby;
(2) the aggregate maximum number of shares of Common Stock
deliverable upon conversion of or in exchange for any such
convertible or exchangeable securities, or upon the exercise of
options, warrants or other rights to purchase or acquire such
convertible or exchangeable securities and the subsequent
conversion or exchange thereof, shall be deemed to have been
issued at the time such securities were issued or such options,
warrants or rights were issued and for a consideration equal to
the consideration if any, received by the Corporation for any
such securities and related options, warrants or rights
(excluding any cash received on account of accrued interest
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or accrued dividends), plus the additional consideration
(determined in the manner provided in subparagraphs 5(g)(i)(a)
and (b) above), if any, to be received by the Corporation upon
the conversion or exchange of such securities, or upon the
exercise of any related options, warrants or rights to purchase
or acquire such convertible or exchangeable securities and the
subsequent conversion or exchange thereof;
(3) on any change in the number of shares of Common Stock
deliverable upon exercise of any such options, warrants or rights
or conversion or exchange of such convertible or exchangeable
securities or any change in the consideration to be received by
the Corporation upon such exercise, conversion or exchange, the
Conversion Price as then in effect shall forthwith be readjusted
to such Conversion Price as would have been obtained had an
adjustment been made upon the issuance of such options, warrants
or rights not exercised prior to such change, or of such
convertible or exchangeable securities not converted or exchanged
prior to such change, upon the basis of such change;
(4) on the expiration or cancellation of any such options,
warrants or rights, or the termination of the right to convert or
exchange such convertible or exchangeable securities, if the
Conversion Price shall have been adjusted upon the issuance
thereof, the Conversion Price shall forthwith be readjusted to
such Conversion Price as would have been obtained had an
adjustment been made upon the issuance of such options, warrants,
rights or such convertible or exchangeable securities on the
basis of the issuance of only the number of shares of Common
Stock actually issued upon the exercise of such options, warrants
or rights, or upon the conversion or exchange of such convertible
or exchangeable securities; and
(5) if the Conversion Price shall have been adjusted upon
the issuance of any such options, warrants, rights or convertible
or exchangeable securities, no further adjustment of the
Conversion Price shall be made for the actual issuance of Common
Stock upon the exercise, conversion or exchange thereof.
(ii) Excluded Stock. "Excluded Stock" shall mean (A) shares of Common
Stock issued or reserved for issuance by the Corporation as a stock
dividend payable in shares of Common Stock, or upon any subdivision or
split-up of the outstanding shares of Common Stock, each of which is
subject to the provisions of subparagraph 5(g)(iii) below, (B) shares of
Common Stock issued pursuant to the Contribution Agreement, (C) shares of
Common Stock issuable upon conversion of the Series A Preferred Stock and
(D) up to 1,240,000 shares of Common Stock (including options to purchase
such shares) issuable pursuant to the Corporation's Stock Option Plan. All
shares of Excluded Stock which the Corporation has reserved for issuance
shall be deemed to be outstanding for all purposes of computations under
subparagraph 5(g)(i).
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(iii) Stock Dividends, Subdivisions, Reclassifications or
Combinations. If the Corporation shall (i) declare a dividend or make a
distribution on its Common Stock in shares of its Common Stock, (ii)
subdivide or reclassify the outstanding shares of Common Stock into a
greater number of shares, or (iii) combine or reclassify the outstanding
Common Stock into a smaller number of shares, the Conversion Price in
effect at the time of the record date for such dividend or distribution or
the effective date of such subdivision, combination or reclassification
shall be proportionately adjusted so that the holder of any shares of
Series A Preferred Stock surrendered for conversion after such date shall
be entitled to receive the number of shares of Common Stock which he would
have owned or been entitled to receive had such shares of the Series A
Preferred Stock been converted immediately prior to such date. Successive
adjustments in the Conversion Price shall be made whenever any event
specified above shall occur.
(iv) Other Distributions. In case the Corporation shall fix a record
date for the making of a distribution to all holders of shares of its
Common Stock (i) of shares of any class other than its Common Stock or (ii)
of evidences of indebtedness of the Corporation or any subsidiary or (iii)
of assets (including cash but excluding dividends or distributions referred
to in subparagraph 5(g)(iii) above), or (iv) of rights or warrants
(excluding those referred to in subparagraph 5(g)(i) above), in each case
the Conversion Price in effect immediately prior thereto shall be reduced
immediately thereafter to the price determined by dividing (1) an amount
equal to the difference resulting from (A) the number of shares of Common
Stock outstanding on such record date multiplied by the Conversion Price
per share on such record date, less (B) the fair market value (as
determined by the Board, whose determination shall be conclusive) of said
shares or evidences of indebtedness or assets or rights or warrants to be
so distributed, by (2) the number of shares of Common Stock outstanding on
such record date. Such adjustment shall be made successively whenever such
a record date is fixed. In the event that such distribution is not so
made, the Conversion Price then in effect shall be readjusted, effective as
of the date when the Board determines not to distribute such shares,
evidences of indebtedness, assets, rights or warrants, as the case may be,
to the Conversion Price which would then be in effect if such record date
had not been fixed.
(v) Rounding of Calculations; Minimum Adjustment. All calculations
under this subparagraph 5(g) shall be made to the nearest cent or to the
nearest one hundredth (1/100th) of a share, as the case may be. Any
provision of this Paragraph 5 to the contrary notwithstanding, no
adjustment in the Conversion Price shall be made if the amount of such
adjustment would be less than $0.01; but any such amount shall be carried
forward and an adjustment with respect thereto shall be made at the time of
and together with any subsequent adjustment which, together with such
amount and any other amount or amounts so carried forward, shall aggregate
$0.01 of more.
(vi) Timing of Issuance of Additional Common Stock Upon Certain
Adjustments. In any case in which the provisions of this subparagraph 5(g)
shall require that an adjustment shall become effective immediately after a
record date for an event, the Corporation may defer until the occurrence of
such event (A) issuing to the holder of any share of the Series
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A Preferred Stock converted after such record date and before the
occurrence of such event the additional shares of Common Stock issuable
upon such conversion by reason of the adjustment required by such event
over and above the shares of Common Stock issuable upon such conversion
before giving effect to such adjustment and (B) paying to such holder any
amount of cash in lieu of a fractional share of Common Stock pursuant to
subparagraph 5(f); provided that the Corporation upon request shall deliver
to such holder a due bill or other appropriate instrument evidencing such
holder's right to receive such additional shares, and such cash, upon the
occurrence of the event requiring such adjustment.
(h) Current Market Price. The Current Market Price at any date shall mean,
in the event the Common Stock is publicly traded, the average of the daily
closing prices per share of Common Stock for thirty (30) consecutive trading
days ending three (3) trading days before such date (as adjusted for any stock
dividend, split, combination or reclassification that took effect during such 30
trading day period). The closing price for each day shall be the last reported
sale price regular way or, in case no such reported sale takes place on such
day, the average of the last closing bid and asked prices regular way, in either
case on the principal national securities exchange on which the Common Stock is
listed or admitted to trading, or if not listed or admitted to trading on any
national securities exchange, the closing sale price for such day reported by
Nasdaq, if the Common Stock is traded over-the-counter and quoted in the
National Market System, or if the Common Stock is so traded, but not so quoted,
the average of the closing reported bid and asked prices of the Common Stock as
reported by Nasdaq or any comparable system, or, if the Common Stock is not
listed on Nasdaq or any comparable system, the average of the closing bid and
asked prices as furnished by two members of the National Association of
Securities Dealers, Inc. selected from time to time by the Corporation for that
purpose. If the Common Stock is not traded in such manner that the quotations
referred to above are available for the period required hereunder, Current
Market Price per share of Common Stock shall be deemed to be the fair value per
share of Common Stock as determined in good faith by the Board of Directors,
irrespective of any accounting treatment.
(i) Statement Regarding Adjustments. Whenever the Conversion Price shall
be adjusted as provided in subparagraph 5(g), the Corporation shall forthwith
file, at the office of any transfer agent for the Series A Preferred Stock and
at the principal office of the Corporation, a statement showing in detail the
facts requiring such adjustment and the Conversion Price that shall be in effect
after such adjustment, and the Corporation shall also cause a copy of such
statement to be sent by mail, first class postage prepaid, to each holder of
shares of the Series A Preferred Stock at its address appearing on the
Corporation's records. Each such statement shall be signed by the Corporation's
chief financial officer. Where appropriate, such copy may be given in advance
and may be included as part of a notice required to be mailed under the
provisions of subparagraph 5(j).
(j) Notice to Holders. In the event the Corporation shall propose to take
any action of the type described in clause (i) (but only if the action of the
type described in clause (i) would result in an adjustment in the Conversion
Price), (iii) or (iv) of subparagraph 5(g), or described in subparagraph 5(m),
the Corporation shall give notice to each holder of shares of the Series A
Preferred Stock, in the manner set forth in subparagraph 5(i), which notice
shall specify the record date, if any, with respect to any such action and the
approximate date on which such action is to take place. Such notice shall also
set forth such facts with respect thereto as shall be reasonably necessary
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to indicate the effect on the Conversion Price and the number, kind or class of
shares or other securities or property which shall be deliverable upon
conversion of shares of the Series A Preferred Stock. In the case of any action
which would require the fixing of a record date, such notice shall be given at
least ten (10) days prior to the date so fixed, and in case of all other action,
such notice shall be given at least fifteen (15) days prior to the taking of
such proposed action. Failure to give such notice, or any defect therein, shall
not affect the legality or validity of any such action.
(k) Treasury Stock. For the purposes of this Paragraph 5, the sale or
other disposition of any Common Stock theretofore held in the Corporation's
treasury that are issued for at least the consideration paid to acquire such
Common Stock shall not be deemed to be an issuance thereof.
(l) Costs. The Corporation shall pay all documentary, stamp, transfer or
other transactional taxes attributable to the issuance of delivery of shares of
Common Stock upon conversion of any shares of the Series A Preferred Stock;
provided that the Corporation shall not be required to pay any federal or state
income taxes or other taxes which may be payable in respect of any transfer
involved in the issuance or delivery of any certificate for such shares in a
name other than that of the holder of the shares of the Series A Preferred Stock
in respect of which such shares are being issued.
(m) Consolidation, Merger, Sale, Lease or Conveyance. In case of any
consolidation with or merger of the Corporation with or into another corporation
or other entity, or in case of any sale, lease or conveyance to another
corporation or other entity of the assets of the Corporation as an entirety or
substantially as an entirety, each share of the Series A Preferred Stock shall
after the date of such consolidation, merger, sale, lease or conveyance be
convertible into the number of shares of stock or other securities or property
(including cash) to which the Common Stock issuable (at the time of such
consolidation, merger, sale, lease or conveyance, as if the Series A Preferred
Stock were then optionally convertible or mandatorily convertible, as the case
may be) upon conversion of such share of the Series A Preferred Stock would have
been entitled upon such consolidation, merger, sale, lease or conveyance; and in
any such case, if necessary, the provisions set forth herein with respect to the
rights and interests thereafter of the holders of the shares of the Series A
Preferred Stock (including without limitation the definition of Current Market
Price) shall be appropriately adjusted so as to be applicable, as nearly as may
reasonably be, to any shares of stock or other securities or property thereafter
deliverable on the conversion of the shares of the Series A Preferred Stock.
6. Voting Rights. In addition to any other rights provided in the
Corporation's Bylaws or by law, each share of Series A Preferred Stock
shall entitle the holder thereof to such number of votes per share as shall
equal the fraction (rounded down to the nearest integer), the numerator of
which shall equal Twenty-Five Dollars ($25) and the denominator of which
shall equal the Conversion Price determined on the record date for
determining the holders of Common Stock entitled to vote on the matter
submitted thereto, and each share of Series A Preferred Stock shall be
entitled to vote on all matters as to which holders of Common Stock shall
be entitled to vote, in the same manner and with the same effect as such
holders of Common Stock, voting together with the holders of Common Stock
as one class, except the consent or approval of the holders of a majority
of the Series A Preferred Stock,
-14-
<PAGE>
voting separately as a class, shall be required to approve, and the
Corporation shall not without such approval, (i) amend, alter or repeal
(whether by merger, consolidation or otherwise) any of the provisions of
this Certificate of Designation or the Certificate of Incorporation, (ii)
authorize or issue any Senior Stock or Parity Stock; (iii) consummate any
merger of the Corporation with or into any other entity, other than a
Qualified Merger or (iv) make any Restricted Payment.
7. Exclusion of Other Rights.
Except as may otherwise be required by law, the shares of Series A
Preferred Stock shall not have any preferences or relative, participating,
optional or other special rights, other than those specifically set forth in the
Stockholders Agreement and this Certificate of Designation (as such may be
amended from time to time) and in the Corporation's Certificate of
Incorporation.
8. Headings of Subdivisions.
The headings of the various subdivisions hereof are for convenience of
reference only and shall not affect the interpretation of any of the provisions
hereof.
9. Severability of Provisions.
If any right, preference or limitation of the Series A Preferred Stock set
forth in the Stockholders Agreement and this Certificate of Designation (as such
may be amended from time to time) is invalid, unlawful or incapable of being
enforced by reason of any rule of law or public policy, all other rights,
preferences and limitations set forth in the Stockholders Agreement and this
Exhibit (as so amended) which can be given effect without the invalid, unlawful
or unenforceable right, preference or limitation shall, nevertheless, remain in
full force and effect, and no right, preference or limitation herein set forth
shall be deemed dependent upon any other such right, preference or limitation
unless so expressed herein.
10. Status of Reacquired Shares.
Shares of Series A Preferred Stock which have been issued and reacquired in
any manner shall (upon compliance with any applicable provisions of the laws of
the State of Delaware) have the status of authorized and unissued shares of
Preferred Stock issuable in series undesignated as to series and may be
redesignated and reissued.
-15-
<PAGE>
IN WITNESS WHEREOF, this Certificate has been duly executed by the
undersigned President and Secretary of the Corporation this 15th day of January,
1998.
SPINCO EXPLORATION CORP.
/s/ ROGER L. JARVIS
By: -----------------------------------
Roger L. Jarvis
President
ATTEST:
/s/ JAMES M. ALEXANDER
- ----------------------------
James M. Alexander
Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
OF
SPINCO EXPLORATION CORP.
Pursuant to the provisions of Section 242 of the Delaware General
Corporation Law (the "DGCL"), Spinco Exploration Corp., a corporation duly
organized and existing under the DGCL (the "Corporation"), does hereby certify
that:
I. The amendment to the Corporation's Certificate of Incorporation set
forth below was duly adopted by the stockholders of the Corporation on
April 23, 1998 by written consent in lieu of a special meeting.
II. Article FIRST is deleted and replaced in its entirety as follows:
"FIRST: The name of the corporation is Spinnaker Exploration
Company."
IN WITNESS WHEREOF, Spinco Exploration Corp. has caused this certificate to
be executed by James M. Alexander its authorized officer, on this 23rd day of
April, 1998.
/s/ JAMES M. ALEXANDER
------------------------------------------
James M. Alexander
Vice President, Chief Financial
Officer and Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
TO
THE CERTIFICATE OF INCORPORATION
OF
SPINNAKER EXPLORATION COMPANY
Spinnaker Exploration Company, a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"),
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of the Corporation duly adopted
resolutions proposing and declaring the following amendment of the Certificate
of Incorporation of the Corporation to be advisable and recommending the
adoption of such amendment by the stockholders of the Corporation.
SECOND: That in lieu of a meeting and vote of the stockholders of the
Corporation, the requisite stockholder approval was obtained by written consent
to the following amendment in accordance with the provisions of Section 228 of
the Delaware General Corporation Law ("DGCL") and prompt notice of taking of
corporate action without a meeting has been duly given in accordance with
Section 228(d) of the DGCL.
THIRD: The Certificate of Incorporation of the Corporation is amended by
amending the first paragraph of Article FOURTH of the Certificate of
Incorporation of the Corporation to read as follows:
"FOURTH: the total number of shares of capital stock of the
corporation shall be Fourteen Million Thirty Thousand Nine Hundred
Twenty (14,030,920), which shall consist of Three Million Thirty
Thousand Nine Hundred Twenty (3,030,920) shares of Preferred Stock of
the par value One Cent ($0.01) per share and Eleven Million
(11,000,000) shares of Common Stock of the par value of One Cent
($0.01) per share;"
FOURTH: That the amendment was duly adopted in accordance with the
provisions of Sections 228 and 242 of the DGCL.
IN WITNESS WHEREOF, Spinnaker Exploration Company has caused this
certificate to be signed by Roger L. Jarvis, its President, this 29th day of
September, 1998.
SPINNAKER EXPLORATION COMPANY
/s/ ROGER L. JARVIS
By:__________________________________
Roger L. Jarvis
President
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
Spinnaker Exploration Company, a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of said corporation, by the unanimous
written consent of its members, filed with the minutes of the board, adopted a
resolution proposing and declaring advisable the following amendment to the
Certificate of Incorporation of said corporation:
RESOLVED, that in the judgment of the Board of Directors, it is deemed
advisable and in the best interest of the Company to amend the first
paragraph of Article FOURTH of the Certificate of Incorporation so that it
will be and read in its entirety as follows:
"FOURTH: The total number of shares of capital stock of the Company
shall be Fifty Three Million Thirty Thousand Nine Hundred Twenty
(53,030,920), which shall consist of Three Million Thirty Thousand
Nine Hundred Twenty (3,030,920) shares of Preferred Stock of the par
value One Cent ($0.01) per share and Fifty Million (50,000,000) shares
of Common Stock of the par value of One Cent ($0.01) per share.
Effective as of the close of business on the day of the filing of this
Certificate of Amendment which contains this provision with the
Secretary of State of the State of Delaware, each share of Common
Stock, par value $0.01 per share ("Old Common Stock"), issued at such
time shall be and hereby is automatically converted into two new
shares of Common Stock, par value $0.01 per share, without any action
by the holder thereof. Effective as of the close of business on the
day of the filing of the Certificate of Amendment which contains this
provision with the Secretary of State of the State of Delaware, each
certificate outstanding and previously representing shares of Old
Common Stock shall, until surrendered and exchanged, be deemed, for
all corporate purposes, to constitute and represent the number of
whole shares of Common Stock of the Company into which outstanding
shares of Old Common Stock previously represented by such certificate
was converted by virtue of the stock split."
<PAGE>
SECOND: That in lieu of a meeting and vote of stockholders, stockholders
have given written consent to and approved said amendments in accordance with
the provisions of Section 228 of the General Corporation Law of the State of
Delaware.
THIRD: That the aforesaid amendment was duly adopted in accordance with
the provisions of Section 242 and Section 228 of the General Corporation Law of
the State of Delaware.
IN WITNESS WHEREOF, Spinnaker Exploration Company has caused this
certificate to be signed by James M. Alexander, Vice President, Chief Financial
Officer and Secretary, and attested by Jeffrey C. Zaruba, Treasurer, this 31st
day of August, 1999.
SPINNAKER EXPLORATION COMPANY
/s/ JAMES M. ALEXANDER
By:__________________________________
James M. Alexander
Vice President, Chief Financial Officer
and Secretary
ATTEST:
/s/ JEFFREY C. ZARUBA
____________________________
Jeffrey C. Zaruba
Treasurer
2
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
Spinnaker Exploration Company, a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of said corporation, by the unanimous
written consent of its members, filed with the minutes of the board, adopted a
resolution proposing and declaring advisable the following amendments to the
Certificate of Incorporation of said corporation:
RESOLVED, that the first paragraph of Article FOURTH of the
Certificate of Incorporation is amended so that it will be and read in its
entirety as follows:
"FOURTH: The total number of shares of capital stock of the Company
shall be Sixty Million (60,000,000), which shall consist of Ten
Million (10,000,000) shares of Preferred Stock of the par value One
Cent ($0.01) per share and Fifty Million (50,000,000) shares of Common
Stock of the par value of One Cent ($0.01) per share."
FURTHER RESOLVED, that the following Article Twelfth be added as
follows:
"TWELFTH: Any action required or permitted to be taken by the
stockholders of the corporation (other than holders of the Series A
Convertible Preferred Stock of the Corporation) must be taken at a
duly held annual or special meeting of stockholders and may not be
taken by any consent in writing of such stockholders. Special
meetings of the stockholders of the Corporation may be called
exclusively by the Board of Directors, and no stockholder of the
Corporation shall require the Board of Directors to call a special
meeting of the stockholders of the Corporation."
FURTHER RESOLVED, that paragraph 5(b) of the Certificate of
Designations, Preferences and Rights of Series A Convertible Preferred
Stock is amended so that it will be and read in its entirety as follows:
<PAGE>
"(b) Conversion by Super Majority. In the event a majority of all of
the Directors of the Corporation and the holders of shares
representing at least sixty-five percent (65%) of the voting power of
the Series A Preferred Stock then outstanding, acting separately as
one class, vote to, or execute a consent to, convert all of the shares
of the Series A Preferred Stock into fully paid and nonassessable
shares of Common Stock, all of such shares of the Series A Preferred
Stock shall automatically be converted, without further act of the
Corporation, or its shareholders, into fully paid and nonassessable
shares of Common Stock of the Corporation at the Conversion Price in
effect on the Conversion Date upon the terms hereinafter set forth."
FURTHER RESOLVED, that the fourth sentence of paragraph 5(e) of the
Certificate of Designations, Preferences and Rights of Series A Convertible
Preferred Stock is amended so that it will be and read in its entirety as
follows:
"Conversion shall be deemed to have been effected (i) with respect to
conversions pursuant to subparagraph 5(a), on the date when delivery
of notice of an election to convert pursuant to subparagraph 5(a) and
of certificates representing the shares being converted is made, or
(ii) with respect to mandatory conversion pursuant to subparagraph
5(b) or 5(c), on the (x) closing date of the Qualified Public Offering
or (y) the date as of which the super majority of outstanding shares
of the Series A Preferred Stock shall vote for or execute a consent to
such conversion of the total number of shares of the Series A
Preferred Stock (unless in the case of such consent a later Conversion
Date is specified, in which event on such later date), as the case may
be, and each such applicable date is referred to herein as the
"Conversion Date."
SECOND: That in lieu of a meeting and vote of stockholders, stockholders
have given written consent to and approved said amendments in accordance with
the provisions of Section 228 of the General Corporation Law of the State of
Delaware.
THIRD: That the aforesaid amendment was duly adopted in accordance with
the provisions of Section 242 and Section 228 of the General Corporation Law of
the State of Delaware.
2
<PAGE>
IN WITNESS WHEREOF, Spinnaker Exploration Company has caused this
certificate to be signed by James M. Alexander, Vice President, Chief Financial
Officer and Secretary, and attested by Jeffrey C. Zaruba, Treasurer, this 27th
day of September, 1999.
SPINNAKER EXPLORATION COMPANY
/s/ JAMES M. ALEXANDER
By:__________________________________________
James M. Alexander
Vice President, Chief Financial Officer
and Secretary
ATTEST:
/s/ JEFFREY C. ZARUBA
_____________________________
Jeffrey C. Zaruba
Treasurer
3
<PAGE>
EXHIBIT 3.2
RESTATED BYLAWS
OF
SPINNAKER EXPLORATION CORP.
A Delaware Corporation
Date of Adoption:
January 6, 1998
As Amended
September 27, 1999
<PAGE>
SPINNAKER EXPLORATION CORP.
RESTATED BYLAWS
TABLE OF CONTENTS
Page
----
Article I
Offices................................................................. 1
Section 1. Registered Office........................................... 1
Section 2. Other Offices............................................... 1
Article II
Stockholders............................................................ 1
Section 1. Place of Meetings........................................... 1
Section 2. Quorum; Adjournment of Meetings............................. 1
Section 3. Annual Meetings............................................. 2
Section 4. Special Meetings............................................ 2
Section 5. Record Date................................................. 2
Section 6. Notice of Meetings.......................................... 2
Section 7. Stock List.................................................. 2
Section 8. Proxies..................................................... 3
Section 9. Voting; Elections; Inspectors............................... 3
Section 10. Conduct of Meetings........................................ 4
Section 11. Notice of Stockholder Business and Nominations............. 4
Article III
Board of Directors...................................................... 6
Section 1. Power; Number; Term of Office............................... 6
Section 2. Quorum...................................................... 6
Section 3. Place of Meetings; Order of Business........................ 6
Section 4. First Meeting............................................... 6
Section 5. Regular Meetings............................................ 7
Section 6. Special Meetings............................................ 7
Section 7. Removal..................................................... 7
Section 8. Vacancies; Increases in the Number of Directors............. 7
Section 9. Compensation................................................ 7
<PAGE>
Section 10. Action Without a Meeting; Telephone Conference Meeting..... 7
Article IV
Committees.............................................................. 8
Section 1. Designation; Powers......................................... 8
Section 2. Procedure; Meetings; Quorum................................. 8
Section 3. Substitution of Members..................................... 8
Article V
Officers................................................................ 8
Section 1. Number, Titles and Term of Office........................... 8
Section 2. Salaries.................................................... 9
Section 3. Removal..................................................... 9
Section 4. Vacancies................................................... 9
Section 5. Powers and Duties of the Chief Executive Officer............ 9
Section 6. Powers and Duties of the Chairman of the Board.............. 9
Section 7. Powers and Duties of the President.......................... 9
Section 8. Vice Presidents............................................. 9
Section 9. Treasurer................................................... 10
Section 10. Assistant Treasurers....................................... 10
Section 11. Secretary.................................................. 10
Section 12. Assistant Secretaries...................................... 10
Section 13. Action with Respect to Securities of Other Corporations.... 10
Article VI
Indemnification of Directors, Officers, Employees and Agents............ 11
Section 1. Right to Indemnification.................................... 11
Section 2. Indemnification of Employees and Agents..................... 11
Section 3. Right of Claimant to Bring Suit............................. 11
Section 4. Nonexclusivity of Rights.................................... 12
Section 5. Insurance................................................... 12
Section 6. Savings Clause.............................................. 12
Section 7. Definitions................................................. 12
Article VII
Capital Stock........................................................... 13
Section 1. Certificates of Stock....................................... 13
Section 2. Transfer of Shares.......................................... 13
<PAGE>
Section 3. Ownership of Shares......................................... 13
Section 4. Regulations Regarding Certificates.......................... 13
Section 5. Lost or Destroyed Certificates.............................. 13
Article VIII
Miscellaneous Provisions................................................ 14
Section 1. Fiscal Year................................................. 14
Section 2. Corporate Seal.............................................. 14
Section 3. Notice and Waiver of Notice................................. 14
Section 4. Resignations................................................ 14
Section 5. Facsimile Signatures........................................ 14
Section 6. Reliance upon Books, Reports and Records.................... 14
Article IX
Amendments.............................................................. 15
<PAGE>
RESTATED BYLAWS
OF
SPINNAKER EXPLORATION CORP.
Article I
Offices
Section 1. Registered Office. The registered office of the Corporation
required by the General Corporation Law of the State of Delaware to be
maintained in the State of Delaware, shall be the registered office named in the
original Certificate of Incorporation of the Corporation, or such other office
as may be designated from time to time by the Board of Directors in the manner
provided by law. Should the Corporation maintain a principal office within the
State of Delaware such registered office need not be identical to such principal
office of the Corporation.
Section 2. Other Offices. The Corporation may also have offices at
such other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
Article II
Stockholders
Section 1. Place of Meetings. All meetings of the stockholders shall
be held at the principal office of the Corporation, or at such other place
within or without the State of Delaware as shall be specified or fixed in the
notices or waivers of notice thereof.
Section 2. Quorum; Adjournment of Meetings. Unless otherwise required
by law or provided in the Certificate of Incorporation or these bylaws, the
holders of a majority of the stock issued and outstanding and entitled to vote
thereat, present in person or represented by proxy, shall constitute a quorum at
any meeting of stockholders for the transaction of business and the act of a
majority of such stock so represented at any meeting of stockholders at which a
quorum is present shall constitute the act of the meeting of stockholders. The
stockholders present at a duly organized meeting may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
Notwithstanding the other provisions of the Certificate of Incorporation or
these bylaws, the chairman of the meeting or the holders of a majority of the
issued and outstanding stock, present in person or represented by proxy, at any
meeting of stockholders, whether or not a quorum is present, shall have the
power to adjourn such meeting from time to time, without any notice other than
announcement at the meeting of the time and place of the holding of the
adjourned meeting. If the adjournment is for more than thirty (30) days, or if
after the adjournment a new record date is fixed
<PAGE>
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at such meeting. At such adjourned
meeting at which a quorum shall be present or represented any business may be
transacted which might have been transacted at the meeting as originally called.
Section 3. Annual Meetings. An annual meeting of the stockholders, for
the election of directors to succeed those whose terms expire and for the
transaction of such other business as may properly come before the meeting,
shall be held at such place, within or without the State of Delaware, on such
date, and at such time as the Board of Directors shall fix and set forth in the
notice of the meeting, which date shall be within thirteen (13) months
subsequent to the later of the date of incorporation or the last annual meeting
of stockholders.
Section 4. Special Meetings. Unless otherwise provided in the
Certificate of Incorporation, special meetings of the stockholders for any
purpose or purposes may be called at any time by a majority of the Board of
Directors. Business transacted at a special meeting shall be confined to the
purpose(s) stated in the notice of such meeting.
Section 5. Record Date. For the purpose of determining stockholders
entitled to notice of or to vote at any meeting of stockholders, or any
adjournment thereof, or entitled to express consent to corporate action in
writing without a meeting, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors of the Corporation
may fix, in advance, a date as the record date for any such determination of
stockholders, which date shall not be more than sixty (60) days nor less than
ten (10) days before the date of such meeting, nor more than sixty (60) days
prior to any other action.
If the Board of Directors does not fix a record date for any meeting of the
stockholders, the record date for determining stockholders entitled to notice of
or to vote at such meeting shall be at the close of business on the day next
preceding the day on which notice is given. The record date for determining
stockholders for any other purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
Section 6. Notice of Meetings. Written notice of the place, date and
hour of all meetings, and, in case of a special meeting, the purpose or purposes
for which the meeting is called, shall be given by or at the direction of the
Board of Directors, Chairman of the Board (if any) or the President or the
Secretary to each stockholder entitled to vote thereat not less than ten (10)
nor more than sixty (60) days before the date of the meeting. Such notice is
given when deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the Corporation.
Section 7. Stock List. A complete list of stockholders entitled to
vote at any meeting of stockholders, arranged in alphabetical order for each
class of stock and showing the address of each such stockholder and the number
of shares registered in the name of such stockholder, shall be open
-2-
<PAGE>
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or if not so
specified, at the place where the meeting is to be held. The stock list shall
also be produced and kept at the time and place of the meeting during the whole
time thereof, and may be inspected by any stockholder who is present.
Section 8. Proxies. Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to a corporate action in writing
without a meeting may authorize another person or persons to act for him by
proxy. Proxies for use at any meeting of stockholders shall be filed with the
Secretary, or such other officer as the Board of Directors may from time to time
determine by resolution, before or at the time of the meeting. All proxies
shall be received and taken charge of and all ballots shall be received and
canvassed by the secretary of the meeting who shall decide all questions
touching upon the qualification of voters, the validity of the proxies, and the
acceptance or rejection of votes, unless an inspector or inspectors shall have
been appointed by the chairman of the meeting, in which event such inspector or
inspectors shall decide all such questions.
No proxy shall be valid after three (3) years from its date, unless the
proxy provides for a longer period. Each proxy shall be revocable unless
expressly provided therein to be irrevocable and coupled with an interest
sufficient in law to support an irrevocable power.
Should a proxy designate two or more persons to act as proxies, unless such
instrument shall provide the contrary, a majority of such persons present at any
meeting at which their powers thereunder are to be exercised shall have and may
exercise all the powers of voting or giving consents thereby conferred, or if
only one be present, then such powers may be exercised by that one; or, if an
even number attend and a majority do not agree on any particular issue, each
proxy so attending shall be entitled to exercise such powers in respect of the
same portion of the shares as he is of the proxies representing such shares.
Section 9. Voting; Elections; Inspectors. Unless otherwise required by
law or provided in the Certificate of Incorporation, each stockholder shall have
one vote for each share of stock entitled to vote which is registered in his
name on the record date for the meeting. Shares registered in the name of
another corporation, domestic or foreign, may be voted by such officer, agent or
proxy as the bylaw (or comparable instrument) of such corporation may prescribe,
or in the absence of such provision, as the Board of Directors (or comparable
body) of such corporation may determine. Shares registered in the name of a
deceased person may be voted by his executor or administrator, either in person
or by proxy.
All voting, except as required by the Certificate of Incorporation or where
otherwise required by law, may be by a voice vote; provided, however, that upon
request of the chairman of the meeting or upon demand therefor by stockholders
holding a majority of the issued and outstanding stock present in person or by
proxy at any meeting a stock vote shall be taken.
At any meeting at which a vote is taken by ballots, the chairman of the
meeting may appoint one or more inspectors, each of whom shall subscribe an oath
or affirmation to execute faithfully the duties of inspector at such meeting
with strict impartiality and according to the best of his ability. Such
inspector shall receive the ballots, count the votes and make and sign a
certificate of the result
-3-
<PAGE>
thereof. The chairman of the meeting may appoint any person to serve as
inspector, except no candidate for the office of director shall be appointed as
an inspector.
Unless otherwise provided in the Certificate of Incorporation, cumulative
voting for the election of directors shall be prohibited.
Section 10. Conduct of Meetings. The meetings of the stockholders
shall be presided over by the Chairman of the Board (if any), or if he is not
present, by the President, or if neither the Chairman of the Board (if any), nor
President is present, by a chairman elected at the meeting. The Secretary of
the Corporation, if present, shall act as secretary of such meetings, or if he
is not present, an Assistant Secretary shall so act; if neither the Secretary
nor an Assistant Secretary is present, then a secretary shall be appointed by
the chairman of the meeting. The chairman of any meeting of stockholders shall
determine the order of business and the procedure at the meeting, including such
regulation of the manner of voting and the conduct of discussion as seem to him
in order.
Section 11. Notice of Stockholder Business and Nominations.
(A) Annual Meetings of Stockholders. (1) Nominations of persons for
election to the Board of Directors and the proposal of business to be considered
by the stockholders may be made at an annual meeting of stockholders (a)
pursuant to the Corporation's notice of meeting, (b) by or at the direction of
the Board of Directors or (c) by any stockholder of the Corporation who was a
stockholder of record at the time of giving of notice provided for in these
bylaws, who is entitled to vote at such meeting and who complies with the notice
procedures set forth in these bylaws.
(2) For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (c) of paragraph (A)(1) of
Section 11 of Article II of these bylaws, the stockholder must have given timely
notice thereof in writing to the Secretary of the Corporation and such other
business must otherwise be a proper matter for stockholder action. To be
timely, a stockholder's notice shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the close of
business on the 90th day, nor earlier than the close of business on the 120th
day, prior to the first anniversary of the preceding year's annual meeting;
provided, however, that in the event that the date of the annual meeting is more
than 30 days before or more than 90 days after such anniversary date, notice by
the stockholder to be timely must be so delivered not earlier than the close of
business on the 120th day prior to such annual meeting and not later than the
close of business on the later of the 90th day prior to such annual meeting or
the 10th day following the day on which public announcement of the date of such
meeting is first made by the Corporation. In no event shall the public
announcement of an adjournment of an annual meeting commence a new time period
for the giving of a stockholder's notice as described above. Such stockholder's
notice shall set forth (a) as to each person whom the stockholder proposes to
nominate for election or reelection as a director all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors in an election contest, or is otherwise required, in each
case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and Rule 14a-11 thereunder (including such
person's written consent to being named in the proxy statement as a nominee and
to serving as a director if elected); (b) as to any other business that the
stockholder proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting, the reasons for conducting
such business at the meeting and any material interest in such business of
-4-
<PAGE>
such stockholder and the beneficial owner, if any, on whose behalf the proposal
is made; and (c) as to the stockholder giving the notice and the beneficial
owner, if any, on whose behalf the nomination or proposal is made (i) the name
and address of such stockholder, as they appear on the Corporation's books, and
of such beneficial owner and (ii) the class or series and number of shares of
the Corporation which are owned beneficially and of record by such stockholder
and such beneficial owner.
(3) Notwithstanding anything in the second sentence of paragraph (A)(2)
of Section 11 of Article II of these bylaws to the contrary, in the event that
the number of directors to be elected to the Board of Directors of the
Corporation is increased and there is no public announcement by the Corporation
naming all of the nominees for director or specifying the size of the increased
Board of Directors at least 80 days prior to the first anniversary of the
preceding year's annual meeting, a stockholder's notice required by these bylaws
shall also be considered timely, but only with respect to nominees for any new
positions created by such increase, if it shall be delivered to the Secretary at
the principal executive offices of the Corporation not later than the close of
business on the 10th day following the day on which such public announcement of
the increased Board is first made by the Corporation.
(B) Special Meetings of Stockholders. Only such business shall be
conducted at a special meeting of stockholders as shall have been brought before
the meeting pursuant to the Corporation's notice of meeting. Nominations of
persons for election to the Board of Directors may be made at a special meeting
of stockholders at which directors are to be elected pursuant to the
Corporation's notice of meeting (a) by or at the direction of the Board of
Directors or (b) provided that the Board of Directors has determined that
directors shall be elected at such meeting, by any stockholder of the
Corporation who is a stockholder of record at the time of giving of notice
provided for in these bylaws, who shall be entitled to vote at the meeting and
who complies with the notice procedures set forth in these bylaws. In the event
the Corporation calls a special meeting of stockholders for the purpose of
electing one or more directors to the Board of Directors, any such stockholder
may nominate a person or persons (as the case may be), for election to such
position(s) as specified in the Corporation's notice of meeting, if the
stockholder's notice required by paragraph (A)(2) of these bylaws shall be
delivered to the Secretary at the principal executive offices of the Corporation
not earlier than the close of business on the 120th day prior to such special
meeting and not later than the close of business on the later of the 90th day
prior to such special meeting or the 10th day following the day on which public
announcement is first made of the date of the special meeting and of the
nominees proposed by the Board of Directors to be elected at such meeting. In
no event shall the public announcement of an adjournment of a special meeting
commence a new time period for the giving of a stockholder's notice as described
above.
(C) General. (1) Only such persons who are nominated in accordance with
the procedures set forth in these bylaws shall be eligible to serve as directors
and only such business shall be conducted at a meeting of stockholders as shall
have been brought before the meeting in accordance with the procedures set forth
in these bylaws. Except as otherwise provided by law, the Certificate of
Incorporation or these bylaws, the chairman of the meeting shall have the power
and duty to determine whether a nomination or any business proposed to be
brought before the meeting was made or proposed, as the case may be, in
accordance with the procedures set forth in these bylaws and, if any proposed
nomination or business is not in compliance with these bylaws, to declare that
such defective proposal or nomination shall be disregarded.
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(2) For purposes of these bylaws, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service or in a document publicly filed by the
Corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of these bylaws, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in these bylaws. Nothing in these bylaws shall be deemed to affect any
rights (i) of stockholders to request inclusion of proposals in the
Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act or
(ii) of the holders of any series of Preferred Stock to elect directors under
specified circumstances.
Article III
Board of Directors
Section 1. Power; Number; Term of Office. The business and affairs of
the Corporation shall be managed by or under the direction of the Board of
Directors, and subject to the restrictions imposed by law or the Certificate of
Incorporation, they may exercise all the powers of the Corporation.
The number of directors which shall constitute the whole Board of
Directors, shall be determined from time to time by resolution of the Board of
Directors (provided that no decrease in the number of directors which would have
the effect of shortening the term of an incumbent director may be made by the
Board of Directors). If the Board of Directors makes no such determination, the
number of directors shall be the number set forth in the Certificate of
Incorporation. Each director shall hold office for the term for which he is
elected, and until his successor shall have been elected and qualified or until
his earlier death, resignation or removal.
Unless otherwise provided in the Certificate of Incorporation, directors
need not be stockholders nor residents of the State of Delaware.
Section 2. Quorum. Unless otherwise provided in the Certificate of
Incorporation, or these bylaws, a majority of the total number of directors
shall constitute a quorum for the transaction of business of the Board of
Directors and the vote of a majority of the directors present at a meeting at
which a quorum is present shall be the act of the Board of Directors.
Section 3. Place of Meetings; Order of Business. The directors may
hold their meetings and may have an office and keep the books of the
Corporation, except as otherwise provided by law, in such place or places,
within or without the State of Delaware, as the Board of Directors may from time
to time determine by resolution. At all meetings of the Board of Directors
business shall be transacted in such order as shall from time to time be
determined by the Chairman of the Board (if any), or in his absence by the
President, or by resolution of the Board of Directors.
Section 4. First Meeting. Each newly elected Board of Directors may
hold its first meeting for the purpose of organization and the transaction of
business, if a quorum is present, immediately after and at the same place as the
annual meeting of the stockholders. Notice of such meeting shall
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not be required. At the first meeting of the Board of Directors in each year at
which a quorum shall be present, held next after the annual meeting of
stockholders, the Board of Directors shall proceed to the election of the
officers of the Corporation.
Section 5. Regular Meetings. Regular meetings of the Board of
Directors shall be held at such times and places as shall be designated from
time to time by resolution of the Board of Directors. Notice of such regular
meetings shall not be required.
Section 6. Special Meetings. Special meetings of the Board of
Directors may be called by the Chairman of the Board (if any), the President or,
on the written request of any two directors, by the Secretary, in each case on
at least twenty-four (24) hours personal, written, telegraphic, cable or
wireless notice to each director. Such notice, or any waiver thereof pursuant
to Article VIII, Section 3 hereof, need not state the purpose or purposes of
such meeting, except as may otherwise be required by law or provided for in the
Certificate of Incorporation or these bylaws. Meetings may be held at any time
without notice if all the directors are present or if those not present waive
notice of the meeting in writing.
Section 7. Removal. Any director or the entire Board of Directors may
be removed, with or without cause, by the holders of a majority of the shares
then entitled to vote at an election of directors; provided that, with respect
to the removal without cause of a director or directors elected by the holders
of any class or series entitled to elect one or more directors, only the holders
of outstanding shares of that class or series shall be entitled to vote on such
removal.
Section 8. Vacancies; Increases in the Number of Directors. Unless
otherwise provided in the Certificate of Incorporation, vacancies and newly
created directorships resulting from any increase in the authorized number of
directors may be filled by a majority of the directors then in office, although
less than a quorum, or a sole remaining director; and any director so chosen
shall hold office until the next annual election and until his successor shall
be duly elected and shall qualify, or until such Director's earlier death,
resignation or removal.
Section 9. Compensation. Unless otherwise restricted by the
Certificate of Incorporation, the Board of Directors shall have the authority to
fix the compensation of directors.
Section 10. Action Without a Meeting; Telephone Conference Meeting.
Unless otherwise restricted by the Certificate of Incorporation, any action
required or permitted to be taken at any meeting of the Board of Directors, or
any committee designated by the Board of Directors, may be taken without a
meeting if all members of the Board of Directors or committee, as the case may
be, consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board of Directors or committee. Such consent
shall have the same force and effect as a unanimous vote at a meeting, and may
be stated as such in any document or instrument filed with the Secretary of
State of Delaware.
Unless otherwise restricted by the Certificate of Incorporation, subject to
the requirement for notice of meetings, members of the Board of Directors, or
members of any committee designated by the Board of Directors, may participate
in a meeting of such Board of Directors or committee, as the case may be, by
means of a conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and
participation in such
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a meeting shall constitute presence in person at such meeting, except where a
person participates in the meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
Article IV
Committees
Section 1. Designation; Powers. The Board of Directors may, by
resolution passed by a majority of the whole board, designate one or more
committees, including, if they shall so determine, an executive committee, each
such committee to consist of one or more of the directors of the Corporation.
Any such designated committee shall have and may exercise such of the powers and
authority of the Board of Directors in the management of the business and
affairs of the Corporation as may be provided in such resolution, except that no
such committee shall have the power or authority of the Board of Directors in
reference to amending the Certificate of Incorporation, adopting an agreement of
merger or consolidation, recommending to the stockholders the sale, lease or
exchange of all or substantially all of the Corporation's property and assets,
recommending to the stockholders a dissolution of the Corporation or a
revocation of a dissolution of the Corporation, or amending, altering or
repealing the bylaws or adopting new bylaws for the Corporation and, unless such
resolution or the Certificate of Incorporation expressly so provides, no such
committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock. Any such designated committee may authorize
the seal of the Corporation to be affixed to all papers which may require it.
In addition to the above such committee or committees shall have such other
powers and limitations of authority as may be determined from time to time by
resolution adopted by the Board of Directors.
Section 2. Procedure; Meetings; Quorum. Any committee designated
pursuant to Section 1 of this Article shall choose its own chairman, shall keep
regular minutes of its proceedings and report the same to the Board of Directors
when requested, shall fix its own rules or procedures, and shall meet at such
times and at such place or places as may be provided by such rules, or by
resolution of such committee or resolution of the Board of Directors. At every
meeting of any such committee, the presence of a majority of all the members
thereof shall constitute a quorum and the affirmative vote of a majority of the
members present shall be necessary for the adoption by it of any resolution.
Section 3. Substitution of Members. The Board of Directors may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of such committee. In
the absence or disqualification of a member of a committee, the member or
members present at any meeting and not disqualified from voting, whether or not
constituting a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of the absent or disqualified
member.
Article V
Officers
Section 1. Number, Titles and Term of Office. The officers of the
Corporation shall be a President, one or more Vice Presidents (any one or more
of whom may be designated Executive Vice
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President or Senior Vice President), a Treasurer, a Secretary and, if the Board
of Directors so elects, a Chairman of the Board and such other officers as the
Board of Directors may from time to time elect or appoint. Each officer shall
hold office until his successor shall be duly elected and shall qualify or until
his death or until he shall resign or shall have been removed in the manner
hereinafter provided. Any number of offices may be held by the same person,
unless the Certificate of Incorporation provides otherwise. Except for the
Chairman of the Board, if any, no officer need be a director.
Section 2. Salaries. The salaries or other compensation of the
officers and agents of the Corporation shall be fixed from time to time by the
Board of Directors.
Section 3. Removal. Any officer or agent elected or appointed by the
Board of Directors may be removed, either with or without cause, by the vote of
a majority of the whole Board of Directors at a special meeting called for the
purpose, or at any regular meeting of the Board of Directors. Election or
appointment of an officer or agent shall not of itself create contract rights.
Section 4. Vacancies. Any vacancy occurring in any office of the
Corporation may be filled by the Board of Directors.
Section 5. Powers and Duties of the Chief Executive Officer. The
President shall be the chief executive officer of the Corporation unless the
Board of Directors designates the Chairman of the Board as chief executive
officer. Subject to the control of the Board of Directors and the executive
committee (if any), the chief executive officer shall have general executive
charge, management and control of the properties, business and operations of the
Corporation with all such powers as may be reasonably incident to such
responsibilities; he may agree upon and execute all leases, contracts, evidences
of indebtedness and other obligations in the name of the Corporation and may
sign all certificates for shares of capital stock of the Corporation; and shall
have such other powers and duties as designated in accordance with these bylaws
and as from time to time may be assigned to him by the Board of Directors.
Section 6. Powers and Duties of the Chairman of the Board. If elected,
the Chairman of the Board shall preside at all meetings of the stockholders and
of the Board of Directors; and he shall have such other powers and duties as
designated in these bylaws and as from time to time may be assigned to him by
the Board of Directors.
Section 7. Powers and Duties of the President. Unless the Board of
Directors otherwise determines, the President shall have the authority to agree
upon and execute all leases, contracts, evidences of indebtedness and other
obligations in the name of the Corporation; and, unless the Board of Directors
otherwise determines, he shall, in the absence of the Chairman of the Board or
if there be no Chairman of the Board, preside at all meetings of the
stockholders and (should he be a director) of the Board of Directors; and he
shall have such other powers and duties as designated in accordance with these
bylaws and as from time to time may be assigned to him by the Board of
Directors.
Section 8. Vice Presidents. In the absence of the President, or in the
event of his inability or refusal to act, a Vice President designated by the
Board of Directors shall perform the duties of the President, and when so acting
shall have all the powers of and be subject to all the restrictions
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upon the President. In the absence of a designation by the Board of Directors of
a Vice President to perform the duties of the President, or in the event of his
absence or inability or refusal to act, the Vice President who is present and
who is senior in terms of time as a Vice President of the Corporation shall so
act. The Vice Presidents shall perform such other duties and have such other
powers as the Board of Directors may from time to time prescribe.
Section 9. Treasurer. The Treasurer shall have responsibility for the
custody and control of all the funds and securities of the Corporation, and he
shall have such other powers and duties as designated in these bylaws and as
from time to time may be assigned to him by the Board of Directors. He shall
perform all acts incident to the position of Treasurer, subject to the control
of the chief executive officer and the Board of Directors; and he shall, if
required by the Board of Directors, give such bond for the faithful discharge of
his duties in such form as the Board of Directors may require.
Section 10. Assistant Treasurers. Each Assistant Treasurer shall have
the usual powers and duties pertaining to his office, together with such other
powers and duties as designated in these bylaws and as from time to time may be
assigned to him by the chief executive officer or the Board of Directors. The
Assistant Treasurers shall exercise the powers of the Treasurer during that
officer's absence or inability or refusal to act.
Section 11. Secretary. The Secretary shall keep the minutes of all
meetings of the Board of Directors, committees of directors and the
stockholders, in books provided for that purpose; he shall attend to the giving
and serving of all notices; he may in the name of the Corporation affix the seal
of the Corporation to all contracts of the Corporation and attest the affixation
of the seal of the Corporation thereto; he may sign with the other appointed
officers all certificates for shares of capital stock of the Corporation; he
shall have charge of the certificate books, transfer books and stock ledgers,
and such other books and papers as the Board of Directors may direct, all of
which shall at all reasonable times be open to inspection of any director upon
application at the office of the Corporation during business hours; he shall
have such other powers and duties as designated in these bylaws and as from time
to time may be assigned to him by the Board of Directors; and he shall in
general perform all acts incident to the office of Secretary, subject to the
control of the chief executive officer and the Board of Directors.
Section 12. Assistant Secretaries. Each Assistant Secretary shall have
the usual powers and duties pertaining to his office, together with such other
powers and duties as designated in these bylaws and as from time to time may be
assigned to him by the chief executive officer or the Board of Directors. The
Assistant Secretaries shall exercise the powers of the Secretary during that
officer's absence or inability or refusal to act.
Section 13. Action with Respect to Securities of Other Corporations.
Unless otherwise directed by the Board of Directors, the chief executive
officer, the president or any vice president shall have power to vote and
otherwise act on behalf of the Corporation, in person or by proxy, at any
meeting of security holders of or with respect to any action of security holders
of any other corporation in which this Corporation may hold securities and
otherwise to exercise any and all rights and powers which this Corporation may
possess by reason of its ownership of securities in such other corporation.
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Article VI
Indemnification of Directors,
Officers, Employees and Agents
Section 1. Right to Indemnification. Each person who was or is made a
party or is threatened to be made a party to or is involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she or a person
of whom he or she is the legal representative, is or was or has agreed to become
a director or officer of the Corporation or is or was serving or has agreed to
serve at the request of the Corporation as a director, officer, employee or
agent of another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, whether
the basis of such proceeding is alleged action in an official capacity as a
director or officer or in any other capacity while serving or having agreed to
serve as a director or officer, shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the Delaware General Corporation
Law, as the same exists or may hereafter be amended, (but, in the case of any
such amendment, only to the extent that such amendment permits the Corporation
to provide broader indemnification rights than said law permitted the
Corporation to provide prior to such amendment) against all expense, liability
and loss (including without limitation, attorneys' fees, judgments, fines, ERISA
excise taxes or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to serve in the
capacity which initially entitled such person to indemnity hereunder and shall
inure to the benefit of his or her heirs, executors and administrators;
provided, however, that the Corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof) was authorized by the
board of directors of the Corporation. The right to indemnification conferred
in this Article VI shall be a contract right and shall include the right to be
paid by the Corporation the expenses incurred in defending any such proceeding
in advance of its final disposition; provided, however, that, if the Delaware
General Corporation Law requires, the payment of such expenses incurred by a
current, former or proposed director or officer in his or her capacity as a
director or officer or proposed director or officer (and not in any other
capacity in which service was or is or has been agreed to be rendered by such
person while a director or officer, including, without limitation, service to an
employee benefit plan) in advance of the final disposition of a proceeding,
shall be made only upon delivery to the Corporation of an undertaking, by or on
behalf of such indemnified person, to repay all amounts so advanced if it shall
ultimately be determined that such indemnified person is not entitled to be
indemnified under this Section or otherwise.
Section 2. Indemnification of Employees and Agents. The Corporation
may, by action of its Board of Directors, provide indemnification to employees
and agents of the Corporation, individually or as a group, with the same scope
and effect as the indemnification of directors and officers provided for in this
Article.
Section 3. Right of Claimant to Bring Suit. If a written claim
received by the Corporation from or on behalf of an indemnified party under this
Article VI is not paid in full by the Corporation within ninety days after such
receipt, the claimant may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the
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claimant shall be entitled to be paid also the expense of prosecuting such
claim. It shall be a defense to any such action (other than an action brought to
enforce a claim for expenses incurred in defending any proceeding in advance of
its final disposition where the required undertaking, if any is required, has
been tendered to the Corporation) that the claimant has not met the standards of
conduct which make it permissible under the Delaware General Corporation Law for
the Corporation to indemnify the claimant for the amount claimed, but the burden
of proving such defense shall be on the Corporation. Neither the failure of the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
Delaware General Corporation Law, nor an actual determination by the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that the claimant has
not met the applicable standard of conduct.
Section 4. Nonexclusivity of Rights. The right to indemnification and
the advancement and payment of expenses conferred in this Article VI shall not
be exclusive of any other right which any person may have or hereafter acquire
under any law (common or statutory), provision of the Certificate of
Incorporation of the Corporation, bylaw, agreement, vote of stockholders or
disinterested directors or otherwise.
Section 5. Insurance. The Corporation may maintain insurance, at its
expense, to protect itself and any person who is or was serving as a director,
officer, employee or agent of the Corporation or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against any
expense, liability or loss, whether or not the Corporation would have the power
to indemnify such person against such expense, liability or loss under the
Delaware General Corporation Law.
Section 6. Savings Clause. If this Article VI or any portion hereof
shall be invalidated on any ground by any court of competent jurisdiction, then
the Corporation shall nevertheless indemnify and hold harmless each director and
officer of the Corporation, as to costs, charges and expenses (including
attorneys' fees), judgments, fines, and amounts paid in settlement with respect
to any action, suit or proceeding, whether civil, criminal, administrative or
investigative to the full extent permitted by any applicable portion of this
Article VI that shall not have been invalidated and to the fullest extent
permitted by applicable law.
Section 7. Definitions. For purposes of this Article, reference to the
"Corporation" shall include, in addition to the Corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger prior to (or, in the case of an entity specifically
designated in a resolution of the Board of Directors, after) the adoption hereof
and which, if its separate existence had continued, would have had the power and
authority to indemnify its directors, officers and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under the provisions of this Article with respect to the resulting or
surviving corporation as he would have with respect to such constituent
corporation if its separate existence had continued.
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Article VII
Capital Stock
Section 1. Certificates of Stock. The certificates for shares of the
capital stock of the Corporation shall be in such form, not inconsistent with
that required by law and the Certificate of Incorporation, as shall be approved
by the Board of Directors. The Chairman of the Board (if any), President or a
Vice President shall cause to be issued to each stockholder one or more
certificates, under the seal of the Corporation or a facsimile thereof if the
Board of Directors shall have provided for such seal, and signed by the Chairman
of the Board (if any), President or a Vice President and the Secretary or an
Assistant Secretary or the Treasurer or an Assistant Treasurer certifying the
number of shares (and, if the stock of the Corporation shall be divided into
classes or series, the class and series of such shares) owned by such
stockholder in the Corporation; provided, however, that any of or all the
signatures on the certificate may be facsimile. The stock record books and the
blank stock certificate books shall be kept by the Secretary, or at the office
of such transfer agent or transfer agents as the Board of Directors may from
time to time by resolution determine. In case any officer, transfer agent or
registrar who shall have signed or whose facsimile signature or signatures shall
have been placed upon any such certificate or certificates shall have ceased to
be such officer, transfer agent or registrar before such certificate is issued
by the Corporation, such certificate may nevertheless be issued by the
Corporation with the same effect as if such person were such officer, transfer
agent or registrar at the date of issue. The stock certificates shall be
consecutively numbered and shall be entered in the books of the Corporation as
they are issued and shall exhibit the holder's name and number of shares.
Section 2. Transfer of Shares. The shares of stock of the Corporation
shall be transferable only on the books of the Corporation by the holders
thereof in person or by their duly authorized attorneys or legal representatives
upon surrender and cancellation of certificates for a like number of shares.
Upon surrender to the Corporation or a transfer agent of the Corporation of a
certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
Corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books.
Section 3. Ownership of Shares. The Corporation shall be entitled to
treat the holder of record of any share or shares of capital stock of the
Corporation as the holder in fact thereof and, accordingly, shall not be bound
to recognize any equitable or other claim to or interest in such share or shares
on the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by the laws of the State of
Delaware.
Section 4. Regulations Regarding Certificates. The Board of Directors
shall have the power and authority to make all such rules and regulations as
they may deem expedient concerning the issue, transfer and registration or the
replacement of certificates for shares of capital stock of the Corporation.
Section 5. Lost or Destroyed Certificates. The Board of Directors may
determine the conditions upon which a new certificate of stock may be issued in
place of a certificate which is alleged to have been lost, stolen or destroyed;
and may, in their discretion, require the owner of such certificate or his legal
representative to give bond, with sufficient surety, to indemnify the
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Corporation and each transfer agent and registrar against any and all losses or
claims which may arise by reason of the issue of a new certificate in the place
of the one so lost, stolen or destroyed.
Article VIII
Miscellaneous Provisions
Section 1. Fiscal Year. The fiscal year of the Corporation shall be
such as established from time to time by the Board of Directors.
Section 2. Corporate Seal. The Board of Directors may provide a
suitable seal, containing the name of the Corporation. The Secretary shall have
charge of the seal (if any). If and when so directed by the Board of Directors
or a committee thereof, duplicates of the seal may be kept and used by the
Treasurer or by the Assistant Secretary or Assistant Treasurer.
Section 3. Notice and Waiver of Notice. Whenever any notice is
required to be given by law, the Certificate of Incorporation or under the
provisions of these bylaws, said notice shall be deemed to be sufficient if
given (i) by telegraphic, cable or wireless transmission or (ii) by deposit of
the same in a post office box in a sealed prepaid wrapper addressed to the
person entitled thereto at his post office address, as it appears on the records
of the Corporation, and such notice shall be deemed to have been given on the
day of such transmission or mailing, as the case may be.
Whenever notice is required to be given by law, the Certificate of
Incorporation or under any of the provisions of these bylaws, a written waiver
thereof, signed by the person entitled to notice, whether before or after the
time stated therein, shall be deemed equivalent to notice. Attendance of a
person at a meeting shall constitute a waiver of notice of such meeting, except
when the person attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the stockholders,
directors, or members of a committee of directors need be specified in any
written waiver of notice unless so required by the Certificate of Incorporation
or the bylaws.
Section 4. Resignations. Any director, member of a committee or
officer may resign at any time. Such resignation shall be made in writing and
shall take effect at the time specified therein, or if no time be specified, at
the time of its receipt by the chief executive officer or Secretary. The
acceptance of a resignation shall not be necessary to make it effective, unless
expressly so provided in the resignation.
Section 5. Facsimile Signatures. In addition to the provisions for the
use of facsimile signatures elsewhere specifically authorized in these bylaws,
facsimile signatures of any officer or officers of the Corporation may be used
whenever and as authorized by the Board of Directors.
Section 6. Reliance upon Books, Reports and Records. Each director and
each member of any committee designated by the Board of Directors shall, in the
performance of his duties, be fully protected in relying in good faith upon the
books of account or reports made to the Corporation by any of its officers, or
by an independent certified public accountant, or by an appraiser selected with
-14-
<PAGE>
reasonable care by the Board of Directors or by any such committee, or in
relying in good faith upon other records of the Corporation.
Article IX
Amendments
The Board of Directors shall have the power to adopt, amend and repeal from
time to time bylaws of the Corporation, subject to the right of the stockholders
entitled to vote with respect thereto to amend or repeal such bylaws as adopted
or amended by the Board of Directors.
-15-
<PAGE>
EXHIBIT 4.1
<TABLE>
<S> <C> <C>
COMMON STOCK [LOGO OF SPINNAKER EXPLORATION COMPANY APPEARS HERE] COMMON STOCK
NUMBER SHARES
SE-
CUSIP 84855W 10 9
THIS CERTIFICATE IS TRANSFERABLE SEE REVERSE FOR CERTAIN DEFINITIONS
IN CHICAGO, ILLINOIS AND NEW YORK, NEW YORK
</TABLE>
SPINNAKER
EXPLORATION COMPANY
INCORPORATED UNDER THE
LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, PAR VALUE $.01 PER
SHARE, OF
Spinnaker Exploration Company transferable on the books of the Corporation by
the holder hereof in person or by a duly authorized attorney upon surrender of
this certificate properly endorsed. This certificate is not valid until
countersigned by the Transfer Agent and registered by the Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized Officers.
Dated:
<TABLE>
<S> <C> <C> <C>
[SIGNATURE APPEARS HERE] [SIGNATURE APPEARS HERE] [SEAL APPEARS HERE] Countersigned and Registered:
President Secretary HARRIS TRUST AND SAVINGS BANK,
Transfer Agent and Registrar
By
Authorized Signature
</TABLE>
<PAGE>
SPINNAKER EXPLORATION COMPANY
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO
REQUESTS A STATEMENT OF THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE,
PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR
SERIES THEREOF AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH
PREFERENCES AND/OR RIGHTS. SUCH REQUESTS MAY BE MADE TO THE SECRETARY OF THE
CORPORATION AT ITS PRINCIPAL PLACE OF BUSINESS.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM--as tenants in common UNIF GIFT MIN ACT--............. Custodian...........
(Cust) (Minor)
TEN ENT--as tenants by the entireties under Uniform Gifts to Minors Act
..................................
JT TEN--as joint tenants with right (State)
of survivorship and not as tenants in
common
</TABLE>
Additional abbreviations may also be used though not in the above list.
For Value Received,_____________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL
SECURITY OR OTHER
IDENTIFYING NUMBER OF
ASSIGNEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
__________________________________________________________________________Shares
of Common Stock represented by the within certificate, and do hereby
irrevocably constitute and appoint
- --------------------------------------------------------------------------------
________________________________________________________________________Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
X_______________________________________________
NOTICE: THE SIGNATURE(S) TO
THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME(S)
AS WRITTEN UPON THE FACE OF
THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR
ANY CHANGE WHATEVER.
X_______________________________________________
ALL GUARANTEES MUST BE MADE BY A FINANCIAL
INSTITUTION (SUCH AS A BANK OR BROKER) WHICH
IS A PARTICIPANT IN THE SECURITIES TRANSFER
AGENTS MEDALLION PROGRAM ("STAMP"), THE NEW
YORK STOCK EXCHANGE, INC. MEDALLION SIGNATURE
PROGRAM, ("MSP"), OR THE STOCK EXCHANGES
MEDALLION PROGRAM ("SEMP") AND MUST NOT BE
DATED. GUARANTEES BY A NOTARY PUBLIC ARE NOT
ACCEPTABLE.
<PAGE>
EXHIBIT 5.1
Writer's Phone: 713-758-2750 E-mail: [email protected]
Writer's Fax: 713-615-5637 Web: www.velaw.com
September 27, 1999
Spinnaker Exploration Company
1200 Smith Street, Suite 800
Houston, Texas 77002
Ladies and Gentlemen:
We are acting as counsel for Spinnaker Exploration Company, a Delaware
corporation (the "Company"), in connection with the proposed offer and sale by
the Company to the Underwriters pursuant to the prospectus forming a part of a
Registration Statement on Form S-1, File No. 333-83093, originally filed with
the Securities and Exchange Commission (the "S.E.C.") on July 16, 1999 (such
Registration Statement, as amended at the effective date thereof being referred
to herein as the "Registration Statement"), of an aggregate of 8,000,000 shares
of Common Stock, par value $.01 per share ("Common Stock"), of the Company,
together with a maximum of 1,200,000 shares of Common Stock which may be sold by
the Company to the Underwriters pursuant to the over-allotment option provided
in the Underwriting Agreement. Capitalized terms used but not defined herein
have the meanings set forth in the Underwriting Agreement, a form of which has
been filed as an exhibit to the Registration Statement.
We are rendering this opinion as of the time the Registration Statement
becomes effective in accordance with Section 8(a) of the Securities Act.
In connection with the opinion expressed herein, we have assumed that the
Registration Statement will have become effective and the shares of Common Stock
covered by this opinion will be issued and sold in compliance with applicable
federal and state securities laws and in the manner described in the
Registration Statement and the applicable prospectus.
In connection with the opinion expressed herein, we have examined, among
other things, the Certificate of Incorporation, as amended, and the Restated
Bylaws of the Company, the records of corporate proceedings that have occurred
prior to the date hereof with respect to such offering, the Registration
Statement and the form of Underwriting Agreement. We have also reviewed such
questions of law as we have deemed necessary or appropriate.
<PAGE>
Spinnaker Exploration Company
Page 2
September 27, 1999
Based upon the foregoing, we are of the opinion that the shares of Common
Stock proposed to be issued and sold by the Company to the Underwriters have
been validly authorized for issuance and delivery thereof in accordance with the
provisions of the Underwriting Agreement (assuming that it is executed in the
form reviewed by us) and as set forth in the Registration Statement and when so
issued and delivered, will be validly issued, fully paid and nonassessable.
This opinion is limited in all respects to the General Corporation Law of
the State of Delaware.
We hereby consent to the statements with respect to us under the heading
"Legal Matters" in the prospectus forming a part of the Registration Statement
and to the filing of this opinion as an exhibit to the Registration Statement
and the incorporation by reference of this opinion, but we do not thereby admit
that we are within the class of persons whose consent is required under the
provisions of the Securities Act of 1933, as amended, or the rules and
regulations of the S.E.C. issued thereunder.
Very truly yours,
Vinson & Elkins L.L.P.
<PAGE>
EXHIBIT 10.1
SECOND AMENDED AND RESTATED DATA CONTRIBUTION AGREEMENT
This Second Amended and Restated Data Contribution Agreement (this
"Agreement") is entered into this 30th day of June, 1999, by and between
Petroleum Geo-Services ASA, a Norwegian joint stock company ("PGS"), Seismic
Energy Holdings, Inc., a Delaware corporation and an indirect, wholly owned
subsidiary of PGS (the "Company"), Spinnaker Exploration Company, a Delaware
corporation ("Spinco"), and Spinnaker Exploration Company, L.L.C., a Delaware
limited liability company and an indirect, wholly owned subsidiary of Spinco
("Spinnaker"). This Agreement amends, restates and supersedes that certain
Agreement, dated as of December 20, 1996, by and between PGS, the Company and
Spinnaker, as previously amended and restated as of January 6, 1998 (the
"Original Data Agreement");
RECITALS:
WHEREAS, the PGS Group (as defined herein) has acquired, or will acquire
additional, geophysical surveys in the Gulf of Mexico and its associated bays,
channels, tributaries, estuaries and Transition Zones, (as defined herein) and
offers the use of certain of such surveys and related data and information to
oil and gas companies and oil and gas exploration groups; and
WHEREAS, the Company has obtained and will obtain from the PGS Group copies
of such data and certain rights relating thereto; and
WHEREAS, PGS, the Company and Spinnaker entered into the Original Data
Agreement that provided, among other things, Spinnaker with certain rights with
respect to such copies; and
WHEREAS, the parties desire to and amend and restate the Original Data
Agreement to modify the amount, scope and range of the data and related
information made available to Spinco and Spinnaker.
NOW, THEREFORE, for and in consideration of One Hundred Dollars ($100),
certain membership interests of Spinnaker that were issued to the Company by
Spinnaker pursuant to the Purchase Agreement and certain shares of Spinco issued
to the Company by Spinco pursuant to the Contribution Agreement (as defined
herein) and certain shares of Spinco to be issued to the Company by Spinco
pursuant to the Acquisition Agreement (as defined herein) and the mutual
promises and agreements herein set forth, the parties agree as follows:
ARTICLE I
DEFINITIONS
When used in this Agreement, the following capitalized terms shall have the
meanings ascribed to them in this Article 1:
"Acquisition Agreement" means that certain Acquisition Agreement, dated as
of the date hereof, by and among Spinco and PGS.
-1-
<PAGE>
"Affiliate" of a Person means, any Person Controlling, Controlled by, or
under common Control with such Person.
"Analyses" means analyses, based on Data, and more particularly described
on Schedule I hereto, of potential hydrocarbon fields and prospect portfolios
within a Block or Blocks which analyses are generated, owned or with respect to
which rights to transfer such analyses are held, by a member of the PGS Group.
"Bankruptcy Event" means, with respect to any Person, (i) the commencement
by such Person of any voluntary case or other proceeding seeking liquidation,
reorganization or other relief with respect to itself or its debt or other
liabilities under any bankruptcy, insolvency or other similar law now or
hereafter in effect or (ii) the commencement against such Person of any
involuntary case or proceeding which seeks liquidation, reorganization or other
relief with respect to such Person or its debts or other liabilities under any
bankruptcy, insolvency or other similar law now or hereafter in effect and such
involuntary case or other proceeding shall remain undismissed for a period of 30
days.
"Best Terms" means, with respect to any Data, other product or service
provided to the Spinco Group under this Agreement, the lowest prices and most
favorable terms afforded by any member of the PGS Group to a customer (i) whose
contractual relationships with the PGS Group are of a size generally comparable
to those of Spinco and its subsidiaries, taken as a whole, with the PGS Group,
and (ii) acquiring a similar or lesser volume of such Data, other product or
service.
"Block" means, with respect to the Gulf of Mexico within the territorial
waters of the United States or a state thereof (including its bays, channels,
tributaries, estuaries and Transition Zones), those blocks depicted on the Outer
Continental Shelf Leasing and Official Protraction Diagrams issued by the United
States Mineral Management Services ("MMS") or similar depiction on official
protraction or similar diagrams (not inconsistent with such diagrams issued by
MMS) issued by a state of the United States bordering on the Gulf of Mexico.
For all purposes of counting Blocks under Articles II and III of this Agreement,
a single whole Block shall contain (i) for deep waters beyond the continental
shelf in the area offshore Louisiana and all areas offshore Texas (deep and
shallow), 5760 acres and (ii) for all other areas, 5000 acres; any Block
containing a lesser number of acres shall be counted as a partial Block, in
decimal proportion of such actual number of acres to the standard number of
acres, rounded to the nearest tenth of an acre. All Blocks shall be counted in
respect of Data coverage based upon full aperture coverage.
"Contribution Agreement" means that certain Contribution Agreement, dated
January 6, 1998, by and among Spinco, each of the investors that are party
thereto and PGS.
"Control," including the correlative terms "Controlling," "Controlled by"
and "Under Common Control with" means possession, directly or indirectly, of the
power to direct or cause the direction of management or policies (whether
through ownership of securities or any partnership or other ownership interest,
by contract or otherwise) of a Person. For the purposes of the preceding
sentence, control shall be deemed to exist when a Person possesses, directly or
indirectly, through
-2-
<PAGE>
one or more intermediaries (i) in the case of a corporation, more than 50% of
the outstanding voting securities thereof, (ii) in the case of a limited
liability company, partnership, limited partnership or venture, the right to
more than 50% of the distributions therefrom (including liquidating
distributions), or (iii) in the case of any other Person, more than 50% of the
economic or beneficial interest therein.
"Data" means (i) Standard Data; (ii) Enhanced Data; and (iii) Multi-
Component Data that (A) is not Excluded Data; (B) is acquired or produced prior
to the Survey Termination Date or is in the process of being acquired or
produced as of the Survey Termination Date; (C) that is derived from p-wave
(compressional wave) acquisition or processing; and (D) is separately made
available prior to March 31, 2004 to other customers by a member of the PGS
Group. "Data" includes Data covered by that certain Seismic Data Marketing
Agreement, as amended, between Diamond Geophysical Service Corporation and an
Affiliate of PGS.
"Deliver" means, with respect to Data and Analyses, the delivery of a copy
of such Data or Analysis to Spinnaker or Spinco, as applicable, in a magnetic
media, electronic form, or such other form as is then customarily provided by
the PGS Group to its customers receiving data similar to the Data in question.
"Enhanced Data" means, with respect to any set of Standard Data, any
derivative data sets and additional processing routines and displays prepared by
or for the account of any of the PGS Group not included in such Standard Data
(including pre-stack depth migrated data, post-stack depth migrated data, pre-
stack time migrated data, and three-dimensional amplitude-versus-offset data),
such data sets and additional processing routines and displays being prepared
prior to the Survey Termination Date or being in the process of being prepared
as of the Survey Termination Date, but excluding Excluded Data. If the PGS
Group retains a material royalty or similar interest in or measured by sales
proceeds of the sale of derivative data sets covering a Block or Blocks and
additional processing routines and displays by an unaffiliated third party under
an agreement with a member of the PGS Group, such data sets, routines and
displays shall be deemed to have been prepared "for the account" of the PGS
Group.
"Excluded Data" means the following:
(i) data produced or acquired exclusively for the benefit of a
specific customer or group of customers as to which restrictions on
the right to disclose, transfer or license apply during a specified
period (that begins when such data is acquired) agreed with such
customers, provided that no member of the PGS Group has a right to
disclose, transfer or license such data to any Person other than such
customers during such period and that such data will only be
considered "Excluded Data" during such specified period; and
(ii) Seitel Data.
-3-
<PAGE>
"Multi-Component Data" means 3-D seismic data produced or acquired prior to
the Survey Termination Date or is in the process of being produced or acquired
as of the Survey Termination Date, that results from recording the vector
wavefield using both P-waves (compressional waves) and S-waves (shear waves),
which data covers portions of or entire Blocks.
"Person" means any natural person, corporation, limited partnership,
general partnership, joint stock company, joint venture, association, company,
trust, bank trust company, land trust, business trust or other organization,
whether or not a legal entity, and any government or agency or political
subdivision thereof.
"PGS Exploration" means PGS Exploration (U.S.), Inc., a Delaware
corporation and an indirect, wholly owned subsidiary of PGS.
"PGS Group" means PGS, the Company and their respective Affiliates.
"Purchase Agreement" means the Purchase Agreement, dated as of December 20,
1996, among Spinnaker, WP Spinnaker Holdings, Inc., Warburg, Pincus Ventures,
L.P., PGS and the Company.
"Related Agreement" means any of the Amended and Restated Limited Liability
Company Agreement of Spinnaker, the Purchase Agreement, the Contribution
Agreement, the Acquisition Agreement, the Stockholders Agreement among the
stockholders of Spinco, and the Certificate of Designation of Spinco, including
any amendments to any of such agreements.
"Seitel Agreement" means that certain Seismic Data Licensing Agreement,
effective as of December 29, 1995, by and between Seitel Data Corp. and PGS
Exploration.
"Seitel Data" means all of the data covered by the Seitel Agreement.
"Spinco Group" means Spinnaker and Spinco, taken as a whole.
"Standard Data" means all basic 3-D, time-migrated seismic data (including
post-stack time migrated data) with bin center maps (paper and tapes for such
maps provided), and dragged array and vertical cable data, in each case covering
portions of or entire Blocks, as now provided as the standard product to the 3-D
seismic survey customers of the PGS Group, and as such standard may change from
time to time during the term of this Agreement, and all raw data volumes
relating to such data, in each case, that are owned or, with respect to which
rights to transfer such data to third parties, are held by any member of the PGS
Group, and which data or rights with respect thereto are so owned or held prior
to the Survey Termination Date or are in the process of being so owned or
acquired as of the Survey Termination Date, but excluding Excluded Data.
"Survey Termination Date" means March 31, 2002.
-4-
<PAGE>
"Transition Zones" means lands, marshes, wetlands and similar areas from
which a portion of the Data covering the same is acquired by marine surveys
performed in the Gulf of Mexico (or its associated bays, channels, tributaries,
and estuaries).
"Work Products" means compilations, modifications, analyses, displays,
maps, and other work products produced by the Spinco Group or any of its
consultants or contractors from Data or by reprocessing or reformatting Data.
-5-
<PAGE>
ARTICLE II
DELIVERY AND USE OF DATA
2.1 DELIVERY OF DATA
(a) Subject to the terms of this Agreement, and upon request by Spinnaker
or Spinco, delivered no later than 90 days after the date all Data has been
processed, generated and acquired, as reflected in the lists provided by
the Company pursuant to this paragraph the Company will Deliver to
Spinnaker or Spinco, for use in accordance with the provisions hereof, the
Data and the Analyses. As soon as practicable after the date hereof and
from time to time until the Survey Termination Date as reasonably
determined by the Company (but at least once in each month and on the
Survey Termination Date), the Company will provide to the Spinco Group a
complete list of all Blocks for which Data exists or Data is in progress.
From time to time after the Survey Termination Date until the date on which
all Data has been acquired or produced (but at least once in each month),
the Company will provide to the Spinco Group a complete list of all Blocks
for which Data was in the process of being processed, generated or acquired
as of the Survey Termination Date. From time to time as reasonably
requested by the Spinco Group, the Company shall provide the Spinco Group
with a map or maps showing in reasonable detail all Data surveys of the PGS
Group existing or in progress covering a Block or Blocks. Promptly upon
Spinco or Spinnaker identifying the Data and Analyses to be delivered, the
Company will Deliver the same to Spinco or Spinnaker in accordance with the
provisions of this Agreement. All Data requested by Spinco or Spinnaker in
the formats identified on Schedule II, and any other forms of Data
available electronically through PGS's GeoBank in 32-bit format, and any
raw data volumes if processing of such Data occurs at a location of a
member of the PGS Group, shall be Delivered to Spinco or Spinnaker (as
applicable) by direct download via PGS's GeoBank in 32-bit format; all
other Data will be provided by the Company in tape form on Best Terms;
provided, that if during the term of this Agreement the Company makes data
generally available to its customers in standard deliverable formats in
addition to those identified on Schedule II, and Spinco or Spinnaker cannot
access such formats of Data via PGS's GeoBank in 32-bit format, then the
Company shall provide such Data in tape form at the Company's expense.
Subject to Section 10.1(e), all Analyses requested by Spinco shall be
Delivered to Spinco in the customary format that the Company delivers such
Analyses to other customers, at the Company's expense.
(b) (i) PGS and the Company will obtain, or have obtained, the consent of
(or other arrangements reasonably satisfactory to the Company
will be or have been made) the PGS Group's existing seismic data
marketing counterparties, which are Diamond Geophysical Service
Corporation, CenterLine Geophysical, Inc., Jebco Seismic, Inc.,
Eastern Geophysical, Inc., TGS-Calibre Geophysical Company,
Century Seismic LLC, and Geophysical Pursuit, Inc.,
(collectively, with their respective Affiliates, the "Existing
Marketers"), such that the Data, Analyses or Multi-Component Data
that is
-6-
<PAGE>
presently (with respect to all Existing Marketers) or will be in
the future (with respect to all Existing Marketers except Eastern
Geophysical) covered by any agreements with such Existing
Marketers can be Delivered to the Spinco Group in accordance with
all of the terms, provisions, conditions and representations set
forth in this Agreement. The Existing Marketers, except for
Eastern Geophysical, Inc., are hereinafter sometimes referred to
as the "Fully Consenting Marketers."
(ii) PGS and the Company shall make good faith efforts to obtain the
consent of, or make other arrangements reasonably satisfactory to
the Company with, those seismic data marketing counterparties
(other than the Fully Consenting Marketers) with whom any member
of the PGS Group enters into agreements after the date hereof
relating to Data, Analyses (if any), or Multi-Component Data (the
"New Marketers"), such that the Data, Analyses (if any), or
Multi-Component Data or Analyses covered by the applicable
agreements with such New Marketers can be Delivered to the Spinco
Group in accordance with all the terms, provisions, conditions
and representations set forth in this Agreement, as soon as
practicable; provided, however, no member of the PGS Group shall
be obligated to secure any consent or arrangement with a New
Marketer, all of which shall be at the sole discretion of PGS and
the Company (subject to the good faith efforts to secure such
consent or make other arrangements as is set out above). If PGS
or the Company secures any such consent or arrangement, then
thereafter, the Company shall include all Blocks covered by the
Data, Analyses (if any), or Multi-Component Data subject to such
consent or arrangement on the lists delivered by the Company
hereunder, and thereupon such data shall be considered Data (or
Analyses or Multi-Component Data, as the case may be) hereunder
for all purposes. If for any reason (other than the failure to
make good faith efforts as required above), PGS and the Company
do not obtain the consent of, or reach arrangements satisfactory
to them with, any such New Marketer, the seismic data covered by
any marketing agreements with such New Marketer shall be excluded
from Data, Analyses or Multi-Component Data subject to this
Agreement.
(c) PGS and the Company shall not, and PGS shall cause the other members
of the PGS Group not to, propose to a third party terms for any new
agreement that would have the effect of materially limiting or conditioning
the ability of PGS or the Company to fulfill its obligations under Articles
II and III hereof, provided that nothing in this paragraph shall prohibit
PGS or the Company from accepting such terms put forward by a New Marketer
if PGS has any reason, formed in good faith, to accept such terms other
than an intention to so limit or condition its ability to fulfill such
obligations.
-7-
<PAGE>
(a) No member of the PGS Group shall be obligated to acquire any specific
amount of additional Data, Multi-Component Data or Analyses subsequent to
the date of this Agreement.
2.2 SELECTION PROCEDURE FOR MULTI-COMPONENT DATA. At no further cost, Spinco
shall have the right until 90 days after all Multi-Component Data has been
acquired or produced, as reflected in the lists provided by the Company pursuant
to this paragraph, to select Multi-Component Data covering up to 60 Blocks. As
soon as is reasonably practicable after the date hereof and from time to time
until the Survey Termination Date as reasonably determined by the Company (but
at least once in each month and on the Survey Termination Date), the Company
shall provide to Spinco a complete list of all Blocks for which Multi-Component
Data exists or is in progress. From time to time after the Survey Termination
Date until the date on which all Multi-Component Data has been acquired or
produced (but at least once in each month), the Company will provide to Spinco a
complete list of all Blocks for which Multi-Component Data was in the process of
being processed, generated or acquired as of the Survey Termination Date.
Spinco shall select Blocks of Multi-Component Data by written notice to the
Company specifying the Blocks of Multi-Component Data selected and including a
map plot showing the Blocks selected referenced to a commonly-used coordinate
system. Spinco shall be required to select Multi-Component Data in groups of
Blocks which are all contiguous on at least one side and which include at least
five (5) Blocks; provided that such groups of five (5) or more Blocks contiguous
on at least one side may be any shape as selected by Spinco. Promptly upon
selection by Spinco in accordance with this Section 2.2, the Company shall
Deliver the Multi-Component Data so selected in accordance with the provisions
of this Agreement. Upon selection of any such Multi-Component Data, that
Multi-Component Data will be deemed to constitute "Data" for all purposes of
this Agreement (including, without limitation, the provisions of Article II).
Subject to Section 10.1(e), all Multi-Component Data selected by Spinco shall be
Delivered to Spinco by direct download via PGS's GeoBank in 32-bit format;
provided that where such Multi-Component Data is not available by such delivery
form or Spinco cannot access such Multi-Component Data via PGS's GeoBank, then
the Company shall provide such Multi-Component Data in tape form, at the
Company's expense.
2.3 USE AND ACCESS TO DATA. The Spinco Group may use, access, copy, display
and prepare Work Products from, the Data and the Analyses Delivered by the
Company, as follows:
(a) load machine-readable Data and Analyses into Spinco's or Spinnaker's
internal computer system at a location owned or leased by Spinco or
Spinnaker (an "Authorized Computer System");
(b) use and manipulate the Data and Analyses solely for purposes of
serving the internal needs of Spinco's or Spinnaker's business;
(c) in connection with Spinco's or Spinnaker's authorized use of the Data
and Analyses, storing, transmitting and displaying the Data and Analyses on
computers that are part of the Authorized Computer System; and
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<PAGE>
(d) making copies of the Data and Analyses on the Authorized Computer
System solely for Spinco's or Spinnaker's internal purposes, provided that
all of the Company's and PGS Group's proprietary and copyright legends are
included in all copies of the Data and Analyses.
In addition, the Spinco Group may disclose or make available the Data and Work
Products and Analyses to third parties only as follows:
(i) The Spinco Group may make the Data, Analyses and Work Products
prepared by the Spinco Group available to its consultants and
contractors for the purpose of interpretation, analysis, evaluation,
mapping and additional processing; provided that such consultant or
contractor does not remove the Data or Analyses or Work Products
(other than maps) from the premises of the Spinco Group (except that
such consultant or contractor may process the Data, Analyses or Work
Products at such consultant's or contractor's premises) and agrees in
writing to maintain the Data, Analyses and Work Products in
confidence, to use the Data, Analyses and Work Products only for the
benefit of the Spinco Group and in accordance with the terms of this
Agreement, and to return the Data, Analyses and Work Products upon
completion of the work for which the consultant or contractor has been
engaged.
(ii) The Data and Work Products may be shown (but not delivered to)
prospective and existing investors, lenders and/or participants in
farmouts, exploration groups, development proposals, joint acquisition
groups and the like for the sole purpose of evaluating their
participation in such ventures; provided that each such Person shall
agree in writing to maintain the Data and Work Products in confidence
in accordance with the terms of this Agreement. Such Persons may not
remove such Data and Work Products (other than maps) from the premises
of the Spinco Group nor retain copies thereof.
2.4 LIMITATIONS ON USE OF DATA AND ANALYSES. Neither member of the Spinco
Group may transfer or license the Data, Analyses or Work Products (other than
maps) to any Person other than within the Spinco Group without first obtaining a
transfer right pursuant to Section 3.2. Spinco and Spinnaker shall keep the
Data and the Analyses free and clear of all claims, liens, and encumbrances and
neither shall sell, lease, license, pledge or hypothecate the Data or Analyses.
Nothing in this Section 2.4 shall be deemed to limit any right of Spinco or
Spinnaker to transfer Data as specifically permitted, and on the conditions set
out, in Sections 3.2 or 10.1.
2.5 SEITEL DATA. In connection with the Original Data Agreement, PGS
Exploration assigned to Spinnaker the right granted to PGS Exploration pursuant
to the Seitel Agreement on the terms set forth therein. Spinnaker shall
continue to have such right. The Spinco Group shall not assume any obligations
under the Seitel Agreement other than the obligation to comply with the
provisions of the Seitel Agreement in its use of Seitel Data, and PGS and the
Company shall indemnify and hold
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<PAGE>
the Spinco Group harmless from all claims or obligations arising under or in any
way related to the Seitel Agreement and not so assumed by the Spinco Group.
2.6 DATA MANAGEMENT AGREEMENT. The Company and Spinnaker and Spinco agree that
for purposes of this Agreement, the Data Management Letter of Understanding
commencing June 1, 1999 between PGS Data Management and Spinnaker (the "Data
Management Agreement") will be extended, on the same terms and conditions and
with the same limitations as contained therein or made a part thereof as of the
date hereof, until March 31, 2003, to the extent that the PGS Group provides to
third parties the GeoBank electronic data download process that is the subject
of the Data Management Agreement; provided, however that from and after the
current expiration date of the Data Management Agreement the Spinco Group will
provide its T3 data/telecommunications line used in connection with the Data
Management Agreement, at its own expense; and provided further that,
notwithstanding anything herein to the contrary, if before March 31, 2003, the
PGS Group ceases to provide to third parties the GeoBank electronic data
download process that is the subject of the Data Management Agreement, the
Company will provide to Spinco or Spinnaker the Data that otherwise would have
been delivered hereunder via PGS's GeoBank by 32-bit tape at the Company's
expense.
ARTICLE III
TRANSFER OF DATA
3.1 TRANSFER OF THE DATA. Without further consideration, it shall be deemed
that Spinnaker or Spinco, as appropriate, has, in addition to the rights granted
under Article II, (i) the right to have Work Products made from Data by third
parties (subject to the limitation set out in this Agreement), (ii) the right to
use the Data in connection with the drilling of one or more wells on, or the
acquisition, directly or indirectly, of any interest in a producing oil or gas
property covering all or any part of, a Block to which such Data relates, (iii)
the limited right to transfer Data provided in Section 3.2 and Section 10.1 and
(iv) the limited right to show Data and Work Products from Data pursuant to
Section 2.3 provided that the restrictions of Section 2.3 are observed. Each of
Spinnaker and Spinco agrees to mark all Work Products from Data to indicate that
such Work Products are subject to restrictions on disclosure. The copy of the
Data transferred to Spinnaker or Spinco pursuant to this Section 3.1 and the
other provisions of this Article III applicable thereto shall be personal to
such entity and may not be transferred or licensed to any other Person, except
as expressly permitted in Sections 3.2 and 10.1.
3.2 LIMITED RIGHT TO TRANSFER. At no further cost, Spinnaker or Spinco, as
applicable, shall have a one-time right to transfer a copy (in the appropriate
form) of any Standard Data or Enhanced Data covering not more than an aggregate
of 568.6 Blocks in connection with all such transfers, each such transfer being
to a single "Qualified Transferee" with whom such party has entered into one or
more joint ventures or other contractual arrangements (which arrangements may
include additional Persons, but no such additional Persons shall be a Qualified
Transferee in respect of the Block in question) providing for joint contractual
interests in all or any part of such Block, or a Block contiguous on one side
with such Block. Any such transfer shall cover Data in groups of Blocks
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which are all contiguous on at least one side and which include at least twenty
(20) blocks; provided that such groups of twenty (20) or more Blocks contiguous
on at least one side may be any shape as selected by Spinco or Spinnaker. The
term "Qualified Transferee" means a Person (i) with substantial business
activities other than the joint contractual interest referred to in the
immediately preceding sentence, (ii) not formed for the purpose of holding such
interest or otherwise acquiring access to the data transferred, and (iii) has
executed a customary license agreement in favor of a member of the PGS Group or
an Existing Marketer or a New Marketer. Such Qualified Transferee shall have the
same rights granted to Spinnaker or Spinco, as appropriate (other than the
rights provided in this Section 3.2 and Section 10.1), in respect of the data
transferred covering such Block, and shall be subject to the same limitations
imposed on Spinnaker or Spinco, as applicable, under this Agreement with respect
to such data. No transfer within the Spinco Group of a copy of any Data shall be
deemed to be a transfer hereunder. For the purposes of determining the number of
Blocks of Data transferred to any Qualified Transferee, the parties agree that
the transfer of only Standard Data covering a Block or Blocks shall be counted
as the number of Blocks covered by such Data so transferred, and the transfer of
Standard Data with Enhanced Data covering a Block or Blocks shall be counted as
the number of Blocks covered by such Data so transferred multiplied by 1 1/2.
3.3 ALLOCATION OF DATA RECEIPT; CERTAIN RIGHTS OF SPINNAKER. Of the Data
Delivered hereunder (including Data Delivered under the Original Data
Agreement), the first 1,131.5 Blocks of Data Delivered (or, in the case of Data
nominated under the Original Data Agreement, nominated) have been Delivered to
(or nominated by) Spinnaker in consideration of which Spinnaker has issued to
the Company common units in Spinnaker. Prior to the date hereof, the Company
has provided to Spinnaker more than 1,131.5 Blocks of Data that were not
nominated under the Original Data Agreement, and Spinnaker has nominated under
that Original Data Agreement a total of 562.9 Blocks of Data. Of the Data
previously provided to Spinnaker but not nominated under the Original Data
Agreement, Spinnaker retains an additional 568.6 Blocks of Data. All Data in
excess of: (a) the Data previously nominated by Spinnaker and (b) the Data
retained by Spinnaker is Delivered on the date hereof by Spinnaker to Spinco (on
behalf of the Company), and all additional Data and all Multi-Component Data and
all Analyses later Delivered hereunder will be Delivered by the Company to
Spinco, in exchange for issuance by Spinco of 500,000 shares of Common Stock of
Spinco to the Company pursuant to the Acquisition Agreement.
ARTICLE IV
CONFIDENTIALITY; PROPRIETARY RIGHTS OF THE PGS GROUP
4.1 OWNERSHIP OF THE DATA AND ANALYSES. The Data and Analyses at all times
shall remain the property of the PGS Group, subject to the rights of the Spinco
Group and the Qualified Transferees hereunder.
4.2 CONFIDENTIALITY OBLIGATIONS. Each member of the Spinco Group agrees that
it will hold the Data and Work Products and Analyses in strict confidence, both
during the term and after the termination of this Agreement, and will not
disclose any portion of the Data or Work Products or Analyses therefrom to any
Person other than its directors, officers and employees, except that the Data
and Work Products and Analyses may be disclosed (i) as expressly permitted under
this
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Agreement, and (ii) to government agencies only to the extent such disclosure is
specifically required by law. Each member of the Spinco Group agrees to notify
the Company of any request or demand for disclosure made upon any member of the
Spinco Group by a government agency prior to any such disclosure. In addition,
each member of the Spinco Group shall take reasonable measures to keep the Data
and Analyses in a secure place and under reasonable access and use restrictions
designed to prevent disclosure to unauthorized parties, and shall notify the
Company immediately of any loss, theft or unauthorized disclosure or use of the
Data or Analyses.
ARTICLE V
REPRESENTATIONS AND COVENANTS OF PGS AND THE COMPANY
5.1 REPRESENTATIONS AND WARRANTIES OF PGS AND THE COMPANY. PGS and the
Company represent and warrant to the Spinco Group that:
(a) PGS is a joint stock company duly organized and validly existing under
the laws of the Kingdom of Norway;
(b) The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware;
(c) Each of them has all requisite corporate power and authority to
execute and deliver this Agreement;
(d) This Agreement is a legal, valid and binding obligation of each of
them enforceable against each of them in accordance with its respective
terms, except as such enforceability may be (i) limited by the effect of
any applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting the enforcement of creditors' rights
generally and (ii) subject to the effect of general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law);
(e) The performance of the geophysical surveys mentioned above and the
acquisition of the Data and Analyses were or will be conducted in
compliance with all applicable laws, rules and regulations; except where
the failure to so comply would not have a material adverse effect on the
rights of the Spinco Group or any Qualified Transferees, or the ability of
the Company or PGS to perform, under this Agreement;
(f) The Company has or will have the right to grant all rights described
herein to Spinnaker or Spinco, as applicable, and any Qualified
Transferees, as contemplated herein, whether or not the Company is the sole
owner of the Data or Analyses;
(g) The transactions related to the Data and Analyses contemplated by this
Agreement do not and will not infringe any copyright or trade secrets of
any third party. PGS and the Company represent and warrant that their
execution and delivery of this Agreement and the performance hereunder
shall not violate any applicable law, rule or regulation or any
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contracts by any member of the PGS Group with third parties except for any
violations that would not have a material adverse effect on the rights of
the Spinco Group or any Qualified Transferees, or the ability of the
Company or PGS to perform, under this Agreement; and
(h) Their performance of this Agreement does not and will not breach any
agreement to keep in confidence information acquired by them and that they
have not and will not use in the performance of their obligations hereunder
any confidential materials of any third parties, unless they first obtain
the prior written consent of the Spinco Group to do so.
EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, PGS, THE COMPANY AND THE OTHER
AFFILIATES OF PGS DISCLAIM ANY AND ALL PROMISES, REPRESENTATIONS AND WARRANTIES
WITH RESPECT TO THE DATA AND ANALYSES, WHETHER EXPRESS OR IMPLIED, INCLUDING ITS
CONDITION, ITS CONFORMITY TO ANY REPRESENTATION OR DESCRIPTION, THE EXISTENCE OF
ANY LATENT OR APPARENT DEFECTS AND ITS MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE OR USE. NEITHER PGS, THE COMPANY NOR THE OTHER AFFILIATES OF
PGS SHALL BE RESPONSIBLE IN ANY WAY FOR THE ACCURACY OF THE RESULTS OBTAINED BY
THE SPINCO GROUP OR ITS AFFILIATES OR TRANSFEREES THROUGH USE OF THE DATA.
5.2 GENERAL INDEMNITY RELATED TO THE ACQUISITION OF DATA. PGS and the Company
assume all liabilities of every nature, including any taxes levied, that may
arise out of or in connection with the activities of the PGS Group in acquiring
the Data or Analyses, and hereby agree to defend and hold the Spinco Group and
its Affiliates, and their respective officers, directors and employees, harmless
from any and all claims, demands, actions, causes of action and judgments,
including attorneys' fees and costs, arising out of or related to the Company's
making available or Delivery of Data or Analyses to Spinnaker. PGS and the
Company represent that no use or sales tax shall be owing or otherwise payable
by the Spinco Group because of the performance of the obligations of the Company
under Articles II and III hereof except for such taxes, if any, arising from the
purchase of services referred to in Section 7.1 by the Spinco Group.
5.3 NON-INFRINGEMENT INDEMNITY. PGS and the Company shall defend, indemnify
and hold harmless the Spinco Group and its officers, employees, and agents from
any and all third party claims, suits, causes, judgments, settlements, expenses
and liabilities based on a claim, assertion or allegation that any of the Data
or Analyses, or its use or distribution by the Spinco Group as expressly
permitted by this Agreement, infringes any copyright, trade secret or contract
right of any third party.
5.4 LIMITATION ON LIABILITY. THE CUMULATIVE LIABILITY OF THE PGS GROUP FOR ALL
CLAIMS RELATING TO THE DATA OR ANALYSES AND THIS AGREEMENT (WHETHER ARISING IN
CONTRACT, TORT OR STRICT LIABILITY) SHALL NOT EXCEED FORTY-FIVE MILLION DOLLARS.
IN NO EVENT SHALL ANY MEMBER OF THE PGS GROUP BE LIABLE FOR ANY LOSS OF PROFITS,
SPECIAL, EXEMPLARY OR CONSEQUENTIAL DAMAGES, WITHOUT REGARD TO WHETHER OTHER
PROVISIONS
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OF THIS AGREEMENT HAVE BEEN BREACHED OR HAVE PROVEN INEFFECTIVE. Nothing in this
Section 5.4 shall be deemed or construed to limit any provisions of the Related
Agreements concerning the rights and remedies of the Spinco Group and other
parties thereto, in the event of a breach of this Agreement or the Related
Agreements by any member of the PGS Group.
5.5 NON-COMPETE. Each of PGS and the Company covenants that it shall not,
directly or indirectly, until after the expiration of the Survey Termination
Date, disclose or provide to any Person other than the Spinco Group, in exchange
for any beneficial interest in any oil or gas property (or in any Person whose
assets are comprised principally of oil and/or gas properties), Data covering
the majority of the Blocks in any survey in the Gulf of Mexico that is marketed
by the PGS Group as a single survey.
ARTICLE VI
REPRESENTATIONS AND COVENANTS OF THE SPINCO GROUP
6.1 REPRESENTATIONS AND WARRANTIES OF THE SPINCO GROUP. Spinnaker and Spinco
represent and warrant, jointly and severally, that:
(a) Spinnaker is a limited liability company duly organized and existing
under the laws of the State of Delaware, and Spinco is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Delaware;
(b) This Agreement is a legal, valid and binding obligation of each of
Spinnaker and Spinco and each of the Related Agreements to which Spinnaker
or Spinco is a party is a legal, valid and binding obligation of such
party, in each case enforceable against such party in accordance with its
respective terms, except as such enforceability may be (i) limited by the
effect of any applicable bankruptcy, insolvency, reorganization, moratorium
or other similar laws relating to or affecting the enforcement of
creditors' rights generally and (ii) subject to the effect of general
principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law); and
(c) Each of Spinnaker and Spinco has full power and authority to execute
and deliver this Agreement, and its performance of this Agreement does not
and will not breach any agreement to keep in confidence information
acquired by it and it has not and will not use in the performance of its
obligations hereunder any confidential materials of any third parties,
unless it first obtains the Company's prior written consent to do so.
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<PAGE>
ARTICLE VII
ADDITIONAL SERVICES
7.1 ADDITIONAL SERVICES.
(a) The Spinco Group may request that the PGS Group provide such seismic
related services as the parties may agree upon from time to time. Such
services (the "Services") shall be provided by the PGS Group on Best Terms
until the Spinco Group has received Services costing $10,000,000. As part
of Services, the PGS Group shall develop and deliver such products or
services in accordance with such milestones or delivery schedule as the
parties may agree.
(b) The Spinco Group agrees that, if the PGS Group continues through
December 31, 2002 to offer to its customers substantially the same type and
quality of services as it does on the date hereof, it will purchase from
the PGS Group no less than $2,000,000 of Services (less the amount of
Services purchased from the PGS Group from December 20, 1996 to the date
hereof), to be performed by the PGS Group prior to December 31, 2002.
(c) If the Spinco Group has not fulfilled its obligation under paragraph
(b) immediately preceding by September 30, 2002, the Company shall so
notify Spinco on or before October 2, 2002. If the Spinco Group fails to
fulfill its obligation under paragraph (b) after receipt of such notice,
then as the sole remedy of PGS and the Company (i) the Spinco Group shall
pay to the Company the sum of $2,000,000, less the sums on of seismic
related services purchased and paid for by the Spinco Group from the PGS
Group on or prior to such date, which sum, shall be considered a prepayment
for future purchases by the Spinco Group of Services and (ii) future
purchases covered by such prepayment shall be charged at regular market
rates charged by the PGS Group at the time of such purchase rather than at
the discounted rates described above. In the event the Spinco Group fails
to purchase Services valued at the amount of its prepayment by December 31,
2004, the Company shall be entitled to retain such remaining prepayment
amount and the PGS Group shall have no further obligation to provide
Services to the Spinco Group.
7.2 INVOICES FOR ADDITIONAL SERVICES. The PGS Group shall invoice the Spinco
Group on a monthly basis for services performed by the PGS Group during the
preceding month. The invoices shall refer to this Agreement and shall be made
out and addressed as instructed in accordance with the Spinco Group's request(s)
for such services.
ARTICLE VIII
TERMINATION
8.1 TERMINATION EVENTS. The rights of the Spinco Group under Article II and
Sections 3.1 and 5.5, on the one hand, or the rights of PGS and the Company
under Section 7.1, on the other hand (either a "defaulting party"), but not the
obligations of the defaulting party, may be terminated
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<PAGE>
pursuant to this Section 8.1 by the other party (a "non-defaulting party") upon
written notice to the defaulting party upon the occurrence of any of the
following:
(i) A Bankruptcy Event with respect to the defaulting party;
(ii) A material breach by the defaulting party under this Agreement
(other than a breach of Sections 2.3, 2.4, 3.1(i), (ii) or (iv), or
4.2) that remains unremedied for 90 days after notice of such breach
is delivered by the Company to Spinco; or
(iii) A knowing breach of Sections 2.3, 2.4, 3.1(i), (ii) or (iv), or
4.2 that results in significant damages to the nondefaulting party, or
the failure of the defaulting party to take prompt diligent and
continuous action to prevent a subsequent breach of Sections 2.3, 2.4,
3.1(i), (ii) or (iv) or 4.2, after an unknowing breach of any such
Section that results in significant damages to the nondefaulting
party, and as to which the nondefaulting party has given the
defaulting party notice promptly after the Company becomes aware of
any such breach,
Nothing in this Section 8.1 shall limit the remedies available to the Company
for any breach of this Agreement by Spinco or Spinnaker.
ARTICLE IX
ARBITRATION OF DISPUTES
9.1 ARBITRATION PROCEDURES. Any dispute arising under or in connection with
this Agreement shall be settled by arbitration in Houston, Texas under the rules
of the American Arbitration Association, except as provided herein. The party
requesting arbitration shall serve upon the other party a written demand for
arbitration with the name and address of the arbitrator appointed by it and such
other party shall, within ten (10) business days thereafter, appoint an
arbitrator, and the two arbitrators so named shall appoint a third arbitrator,
and the decision or award of any two of the three arbitrators shall be final and
binding upon the parties. In no event shall any dispute be determined by more
than three arbitrators. Should the party upon whom the demand for arbitration
is served fail or refuse to appoint an arbitrator within ten (10) business days,
the single arbitrator shall have the right to decide alone, and his or her
decision or award shall be final and binding upon the parties. The
arbitrator(s) shall have the discretion to impose the cost of the arbitration
proceedings, including reasonable attorneys' fees, upon the losing party, or
divide it between the parties on any terms that they deem just. Any decision or
award rendered hereunder may be made and entered as a rule or judgment of any
court, in any county having jurisdiction.
9.2 JUDGMENTS. Judgment upon the arbitration award rendered may be entered in
any court having either personal or in rem jurisdiction, or application may be
made to such court for a judicial acceptance of the award and an order of
enforcement, as the case may be.
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ARTICLE X
MISCELLANEOUS
10.1 ASSIGNMENT OF THIS AGREEMENT.
(a) The terms used in this Section 10.1 have the meanings assigned below:
(i) "Spinco Group Successor" means a successor to all or
substantially all of the business or assets of Spinnaker or Spinco
that is not a PGS Competitor.
(ii) "PGS Competitor" means a Person that provides 3-D marine seismic
data in the Gulf of Mexico or its associated bays, channels,
tributaries, estuaries and Transition Zones, as a significant part of
its business, and any Affiliate of such a Person.
(iii) "Major Customer" means, at the time of determination, (x) a
Person that has purchased from the PGS Group in the 12 calendar month
period immediately preceding the month in which such determination is
made a dollar amount of products and services at least equal to 7.5%
of the aggregate gross receipts of the PGS Group for all seismic data
purchases and related services provided in such 12 calendar month
period in the Gulf of Mexico and its associated bays, channels,
tributaries, estuaries and Transition Zones, and (y) any Affiliate of
such a Person. The Company shall provide Spinco, within a reasonable
time, written notice from time to time when a Person becomes a Major
Customer and when a Person ceases to be a Major Customer. A Person
shall not be recognized as a Major Customer under the provisions of
this Article 10.1 unless the Company shall have provided Spinco with a
notice so designating such Person.
(iv) "Qualified Survivor" means the surviving entity (other than
Spinnaker or Spinco) after a merger or consolidation between Spinnaker
or Spinco and a third Person if (and only if) such third Person is not
a PGS Competitor and is not a Major Customer.
(v) "Competitor Change of Control" means a change in the ownership
of Spinnaker or Spinco or a successor to either of them that gives
Control to a PGS Competitor and that occurs after the membership
interests or common stock, as the case may be, of Spinnaker or Spinco
are (x) registered pursuant to the Securities Act of 1933 or the
Securities Exchange Act of 1934 or (y) authorized and approved for
listing on a national securities exchange or admitted to trading and
quoted in the Nasdaq National Market or comparable system.
(vi) "Customer Change of Control" means a change in the ownership of
Spinnaker or Spinco or a successor to either of them that gives
Control to a Major Customer and that occurs after the membership
interests or common stock, as the case may be, of
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Spinnaker or Spinco or a successor to either of them are (x)
registered pursuant to the Securities Act of 1933 or the Securities
Exchange Act of 1934, or (y) authorized and approved for listing on a
national securities exchange or admitted to trading and quoted in the
Nasdaq National Market or comparable system.
(b) Except as provided in Section 3.2, the Data and the rights granted by
this Agreement may not be transferred without the prior written consent of
the Company, except that such consent shall not be required with respect to
(i) one (and only one) transfer by the Spinco Group to a Spinco Group
Successor or (ii) if (and only if) the Spinco Group Successor is not a
Major Customer, one (and only one) transfer to a single successor to all of
substantially all of the business or assets of the Spinco Group Successor
that is not a PGS Competitor. A transfer of the Data from one member of the
Spinco Group to another (by direct assignment, merger, consolidation or
otherwise) shall not constitute a transfer hereunder.
(c) Data and the rights granted, and limitations imposed, by this
Agreement will continue in full force and effect after the merger or
consolidation by Spinnaker or Spinco with any other Person, provided that
such other Person is not a PGS Competitor. The Data and the rights granted,
and limitations imposed, by this Agreement will continue in full force and
effect after the merger or consolidation by a Qualified Survivor with any
other Person, provided that such other Person is not a PGS Competitor.
(d) If any of the following events occurs, then the Company may by written
notice to Spinco terminate the rights of the Spinco Group under Article II
and Section 3.1:
(i) Either of Spinnaker or Spinco transfers Data or this Agreement
in any manner other than as expressly permitted under Section 3.2 or
Section 10.1 (b);
(ii) Either of Spinnaker or Spinco effects a merger or consolidation
not expressly permitted under Section 10.1 (c);
(iii) there is a Competitor Change of Control; or
(iv) upon the occurrence of more than one Customer Change of Control
(provided that the first Customer Change of Control shall not give
rise to such termination option).
(e) Notwithstanding anything to the contrary herein, after the date hereof
Spinco may assign to Spinnaker all or any part of its rights hereunder
(including all rights to all Data that was Delivered to Spinco prior to any
such assignment), including its rights hereunder to designate, select, and
otherwise deal with Data, Multi-Component Data and Analyses.
10.2 NOTICES. All notices will be given in writing to the respective parties
at the following addresses, unless another address shall have been designated in
writing, and will be deemed delivered when delivered by hand; delivered by
Federal Express or other overnight courier service
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with a reliable system for tracking delivery; or sent and received by registered
or certified mail, postage prepaid, return receipt requested.
If to PGS:
Petroleum Geo-Services ASA
Strandveien 50 N-13 24
Lysaker, Norway
Attention: Knut Haavardsen
Facsimile: 011-67-53-68-83
If to the Company:
Seismic Energy Holdings, Inc.
16010 Barker's Point Lane
Houston, Texas 77079
Attention: Sean M. Gore
Facsimile: 281-589-2926
If to Spinnaker or Spinco:
Spinnaker Exploration Company
1200 Smith, Suite 800
Houston, Texas 77002
Attention: Roger L. Jarvis
Facsimile: 713- 759-1773
10.3 ENTIRE AGREEMENT. This Agreement, together with any attachments or
schedules hereto, and the Related Agreements contains the entire understanding
between the parties relating to the subject matter hereof and supersedes all
prior agreements (including the Original Data Agreement as heretofore amended
and restated), proposals, representations and understandings between the parties
relating to the subject matter hereof.
10.4 NO AMENDMENT. This Agreement may not be amended, modified, superseded or
canceled and none of the terms, provisions, covenants, representations,
warranties or conditions may be waived, except by a written instrument executed
by the parties, or in the case of waiver, by the party waiving compliance.
10.5 NO WAIVER. No failure by either party to exercise any right arising from
a default by the other party shall impair that right or constitute a waiver of
it. No waiver by any party of any condition or breach of any term, provision,
covenant, representation or warranty, whether by conduct or otherwise, in any
one or more instances, shall be deemed to be or construed as a further or
continuing waiver of any such condition or breach, or a waiver of any other
condition, or breach of any other term, provision, covenant, representation or
warranty.
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10.6 REMEDIES, GUARANTIES. Unless stated otherwise, all remedies specified
herein are cumulative and in addition to any other remedies available at law or
in equity. PGS and the Company acknowledge that any violation by either of them
of certain of their obligations under this Agreement would result in damage to
the Spinco Group that is incapable of complete remedy by an award of the money
damages as allowed by the other provisions of this Agreement. Accordingly, any
violation of the obligations of PGS or the Company hereunder shall give the
Spinco Group the right to specifically enforce such obligations (assuming
neither Spinnaker or Spinco is then a defaulting party under this Agreement),
including seeking a court-ordered injunction or other appropriate equitable
relief to specifically enforce those obligations. PGS hereby irrevocably
guarantees the timely performance by the Company of its obligations hereunder;
and each of Spinnaker and Spinco hereby irrevocably guarantees the timely
performance by the other of its respective obligations hereunder.
10.7 SEVERABILITY. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants, and
restrictions of this Agreement shall continue in full force and effect and shall
in no way be affected, impaired or invalidated unless such an interpretation
would materially alter the rights and privileges of any party hereto or
materially alter the terms of the transactions contemplated hereby.
10.8 CHOICE OF LAW. This Agreement will be subject to, governed by, and shall
be interpreted according to, the substantive laws of the State of Texas, without
regard to its conflicts laws or rules.
10.9 COUNTERPARTS. This Agreement may be executed in as many counterparts as
may be required, each of which shall be deemed an original.
10.10 NO THIRD PARTY BENEFICIARIES. The parties agree that this Agreement is
for the benefit of the parties and is not intended to confer any legal rights or
benefits to any third party, and that there are no third party beneficiaries to
this Agreement or any part or specific provision of this Agreement.
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IN WITNESS WHEREOF, the undersigned have executed this Agreement to be effective
as of the date first above written.
PETROLEUM GEO-SERVICES ASA
By: /s/ J. CHRISTOPHER BOSWELL
-----------------------------
Name: J. Christopher Boswell
---------------------------
Title: Sr. V.P./CFO
--------------------------
SEISMIC ENERGY HOLDINGS, INC.
By: /s/ SEAN M. GORE
-----------------------------
Name: SEAN M. GORE
---------------------------
Title: VP, Finance
--------------------------
SPINNAKER EXPLORATION COMPANY, L.L.C.
By: /s/ ROGER L. JARVIS
-----------------------------
Name: Roger L. Jarvis
---------------------------
Title: President
--------------------------
SPINNAKER EXPLORATION COMPANY
By: /s/ ROGER L. JARVIS
-----------------------------
Name: Roger L. Jarvis
---------------------------
Title: President
--------------------------
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SCHEDULE I
SUMMARY OF SURVEY ANALYSES
<TABLE>
<CAPTION>
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SURVEY A B C D E
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LEAD MAGNETIC GRAVITY BATHYMETRY DATA Bright Spot
PORTFOLIO DATA DATA Atlas
<S> <C> <C> <C> <C> <C>
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GPI 1 (45 blk) X X X N/A N/A
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GPI 2 (193.5 blk) X X X X N/A
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GPI 3/DW6 (143 blk) X X X X N/A
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GPI 4/DW 10 (141 blk) X X X X N/A
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DW 7 (168 blk) IN PROCESS X X X N/A
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DW 8 (152 blk) IN PROCESS X X X N/A
- ---------------------------------------------------------------------------------------------------------
Jebco 1/DW 1 (148 blk) X X X N/A N/A
- ---------------------------------------------------------------------------------------------------------
Jebco 2/DW 2 (138 blk) X X X N/A N/A
- ---------------------------------------------------------------------------------------------------------
Jebco 3/DW 3 (147 blk) X X X N/A N/A
- ---------------------------------------------------------------------------------------------------------
Centerline HI 1 (51.2 blk) X N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------
</TABLE>
In process -- Lead portfolio will be made available as soon as it is completed.
Expected completion date August 1999.
Deliverables included within each category above:
A. LEAD PORTFOLIO
. Seafloor structure map (time and depth)
. Top & base salt time structure maps (time and depth)
. Base sediment structure map
. Salt isochron and isopach maps
. Sediment isochron and isopach maps (seafloor to top salt)
. Selected correlated faults (digital format only)
. Interval RMS amplitude maps
. Amplitude anomaly lead map
. Subsalt reflection lead map (where imaged)
-22-
<PAGE>
B. AEROMAGNETIC SURVEY DATA
I. Raw and processed aeromagnetic data on desired medium and format:
. Geodetic Coordinates (Latitudes/Longitudes and projected X and Y
coordinates)
. Raw TMI
. Diurnal base station magnetics
. Barometric altimetry
. Radar altimetry
. GPS altimetry
. IGRF correction (point-by-point and altitude adjusted)
. IGRF corrected
. Leveled and Adjusted TMI and grid of TMI
. Database of the data delivered (sequential format or LCT format)
II. Deliverables (Maps)
. Total Magnetic Field Intensity Map
. Residual Magnetic Intensity Map
. Polar Reduced TMI Map
. Polar Reduced Residual Map
. Flight Line Map
. Gradient Map
III. Acquisition, Processing and Interpretation Reports
All map and profile scales will be appropriately for the size of the Survey.
All Maps will be available in ZMAP+(TM) format and cgm files on tape.
C. RAW/PROCESSED GRAVITY DATA
I. Data Package
. Geodetic Coordinates (Latitudes/Longitudes and projected X and Y
Coordinates)
. Raw Gravity data, all channels
. Processed Gravity Data
. Grids of Bathymetry, Free-Air gravity and Bouguer gravity data
. Database of the data delivered (sequential format or LCT format)
II. Deliverables (Maps)
. Bathymetry Map
. Free-Air Gravity Map
. Bouguer Gravity Map
. Shiptrack Map
. Depth to Salt Base Map-Emc/(3D)/
-23-
<PAGE>
III. Acquisition, Processing and Interpretation Reports
All map and profile scales will be set appropriately for the size of the Survey.
All Maps will be available in ZMAP+(TM) format and cgm files on tape.
D. Scabeam multi-beam bathymetry data
. Bathymetry data (x, y, z) on CD or other media
. Seafloor Rendering (shaded relief)
. Processing Report
-24-
<PAGE>
SCHEDULE II
Deliverables Formats for Data
via PGS GeoBank
- --------------------------------------------------------------------------------
post-stack time data post-stacking migrated volume
- --------------------------------------------------------------------------------
pre-stack time data pre-stack time migrated volume
- --------------------------------------------------------------------------------
3D AVO 3D pre-stack time migrated data (full stack),
3 range limited stack volumes (near, mid and
far)
- --------------------------------------------------------------------------------
pre-stack depth 3D pre-stack depth migrated volume and final
migrated data velocity model
- --------------------------------------------------------------------------------
post-stack depth 3D post-stack depth migrated volume and
migrated data final velocity model
- --------------------------------------------------------------------------------
-25-
<PAGE>
EXHIBIT 10.2
SPINNAKER EXPLORATION COMPANY
AMENDED AND RESTATED
1998 STOCK OPTION PLAN
I. Purpose of the Plan
The SPINNAKER EXPLORATION COMPANY AMENDED AND RESTATED 1998 STOCK OPTION
PLAN (the "Plan") is intended to provide a means whereby certain employees,
consultants, and advisors of SPINNAKER EXPLORATION COMPANY, a Delaware
corporation (the "Company"), and its subsidiaries may develop a sense of
proprietorship and personal involvement in the development and financial success
of the Company, thereby advancing the interests of the Company and its owners.
Accordingly, the Company may grant to certain individuals ("Optionees") the
option ("Option") to purchase shares of the common stock of the Company
("Stock"), as hereinafter set forth. Options granted under the Plan may be
either incentive stock options, within the meaning of section 422(b) of the
Internal Revenue Code of 1986, as amended (the "Code"), ("Incentive Stock
Options") or options which do not constitute Incentive Stock Options.
II. ADMINISTRATION
The Plan shall be administered by the compensation committee (the
"Committee") of, and appointed by, the Board of Directors of the Company (the
"Board"). In the absence of the Board's appointment of the Committee to
administer the Plan, the Board shall serve as the Committee. The Committee shall
have sole authority to select the Optionees from among those individuals
eligible hereunder and to establish the number of shares of Stock which may be
issued under each Option. In selecting the Optionees from among individuals
eligible hereunder and in establishing the number of shares of Stock that may be
issued under each Option, the Committee may take into account the nature of the
services rendered by such individuals, their present and potential contributions
to the Company's success and such other factors as the Committee in its
discretion shall deem relevant. The Committee is authorized to interpret the
Plan and may from time to time adopt such rules and regulations, consistent with
the provisions of the Plan, as it may deem advisable to carry out the Plan. All
decisions made by the Committee in selecting an Optionee and in establishing the
number of shares of Stock which may be issued under each Option shall be final.
III. OPTION AGREEMENTS
(a) Each Option shall be evidenced by a written agreement between the
Company and the Optionee ("Option Agreement") which, subject to the provisions
of this Plan, shall contain such terms and conditions as may be approved by the
Committee. The terms and conditions of the respective Option Agreements need not
be identical. An Option Agreement may provide for the payment of the option
price, in whole or in part, by the delivery of a number of shares of Stock (plus
cash if necessary) having a fair market value equal to such option price. The
Committee may at any time and from time to time, in its sole discretion,
accelerate the time at which an Option then
<PAGE>
outstanding may be exercised. Any such action by the Committee may vary among
individual Optionees and may vary among Options held by any individual Optionee.
(b) For all purposes under the Plan, the fair market value of a share of
Stock on a particular date shall be equal to the mean of the high and low sales
prices of the Stock (i) reported by the National Market System of NASDAQ on that
date or (ii) if the Stock is listed on a national stock exchange, reported on
the stock exchange composite tape on that date; or, in either case, if no prices
are reported on that date, on the last preceding date on which such prices of
the Stock are so reported. If the Stock is traded over the counter at the time a
determination of its fair market value is required to be made hereunder, its
fair market value shall be deemed to be equal to the average between the
reported high and low or closing bid and asked prices of Stock on the most
recent date on which Stock was publicly traded. In the event Stock is not
publicly traded at the time a determination of its value is required to be made
hereunder, the determination of its fair market value shall be made by the
Committee in such manner as it deems appropriate.
(c) Each Option and all rights granted thereunder shall not be transferable
other than by will or the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined by the Internal Revenue Code or
Title I of the Employee Retirement Income Security Act of 1974, as amended, or
the rules thereunder.
IV. ELIGIBILITY OF OPTIONEE
Options may be granted only to individuals who are employees, consultants,
or advisors of the Company or any parent or subsidiary corporation or other
entity (except that Incentive Stock Options may only be granted to such
individuals who are employees of the Company or any parent or subsidiary
corporation as defined in section 424 of the Code) at the time the Option is
granted. Options may be granted to the same individual on more than one
occasion. No Incentive Stock Option shall be granted to an individual if, at the
time the Option is granted, such individual owns stock possessing more than 10%
of the total combined voting power of all classes of stock of the Company or of
its parent or subsidiary corporation, within the meaning of section 422(b)(6) of
the Code, unless (i) at the time such Option is granted the option price is at
least 110% of the fair market value of the Stock subject to the Option and (ii)
such Option by its terms is not exercisable after the expiration of five years
from the date of grant. To the extent that the aggregate fair market value
(determined at the time the respective Incentive Stock Option is granted) of
stock with respect to which Incentive Stock Options are exercisable for the
first time by an individual during any calendar year under all incentive stock
option plans of the Company and its parent and subsidiary corporations exceeds
$100,000, such excess Incentive Stock Options shall be treated as Options which
do not constitute Incentive Stock Options. The Committee shall determine, in
accordance with applicable provisions of the Code, Treasury Regulations and
other administrative pronouncements, which of an Optionee's Incentive Stock
Options will not constitute Incentive Stock Options because of such limitation
and shall notify the Optionee of such determination as soon as practicable after
such determination.
-2-
<PAGE>
V. SHARES SUBJECT TO THE PLAN
The aggregate number of shares which may be issued under Options granted
under the Plan shall not exceed 2,673,242 shares of Stock. Such shares may
consist of authorized but unissued shares of Stock or previously issued shares
of Stock reacquired by the Company. Any of such shares which remain unissued and
which are not subject to outstanding Options at the termination of the Plan
shall cease to be subject to the Plan, but, until termination of the Plan, the
Company shall at all times make available a sufficient number of shares to meet
the requirements of the Plan. Should any Option hereunder expire or terminate
prior to its exercise in full, the shares theretofore subject to such Option may
again be subject to an Option granted under the Plan. The aggregate number of
shares which may be issued under the Plan and the purchase price per share shall
be subject to adjustment in the same manner as provided in Paragraph VIII hereof
with respect to shares of Stock subject to Options then outstanding. Exercise of
an Option in any manner, shall result in a decrease in the number of shares of
Stock which may thereafter be available, both for purposes of the Plan and for
sale to any one individual, by the number of shares as to which the Option is
exercised. Separate stock certificates shall be issued by the Company for those
shares acquired pursuant to the exercise of an Incentive Stock Option and for
those shares acquired pursuant to the exercise of any Option which does not
constitute an Incentive Stock Option.
VI. OPTION PRICE
The purchase price of an aggregate of 1,520,608 shares of Stock that may be
issued under Options granted under the Plan shall be $5.00 per share, and the
purchase price of an aggregate of 1,152,634 shares of Stock that may be issued
under Options granted under the Plan shall be $15.625 per share. Subject to the
foregoing, the Committee may determine the number of such Options to be granted
to a specified Optionee. No Option shall be treated as an Incentive Stock Option
unless the purchase price is no less than the fair market value of the Stock
subject to the Option on the date the Option is granted.
VII. TERM OF PLAN
The Plan was originally adopted by the Board on January 6, 1998 and
approved by the shareholders of the Company. The Amended and Restated Plan was
adopted by the Board as of September 27, 1999 and approved by the shareholders
of the Company on such date. Except with respect to Options then outstanding, if
not sooner terminated under the provisions of Paragraph IX, the Plan shall
terminate upon and no further Options shall be granted after December 31, 2007.
VIII. RECAPITALIZATION OR REORGANIZATION; ANTIDILUTION PROVISIONS
(a) The existence of the Plan and the Options granted hereunder shall not
affect in any way the right or power of the Board or the stockholders of the
Company to make or authorize any adjustment, recapitalization, reorganization or
other change in the Company's capital structure or its business, any merger or
consolidation of the Company, any issue of debt or equity securities, the
dissolution or liquidation of the Company or any sale, lease, exchange or other
disposition of all or any part of its assets or business or any other corporate
act or proceeding.
-3-
<PAGE>
(b) The shares with respect to which Options may be granted are shares of
Stock as presently constituted, but if, and whenever, prior to the expiration of
an Option theretofore granted, the Company shall effect a subdivision or
consolidation of shares of Stock or the payment of a stock dividend on Stock
without receipt of consideration by the Company, the number of shares of Stock
with respect to which such Option may thereafter be exercised (i) in the event
of an increase in the number of outstanding shares shall be proportionately
increased, and the purchase price per share shall be proportionately reduced,
and (ii) in the event of a reduction in the number of outstanding shares shall
be proportionately reduced, and the purchase price per share shall be
proportionately increased.
(c) If the Company recapitalizes, reclassifies its capital stock, or
otherwise changes its capital structure (a "recapitalization"), the number and
class of shares of Stock covered by an Option theretofore granted shall be
adjusted so that such Option shall thereafter cover the number and class of
shares of Stock and/or securities to which the Optionee would have been entitled
pursuant to the terms of the recapitalization if, immediately prior to the
recapitalization, the Optionee had been the holder of record of the number of
shares of Stock then covered by such Option. If any of the following events
occur (each such event is referred to herein as a "Company Change"):
(i) the Company shall not be the surviving entity in any merger,
consolidation or other reorganization (or survives only as a subsidiary of
an entity);
(ii) the Company sells, leases or exchanges all or substantially all of
its assets to any other person or entity;
(iii) the Company is to be dissolved and liquidated; or
(iv) a Spinnaker Change of Control (as such term is defined below);
then effective with (A) the approval by the stockholders of the Company of such
merger, consolidation, reorganization, sale, lease or exchange of assets or
dissolution, or (B) the event or change of control of the type described in
Clause (iv), all Options then outstanding shall be immediately exercisable in
full; provided, however, that the exercisability of outstanding Options shall
not be so accelerated in the event of a merger, consolidation, or reorganization
described in Clause (i) above if, immediately after such merger, consolidation,
or reorganization, the stockholders of the Company immediately prior to such
merger, consolidation, or reorganization own a majority of the issued and
outstanding equity securities of the surviving entity. In addition, upon the
occurrence of a Company Change, the Committee, acting without the consent or
approval of any Optionee ( in his capacity as an Optionee), shall act to effect
one or more of the following alternatives: (1) if the Company Change results in
the holders of shares of Stock receiving predominantly cash in exchange for such
shares of Stock, then the Committee may, in its discretion by written notice to
Optionee, require the mandatory surrender to the Company by Optionees of all of
the outstanding Options held by such Optionees (irrespective of whether such
Options are then exercisable under the provisions of the Plan) as of a date,
before or after such Company Change, specified by the Committee, in which event
the Committee shall thereupon cancel such Options and the Company shall pay to
each Optionee an amount per share of Stock equal to the excess, if any, of the
amount calculated in Subparagraph (e) below (the "Change of Control Value") of
-4-
<PAGE>
the share of Stock subject to such Option (whether such Options are then
exercisable or not) over the exercise price(s) under such Options for such
shares of Stock; or (2) if the Company Change does not result in the holders of
shares of Stock receiving predominantly cash in exchange for such shares of
Stock, then the Committee may, in its discretion provide that the number and
class of shares of Stock covered by an Option theretofore granted shall be
adjusted so that such Option shall thereafter cover the number and class of
shares of Stock or other securities or property (including, without limitation,
cash) to which the Optionee would have been entitled pursuant to the terms of
the Company Change if, immediately prior to such Company Change, the Optionee
had been the holder of record of the number of shares of Stock then covered by
such Option. "Spinnaker Change of Control" means the first to occur of the
following: (i) the acquisition by any person or entity ("Person") other than
Warburg, Pincus Ventures, L.P. ("WPV"), of the power, directly or indirectly, to
vote or direct the voting of securities having more than fifty percent (50%) of
the ordinary voting power for the election of directors of the Company; (ii) the
acquisition by any Person, other than WPV, of a majority of the outstanding
Series A Convertible Preferred Stock of the Company (the "Preferred Shares"); or
(iii) the acquisition by any Person, other than WPV, of shares of Stock or
Preferred Shares (collectively, "Shares") of the Company that would entitle such
Person upon the liquidation of the Company to a majority of the proceeds
attributable to the holders of the Company's Shares assuming all Shares that are
convertible or exchangeable for Stock or other Shares were so converted or
exchanged immediately prior to such liquidation. Notwithstanding the foregoing,
a Spinnaker Change of Control shall be deemed not to have occurred as a result
of Seismic Energy Holdings, Inc. ("SEHI") or an affiliate thereof having the
power to vote or direct the voting referred to in clause (i) above or acquiring
Shares having the right to proceeds referred to in clause (iii) above if SEHI or
such affiliate has such power or owns such Shares by reason of the acquisition
of the Shares, or the timing of such acquisitions, under the Contribution
Agreement dated as of January 6, 1998 among the Company and certain stockholders
of the Company.
(d) The exercise price of any Option shall be adjusted from time to time as
provided in Paragraph 5(g) of the Company's Certificate of Designations,
Preferences and Rights of Series A Convertible Preferred Stock (the
"Designation"), as such Designation may be amended, modified or restated from
time to time, to the extent that the Company takes any of the actions set forth
in Paragraph 5(g); provided that all references in such Paragraph 5(g) to
"Conversion Price" shall be deemed for purposes of the adjustments to be made
under this Paragraph VIII(d) to be references to the exercise price of the
relevant Options; and, provided further, that no adjustment shall be made
pursuant to the provisions of Paragraph 5(g)(i) and no adjustment pursuant to
this paragraph (d) shall be made to the extent duplicative of adjustments made
pursuant to paragraphs (b) or (c) of this Article VIII. Holders of Options shall
be promptly notified of all such adjustments.
(e) For the purposes of Subparagraph (c) above, the "Change of Control
Value" shall equal the amount determined in Clause (i), (ii) or (iii), whichever
is applicable, as follows: (i) the per share price offered to stockholders of
the Company in any such merger, consolidation, reorganization, sale of assets or
dissolution transaction, (ii) the price per share offered to stockholders of the
Company in any tender offer or exchange offer whereby a Company Change takes
place, or (iii) if such Company Change occurs other than pursuant to a tender or
exchange offer, the fair market value per share of Stock into which such Options
being surrendered are exercisable, as determined by the Committee as of the date
determined by the Committee to be the date of cancellation and surrender of such
Options (but not later than the time of the Company Change).
-5-
<PAGE>
In the event that the consideration offered to stockholders of the Company in
any transaction described in this Subparagraph (e) or Subparagraph (c) above
consists of anything other than cash, the Committee shall determine in good
faith the fair cash equivalent of the portion of the consideration offered which
is other than cash, and the Committee shall, in its discretion, cause the
Company to make payment to the Optionees of the amount described in clause (1)
of the third to last sentence of Subparagraph (c) above either (A) in cash or
(B) in-kind based upon the same (and in the same proportion as) securities or
other property (including, without limitation, cash) received as consideration
by the stockholders of the Company in such transaction.
(f) Any adjustment provided for in Subparagraphs (b) or (c) above shall be
subject to any required stockholder action.
(g) Except as hereinbefore expressly provided, the issuance by the Company
of shares of stock of any class or securities convertible into shares of stock
of any class, for cash, property, labor or services, upon direct sale, upon the
exercise of rights or warrants to subscribe therefor, or upon conversion of
shares or obligations of the Company convertible into such shares or other
securities, and in any case whether or not for fair value, shall not affect, and
no adjustment by reason thereof shall be made with respect to, the number of
shares of Stock subject to Options theretofore granted or the purchase price per
share.
IX. AMENDMENT OR TERMINATION OF THE PLAN
The Board in its discretion may terminate the Plan at any time with respect
to any shares of Stock for which Options have not theretofore been granted. The
Board shall have the right to alter or amend the Plan or any part thereof from
time to time; provided, that no change in any Option theretofore granted may be
made which would impair the rights of the Optionee without the consent of such
Optionee; and provided, further, that the Board may not make any alteration or
amendment which would (1) increase the aggregate number of shares of Stock which
may be issued pursuant to the provisions of the Plan, without the approval of
the stockholders of the Company, or (2) change the class of individuals eligible
to receive Options under the Plan.
X. SECURITIES LAWS
The Company shall not be obligated to issue any shares of Stock pursuant to
any Option granted under the Plan at any time when the offering of the shares of
Stock covered by such Option have not been registered under the Securities Act
of 1933 and such other state and federal laws, rules or regulations as the
Company or the Committee deems applicable and, in the opinion of legal counsel
for the Company, there is not exemption from the registration requirements of
such laws, rules or regulations available for the offering and sale of such
shares of Stock.
Amended and Restated as of September 27, 1999.
-6-
<PAGE>
EXHIBIT 10.3
AMENDED AND RESTATED
STOCKHOLDERS AGREEMENT
THIS AMENDED AND RESTATED STOCKHOLDERS AGREEMENT (the "Agreement") is
entered into as of September 27, 1999 among Spinnaker Exploration Company
(formerly Spinco Exploration Company), a Delaware corporation (the
"Corporation"), and the Persons (as defined herein), other than the Corporation,
listed on the signature pages attached hereto, and their permitted successors
and assigns, and each owner of Common Stock or Preferred Stock, as defined
herein, who may hereafter execute in accordance with this Agreement a separate
agreement to be bound by the terms hereof. This Agreement shall be effective as
provided in Section 5.13.
W I T N E S S E T H:
WHEREAS, in connection with the conversion of the Corporation from a
limited liability company into a corporation, the parties hereto entered into
that certain Stockholders Agreement dated January 6, 1998 (the "Stockholders
Agreement"); and
WHEREAS, the parties hereto now desire, pursuant to Section 7.1 of the
Stockholders Agreement, to amend and restate the Stockholders Agreement to (i)
eliminate all provisions of the Stockholders Agreement, effective on the
completion of the initial public offering of the Corporation, except those
provisions relating to registration rights and miscellaneous matters and (ii)
waive the piggyback registration rights in connection with the Corporation's
initial public offering;
NOW, THEREFORE, in consideration of the mutual covenants and obligations
hereinafter set forth, the parties hereto, intending to be legally bound, hereby
agree as follows:
ARTICLE I
GENERAL PROVISIONS;
REPRESENTATIONS AND WARRANTIES
1.1 CERTAIN TERMS. In addition to the terms defined elsewhere herein, when
used herein the following terms shall have the meanings indicated:
"Affiliate" of a Person means, any Person Controlling, Controlled by, or
Under Common Control with such Person.
"Board" means the Board of Directors of the Corporation.
-1-
<PAGE>
"Business Day" means any day other than a Saturday, a Sunday, or a holiday
on which national banking associations in the State of Texas are authorized by
Law to close.
"Certificate of Designation" means the Certificate of Designations,
Preferences and Rights of Series A Convertible Preferred Stock dated January 6,
1998.
"Common Stock" means shares of the common stock, par value $.01 per share,
of the Corporation.
"Common Stock Equivalents" means (without duplication with any other Common
Stock or Common Stock Equivalents) rights, warrants, options, convertible
securities (including Preferred Stock), or exchangeable securities or
indebtedness, or other rights, exercisable for or convertible or exchangeable
into, directly or indirectly, Common Stock or securities convertible or
exchangeable into Common Stock, whether at the time of issuance or upon the
passage of time or the occurrence of some future event.
"Contribution Agreement" means the Contribution Agreement by and among the
Corporation, WPV, SEHI, Roger L. Jarvis, James M. Alexander, PGS, Spinnaker LLC
and certain unit holders of Spinnaker LLC dated January 6, 1998 and providing
for issuance of Common Stock and Preferred Stock.
"Control," including the correlative terms "Controlling", "Controlled by"
and "Under Common Control with" means possession, directly or indirectly, of the
power to direct or cause the direction of management or policies (whether
through ownership of securities or any partnership or other ownership interest,
by contract or otherwise) of a Person. For the purposes of the preceding
sentence, control shall be deemed to exist when a Person possesses, directly or
indirectly, through one or more intermediaries (i) in the case of a corporation,
more than 50% of the outstanding voting securities thereof; (ii) in the case of
a limited liability company, partnership, limited partnership or venture, the
right to more than 50% of the distributions therefrom (including liquidating
distributions); or (iii) in the case of any other Person, more than 50% of the
economic or beneficial interest therein.
"Corporation" means Spinnaker Exploration Company (formerly Spinco
Exploration Company), a Delaware corporation.
"Director" means a member of the Board.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated by the Securities and Exchange Commission
thereunder.
"Fully-Diluted Common Stock" means, at any time, the then outstanding
Common Stock plus (without duplication) (i) all shares of Common Stock issuable
upon the conversion of the then outstanding Preferred Stock, (ii) all shares of
Common Stock issuable upon the conversion of the Preferred Stock
-2-
<PAGE>
that could be issued under the Contribution Agreement (assuming that the maximum
number of shares of Preferred Stock subject to the Contribution Agreement are
issued), (iii) all shares of Common Stock issuable upon exercise of options
issued under the Stock Option Plan (whether vested or unvested) and (iv) all
shares of Common Stock issuable to SEHI pursuant to Section 3(a) of the
Contribution Agreement.
"Group A Holders" means WPV and each transferee of Common Stock or
Preferred Stock directly or indirectly (in a chain of title) from WPV; provided
that, once a Person is designated a Group A Holder, such Group A Holder and each
of its Affiliates shall, as long as it owns any Shares, at all times be a Group
A Holder and shall not be a Group B Holder or Group C Holder even if such Group
A Holder or its Affiliates acquire Shares from a Group B Holder or from a Group
C Holder.
"Group B Holders" means SEHI and each transferee of Common Stock or
Preferred Stock directly or indirectly (in a chain of title) from SEHI; provided
that, once a Person is designated a Group B Holder, such Group B Holder and each
of its Affiliates shall, as long as it owns any Shares, at all times be a Group
B Holder and shall not be a Group A Holder or Group C Holder even if such Group
B Holder or its Affiliates acquire Shares from a Group A Holder or from a Group
C Holder.
"Group C Holders" means (a) the Management Group and each transferee of
Common Stock or Preferred Stock directly or indirectly (in a chain of title)
from the Management Group and (b) each Person that acquired Shares upon the
exercise of options under the Stock Option Plan and each transferee of Common
Stock or Preferred directly or indirectly (in a chain of title) from any such
Person provided that, once a Person is designated a Group C Holder, such Group C
Holder and each of its Affiliates shall, as long as it owns any Shares, at all
times be a Group C Holder and shall not be a Group A Holder or Group B Holder
even if such Group C Holder or its Affiliates acquire Shares from a Group A
Holder or from a Group B Holder.
"Initial Parties" means those parties, other than the Corporation, listed
on the signature pages hereto.
"Management Group" means Roger L. Jarvis and James Alexander and any other
key employees of the Corporation approved as members of the Management Group by
the Compensation Committee of the Board.
"PGS" means Petroleum Geo Services ASA, a Norwegian joint stock company.
"Party" means each Initial Party, but shall not mean (i) the Corporation or
(ii) any Person who executes this Agreement or a separate agreement to be bound
by the terms hereof solely in his or her capacity as a spouse of a Party;
provided, however, that if any Party ceases to own any Common Stock or Preferred
Stock, then such Party shall cease to be a Party hereunder and shall not
thereafter be subject to this Agreement even if such former Party thereafter
acquires Common Stock or Preferred Stock.
-3-
<PAGE>
"Person" means any natural person, corporation, limited partnership,
general partnership, joint stock company, joint venture, association, company,
trust, bank trust company, land trust, business trust, or other organization,
whether or not a legal entity, and any government or agency or political
subdivision thereof.
"Piggyback Registration" has the meaning set forth in Section 3(b) of
Exhibit A.
"Preferred Stock" means shares of the Series A Convertible Preferred Stock,
par value $.01 per share, of the Corporation.
"Qualified Public Offering" means the first closing of one or more
underwritten public offerings pursuant to effective registration statements
under the Securities Act, covering the offer and sale of common stock for the
account of the Corporation to the public generally, for which the aggregate net
proceeds to the Corporation are not less than Twenty Million Dollars
($20,000,000), and pursuant to which such shares of common stock are authorized
and approved for listing on a national securities exchange or admitted to
trading and quoted in the Nasdaq National Market or comparable system.
"Required Holders" means (i) Group A Holders who collectively own at least
a majority of the Fully-Diluted Common Stock then owned by all Group A Holders
and (ii) Group B Holders who collectively own at least a majority of the Fully-
Diluted Common Stock then owned by all Group B Holders.
"SEC" means the Securities and Exchange Commission or any successor
governmental agency.
"Securities Act" means the Securities Act of 1933, as amended from time to
time.
"SEHI" means Seismic Energy Holdings, Inc., a Delaware corporation and an
indirect wholly-owned subsidiary of PGS.
"Shares" means the Common Stock and Preferred Stock, collectively, and any
"Share" shall refer to any one of the foregoing.
"Spinnaker LLC" means Spinnaker Exploration Company, L.L.C., a Delaware
limited liability company.
"Stock Option Plan" means the Spinnaker Exploration Company Amended and
Restated 1998 Stock Option Plan.
"Stockholder" means each Party.
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"Subsidiary" means (i) any corporation or other entity a majority of the
Capital Stock of which having ordinary voting power to elect a majority of the
Board or other Persons performing similar functions is at the time owned,
directly or indirectly, with power to vote, by the Corporation or any direct or
indirect Subsidiary of the Corporation (ii) a partnership in which the
Corporation or any direct or indirect Subsidiary is a general partner, and
includes in any event, WPV Sub and Spinnaker LLC.
"Transfer," including the correlative terms "Transferring" or
"Transferred", means any direct or indirect, transfer, assignment, sale, gift,
pledge, hypothecation or other encumbrance, or any other disposition (whether
voluntary or involuntary or by operation of law), of Common Stock (or any
interest (pecuniary or otherwise) therein or right thereto) or Preferred Stock,
including without limitation derivative or similar transactions or arrangements
whereby a portion or all of the economic interest in, or risk of loss or
opportunity for gain with respect to, Common Stock or Preferred Stock is
transferred or shifted to another Person; provided, however, that (i) an
exchange, merger, recapitalization, consolidation or reorganization involving
the Corporation in which securities of the Corporation or any other Person are
issued in respect of shares of the common stock of the Corporation if all shares
of Common Stock are treated identically in such transaction, (ii) a conversion
of outstanding shares of Preferred Stock into shares of Common Stock, in
accordance with the terms thereof and (iii) the exercise of options in
accordance with the terms of the Corporation's Stock Option Plan, shall not be
deemed a Transfer.
"WPV" means Warburg, Pincus Ventures, L.P.
"WPV Sub" means WP Spinnaker Holdings, Inc., a Delaware corporation.
ARTICLE II
TRANSFER OF SECURITIES
2.1 TRANSFERS SUBJECT TO COMPLAINCE WITH SECURITIES ACT. No Common Stock
acquired on or prior to the date hereof may be Transferred by a Party (other
than pursuant to an effective registration statement under the Securities Act)
unless such Party first delivers to the Corporation an opinion of counsel, which
opinion counsel shall be reasonably satisfactory to the Corporation, to the
effect that such Transfer is not required to be registered under the Securities
Act.
ARTICLE III
REGISTRATION OF STOCK
3.1 REGISTRATION RIGHTS. The Corporation hereby grants to each Party the
applicable registration rights with respect to Common Stock set forth in Exhibit
A hereto (and such Exhibit A is incorporated herein by reference); provided
however, that certain Piggyback Registration rights
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are waived in accordance with Section 3.2 hereof in connection with the initial
Qualified Public Offering of the Company.
3.2 WAIVER OF PIGGYBACK REGISTRATION RIGHTS IN CONNECTION WITH IPO. The
Piggyback Registration rights granted to each Stockholder pursuant to
Section 3 of the registration rights in Exhibit A are hereby waived in
connection with the initial Qualified Public Offering of the Corporation, and no
Stockholder shall have any such Piggyback Registration rights in connection with
such initial Qualified Public Offering. Such Piggyback Registration rights
shall apply to any subsequent Qualified Public Offering.
ARTICLE IV
TERMINATION
4.1 TERMINATION. The provisions of this Agreement shall terminate in
respect of all Parties upon (i) the written consent of the Required Holders or
(ii) upon the dissolution, liquidation, or winding-up of the Corporation.
ARTICLE V
MISCELLANEOUS
5.1 AMENDMENT. This Agreement may only be altered, supplemented, amended
or waived by the written consent of the Required Holders: provided, however,
that in no event shall any amendment impose any additional material obligation
on any Party without such Party's written consent; provided further, however,
(i) any Party may (without the consent of any other Person) waive, in writing,
any obligation owed to it hereunder by any other Party or the Corporation, and
(ii) any Party may (without the consent of any other Person) waive, in writing,
any right it has hereunder.
5.2 SPECIFIC PERFORMANCE. The Parties and the Corporation recognize that
the obligations imposed on them in this Agreement are special, unique, and of
extraordinary character, and that in the event of breach by any party, damages
will be an insufficient remedy; consequently, it is agreed that the Parties and
the Corporation may have specific performance and injunctive relief (in addition
to damages) as a remedy for the enforcement hereof, without proving damages.
5.3 ASSIGNMENT. Except as otherwise expressly provided herein, the terms
and conditions of this Agreement shall inure to the benefit of and be binding
upon the respective successors and assigns of the Parties and the Corporation.
No such assignment shall relieve the assignor from any liability hereunder.
Any purported assignment made in violation of this Section 5.3 shall be void and
of no force and effect.
5.4 NOTICES. Any and all notices, designations, consents, offers,
acceptances, or other communications provided for herein (each a "Notice") shall
be given in writing by overnight courier,
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telegram, or telecopy which shall be addressed, or sent, to the respective
addresses as follows (or such other address as the Corporation or any Party may
specify to the Corporation and all other Parties by Notice):
The Corporation: Spinnaker Exploration Company
1200 Smith, Suite 800
Houston, Texas 77002
Attention: Roger L. Jarvis
with a copy to:
Vinson & Elkins, LLP
1001 Fannin, Suite 2300
Houston, Texas 77002-6760
Attention: Scott N. Wulfe
Each Party: To such address or telecopy number of such Party as such
Party provides by notice to the Corporation and all other
Parties or, if such address is not so provided, to such
Party's address as is reflected on the stock transfer
records of the Corporation at such time.
All notices shall be deemed effective and received (a) if given by telecopy,
when such telecopy is transmitted to the telecopy number specified above and
receipt therof is confirmed; (b) if given by overnight courier, on the Business
Day immediately following the day on which such notice is delivered to a
reputable overnight courier service; or (c) if given by telegram, when such
notice is delivered at the address specified above. In order to effectuate the
purposes of this Agreement, the Corporation agrees that (i) it will maintain a
record of the names and addresses of the Parties and the number of shares of
Common Stock and Preferred Stock owned by the Parties and by Group A Holders,
Group B Holders and Group C Holders, (ii) at the request of any party, it will
provide such Party with a copy of the record, (iii) it will promptly notify the
Parties in the event the Corporation receives notice that any shares of Common
Stock or Preferred Stock have been (or have purported to be) Transferred by or
to any Party (including the name of the transferor and transferee or purported
transferor or transferee and the number of shares transferred or purported to be
transferred) and (iv) it will not register, in the name of any Person, any
shares subject to this Agreement unless the transferor and transferee have
complied with the terms of this Agreement.
5.5 COUNTERPARTS. This Agreement may be executed in one or more
counterparts and each counterpart shall be deemed to be an original and which
counterparts together shall constitute one and the same agreement of the parties
hereto. This Agreement shall be effective as provided in Section 5.13 upon
execution by the Required Holders even if all the Initial Parties have not
executed counterparts.
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5.6 SECTION HEADING. Headings contained in this Agreement are inserted
only as a matter of convenience and in no way define, limit, or extend the scope
or intent of this Agreement or any provisions hereof.
5.7 CHOICE OF LAW. This Agreement shall be governed by the internal laws
of the State of Delaware without regard to the principles of conflicts of laws
thereof.
5.8 ENTIRE AGREEMENT. This Agreement, and the agreements referred to
herein, contain the entire understanding of the parties hereto respecting the
subject matter hereof and supersedes all prior agreements, discussions and
understandings with respect thereto.
5.9 CUMULATIVE RIGHTS. The rights of the Parties and the Corporation
under this Agreement are cumulative and in addition to all similar and other
rights of the parties under other agreements.
5.10 SEVERABILITY. If any term, provision, covenant, or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
void, or unenforceable, the remainder of the terms, provisions, covenants, and
restrictions of this Agreement shall remain in full force and effect an shall in
no way be effected, impaired, or invalidated.
5.11 BINDING EFFECT. Subject to the restrictions on Transfers set forth in
this Agreement, this Agreement is binding on and inures to the benefit of the
Parties and their respective heirs, legal representatives, successors, and
assigns.
5.12 FURTHER ASSURANCES. In connection with this Agreement and the
transactions comtemplated hereby, each Party shall execute and deliver any
additional documents and instruments and perform any additional acts that may be
necessary or appropriate to effectuate and perform the provisions of this
Agreement and those transactions.
5.13 EFFECTIVENESS. This Agreement shall become effective upon the
consummation of a Qualified Public Offering.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.
SPINNAKER EXPLORATION COMPANY
/s/ ROGER L. JARVIS
By:________________________________
Roger L. Jarvis
President
WARBURG, PINCUS VENTURES, L.P.
By: Warburg Pincus & Co., Inc., its
general partner
/s/ JEFFREY A. HARRIS
By:________________________________
Jeffrey A. Harris
Managing Director
SEISMIC ENERGY HOLDINGS, INC.
/s/ SEAN M. GORE
By:________________________________
Sean M. Gore
Title: VP, Finance
/s/ ROGER L. JARVIS
-----------------------------------
Roger L. Jarvis
/s/ JAMES M. ALEXANDER
-----------------------------------
James M. Alexander
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EXHIBIT A
TO
AMENDED AND RESTATED
STOCKHOLDERS AGREEMENT
(THE "AGREEMENT")
DATED AS OF SEPTEMBER 27, 1999
BY AND AMONG
SPINNAKER EXPLORATION CORP.
AND
THE OTHER PARTIES THERETO
REGISTRATION RIGHTS
Except as otherwise set forth below, terms defined in the Agreement
are used herein as therein defined.
1. Definitions.
"Demand Holder" means any Group A Demand Holder or Group B Demand Holder.
"Demand Registration" has the meaning set forth in Section 2(a) below.
"Demand Request" has the meaning set forth in Section 2(a) below.
"Demand Shelf Registration" has the meaning set forth in Section 2(a)
below.
"Group A Demand Holder" means a Group A Holder or group of Group A Holders
that own a majority of the Fully-Diluted Common Stock owned by all Group A
Holders, based solely on Registrable Securities owned by all Group A Holders.
"Group B Demand Holder" means a Group B Holder or group of Group B Holders
that own a majority of the Fully-Diluted Common Stock owned by all Group B
Holders, based solely on Registrable Securities owned by all Group B Holders.
"Holder" means a Group A Holder, a Group B Holder or a Group C Holder who
holds Registrable Securities; provided, however, that a Person shall cease to be
a Holder if and when such Person owns Common Stock and Common Stock Equivalents
representing less than one percent of the Fully-Diluted Common Stock and an
opinion of counsel, reasonably satisfactory to the Corporation and such Person,
shall have been delivered to the Corporation and such Person to the effect that
such Person may dispose of all Registrable Securities then owned by such Person
pursuant to Rule 144(k) (or any successor rule) under the Securities Act, and in
such case the Registrable Securities owned by such Person shall cease to be
Registrable Securities.
"Indemnified Party" has the meaning set forth in Section 7(c) below.
EXHIBIT A
REGISTRATION RIGHTS
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<PAGE>
"Indemnifying Party" has the meaning set forth in Section 7(c) below.
"Initial Public Offering" means a consummated public offering of Common
Stock which is underwritten on a firm commitment basis by one or more
Underwriters.
"Inspectors" has the meaning set forth in Section 5(j) below.
"Material Adverse Effect" has the meaning set forth in Section 2(d) below.
"Records" has the meaning set forth in Section 5(j) below.
"Registrable Securities" means all shares of Common Stock of the
Corporation and any other securities issued or issuable with respect to such
securities by way of a stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or
reorganization; provided that any Registrable Security will cease to be a
Registrable Security when (a) a registration statement covering such Registrable
Security has been declared effective by the SEC and they have been disposed of
pursuant to such effective registration statement, (b) it is sold under
circumstances in which all of the applicable conditions of Rule 144 (or any
similar provisions then in force) under the Securities Act are met, (c) (i) it
has been otherwise transferred and (ii) it may be resold without subsequent
registration under the Securities Act, or (d) it has ceased to be a Registrable
Security in accordance with the proviso to the definition of Holder provided for
herein.
"Registration Expenses" has the meaning set forth in Section 6 below.
"Requesting Holders" means the Group A Demand Holder or the Group B Demand
Holder, as applicable.
"Selling Holder" means a Holder who is selling Registrable Securities
pursuant to a registration statement under the Securities Act.
"Underwriter" means a securities dealers which purchases any Registrable
Securities as principal and not as part of such dealer's market-making
activities.
2. Demand Registration.
a. Request for Registration.
i. From and after the expiration of the lock-up period agreed to by
the Corporation in connection with the consummation of an Initial
Public Offering or the first date that the Common Stock shall be
registered under the Exchange Act if there is no such lock-up
period in connection with an Initial Public Offering, any Demand
Holder may make a written request of the Corporation (a "Demand
Request") for (A) registration under the Securities Act (a "Demand
Registration") of the sale of all or part of its Registrable
Securities; provided that the Registrable Securities proposed to be
sold by the Requesting Holders must have an estimated aggregate
gross
EXHIBIT A
REGISTRATION RIGHTS
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<PAGE>
offering price of at least $20,000,000 and (B) registration under
the Securities Act covering the resale (including a distribution by
WPV to its partners) of all or part of its Registrable Securities
pursuant to a continuous or "shelf" registration statement (a
"Demand Shelf Registration").
ii. Each Demand Request shall specify the type and number of shares of
Registrable Securities proposed to be sold. Subject to Section
4(c), the Corporation shall file the Demand Registration or Demand
Shelf Registration, as requested, as soon as reasonably practicable
but in any event within 60 days after receiving a Demand Request
(the "Required Filing Date") and shall use all commercially
reasonable efforts to cause the same to be declared effective by
the SEC as promptly as practicable after such filing. Subject to
Section 2(b), if the Corporation has effected two Demand
Registrations and one Demand Shelf Registration in response to the
request of a Group A Demand Holder, then the Corporation shall not
be obligated to respond to further Demand Registrations in respect
of Group A Holders pursuant to this Section unless the Corporation
is then eligible to register such sale on Form S-3 (or a successor
form). Subject to Section 2(b), if the Corporation has effected two
Demand Registrations and one Demand Shelf Registration in response
to the request of a Group B Demand Holder, then the Corporation
shall not be obligated to respond to further Demand Registrations
in respect of Group B Holders pursuant to this Section unless the
Corporation is then eligible to register such sale on Form S-3 (or
a successor form). The Corporation shall not be obligated to effect
more than one Demand Registration in any six month period.
b. Effective Registration and Expenses. A registration will not count as a
Demand Registration or a Demand Shelf Registration until it has become
effective unless (i) prior to such effective time the Requesting Holders
withdraw all their Registrable Securities for any reason other than (A)
the inability or unreasonable delay of the Corporation in having such
registration statement become effective or (B) the disclosure of
material adverse information regarding the Corporation that was not
known by such Requesting Holders at the time the request for such Demand
Registration or Demand Shelf Registration was made and (ii) the
Requesting Holders elect not to pay all the Corporation's out-of-pocket
Registration Expenses in connection with such withdrawn registration.
If, after such registration has become effective but prior to the sale
of all Registrable Securities covered thereby, an offering of
Registrable Securities pursuant to a registration is interfered with by
any stop order, injunction or other order or requirement of the SEC or
other governmental agency or court, such registration will not count as
a Demand Registration or Demand Shelf Registration. Notwithstanding the
foregoing if Registrable Securities requested to be registered by a
Group A Demand Holder or Group B Demand Holder, as the case may be, are
excluded from such Demand Registration as a result of the application of
Section 2(d) below, the Group A Holders or Group B Holders, as the
EXHIBIT A
REGISTRATION RIGHTS
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<PAGE>
case may be, shall have the right to one additiona Demand Registration
with respect to their Registrable Securities.
c. Selection of Underwriters. The offering of Registrable Securities
pursuant to a Demand Registration may be in the form of a "firm
commitment" underwritten offering. If the Requesting Holder so
indicates, the Requesting Holder shall select the book-running managing
Underwriter and such additional Underwriters to be used in connection
with the offering; provided that such selections shall be subject to the
consent of the Corporation, which consent shall not be unreasonably
withheld.
d. Priority on Demand Registrations. No securities to be sold for the
account of any Person (including the Corporation) other than Group A
Holders or Group B Holders shall be included in a Demand Registration if
the managing Underwriter or Underwriters shall advise the Requesting
Holder that, in its or their judgment, the inclusion of such securities
may adversely affect the price or success of the offering in any
significant or material respect (a "Material Adverse Effect").
Furthermore, in the event the managing Underwriter or Underwriters shall
advise the Requesting Holder that even after exclusion of all securities
of other Persons pursuant to the immediately preceding sentence, the
amount of Registrable Securities proposed to be included in such Demand
Registration by Group A Holders and Group B Holders electing to
participate is sufficiently large to cause a Material Adverse Effect,
the Registrable Securities of such Holders to be included in such Demand
Registration shall be allocated pro rata among such Holders on the basis
of the number of shares of Fully-Diluted Common Stock requested to be
included in such registration by each such Requesting Holder; provided,
however, if at the time of such allocation the market price of Common
Stock is less than the then conversion price of the Preferred Stock,
then for purposes of such allocation the conversion price of the
Preferred Stock shall be assumed to be the then market price of the
Common Stock.
3. Piggy-Back Registration.
a. Subject to the provisions of the Agreement, if the Corporation proposes
to file a registration statement under the Securities Act, including a
Demand Registration or a Demand Shelf Registration, with respect to an
offering of any equity securities by the Corporation for its own account
or for the account of any of its equity holders (other than a
registration statement on Form S-4 or S-8 or any substitute form that
may be adopted by the SEC or any registration statement filed in
connection with an exchange offer or offering of securities solely to
the Corporation's existing security holders), then the Corporation shall
give written notice of such proposed filing to the Holders of the
Registrable Securities as soon as practicable (but in no event less than
10 days before the anticipated initial filing date of such registration
statement), and such notice shall offer the Holders the opportunity to
register such number of Registrable Securities as each Holder may
request (a "Piggyback Registration"). Subject to Section 3(b) hereof,
the Corporation shall include in each such Piggyback Registration all
Registrable Securities requested to be included in the registration for
EXHIBIT A
REGISTRATION RIGHTS
PAGE 4
<PAGE>
such offering; provided, however, that the Corporation may at any time
withdraw or cease proceeding with such registration. Each Holder of
Registrable Securities shall be permitted to withdraw all or part of
such Holder's Registrable Securities from a Piggyback Registration at
any time prior to the effective date thereof.
b. The Corporation shall use all commercially reasonable efforts to cause
the managing Underwriter or Underwriters of a proposed underwritten
offering to permit the Registrable Securities requested to be included
in the registration statement for such offering under Section 3(a) or
pursuant to other piggyback registration rights granted by the
Corporation not in contravention of Section 9 hereof and that are on a
parity with the registration rights granted hereunder ("Piggyback
Securities"), to be included on the same terms and conditions as any
similar securities included therein. Notwithstanding the foregoing, the
Corporation shall not be required to include any holder's Piggyback
Securities in such offering unless such holder accepts the terms of the
underwriting agreement between the Corporation and the managing
Underwriter or Underwriters and otherwise complies with the provisions
of Section 8 below. If such offering is a Demand Registration pursuant
to Section 2(a), then the provisions of Section 2(d) shall apply with
respect to any reduction in the amount of securities being registered.
In all other offerings that are underwritten, if the managing
Underwriter or Underwriters of such proposed underwritten offering
advise the Corporation in writing that in their opinion the total amount
of securities, including Piggyback Securities, to be included in such
offering is sufficiently large to cause a Material Adverse Effect, then
in such event the securities to be included in such offering shall be
allocated first to the Corporation, and then, to the extent that any
additional securities can, in the opinion of such managing Underwriter
or Underwriters, be sold without any such Material Adverse Effect, pro
rata among the holders of Piggyback Securities on the basis of the
number of shares of Fully-Diluted Common Stock requested to be included
in such registration by each such holder; provided, however, if at the
time of such allocation the market price of Common Stock is less than
the then conversion price of the Preferred Stock, then for purposes of
such allocation the conversion price of the Preferred Stock shall be
assumed to be the then market price of the Common Stock.
4. Holdback Agreements.
a. Restrictions on Public Sale by Holder of Registrable Securities. Each
Holder of Registrable Securities (whether or not such Registrable
Securities are included in a registration statement pursuant hereto)
agrees not to effect any public sale or distribution of the issue being
registered or of any securities convertible into or exchangeable or
exercisable for such securities, including a sale pursuant to Rule 144
under the Securities Act, during the 14 days prior to, and during the
180 day period beginning on the effective date of a registration
statement filed pursuant hereto except as part of such registration if
and to the extent requested by the Corporation in the case of
a non-underwritten public offering or if and to the extent requested by
EXHIBIT A
REGISTRATION RIGHTS
PAGE 5
<PAGE>
the managing Underwriter or Underwriters in the case of an underwritten
public offering.
b. Restrictions on Public Sale by the Corporation and Others. The
Corporation agrees (i) not to effect any public sale or distribution of
any securities similar to those being registered, or any securities
convertible into or exchangeable or exercisable for such securities,
during the 14 days prior to, and during a period of up to 180 days if
requested by the managing underwriters, beginning on the effective date
of any registration statement which includes Registrable Securities
(unless such sale or distribution is pursuant to such registration
statement) and (ii) that any agreement entered into after the date of
the Agreement pursuant to which the Corporation issues or agrees to
issue any privately placed securities shall contain a provision under
which holders of such securities agree not to effect any public sale or
distribution of any such securities during the period described in (i)
above, including a sale pursuant to Rule 144 under the Securities Act
(except as part of any such registration, if permitted); provided,
however, that the provisions of this paragraph (b) shall not prevent the
conversion or exchange of any securities pursuant to their terms into or
for other securities.
c. Deferral of Filing. The Corporation may defer the filing (but not the
preparation) of a registration statement required by Section 2 until a
date not later than 45 days after the Required Filing Date if (i) at the
time the Corporation receives the Demand Request, the Corporation or its
Subsidiaries are engaged in confidential negotiations or other
confidential business activities, disclosure of which would be required
in such registration statement (but would not be required if such
registration statement were not filed), and the Board of Directors of
the Corporation determines in good faith that such disclosure would be
materially detrimental to the Corporation and its stockholders, or (ii)
prior to receiving the Demand Request, the Board of Directors had
determined to effect a registered underwritten public offering of the
Corporation's equity securities for the Corporation's account and the
Corporation had taken substantial steps (including, but not limited to,
selecting the managing Underwriter for such offering) and is proceeding
with reasonable diligence to effect such offering. A deferral of the
filing of a registration statement pursuant to this Section 4(c) shall
be lifted, and the requested registration statement shall be filed
forthwith, if, in the case of a deferral pursuant to clause (i) of the
preceding sentence, the negotiations or other activities are disclosed
or terminated, or, in the case of a deferral pursuant to clause (ii) of
the preceding sentence, the proposed registration for the Corporation's
account is abandoned. In order to defer the filing of a registration
statement pursuant to this Section 4(c), the Corporation shall promptly,
upon determining to seek such deferral, notify each Requesting Holder
that the Corporation is deferring such filing pursuant to this Section
4(c). Within twenty days after receiving such notice, the Requesting
Holder may withdraw such request by giving notice to the Corporation; if
withdrawn, the Demand Request shall be deemed not to have been made for
all purposes of this Agreement. The Corporation
EXHIBIT A
REGISTRATION RIGHTS
PAGE 6
<PAGE>
may defer the filing of a particular registration statement pursuant to
this Section 4(c) no more than twice during any twelve month period.
5. Registration Procedures. Whenever the Holders have requested that any
Registrable Securities be registered pursuant to Section 2 hereof, the
Corporation will, at its expense, use all commercially reasonable efforts
to effect the registration and the sale of such Registrable Securities
under the Securities Act in accordance with the intended method of
disposition thereof as quickly as practicable, and in connection with any
such request, the Corporation will as expeditiously as practicable:
a. prepare and file with the SEC a registration statement on any form for
which the Corporation then qualifies or which counsel for the
Corporation shall deem appropriate and which form shall be available for
the sale of the Registrable Securities to be registered thereunder in
accordance with the intended method of distribution thereof, and use all
commercially reasonable efforts and proceed diligently and in good faith
to cause such filed registration statement to become effective under the
Securities Act; provided that before filing a registration statement or
prospectus or any amendments or supplements thereto, the Corporation
will furnish to all Selling Holders and to one counsel reasonably
acceptable to the Corporation selected by the Selling Holders, copies of
all such documents proposed to be filed, which documents will be subject
to the review of such counsel; provided that in connection with a Demand
Registration or a Demand Shelf Registration, the Corporation shall not
file any registration statement or prospectus, or any amendments or
supplements thereto, if the Requesting Holder, its counsel, or the
managing Underwriters shall reasonably object, in writing, on a timely
basis.
b. prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection therewith
as may be necessary to keep such registration statement effective
pursuant to Section 2 for a period (except as provided in the last
paragraph of this Section 5) of not less than 270 consecutive days in
the case of a Demand Registration, or three years or such shorter period
of time that Holders must hold any Registrable Securities before they
are eligible to dispose of them pursuant to the provisions of Rule
144(k) promulgated under the Securities Act in the case of a Demand
Shelf Registration, or, if shorter, the period terminating when all
Registrable Securities covered by such registration statement have been
sold (but not before the expiration of the applicable period referred to
in Section 4(3) of the Securities Act and Rule 174 thereunder, if
applicable) and comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such
registration statement during such period in accordance with the
intended methods of disposition by the Selling Holders thereof set forth
in such registration statement;
c. furnish to each such Selling Holder such number of copies of such
registration statement, each amendment and supplement thereto (including
access for review of all exhibits thereto), the prospectus included in
such registration statement (including
EXHIBIT A
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each preliminary prospectus) and such other documents as such Selling
Holder may reasonably request in order to facilitate the disposition of
the Registrable Securities owned by such Selling Holder;
d. notify the Selling Holders promptly, and (if requested by any such
Person) confirm such notice in writing, (i) when a prospectus or any
prospectus supplement or post-effective amendment has been filed, and,
with respect to a registration statement or any post-effective
amendment, when the same has become effective under the Securities Act,
(ii) of any request by the SEC or any other federal governmental
authority for amendments or supplements to a registration statement or
related prospectus or for additional information, (iii) of the issuance
by the SEC of any stop order suspending the effectiveness of a
registration statement or the initiation of any proceedings for that
purpose, (iv) if at any time the representations or warranties of the
Corporation or any Subsidiary contained in any agreement (including any
underwriting agreement) contemplated by Section 5(i) below cease to be
true and correct in any material respect, (v) of the receipt by the
Corporation of any notification with respect to the suspension of the
qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction or the initiation or threatening
of any proceeding for such purpose, (vi) of the happening of any event
which makes any statement made in such registration statement or related
prospectus or any document incorporated or deemed to be incorporated
therein by reference untrue in any material respect or that requires the
making of any changes in such registration statement, prospectus or
documents so that, in the case of the registration statement, it will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading, and that in the case of the
prospectus, it will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading and (vii) of the
Corporation's reasonable determination that a post-effective amendment
to a registration statement would be appropriate;
e. use all commercially reasonable efforts to obtain the withdrawal of any
order suspending the effectiveness of a registration statement, or the
lifting of any suspension of the qualification (or exemption from
qualification) of any of the Registrable Securities for sale in any
jurisdiction, at the earliest practicable moment;
f. cooperate with the Selling Holders and the managing Underwriter or
Underwriters to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be sold, which
certificates shall not bear any restrictive legends and shall be in a
form eligible for deposit with The Depositary Trust Corporation; and
enable such Registrable Securities to be registered in such names as the
managing Underwriter or Underwriters may request prior to any sale of
Registrable Securities;
EXHIBIT A
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PAGE 8
<PAGE>
g. use all commercially reasonable efforts to register or qualify such
Registrable Securities as promptly as practicable under such other
securities or blue sky laws of such United States jurisdictions as any
Selling Holder or managing Underwriter reasonably (in light of the
intended plan of distribution) requests and do any and all other acts
and things which may be reasonably necessary or advisable to enable such
Selling Holder or managing Underwriter to consummate the disposition in
such jurisdictions of the Registrable Securities owned by such Selling
Holder; provided that the Corporation will not be required to (i)
qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this paragraph (g), (ii)
subject itself to taxation in any such jurisdiction or (iii) consent to
general service of process in any such jurisdiction;
h. cooperate and assist in any filing required to be made with the National
Association of Securities Dealers, Inc. and in the performance of any
due diligence investigation by any underwriter, including any "qualified
independent underwriter":
i. enter into customary agreements (including an underwriting agreement in
customary form) and take such other actions as are reasonably required
in order to expedite or facilitate the disposition of such Registrable
Securities;
j. make available for inspection by any Selling Holder of such Registrable
Securities, any Underwriter participating in any disposition pursuant to
such registration statement and any attorney, accountant or other
professional retained by any such Selling Holder or Underwriter
(collectively, the "Inspectors"), all financial and other records,
pertinent corporate documents and properties of the Corporation
(collectively, the "Records") as shall be reasonably necessary to enable
them to exercise their due diligence responsibility, and cause the
Corporation's officers, directors and employees to supply all
information reasonably requested by any such Inspectors in connection
with such registration statement. As a condition to providing any such
information, each Selling Holder of such Registrable Securities and each
such Inspector shall agree that information obtained by it as a result
of such inspections shall be deemed confidential and shall not be used
by it as the basis for any market transactions in the securities of the
Corporation or its Affiliates unless and until such information is made
generally available to the public.
k. use all commercially reasonable efforts to obtain a comfort letter or
comfort letters from the Corporation's independent public accountants in
customary form and covering such matters of the type customarily covered
by comfort letters as the Selling Holders of a majority of the shares of
Registrable Securities being sold or the managing Underwriter or
Underwriters reasonably requests;
l. otherwise use all commercially reasonable efforts to comply with all
applicable rules and regulations of the SEC, and make available to its
security holders, as soon as reasonably practicable, an earnings
statement covering a period of twelve months, beginning within three
months after the effective date of the registration statement,
EXHIBIT A
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PAGE 9
<PAGE>
which earnings statement shall satisfy the provisions of Section 11(a)
of the Securities Act;
m. use all commercially reasonable efforts to cause all such Registrable
Securities to be listed on each securities exchange on which similar
securities issued by the Corporation are then listed or quoted on any
inter-dealer quotation system on which similar securities issued by the
Corporation are then quoted; and
n. if any event contemplated by Section 5(d)(vi) above shall occur, as
promptly as practicable prepare a supplement or amendment or post-
effective amendment to such registration statement or the related
prospectus or any document incorporated therein by reference or promptly
file any other required document so that, as thereafter delivered to the
purchasers of the Registrable Securities, the prospectus will not
contain an untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading.
The Corporation may require each Selling Holder to promptly furnish in
writing to the Corporation such information regarding the distribution of
the Registrable Securities as it may from time to time reasonably request
and such other information as may be legally required in connection with
such registration. Notwithstanding anything herein to the contrary, the
Corporation shall have the right to exclude from any offering the
Registrable Securities of any Selling Holder who does not comply with the
provisions of the immediately preceding sentence.
Each Selling Holder agrees that, upon receipt of any notice from the
Corporation of the happening of any event of the kind described in Section
5(d)(vi) hereof, such Selling Holder will forthwith discontinue disposition
of Registrable Securities pursuant to the registration statement covering
such Registrable Securities until such Selling Holder's receipt of the
copies of the supplemented or amended prospectus contemplated by Section
(n) hereof, and, if so directed by the Corporation, such Selling Holder
will deliver to the Corporation all copies, other than permanent file
copies, then in such Selling Holder's possession, of the most recent
prospectus covering such Registrable Securities at the time of receipt of
such notice. In the event the Corporation shall give such notice, the
Corporation shall extend the period during which such registration
statement shall be maintained effective (including the period referred to
in Section 5(b) hereof) by the number of days during the period from and
including the date of the giving of notice pursuant to Section 5(d)(vi)
hereof to the date when the Corporation shall make available to the Selling
Holders of Registrable Securities covered by such registration statement a
prospectus supplemented or amended to conform with the requirements of
Section 5(n) hereof.
6. Registration Expenses. Subject to the provisions in Section 2(b), the
Corporation (i) shall pay all Registration Expenses (as defined below) with
respect to the first two Demand Registrations for Group A Holders and will
pay the Registration Expenses with respect to a third Demand Registration
for the Group A Holders if such registration is made on
EXHIBIT A
REGISTRATION RIGHTS
PAGE 10
<PAGE>
Form S-3 (or any successor form) and (ii) shall pay all Registration
Expenses with respect to the first two Demand Registrations for Group B
Holders and will pay the Registration Expenses with respect to a third
Demand Registration for the Group B Holders if such registration is made on
Form S-3 (or any successor form). With respect to any Demand Shelf
Registration and all Demand Registrations not subject to the immediately
preceding sentence, the Holders participating on such registration shall
pay the Registration Expenses, other than those expenses referred to in
clause (d) of the definition of Registration Expenses, on a pro rata basis.
The Corporation shall pay all Registration Expenses in connection with any
Piggyback Registration. "Registration Expenses" shall mean: (a) all
registration and filing fees (including, without limitation, with respect
to filings to be made with the National Association of Securities Dealers,
Inc.), (b) fees and expenses of compliance with securities or blue sky laws
(including reasonable fees and disbursements of counsel in connection with
blue sky qualifications of the Registrable Securities), (c) printing
expenses, (d) internal expenses (including, without limitation, all
salaries and expenses of its officers and employees performing legal or
accounting duties), (e) the fees and expenses incurred in connection with
the listing of the Registrable Securities on an exchange or the quotation
of the Registrable Securities on an inter-dealer quotation system, (f)
reasonable fees and disbursements of counsel for the Corporation and
customary fees and expenses for independent certified public accountants
retained by the Corporation (including the expenses of any comfort letters
requested pursuant to Section 5(k) hereof), and (g) the reasonable fees and
expenses of any special experts retained by the Corporation in connection
with such registration. The Corporation shall not have any obligation to
pay any underwriting fees, discounts, or commissions attributable to the
sale of Registrable Securities or, except as provided by clause (b) above,
any out-of-pocket expenses of the Holders (or the agents who manage their
accounts) or the fees and disbursements of counsel for any Underwriter.
7. Indemnification; Contribution.
a. Indemnification by the Corporation. The Corporation agrees to indemnify
and hold harmless each Selling Holder, each Person, if any, who controls
such Selling Holder within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act, and the officers, directors,
agents, general and limited partners, and employees of each Selling
Holder and each such controlling person from and against any and all
losses, claims, damages, liabilities, and expenses (including reasonable
costs of investigation) arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in
any registration statement or prospectus relating to the Registrable
Securities or in any amendment or supplement thereto or in any
preliminary prospectus, or arising out of or based upon any omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages, labilities or expenses
arise out of, or are based upon, any such untrue statement or omission
or allegation thereof based upon information furnished in writing to the
Corporation by such Selling Holder or on such Selling Holder's behalf
expressly for use therein. The Corporation also agrees to indemnify any
Underwriters of the Registrable Securities, their officers and directors
and
EXHIBIT A
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PAGE 11
<PAGE>
each Person who controls such Underwriters on substantially the same
basis as that of the indemnification of the Selling Holders provided in
this Section 7(a).
b. Indemnification by Holder of Registrable Securities. Each Selling
Holder, severally and not jointly, agrees to indemnify and hold harmless
the Corporation, and each Person, if any, who controls the Corporation
within the meaning of either Section 15 of the Securities Act or Section
20 of the Exchange Act and the officers, directors, agents and employees
of the Corporation and each such controlling Person to the same extent
as the foregoing indemnity from the Corporation to such Selling Holder,
but only with respect to information furnished in writing by such
Selling Holder or on such Selling Holder's behalf expressly for use in
any registration statement or prospectus relating to the Registrable
Securities. The liability of any Selling Holder under this Section 7(b)
shall be limited to the aggregate cash and property received by such
Selling Holder pursuant to the sale of Registrable Securities covered by
such registration statement or prospectus.
c. Conduct of Indemnification Proceedings. If any action or proceeding
(including any governmental investigation) shall be brought or asserted
against any Person entitled to indemnification under Section 7(a) or
7(b) above (an "Indemnified Party") in respect of which indemnity may be
sought from any party who has agreed to provide such indemnification
under Section 7(a) or 7(b) above (an "Indemnifying Party"), the
Indemnified Party shall give prompt notice to the Indemnifying Party and
the Indemnifying Party shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to such Indemnified Party,
and shall assume the payment of all reasonable expenses of such defense.
Such Indemnified Party shall have the right to employ separate counsel
in any such action or proceeding and to participate in the defense
thereof, but the fees and expenses of such counsel shall be at the
expense of such Indemnified Party unless (i) the Indemnifying Party has
agreed to pay such fees and expenses or (ii) the Indemnifying Party
fails promptly to assume the defense of such action or proceeding or
fails to employ counsel reasonably satisfactory to such Indemnified
Party or (iii) the named parties to any such action or proceeding
(including any impleaded parties) include both such Indemnified Party
and Indemnifying Party (or an Affiliate of the Indemnifying Party), and
such Indemnified Party shall have been advised by counsel that there is
a conflict of interest on the part of counsel employed by the
Indemnifying Party to represent such Indemnified Party (in which case,
if such Indemnified Party notifies the Indemnifying Party in writing
that it elects to employ separate counsel at the expense of the
Indemnifying Party, the Indemnifying Party shall not have the right to
assume the defense of such action or proceeding on behalf of such
Indemnified Party). Notwithstanding the foregoing, the Indemnifying
Party shall not, in connection with any one such action or proceeding or
separate but substantially similar related actions or proceedings in the
same jurisdiction arising out of the same general allegations or
circumstances, be liable at any time for the fees and expenses of more
than one separate firm of attorneys (together in each case with
appropriate local counsel). The Indemnifying Party shall not be liable
for any settlement of any such action or
EXHIBIT A
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<PAGE>
proceeding effected without its written consent (which consent will not
be unreasonably withheld), but if settled with its written consent, or
if there be a final judgment for the plaintiff in any such action of
proceeding, the Indemnifying Party shall indemnify and hold harmless
such Indemnified Party from and against any loss or liability (to the
extent stated above) by reason of such settlement or judgment. The
Indemnifying Party shall not consent to entry of any judgment or enter
into any settlement that does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such Indemnified
Party of a release, in form and substance reasonably satisfactory to the
Indemnified Party, from all liability in respect of such action or
proceeding for which such Indemnified Party would be entitled to
indemnification hereunder.
d. Contribution. If the indemnification provided for in this Section 7 is
unavailable to the Indemnified Parties in respect of any losses, claims,
damages, liabilities or judgments referred to herein, then each such
Indemnifying Party, in lieu of indemnifying such Indemnified Party,
shall contribute to the amount paid or payable by such Indemnified Party
as a result of such losses, claims, damages, liabilities and judgments
as between the Corporation on the one hand and each Selling Holder on
the other, in such proportion as is appropriate to reflect the relative
fault of the Corporation and of each Selling Holder in connection with
the statements or omissions which resulted in such losses, claims,
damages, liabilities or judgments, as well as any other relevant
equitable considerations. The relative fault of the Corporation on the
one hand and of each Selling Holder on the other shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to
state a material fact relates to information supplied by such party, and
the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The
Corporation and the Selling Holders agree that it would not be just and
equitable if contribution pursuant to this Section 7(d) were determined
by pro rata allocation or by any other method of allocation which does
not take account of the equitable considerations referred to in the
first two sentences of this Section 7(d). The amount paid or payable by
an Indemnified Party as a result of the losses, claims, damages,
liabilities or judgments referred to in Sections 7(a) and (b) hereof
shall be deemed to include, subject to the limitations set forth above,
any legal or other expenses reasonably incurred by such Indemnified
Party in connection with investigating or defending any such action or
claim. Notwithstanding the provisions of this Section 7(d), no Selling
Holder shall be required to contribute any amount in excess of the
amount by which the total price at which the Registrable Securities of
such Selling Holder were offered to the public exceeds the amount of any
damages which such Selling Holder has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No Person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.
EXHIBIT A
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<PAGE>
8. Participation in Underwritten Registrations. No Holder may participate in
any underwritten registration hereunder unless such Holder (a) agrees to
sell such Holder's Registrable Securities on the basis provided in any
underwriting arrangements approved by the Person entitled hereunder to
approve such arrangements, and (b) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements
and other documents reasonably required under the terms of such
underwriting arrangements and this Agreement.
9. Future Registration Rights. After the date of this Agreement, the
Corporation will not grant to any Person (including the Holders of
Registrable Securities) any registration rights ("new rights") with respect
to any securities of the Corporation without the written consent of the
Holders of a majority of the then outstanding Registrable Securities
(calculated on a Fully-Diluted Common Stock basis) unless such new rights
(i) are subordinate to and of a lesser priority than the registration
rights granted by the Corporation under this Agreement and (ii) are not
inconsistent with the terms of this Agreement. Additionally, unless
otherwise consented to in writing by the Holders of a majority of the then
outstanding Registrable Securities (calculated on a Fully-Diluted Common
Stock basis), new rights may not be granted without expressly providing
that, with respect to demand registration rights granted to such other
Persons, the Holders of Registrable Securities have a piggyback right upon
the exercise of such new rights and shall be included in any related
registration statement on the same terms and conditions as the holders of
the new rights, subject to possible reduction at the initiative of the
managing underwriter or underwriters, on terms substantially equivalent to
those set forth in the last sentence of Section 3(b).
EXHIBIT A
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<PAGE>
EXHIBIT 10.4
================================================================================
CREDIT AGREEMENT
SPINNAKER EXPLORATION COMPANY, L.L.C.
and
CREDIT SUISSE FIRST BOSTON
as Administrative Agent,
BANK OF MONTREAL
as Syndication Agent,
NATIONSBANK, N.A.
as Documentation Agent,
and CERTAIN FINANCIAL INSTITUTIONS
as Lenders
$85,000,000
September 30, 1998
================================================================================
<PAGE>
CREDIT AGREEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
CREDIT AGREEMENT......................................................................... 1
ARTICLE I - Definitions and References................................................... 1
Section 1.1. Defined Terms........................................................ 1
Section 1.2. Exhibits and Schedules; Additional Definitions....................... 19
Section 1.3. Amendment of Defined Instruments..................................... 19
Section 1.4. References and Titles................................................ 19
Section 1.5. Calculations and Determinations...................................... 19
ARTICLE II - The Loans................................................................... 20
Section 2.1. Spinnaker Loans...................................................... 20
Section 2.2. PGS Loans............................................................ 20
Section 2.3. Warburg Loans........................................................ 21
Section 2.4. Requests for Advances................................................ 21
Section 2.5. Use of Proceeds...................................................... 22
Section 2.6. Rate Elections; Interest Rates....................................... 22
Section 2.7. Commitment Fees...................................................... 23
Section 2.8. Administrative Agent's Fees.......................................... 24
Section 2.9. Reductions in PGS Commitments and Warburg Commitments;
Pro Rata Borrowing between PGS Commitments and
Warburg Commitments.................................................. 24
Section 2.10. Prepayments.......................................................... 25
Section 2.11. Payments to Lenders.................................................. 26
Section 2.12. Initial Borrowing Base............................................... 27
Section 2.13. Subsequent Determinations of Borrowing Base.......................... 28
Section 2.14. Borrower's Reduction of Borrowing Base............................... 29
Section 2.15. Alternate Rate of Interest........................................... 29
Section 2.16. Increased Costs...................................................... 30
Section 2.17. Break Funding Payments............................................... 31
Section 2.18. Taxes................................................................ 31
Section 2.19. Mitigation Obligations; Replacement of Lenders....................... 32
ARTICLE III - Letters of Credit.......................................................... 33
Section 3.1. Letters of Credit.................................................... 33
Section 3.2. Requesting Letters of Credit......................................... 34
Section 3.3. Reimbursement and Participations..................................... 34
Section 3.4. Letter of Credit Fees................................................ 35
Section 3.5. No Duty to Inquire................................................... 36
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Section 3.6. LC Collateral........................................................ 37
ARTICLE IV - Conditions Precedent to Lending............................................. 38
Section 4.1. Documents to be Delivered............................................ 38
Section 4.2. Additional Conditions Precedent...................................... 40
ARTICLE V - Representations and Warranties............................................... 41
Section 5.1. Borrower's Representations and Warranties............................ 41
ARTICLE VI - Covenants of Borrower....................................................... 46
Section 6.1. Affirmative Covenants................................................ 46
Section 6.2. Negative Covenants................................................... 53
ARTICLE VII - Security................................................................... 60
Section 7.1. The Security......................................................... 60
Section 7.2. Agreement to Deliver Security Documents.............................. 60
Section 7.3. Perfection and Protection of Security Interests and Liens............ 60
Section 7.4. Bank Accounts; Offset................................................ 60
Section 7.5. Additional Subsidiaries.............................................. 61
Section 7.6. Production Proceeds.................................................. 62
ARTICLE VIII - Events of Default and Remedies............................................ 62
Section 8.1. Events of Default.................................................... 62
Section 8.2. Remedies............................................................. 65
Section 8.3. Payment of Expenses, Indemnities, etc................................ 65
ARTICLE IX - Administrative Agent........................................................ 67
Section 9.1. Appointment and Authority............................................ 67
Section 9.2. Exculpation, Administrative Agent's Reliance, Etc.................... 68
Section 9.3. Lenders' Credit Decisions............................................ 68
Section 9.4. Indemnification...................................................... 69
Section 9.5. Rights as Lender..................................................... 69
Section 9.6. Sharing of Set-Offs and Other Payments............................... 69
Section 9.7. Investments.......................................................... 70
Section 9.8. Benefit of Article IX................................................ 70
Section 9.9. Resignation.......................................................... 70
ARTICLE X - Miscellaneous................................................................ 71
Section 10.1. Waivers and Amendments; Acknowledgments.............................. 71
Section 10.2. Survival of Agreements; Cumulative Nature............................ 72
Section 10.3. Notices.............................................................. 73
Section 10.4. Parties in Interest.................................................. 73
Section 10.5. Governing Law; Submission to Process................................. 73
Section 10.6. Limitation on Interest............................................... 74
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Section 10.7. Termination; Limited Survival........................................ 75
Section 10.8. Severability......................................................... 75
Section 10.9. Counterparts......................................................... 75
Section 10.10. WAIVER OF JURY TRIAL, PUNITIVE DAMAGES, ETC.......................... 75
Section 10.11. Assignments and Participations....................................... 76
Section 10.12. Confidentiality...................................................... 78
</TABLE>
Schedules and Exhibits:
Lender Schedule
Schedule 1 - Disclosure Schedule
Schedule 2 - Security Schedule
Schedule 3 - Identified Properties
Exhibit A - Spinnaker Note
Exhibit B - PGS Note
Exhibit C - Warburg Note
Exhibit D - Request for Advances
Exhibit E - Rate Election
Exhibit F - Certificate Accompanying Financial Statements
Exhibit G - Opinion of Vinson & Elkins, L.L.P., counsel for the Related
Persons
Exhibit H - Opinion of Phelps, Dunbar, L.L.P., Louisiana counsel for
Agents and the Lenders
Exhibit I - Opinion of Knut Haavardsen, General Counsel of PGS
Exhibit J - Opinion of Willkie Farr & Gallagher, counsel for Warburg
Exhibit K - Opinion of Baker & Botts, L.L.P., counsel for Agents and the
Lenders
Exhibit L - Warburg Certificate
Exhibit M - Agreement to be Bound
Exhibit N - Terms of Subordination
<PAGE>
CREDIT AGREEMENT
----------------
THIS CREDIT AGREEMENT is made as of September 30, 1998, by and among
SPINNAKER EXPLORATION COMPANY, L.L.C., a Delaware limited liability company
("Borrower"), CREDIT SUISSE FIRST BOSTON, a bank organized under the laws of
Switzerland, acting through its New York Branch, as administrative agent (in
such capacity, the "Administrative Agent"), BANK OF MONTREAL, a bank organized
under the laws of Canada, acting through its Chicago Branch, as syndication
agent (in such capacity, the "Syndication Agent"), NATIONSBANK, N.A., a national
banking association, as documentation agent (in such capacity, the
"Documentation Agent") and the Lenders referred to below. In consideration of
the mutual covenants and agreements contained herein the parties hereto agree as
follows:
ARTICLE I - Definitions and References
--------------------------
Section 1.1 Defined Terms. As used in this Agreement, each of the
-------------
following terms has the meaning given it in this Section 1.1 or in the sections
and subsections referred to below:
"Adjusted LIBOR Rate" means, with respect to each particular LIBOR Rate
-------------------
Portion and the associated LIBOR Rate and Reserve Percentage, the rate per annum
calculated by Agent (rounded upwards, if necessary, to the next higher 1/100%)
determined on a daily basis pursuant to the following formula:
Adjusted LIBOR Rate =
LIBOR Rate + LIBOR Spread
-----------------------
100.0% - Reserve Percentage
"Advances" means, collectively, any Spinnaker Advances, any PGS Advances
--------
and any Warburg Advances.
"Affiliate" means, as to any Person, each other Person that directly or
---------
indirectly (through one or more intermediaries or otherwise) controls, is
controlled by, or is under common control with, such Person. A Person shall be
deemed to be "controlled by" any other Person if such other Person possesses,
directly or indirectly, power
(a) to vote 20% or more of the securities (on a fully diluted basis) having
ordinary voting power for the election of directors or managing general
partners; or
(b) to direct or cause the direction of the management and policies of such
Person whether by contract or otherwise.
"Administrative Agent" means CSFB, as Administrative Agent hereunder, and
--------------------
its successors in such capacity.
-1-
<PAGE>
"Agreement" means this Credit Agreement.
---------
"Base Rate" means the (a) greater of (i) the Prime Rate from time to time
---------
in effect or (ii) the Federal Funds Rate from time to time in effect plus one-
half percent (0.5%) per annum, plus (b) the Base Rate Spread. As used in this
paragraph, the "Prime Rate" means the rate of interest established by CSFB from
----------
time to time as its "prime rate". If the Prime Rate of CSFB changes after the
date hereof the Base Rate shall be automatically increased or decreased, as the
case may be, without notice to Borrower from time to time as of the effective
time of each change in the Prime Rate. The Base Rate shall in no event,
however, exceed the Highest Lawful Rate.
"Base Rate Loan" means any Loan which bears interest at the Base Rate.
--------------
"Base Rate Portion" means that portion of the unpaid principal balance of
-----------------
the Loans which is not made up of LIBOR Rate Portions.
"Base Rate Spread" means: (a) with respect to any Spinnaker Loan bearing
----------------
interest at the Base Rate, the applicable margin set forth below under the
caption "Base Rate Spread," based upon the ratio of Borrower's consolidated
Indebtedness to EBITDA, as determined (i) for the Fiscal Quarter commencing on
July 1, 1998 and ending on September 30, 1998, on an annualized basis, (ii) for
the two Fiscal Quarters ending on December 31, 1998, on an annualized basis,
(iii) for the three Fiscal Quarters ending on March 31, 1999, on an annualized
basis, and (iv) for any period of four consecutive Fiscal Quarters ending on or
subsequent to June 30, 1999.
=================================================
Indebtedness to Base Rate
--------------- ---------
EBITDA Spread
------ ------
-------------------------------------------------
greater than or equal to 4.00 x 1.25%
-------------------------------------------------
less than 4.00 x 0.75%
=================================================
(b) with respect to any PGS Loan or Warburg Loan bearing interest at the
Base Rate, the applicable margin set forth below under the caption "Base Rate
Spread," based upon the Public Debt Rating of PGS, as in effect from time to
time.
-2-
<PAGE>
==================================================
Public Debt Base Rate
----------- ---------
Rating Spread
------ ------
--------------------------------------------------
greater than or equal to BBB/Baa2 .00%
--------------------------------------------------
greater than or equal to BBB-/Baa3 .00%
--------------------------------------------------
greater than or equal to BB/Ba2 .00%
--------------------------------------------------
less than or equal to BB-/Ba3 .25%
==================================================
"Borrower" means Spinnaker Exploration Company, L.L.C., a Delaware limited
--------
liability company.
"Borrower's Adjusted Consolidated Net Income" means for any period,
-------------------------------------------
Borrower's consolidated net income for such period, provided that there shall be
excluded from such net income (to the extent otherwise included therein) the
following: (a) the net income of any Person in which Borrower or any
consolidated Subsidiary of Borrower has an interest (which interest does not
cause the net income of such other Person to be consolidated with the net income
of Borrower in accordance with GAAP), except to the extent of the amount of
dividends or distributions actually paid in such period by such other Person to
the Borrower or to a consolidated Subsidiary of Borrower, as the case may be,
(b) the net income (but not loss) of any consolidated Subsidiary of Borrower to
the extent that the declaration or payment of dividends or similar distributions
or transfers or loans by that consolidated Subsidiary is not at the time
permitted by operation of the terms of its charter or any agreement, instrument,
law, rule or regulation applicable to such consolidated Subsidiary, or is
otherwise restricted or prohibited in each case determined in accordance with
GAAP; (c) any extraordinary gains or losses, including gains or losses
attributable to Property sales not in the ordinary course of business; and (d)
the cumulative effect of a change in accounting principles and any gains or
losses attributable to writeups or writedowns of assets.
"Borrower's Consolidated Interest Expense" shall mean, for any period as to
----------------------------------------
Borrower and its consolidated Subsidiaries, the sum of (a) the aggregate amount
of interest actually paid during such period on Borrower's consolidated
Indebtedness, including the interest portion of payments under capital lease
obligations and any capitalized interest (excluding any interest on any
Indebtedness owed to any other Related Person to the extent permitted by Section
6.2(g)(ii) hereof), plus (b) the net amount payable or paid by such Person
pursuant to any interest rate exchange agreements accruing during such period,
minus (c) the net amount paid to such Persons pursuant to any interest rate
exchange agreements accruing during such period.
"Borrower's Consolidated Tangible Net Worth" means the remainder of all
------------------------------------------
consolidated assets of Borrower, other than intangible assets (including without
limitation as intangible assets
-3-
<PAGE>
such assets as patents, copyrights, licenses, franchises, goodwill, trade names,
trade secrets and leases other than oil, gas or mineral leases or leases
required to be capitalized under GAAP) other than seismic data licenses, minus
Borrower's consolidated Indebtedness.
"Borrowing Base" means, at the particular time in question, either the
--------------
amount provided for in Section 2.12 or the amount determined by Administrative
Agent in accordance with the provisions of Section 2.13, as reduced by Borrower
pursuant to Section 2.14; provided, however, that in no event shall the
-------- -------
Borrowing Base ever exceed the amount equal to the Maximum Spinnaker Loan
Amount.
"Borrowing Base Deficiency" has the meaning given it in Section 2.10.
-------------------------
"Business Day" means a day, other than a Saturday or Sunday, on which
------------
commercial banks are open for business with the public in New York City, New
York. Any Business Day in any way relating to LIBOR Rate Portions (such as the
day on which an Interest Period begins or ends) means any Business Day on which
dealings in U.S. dollar deposits are carried on in the London interbank market
and on which commercial banks are open for domestic and international business
(including dealings in U.S. dollar deposits) in London, England.
"Capitalized Lease Obligations" shall mean, as to any Person, all monetary
-----------------------------
obligations of such Person or any of its Subsidiaries under any leasing or
similar arrangement which, in accordance with GAAP, would be classified as
capitalized leases, and, for purposes of this Agreement and each other Loan
Document, the amount of such obligations shall be the capitalized amount
thereof, determined in accordance with GAAP.
"Change in Circumstances" has the meaning given to it in Section 6.1(l).
-----------------------
"Change in Control" means the occurrence of any of the following: (a)
-----------------
Spinnaker Exploration Company and WP Spinnaker Holdings, Inc. shall cease to own
100% of the membership interest of the Borrower; (b) the sale, lease or
transfer, in one or a series of related transactions, of all or substantially
all of Borrower's assets to any Person or Group (as such term is used in Section
13(d)(3) of the Exchange Act); (c) the acquisition, directly or indirectly, by
any Person or Group (other than the Sponsors) of beneficial ownership (as
defined in Rule 13d-3 under the Exchange Act) of more than 50% of the aggregate
voting power of the voting stock of Spinnaker Exploration Company (for the
purposes of this definition, such other Person shall be deemed to beneficially
own any voting stock of a specified Person held by a parent Person, if such
other Person is the beneficial owner (as defined above) directly or indirectly,
of more than 35% of the voting power of the membership interests or similar
equity interests of such parent Person); (d) individuals who at the Closing Date
constituted the Board of Directors of Spinnaker Exploration Company (together
with any new directors whose election by such Board of Directors or whose
nomination for election by the stockholders of Spinnaker Exploration Company was
approved by a vote of 66% of the directors of Spinnaker Exploration Company
then still in office who were either directors at the Closing Date or whose
election or nomination for election was previously so
-4-
<PAGE>
approved) cease for any reason to constitute a majority of the Board of
Directors of Spinnaker Exploration Company then in office; or (e) the Sponsors
cease to directly or indirectly collectively own membership interests of
Borrower representing at least the greater of (i) 20% of the aggregate voting
power of the membership interests of the Borrower (or such issuing entity) or
(ii) the largest percentage of membership interests directly or indirectly
beneficially owned by any other Person or Group.
"Change in Law" means (a) the adoption of any law, rule or regulation after
-------------
the date of this Agreement, (b) any change in any law, rule or regulation or in
the interpretation or application thereof by any Governmental Authority after
the date of this Agreement or (c) compliance by any Lender or the Issuing Bank
(or, for purposes of Section 2.16(b), by any lending office of such Lender or by
such Lender's or the Issuing Bank's holding company, if any) with any request,
guideline or directive (whether or not having the force of law) of any
Governmental Authority made or issued after the date of this Agreement.
"Closing Date" means the date on which the conditions specified in Section
------------
4.1 are satisfied (or waived in accordance with Section 10.1).
"Collateral" means all property of any kind which is subject to a Lien in
----------
favor of Lenders (or in favor of Administrative Agent for the benefit of
Lenders) or which, under the terms of any Security Document, is purported to be
subject to such a Lien.
"Commitment Fee Rate" means: (a) with respect to any Spinnaker Loan, 0.500%
-------------------
per annum, and (b) with respect to any PGS Loan or Warburg Loan, the applicable
margin set forth below under the caption "Commitment Fee Rate," based upon the
Public Debt Rating of PGS, as in effect from time to time.
=================================================
Public Debt Commitment
----------- ----------
Rating Fee Rate
------ --------
-------------------------------------------------
greater than or equal to BBB/Baa2 0.150%
-------------------------------------------------
greater than or equal to BBB-/Baa3 0.175%
-------------------------------------------------
greater than or equal to BB/Ba2 0.225%
-------------------------------------------------
less than or equal to BB-/Ba3 0.375%
=================================================
"consolidated" refers to the consolidation of any Person, in accordance
------------
with GAAP, with its properly consolidated subsidiaries. References herein to a
Person's consolidated financial
-5-
<PAGE>
statements, financial position, financial condition, liabilities, etc. refer to
the consolidated financial statements, financial position, financial condition,
liabilities, etc. of such Person and its properly consolidated subsidiaries.
"CSFB" means Credit Suisse First Boston.
----
"Default" means any Event of Default and any default, event or condition
-------
which would, with the giving of any requisite notices and the passage of any
requisite periods of time, constitute an Event of Default.
"Determination Date" has the meaning given it in Section 2.13.
------------------
"Disclosure Report" means either a notice given by Borrower under Section
-----------------
6.1(d) or a certificate given by Borrower's chief financial officer under
Section 6.1(b)(ii).
"Disclosure Schedule" means Schedule 1 hereto and the documents attached
------------------- ----------
thereto or referred to therein.
"EBITDA" means, with respect to the Borrower on a consolidated basis for
------
any fiscal period, without duplication, Borrower's Adjusted Consolidated Net
Income plus (ii) Borrower's consolidated depreciation, depletion, amortization
and other non-cash items reducing Borrower's Adjusted Consolidated Net Income
plus (iii) Borrower's Consolidated Interest Expense plus (iv) consolidated
income tax expense, all determined in accordance with GAAP.
"Engineering Report" means the Initial Engineering Report and each
------------------
engineering report delivered pursuant to Section 6.l(b)(v).
"Environmental Laws" means all laws, rules, regulations, codes, ordinances,
------------------
orders, decrees, judgments, injunctions, notices or binding agreements issued,
promulgated or entered into by any Governmental Authority, relating in any way
to the environment, preservation or reclamation of natural resources, the
management, release or threatened release of any Hazardous Material or to health
and safety matters.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time, together with all rules and regulations promulgated
with respect thereto.
"ERISA Plan" means any employee pension benefit plan subject to Title IV of
----------
ERISA maintained by any Related Person or any Affiliate thereof with respect to
which any Related Person has a fixed or contingent liability.
-6-
<PAGE>
"Evaluation Date" means each of the following:
---------------
(a) Each date which either Borrower or Majority Lenders, at their
respective options, specifies as a date as of which the Borrowing Base is to be
redetermined, provided that each such date must be the last date of a current
-------------
calendar month and that neither Borrower nor Majority Lenders shall be entitled
to request any such redetermination more than once during any six-month period;
(b) Each date which the Administrative Agent pursuant to Section
2.10(a)(iii), 2.10(a)(iv), or 6.2(d)(iii), at its option, specifies as a date as
of which the Borrowing Base is to be redetermined; and
(c) March 15 and August 15 of each year, beginning March 15, 1999.
"Event of Default" has the meaning given it in Section 8.1.
----------------
"Excluded Taxes" means, with respect to the Administrative Agent, any
--------------
Lender, the Issuing Bank or any other recipient of any payment to be made by or
on account of any obligation of the Borrower hereunder, (a) income or franchise
taxes imposed on (or measured by) its net income by the United States of
America, or by the jurisdiction under the laws of which such recipient is
organized or in which its principal office is located or, in the case of any
Lender, in which its applicable lending office is located, (b) any branch
profits taxes imposed by the United States of America or any similar tax imposed
by any other jurisdiction in which the Borrower is located, (c) any jurisdiction
(or political subdivision thereof) in which any recipient of any payment to be
made by or on account of any obligation of the Borrower hereunder is presently
doing business in which taxes are imposed solely as a result of doing business
in such jurisdiction and (d) in the case of a Foreign Lender (other than an
assignee pursuant to a request by the Borrower under Section 2.19(b) unless such
assignee so agrees in writing), any withholding tax that is imposed on amounts
payable to such Foreign Lender at the time such Foreign Lender becomes a party
to this Agreement (or designates a new lending office) or is attributable to
such Foreign Lender's failure to comply with Section 2.18(e), except to the
extent that such Foreign Lender (or its assignor, if any) was entitled, at the
time of designation of a new lending office (or assignment), to receive
additional amounts from the Borrower with respect to such withholding tax
pursuant to Section 2.18(a).
"Federal Funds Rate" means, for any day, the rate per annum, (rounded
------------------
upwards, if necessary, to the nearest 1/100th of one percent (1%)) equal to the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of New York on the Business Day
next succeeding such day; provided, that (a) if the day for which such rate is
--------
to be determined is not a Business Day, the Federal Funds Rate for such day
shall be such rate on such transactions on the next preceding Business Day as so
published on the next succeeding Business Day, and (b) if such rate is not so
published for any day, the Federal Funds Rate for such day shall be such rate as
reported by any publicly available source of similar market data selected by
-7-
<PAGE>
Administrative Agent that, in Administrative Agent's sole judgment reasonably
exercised, accurately reflects such rate on overnight Federal funds
transactions.
"Fee Letter" means that certain Fee Letter dated as of July 8, 1998 between
----------
CSFB and Borrower.
"Final Maturity Date" means December 31, 1999 or, if earlier, the date on
-------------------
which the Notes become due and payable in full.
"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.
"Foreign Lender" means any Lender that is organized under the laws of a
--------------
jurisdiction other than that in which the Borrower is located. For purposes of
this definition, the United States of America, each State thereof and the
District of Columbia shall be deemed to constitute a single jurisdiction.
"GAAP" means those generally accepted accounting principles and practices
----
which are recognized as such by the Financial Accounting Standards Board (or any
generally recognized successor). Except as otherwise expressly provided herein,
all terms of an accounting or financial nature shall be construed in accordance
with GAAP, as in effect from time to time; provided, however, that, if GAAP
-------- -------
shall change after the Closing Date in a manner affecting any of the covenants
set forth herein, then, at the request of Borrower or the Administrative Agent,
the parties shall negotiate in good faith in an effort to agree upon appropriate
adjustments to such covenants and, following the execution of an amendment to
the Loan Documents giving effect to any such agreement, such accounting or
financial terms shall for purposes of determining compliance with such covenants
be construed in accordance with GAAP as so changed (it being understood that
such terms shall be construed in accordance with GAAP as in effect prior to such
change at all times following any such request and before the execution of any
such amendment).
"Governmental Authority" means the government of the United States of
----------------------
America, any other nation or any political subdivision thereof, whether state or
local, and any agency, authority, instrumentality, regulatory body, court,
central bank or other entity exercising executive, legislative, judicial,
taxing, regulatory or administrative powers or functions of or pertaining to
government.
"Guarantee" of or by any Person shall mean any obligation, contingent or
---------
otherwise, of such Person guaranteeing or having the economic effect of
guaranteeing any Indebtedness of any other Person (the "primary obligor") in any
---------------
manner, whether directly or indirectly, and including any obligation of such
Person, direct or indirect, (a) to purchase or pay (or advance or supply funds
for the purchase or payment of) such Indebtedness or to purchase (or to advance
or supply funds for the purchase of) any security for the payment of such
Indebtedness, (b) to purchase or lease property,
-8-
<PAGE>
securities or services for the purpose of assuring the owner of such
Indebtedness of the payment of such Indebtedness or (c) to maintain working
capital, equity capital or any other financial statement condition or liquidity
of the primary obligor so as to enable the primary obligor to pay such
Indebtedness; provided, however, that the term "Guarantee" shall not include
-------- -------
endorsements for collection or deposit in the ordinary course of business.
"Guarantor" means Spinnaker Exploration Company and WP Spinnaker Holdings,
---------
Inc., and any Subsidiary of Borrower which now or hereafter executes and
delivers a guaranty to Administrative Agent pursuant to Section 7.5.
"Hazardous Materials" means all explosive or radioactive substances or
-------------------
wastes and all hazardous or toxic substances, wastes or other pollutants,
including petroleum or petroleum distillates, asbestos or asbestos containing
materials, polychlorinated biphenyls, radon gas, infectious or medical wastes
and all other substances or wastes of any nature regulated pursuant to any
Environmental Law.
"Hedging Agreement" shall mean any interest rate protection agreement,
-----------------
foreign currency exchange agreement, commodity price protection agreement or
other interest or currency exchange rate or commodity price hedging arrangement.
"Highest Lawful Rate" means the maximum rate permitted by applicable law.
-------------------
"Indebtedness" of any Person shall mean, without duplication, (a) all
------------
obligations of such Person for borrowed money or with respect to deposits or
advances of any kind, (b) all obligations of such Person evidenced by bonds,
debentures, notes or similar instruments, (c) all obligations of such Person
upon which interest charges are customarily paid, (d) all obligations of such
Person under conditional sale or other title retention agreements relating to
property or assets purchased by such Person, (e) all obligations of such Person
issued or assumed as the deferred purchase price of property or services
(excluding trade accounts payable and accrued obligations incurred in the
ordinary course of business), (f) all Indebtedness of others secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any Lien on property owned or acquired by such
Person, whether or not the obligations secured thereby have been assumed, (g)
all Guarantees by such Person of Indebtedness of others, (h) all Capital Lease
Obligations of such Person, (i) all net obligations of such Person in respect of
Hedging Agreements, (j) all obligations of such Person as an account party in
respect of letters of credit and bankers' acceptances, (k) the undischarged
balance of any production payment created by such Person or for the creation of
which such Person directly or indirectly received payment, and (1) obligations
to deliver goods or services including hydrocarbons in consideration of advance
payments other than (i) obligations to sell or purchase hydrocarbons, (ii)
obligations with pipelines for firm transportation of natural gas of such
Person, and (iii) oil and gas balancing agreements, take or pay agreements or
other prepayment obligations in respect of hydrocarbons, in each case, incurred
in the ordinary course of business and which are customary in the oil and gas
industry. The Indebtedness of any Person shall include the Indebtedness of any
partnership in which such Person is a general partner.
-9-
<PAGE>
"Indemnified Taxes" means Taxes other than Excluded Taxes.
-----------------
"Initial Engineering Report" means the engineering report concerning oil
--------------------------
and gas properties of Related Persons dated June 30, 1998 prepared by Ryder
Scott Company, covering all existing proved reserves of Borrower except
Galveston 249 and West Cameron 39.
"Initial Financial Statements" means (i) as to the Related Persons, the
----------------------------
unaudited balance sheet, income statement and statement of cash flow of
Spinnaker Exploration Company for the quarterly period ended June 30, 1998, (ii)
as to PGS, the unaudited interim financial statements for the quarterly period
ended June 30, 1998, and (iii) as to Warburg, the unaudited interim financial
statements for the quarterly period ended June 30, 1998.
"Interest Payment Date" means (a) with respect to any Base Rate Loan, the
---------------------
last day of each month and (b) with respect to any LIBOR Loan, the last day of
the Interest Period applicable to such Loan and, in the case of an Interest
Period of more than three months' duration, each day prior to the last day of
such Interest Period that occurs at intervals of three months' duration after
the first day of such Interest Period.
"Interest Period" means, with respect to each particular LIBOR Rate Portion
---------------
of a Loan, a period of 1, 2, 3 or 6 months, as specified in the Rate Election
applicable thereto, beginning on and including the date specified in such Rate
Election (which must be a Business Day), and ending on but not including the
same day of the month as the day on which it began (e.g., a period beginning on
the third day of one month shall end on but not include the third day of another
month), provided that each Interest Period which would otherwise end on a day
which is not a Business Day shall end on the next succeeding Business Day
(unless such next succeeding Business Day is the first Business Day of a
calendar month, in which case such Interest Period shall end on the immediately
preceding Business Day). No Interest Period may be elected which would extend
past the date on which the associated Note is due and payable in full.
"Issuing Bank" means CSFB, in its capacity as the issuer of Letters of
------------
Credit hereunder, and its successors in such capacity.
"Late Payment Rate" means, with respect to each Lender, the Base Rate
-----------------
otherwise in effect with respect to the principal amount in question, plus two
percent (2%) per annum, but in no event to exceed the Highest Lawful Rate.
"LC Application" means any application for a letter of credit hereafter
--------------
made by Borrower to Issuing Bank.
"LC Collateral" has the meaning given it in Section 3.6.
-------------
"LC Conditions" has the meaning given it in Section 3.1.
-------------
-10-
<PAGE>
"LC Disbursement" means a payment made by the Issuing Bank pursuant to a
---------------
Letter of Credit.
"LC Obligations" means at the time in question, the sum of the Matured LC
--------------
Obligations plus the Maximum Drawing Amount.
"Lenders" means each signatory hereto (other than Borrower), including CSFB
-------
in its capacity as a Lender hereunder rather than as Administrative Agent, and
the successors of each as holder of a Note.
"Lender Schedule" shall mean the Lender Schedule attached hereto.
---------------
"Letter of Credit" means any standby or commercial letter of credit issued
----------------
by Issuing Bank at the application of Borrower, which may be issued for the
account of any Related Person, provided, any and all reimbursement obligations,
--------
fees and other amounts payable in connection with any and all such Letters of
Credit shall be Obligations of Borrower as set forth in Article III.
"LIBOR Rate" shall mean, with respect to any LIBOR Rate Portion within a
----------
LIBOR Tranche and with respect to the related Interest Period, the rate per
annum determined by the Administrative Agent, at approximately 11:00 a.m.
(London time) on the date which is two Business Days prior to the beginning of
the relevant Interest Period by reference to the British Bankers' Association
Interest Settlement Rate for deposits in U.S. dollars (as set forth by any
service which has been nominated by the British Bankers' Association as an
authorized information vendor for the purpose of displaying such rates) for a
period equal to such Interest Period, provided that, to the extent that an
interest rate is not ascertainable pursuant to the foregoing provision of this
definition, the "LIBOR Rate" shall be the interest rate per annum, determined by
the Administrative Agent to be the average of the rates per annum at which
deposits in U.S. dollars are offered for such relevant Interest Period to major
banks in the London interbank market in London, England by the Administrative
Agent at approximately 11:00 a.m. (London time) on the date which is two
Business Days prior to the beginning of such Interest Period.
"LIBOR Rate Loan" means any Loan which bears interest at the Adjusted LIBOR
---------------
Rate.
"LIBOR Rate Portion" means any portion of the unpaid principal balance of a
------------------
Loan which Borrower designates as such in a Rate Election.
"LIBOR Spread" means with respect to any Spinnaker Loan bearing interest at
------------
the LIBOR Rate, the applicable margin set forth below under the caption "LIBOR
Rate Spread," based upon the ratio of Borrower's consolidated Indebtedness to
EBITDA, as determined (a) for the Fiscal Quarter commencing on July 1, 1998 and
ending on September 30, 1998, on an annualized basis, (b) for the two Fiscal
Quarters ending on December 31, 1998, on an annualized basis, (c) for the three
Fiscal Quarters ending on March 31, 1999, on an annualized basis, and (d) for
any period of four consecutive Fiscal Quarters ending on or subsequent to June
30, 1999.
-11-
<PAGE>
===================================================
Indebtedness LIBOR Rate
------------ ----------
EBITDA Spread
------ ------
---------------------------------------------------
greater than or equal to 4.00 x 2.25%
---------------------------------------------------
Less than 4.00 x 1.75%
===================================================
(b) with respect to any PGS Loan or Warburg Loan bearing interest at the
LIBOR Rate, the applicable margin set forth below under the caption "LIBOR Rate
Spread," based upon the Public Debt Rating of PGS, as in effect from time to
time.
====================================================
Public Debt LIQBOR Rate
----------- -----------
Rating Spread
------ ------
-----------------------------------------------------
greater than or equal to BBB/Baa2 0.45%
-----------------------------------------------------
greater than or equal to BBB-/Baa3 0.50%
-----------------------------------------------------
greater than or equal to BB/Ba2 0.75%
-----------------------------------------------------
less than or equal to BB-/Ba3 1.25%
======================================================
"LIBOR Tranche" has the meaning given it in Section 2.6.
-------------
"Lien" means, with respect to any property or assets, any right or interest
----
therein of a creditor to secure Indebtedness owed to such creditor or any other
arrangement with such creditor which provides for the payment of such
Indebtedness out of such property or assets or which allows him to have such
Indebtedness 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.
"Loan" means, collectively, any Spinnaker Loan, any PGS Loan and any
----
Warburg Loan.
-12-
<PAGE>
"Loans" means, collectively, the Spinnaker Loans, the PGS Loans, and the
-----
Warburg Loans.
"Loan Documents" means this Agreement, the Notes, the LC Applications, the
--------------
Letters of Credit, the Security Documents, the Sponsor Agreements and all other
written agreements, certificates, documents, instruments and writings at any
time delivered in connection herewith or therewith.
"Majority Lenders" means, at any time, Lenders holding at least 66 2/3% of
----------------
the unpaid principal amounts outstanding under the Notes.
"Material Adverse Effect" means any material adverse effect on (a) the
-----------------------
financial condition, business, properties, assets or operations of the Related
Persons, taken as a whole, or on both Sponsors, or (b) the ability of any
Related Person or both Sponsors to perform its respective obligations under any
Loan Document to which it is a party on a timely basis or (c) the ability of
Administrative Agent or any Lender to enforce the Obligations of any Related
Person or both Sponsors under the Loan Documents; (it being hereby agreed and
understood that the unavailability of additional Advances under either the
Warburg Commitments or the PGS Commitments (but not both) due to a Sponsor Event
of Default or a "Material Adverse Effect" as to only one Sponsor shall not be a
Material Adverse Effect).
"Matured LC Obligations" means all amounts paid by Issuing Bank on drafts
----------------------
or demands for payment drawn or made under or purported to be under any Letter
of Credit (or under or in connection with any LC Application) which have not
been repaid to Issuing Bank (with the proceeds of an Advance or otherwise).
"Maximum Drawing Amount" means at the time in question the sum of the
----------------------
maximum amounts which Issuing Bank might then or thereafter be called upon to
advance under all Letters of Credit then outstanding.
"Maximum Spinnaker Loan Amount" means the amount of $85,000,000.
-----------------------------
"Mortgage" means, collectively, the "Mortgages", as defined in the Security
--------
Schedule.
"Mortgaged Property" has the meaning given it in the Mortgage.
------------------
"Net Proceeds of Debt" means the aggregate amount of all cash proceeds
--------------------
received by or paid to or for the account of any Related Person from time to
time (whether as initial consideration or through payment or disposition of
deferred consideration) from the issuance of promissory notes or other
instruments or debt securities (other than Indebtedness permitted by Section
6.2(a)) deducting therefrom only (without duplication) (a) reasonable out-of-
pocket costs and fees, and (b) the amount of taxes payable in connection with or
as a result of such transaction, in each case to the extent, but only to the
extent, that the amounts so deducted are, at the time of receipt of such cash,
actually paid
-13-
<PAGE>
to a Person that is not an Affiliate of such Related Person and are properly
attributable to such transaction.
"Net Proceeds of Equity" means an amount equal to the difference of (i) the
----------------------
aggregate amount of all cash proceeds received by or paid to or for the account
of any Related Person thereof (other than from another Related Person) from time
to time (whether as initial consideration or through payment or disposition of
deferred consideration) from the sale of any capital stock or other ownership or
profit interest, any securities convertible into or exchangeable for capital
stock or other ownership or profit interest or any warrants, rights, options or
other securities to acquire capital stock or other ownership or profit interest
in any Related Person (or any other Person which directly or indirectly owns
100% of Borrower) deducting therefrom only (without duplication) (a) reasonable
out-of-pocket costs and fees, and (b) the amount of taxes payable in connection
with or as a result of such transaction, in each case to the extent, but only to
the extent, that the amounts so deducted are, at the time of receipt of such
cash, actually paid to a Person that is not an Affiliate of such Related Person
and are properly attributable to such transaction, less (ii) the amount of
preferred dividends paid pursuant to Section 2(c) of the Certificate of
Designations, Preferences and Rights of Series A Convertible Preferred Stock,
dated as of January 15, 1998.
"Net Sales Proceeds" means, with respect to any sale, lease, transfer or
------------------
other disposition of any asset by any Related Person, the aggregate amount of
cash received by or paid to or for the account of any such Related Person from
time to time (whether as initial consideration or through payment or disposition
of deferred consideration) by or on behalf of such Person in connection with
such transaction after deducting therefrom only (without duplication) (a)
reasonable out-of-pocket costs and fees, (b) the amount of taxes payable in
connection with or as a result of such transaction and (c) the amount of any
Indebtedness permitted by Section 6.2(a) hereof secured by a Lien on such asset
permitted by Section 6.2(b) hereof that, by the terms of the agreement or
instrument governing such Indebtedness, is required to be repaid or may be
prepaid upon such disposition, in each case to the extent, but only to the
extent, that the amounts so deducted are, at the time of receipt of such cash,
actually paid to a Person that is not an Affiliate of such Related Person and
are properly attributable to such transaction or to the asset that is the
subject thereof.
"Notes" means, collectively, the Spinnaker Notes, the PGS Notes and the
-----
Warburg Notes.
"Obligations" means all Indebtedness from time to time owing by any Related
-----------
Person or any Sponsor to Administrative Agent or any Lender under or pursuant to
any of the Loan Documents, including all LC Obligations. "Obligation" means any
----------
part of the Obligations.
"Other Taxes" means any and all present or future stamp or documentary
-----------
taxes or any other excise or property taxes, charges or similar levies arising
from any payment made hereunder or from the execution, delivery or enforcement
of, or otherwise with respect to, this Agreement.
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<PAGE>
"Percentage Share" means, with respect to any Lender (a) when used in
----------------
Sections 2.1, 2.2, 2.3, 2.6 or 3.3, in any Request for Advance or when no Loans
are outstanding hereunder, the percentage set forth opposite such Lender's name
on the Lender Schedule attached hereto, and (b) when used otherwise, the
percentage obtained by dividing (i) the unpaid principal balance of such
Lender's Loans at the time in question plus the Matured LC Obligations which
such Lender has funded pursuant to Section 3.3(c) plus the portion of the
Maximum Drawing Amount which such Lender might be obligated to fund under
Section 3.3(c), by (ii) the sum of the aggregate unpaid principal balance of all
Loans at such time plus the aggregate amount of LC Obligations outstanding at
such time.
"Permitted Initial Public Offering" means an initial public offering of the
---------------------------------
membership interests of Borrower, or of the capital stock of any Person which
directly or indirectly owns 100% of the membership interests of Borrower, which
would not result in a Default or Event of Default.
"Permitted Investments" means investments:
---------------------
(a) in open market commercial paper, maturing within 270 days after
acquisition thereof, which has the highest or second highest credit rating given
by either Rating Agency;
(b) in marketable obligations, maturing within 12 months after acquisition
thereof, issued or unconditionally guaranteed by the United States of America or
an instrumentality or agency thereof and entitled to the full faith and credit
of the United States of America;
(c) in demand deposits, and time deposits (including certificates of
deposit) maturing within 12 months from the date of deposit thereof, with any
office of any Lender or with a domestic office of any national or state bank or
trust company which is organized under the laws of the United States of America
or any state therein, which has capital, surplus and undivided profits of at
least $500,000,000, and whose certificates of deposit have at least the third
highest credit rating given by either Rating Agency; and
(d) in money market funds as defined in paragraphs (c)(2) through (4) of
Rule 2a-7 of the Investment Company Act.
"Person" means an individual, corporation, partnership, limited liability
------
company, association, joint stock company, trust or trustee thereof, estate or
executor thereof, unincorporated organization or joint venture, court or
governmental unit or any agency or subdivision thereof, or any other legally
recognizable entity.
"PGS" means Petroleum Geo-Services ASA, a Norwegian joint-stock company.
---
"PGS Advance" has the meaning given it in Section 2.2.
-----------
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<PAGE>
"PGS Commitment" means the amount of $37,500,000, as such amount may be
--------------
reduced from time to time pursuant to Section 2.9 hereof.
"PGS Data Contract" means that certain Amended and Restated Data
-----------------
Contribution Agreement dated January 6, 1998, by PGS, Seismic Energy Holdings,
Inc., Spinnaker Exploration Company and the Borrower, as amended, modified or
restated form time to time.
"PGS Loan" has the meaning given it in Section 2.2.
--------
"PGS Note" has the meaning given it in Section 2.2.
--------
"Prohibited Lien" means any Lien not expressly allowed under Section
---------------
6.2(b).
"Public Debt Rating" shall mean, as to PGS, the higher of the Rating
------------------
Agencies' long term senior unsecured, non-credit enhanced, debt rating of PGS.
"Rate Election" has the meaning given it in Section 2.6.
-------------
"Rating Agency" means either Standard & Poor's Ratings Group (a division of
-------------
McGraw Hill, Inc.) or Moody's Investors Service, Inc., or their respective
successors.
"Regulation D" means Regulation D of the Board of Governors of the Federal
------------
Reserve System as from time to time in effect.
"Related Person" means any of Borrower, each Subsidiary of Borrower and
--------------
each Guarantor.
"Request for Advance" means a written or telephonic request, or a written
-------------------
confirmation, made by Borrower which meets the requirements of Section 2.4.
"Reserve Percentage" means, on any day with respect to each particular
------------------
LIBOR Rate Portion in a Tranche, the maximum reserve requirement, as determined
by Administrative Agent (including without limitation any basic, supplemental,
marginal, emergency or similar reserves), expressed as a percentage, which would
then apply to CSFB under Regulation D with respect to "Eurocurrency liabilities"
(as such term is defined in Regulation D) equal in amount to CSFB's LIBOR Rate
Portion in such Tranche, were CSFB to have any such "Eurocurrency liabilities".
If such reserve requirement shall change after the date hereof, the Reserve
Percentage shall be automatically increased or decreased, as the case may be,
from time to time as of the effective time of each such change in such reserve
requirement.
"Security Documents" means the instruments listed in the Security Schedule
------------------
and any other 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 Administrative Agent in connection with this
-16-
<PAGE>
Agreement or any transaction contemplated hereby to secure or guarantee the
payment of any part of the Obligations or the performance of any Related
Person's or any Sponsor's other duties and obligations under the Loan Documents.
"Security Schedule" means Schedule 2 hereto.
----------------- ----------
"Special Entity" shall mean any joint venture, limited liability company or
--------------
partnership, general or limited partnership or any other type of partnership or
company other than a corporation in which a Person or one or more of its other
Subsidiaries is a member, owner, partner or joint venturer and owns, directly or
indirectly, at least a majority of the equity of such entity or controls such
entity, but excluding any tax partnerships that are not classified as
partnerships under state law. For purposes of this definition, any Person which
owns directly or indirectly an equity investment in another Person which allows
the first Person to manage or elect managers who manage the normal activities of
such second Person will be deemed to "control" such second Person (e.g., a sole
general partner controls a limited partnership).
"Spinnaker Advances" has the meaning given it in Section 2.1.
------------------
"Spinnaker Commitments" means, at any time, the amount of Spinnaker Loans
---------------------
the Lenders are then obligated to advance hereunder, as such amount may be
increased or reduced from time to time pursuant to the terms hereof.
"Spinnaker Loan" has the meaning given it in Section 2.1.
--------------
"Spinnaker Note" has the meaning given it in Section 2.1.
--------------
"Sponsors" means PGS and Warburg, together with any successors thereof.
--------
"Sponsor Agreements" means those certain Sponsor Agreements dated as of the
------------------
Closing Date, executed and delivered by the Sponsors and Administrative Agent,
as amended, modified or supplemented from time to time. As more fully set forth
therein, the Sponsor Agreement of PGS relates only to the Obligations of
Borrower under the PGS Loans and the Sponsor Agreement of Warburg relates only
to the Obligations of Borrower under the Warburg Loans.
"Sponsor Default" means a "Default," as such term is defined in the Sponsor
---------------
Agreements.
"Sponsor Event of Default" means an "Event of Default," as such term is
------------------------
defined in the Sponsor Agreements.
"Subsidiary" shall mean (i) any corporation of which at least a majority of
----------
the outstanding shares of stock having by the terms thereof ordinary voting
power to elect a majority of the board of directors of such corporation
(irrespective of whether or not at the time stock of any other class or classes
of such corporation shall have or might have voting power by reason of the
happening of
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<PAGE>
any contingency) is at the time directly or indirectly owned or controlled by a
Person or one or more of its Subsidiaries or by a Person and one or more of its
Subsidiaries and (ii) any Special Entity. Unless otherwise indicated herein,
each reference to the term "Subsidiary" shall mean a Subsidiary of the Borrower.
"Systems" has the meaning given to it in Section 5.1(s).
-------
"Taxes" means any and all present or future taxes, levies, imposts, duties,
-----
deductions, charges or withholdings imposed by any Governmental Authority.
"Termination Event" means (a) the occurrence with respect to any ERISA Plan
-----------------
of (i) a reportable 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 any Related Person or of any
Affiliate of any Related Person from an ERISA 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 ERISA Plan or the
treatment of any ERISA Plan amendment as a termination under Section 4041 of
ERISA, or (d) the institution of proceedings to terminate any ERISA 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
ERISA Plan.
"Warburg" means, collectively, Warburg, Pincus Ventures, L.P. a Delaware
-------
limited partnership, and WPV, Inc., a Delaware corporation.
"Warburg Advance" has the meaning given it in Section 2.3.
---------------
"Warburg Commitment" means the amount of $37,500,000, as such amount may be
------------------
reduced from time to time pursuant to Section 2.9 hereof.
"Warburg Loan" has the meaning given it in Section 2.3.
------------
"Warburg Note" has the meaning given it in Section 2.3.
------------
"Year 2000 Compliant" has the meaning given to it in Section 5.1(s).
-------------------
Section 1.2. Exhibits and Schedules; Additional Definitions. All Exhibits
----------------------------------------------
and Schedules attached to this Agreement are a part hereof for all purposes.
Reference is hereby made to the Security Schedule for the meaning of certain
terms defined therein and used but not defined herein, which definitions are
incorporated herein by reference.
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<PAGE>
Section 1.3. Amendment of Defined Instruments. Unless the context
--------------------------------
otherwise requires or unless otherwise provided herein the terms defined in this
Agreement which refer to a particular agreement, instrument or document also
refer to and include all renewals, extensions, modifications, amendments and
restatements of such agreement, instrument or document, provided that nothing
contained in this section shall be construed to authorize any such renewal,
extension, modification, amendment or restatement.
Section 1.4. References and Titles. All references in this Agreement to
---------------------
Exhibits, Schedules, articles, sections, subsections and other subdivisions
refer to the Exhibits, Schedules, articles, sections, subsections and other
subdivisions of this 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 this 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.
Section 1.5. Calculations and Determinations. All calculations under the
-------------------------------
Loan Documents of interest chargeable with respect to LIBOR Rate Portions shall
be made on the basis of actual days elapsed (including the first day but
excluding the last) and a year of 360 days. All other calculations of interest
made under the Loan Documents and all fees shall be made on the basis of actual
days elapsed (including the first day but excluding the last) and a year of 365
or 366 days, as appropriate. Unless otherwise expressly provided herein or
unless Majority Lenders otherwise consent all financial statements and reports
furnished to Administrative Agent or any Lender hereunder shall be prepared and
all financial computations and determinations pursuant hereto shall be made in
accordance with GAAP.
ARTICLE II - The Loans
---------
Section 2.1. Spinnaker Loans. Subject to the terms and conditions hereof,
---------------
each Lender agrees to make advances to Borrower (such Lender's "Spinnaker
---------
Advances") upon requeat from time to time prior to the Final Maturity Date, so
- --------
long as (a) each Spinnaker Advance by such Lender does not exceed such Lender's
Percentage Share of the aggregate amount of Spinnaker Advances then requested
from all Lenders, (b) the sum of (i) the aggregate amount of such Lender's
Spinnaker Advances outstanding at any time plus (ii) the Maximum Drawing Amount
for which such Lender is liable to purchase participations under Section 3.3(c),
plus (iii) the Matured LC Obligations which have been funded by such Lender
under such section, does not exceed such Lender's Percentage Share of the
Borrowing Base then outstanding and (c) the aggregate amount of all Spinnaker
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<PAGE>
Advances outstanding plus all LC Obligations does not exceed the Borrowing Base
then outstanding. The aggregate amount of all Spinnaker Advances requested of
all Lenders in any Request for Advance must be greater than or equal to $500,000
(or a higher integral multiple of $100,000) or, subject to the $500,000 minimum
aggregate amount applicable to any LIBOR Tranche in any Rate Election, may equal
the unadvanced portion of the Borrowing Base or an amount required to finance
the reimbursement of an LC Disbursement as contemplated by Section 3.3. The
obligation of Borrower to repay to each Lender the aggregate amount of all
Spinnaker Advances made by such Lender (such Lender's "Spinnaker Loan"),
--------------
together with interest accruing in connection therewith, shall be evidenced by a
single promissory note (such Lender's "Spinnaker Note") made by Borrower payable
--------------
to the order of such Lender in the form of Exhibit A with appropriate
---------
insertions. The amount of principal owing on any Lender's Spinnaker Note at any
given time shall be the aggregate amount of all Spinnaker Advances theretofore
made by such Lender minus all payments of principal theretofore received by such
Lender on such Spinnaker Note. Interest on each Spinnaker Note shall accrue and
be due and payable as provided herein and therein. Subject to the terms and
conditions hereof, Borrower may borrow, repay, and reborrow under the Spinnaker
Notes. The entire unpaid principal balance of the Spinnaker Loans and all
interest accrued thereon shall be due and payable in full on the Final Maturity
Date.
Section 2.2. PGS Loans. Subject to the terms and conditions hereof, each
---------
Lender agrees to make advances to Borrower (such Lender's "PGS Advances") upon
------------
request from time to time prior to the Final Maturity Date, in an amount up to,
but which does not exceed, such Lender's Percentage Share of the PGS Commitment.
The aggregate amount of all PGS Advances requested of all Lenders in any Request
for Advance must be greater than or equal to $500,000 or higher integral
multiples of $100,000 or, subject to the $500,000 minimum aggregate amount
applicable to any LIBOR Tranche in any Rate Election, may equal the unadvanced
portion of the PGS Commitments. Borrower's obligation to repay to such Lender
the aggregate amount of all PGS Advances made by such Lender (such Lender's "PGS
---
Loan"), together with interest accruing in connection therewith, shall be
- ----
evidenced by a single promissory note (such Lender's "PGS Note") made by
--------
Borrower payable to the order of such Lender in the form of Exhibit B with
---------
appropriate insertions. The amount of principal owing on any Lender's PGS Note
at any given time shall be the aggregate amount of all PGS Advances theretofore
made by such Lender minus all payments of principal theretofore received by such
Lender on such PGS Note. Interest on each PGS Note shall accrue and be due and
payable as provided herein and therein. Subject to the terms and conditions
hereof, Borrower may borrow, repay, and reborrow under the PGS Notes. The entire
unpaid principal balance of the PGS Loans and all interest accrued thereon shall
be due and payable in full on the Final Maturity Date.
Section 2.3. Warburg Loans. Subject to the terms and conditions hereof,
-------------
each Lender agrees to make advances to Borrower (such Lender's "Warburg
-------
Advances") upon request from time to time prior to the Final Maturity Date, in
- --------
an amount up to, but which does not exceed, such Lender's Percentage Share of
the Warburg Commitment. The aggregate amount of all Warburg Advances requested
of all Lenders in any Request for Advance must be greater than or equal to
$500,000 or higher integral multiples of $100,000 or, subject to the $500,000
minimum aggregate
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<PAGE>
amount applicable to any LIBOR Tranche in any Rate Election, may equal the
unadvanced portion of the Warburg Commitments. Borrower's obligation to repay to
such Lender the aggregate amount of all Warburg Advances made by such Lender
(such Lender's "Warburg Loan"), together with interest accruing in connection
------------
therewith, shall be evidenced by a single promissory note (such Lender's
"Warburg Note") made by Borrower payable to the order of such Lender in the form
------------
of Exhibit C with appropriate insertions. The amount of principal owing on any
Lender's Warburg Note at any given time shall be the aggregate amount of all
Warburg Advances theretofore made by such Lender minus all payments of principal
theretofore received by such Lender on such Warburg Note. Interest on each
Warburg Note shall accrue and be due and payable as provided herein and therein.
Subject to the terms and conditions hereof, Borrower may borrow, repay, and
reborrow under the Warburg Notes. The entire unpaid principal balance of the
Warburg Loans and all interest accrued thereon shall be due and payable in full
on the Final Maturity Date.
Section 2.4. Requests for Advances. Borrower must give to Administrative
---------------------
Agent not later than 11:00 a.m., New York time, at least one Business Day's
prior written notice of any requested Advances which shall bear interest at the
Base Rate and not later than 11:00 a.m., New York time, at least three Business
Day's prior written notice of any requested Advances which shall bear interest
at the Adjusted LIBOR Rate, after which Administrative Agent shall give each
Lender prompt notice thereof. Each such written request must be made in the form
and substance of the "Request for Advances" attached hereto as Exhibit D, duly
---------
completed. If all conditions precedent to such Advances have been met, each
Lender will not later than 12:00 noon, New York time, on the date requested
promptly remit to Administrative Agent at Administrative Agent's office at
Eleven Madison Avenue, New York, New York 10010 the amount of such Lender's
Advance in immediately available funds, and upon receipt of such funds, unless
to its actual knowledge any conditions precedent to such Advances have been
neither met nor waived as provided herein, Administrative Agent shall promptly
make the Advances available to Borrower in immediately available funds. Each
Request for Advances shall be irrevocable and binding on Borrower. Unless
Administrative Agent shall have received prompt notice from a Lender that such
Lender will not make available to Administrative Agent such Lender's Advance,
Administrative Agent may in its discretion assume that such Lender has made such
Advance available to Administrative Agent in accordance with this section and
Administrative Agent may if it chooses, in reliance upon such assumption, make
such Advance available to Borrower. If and to the extent such Lender shall not
so make its Advance available to Administrative Agent, such Lender and Borrower
severally agree to pay or repay to Administrative Agent within two Business Days
after demand the amount of such Advance together with interest thereon, for each
day from the date such amount is made available to Borrower until the date such
amount is paid or repaid to Administrative Agent, to be calculated as to such
Lender at the Federal Funds Rate, and to be calculated as to Borrower at the
interest rate applicable at the time to the other Advances made on such date. If
any Lender fails to make such payment to Administrative Agent within such two
Business Day-period, such Lender shall in addition to such amount pay interest
thereon, for each day from the date such Advance is made available to Borrower
until the date such amount is paid or repaid to Administrative Agent, at the
interest rate applicable at the time to the other Advances made on such date.
The failure of any Lender to make any Advance to be made by it hereunder shall
not relieve any other Lender of its
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<PAGE>
obligation hereunder, if any, to make its Advance, but no Lender shall be
responsible for the failure of any other Lender to make any Advance to be made
by such other Lender.
Section 2.5. Use of Proceeds. Borrower shall use all funds from Advances
---------------
for general corporate purposes in its existing lines of business (which include
the exploration, operation and development of oil and gas properties) and
acquisition of oil and gas reserves. In no event shall the funds from any
Advance or Letter of Credit be used directly or indirectly by any Person for
personal, family, household or agricultural purposes or for the purpose, whether
immediate, incidental or ultimate, of purchasing, acquiring or carrying any
"margin stock" or any "margin" securities (as such terms are defined
respectively in Regulation U and Regulation G 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
margin securities. Borrower represents and warrants to Lenders that Borrower is
not engaged principally, or as one of Borrower's important activities, in the
business of extending credit to others for the purpose of purchasing or carrying
such margin stock or margin securities.
Section 2.6. Rate Elections; Interest Rates. (a) Borrower may from time to
------------------------------
time designate all or any portions of the Loans (including any yet to be made
Advances which are to be made prior to or at the beginning of the designated
Interest Period but excluding any portions of the Loans which are required to be
repaid prior to the end of the designated Interest Period) as a "LIBOR Tranche",
which term refers to a set of LIBOR Rate Portions with identical Interest
Periods and with each Lender participating in such LIBOR Tranche in accordance
with its Percentage Share. Borrower may make no such election during the
continuance of a Default or, as to the PGS Loans and the Warburg Loans, any
applicable Sponsor Default, and Borrower may make such an election with respect
to already existing LIBOR Rate Portions only if such election will take effect
at or after the termination of the Interest Period applicable thereto. Each
election by Borrower of a LIBOR Tranche shall:
(i) Be made in writing in the form and substance of the "Rate
Election" attached hereto as Exhibit E, duly completed;
---------
(ii) Specify the aggregate amount of the Loans which Borrower desires
to designate as such LIBOR Tranche, the first day of the Interest Period
which is to apply thereto, and the length of such Interest Period; and
(iii) Be received by Administrative Agent not later than 11:00 a.m.,
New York time, on the third Business Day preceding the first day of the
specified Interest Period.
Promptly after receiving any such election (a "Rate Election") which meets the
-------------
requirements of this section, Administrative Agent shall notify each Lender
thereof. Each Rate Election shall be irrevocable. Borrower may make no Rate
Election which does not specify an Interest Period complying with the definition
of "Interest Period" in Section 1.1, and the aggregate amount of the LIBOR
Tranche elected in any Rate Election must be $500,000 or a higher integral
multiple of
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<PAGE>
$100,000. Upon the termination of each Interest Period the portion of each Loan
within the related LIBOR Tranche shall, unless the subject of a new Rate
Election then taking effect, automatically become a part of the Base Rate
Portion of such Loan and become subject to all provisions of the Loan Documents
governing such Base Rate Portion. Borrower shall have no more than nine (9)
LIBOR Tranches in effect at any time; provided, however, that for purposes of
-------- -------
calculating such limitation, any LIBOR Tranche as to which all Lenders have not
participated shall not be included.
(b) Accrued interest on each Loan shall be payable in arrears on each
Interest Payment Date for such Loan and upon termination of the applicable
Commitments; provided that (i) interest accrued at the Late Payment Rate shall
--------
be payable on demand, (ii) in the event of any repayment or prepayment of any
Loan, accrued interest on the principal amount repaid or prepaid shall be
payable on the date of such repayment or prepayment and (iii) in the event of
any conversion of any LIBOR Loan prior to the end of the current Interest Period
therefor, accrued interest on such Loan shall be payable on the Closing Date of
such conversion.
Section 2.7. Commitment Fees. (a) Spinnaker Advances. In consideration of
--------------- ------------------
each Lender's commitment to make Spinnaker Advances, Borrower will pay to
Administrative Agent for the account of each Lender a commitment fee determined
on a daily basis by applying the applicable Commitment Fee Rate to such Lender's
Percentage Share of the unused portion of the Borrowing Base on each day,
determined for each such day by deducting from the amount of the Borrowing Base
at the end of such day the sum of (i) the aggregate unpaid principal balance of
the Spinnaker Loans at the end of such day plus (ii) the amount of all
outstanding LC Obligations at the end of such day. This commitment fee shall be
due and payable in arrears, with the first payment due on January 1, 1999, and
thereafter on the first day of each Fiscal Quarter and on the Final Maturity
Date.
(b) PGS Advances; Warburg Advances. In consideration of each Lender's
------------------------------
commitment to make PGS Advances and Warburg Advances, Borrower will pay to
Administrative Agent for the account of each Lender a commitment fee determined
on a daily basis by applying the applicable Commitment Fee Rate to such Lender's
Percentage Share of the unused portion of the such Lender's PGS Commitment and
Warburg Commitment on each day. This commitment fee shall be due and payable in
arrears, with the first payment due on January 1, 1999, and thereafter on the
first day of each Fiscal Quarter and on the Final Maturity Date.
Section 2.8. Administrative Agent's Fees. Borrower agrees to pay to
---------------------------
Administrative Agent, for its own account, fees payable in the amounts and at
the times set forth in the Fee Letter.
Section 2.9. Reductions in PGS Commitments and Warburg Commitments; Pro
----------------------------------------------------------
Rata Borrowing between PGS Commitments and Warburg Commitments. Subject to the
- --------------------------------------------------------------
simultaneous payment of any amount required to be made pursuant to Section
2.10(a)(v), (a) the PGS Commitments and/or the Warburg Commitments (as the case
may be) will automatically and permanently: (i) upon each redetermination of the
Borrowing Base, each be reduced by 50% of the amount of any increase in the
Borrowing Base from the most recent Evaluation Date; (ii) be reduced
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<PAGE>
by the amount of any payment under the applicable Sponsor Agreement related
thereto; (iii) be reduced by the amount of any mandatory prepayment pursuant to
Section 2.10(a)(ii), (iii), (iv) and (v); and (iv) be terminated upon any
Sponsor Event of Default under the applicable Sponsor Agreement related thereto.
It is hereby agreed and understood that the termination of the PGS Commitments
and/or Warburg Commitments upon any Sponsor Event of Default under the
applicable Sponsor Agreement related thereto shall prevent any additional
Advances under such applicable Commitments and prevent any additional LIBOR Rate
elections thereunder, but such termination shall not in itself prevent the
Borrower from continuing any existing Advances thereunder at the Base Rate.
(b) In the event only the PGS Commitments or the Warburg Commitments are
terminated due to a Sponsor Event of Default under the applicable Sponsor
Agreement, Borrower may borrow under only the unrelated commitment. In the event
only the PGS Commitments or the Warburg Commitments are reduced due to a payment
under the applicable Sponsor Agreement, any borrowing under such commitments
shall be pro rata between the PGS Commitments and the Warburg Commitments based
upon the revised commitments. In the event either the PGS Commitments or Warburg
Commitments are terminated, any increase in the Borrowing Base shall, subject to
the simultaneous payment of any amount required to be made pursuant to Section
2.10(a)(v), reduce the commitment under the non-terminated facility by 100% of
such increase.
(c) Borrower may from time to time upon not less than five (5) Business
Day's prior written notice received by Administrative Agent (which shall
promptly advise each Lender thereof) permanently terminate or reduce the PGS
Commitments and the Warburg Commitments subject to the simultaneous payment of
any amount required to be made pursuant to Section 2.10(a)(v); provided that (i)
such termination shall apply to each commitment, (ii) any such reduction shall
be pro rata between such commitments and (iii) Borrower shall be required to
simultaneously permanently terminate or reduce on a pro rata basis, as
applicable, the Spinnaker Commitments.
(d) To the extent of available unused commitment, Borrower shall borrow pro
rata between the PGS Commitments and the Warburg Commitments.
Section 2.10. Prepayments. (a) Mandatory Prepayments. Borrower shall make
----------- ---------------------
the following prepayments of the Loans:
(i) Borrowing Base Deficiency. If at any time the aggregate unpaid
-------------------------
principal balance of the Spinnaker Loans plus the aggregate amount of LC
Obligations exceeds the Borrowing Base (the "Borrowing Base Deficiency"),
-------------------------
Borrower shall, within ten (10) days after Administrative Agent sends
written notice of such fact to Borrower, either (1) prepay the principal of
the Spinnaker Loans in an amount at least equal to such Borrowing Base
Deficiency (in this section, a "Mandatory Prepayment Amount"), or (2) give
---------------------------
notice to Administrative Agent electing to prepay such Mandatory Prepayment
Amount in six (6) (or fewer) monthly installments, or (3) within ninety
(90) days after receipt of notice of such
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<PAGE>
Borrowing Base Deficiency, deliver to the Administrative Agent such deeds
of trust and mortgages, in form and substance satisfactory to
Administrative Agent, on oil and gas properties of the Borrower not then
currently included in the Borrowing Base and having, in the sole and
absolute discretion of the Lenders, an incremental Borrowing Base value at
least equal to one hundred percent (100%) of such Borrowing Base
Deficiency, or (4) will cure such Borrowing Base Deficiency by a
combination of the actions required by Section 2.10(a)(i), within the time
periods required thereby. Each such installment shall equal or exceed one-
sixth of such Borrowing Base Deficiency; the first such installment shall
be paid with the giving of such notice and the subsequent installments
shall be due and payable at one month intervals thereafter until such
Borrowing Base Deficiency has been eliminated.
(ii) Net Proceeds of Equity. Borrower shall prepay the Loans with 75%
----------------------
of all Net Proceeds of Equity. Such prepayments shall be applied ratably
first to the principal of the PGS Loans and Warburg Loans as a permanent
reduction of such Commitments until the PGS Loans and Warburg Loans are
paid in full and then to the principal of the Spinnaker Loans until the
Spinnaker Loans are paid in full.
(iii) Net Proceeds of Debt. Borrower shall prepay the principal of the
--------------------
Loans with 100% of the Net Proceeds of Debt incurred (with the prior
written consent of the Majority Lenders) by any Related Person. Application
of such Net Proceeds of Debt shall be applied first to the principal of the
Spinnaker Loans until the Spinnaker Loans are paid in full and then ratably
to the payment of the PGS Loans and Warburg Loans as a permanent reduction
of such Commitments until the PGS Loans and the Warburg Loans are paid in
full. In the event the Majority Lenders, in their sole discretion, permit
the Borrower to issue any such Debt, the Administrative Agent shall have
the right to require a Borrowing Base re-determination, at Borrower's cost.
(iv) Net Sales Proceeds of Asset Sales.
---------------------------------
(A) Borrower shall prepay the Loans in an amount equal to 100%
of the Net Sales Proceeds from the sale of any property included in
the Borrowing Base except pursuant to the first sentence of Section
6.2(d)(iii). Such prepayments shall be applied first to the principal
of the Spinnaker Loans until the Spinnaker Loans are paid in full and
then ratably to the principal of the PGS Loans and the Warburg Loans
until the PGS Loans and the Warburg Loans are paid in full.
(B) Borrower shall prepay the Loans in an amount equal to 100%
of the Net Sales Proceeds from the sale (with the prior written
consent of the Majority Lenders) of any property not included in the
Borrowing Base. Application of such Net Sales Proceeds shall be
applied first to the principal of the Spinnaker Loans until the
Spinnaker Loans are paid in full and then ratably to the payment of
the PGS
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<PAGE>
Loans and Warburg Loans until the PGS Loans and the Warburg Loans are
paid in full.
(v) Reduction in Commitments. Each reduction of the PGS
------------------------
Commitments and/or the Warburg Commitments pursuant to Section 2.9 shall be
accompanied by the prepayment of the PGS Loans and/or the Warburg Loans to
the extent, if any, that the aggregate unpaid principal amount thereof then
outstanding exceeds the PGS Commitments and/or Warburg Commitments, as
applicable, as then reduced.
(b) Optional Prepayments. Borrower may, upon one Business Day's notice to
--------------------
Administrative Agent, from time to time and without premium or penalty prepay
the Notes, in whole or in part, so long as the aggregate amounts of all partial
prepayments of principal on the Notes equals $500,000 or any higher integral
multiple of $100,000 or the outstanding balance on the applicable Notes, if
less. Such prepayments shall be applied as directed by Borrower.
(c) General Provisions Regarding Prepayments. Each prepayment of principal
----------------------------------------
of the Loans under this section shall be accompanied by all interest then
accrued and unpaid on the principal so prepaid. Any principal or interest
prepaid pursuant to this section shall be in addition to, and not in lieu of,
all payments otherwise required to be paid under the Loan Documents at the time
of such prepayment.
Section 2.11. Payments to Lenders. Borrower will make each payment which it
-------------------
owes under the Loan Documents to Administrative Agent for the account of the
Lender to whom such payment is owed. Each such payment must be received by
Administrative Agent not later than 11:00 a.m., New York time, on the date such
payment becomes due and payable, in lawful money of the United States of
America, without set-off, deduction or counterclaim, and in immediately
available funds. Any payment received by Administrative Agent after such time
will be deemed to have been made on the next following Business Day. Should any
such payment become due and payable on a day other than a Business Day, the
maturity of such payment shall be extended to the next succeeding Business Day,
and, in the case of a payment of principal or past due interest, interest shall
accrue and be payable thereon for the period of such extension as provided in
the Loan Document under which such payment is due. When Administrative Agent
collects or receives money on account of the Obligations, Administrative Agent
shall distribute all money so collected or received, and Lenders shall apply all
such money they receive from Administrative Agent, as follows:
(a) first, for the payment of all Obligations which are then due (and if
such money is insufficient to pay all such Obligations, first to any
reimbursements due Administrative Agent under Section 6.1(i) or 8.3 or Issuing
Bank under Section 3.3(a), and then to the partial payment of all other
Obligations then due in proportion to the amounts thereof, or as Lenders shall
otherwise agree);
(b) then for the prepayment of amounts owing under the Loan Documents
(other than principal on the Notes) if so specified by Borrower;
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<PAGE>
(c) then for the prepayment of principal on the Notes, together with
accrued and unpaid interest on the principal so prepaid;
(d) then, for the payment or prepayment of any other Obligations; and
(e) last, for the pro rata payment of any other indebtedness or obligations
to Lenders secured by the Security Documents.
All payments applied to principal or interest on any Note shall be applied first
to any interest then due and payable, then to principal then due and payable,
and last to any prepayment of principal and interest in compliance with Section
2.10. All distributions of amounts described in any of subsections (b), (c) or
(d) above shall be made by Administrative Agent pro rata to Administrative Agent
and each Lender then owed Obligations described in such subsection in proportion
to all amounts owed to Administrative Agent and all Lenders which are described
in such subsection; provided that if any Lender then owes payments to Issuing
Bank for the purchase of a participation under Section 3.3(c) hereof, any
amounts otherwise distributable under this section to such Lender shall be
deemed to belong to Issuing Bank, to the extent of such unpaid payments, and
Agent shall apply such amounts to make such unpaid payments rather than such
amounts to such Lender.
Section 2.12. Initial Borrowing Base. During the period from the date
----------------------
hereof to the first Evaluation Date the Borrowing Base shall be $5,000,000;
provided, however, if prior to such Evaluation Date the Borrower delivers to the
- -------- -------
Administrative Agent a title opinion complying with Section 7.2 regarding its
oil and gas property known as Brazos A-19, the Borrowing Base shall be increased
by $5,000,000.
Section 2.13. Subsequent Determinations of Borrowing Base. (a) By each
-------------------------------------------
Evaluation Date Borrower shall furnish to each Lender all information, reports
and data which Administrative Agent has then reasonably requested concerning
Related Persons' businesses and properties (including Related Persons' oil and
gas properties and interests and the reserves and production relating thereto),
together with the Engineering Report described in Section 6.1(b)(iv), if an
Engineering Report is then due. Within thirty (30) days after receiving such
information, reports and data, or as promptly thereafter as practicable, all
Lenders shall agree upon an amount for the Borrowing Base, which, if all Lenders
do not agree on such amount, shall be the lowest amount determined by any
Lender, and Administrative Agent shall by notice to Borrower designate such
amount as the new Borrowing Base available to Borrower hereunder, which
designation shall take effect immediately on the date such notice is sent (a
"Determination Date") and shall remain in effect until but not including the
- -------------------
next date as of which the Borrowing Base is redetermined. If Borrower does not
furnish all such information, reports and data by the date specified in the
first sentence of this section, Administrative Agent may nonetheless designate
the Borrowing Base at any amount which Lenders determine, and may redesignate
the Borrowing Base from time to time thereafter at any amount which all Lenders
redetermine, until each Lender receives all such information, reports and data,
whereupon Lenders shall designate a new Borrowing Base as described above.
Lenders shall determine the amount of the Borrowing Base based upon the loan
collateral value which they, in
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<PAGE>
their sole discretion and in accordance with their respective normal practices
and standards for oil and gas loans as it exists at the particular time, assign
to the various oil and gas properties of Related Persons at the time in question
and based upon such other factors (including without limitation the assets,
liabilities, cash flow, business, properties, prospects, management and
ownership of Borrower and its Affiliates) as they, in their sole discretion and
in accordance with their respective normal practices and standards for oil and
gas loans as it exists at the particular time, deem significant. It is expressly
understood that Lenders and Administrative Agent have no obligation to agree
upon or designate the Borrowing Base at any particular amount, whether in
relation to the Maximum Spinnaker Loan Amount or otherwise, and that Lenders'
commitments to advance funds hereunder is determined by reference to the
Borrowing Base from time to time in effect, which Borrowing Base shall be used
for calculating commitment fees under Section 2.7(a) and, to the extent
permitted by law and regulatory authorities, for the purposes of Section 2.15.
Semiannual redeterminations and additional redeterminations at the request of
the Lenders or Administrative Agent shall be at no cost to Borrower. Additional
redeterminations at Borrower's request shall be subject to a $5,000 engineering
fee payable by Borrower to the Administrative Agent for its own account.
(b) The Borrower may include additional oil and gas properties of the
Borrower acquired from time to time as Collateral for the Obligations, which may
then be included in the calculation of the Borrowing Base, by the Borrower (A)
giving written notice to the Administrative Agent of such properties to be
included, (B) subjecting such properties to liens securing the Obligations
(pursuant to Security Documents satisfactory to the Administrative Agent), (C)
including such properties in an Engineering Report submitted to the
Administrative Agent and (D) delivering to the Administrative Agent title
opinions addressed to the Administrative Agent for the benefit of the Lenders
covering all of such properties and other legal opinions in form, scope and
substance acceptable to the Administrative Agent opining favorably as to, among
such other matters as may be required by the Administrative Agent, (1) the
Borrower's ownership of such properties and (2) matters of the type covered by
the opinions delivered pursuant to Section 4.1(m) and the opinion attached
hereto as Exhibit G.
---------
(c) Any increase in the Borrowing Base shall be subject to the simultaneous
payment of any amount required to be made under Section 2.10(c) due to any such
increase after giving effect thereto.
Section 2.14. Borrower's Reduction of Borrowing Base. Until the Final
--------------------------------------
Maturity Date Borrower may, during the fifteen-day period beginning on each
Determination Date (each such period, in this section, an "Option Period"),
-------------
reduce the Borrowing Base from the amount designated by Administrative Agent to
any lesser amount. To exercise such option Borrower must within an Option
Period send notice to Administrative Agent of the amount of the Borrowing Base
chosen by Borrower. If Borrower does not affirmatively exercise this option
during an Option Period the Borrowing Base shall be the amount designated by
Administrative Agent. Any choice by Borrower of a Borrowing Base shall be
effective as of the first day of the Option Period during which such choice was
made and shall continue in effect the next date as of which the Borrowing Base
is redetermined.
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<PAGE>
Section 2.15. Alternate Rate of Interest. If prior to the commencement of
--------------------------
any Interest Period for a LIBOR Rate Portion:
(a) the Administrative Agent determines (which determination shall be
conclusive absent manifest error) that adequate and reasonable means do not
exist for ascertaining the Adjusted LIBOR Rate or the LIBOR Rate, as applicable,
for such Interest Period; or
(b) the Administrative Agent is advised by the Majority Lenders that the
Adjusted LIBOR Rate for such Interest Period will not adequately and fairly
reflect the cost to such Lenders (or Lender) of making or maintaining their
Loans (or its Loan) included in such LIBOR Rate Portion for such Interest
Period;
then the Administrative Agent shall give notice thereof to the Borrower and the
Lenders by telephone or telecopy as promptly as practicable thereafter and,
until the Administrative Agent notifies the Borrower and the Lenders that the
circumstances giving rise to such notice no longer exist, (i) any Rate Election
that requests the conversion of any Base Rate Portion to, or continuation of any
LIBOR Rate Portion as, a LIBOR Rate Portion shall be ineffective and (ii) any
requests for an Advance as a LIBOR Rate Portion shall be made as a Base Rate
Portion.
Section 2.16. Increased Costs. (a) If any Change in Law shall:
---------------
(i) impose, modify or deem applicable any reserve, special deposit or
similar requirement against assets of, deposits with or for the account of,
or credit extended by, any Lender (except any such reserve requirement
reflected in the Adjusted LIBOR Rate) or the Issuing Bank; or
(ii) impose on any Lender or the Issuing Bank or the London interbank
market any other condition affecting this Agreement or LIBOR Rate Loans
made by such Lender or any Letter of Credit or participation therein;
and the result of any of the foregoing shall be to increase the cost to such
Lender of making or main taining any LIBOR Rate Loan (or of maintaining its
obligation to make any such Loan) or to increase the cost to such Lender or the
Issuing Bank of participating in, issuing or maintaining any Letter of Credit or
to reduce the amount of any sum received or receivable by such Lender or the
Issuing Bank hereunder (whether of principal, interest or otherwise), then the
Borrower will pay to such Lender or the Issuing Bank, as the case may be, such
additional amount or amounts as will compensate such Lender or the Issuing Bank,
as the case may be, for such additional costs incurred or reduction suffered.
(b) If any Lender or the Issuing Bank determines that any Change in Law
regarding capital requirements has or would have the effect of reducing the rate
of return on such Lender's or the Issuing Bank's capital or on the capital of
such Lender's or the Issuing Bank's holding company, if any, as a consequence of
this Agreement or the Loans made by, or participations in Letters of
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<PAGE>
Credit held by, such Lender, or the Letters of Credit issued by the Issuing
Bank, to a level below that which such Lender or the Issuing Bank or such
Lender's or the Issuing Bank's holding company could have achieved but for such
Change in Law (taking into consideration such Lender's or the Issuing Bank's
policies and the policies of such Lender's or the Issuing Bank's holding company
with respect to capital adequacy), then from time to time the Borrower will pay
to such Lender or the Issuing Bank, as the case may be, such additional amount
or amounts as will compensate such Lender or the Issuing Bank or such Lender's
or the Issuing Bank's holding company for any such reduction suffered.
(c) A certificate of a Lender or the Issuing Bank setting forth in
reasonable detail the amount or amounts necessary to compensate such Lender or
the Issuing Bank or its holding company, as the case may be, as specified in
paragraph (a) or (b) of this Section shall be delivered to the Borrower and
shall be conclusive absent manifest error. The Borrower shall pay such Lender
or the Issuing Bank, as the case may be, the amount shown as due on any such
certificate within 10 days after receipt thereof.
(d) Failure or delay on the part of any Lender or the Issuing Bank to
demand compensation pursuant to this Section shall not constitute a waiver of
such Lender's or the Issuing Bank's right to demand such compensation; provided
--------
that the Borrower shall not be required to compensate a Lender or the Issuing
Bank pursuant to this Section for any increased costs or reductions incurred
more than 90 days prior to the date that such Lender or the Issuing Bank, as the
case may be, notifies the Borrower of the Change in Law giving rise to such
increased costs or reductions and of such Lender's or the Issuing Bank's
intention to claim compensation therefor; provided further that, if the Change
-------- -------
in Law giving rise to such increased costs or reductions is retroactive, then
the 90-day period referred to above shall be extended to include the period of
retroactive effect thereof.
Section 2.17. Break Funding Payments. In the event of (a) the payment of
----------------------
any principal of any LIBOR Rate Loan other than on the last day of an Interest
Period applicable thereto (including as a result of an Event of Default), (b)
the conversion of any LIBOR Rate Loan other than on the last day of the Interest
Period applicable thereto, (c) the failure to borrow, convert, continue or
prepay any Revolving Loan on the date specified in any notice delivered pursuant
hereto, or (d) the assignment of any LIBOR Rate Loan other than on the last day
of the Interest Period applicable thereto as a result of a request by the
Borrower pursuant to Section 2.19, then, in any such event, the Borrower shall
compensate each Lender for the loss, cost and expense attributable to such
event. In the case of a LIBOR Rate Loan, such loss, cost or expense to any
Lender shall be deemed to include an amount determined by such Lender to be the
excess, if any, of (i) the amount of interest which would have accrued on the
principal amount of such Loan had such event not occurred, at the LIBOR Rate
that would have been applicable to such Loan, for the period from the date of
such event to the last day of the then current Interest Period therefor (or, in
the case of a failure to borrow, convert or continue, for the period that would
have been the Interest Period for such Loan), over (ii) the amount of interest
which would accrue on such principal amount for such period at the interest rate
which such Lender would bid were it to bid, at the commencement of such period,
for dollar
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<PAGE>
deposits of a comparable amount and period from other banks in the eurodollar
market. A certificate of any Lender setting forth in reasonable detail any
amount or amounts that such Lender is entitled to receive pursuant to this
Section shall be delivered to the Borrower and shall be conclusive absent
manifest error. The Borrower shall pay such Lender the amount shown as due on
any such certificate within 10 days after receipt thereof.
Section 2.18. Taxes. (a) Any and all payments by or on account of any
-----
obligation of the Borrower hereunder shall be made free and clear of and without
deduction for any Indemnified Taxes or Other Taxes; provided that if the
--------
Borrower shall be required to deduct any Indemnified Taxes or Other Taxes from
such payments, then (i) the sum payable shall be increased as necessary so that
after making all required deductions (including deductions applicable to
additional sums payable under this Section) the Administrative Agent, Lender or
Issuing Bank (as the case may be) receives an amount equal to the sum it would
have received had no such deductions been made, (ii) the Borrower shall make
such deductions and (iii) the Borrower shall pay the full amount deducted to the
relevant Governmental Authority in accordance with applicable law.
(b) In addition, the Borrower shall pay any Other Taxes to the relevant
Governmental Authority in accordance with applicable law.
(c) The Borrower shall indemnify the Administrative Agent, each Lender and
the Issuing Bank, within 10 days after written demand therefor, for the full
amount of any Indemnified Taxes or Other Taxes paid by the Administrative Agent,
such Lender or the Issuing Bank, as the case may be, on or with respect to any
payment by or on account of any obligation of the Borrower hereunder (including
Indemnified Taxes or Other Taxes imposed or asserted on or attributable to
amounts payable under this Section) and any penalties, interest and reasonable
expenses arising therefrom or with respect thereto, whether or not such
Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted
by the relevant Governmental Authority. A certificate as to the amount of such
payment or liability delivered to the Borrower by a Lender or the Issuing Bank,
or by the Administrative Agent on its own behalf or on behalf of a Lender or the
Issuing Bank, shall be conclusive absent manifest error.
(d) As soon as practicable after any payment of Indemnified Taxes or Other
Taxes by the Borrower to a Governmental Authority, the Borrower shall deliver to
the Administrative Agent the original or a certified copy of a receipt issued by
such Governmental Authority evidencing such payment, a copy of the return
reporting such payment or other evidence of such payment reasonably satisfactory
to the Administrative Agent.
(e) Any Foreign Lender that is entitled to an exemption from or reduction
of withholding tax under the law of the jurisdiction in which the Borrower is
located, or any treaty to which such jurisdiction is a party, with respect to
payments under this Agreement shall deliver to the Borrower (with a copy to the
Administrative Agent), at the time or times prescribed by applicable law, such
properly completed and executed documentation prescribed by applicable law or
reasonably
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<PAGE>
requested by the Borrower as will permit such payments to be made without
withholding or at a reduced rate.
Section 2.19. Mitigation Obligations; Replacement of Lenders. (a) If any
----------------------------------------------
Lender requests compensation under Section 2.16, or if the Borrower is required
to pay any additional amount to any Lender or any Governmental Authority for the
account of any Lender pursuant to Section 2.17, then such Lender shall use
reasonable efforts to designate a different lending office for funding or
booking its Loans hereunder or to assign its rights and obligations hereunder to
another of its offices, branches or affiliates, if, in the judgment of such
Lender, such designation or assignment (i) would eliminate or reduce amounts
payable pursuant to Section 2.16 or 2.18, as the case may be, in the future and
(ii) would not subject such Lender to any unreimbursed cost or expense and would
not otherwise be disadvantageous to such Lender.
(b) If any Lender requests compensation under Section 2.16, or if the
Borrower is required to pay any additional amount to any Lender or any
Governmental Authority for the account of any Lender pursuant to Section 2.18,
or if any Lender defaults in its obligation to fund Loans hereunder, then the
Borrower may, at its sole expense and effort, upon notice to such Lender and the
Administrative Agent, require such Lender to assign and delegate, without
recourse (in accordance with and subject to the restrictions contained in
Section 10.11), all its interests, rights and obligations under this Agreement
to an assignee that shall assume such obligations (which assignee may be another
Lender, if a Lender accepts such assignment); provided that (i) the Borrower
--------
shall have received the prior written consent of the Administrative Agent and
the Issuing Bank, which consent shall not unreasonably be withheld, (ii) such
Lender shall have received payment of an amount equal to the outstanding
principal of its Loans and participations in LC Disbursements, accrued interest
thereon, accrued fees and all other amounts payable to it hereunder, from the
assignee (to the extent of such outstanding principal and accrued interest and
fees) or the Borrower (in the case of all other amounts) and (iii) in the case
of any such assignment resulting from a claim for compensation under Section
2.16 or payments required to be made pursuant to Section 2.18, such assignment
will result in a reduction in such compensation or payments.
ARTICLE III - Letters of Credit
-----------------
Section 3.1. Letters of Credit. Subject to the terms and conditions
-----------------
hereof, Borrower may until the Final Maturity Date request Issuing Bank to issue
one or more Letters of Credit, provided that, after taking such Letter of Credit
into account:
(a) the sum of the aggregate amount of Spinnaker Advances outstanding at
such time plus the aggregate amount of LC Obligations at such time, does not
exceed the Borrowing Base at such time;
(b) the aggregate amount of LC Obligations at such time does not exceed
$5,000,000;
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<PAGE>
(c) the expiration date of such Letter of Credit is prior to the end of the
Final Maturity Date;
(d) such Letter of Credit is to be used for general corporate purposes of
Related Persons;
(e) such Letter of Credit is not directly or indirectly used to assure
payment of or otherwise support any Person's Indebtedness for borrowed money;
(f) the issuance of such Letter of Credit will be in compliance with all
applicable governmental restrictions, policies, and guidelines and will not
subject Issuing Bank to any cost not anticipated on the date hereof;
(g) the form and terms of such Letter of Credit are acceptable to
Administrative Agent and Issuing Bank in their sole and absolute discretion; and
(h) all other conditions in this Agreement to the issuance of such Letter
of Credit have been satisfied.
Issuing Bank will honor any such request if the foregoing conditions (a) through
(h) (in this Section 3.1 called the "LC Conditions") have been met as of the
-------------
date of issuance of such Letter of Credit.
Section 3.2. Requesting Letters of Credit . Borrower must make written
----------------------------
application for any Letter of Credit at least three Business Days before the
date on which Borrower desires for Issuing Bank to issue such Letter of Credit.
By making any such written application Borrower shall be deemed to have
represented and warranted that the LC Conditions described in Section 3.1 will
be met as of the date of issuance of such Letter of Credit. Each such written
application for a standby or commercial Letter of Credit must be made in writing
using the forms therefor customarily used by Issuing Bank, the terms and
provisions of which are hereby incorporated herein by reference (or in such
other form as may mutually be agreed upon by Issuing Bank and Borrower).
Section 3.3. Reimbursement and Participations.
--------------------------------
(a) Reimbursement by Borrower. Each Matured LC Obligation shall constitute
-------------------------
a Loan by Issuing Bank to Borrower. Borrower promises to pay to Issuing Bank,
or to Issuing Bank's order, on demand, the full amount of each Matured LC
Obligation, together with interest thereon at the Late Payment Rate.
(b) Letter of Credit Advances. If the beneficiary of any Letter of Credit
-------------------------
makes a draft or other demand for payment thereunder then Borrower may, during
the interval between the making thereof and the honoring thereof by Issuing
Bank, request Lenders to make Spinnaker Advances to Borrower in the amount of
such draft or demand, which Spinnaker Advances shall be made concurrently with
Issuing Bank's payment of such draft or demand and shall be immediately used
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by Issuing Bank to repay the amount of the resulting Matured LC Obligation. Such
a request by Borrower shall be made in compliance with all of the provisions
hereof, provided that for the purposes of clauses (b) and (c) of the first
sentence of Section 2.1 the amount of such Spinnaker Advances shall be
considered but the amount of the Matured LC Obligation to be concurrently paid
by such Spinnaker Advances shall not be considered.
(c) Participation by Lenders. Issuing Bank irrevocably agrees to grant and
------------------------
hereby grants to each Lender, and to induce Issuing Bank to issue Letters of
Credit hereunder, each Lender irrevocably agrees to accept and purchase and
hereby accepts and purchases from Issuing Bank, on the terms and conditions
hereinafter stated and for such Lender's own account and risk an undivided
interest equal to such Lender's Percentage Share of Issuing Bank's obligations
and rights under each Letter of Credit issued hereunder and the amount of each
Matured LC Obligation paid by Issuing Bank thereunder. Each Lender
unconditionally and irrevocable agrees with Issuing Bank that, if a Matured LC
Obligation is paid under any Letter of Credit for which Issuing Bank is not
reimbursed in full by Borrower in accordance with the terms of this Agreement
and the related LC Application (including any reimbursement by means of
concurrent Advances or by the application of LC Collateral), such Lender shall
within two Business Days (in all circumstances and without set-off or
counterclaim) pay to Issuing Bank on demand, in immediately available funds at
Issuing Bank's address for notices hereunder, such Lender's Percentage Share of
such Matured LC Obligation (or any portion thereof which has not been reimbursed
by Borrower), together with interest thereon, for each day from the date such
amount was paid by Issuing Bank under such Letter of Credit until the date such
amount is paid to Administrative Agent at the Federal Funds Rate. If any Lender
fails to make such payment to Issuing Bank within such two Business Day period,
such Lender shall in addition to such amount pay interest thereon, for each day
from the date such amount was paid by Issuing Bank under such Letter of Credit
until the date such amount is paid or repaid to Administrative Agent, at the
Base Rate. Each Lender's obligation to pay Issuing Bank pursuant to the terms
of this subsection is irrevocable and unconditional.
(d) Distributions to Participants. Whenever Issuing Bank has in accordance
-----------------------------
with this section received from any Lender payment of such Lender's Percentage
Share of any Matured LC Obligation, if Issuing Bank thereafter receives any
payment of such Matured LC Obligation or any payment of interest thereon
(whether directly from Borrower or by application of LC Collateral or otherwise,
and excluding only interest for any period prior to Issuing Bank's demand that
such Lender make such payment of its Percentage Share), Issuing Bank will
distribute to such Lender its Percentage Share of the amounts so received by
Issuing Bank; provided, however, that if any such payment received by Issuing
-------- -------
Bank must thereafter be returned by Issuing Bank, such Lender shall return to
Issuing Bank the portion thereof which Issuing Bank has previously distributed
to it.
(e) Calculations. A written advice setting forth in reasonable detail the
------------
amounts owing under this section, submitted by Issuing Bank to Borrower or any
Lender from time to time, shall be conclusive, absent manifest error, as to the
amounts thereof.
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Section 3.4. Letter of Credit Fees. In consideration of Issuing Bank's
---------------------
issuance of Letters of Credit, Borrower agrees to pay (i) to the Administrative
Agent for the account of each Lender a participation fee with respect to its
participations in Letters of Credit, which shall accrue at the LIBOR Spread then
in effect with respect to Spinnaker Loans after giving effect thereto on the
average daily amount of such Lender's Percentage Share of the LC Obligations
during the period from and including the Closing Date to but excluding the later
of the date on which such Lender's Spinnaker Commitment terminates and the date
on which such Lender ceases to participate in any LC Obligations, and (ii) to
the Issuing Bank a fronting fee, which shall accrue at the rate of 0.125% per
annum on the average daily amount of the LC Obligations during the period from
and including the Closing Date to but excluding the later of the date of
termination of the Spinnaker Commitments and the date on which there ceases to
be any LC Obligations, as well as the Issuing Bank's standard fees with respect
to the amendment, renewal or extension of any Letter of Credit or processing of
drawings thereunder. Participation fees and fronting fees shall be due and
payable in arrears, on the last Business Day of each Fiscal Quarter and on the
Final Maturity Date commencing on the first such date to occur after the Closing
Date; provided that all such fees shall be payable on the date on which the
--------
Spinnaker Commitments terminate and any such fees accruing after the date on
which the Spinnaker Commitments terminate shall be payable on demand. Any other
fees payable to the Issuing Bank pursuant to this paragraph shall be payable
within 10 days after demand. All participation fees and fronting fees shall be
computed on the basis of a year of 360 days and shall be payable for the actual
number of days elapsed (including the first day but excluding the last day).
Section 3.5. No Duty to Inquire.
------------------
(a) Drafts and Demands. Issuing Bank is authorized and instructed to
------------------
accept and pay drafts and demands for payment under any Letter of Credit without
requiring, and without responsibility for, any determination as to the existence
of any event giving rise to said draft, either at the time of acceptance of
payment or thereafter. Issuing Bank and Lenders may act in reliance upon any
drafts or demand for payment believed in good faith to have been authorized,
whether or not made by an authorized officer, representative or agent of any
beneficiary under any Letter of Credit, and payment by Issuing Bank to a
beneficiary when requested by any such purported officer, representative or
agent is hereby authorized and approved. Borrower agrees to hold Issuing Bank
and each Lender harmless and indemnified against any liability or claim in
connection with or arising out of the subject matter of this section, WHICH
INDEMNITY SHALL APPLY WHETHER OR NOT ANY SUCH LIABILITY OR CLAIM IS IN ANY WAY
OR TO ANY EXTENT CAUSED, IN WHOLE OR IN PART, BY ANY NEGLIGENT ACT OR OMISSION
OF ANY KIND BY ISSUING BANK OR ANY LENDER, provided only that Issuing Bank or
such Lender shall not be entitled to indemnification for that portion, if any,
of any liability or claim which is proximately caused by its own individual
gross negligence or willful misconduct, as determined in a final judgment.
(b) Extension of Maturity. If the maturity of any Letter of Credit is
---------------------
extended by its terms or by law or governmental action, if any extension of the
maturity or time for presentation of drafts or any other modification of the
terms of any Letter of Credit is made at the request of any Related
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<PAGE>
Person, or if the amount of any Letter of Credit is increased at the request of
any Related Person, this Agreement shall be binding upon all Related Persons
with respect to such Letter of Credit as so extended, increased or otherwise
modified, with respect to drafts and property covered thereby, and with respect
to any action taken by Issuing Bank or any of Issuing Bank's correspondents in
accordance with such extension, increase or other modification.
(c) Transferees of Letters of Credit. If any Letter of Credit provides
--------------------------------
that it is transferable, Issuing Bank shall have no duty to determine the proper
identity of anyone appearing as transferee of such Letter of Credit, nor shall
Issuing Bank be charged with responsibility of any nature or character for the
validity or correctness of any transfer or successive transfers, and payment by
Issuing Bank to any purported transferee or transferees as determined by Issuing
Bank is hereby authorized and approved, and Borrower further agrees to hold
Issuing Bank and each Lender harmless and indemnified against any liability or
claim in connection with or arising out of the foregoing, WHICH INDEMNITY SHALL
APPLY WHETHER OR NOT ANY SUCH LIABILITY OR CLAIM IS IN ANY WAY OR TO ANY EXTENT
CAUSED, IN WHOLE OR IN PART, BY ANY NEGLIGENT ACT OR OMISSION OF ANY KIND BY
ISSUING BANK OR ANY LENDER, provided only that Issuing Bank or such Lender shall
not be entitled to indemnification for that portion, if any, of any liability or
claim which is caused by its own individual gross negligence or willful
misconduct.
Section 3.6. LC Collateral.
-------------
(a) LC Obligations in Excess of Borrowing Base. If, after the making of
------------------------------------------
all mandatory prepayments required under Section 2.10, the outstanding LC
Obligations will exceed the Borrowing Base, then Borrower will immediately pay
to Issuing Bank an amount equal to such excess. Issuing Bank will hold such
amount as security for the remaining LC Obligations ("LC Collateral") until such
-------------
LC Obligations become Matured LC Obligations, at which time such LC Collateral
may be applied to such Matured LC Obligations. Neither this subsection nor the
following subsection shall, however, limit or impair any rights which Issuing
Bank may have under any other document or agreement relating to any Letter of
Credit or LC Obligation, including any LC Application, or any rights which
Issuing Bank or Lenders may have to otherwise apply any payments by Borrower and
any LC Collateral under Section 2.11.
(b) Acceleration of LC Obligations. If the Obligations or any part thereof
------------------------------
become immediately due and payable pursuant to Section 8.1 then, unless Majority
Lenders otherwise specifically elect to the contrary (which election may
thereafter be retracted by Majority Lenders at any time), all LC Obligations
shall become immediately due and payable without regard to whether or not actual
drawings or payments on the Letters of Credit have occurred, and Borrower shall
be obligated to pay to Issuing Bank immediately an amount equal to the aggregate
LC Obligations which are then outstanding. All amounts so paid shall first be
applied to Matured LC Obligations and then held by Issuing Bank as LC Collateral
until such LC Obligations become Matured LC Obligations, at which time such LC
Collateral shall be applied to such Matured LC Obligations.
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<PAGE>
(c) Investment of LC Collateral. Pending application thereof, all LC
---------------------------
Collateral shall be invested by Issuing Bank in such interest-bearing
investments as Issuing Bank may choose in its sole discretion reasonably
exercised. All interest on such investments shall be reinvested or applied to
Matured LC Obligations. When all Obligations have been satisfied in full,
including all LC Obligations, all Letters of Credit have expired or been
terminated, and all of Borrower's reimbursement obligations in connection
therewith have been satisfied in full, Issuing Bank shall release any remaining
LC Collateral. Borrower hereby assigns and grants to Issuing Bank a continuing
security interest in all LC Collateral paid by it to Issuing Bank, all
investments purchased with such LC Collateral, and all proceeds thereof to
secure its Matured LC Obligations and its Obligations under this Agreement, the
Notes, and the other Loan Documents, and Borrower agrees that such LC Collateral
and investments shall be subject to all of the terms and conditions of the
Mortgage. Borrower further agrees that Issuing Bank shall have all of the
rights and remedies of a secured party under the Uniform Commercial Code as
adopted in the State of New York with respect to such security interest and that
an Event of Default under this Agreement shall constitute a default for purposes
of such security interest.
ARTICLE IV - Conditions Precedent to Lending
-------------------------------
Section 4.1. Documents to be Delivered. No Lender has any obligation to
-------------------------
make its first Advance, and Issuing Bank has no obligation to issue the first
Letter of Credit, unless Administrative Agent shall have received all of the
following duly executed and delivered in multiple counterparts for each Lender
and in form, substance and date satisfactory to Administrative Agent:
(a) This Agreement and any other documents that Lenders are to execute in
connection herewith.
(b) Each Spinnaker Note, PGS Note and Warburg Note.
(c) The following certificates of Borrower:
(i) An "Omnibus Certificate" of the Secretary of Borrower, which shall
contain the names and signatures of the officers of Borrower authorized to
execute Loan Documents and which shall certify to the truth, correctness
and completeness of the following exhibits attached thereto: (1) a copy of
resolutions duly adopted by the members of Borrower and in full force and
effect at the time this Agreement is entered into, authorizing the
execution of this Agreement and the other Loan Documents delivered or to be
delivered in connection herewith and the consummation of the transactions
contemplated herein and therein, (2) a copy of the Limited Liability
Company Agreement of Borrower and all amendments thereto, certified by the
Secretary of State of Delaware, and (3) a copy of the regulations of
Borrower; and
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<PAGE>
(ii) A "Compliance Certificate" of the Chief Financial Officer of the
Borrower of even date with such Advance in which such officer certifies to
the satisfaction of the conditions set out in subsections (a), (b) and (c)
of Section 4.2.
(d) A certificate (or certificates) of the due formation, valid existence
and good standing of Borrower in its state of organization, issued by the
appropriate authorities of such jurisdiction.
(e) A favorable opinion of Vinson & Elkins, L.L.P., counsel for the Related
Persons, substantially in the form set forth in Exhibit G.
---------
(f) A favorable opinion of Phelps, Dunbar, L.L.P., Louisiana counsel for
the Agents and the Lenders, substantially in the form set forth in Exhibit H.
---------
(g) A favorable opinion of Knut Haavardsen, General Counsel of PGS,
substantially in the form set forth in Exhibit I.
---------
(h) A favorable opinion of Willkie Farr & Gallagher, counsel for Warburg,
substantially in the form set forth in Exhibit J.
---------
(i) A favorable opinion of Baker & Botts, L.L.P., counsel for the Agents
and the Lenders, substantially in the form set forth in Exhibit K.
---------
(j) Each Security Document listed in the Security Schedule, together with
the delivery of such certificate, stock powers and instruments required to be
delivered pursuant to the Security Documents.
(k) Certificates of Borrower's good standing and due qualification to do
business, issued by appropriate officials in any states in which Borrower owns
property subject to Security Documents.
(l) Documents similar to those specified in subsections (c)(i) and (d) of
this section with respect to each Guarantor and each Sponsor (provided that the
requirements of subsection (d) shall not be required of PGS).
(m) Title opinions in form, substance and authorship satisfactory to
Administrative Agent, concerning the oil and gas properties listed under the
heading "Identified Properties" on Schedule 3, and, as to all other oil and gas
----------
properties listed on Schedule 3, other title assurances satisfactory to
----------
Administrative Agent.
(n) Administrative Agent shall have received true and correct copies of
such documents or instruments as may be reasonably requested by Administrative
Agent including, without limitation, any debt instrument, security agreement or
other material contract to which any Related Party or any Sponsor may be a
party.
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<PAGE>
(o) Administrative Agent shall have received true and complete copies of
detailed consolidated annual projections for Spinnaker Exploration Company,
certified as of the Closing Date by the chief financial officer of Borrower as
having been prepared in good faith by Borrower, which certificate shall state
that such officer has no reason to believe that the projections are incorrect or
misleading in any material respect, it being recognized by Administrative Agent
and Lenders that such projections as to future events depend on such assumptions
and are not to be viewed as facts and that actual results during the period
covered by any such projections may differ from the projected results.
(p) Administrative Agent shall have received the results of a lien search
(which lien search shall be satisfactory to Administrative Agent and which shall
have been conducted immediately prior to the Closing Date) in each of the
jurisdictions where assets any Related Person are located, and such search shall
reveal no Liens on any of the assets of any Related Person except for Liens
permitted by Section 6.2(b) and other Liens approved by Administrative Agent.
(q) Letter from CT Corporation System accepting appointment as designee,
appointee and agent of Borrower, each Guarantor and each Sponsor pursuant to
Section 10.5(b).
(r) Borrower's payment to Administrative Agent of all fees then due to
Administrative Agent and Lenders hereunder and under the Fee Letter and all
reasonable legal fees of Administrative Agent's counsel for which invoices in
reasonable detail are received at least 10 days prior to the date of the first
Advance.
(s) Evidence satisfactory to Administrative Agent that during the period
commencing December 20, 1996 and ending prior to the initial Advances, Spinnaker
Exploration Company shall have received all the Sponsor capital contributions
($75 million) toward exploration, development and related activity.
(t) Receipt by Administrative Agent of a certificate from Warburg, in the
form of Exhibit L attached hereto, evidencing its capacity to meet its maximum
---------
obligations under its Support Agreement.
(u) Administrative Agent shall have received from Borrower a certificate of
insurance of the Borrower evidencing that the Borrower is carrying insurance in
accordance with Section 6.1(h) hereof.
(v) The Support Agreements.
Section 4.2. Additional Conditions Precedent. No Lender has any
-------------------------------
obligation to make any Advance (including its first), and Issuing Bank has no
obligation to issue any Letter of Credit (including the first) unless the
following conditions precedent have been satisfied:
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<PAGE>
(a) (i) In the case of all Advances, all representations and warranties
made by any Related Person in any Loan Document shall be true on and as of the
date of such Advance or the date of issuance of such Letter of Credit and after
giving effect thereto as if such representations and warranties had been made as
of the date of such Advance or the date of issuance of such Letter of Credit and
(ii) in the case of a PGS Advance or a Warburg Advance, all representations and
warranties made by the applicable Sponsor in the respective Sponsor Agreement to
which it is a party shall be true on and as of the date of such Advance or the
date of issuance of such Letter of Credit and after giving effect thereto as if
such representations and warranties had been made as of the date of such Advance
or the date of issuance of such Letter of Credit.
(b) (i) In the case of all Advances, no Default shall exist at the date of
such Advance or the date of issuance of such Letter of Credit or result
therefrom and (ii) in the case of a PGS Advance or a Warburg Advance, no Sponsor
Default shall exist under the applicable Sponsor Agreement related thereto.
(c) (i) In the case of all Advances, no act, event or condition shall have
occurred which has resulted in a Material Adverse Effect and (ii) in the case of
a PGS Advance or a Warburg Advance, no act, event or condition shall have
occurred which has resulted in a material adverse effect on the financial
condition, business, properties, assets or operations of the applicable Sponsor
or the ability of such Sponsor to perform its obligations under the Support
Agreement to which it is a party on a timely basis or the ability of the
Administrative Agent or any Lender to enforce such Sponsor's Obligations
thereunder.
(d) The making of such Advance or the issuance of such Letter of Credit
shall not be prohibited by any law or any regulation or order of any court or
governmental agency or authority and shall not subject any Lender or Issuing
Bank to any penalty or other onerous condition under or pursuant to any such
law, regulation or order.
(e) No suit, action, investigation, inquiry or other proceeding (including,
without limitation, the enactment or promulgation of a statute or rule) by or
before any arbitrator or any Governmental Authority shall be pending and no
preliminary or permanent injunction or order by a state or federal court shall
have been entered in connection with any Loan Document, or any of the
transactions contemplated hereby or thereby, which, in the judgment of
Administrative Agent, would have a Material Adverse Effect.
(f) The Administrative Agent shall have received a Request for Advance duly
completed, executed and delivered by Borrower as required by Section 2.4.
ARTICLE V - Representations and Warranties
------------------------------
Section 5.1. Borrower's Representations and Warranties. To confirm each
-----------------------------------------
Lender's understanding concerning Related Persons and Related Persons'
businesses, properties and obligations and to induce Administrative Agent and
each Lender to enter into this Agreement and
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<PAGE>
to make the Loans and issue Letters of Credit, Borrower represents and warrants
to Administrative Agent and each Lender that:
(a) No Default. Borrower is not in default in the performance of any of
----------
the covenants and agreements contained herein. No event has occurred and is
continuing which constitutes a Default.
(b) Organization and Good Standing. Each Related Person is duly organized,
------------------------------
validly existing and in good standing under the laws of its state of
organization, having all powers required to carry on its business and enter into
and carry out the reactions contemplated hereby. Each such Related Person is
duly qualified, in good standing, and authorized to do business in all other
jurisdictions within the United States wherein the character of the properties
owned or held by it, if any, or the nature of the business transacted by it
makes such qualification necessary, except where the failure so to qualify will
not have any Material Adverse Effect. Each such Related Person has taken all
actions and procedures customarily taken in order to enter, for the purpose of
conducting business or owning property, each jurisdiction outside the United
States wherein the character of the properties owned or held by it, if any, or
the nature of the business transacted by it, if any, makes such actions and
procedures desirable.
(c) Authorization. Each Related Person has duly taken all action necessary
-------------
to authorize the execution and delivery by it of the Loan Documents to which it
is a party and to authorize the consummation of the transactions contemplated
thereby and the performance of its obligations thereunder. Borrower is duly
authorized to borrow funds hereunder.
(d) No Conflicts or Consents. The execution and delivery by the various
------------------------
Related Persons of the Loan Documents to which each is a party, the performance
by each of its obligations under such Loan Documents, and the consummation of
the transactions contemplated by the various Loan Documents, do not and will not
(i) conflict with any provision of (1) any domestic or foreign law, statute,
rule or regulation, (2) the organizational documents of any Related Person, or
(3) any agreement, judgment, license, order or permit applicable to or binding
upon any Related Person, (ii) result in the acceleration of any Indebtedness
owed by any Related Person, or (iii) result in or require the creation of any
Lien upon any assets or properties of any Related Person except as expressly
contemplated in the Loan Documents. Except as expressly contemplated in the
Loan 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 any Related Person
of any Loan Document or to consummate any transactions contemplated by the Loan
Documents.
(e) Enforceable Obligations. This Agreement is, and the other Loan
-----------------------
Documents when duly executed and delivered will be, legal, valid and binding
obligations of each Related Person which is a party hereto or 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 and subject to general
principles of equity, regardless of whether considered in a proceeding in equity
or at law.
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<PAGE>
(f) Initial Financial Statements. The Initial Financial Statements of
----------------------------
Spinnaker Exploration Company fairly present (i) Spinnaker Exploration Company's
consolidated, financial position at the date thereof, (ii) the consolidated
results of Spinnaker Exploration Company and (iii) Spinnaker Exploration
Company's consolidated cash flows for the period thereof. Since the date of the
audited annual Initial Financial Statements no act, event or condition has
occurred which would have a material adverse effect upon the assets, business,
properties, operations or financial condition, of the Related Persons, taken as
a whole. The Initial Financial Statements of Spinnaker Exploration Company were
prepared in accordance with GAAP.
(g) Other Restrictions. No Related Person is subject to or restricted by
------------------
any franchise, contract, deed, charter restriction, or other instrument or
restriction which may be reasonably expected to have a Material Adverse Effect.
(h) Full Disclosure. No certificate, statement or other information
---------------
delivered in writing herewith or heretofore by any Related Person to
Administrative Agent or any Lender in connection with the negotiation of this
Agreement or in connection with any transaction contemplated hereby contains any
untrue statement known to a Related Person of a material fact or omits to state
any material fact known to any Related Person (other than industry-wide risks
normally associated with the types of businesses conducted by the Related
Persons) necessary to make the statements contained herein or therein not
materially misleading as of the date made or deemed made, taken as a whole.
There is no fact known to any Related Person that has not been disclosed to
Administrative Agent and each Lender in writing which could materially and
adversely affect Borrower's consolidated properties, assets, operations
businesses, or condition (financial or otherwise). To the best knowledge of
Borrower, 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 Borrower does not warrant that such opinions,
estimates and projections will ultimately prove to have been accurate. Borrower
has heretofore delivered to Administrative Agent and each Lender true, correct
and complete copies of the Initial Financial Statements and the Initial
Engineering Report.
(i) Litigation. There are no actions, suits or legal, equitable,
----------
arbitrative or administrative proceedings pending, or to the knowledge of any
Related Person threatened, against any Related Person before any federal, state,
municipal or other court, department, commission, body, board, bureau, agency,
or instrumentality, domestic or foreign, which do or may have a Material Adverse
Effect, and there are no outstanding judgments, injunctions, writs, rulings or
orders by any such governmental entity against any Related Person or any Related
Person's property, which have or may have a reasonable possibility of causing a
Material Adverse Effect.
(j) ERISA Liabilities. All currently existing ERISA Plans are listed in
-----------------
the Disclosure Schedule or a Disclosure Report. No Termination Event has
occurred with respect to any ERISA Plan and the Related Persons are in
compliance with ERISA in all material respects. No Related Person is required
to contribute to, or has any other absolute or contingent liability in respect
of, any "multiemployer plan" as defined in Section 4001 of ERISA. No
"accumulated funding deficiency"
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<PAGE>
(as defined in Section 412(a) of the Internal Revenue Code of 1986, as amended)
exists with respect to any ERISA Plan, whether or not waived by the Secretary of
the Treasury or his delegate, and the current value of each ERISA Plan's
benefits does not exceed the current value of such ERISA Plan's assets available
for the payment of such benefits by more than $500,000.
(k) Environmental and Other Laws. Except as would not have a Material
----------------------------
Adverse Effect (or with respect to (iii), (iv) and (v) below, where the failure
to take such actions would not have a Material Adverse Effect):
(i) Neither any property of any Related Person or any Subsidiary nor
the operations conducted thereon violate any Environmental Laws;
(ii) Without limitation of clause (a) above, no property of any
Related Person or any Subsidiary nor the operations currently conducted
thereon or, to the best knowledge of any of the Related Persons, by any
prior owner or operator of such property or operation, are in violation of
or subject to any existing, pending or, to the Related Person's knowledge,
threatened action, suit, investigation, inquiry or proceeding by or before
any Governmental Authority or to any remedial obligations under
Environmental Laws;
(iii) All notices, permits, licenses or similar authorizations, if
any, required pursuant to Environmental Laws to be obtained or filed in
connection with the operation or use of the property of any Related Persons
and each Subsidiary have been duly obtained or filed, and the Related
Persons and each Subsidiary are in compliance with the terms and conditions
of all such notices, permits, licenses and similar authorizations;
(iv) All Hazardous Materials, solid waste, and oil and gas
exploration and production wastes, if any, generated at the property of any
Related Person or any Subsidiary have in the past been transported, treated
and disposed of in accordance with Environmental Laws and so as not to pose
an imminent and substantial endangerment to public health or welfare or the
environment, and, to the best knowledge of each Related Person, all such
transport carriers and treatment and disposal facilities have been and are
operating in compliance with Environmental Laws and so as not to pose an
imminent and substantial endangerment to public health or welfare or the
environment, and are not the subject of any existing, pending or, to each
Related Person's knowledge, threatened action, investigation or inquiry by
any Governmental Authority in connection with any Environmental Laws;
(v) The Related Persons have taken all steps reasonably necessary to
determine and have determined that no Hazardous Materials, solid waste, or
oil and gas exploration and production wastes, have been disposed of or
otherwise released and there has been no threatened release of any
Hazardous Materials on or to any property of the Related Persons or any
Subsidiary except, in each case, in compliance with Environmental Laws and
so as not to pose an imminent and substantial endangerment to public health
or welfare or the environment; and
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<PAGE>
(vi) None of the Related Persons nor any Subsidiary has any known
contingent liability in connection with any release or threatened release
of any oil, Hazardous Materials or solid waste into the environment.
(l) Names and Places of Business. No Related Person has, during the
----------------------------
preceding five years, been known by, or used any other corporate, trade, or
fictitious name (except Spinnaker Exploration Company's name previously was
Spinco Exploration Corp.). Except as otherwise indicated pursuant to Section
6.1(d), the chief executive office and principal place of business of each
Related Person is located at the address set out in Section 10.3. Except as
indicated in the Disclosure Schedule or a Disclosure Report, no Related Person
has any other office or place of business.
(m) Borrower's Subsidiaries. Borrower does not have any Subsidiary or own
-----------------------
any stock in any other corporation or association except those listed in the
Disclosure Schedule or a Disclosure Report. No Related Person is a member of
any general or limited partnership, joint venture or association of any type
whatsoever except associations, joint ventures or other relationships (i) which
are established pursuant to a standard form operating agreement or similar
agreement or which are partnerships for purposes of federal income taxation
only, (ii) which are not corporations or partnerships (or subject to the Uniform
Partnership Act) under applicable state law, and (iii) whose businesses are
limited to the exploration, development and operation of oil, gas or mineral
properties and interests owned directly by the parties in such associations,
joint ventures or relationships. Borrower owns, directly or indirectly, the
equity interest in each of its Subsidiaries which is indicated in the Disclosure
Schedule.
(n) Title to Properties. Each Related Person has valid and defensible
-------------------
title to, or a valid leasehold or like interest in, all of the real property
interests constituting the Mortgaged Property and all of its other material
properties and assets, free and clear of all Prohibited Liens and of all
material impediments to the use of such properties and assets in such Related
Person's ordinary course of business.
(o) Government Regulation. No Related Person is subject to regulation
---------------------
under the Public Utility Holding Company Act of 1935, the Federal Power Act, the
Investment Company Act of 1940 (as any of the preceding acts have been amended)
or any other statute, law, regulation or decree which regulates the incurring by
such Person of Indebtedness, including statutes, laws, regulations or decrees
relating to common contract carriers or the sale of electricity, gas, steam,
water or other public utility services.
(p) Permits and Licenses. Each Related Person possesses all permits,
--------------------
licenses, patents, patent rights or licenses, trademarks, trademark rights,
trade names and copyrights which are material to the conduct of its business.
(q) Taxes. Each Related Person has filed or caused to be filed all tax
-----
returns which, to the knowledge of such Related Person, are required to be filed
and has paid all taxes shown to be due and payable on said returns or on any
assessments made against it or any of its property and all other
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<PAGE>
taxes, fees or other charges imposed on it or any of its property by any
Governmental Authority (other than (i) where extensions have been obtained and
(ii) any such impositions as to which the amount or validity is currently being
contested in good faith by appropriate proceedings and with respect to which
reserves in conformity with GAAP have been provided on the books of such Related
Person); no tax Lien has been filed, and, to the knowledge of Borrower, no claim
is being asserted, with respect to any such tax, fee or other charge.
(r) Insurance. The Disclosure Schedule sets forth a complete and correct
---------
list of all insurance policies and programs in effect on the Closing Date with
respect to the properties and businesses of each Related Person specifying for
each such policy and program, (i) the amount thereof, (ii) the risks insured
against thereby, (iii) the name of the insurer and each insured party thereunder
and (iv) the policy or other identification number thereof.
(s) Year 2000.
---------
(i) All device, systems, machinery, information technology, computer
software and hardware, and other date sensitive technology (jointly and
severally the "Systems") necessary for each Related Person to carry on its
-------
business as presently conducted and as contemplated to be conducted in the
future are Year 2000 Compliant or will be Year 2000 Compliant within a
period of time calculated to result in no material disruption of any of its
business operations. For purposes of these provisions, "Year 2000
---------
Compliant" means that such Systems are designed to be used prior to, during
---------
and after the Gregorian calendar year 2000 A.D. and will operate during
each such time period without error relating to date data, specifically
including any error relating to, or the product of, date data which
represents or references different centuries or more than one century.
(ii) Each Related Person has: (1) undertaken a detailed inventory,
review, and assessment of all areas within its business and operations that
could be adversely affected by the failure of it to be Year 2000 Compliant
on a timely basis; (2) developed a detailed plan and time line for becoming
Year 2000 Compliant on a timely basis, and (3) to date, implemented that
plan in accordance with that timetable in all material respects.
(iii) Each Related Person has made or will make written inquiry of
each of its key suppliers, vendors, and customers, and will attempt to
obtain in writing confirmations from all such persons, as to whether such
persons have initiated programs to become Year 2000 Compliant and on the
basis of such confirmations, each Related Person reasonably believes that
all such persons will be or become so compliant. For purposes hereof, "key
suppliers, vendors, and customers" refers to those suppliers, vendors, and
customers of each Related Person whose business failure would, with
reasonable probability, result in a Material Adverse Effect.
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ARTICLE VI - Covenants of Borrower
---------------------
Section 6.1. Affirmative Covenants. To conform with the terms and
---------------------
conditions under which each Lender is willing to have credit outstanding to
Borrower, and to induce Administrative Agent and each Lender and Issuing Bank to
enter into this Agreement and make the Loans and issue Letters of Credit,
Borrower warrants, covenants and agrees that until the full and final payment of
the Obligations and the termination of this Agreement, unless Majority Lenders
have previously agreed otherwise:
(a) Payment and Performance. Borrower will pay all amounts due by Borrower
-----------------------
under the Loan Documents to which it is a party in accordance with the terms
thereof and will observe, perform and comply with every covenant, term and
condition expressed or implied in the Loan Documents applicable to Borrower.
Borrower will cause the other Related Persons to observe, perform and comply
with every such term, covenant and condition applicable to the other Related
Persons in the Loan Documents to which they are a party.
(b) Books, Financial Statements and Reports. Each Related Person will at
---------------------------------------
all times maintain full and accurate books of account and records. Borrower
will maintain and will cause each Related Person to maintain a standard system
of accounting and will furnish the following statements and reports to
Administrative Agent and Lender at Borrower's expense:
(i) As soon as available, and in any event within 90 days after
the end of each Fiscal Year, complete audited consolidated financial
statements of Spinnaker Exploration Company together with all notes
thereto, prepared in reasonable detail in accordance with GAAP in all
material respects, together with an opinion, based on an audit using
generally accepted auditing standards, by Arthur Andersen or other
independent certified public accountants of recognized national standing
selected by Spinnaker Exploration Company and acceptable to the
Administrative Agent, stating that such consolidated financial statements
have been so prepared. These financial statements shall contain a
consolidated balance sheet as of the end of such Fiscal Year and
consolidated 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. In addition,
within 90 days after the end of each Fiscal Year Borrower will furnish a
certificate signed by such accountants stating that in making the
examination and reporting on the consolidated financial statements
described above they did not conclude that any Default existed at the end
of such Fiscal Year or at the time of their report, or, if they did
conclude that a Default existed, specifying its nature and period of
existence.
(ii) As soon as available, and in any event within 60 days after
the end of each Fiscal Quarter, complete unaudited consolidated financial
statements from Spinnaker Exploration Company and consolidated balance
sheet as of the end of such Fiscal Quarter and consolidated 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 changes resulting
from normal year-end
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adjustments and without footnotes. In addition Borrower will, together with
each such set of financial statements and each set of financial statements
furnished under subsection (b)(i) of this section, furnish a certificate in
the form of Exhibit F signed by the chief financial officer of Borrower
---------
stating that such financial statements are accurate and complete in all
material respects, stating that he/she has reviewed the Loan Documents,
containing calculations showing compliance (or non-compliance) at the end
of such Fiscal Quarter with the requirements of Sections 6.2(a), (k), (1)
and (m), and 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) Promptly upon their becoming available, copies of all (A)
financial statements, reports, notices and proxy statements sent by any
Related Person to its stockholders or members and (B) all statements and
reports sent to any Related Person or filed with or otherwise provided to
any Governmental Authority (including without limitation, the Federal
Energy Regulatory Commission or the Texas Natural Resource Conservation
Committee and any successor agencies) which describe or relate to any event
which could reasonably be expected to have a Material Adverse Effect;
(iv) By March 15 of each year, an Engineering Report prepared as of
January 1 of such year by Ryder Scott Company, or other independent
petroleum engineers chosen by Borrower and reasonably acceptable to
Administrative Agent, and by August 15 of each year, an Engineering Report
prepared by Borrower's in-house engineering staff as of July 1 of such
year. Each such report shall cover all proved oil and gas reserves
attributable to the properties and interests owned by any Related Person
which are (i) located in or offshore of the United States and (ii) to
comprise the Borrowing Base. Each such report shall take into account any
"over-produced" status under gas balancing arrangements, and shall contain
information and analysis comparable in scope to that contained in the
Initial Engineering Report, and shall be accompanied by such additional
data concerning pricing, operating costs, quantities of production from the
oil and gas properties of the Related Persons, purchasers of production,
and other information and engineering and geological data as Administrative
Agent may reasonably request.
(v) As soon as available, and in any event within sixty (60) days
after the end of each Fiscal Quarter, (A) a report describing by lease or
unit the gross volume of production, oil and gas prices and sales
attributable to production during such Fiscal Quarter from the properties
described in subsection (b)(iv) above and describing the related severance
taxes, other taxes, and leasehold operating expenses and capital costs
attributable thereto and incurred during such Fiscal Quarter and (B) a
summary prepared by the Borrower of its cost of undeveloped leasehold and
internal reserve estimate and PV-10 for proved oil and gas reserves not
included in the most recent Engineering Report.
(vi) As soon as available, and in any event within sixty (60) days
after the end of each Fiscal Quarter, a hedging report prepared by Borrower
regarding any Hedging Agreement entered into by Borrower and in effect as
of the end of such Fiscal Quarter. Each
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such hedging report shall be in form satisfactory to Administrative Agent
and shall include unit volumes, pricing, term, counterparty and date of
such contracts.
(vii) Within ten (10) days after entering into a contract, whether
written or oral, for the sale or transfer of any Mortgaged Property, a
schedule of all of the Mortgaged Property so sold since the date of the
most recent Engineering Report, cross-referencing same to the Engineering
Report last delivered hereunder, and the details of such sales including
the Net Sales Proceeds received by the Borrower in connection with each
sale. Contemporaneously with the consummation of any such sale or transfer
with respect to Mortgaged Property included in the Borrowing Base, the
Borrowing Base shall be subject to adjustment, if any, pursuant to Section
6.2(d)(iii) hereof.
(c) Other Information and Inspections. Each Related Person will furnish to
---------------------------------
Administrative Agent and each Lender any information which Administrative Agent
may from time to time reasonably request in writing concerning any covenant,
provision or condition of the Loan Documents or any matter in connection with
the Related Persons' businesses and operations. At any reasonable time and from
time to time, upon reasonable notice, each Related Person shall, and shall cause
its Subsidiaries to, permit the Administrative Agent and any Lender or any of
its agents or representatives thereof, to (a) examine and make copies of and
abstracts from the records and books of account of, and visit and inspect at its
reasonable discretion the properties of, any such Related Person and any such
Subsidiary, and (b) discuss the affairs, finances and accounts of any such
Related Person and any such Subsidiary with any of their respective officers or
directors; provided however, notwithstanding the provisions of 8.3 the
-------- -------
Administrative Agent or the Lender for whose benefit such inspection and
visitation is made assumes sole responsibility for the condition of any property
of any such Related Person or its Subsidiaries so visited and inspected, the
access and egress thereto (including, but not limited to wharves, docks, and
helicopter landing areas), and any vice or defect therein or thereon, and
assumes all responsibility for and hereby releases and indemnifies each Related
Person, its Affiliates, and their officers, directors, employees, and agents
against any claim for damage or injury to or by the Administrative Agent or such
Lender (or the representatives thereof) or to any such Related Person's or its
Subsidiaries' property which may be occasioned by inspection and visitation of
any such Related Person's or its Subsidiaries' property; provided, however, that
-------- -------
neither any Related Person nor any of its Subsidiaries shall be required to
disclose to the Administrative Agent, any Lender or any agents or
representatives thereof any information which is the subject of attorney-client
privilege or attorney's work-product privilege properly asserted by the
applicable Person to prevent the loss of such privilege in connection with such
information. The expense of any exercise by the Administrative Agent or any
Lender of its rights under this Section 6.1(c) shall not be incurred by the
Borrower unless a Default has occurred and is continuing at the time of the
request or visit.
(d) Notice of Material Events and Change of Address. Borrower will
-----------------------------------------------
promptly, after it has knowledge, notify Administrative Agent and each Lender:
(i) of the occurrence of any act, condition or event which is
reasonably likely to have a Material Adverse Effect;
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(ii) of the occurrence of any Default;
(iii) of the acceleration of the maturity of any Indebtedness owed by
any Related Person or of any default by any Related Person under any
indenture, mortgage, agreement, contract or other instrument to which any
of them is a party or by which any of them or any of their properties is
bound, if such acceleration or default might have a Material Adverse
Effect;
(iv) of the occurrence of any Termination Event;
(v) of any claim in an amount equal to 1% of Spinnaker Exploration
Company's consolidated shareholder equity (based upon the most recent
financial statements delivered pursuant to Section 6.1(b)), or more, any
notice of potential liability under any Environmental Laws which might
exceed such amount, or any other claim asserted against any Related Person
or with respect to any Related Person's properties which might exceed such
amount;
(vi) of the institution of any material action, suit, proceedings,
governmental investigation or arbitration against or affecting any Related
Person not previously disclosed in writing to Administrative Agent pursuant
to this Section 6.1 or any material development in action, suit,
proceeding, governmental investigation or arbitration already disclosed in
either case which is likely to constitute a Material Adverse Effect; and
(vii) copies of all notices of default, notices, amendments, waivers
and other documents delivered or received by any Related Person pursuant to
the terms of the PGS Data Contract (excluding minor correspondence, notices
of delivery of data and the like).
Upon the occurrence of any of the foregoing the Related Persons will take all
necessary or appropriate steps to remedy promptly any such material adverse
change, Default, acceleration, default 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. Borrower will also notify
Administrative Agent in writing at least thirty days prior to the date that any
Related Person 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 Administrative Agent and its counsel to
prepare the same.
(e) Maintenance of Properties. Each Related Person will maintain,
-------------------------
preserve, protect, and keep all Collateral and all other material property
(specifically excluding properties no longer capable of producing hydrocarbons
in economically reasonable quantities) used or useful in the conduct of its
business in good condition, ordinary wear and tear excepted, and in compliance
with all applicable laws, rules and regulations (except where non-compliance is
not reasonably likely to have a Material Adverse Effect), 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
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conducted at all times. Without limitation of the foregoing, (i) each Related
Person shall, or shall make reasonable and customary efforts to, cause its oil
and gas properties to be maintained, developed, protected and operated in a good
and workmanlike manner in material compliance with all title documents, laws and
contracts and (ii) each Related Person shall, or shall make reasonable and
customary efforts to, use its reasonable efforts to cause its oil and gas
properties to be developed in accordance with Spinnaker Exploration Company's
July 23, 1998 Board Meeting Cash Forecasts provided to Administrative Agent
prior to the Closing Date, as such plans and projections may be revised by
Borrower thereafter (such revisions to be delivered to Administrative Agent upon
its reasonable request). All hydrocarbons which any Related Person takes and/or
markets from its oil and gas properties shall be sold at such prices and on such
terms as would be sought and obtained by a reasonably prudent operator.
(f) Maintenance of Existence and Qualifications. Each Related Person will
-------------------------------------------
maintain and preserve its existence and its material rights, privileges,
permits, licenses and franchises necessary to conduct its business in full force
and effect and will qualify to do business in all states or jurisdictions where
required by applicable law, except where the failure so to qualify will not have
any Material Adverse Effect.
(g) Payment of Trade Debt, Taxes, etc. Each Related Person will (i) timely
---------------------------------
file (including any automatic extensions for filing) 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 ninety
(90) days after the same becomes due pay all Indebtedness 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 all other material
claims (including, without limitation, claims for labor, services, materials and
supplies) that have become due and payable and that by law have or may become a
Lien on its such property or assets, prior to the time when any penalty or fine
may be incurred with respect thereto; and (v) maintain appropriate accruals and
reserves for all of the foregoing in accordance with GAAP. Each Related Person
may, however, delay paying or discharging any of the foregoing 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) Insurance. Each Related Person will keep or cause to be kept
---------
adequately insured by financially sound and reputable insurers its surface
equipment, vehicles and all other property of a character usually insured by
similar Persons engaged in the same or similar businesses and reasonably
satisfactory to Administrative Agent. Each Related Person shall at all times
maintain insurance against its liability for injury to persons or property as is
customary for the industry, which insurance shall be by financially sound and
reputable insurers and reasonably satisfactory to Administrative Agent.
(i) Payment of Expenses. Whether or not the transactions contemplated by
-------------------
this Agreement are consummated, Borrower will promptly (and in any event, within
30 days after any invoice or other statement or notice) pay all reasonable costs
(excluding advertising costs) and expenses incurred by or on behalf of (i)
Administrative Agent and its Affiliates (including reasonable attorneys' fees)
in connection with (1) the negotiation, syndication, preparation, execution and
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delivery of the Loan Documents, and any and all consents, waivers or other
documents or instruments relating thereto, (2) the filing, recording, refiling
and re-recording of any Loan 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 Loan Document, and (3) the borrowings hereunder and other
action reasonably required in the course of administration hereof, and (ii)
Administrative Agent or any Lender (including reasonable attorneys' fees) in
connection with the defense or enforcement of the Loan Documents (other than the
Sponsor Agreements) or the defense of Administrative Agent's or any Lender's
exercise of its rights thereunder (including costs and expenses of determining
whether and how to carry out such defense or enforcement).
(j) Preservation of Oil and Gas Properties. Borrower shall at all times at
--------------------------------------
Borrower's own expense use reasonable commercial efforts to do all things
reasonably necessary to keep unimpaired each Related Persons' rights and
remedies in their oil and gas properties. Without limiting the foregoing, each
Related Person shall use reasonable commercial efforts to pay or cause to be
paid, promptly as and when due and payable, all delay rentals, royalties and
other indebtedness payable to the lessor of such oil and gas properties. Should
any adverse claim be made against, or a cloud develop upon, or material title
defect exist upon, the title of any Related Person to any part of its oil and
gas properties, such Related Person agrees that it will promptly defend such
claim or take appropriate action to remove such cloud or clear such title defect
at such Related Person's expense. Subject to Section 6.2(d), each Related
Person shall maintain at all times title to all their respective properties as
represented by Section 5.1(n), free and clear of Liens, other than the Liens
permitted by Section 6.2(b). Notwithstanding the foregoing, nothing in this
Section 6.1(j) shall prevent any Related Person from plugging and abandoning any
wells if, based on its good faith assessment, it is economical to do so, or
prevent any Related Person from assigning leases by customary farm-ins or non-
consent provisions in the good faith exercise of the prudent operator standard.
(k) Compliance with Agreements and Law. Each Related Person will perform
----------------------------------
all material obligations it is required to perform under the terms of each
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. Each Related Person will conduct
its business and affairs in material compliance with all laws, regulations, and
orders applicable thereto, including Environmental Laws.
(l) Year 2000
---------
(i) Each Related Personal shall furnish such additional information,
statements and other reports with respect to its activities, course of
action and progress towards becoming Year 2000 Compliant as Administrative
Agent may request from time to time.
(ii) In the event of any change in circumstances that causes or will
likely cause any of the Related Persons' representations and warranties
with respect to its being or becoming Year 2000 Compliant to no longer be
true (hereinafter, referred to as a "Change in Circumstances") then such
-----------------------
Related Person shall promptly, and in any event within ten (10) days of
receipt of information regarding a Change in Circumstances, provide
Administrative
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Agent with written notice (the "Notice") that describes in reasonable
------
detail the Change in Circumstances and how such Change in Circumstances
caused or will likely cause such Related Person's representations and
warranties with respect to being or becoming Year 2000 Compliant to no
longer be true. Each Related Person shall, within ten (10) days of a
request, also provide Administrative Agent with any additional information
Administrative Agent requests of such Related Person in connection with the
Notice and/or a Change in Circumstances.
(iii) Each Related Person shall give any representative of
Administrative Agent access during all business hours to, and permit such
representative to examine, copy or make excerpts from, any and all books,
records and documents in the possession of such Related Person and relating
to its affairs, and to inspect any of the properties and Systems of such
Related Person, and to project test the Systems to determine if they are
Year 2000 Compliant in an integrated environment, all at the sole cost and
expense of Administrative Agent.
Section 6.2 Negative Covenants. To conform with the terms and
------------------
conditions under which each Lender is willing to have credit outstanding to
Borrower, and to induce Administrative Agent and each Lender and Issuing Bank to
enter into this Agreement and make the Loans and issue Letters of Credit,
Borrower warrants, covenants and agrees that until the full and final payment of
the Obligations and the termination of this Agreement, unless Majority Lenders
have previously agreed otherwise:
(a) Indebtedness. No Related Person will create, incur, assume or suffer
------------
to exist any Indebtedness except:
(i) the Obligations;
(ii) Indebtedness arising under Hedging Agreements as permitted
hereunder;
(iii) miscellaneous items of Indebtedness not described in
subsections (i) and (ii), incurred for purchase money indebtedness,
Capitalized Lease Obligations and leases substantially equivalent to title
retention or conditional sales agreements, sales and leasebacks, and other
Indebtedness incurred in the ordinary course of business for the purchase
of equipment, computers, furniture, automobiles and similar incidentals
(and not for working capital or acquisitions) which do not in the aggregate
(taking into account all such Indebtedness of all Related Persons) exceed
$1,000,000 at any one time outstanding;
(iv) Indebtedness owing to another Related Person permitted by
Section 6.2(g); and
(v) Indebtedness owing to the Sponsors in connection with any
purchase of the PGS Notes and/or the Warburg Notes, as described in Section
11(d) hereof, provided that such Indebtedness is subject to the terms of
subordination set forth in the Sponsor Agreements.
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(b) Limitation on Liens. No Related person will create, incur, assume or
-------------------
suffer or permit to exist any Lien upon any of the properties or assets which it
now owns or hereafter acquires, except:
(i) Liens which secure Obligations only;
(ii) Liens which secure Indebtedness permitted by Section
6.2(a)(iii);
(iii) Liens for taxes or assessments on real or personal property
which are not yet past due, or Liens for taxes and assessments on real or
personal property which are past due but for which adequate reserves with
respect thereto are maintained on its books in accordance with GAAP and
which are being diligently contested in good faith by appropriate
proceedings and have not proceeded to judgment;
(iv) imperfections and irregularities in title to any property
(which indirectly or together with any other such property has an aggregate
fair market value in excess of $500,000) which in the aggregate do not
materially impair the fair market value or use of such property for the
purposes for which it is or may reasonably be expected to be held;
(v) easements, exceptions, reservations, servitudes, permits,
surface leases and other rights in respect of surface leases, zoning,
planning, environmental and similar restrictions, laws or ordinances or
agreements for the purpose of pipelines, conduits, cables, wire
communication lines, power lines and substations, streets, roads, trails,
walkways, drainage, irrigation, water, and sewage purposes, dikes, canals,
ditches, the removal of oil, gas, coal, or other minerals, or for the joint
or common use of real property or rights-of-way and other like purposes
affecting real property (which indirectly or together with any other such
property has an aggregate fair market value in excess of $500,000) which in
the aggregate, are not substantial in amount, and which do not, in any
case, materially burden or impair the fair market value or use of such
property for the purposes for which it is or may reasonably be expected to
be held;
(vi) non-consensual Liens imposed by law (other than a Lien imposed
by ERISA), including carrier's, mechanics', materialmen's, landlord's,
warehousemen's or other similar Liens, with respect to obligations not
incurred in connection with any violations of law and which are not
delinquent or, if delinquent, are being diligently contested in good faith
by appropriate proceedings, and for which adequate reserves with respect
thereto are maintained on its books in accordance with GAAP;
(vii) Liens consisting of pledges or deposits made in connection with
obligations under unemployment insurance, social security, workers'
compensation laws or similar legislation;
(viii) Liens consisting of pledges or deposits of property to secure
insurance in the ordinary course of business, the performance of bids,
tenders, contracts (other than contracts
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for the payment of money), leases, licenses, franchises, performance bonds
and other obligations of a like nature incurred in the ordinary course of
business;
(ix) Liens consisting of deposits of property to secure statutory
obligations of Borrower in the ordinary course of its business;
(x) Liens consisting of deposits of property to secure (or in lieu
of) surety, appeal or customer bonds in proceedings to which Borrower is a
party in the ordinary course of its business;
(xi) Liens arising under operating, farmout, pooling or unitization
agreements of Borrower of the scope and nature customary in the oil and gas
industry; and
(xii) Liens for lessor's royalties, overriding royalties, and
division orders and sales contracts covering hydrocarbons, reversionary
interests and similar burdens; and any operator's Liens or similar Liens
arising in the ordinary course of the oil and gas operations of the Related
Persons and securing obligations that are not past due;
provided that no Lien referred to above in subsections (ii) through (iii),
- --------
inclusive, shall (1) secure Indebtedness (except in subsection (ii)), (2) in the
aggregate materially detract from the value of the oil and gas properties of the
Related Persons or materially impair the use thereof in the operation of the
business of the Related Persons, (3) individually or in the aggregate, operate
to reduce the net revenue interest of the Related Persons in any of the
Mortgaged Property owned by the Related Persons to less than the net revenue
interest set forth in the Engineering Report most recently delivered by Borrower
to the Administrative Agent, or (4) be disadvantageous in any material respect
to Administrative Agent and the Lenders.
(c) Limitation on Fundamental Changes, Issuances of Securities. Except as
----------------------------------------------------------
expressly provided in this subsection, no Related Person shall enter into any
transaction of acquisition of a Person or merger, consolidation or amalgamation,
or liquidate, wind up or dissolve itself (or suffer any liquidation or
dissolution), or convey, sell, lease, assign, transfer or otherwise dispose of,
all or substantially all of its property, business or assets. Any Subsidiary of
Borrower may, however, be merged into or consolidated with (i) another
Subsidiary of Borrower, so long as a direct wholly-owned Subsidiary of Borrower
which is a Guarantor is the surviving business entity, or (ii) Borrower, so long
as Borrower is the surviving business entity. In addition, any Person may be
merged into or consolidated with any Related Person so long as such Related
Person is the surviving business entity and no Default exists or will be created
thereby. Any wholly-owned Subsidiary of Borrower may sell, lease, transfer or
otherwise dispose of any or all of its assets (upon voluntary liquidation or
otherwise) to Borrower or any other direct wholly-owned Subsidiary of Borrower
which is a Guarantor. Borrower will not issue any membership interests other
than common membership interests in Borrower and any options or warrants giving
the holders thereof only the right to acquire such interests. No Subsidiary of
Borrower will issue any additional securities or any options, warrants or other
rights to acquire such additional securities except to Borrower and only to the
extent not otherwise forbidden under the terms hereof. No Subsidiary of
Borrower will allow
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any diminution of Borrower's interest (direct or indirect) therein. Except in
connection with a Permitted Initial Public Offering, Borrower will not suffer to
exist any sale, transfer or other disposition of the stock of or rights with
respect to Borrower or any Subsidiary, and Borrower will not issue any
additional securities or any options, warrants or other rights to acquire such
additional securities.
(d) Limitation on Sales of Property. No Related Person will sell,
-------------------------------
transfer, lease, exchange, alienate or dispose of any properties valued in the
Borrowing Base or any of its other assets or properties or any interest therein
except:
(i) equipment which is worthless or obsolete or which is replaced
by equipment of equal suitability and value;
(ii) inventory (including oil and gas sold as produced and seismic
data) which is sold for cash only in the ordinary course of business on
ordinary trade terms;
(iii) in the period subsequent to the then most recent Determination
Date, sales of interests in oil and gas properties, or portions thereof,
which are included in the Borrowing Base whose value, if any, as set forth
in the Engineering Report most recently finished to Administrative Agent
and Lenders as of the time of sale does not in the aggregate in such
period exceed $500,000. In the event the Lenders, in their sole
discretion, permit any Related Person to sell any such properties which
are included in the Borrowing Base in excess of such $500,000 in any such
period, (1) Administrative Agent shall have the right to require a
Borrowing Base re-determination, at Borrower's cost, and (2) the Net Sales
Proceeds therefrom shall be applied as set forth in Section 2.10(a)(iv).
Any sale, transfer or other disposition of Mortgaged Property shall
contemporaneously with the consummation of such sale, transfer or other
disposition, reduce the Borrowing Base then in effect by an amount equal
to the loan value (as reasonably determined by the Lenders in accordance
with the standards stated in this Agreement), attributable to all
Mortgaged Property so sold, transferred or disposed; and
(iv) in the period subsequent to the most recent Determination Date,
sales of interests in oil and gas properties, or portions thereof, which
are not included in the Borrowing Base whose fair market value as of the
time of sale does not in the aggregate in such period exceed $4,000,000.
Notwithstanding Section 6.2(d)(iii) and (iv) above, no Related Person will sell,
transfer, lease, exchange, alienate or dispose of any of its interests in its
properties identified as Galveston 249 and West Cameron 39, without the prior
written consent of the Majority Lenders; provided, that if such properties
--------
become included in the Borrowing Base, such disposition shall be governed by
Section 6.2(d)(iii).
(e) Limitation on Dividends and Redemption. No Related Person will declare
--------------------------------------
or pay any dividends on or make any other distribution in respect of any
interest in it, nor will any Related
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Person directly or indirectly make any capital contribution to or purchase,
redeem, acquire or retire any securities in any Related Person (whether such
interests are now or hereafter issued, outstanding or created), or cause or
permit any reduction or retirement of the capital stock of any Related Person,
except as expressly provided in this section. Such dividends, distributions,
contributions, purchases, redemptions, acquisitions, retirements or reductions
may be made (i) by any Related Person other than Borrower without limitation to
Borrower; (ii) by any Related Person to Guarantors which are Subsidiaries of
Borrower, to the extent that such Guarantors are using funds so contributed or
paid for activities in which Borrower could invest directly under Section
6.2(f), (iii) by Borrower to the members of Borrower, provided such distribution
--------
is solely used directly or indirectly to pay either current taxes or employee
compensation paid within the ordinary course of business (including bonuses and
payments under employment contracts existing on the Closing Date) and (iv) by
Spinnaker Exploration Company as provided in Section 2(c) of the Certificate of
Designation, Preferences and Rights of Series A Convertible Preferred Stock as
such section exists on the Closing Date; provided that no such dividends,
--------
distributions, contributions, purchases, redemptions, acquisitions, retirements
or reductions shall be permitted if (a) a Default or Event of Default has
occurred and is continuing, (b) a Default or Event of Default would occur as a
result thereof, or (c) a Borrowing Base Deficiency exists.
(f) Limitation on Investments. No Related Person will make any significant
-------------------------
acquisitions of, or capital contributions to, or other investments in, any
properties or Person, other than:
(i) Permitted Investments; investments permitted by Section 6.2(g);
and demand and time deposits with The Frost National Bank not to exceed
$250,000 at any one time;
(ii) in its existing lines of business;
(iii) to Subsidiaries of the Borrower which are Guarantors;
(iv) margin deposits or Letters of Credit posted in connection with
any Hedging Agreement permitted pursuant to Section 6.2(n), provided such
--------
margin deposits and Letters of Credit do not exceed, in the aggregate for
all such margin deposits and Letters of Credit at any one time outstanding,
the sum of 5% of the then effective Borrowing Base; and
(v) investments in connection with or related to farm-out, farm-in,
joint operating, joint venture or area of mutual interest agreements,
gathering systems, pipelines or other similar or customary arrangements
entered into in the ordinary course of business only insofar as they do not
(i) reduce the net revenue interest of the Related Persons in any property
included in the Borrowing Base below the undivided net revenue interest
specified for such Related Persons in the most recent Engineering Report
utilized by the Lenders in determining the then effective Borrowing Base
and/or (ii) increase the undivided working interest without a corresponding
increase in the net revenue interest specified for such Related Persons in
the most recent Engineering Report utilized by the Lenders in determining
the then effective Borrowing Base.
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Notwithstanding the foregoing, investments by Spinnaker Exploration Company
and WP Spinnaker Holdings, Inc. shall be limited to their interests in Borrower
or Permitted Investments and investments permitted by Section 6.2(g).
(g) Limitation on Credit Extensions. Except for Permitted Investments, no
-------------------------------
Related Person will extend credit, make advances or make loans other than (i)
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, (ii) loans to another Related Person that is a Guarantor or to
the Borrower (to the extent (and only to the extent) repayment thereof shall be
subordinated by an agreement in the form of Exhibit N to payment of the
---------
Obligations), and (iii) advances to operators under operating agreements entered
into by the Borrower in the ordinary course of business.
(h) Transactions with Affiliates. No Related Person will engage in any
----------------------------
transaction with any of its Affiliates on terms which are less favorable to it
than those which would have been obtainable at the time in arm's-length dealing
with Persons other than such Affiliates, provided that such restrictions shall
not apply to transactions among Related Persons.
(i) Certain Contracts; Amendments; Multiemployer ERISA Plans. Except as
--------------------------------------------------------
expressly provided for in the Loan Documents, no Related Person will, directly
or indirectly, enter into, create, or otherwise allow to exist any contract or
other consensual restriction on the ability of any Subsidiary of Borrower: (i)
to pay dividends or make other distributions to Borrower, (ii) to redeem equity
interests held in it by Borrower, (iii) to repay loans and other indebtedness
owing by it to Borrower, or (iv) to transfer any of its assets to Borrower. No
Related Person will 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. No Related Person will amend or permit any amendment to its charter
documents or bylaws or the PGS Data Contract to the material detriment of
Administrative Agent or any Lender. No Related Person will incur any obligation
to contribute to any "multiemployer plan" as defined in Section 4001 of ERISA.
(j) Fiscal Year. No Related Person will change its fiscal year.
-----------
(k) Current Ratio. The ratio of Borrower's consolidated current assets as
-------------
of the end of each Fiscal Quarter to Borrower's consolidated current liabilities
as of the end of such Fiscal Quarter will never be less than 1.00 to 1.00. For
purposes of this subsection, Borrower's consolidated current ratio will be
calculated (i) including availability under this Agreement as current assets,
and (ii) excluding as current liabilities any payments of principal on the Notes
which are required to be repaid within one year from the time of calculation.
(l) Tangible Net Worth. Borrower's Consolidated Tangible Net Worth as of
------------------
the end of each Fiscal Quarter will never be less than the sum of (A)
$40,000,000 plus (B) fifty percent (50%) of Borrower's Adjusted Consolidated Net
Income for each Fiscal Quarter, if positive, and zero percent (0%) if negative,
determined on a cumulative basis, for the period beginning September 30,
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1998 and ending on the last day of the most recent Fiscal Quarter as of the time
in question plus (C) seventy-five percent (75%) of the Net Proceeds of Equity
and equity capital contributions from Sponsors received after the Closing Date.
(m) EBITDA to Borrower's Consolidated Interest Expense. The ratio of
--------------------------------------------------
EBITDA to Borrower's Consolidated Interest Expense shall not be less than 2.5 to
1.0 (a) for the Fiscal Quarter commencing on July 1, 1998 and ending on
September 30, 1998, on an annualized basis, (b) for the two Fiscal Quarters
ending on December 31, 1998, on an annualized basis, (c) for the three Fiscal
Quarters ending on March 31, 1999, on an annualized basis, and (d) for any
period of four consecutive Fiscal Quarters ending on or subsequent to June 30,
1999.
(n) Hedging. Borrower will not enter into any Hedging Agreement except for
-------
Hedging Agreements that do not violate the following requirements:
(i) at no time will the aggregate amounts maturing in any month
under any floor hedging contracts or collar hedging contracts entered into
prior to the date hereof exceed at any time one hundred percent (100%) of
(x) the estimated production for such month from proved producing reserves
of Related Persons, less (y) any such estimated production subject to
forward sales transactions permitted under clause (ii) below.
(ii) at no time will amounts maturing in any month under any
forward sales transactions, calls or other derivative products (except as
expressly provided above) for the sale of crude oil and/or natural gas
exceed at any time seventy-five percent (75%) of (x) the estimated
production for such month from proved producing reserves of Related
Persons, less (y) any such estimated production subject to floor or collar
permitted by clause (i) immediately preceding oil and gas contracts
permitted under clause (i) above.
(iii) at no time will any Hedging Agreement of any nature
(including any such contracts described in clauses (i) and (ii) above) (x)
contain any term or provision which could require Borrower to meet margin
calls, or otherwise to put up money or other assets against the event of
its nonperformance, prior to actual default in performing its obligations
thereunder, or (y) have a counterparty with a minimum long-term unsecured
Indebtedness rating less than "A-" by Standard & Poors Corporation or "A3"
by Moody's Investors Services, Inc.
ARTICLE VII - Security
--------
Section 7.1 The Security. The Obligations will be secured by the
------------
Security Documents listed in the Security Schedule and any additional Security
Documents hereafter delivered by any Related Person or any Sponsor and accepted
by Administrative Agent.
Section 7.2 Agreement to Deliver Security Documents. Borrower agrees to
---------------------------------------
deliver and to cause its Subsidiaries to deliver, to further secure the
Obligations whenever requested by
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Administrative Agent 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 Administrative
Agent for the purpose of granting, confirming, and perfecting first and prior
liens or security interests in any real or personal property now owned or
hereafter acquired by any of the Related Persons, subject only to Liens
permitted by Section 6.2(b) hereof. Borrower also agrees to deliver, whenever
requested by Administrative Agent in its sole and absolute discretion, favorable
title opinions from legal counsel acceptable to Administrative Agent with
respect to any Related Person's properties and interests covering oil and gas
properties constituting at least 80% of the present value, determined by the
Lenders in their sole and absolute discretion and in accordance with their
normal practices and standards for oil and gas loans as it exists at the
particular time, of the Related Persons' oil and gas properties, based upon
abstract or record examinations to dates acceptable to Administrative Agent and
(a) stating that such Related Person has good and defensible title to such
properties and interests, free and clear of all Prohibited Liens, (b) confirming
that such properties and interests are subject to Security Documents securing
the Obligations that constitute and create legal, valid and duly perfected first
deed of trust or mortgage liens in such properties and interests and first
priority assignments of and security interests in the oil and gas attributable
to such properties and interests and the proceeds thereof, and (c) covering such
other matters as Administrative Agent may reasonably request. In the case of any
Related Person granting a Lien in favor of Administrative Agent upon any assets
having a present value in excess of $1,000,000 located in a new jurisdiction,
Borrower will at its own expense, obtain and furnish to Administrative Agent all
such opinions of legal counsel as Administrative Agent may reasonably request in
connection with any such security, instrument or act of such Related Person.
Section 7.3 Perfection and Protection of Security Interests and Liens.
---------------------------------------------------------
Borrower will from time to time deliver to Administrative Agent any financing
statements, continuation statements, extension agreements and other documents,
properly completed and executed (and acknowledged when required) by the Related
Persons in form and substance satisfactory to Administrative Agent, which
Administrative Agent requests for the purpose of perfecting, confirming, or
protecting any Liens or other rights in Collateral securing any Obligations.
Section 7.4 Bank Accounts; Offset. To ensure the repayment of the
---------------------
Obligations, Borrower hereby grants to Administrative Agent, each of its
Affiliates and each Lender and Issuing Bank a security interest, a lien, and a
right of offset, each of which shall be in addition to all other interests,
liens, and rights of Administrative Agent or any Lender or Issuing Bank at
common law, under the Loan Documents, or otherwise, and each of which shall be
upon and against (a) any and all moneys, securities or other property (and the
proceeds therefrom) of Borrower now or hereafter held or received by or in
transit to Administrative Agent or any Lender or Issuing Bank from or for the
account of Borrower, whether for safekeeping, custody, pledge, transmission,
collection or otherwise, (b) any and all deposits (general or special, time or
demand, provisional or final), other than deposits of funds held by Borrower for
the benefit of third parties, of Borrower with Administrative Agent or any
Lender or Issuing Bank, and (c) any other credits and claims of Borrower at any
time existing against Administrative Agent or any Lender or Issuing Bank,
including claims under certificates of deposit. At any time and from time to
time after the occurrence of any Default, each of Administrative Agent and any
Lender and Issuing Bank is hereby
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authorized to foreclose upon, or to offset against the Obligations then due and
payable (in either case without notice to Borrower), any and all items
hereinabove referred to. The remedies of foreclosure and offset are separate and
cumulative, and either may be exercised independently of the other without
regard to procedures or restrictions applicable to the other.
Section 7.5 Additional Subsidiaries. Within five (5) Business Days
-----------------------
after Borrower or any Subsidiary creates, acquires or otherwise forms a
Subsidiary, Borrower shall:
(a) execute and deliver, or cause the Person owning all of the
outstanding equity interests in such Subsidiary to execute and deliver, to
Administrative Agent on behalf of the Lenders, an agreement, substantially
similar to the pledge and security agreements executed and delivered on the
Closing Date, with such changes as shall be necessary in the circumstances,
pursuant to which all of the outstanding equity interests in such Subsidiary
shall be pledged to Administrative Agent on behalf of the Lenders, together with
any certificates representing all equity interests so pledged, if any, and for
each such certificate representing shares of stock, a stock power executed in
blank;
(b) cause such Subsidiary to execute and deliver to Administrative Agent
on behalf of the Lenders (i) a guaranty, substantially similar to the guaranty
agreement executed and delivered on the Closing Date, (ii) an agreement
substantially similar to the security agreements executed and delivered on the
Closing Date and (iii) a Mortgage as to all real property interests owned or
leased by such Subsidiary;
(c) cause such Subsidiary to execute and deliver to Administrative Agent
on behalf of the Lenders appropriate financing statements covering the
Collateral of such Subsidiary;
(d) deliver or cause to be delivered to Administrative Agent on behalf of
the Lenders all agreements, documents, instruments and other writings described
in Section 4.1(c)(i), (d) and (k), with respect to such Subsidiary; and
(e) deliver or cause to be delivered to Administrative Agent on behalf of
the Lenders all such information regarding the condition (financial or
otherwise), business and operations of such Subsidiary as Administrative Agent
or any Lender through Administrative Agent may reasonably request.
Section 7.6 Production Proceeds. Notwithstanding that, by the terms of
-------------------
the various Security Documents, Related Persons are and will be assigning to
Administrative Agent and Lenders all of the "Production Proceeds" (as defined
therein) accruing to the property covered thereby, so long as no Event of
Default has occurred Related Persons 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 an Event of Default, Administrative Agent and
Lenders may exercise all rights and remedies granted under the Security
Documents, including the right to obtain possession of all Production Proceeds
then held by any Related Person or to receive directly from the purchasers of
production all other Production Proceeds. In no case shall any failure, whether
purposed or inadvertent, by
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Administrative Agent or Lenders to collect directly any such Production Proceeds
constitute in any way a waiver, remission or release of any of their rights
under the Security Documents, nor shall any release of any Production Proceeds
by Administrative Agent or Lenders to any Related Person constitute a waiver,
remission, or release of any other Production Proceeds or of any rights of
Administrative Agent or Lenders to collect other Production Proceeds thereafter.
ARTICLE VII - Events of Default and Remedies
------------------------------
Section 8.1 Events of Default. Each of the following events constitutes
-----------------
an Event of Default under this Agreement:
(a) Any Related Person fails to pay any interest within three (3) days of
the date when due, or any Related Person fails to pay any other Obligation when
due and payable, whether at a date for the payment of a fixed installment or as
a contingent or other payment becomes due and payable or as a result of
acceleration or otherwise;
(b) Any Related Person fails (other than as referred to in subsection (a)
above) to duly observe, perform or comply with any covenant, agreement,
condition or provision of Section 6.2.
(c) Any Related Person fails (other than as referred to in subsection (a)
and (b) above) to duly observe, perform or comply with any covenant, agreement,
condition or provision of this Agreement or any other Loan Document, and such
failure remains unremedied for a period of 30 days from such failure;
(d) Any representation or warranty previously, presently or hereafter
made in writing by or on behalf of any Related Person in connection with any
Loan Document shall prove to have been false or incorrect in any material
respect on any date on or as of which made, or any Loan Document at any time
ceases to be valid, binding and enforceable as warranted in Section 5.1(e) for
any reason other than its release or subordination by Administrative Agent, or
any Related Person, Sponsor or any Affiliate thereof shall so assert;
(e) Any Sponsor Event of Default exists under both Support Agreements at
the same time;
(f) Any Related Person fails to duly comply with any material term of any
agreement or instrument, if such agreement or instrument is materially
significant to Spinnaker Exploration Company on a consolidated basis, and such
failure is not remedied within the applicable period of grace (if any) provided
in such agreement or instrument;
(g) Any Related Person shall (i) fail to pay Indebtedness having a
principal amount in excess of $100,000 in the aggregate (other than the amounts
referred to in Section 8.1(a)), or any interest or premium thereon, when due
(or, if permitted by the terms of the relevant document, within any applicable
grace period), whether such Indebtedness shall become due by scheduled maturity,
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by required prepayment, by acceleration, by demand or otherwise; or (ii) fail to
perform any term, covenant or condition on its part to be performed under any
agreement or instrument evidencing, securing or relating to Indebtedness having
a principal amount in excess of $100,000 in the aggregate, when required to be
performed, and such failure shall continue after the applicable grace period, if
any, specified in such agreement or instrument, if the effect of such failure is
to accelerate, or to permit the holder or holders of such Indebtedness to
accelerate, the maturity of such Indebtedness;
(h) A Change in Control shall occur;
(i) Either (i) any "accumulated funding deficiency" (as defined in
Section 412(a) of the Internal Revenue Code of 1986, as amended) in excess of
$100,000 exists with respect to any ERISA Plan, whether or not waived by the
Secretary of the Treasury or his delegate, or (ii) any Termination Event occurs
with respect to any ERISA Plan and the then current value of such ERISA Plan's
benefit liabilities exceeds the then current value of such ERISA Plan's assets
available for the payment of such benefit liabilities by more than $100,000 (or
in the case of a Termination Event involving the withdrawal of a substantial
employer, the withdrawing employer's proportionate share of such excess exceeds
such amount);
(j) The PGS Data Contract shall terminate, expire or cease to be in full
force and effect or any material default shall exist thereunder;
(k) Any Related Person:
(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
60 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 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 debts as
such debts become due; or takes action to authorize any of the foregoing;
or
(iii) suffers the appointment of or taking possession by a receiver,
liquidator, assignee, custodian, trustee, sequestrator 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 either made ineffective nor discharged within 60 days
after the making hereof, or such appointment or taking possession is at any
time consented to, requested by, or acquiesced to by it; or
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(iv) suffers the entry against it of one or more final judgments,
orders, writs, warrants of attachment or similar process for the payment of
money in excess of $100,000 in the aggregate, 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; 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 15 days after the
entry or levy thereof or after any stay is vacated or set aside; or
(l) any of the Security Documents shall cease, for any reason, to be in
full force and effect, or any Related Person, any Sponsor or any Affiliate
thereof shall so assert or any of the security interests created by the Security
Documents shall cease to be enforceable and of the same effect and priority
purported to be created thereby, and such shall not be remedied with fifteen
days after notice from Administrative Agent.
Upon the occurrence of an Event of Default described in subsection (k)(i),
(k)(ii) or (k)(iii) of this section, all of the Obligations shall thereupon 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 Borrower,
each other Related Person and each Sponsor who at any time ratifies or approves
this Agreement. During the continuance of any other Event of Default,
Administrative Agent at any time and from time to time may (and upon written
instructions from Majority Lenders, Administrative Agent shall), without notice
to Borrower, any other Related Person or any Sponsor, declare any or all of the
Obligations immediately due and payable, and all such Obligations shall
thereupon 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
Borrower, each other Related Person and each Sponsor who at any time ratifies or
approves this Agreement. After any such acceleration (whether automatic or due
to any declaration by Administrative Agent), any obligation of any Lender to
make any further Advances or Issuing Bank to issue any additional Letters of
Credit shall be permanently terminated.
Section 8.2 Remedies. If any Default shall occur, each Lender may
--------
protect and enforce its rights under the Loan Documents by any appropriate
proceedings, including proceedings for specific performance of any covenant or
agreement contained in any Loan Document, and each Lender may enforce the
payment of any Obligations due it (provided, however, the Borrower shall not be
-------- -------
liable for enforcement costs regarding the Sponsor Agreements); or enforce any
other legal or equitable right which it may have. All rights, remedies and
powers conferred upon Administrative Agent and Lenders under the Loan Documents
shall be deemed cumulative and not exclusive of any other rights, remedies or
powers available under the Loan Documents or at law or in equity.
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Section 8.3 Payment of Expenses, Indemnities, etc. The Borrower agrees:
--------------------------------------
(a) whether or not the transactions hereby contemplated are consummated,
to pay all reasonable expenses of the Administrative Agent in the administration
(both before and after the execution hereof and including advice of counsel as
to the rights and duties of the Administrative Agent and the Lenders with
respect thereto) of, and in connection with the negotiation, syndication,
investigation, preparation, execution and delivery of, recording or filing of,
preservation of rights under, enforcement of, and refinancing, renegotiation or
restructuring of, the Loan Documents and any amendment, waiver or consent
relating thereto (including, without limitation, the reasonable fees and
disbursements of counsel and other outside consultants for the Administrative
Agent and, in the case of enforcement, the reasonable fees and disbursements of
counsel for the Administrative Agent and any of the Lenders); and promptly
reimburse the Administrative Agent for all amounts expended, advanced or
incurred by the Administrative Agent or the Lenders to satisfy any obligation of
the Borrower under this Agreement or any other Loan Document, including without
limitation, all costs and expenses of foreclosure (provided, however, the
Borrower shall not be liable for enforcement costs regarding the Sponsor
Agreements);
(b) TO INDEMNIFY THE ADMINISTRATIVE AGENT AND EACH LENDER AND EACH OF
THEIR AFFILIATES AND EACH OF THEIR OFFICERS, DIRECTORS, EMPLOYEES,
REPRESENTATIVES, AGENTS, ATTORNEYS, ACCOUNTANTS AND EXPERTS ("INDEMNIFIED
PARTIES") FROM, HOLD EACH OF THEM HARMLESS AGAINST AND PROMPTLY UPON DEMAND PAY
OR REIMBURSE EACH OF THEM FOR, THE INDEMNITY MATTERS WHICH MAY BE INCURRED BY OR
ASSERTED AGAINST OR INVOLVE ANY OF THEM (WHETHER OR NOT ANY OF THEM IS
DESIGNATED A PARTY THERETO) AS A RESULT OF, ARISING OUT OF OR IN ANY WAY RELATED
TO (I) ANY ACTUAL OR PROPOSED USE BY THE BORROWER OF THE PROCEEDS OF ANY OF THE
LOANS OR LETTERS OF CREDIT, (II) THE EXECUTION, DELIVERY AND PERFORMANCE OF THE
LOAN DOCUMENTS, (III) THE OPERATIONS OF THE BUSINESS OF THE RELATED PERSON AND
THE SUBSIDIARIES, (IV) THE FAILURE OF ANY RELATED PERSON TO COMPLY WITH THE
TERMS OF ANY OTHER LOAN DOCUMENT OR THIS AGREEMENT, OR WITH ANY GOVERNMENTAL
REQUIREMENT, (V) ANY INACCURACY OF ANY REPRESENTATION OR ANY BREACH OF ANY
WARRANTY OF ANY RELATED PERSON SET FORTH IN ANY OF THE LOAN DOCUMENTS, (VI) THE
ISSUANCE, EXECUTION AND DELIVERY OR TRANSFER OF OR PAYMENT OR FAILURE TO PAY
UNDER ANY LETTER OF CREDIT, (VII) ANY ASSERTION THAT THE LENDERS WERE NOT
ENTITLED TO RECEIVE THE PROCEEDS RECEIVED PURSUANT TO THE LOAN DOCUMENTS OR
(VIII) ANY OTHER ASPECT OF THE LOAN DOCUMENTS, INCLUDING, WITHOUT LIMITATION,
THE REASONABLE FEES AND DISBURSEMENTS OF COUNSEL AND ALL OTHER REASONABLE
EXPENSES INCURRED IN CONNECTION WITH INVESTIGATING, DEFENDING OR PREPARING TO
DEFEND ANY SUCH ACTION, SUIT, PROCEEDING (INCLUDING ANY INVESTIGATIONS,
LITIGATION OR INQUIRIES) OR CLAIM AND INCLUDING ALL INDEMNITY MATTERS ARISING BY
REASON OF THE ORDINARY NEGLIGENCE OF ANY INDEMNIFIED PARTY, BUT EXCLUDING ALL
INDEMNITY MATTERS ARISING SOLELY BY REASON OF CLAIMS BETWEEN THE
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LENDERS OR ANY LENDER AND THE AGENT OR A LENDER'S SHAREHOLDERS AGAINST THE AGENT
OR LENDER OR BY REASON OF THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT ON THE PART
OF ANY INDEMNIFIED PARTY; AND
(c) TO INDEMNIFY AND HOLD HARMLESS FROM TIME TO TIME THE INDEMNIFIED PARTY
FROM AND AGAINST ANY AND ALL LOSSES, CLAIMS, COST RECOVERY ACTIONS,
ADMINISTRATIVE ORDERS OR PROCEEDINGS, DAMAGES AND LIABILITIES TO WHICH ANY SUCH
PERSON MAY BECOME SUBJECT (I) UNDER ANY ENVIRONMENTAL LAW APPLICABLE TO ANY
RELATED PERSON OR ANY OF ITS PROPERTIES, INCLUDING WITHOUT LIMITATION, THE
TREATMENT OR DISPOSAL OF HAZARDOUS SUBSTANCES ON ANY OF THEIR PROPERTIES, (II)
AS A RESULT OF THE BREACH OR NON-COMPLIANCE BY ANY RELATED PERSON WITH ANY
ENVIRONMENTAL LAW APPLICABLE TO ANY RELATED PERSON, (III) DUE TO PAST OWNERSHIP
BY ANY RELATED PERSON OF ANY OF ITS PROPERTIES OR PAST ACTIVITY ON ANY OF ITS
PROPERTIES WHICH, THOUGH LAWFUL AND FULLY PERMISSIBLE AT THE TIME, RESULTS IN
PRESENT LIABILITY, (IV) THE PRESENCE, USE, RELEASE, STORAGE, TREATMENT OR
DISPOSAL OF HAZARDOUS SUBSTANCES ON OR AT ANY OF THE PROPERTIES OWNED OR
OPERATED BY ANY RELATED PERSON OR (V) ANY OTHER ENVIRONMENTAL, HEALTH OR SAFETY
CONDITION IN CONNECTION WITH THE LOAN DOCUMENTS, PROVIDED, HOWEVER, NO INDEMNITY
SHALL BE AFFORDED UNDER THIS SECTION 8.3(C) IN RESPECT OF ANY PROPERTY FOR ANY
OCCURRENCE ARISING FROM THE ACTS OR OMISSIONS OF THE AGENT OR ANY LENDER DURING
THE PERIOD AFTER WHICH SUCH PERSON, ITS SUCCESSORS OR ASSIGNS, OR THEIR AGENTS
OR REPRESENTATIVES, SHALL HAVE OBTAINED POSSESSION OF SUCH PROPERTY (WHETHER BY
FORECLOSURE OR DEED IN LIEU OF FORECLOSURE, AS MORTGAGEE-IN-POSSESSION OR
OTHERWISE).
(d) No Indemnified Party may settle any claim to be indemnified without
the consent of the indemnitor, such consent not to be unreasonably withheld;
provided, that the indemnitor may not reasonably withhold consent to any
- --------
settlement that an Indemnified Party proposes, if the indemnitor does not have
the financial ability to pay all its obligations outstanding and asserted
against the indemnitor at that time, including, without limitation, the maximum
potential claims pending or to the knowledge of the indemnitee threatened
against the Indemnified Party to be indemnified pursuant to this Section 8.3.
(e) In the case of any indemnification hereunder, the Administrative Agent
or Lender, as appropriate shall give notice to the Borrower of any such claim or
demand being made against the Indemnified Party and the Borrower shall have the
non-exclusive right to join in the defense against any such claim or demand
provided that if the Borrower provides a defense, the Indemnified Party shall
bear its own cost of defense unless there is a conflict between the Borrower and
such Indemnified Party.
(f) THE FOREGOING INDEMNITIES SHALL EXTEND TO THE INDEMNIFIED PARTIES
NOTWITHSTANDING THE SOLE OR CONCURRENT NEGLIGENCE OF EVERY
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KIND OR CHARACTER WHATSOEVER, WHETHER ACTIVE OR PASSIVE, WHETHER AN AFFIRMATIVE
ACT OR AN OMISSION, INCLUDING WITHOUT LIMITATION, ALL TYPES OF NEGLIGENT CONDUCT
IDENTIFIED IN THE RESTATEMENT (SECOND) OF TORTS OF ONE OR MORE OF THE
INDEMNIFIED PARTIES OR BY REASON OF STRICT LIABILITY IMPOSED WITHOUT FAULT ON
ANY ONE OR MORE OF THE INDEMNIFIED PARTIES. TO THE EXTENT THAT AN INDEMNIFIED
PARTY IS FOUND TO HAVE COMMITTED AN ACT OF GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT, THIS CONTRACTUAL OBLIGATION OF INDEMNIFICATION SHALL CONTINUE BUT
SHALL ONLY EXTEND TO THE PORTION OF THE CLAIM THAT IS DEEMED TO HAVE OCCURRED BY
REASON OF EVENTS OTHER THAN THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH
INDEMNIFIED PARTY.
ARTICLE IX - Administrative Agent
--------------------
Section 9.1. Appointment and Authority. Each Lender hereby irrevocably
-------------------------
authorizes Administrative Agent, and Administrative Agent hereby undertakes, to
receive payments of principal, interest and other amounts due hereunder as
specified herein and to take all other actions and to exercise such powers under
the Loan Documents as are specifically delegated to Administrative Agent by the
terms hereof or thereof, together with all other powers reasonably incidental
thereto. The relationship of Administrative Agent to Lenders is only that of
one commercial bank acting as administrative agent for others, and nothing in
the Loan Documents shall be construed to constitute Administrative Agent a
trustee or other fiduciary for any holder of any of the Notes or of any
participation therein nor to impose on Administrative Agent duties and
obligations other than those expressly provided for in the Loan Documents. With
respect to any matters not expressly provided for in the Loan Documents and any
matters which the Loan Documents place within the discretion of Administrative
Agent, Administrative Agent shall not be required to exercise any discretion or
take any action, and it may request instructions from Lenders 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 Lenders in
so acting or refraining from acting) upon the instructions of Majority Lenders
(including itself), provided, however, that Administrative 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 Loan Documents or to
applicable law. Upon receipt by Administrative Agent from Borrower of any
communication calling for action on the part of Lenders or upon notice from any
Lender to Administrative Agent of any Default or Event of Default,
Administrative Agent shall promptly notify each Lender thereof.
Section 9.2. Exculpation, Administrative Agent's Reliance, Etc. Neither
-------------------------------------------------
Administrative Agent nor any of its directors, officers, agents, attorneys, or
employees shall be liable for any action taken or omitted to be taken by any of
them under or in connection with the Loan 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,
Administrative Agent (a) may treat the payee of any Note as the holder thereof
until Administrative Agent receives written notice of the assignment or transfer
thereof in accordance with this
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Agreement, signed by such payee and in form satisfactory to Administrative
Agent; (b) may consult with legal counsel (including counsel for Borrower),
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 Lender and shall not be responsible to any
Lender for any statements, warranties or representations made in or in
connection with the Loan 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 Loan Documents on the part of any Related Person or any
Sponsor, or to inspect the property (including the books and records) of any
Related Person or any Sponsor; (e) shall not be responsible to any Lender for
the due execution, legality, validity, enforceability, genuineness, sufficiency
or value of any Loan Document or any instrument or document furnished in
connection therewith; (f) may rely upon the representations and warranties of
the Related Persons, Sponsors and the Lenders in exercising its powers
hereunder; and (g) shall incur no liability under or in respect of the Loan
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 9.3. Lenders' Credit Decisions. Each Lender acknowledges that it
-------------------------
has, independently and without reliance upon Administrative Agent or any other
Lender, made its own analysis of Borrower and the transactions contemplated
hereby and its own independent decision to enter into this Agreement and the
other Loan Documents. Each Lender also acknowledges that it will, independently
and without reliance upon Administrative Agent or any other Lender and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
the Loan Documents.
Section 9.4. Indemnification. Each Lender agrees to indemnify
---------------
Administrative Agent (to the extent not reimbursed by Borrower within ten (10)
days after demand) from and against such Lenders' 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 Administrative Agent growing out of, resulting
from or in any other way associated with any of the Collateral, the Loan
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). THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT
SUCH LIABILITIES AND COSTS ARE IN ANY WAY OR TO ANY EXTENT CAUSED, IN WHOLE OR
IN PART, BY ANY NEGLIGENT ACT OR OMISSION OF ANY KIND BY ADMINISTRATIVE AGENT,
PROVIDED ONLY THAT NO LENDER SHALL BE OBLIGATED UNDER THIS SECTION TO INDEMNIFY
ADMINISTRATIVE AGENT FOR THAT PORTION, IF ANY, OF ANY LIABILITIES AND COSTS
WHICH IS PROXIMATELY CAUSED BY ADMINISTRATIVE AGENT'S OWN INDIVIDUAL GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT, AS DETERMINED IN A FINAL JUDGMENT. Cumulative
of the foregoing,
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each Lender agrees to reimburse Administrative Agent promptly upon demand for
such Lender's Percentage Share of any costs and expenses to be paid to
Administrative Agent by Borrower under Section 6.1(i) to the extent that
Administrative Agent is not timely reimbursed for such expenses by Borrower as
provided in such section. As used in this section the term "Administrative
Agent" shall refer not only to the Person designated as such in Section 1.1. but
also to each director, officer, agent, attorney, employee, representative and
Affiliate of such Person.
Section 9.5. Rights as Lender. In its capacity as a Lender,
----------------
Administrative Agent shall have the same rights and obligations as any Lender
and may exercise such rights as though it were not Administrative Agent. CSFB,
any successor Administrative Agent, or any of their respective Affiliates may
accept deposits from, lend money to, act as Trustee under indentures of, and
generally engage in any kind of business with any Related Person, any Sponsor or
their Affiliates, including without limitation equity investments by CSFB or any
of its Affiliates, all as if CSFB were not Administrative Agent hereunder and
without any duty to account therefor to any other Lender.
Section 9.6. Sharing of Set-Offs and Other Payments. Each of
--------------------------------------
Administrative Agent and Lender 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 any Related Person or any Sponsor or otherwise, obtain
payment of a portion of the aggregate Obligations owed to it which, taking into
account all distributions made by Administrative Agent under Section 2.11,
causes Administrative Agent or such Lender to have received more than it would
have received had such payment been received by Administrative Agent and
distributed pursuant to Section 2.11, then (a) it shall be deemed to have
simultaneously purchased and shall be obligated to purchase interests in the
Obligations as necessary to cause Administrative Agent and all lenders to share
all payments as provided for in Section 2.11, and (b) such other adjustments
shall be made from time to time as shall be equitable to ensure that
Administrative Agent and all Lenders share all payments of Obligations as
provided in Section 2.11; provided, however, that nothing herein contained shall
in any way affect the right of Administrative Agent or any Lender to obtain
payment (whether by exercise of rights of banker's lien, set-off or counterclaim
or otherwise) of indebtedness other than the Obligations. Borrower 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 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 court order to be paid on
account of the possession of such funds prior to such recovery.
Section 9.7. Investments. Whenever Administrative Agent in good faith
-----------
determines that it is uncertain about how to distribute to Lenders any funds
which it has received, or whenever Administrative Agent in good faith determines
that there is any dispute among Lenders about how such funds should be
distributed, Administrative Agent may choose to defer distribution of the funds
which are the subject of such uncertainty or dispute. If Administrative Agent
in good faith believes
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that the uncertainty or dispute will not be promptly resolved, or if
Administrative Agent is otherwise required to invest funds pending distribution
to Lenders, Administrative Agent shall invest such funds pending distribution;
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 Administrative Agent for distribution to
Lenders (other than to the Person which is Administrative Agent in its separate
capacity as a Lender) shall be held by Administrative Agent pending such
distribution solely as Administrative Agent for such Lenders, and Administrative
Agent shall have no equitable title to any portion thereof.
Section 9.8. Benefit of Article IX. The provisions of this Article
---------------------
(other than the following Section 9.9) are intended solely for the benefit of
Administrative Agent and Lenders, and no Related Person nor any Sponsor shall be
entitled to rely on any such provisions or assert any such provision in a claim
or defense against Administrative Agent or any Lender. Administrative Agent and
Lenders may waive or amend such provisions as they desire without any notice to
or consent of Borrower, any other Related Person or any Sponsor.
Section 9.9. Resignation. Administrative Agent may (and upon written
-----------
direction of Directing Lenders collectively having Percentage Shares totaling in
the aggregate (i) prior to the occurrence of an Event of Default, eighty percent
(80%) of all Directing Lenders' Percentage Shares and (ii) upon the occurrence
and during the continuance of an Event of Default, at least sixty-six and two-
thirds percent (66 2/3%) of all Directing Lenders' Percentage Shares,
Administrative Agent shall) resign at any time by giving written notice thereof
to Lenders and Borrower. For purposes of the foregoing sentence, "Directing
Lenders" means all Lenders other than Administrative Agent. Each such notice
shall set forth the date of such resignation. Upon any such resignation
Majority Lenders shall have the right to appoint a successor Administrative
Agent, subject to Borrower's written consent, such consent not to be
unreasonably withheld. A successor must be appointed for any retiring
Administrative Agent, and such Administrative Agent's resignation shall become
effective when such successor accepts such appointment. If, within thirty days
after the date of the retiring Administrative Agent's resignation, no successor
Administrative Agent has been appointed and has accepted such appointment, then
the retiring Administrative Agent may appoint a successor Administrative Agent,
which shall be a commercial bank organized or licensed to conduct a banking or
trust business under the laws of the United States of America or of any state
thereof. Upon the acceptance of any appointment as Administrative Agent
hereunder by a successor Administrative Agent, the retiring Administrative Agent
shall be discharged from its duties and obligations under this Agreement and
other Loan Documents. After any retiring Administrative Agent's resignation
hereunder the provisions of this Article IX shall continue to inure to its
benefit as to any actions taken or omitted to be taken by it while it was
Administrative Agent under the Loan Documents.
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ARTICLE X - Miscellaneous
-------------
Section 10.1. Waivers and Amendments; Acknowledgments.
---------------------------------------
(a) Waivers and Amendments. No failure or delay (whether by course of
----------------------
conduct or otherwise) by Administrative Agent or any Lender in exercising any
right, power or remedy which Administrative Agent or such Lender may have under
any of the Loan Documents shall operate as a waiver thereof or of any other
right, power or remedy, nor shall any single or partial exercise by
Administrative Agent or such Lender of any such right, power or remedy preclude
any other or further exercise thereof or of any other right, power or remedy.
No waiver of any provision of any Loan Document and no consent to any departure
therefrom shall ever be effective unless it is in writing and signed as provided
below in this section, and then such waiver or consent shall be effective only
in the specific instances and for the purposes for which given and to the extent
specified in such writing. No notice to or demand on any Related Person or any
Sponsor shall in any case of itself entitle any Related Person or any Sponsor to
any other or further notice or demand in similar or other circumstances. This
Agreement and the other Loan Documents set forth the entire understanding
between the parties hereto with respect to the transactions contemplated herein
and therein and supersede all prior discussions and understandings with respect
to the subject matter hereof and thereof, and no waiver, consent, release,
modification or amendment or of supplement to this Agreement or the other Loan
Documents shall be valid or effective against any party hereto unless the same
is in writing and signed by (i) if such party is Borrower, by Borrower, (ii) if
such party is Administrative Agent, by Administrative Agent and (iii) if such
party is a Lender, by such Lender or by Administrative Agent on behalf of
Lenders with the written consent of Majority Lenders. Notwithstanding the
foregoing or anything to the contrary herein, Administrative Agent shall not,
without the prior consent of each individual Lender, execute and deliver on
behalf of such Lender any waiver or amendment which would: (1) waive any of the
conditions specified in Article IV, (2) increase the Maximum Spinnaker Loan
Amount or the PGS Commitment or the Warburg Commitment applicable to Lender, as
the case may be, or subject such Lender to any additional obligations, (3)
reduce any fees hereunder, or the principal of, or interest on, such Lender's
Notes, (4) postpone any date fixed for any payment of any fees hereunder, or
principal of, or interest on, such Lender's Notes, (5) amend the definition
herein of "Majority Lenders" or otherwise change the aggregate amount of
Percentage Shares which is required for Administrative Agent, Lenders or any of
them to take any particular action under the Loan Documents, (6) release
Borrower from its obligation to pay such Lender's Notes or any Guarantor from
its guaranty of such payment, (7) reduce the number of Lenders required to agree
on the Borrowing Base, (8) reduce the number of Lenders required to or to
consent to an assignment or transfer of any Related Person's or Sponsor's
rights, duties or obligations under Section 10.4 to less than all Lenders, (9)
in any period between Determination Dates, release any Collateral valued in the
Borrowing Base whose aggregate value exceeds $500,000, or (10) release any
Sponsor from its obligations under its applicable Support Agreement.
(b) Acknowledgments and Admissions. Borrower hereby represents, warrants,
------------------------------
acknowledges and admits that (i) it has been advised by counsel in the
negotiation, execution and delivery of the Loan Documents to which it is a
party, (ii) it has made an independent decision to
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enter into this Agreement and the other Loan Documents to which it is a party,
without reliance on any representation, warranty, covenant or undertaking by
Administrative Agent or any Lender, whether written, oral or implicit, other
than as expressly set out in this Agreement or in another Loan Document
delivered on or after the date hereof, (iii) there are no representations,
warranties, covenants, undertakings or agreements by Administrative Agent or any
Lender as to the Loan Documents except as expressly set out in this Agreement or
in another Loan Document delivered on or after the date hereof, (iv) neither
Administrative Agent nor any Lender has any fiduciary obligation toward Borrower
with respect to any Loan Document or the transactions contemplated thereby, (v)
the relationship pursuant to the Loan Documents between Borrower, on one hand,
and Administrative Agent and each Lender, 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 Loan Documents between any of Borrower,
Administrative Agent and Lenders, (vii) Administrative Agent is not Borrower's
Administrative Agent, but Administrative Agent for Lenders, (viii) should an
Event of Default or Default occur or exist Administrative Agent and each Lender
will determine in its sole discretion and for its own reasons what remedies and
actions it will or will not exercise or take at that time, (ix) without limiting
any of the foregoing, Borrower is not relying upon any representation or
covenant by Administrative Agent or any Lender, or any representative thereof,
and no such representation or covenant has been made, that Administrative Agent
or any Lender will, 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 Loan Documents with respect to any such Event of Default or
Default or any other provision of the Loan Documents, and (x) Administrative
Agent and all Lenders have relied upon the truthfulness of the acknowledgments
in this section in deciding to execute and deliver this Agreement and to make
their Loans.
Section 10.2. Survival of Agreements; Cumulative Nature. All of the
-----------------------------------------
Related Persons' and Sponsors' various representations, warranties, covenants
and agreements in the Loan Documents shall survive the execution and delivery of
this Agreement and the other Loan Documents and the performance hereof and
thereof, including the making or granting of the Loans and the delivery of the
Notes and the other Loan Documents, and shall further survive until all of the
Obligations are paid in full to Administrative Agent, Lenders and Issuing Bank
and all of Administrative Agent's, Lenders' and Issuing Bank's obligations to
Borrower are terminated. The rights, powers, and privileges granted to
Administrative Agent, Lenders and Issuing Bank in the Loan Documents, are
cumulative, and, except for expressly specified waivers and consents, no Loan
Document shall be construed in the context of another to diminish, nullify, or
otherwise reduce the benefit to Administrative Agent, any Lender or Issuing Bank
of any such right, power or privilege.
Section 10.3. Notices. All notices, requests, consents, demands and
-------
other communications required or permitted under any Loan Document shall be in
writing, unless otherwise specifically provided in such Loan Document (provided
that Administrative Agent may give telephonic notices to Lenders), and shall be
deemed sufficiently given or furnished if delivered by personal delivery, by
telecopy or telex, by delivery service with proof of delivery, or by registered
or certified United States mail, postage prepaid, to Borrower and the other
Related Persons at the address of Borrower specified on the signature pages
hereto and to Administrative Agent, Issuing Bank and the other Lenders at their
addresses specified on the signature pages hereto (unless changed by similar
notice
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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 regular business hours at the address provided herein, (b) in
the case of telecopy of telex, upon receipt, or (c) in the case of registered or
certified United States mail, three days after deposit in the mail; provided,
however, that no Request for Advance or Rate Election shall become effective
until actually received by Administrative Agent.
Section 10.4. Parties in Interest. All grants, covenants and agreements
-------------------
contained in the Loan Documents shall bind and inure to the benefit of the
parties thereto and their respective successors and assigns; provided, however,
-------- -------
that no Related Person nor any Sponsor may assign or transfer any of its rights
or delegate any of its duties or obligations under any Loan Document without the
prior written consent of all Lenders. Neither Borrower nor any Affiliates of
Borrower shall directly or indirectly purchase or otherwise retire any
Obligations owed to any Lender nor will any lender accept any offer to do so,
unless each Lender shall have received substantially the same offer with respect
to the same Percentage Share of the Obligations owed to it. If Borrower or any
Affiliate of Borrower at any time purchases some but less than all of the
Obligations owed to Administrative Agent, Issuing Bank and all Lenders, such
purchaser shall not be entitled to any rights of Administrative Agent, Issuing
Bank or Lender under the Loan Documents unless and until Borrower or its
Affiliates have purchased all of the Obligations.
Section 10.5. Governing Law; Submission to Process.
------------------------------------
(a) Except to the extent that the law of another jurisdiction is expressly
elected in a Loan Document, the Loan Documents shall be deemed contracts and
instruments made under the laws of the State of New York and shall be construed
and enforced in accordance with and governed by the laws of the State of New
York and the laws of the United States of America. Borrower hereby irrevocably
submits itself to the non-exclusive jurisdiction of the state and federal courts
sitting in the State of New York and agrees and consents that service of process
may be made upon it, in any legal proceeding relating to the Loan Documents or
the Obligations by any means allowed under New York or federal law. The parties
hereto hereby waive and agree not to assert, by way of motion, as a defense or
otherwise, that any such proceeding is brought in an inconvenient forum or that
venue thereof is improper and further agrees to a transfer of any such
proceeding to a federal court sitting in the State of New York, to the extent
that it has subject matter jurisdiction, and otherwise to a state court in New
York, upon request therefor by Administrative Agent, if such proceeding is
originally brought in another court.
(b) Borrower hereby irrevocably designates CT Corporation System, located
at 1633 Broadway, New York, New York 10019, as the designee, appointee and
agent of Borrower to receive, for and on behalf of Borrower, service of process
in such respective jurisdictions in any legal action or proceeding with respect
to the Loan Documents. It is understood that a copy of such process served on
such agent will be promptly forwarded by overnight courier to Borrower at its
address set forth under its signature below, but the failure of Borrower to
receive such copy shall not affect in any way the service of such process.
Borrower further irrevocably consents to the service of process of any of the
aforementioned courts in any such action or proceeding by the mailing of
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copies thereof by registered or certified mail, postage prepaid, return receipt
requested, to Borrower at its said address, such service to become effective
thirty (30) days after such mailing.
Section 10.6. Limitation on Interest. Administrative Agent, Lenders,
----------------------
the Related Persons, Sponsors and any other parties to the Loan 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 Loan 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 any Related Person, nor any
Sponsor, 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 Loan Documents which may be in conflict or
apparent conflict herewith. Administrative Agent and Lenders 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) Administrative Agent or any Lender
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 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 Administrative Agent's or such Lender's or holder's
option, promptly returned to Borrower 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, Administrative Agent, Lenders, Related Persons and Sponsors (and any other
payors 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
Obligations 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. As used in this section the term "applicable
law" means the laws of the State of New York or the laws of the United States of
America, whichever laws allow the greater interest, as such laws now exist or
may be changed or amended or come into effect in the future.
Section 10.7. Termination; Limited Survival. In its sole and absolute
-----------------------------
discretion Borrower may at any time that no Obligations are owing elect in a
written notice delivered to Administrative Agent to terminate this Agreement.
Upon receipt by Administrative Agent of such a notice, if no Obligations are
then owing this Agreement and all other Loan Documents shall thereupon be
terminated and the parties thereto released from all prospective obligations
thereunder.
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Notwithstanding the foregoing or anything herein to the contrary, any waivers or
admissions made by any Related Person or any Sponsor in any Loan Document, any
Obligations under Sections 2.15 through 2.19, and any obligations which any
Person may have to indemnify or compensate Administrative Agent or any Lender
shall survive any termination of this Agreement or any other Loan Document. At
the request and expense of Borrower, Administrative Agent shall prepare and
execute all necessary instruments to reflect and effect such termination of the
Loan Documents. Administrative Agent is hereby authorized to execute all such
instruments on behalf of all Lenders, without the joinder of or further action
by any Lender.
Section 10.8. Severability. If any term or provision of any Loan
------------
Document shall be determined to be illegal or unenforceable all other terms and
provisions of the Loan Documents shall nevertheless remain effective and shall
be enforced to the fullest extent permitted by applicable law.
Section 10.9. 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 10.10. WAIVER OF JURY TRIAL, PUNITIVE DAMAGES, ETC. EACH OF
--------------------------------------------
BORROWER, ADMINISTRATIVE AGENT AND LENDERS HEREBY KNOWINGLY, VOLUNTARILY,
INTENTIONALLY, AND IRREVOCABLY (a) WAIVES, TO THE MAXIMUM EXTENT IT MAY LAWFULLY
AND EFFECTIVELY DO SO, 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 LOAN DOCUMENTS OR ANY TRANSACTION
CONTEMPLATED THEREBY OR ASSOCIATED THEREWITH, BEFORE OR AFTER MATURITY; (b)
WAIVES, TO THE MAXIMUM EXTENT IT MAY LAWFULLY AND EFFECTIVELY DO SO, ANY RIGHT
IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY SPECIAL, EXEMPLARY,
PUNITIVE OR CONSEQUENTIAL DAMAGES, OR DAMAGES OTHER THAN, OR IN ADDITION TO,
ACTUAL DAMAGES; AND (c) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS
AGREEMENT, THE OTHER LOAN DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND
THEREBY BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED
IN THIS SECTION.
Section 10.11. Assignments and Participations.
------------------------------
(a) Assignments. Each Lender shall have the right to sell, assign or
-----------
transfer all or any part of such Lender's Notes, commitment to make Advances,
Loans and rights and obligations relating to Letters of Credit and the
associated rights and obligations under all Loan Documents to one or more
purchasers; provided, (i) each such sale, assignment, or transfer shall be with
--------
the consent of Borrower and the consent of Administrative Agent, which in each
case will not be unreasonably withheld, (ii) no such consent of the Borrower
shall be required if an Event of Default exists, and (iii) any such sale,
assignment or transfer shall be pro rata among the Commitments. The assignee,
transferee or recipient shall have, to the extent of such sale, assignment, or
transfer, the
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same rights, benefits and obligations as it would if it were such Lender and a
holder of such Notes, including, without limitation, the right to vote on
decisions requiring consent or approval of all Lenders or Majority Lenders and
the obligation to fund its Percentage Share of any Advances or Loans and
payments made under Letters of Credit. Each Lender in making each such sale,
assignment, or transfer must dispose of a pro rata portion of each Loan made by
such Lender and such Lender's LC Obligations, each such sale, assignment, or
transfer shall be in a principal amount not less than $5,000,000 (except
assignments to Affiliates of Administrative Agent or any Lender which may be in
an amount equal to or greater than $1,000,000) and no Lender may offer to sell
its Notes and Loans or interests therein in violation of any securities laws. No
such assignment shall become effective until (I) the assigning Lender delivers
to Administrative Agent copies of all written assignments and other documents
evidencing any such assignment or related thereto and an Agreement to be Bound
in the form of Exhibit M, providing for the assignee's ratification and
---------
agreement to be bound by the terms of this Agreement and the other Loan
Documents and (II) Administrative Agent shall have received from assignor or
assignee an assignment fee in the amount of $3,500. Within five (5) Business
Days after its receipt of notice that the Administrative Agent has received
copies of any assignment and the other documents relating thereto, the assignee
shall notify Borrower of the outstanding principal balance of the Notes payable
to such Lender and shall execute and deliver to Administrative Agent (for
delivery to the relevant assignee) new Notes evidencing such assignee's assigned
Loans and, if the assignor Lender has retained a portion of its Loans,
replacement Notes in the principal amount of the Loans retained by the assignor
Lender (such Notes to be in exchange for, but not in payment of, the Notes held
by such Lender). Anything in this Section 10.11 to the contrary notwithstanding,
any Lender may at any time, without the consent of Borrower or Administrative
Agent, assign and pledge all or any portion of its Commitments and the Loans
owing to it to any Federal Reserve Bank (and its transferees) as collateral
security pursuant to Regulation A and any Operating Circular issued by the
Federal Reserve Bank. No such assignment shall release the assigning Lender from
its obligations hereunder.
(b) Participations. Each Lender shall have the right to grant
--------------
participations in all or any part of such Lender's Notes, commitment to make
Advances, Loans and rights and Obligations relating to Letters of Credit and the
associated rights and obligations under all Loan Documents to one or more
purchasers; provided that (i) each Lender granting a participation shall retain
--------
the right to vote hereunder, and no participant shall be entitled to vote
hereunder on decisions requiring consent or approval of Majority Lenders (except
as set forth in (iii) below) or with respect to determining the Borrowing Base,
(ii) each Lender and Borrower shall be entitled to deal with the Lender granting
a participation in the same manner as if no participation had been granted,
(iii) no participant shall ever have any right by reason of its participation to
exercise any of the rights of Lenders hereunder, except that any Lender may
agree with any participant that such Lender will not, without the consent of
such participant, consent to any amendment or waiver described in Section
10.1(a) requiring approval of 100% of the Lenders, and (iv) without the
Borrower's prior written consent (not to be unreasonably withheld) no Lender
will offer any participation to any prospective participant if such participant
or any affiliates thereof, to the knowledge of the Lenders selling the
participations, is in the energy industry. Borrower agrees that if amounts
outstanding under this Agreement and the Notes are due or unpaid, or shall have
been declared or shall have become due and payable upon the occurrence of an
Event of Default, each participant shall be
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<PAGE>
deemed to have the right of setoff in respect of its participating interest in
amounts owing under this Agreement and any Note to the same extent as if the
amount of its participating interest were owing directly to it as a Lender under
this Agreement or any Note, provided that such participant shall only be
--------
entitled to such right of setoff if it shall have agreed in the agreement
pursuant to which it shall have acquired its participating interest to share
with the Lenders and the proceeds thereof as provided in subsection 9.6. The
Company also agrees that each participant shall be entitled to the benefits of
subsections 2.15, 2.16, 2.18 and 8.3 with respect to its participation in the
Commitments and the Loans outstanding from time to time; provided, that no
--------
participant shall be entitled to receive any greater amount pursuant to such
subsections than the transferor Lender would have been entitled to receive in
respect of the amount of the participation transferred by such transferor Lender
to such participant had no such transfer occurred.
(c) Distribution of Information. It is understood and agreed that any
---------------------------
Lender may provide to assignees and participants and prospective assignees and
participants financial information and reports and data concerning the Related
Persons and the Sponsors and their and properties and operations which was
provided to such Lender pursuant to this Agreement, subject to Section 10.12.
(d) Purchase of PGS Notes and Warburg Notes by Sponsors. Notwithstanding
---------------------------------------------------
the foregoing, as more fully set forth in the Sponsor Agreements, each Lender
may sell all of such Lender's PGS Notes and/or Warburg Notes and the associated
rights and obligations under all Loan Documents to the Sponsors as provided in
Section 1(b) of each Sponsor Agreement; provided, (i) each Lender so selling its
--------
PGS and/or Warburg Notes to a Sponsor shall retain the right to vote hereunder,
and no such purchasing Sponsor shall be entitled to vote hereunder on decisions
requiring consent or approval of Majority Lenders (except as set forth in (ii)
below) or with respect to determining the Borrowing Base, (ii) no such
purchasing Sponsor shall ever have any right by reason of its purchase to
exercise any of the rights of Lenders hereunder or under the other Loan
Documents, except that any such selling Lender may agree that such Lender will
not without the consent of such purchasing Sponsor consent to any amendment or
waiver described in Section 10.1(a) (solely as such matters relate to the Notes
sold to such Sponsor) requiring approval of 100% of the Lenders (excluding items
(7) and (9)), (iii) Borrower's and Guarantors' Indebtedness to the Sponsors
under and with respect to any such Notes shall, to the extent set forth in the
Sponsor Agreements, be subordinated to the prior repayment in full of the
Obligations, and (iv) any such Sponsor may not sell, assign, pledge, hypothecate
or otherwise transfer any interest in any such Note until the Obligations have
been paid in full.
(e) Blue Sky Limitation. Notwithstanding any other provision of Section
-------------------
10.11(a) or (b), no transfer or assignment of the interests or obligations of
any Lender or any grant of participations therein shall be permitted if such
transfer, assignment or grant would require the Borrower to file a registration
statement with the Securities and Exchange Commission or to qualify the Loans
under the "Blue Sky" laws of any state.
Section 10.12. Confidentiality. In the event that the Borrower or any
---------------
other Related Person (hereinafter called the "Subject Entities") provides to the
----------------
Administrative Agent or the Lenders written confidential information or, if
communicated as confidential, oral confidential information
-76-
<PAGE>
belonging to any Subject Entity, the Administrative Agent and the Lenders shall
thereafter maintain such information in confidence in accordance with the
standards of care and diligence that each utilizes in maintaining its own
confidential information. This obligation of confidence shall not apply to such
portions of the information which (i) are in the public domain, (ii) hereafter
become part of the public domain without the Administrative Agent or the Lenders
breaching their obligation of confidence to any Subject Entity, (iii) are
previously known by the Administrative Agent or the Lenders from some source
other than any Subject Entity, (iv) are hereafter developed by the
Administrative Agent or the Lenders without using a Subject Entity's
information, (v) are hereafter obtained by or available to the Administrative
Agent or the Lenders from a third party who owes no obligation of confidence to
any Subject Entity with respect to such information, (vi) are disclosed with a
Subject Entity's consent, (vii) must be disclosed either pursuant to any
governmental requirement or to Persons regulating the activities of the
Administrative Agent or the Lenders, or (viii) as may be required by law or
regulation or order of any Governmental Authority in any judicial, arbitration
or governmental proceeding. Further, the Administrative Agent or a Lender may
disclose any such information to any other Lender, any independent petroleum
engineers or consultants, any independent certified public accountants, any
legal counsel employed by such Person in connection with this Agreement or any
other Loan Document, including without limitation, the enforcement or exercise
of all rights and remedies thereunder, or any assignee or participant (including
prospective assignees to which the Borrower has consented and participants) in
the Loans; provided, however, that the Administrative Agent or the Lenders shall
-------- -------
receive a written confidentiality agreement with the same terms as this
confidentiality provision from the Person to whom such information is disclosed
such that said Person shall have the same obligation to maintain the
confidentiality of such information as is imposed upon the Administrative Agent
and the Lenders hereunder. Notwithstanding anything to the contrary provided
herein, this obligation of confidence shall cease three (3) years form the date
the information was furnished, unless the Borrower requests in writing at least
thirty (30) days prior to the expiration of such three year period, to maintain
the confidentiality of such information for an additional three year period.
[the remainder of the page intentionally left blank]
-77-
<PAGE>
THIS WRITTEN AGREEMENT AND THE OTHER LOAN 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.
IN WITNESS WHEREOF, this Agreement is executed as of the date first written
above.
BORROWER: SPINNAKER EXPLORATION COMPANY
- --------
/s/ JAMES M. ALEXANDER
By:___________________________________
James M. Alexander
Name:_________________________________
CFO, VP and Secretary
Title:________________________________
Address:
Two Allen Center
1200 Smith Street, Suite 800
Houston, Texas 77002
Attention: James M. Alexander
Telephone: (713) 759-1770
Telecopy: (713) 759-1773
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<PAGE>
ADMINISTRATIVE AGENT: CREDIT SUISSE FIRST BOSTON
- --------------------
Administrative Agent
/s/ GREGORY R. PERRY
By:_______________________________
Gregory R. Perry
Name:_____________________________
Vice President
Title:____________________________
/s/
By:_______________________________
Name:_____________________________
Title:____________________________
Address:
11 Madison Avenue
New York, New York 10010
Telephone: (212) 325-9069
Telecopy: (212) 325-9136
LENDERS: CREDIT SUISSE FIRST BOSTON
- -------
/s/ GREGORY R. PERRY
By:_______________________________
Gregory R. Perry
Name:_____________________________
Vice President
Title:____________________________
/s/
By:_______________________________
Name:_____________________________
Title:____________________________
Address:
11 Madison Avenue
New York, New York 10010
Telephone: (212) 325-9069
Telecopy: (212) 325-9136
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<PAGE>
NATIONSBANK, N.A.
/s/ PATRICK M. DELANEY
By:_______________________________
Name: Patrick M. Delaney
Title: Sr. Vice President
Address:
700 Louisiana, 8th Floor
Houston, TX 77252
Attn: Patrick M. Delaney, Sr. Vice President
Telephone: (713) 247-7373
Telecopy: (713) 247-6568
BANK OF MONTREAL
/s/ MELISSA A. BAUMAN
By:______________________________
Name: Melissa A. Bauman
Title: Director
Address:
700 Louisiana, Suite 4400
Houston, TX 77002
Attn: Melissa A. Bauman, Director
Telephone: (713) 223-4400
Telecopy: (713) 223-4007
-80-
<PAGE>
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "Amendment") dated as of
March 15, 1999 is among: SPINNAKER EXPLORATION COMPANY, L.L.C., a limited
liability company formed under the laws of the State of Delaware (the
"Borrower"); each of the lenders that is a signatory hereto; and CREDIT SUISSE
FIRST BOSTON, a bank organized under the laws of Switzerland, acting through its
New York Branch, as administrative agent (in such capacity, the "Administrative
Agent"), BANK OF MONTREAL, a bank organized under the laws of Canada, acting
through its Chicago Branch, as syndication agent (in such capacity, the
"Syndication Agent"), NATIONSBANK, N.A., a national banking association, as
documentation agent (in such capacity, the "Documentation Agent").
R E C I T A L S
A. The Borrower, the Administrative Agent, the Syndication Agent, the
Documentation Agent and the Lenders (as defined in the Credit Agreement as
hereafter defined) have entered into that certain Credit Agreement dated as of
September 30, 1998 (the "Credit Agreement"), pursuant to which the Lenders have
agreed to make certain loans and extensions of credit to the Borrower upon the
terms and conditions as provided therein; and
B. Borrower has requested this Amendment and the Lenders have agreed to
such Amendment on the terms provided in this Amendment.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration and the mutual benefits, covenants and agreements herein
expressed, the parties hereto now agree as follows:
1. All capitalized terms used in this Amendment and not otherwise defined
herein shall have the meanings ascribed to such terms in the Credit Agreement.
2. The definition of "Borrower's Consolidated Tangible Net Worth" in
Section 1.1 of the Credit Agreement is hereby amended by adding the following
phrase at the end of such definition and before the period:
"plus the aggregate amount of Borrower's Indebtedness owed to Spinnaker
Exploration Company to the extent permitted by Section 6.2(g)(ii) hereof"
3. The definition of "EBITDA" in Section 1.1 of the Credit Agreement is
hereby amended by adding the following phrase at the end of clause (iv) of such
definition as a new clause (v):
"plus (v) the aggregate amount of interest accrued during such period on
Borrower's Indebtedness owed to any other Related Person to the extent
permitted by Section 6.2(g)(ii) hereof"
<PAGE>
4. Section 6.2(e) of the Credit Agreement is hereby amended by adding the
following sentence at the end of such section:
"The Borrower may make a dividend in the form of the conversion of some of
its equity owned by Spinnaker Exploration Company to Indebtedness owing to
Spinnaker Exploration Company in the aggregate amount of $49,183,732.31 to
the extent such Indebtedness is permitted by Section 6.2(g)(ii) hereof."
5. The Borrower has recently entered into Supplement Number 2 to a Master
License Agreement for Geophysical Data with TGS-CALIBRE Geophysical Company
(''TGS") as summarized on Schedule 1 hereto ("Supplement Number 2") in which
Borrower is obligated to pay to TGS $8,925,000 in five equal installments for
certain data. In turn, Spinnaker has entered into agreements with each of
Continental Land & Fur Co., Inc. and Barrett Resources Corporation in which each
such corporation will reimburse Borrower for 50% of the aggregate costs of
acquiring the data under Supplement Number 2 (see the summary of agreements on
Schedule 1 hereto). Because of the offsetting reimbursements, Borrower's
independent accounting firm is not classifying the obligation created by
Borrower under Supplement Number 2 as long term debt in excess of $795,000. The
Credit Agreement, however, may include this type of obligation in the definition
of "Indebtedness" notwithstanding the offsetting reimbursement. If so, the
Indebtedness created by Supplement Number 2 would be in violation of Section
6.2(a) of the Credit Agreement. Furthermore, the reimbursement obligations of
Continental Land & Fur Co., Inc. and Barrett Resources Corporation could be
deemed to be extensions of credit prohibited by Section 6.2(g). The Majority
Lenders hereby waive any violation of Section 6.2(a) as a result of Borrower's
obligation to pay for the data under Supplement Number 2 over time and waive any
violation of Section 6.2(g) resulting from Borrower's entering into
reimbursement agreements with Continental Land & Fur Co., Inc. and Barrett
Resources Corporation in connection with the cost of such data.
6. Section 6.1(b)(i) of the Credit Agreement requires that Borrower
provide certain audited consolidated financial statements and other financial
statements by no later than 90 days after the end of each fiscal year. The
Majority Lenders hereby waive, on a one time basis, but only until April 30,
1999, any violation of Section 6.1(b)(i) and any other relevant sections of the
Credit Agreement as a result of the late delivery of the annual financial
statements required to be delivered no later than 90 days after December 31,
1998.
7. Section 6.1(b)(iv) of the Credit Agreement requires that Borrower
provide the Engineering Report prepared by Ryder Scott Company by no later than
March 15 of each year. The Majority Lenders hereby waive, on a one time basis,
any violation of Section 6.1(b)(iv) and any other relevant sections of the
Credit Agreement as a result of the late delivery of the Engineering Report
prepared by Ryder Scott Company required to be delivered on March 15, 1999.
8. Section 6.1(b)(v) of the Credit Agreement requires that Borrower
provide a production report by no later than 60 days after the end of each
Fiscal Quarter. The Majority Lenders hereby waive, on a one time basis, but
only until April 30, 1999, any violation of Section 6.1(b)(v) and any other
relevant sections of the Credit Agreement as a result of the late delivery of
the
2
<PAGE>
quarterly production report required to be delivered no later than 60 days after
December 31, 1998.
9. The Administrative Agent acknowledges that the Borrower has delivered
to it title opinions complying with Section 7.2 regarding its oil and gas
property known as Brazos A-19. The Borrowing Base is increased to $10,000,000
as provided in Section 2.12 as a result of such compliance. This increase is
not a redetermination of the Borrowing Base and therefore does not reduce the
Warburg Commitments and the PGS Commitments.
10. Section 6.2(g)(ii) of the Credit Agreement is hereby amended by adding
the following clause to the end of such section:
"; provided that, in addition to the limits set forth in Exhibit N, any
payment of interest made before the Final Maturity Date on any such
subordinated debt shall be permitted only if (A) such payment is solely
used directly or indirectly to pay either current taxes or employee
compensation paid within the ordinary course of business (including bonuses
and payments under employment contracts existing on the Closing Date) and
(B) no Borrowing Base Deficiency exists"
11. This Amendment shall become binding on the Lenders when, and only
when, the Agent shall have received executed counterparts of this Amendment from
Borrower and the Majority Lenders.
12. The parties hereto hereby acknowledge and agree that, except as
specifically supplemented and amended, changed or modified hereby, the Credit
Agreement shall remain in full force and effect in accordance with its terms.
13. Borrower hereby reaffirms that as of the effective date of this
Amendment, the representations and warranties contained in Article V of the
Credit Agreement are true and correct on the date hereof as though made on and
as of the date of this Amendment, except as such representations and warranties
are expressly limited to an earlier date.
14. This Amendment (including, but not limited to, the validity and
enforceability hereof) shall be governed by, and construed in accordance with,
the laws of the State of New York.
15. This Amendment may be executed in two or more counterparts, and it
shall not be necessary that the signatures of all parties hereto be contained on
any one counterpart hereof; each counterpart shall be deemed an original, but
all of which together shall constitute one and the same instrument. Delivery of
an executed signature page of this Amendment by facsimile transmission shall be
effective as delivery of a manually executed counterpart hereof.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of date first above written.
BORROWER: SPINNAKER EXPLORATION COMPANY, L.L.C.
/s/ ROGER L. JARVIS
By:________________________________
Name: Roger L. Jarvis
Title: President
S-1
<PAGE>
ADMINISTRATIVE AGENT: CREDIT SUISSE FIRST BOSTON, as
Administrative Agent
/s/ DOUGLAS E. MAHER
By:__________________________________
Name: Douglas E. Maher
Title: Vice President
LENDERS: CREDIT SUISSE FIRST BOSTON
/s/ DOUGLAS E. MAHER
By:__________________________________
Name: Douglas E. Maher
Title: Vice President
BANK OF MONTREAL
/s/ MELISSA A. BAUMAN
By:__________________________________
Name: Melissa A. Bauman
Title: Director
NATIONSBANK, N.A.
/s/ MICHAEL J. DILLON
By:__________________________________
Name: Michael J. Dillon
Title: Managing Director
S-2
<PAGE>
ACKNOWLEDGMENT
Spinnaker Exploration Company hereby executes this Amendment solely for the
purpose of acknowledging and consenting to the terms of Section 10 hereof in
amendment and modification of the subordinated promissory note dated January 1,
1998 issued by Borrower in favor of Spinnaker Exploration Company.
SPINNAKER EXPLORATION COMPANY
By: /s/ James M. Alexander
----------------------------
Name: James M. Alexander
Title: VP, CFO and Secretary
S-3
<PAGE>
SCHEDULE 1
SPINNAKER TRANSACTIONS: SUMMARY
SUPPLEMENTARY AGREEMENT FOR LICENSE OF GEOPHYSICAL DATA, SUPPLEMENT NUMBER 2.
Spinnaker Exploration Company, L.L.C. ("Spinnaker") is a party to a Master
License Agreement for Geophysical Data with TGS-CALIBRE Geophysical Company (now
known as TGS-NOPEC Geophysical Company, "TGS") dated as of February 6, 1997, as
supplemented by Supplement Number 1 dated February 6, 1997. TGS offered to
license to Spinnaker up to 545 blocks of 3-D data located offshore, Gulf of
Mexico, pursuant to the terms of Supplement Number 2. Also under Supplement
Number 2, Spinnaker can acquire secondary licenses for 50 of the blocks upon
which it obtains primary licenses. Certain other 2-D and 3-D data is provided
pursuant to Supplement Number 2.
For such data, Spinnaker is obligated to pay TGS an aggregate amount equal
to $8,925,000, payable in five equal payments of $1,785,000 commencing 30 days
after the execution of Supplement Number 2 and on March 31, 1999, September 30,
1999, March 31, 2000, and September 30, 2000.
In the event that TGS is unable to complete the acquisition or processing
of the Eugene Island/South Marsh Island 3-D program described in Supplement
Number 2, Spinnaker's payments will be limited to that portion of the data which
is acquired and processed. If TGS has not commenced acquisition of such data by
July 1, 1999, Spinnaker may decline to be a participant in the acquisition of
such 3-D data and, then the total payments due by Spinnaker under this
Supplement Number 2 will be reduced by $1,980,000, which reduction would be
deducted from the payments to be made in the year 2000.
To defray the costs of acquiring such seismic data pursuant to Supplement
Number 2, Spinnaker entered into two seismic program agreements--one with
Barrett Resources Corporation and the other with Continental Land & Fur Co.,
Inc.
SEISMIC PROGRAM AGREEMENT WITH CONTINENTAL LAND & FUR CO., INC.
Spinnaker entered into a Seismic Program Agreement with Continental Land &
Fur Co., Inc. ("CL&F") in January 1999. Under this agreement, CL&F committed to
pay 50% of the aggregate costs of acquiring the seismic data described in
Supplement Number 2 discussed above in return for Spinnaker committing to
identify prospects capable of producing oil and gas and acquiring leasehold
interests upon which Spinnaker and CL&F could conduct exploration and
development activities. If CL&F does not elect to participate in any identified
prospect, then it is to be bound by an AMI agreement for a period of one year
thereafter.
The program term is to end on April 1, 2002; however, CL&F may extend the
program term a year by paying a non-refundable fee of $500,000 to Spinnaker.
<PAGE>
The occurrence of certain events will permit CL&F to terminate the program
prior to the expiration of the program term and be relieved of making further
payments to cover the TGS seismic costs. Such events include (i) the occurrence
of an event giving rise to the revocation or loss of the TGS license, (ii)
Spinnaker reducing the portion of its estimated annual total capital expenditure
budget attributable to the Gulf of Mexico to a sum less than $20 million, (iii)
Spinnaker entering into a binding agreement regarding a sale, merger or other
business combination which is ultimately consummated and results in the sale of
substantially all of Spinnaker's assets or a change in ownership of 51% or more,
(iv) Spinnaker's insolvency, and (v) Spinnaker's loss of the full time services
of both Roger Jarvis as President and William D. Hubbard as Vice President,
Exploration.
SEISMIC PROGRAM AGREEMENT WITH BARRETT RESOURCES CORPORATION
Spinnaker entered into a Seismic Program Agreement with Barrett Resources
Corporation ("Barrett") in January 1999. Under this agreement, Barrett
committed to pay 50% of the aggregate costs of acquiring the seismic data
described in Supplement Number 2 discussed above in return for entering into an
area of mutual interest arrangement with Spinnaker. Pursuant to this
arrangement, both parties will be evaluating the seismic data obtained pursuant
to Supplement Number 2 discussed above, and if either party acquires an interest
in the areas covered by such seismic data (and subject to such limited
exceptions), then such party must offer a portion of the interest acquired to
the other party. If such party does not elect to acquire an interest in the
offered property, then it will be prohibited from purchasing an interest in the
area covered by such property for a certain period of time.
The program term is to end on April 1, 2002; however, Barrett may extend
the program term a year by paying a non-refundable fee of $500,000 to Spinnaker.
The occurrence of certain events will permit Barrett to terminate the
program prior to the expiration of the program term and be relieved of making
further payments to cover the TGS seismic costs. Such events include (i) a
change in control of Spinnaker or (ii) the occurrence of an event giving rise to
the revocation or loss of the TGS license.
<PAGE>
SECOND AMENDMENT TO CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT (this "Amendment") dated as of
August 19, 1999 is among: SPINNAKER EXPLORATION COMPANY, L.L.C., a limited
liability company formed under the laws of the State of Delaware (the
"Borrower"); each of the lenders that is a signatory hereto; and CREDIT SUISSE
FIRST BOSTON, a bank organized under the laws of Switzerland, acting through its
New York Branch, as administrative agent (in such capacity, the "Administrative
Agent"), BANK OF MONTREAL, a bank organized under the laws of Canada, acting
through its Chicago Branch, as syndication agent (in such capacity, the
"Syndication Agent"), BANK OF AMERICA, N.A., formerly Nationsbank, N.A., a
national banking association, as documentation agent (in such capacity, the
"Documentation Agent").
R E C I T A L S
A. The Borrower, the Administrative Agent, the Syndication Agent, the
Documentation Agent and the Lenders (as defined in the Credit Agreement as
hereafter defined) have entered into that certain Credit Agreement dated as of
September 30, 1998, as amended by First Amendment to Credit Agreement dated as
of March 15, 1999 (as amended, the "Credit Agreement"), pursuant to which the
Lenders have agreed to make certain loans and extensions of credit to the
Borrower upon the terms and conditions as provided therein; and
B. Borrower has requested this Amendment and the Lenders have agreed to
such Amendment on the terms provided in this Amendment.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration and the mutual benefits, covenants and agreements herein
expressed, the parties hereto now agree as follows:
1. All capitalized terms used in this Amendment and not otherwise defined
herein shall have the meanings ascribed to such terms in the Credit Agreement.
2. The definition of "Loan Documents" in Section 1.1 of the Credit
Agreement is hereby amended by adding the following phrase at the end of such
definition and before the period:
"and any Hedging Agreement between the Borrower and any Lender now or
hereafter existing"
3. The Administrative Agent and the Borrower will amend the Security
Documents within 30 days from the date of this Amendment to secure any of the
Obligations not secured by the outstanding Security Documents at the Borrower's
expense.
4. This Amendment shall become binding on the Lenders when, and only
when, the Agent shall have received executed counterparts of this Amendment from
Borrower and the Majority Lenders.
<PAGE>
5. The parties hereto hereby acknowledge and agree that, except as
specifically supplemented and amended, changed or modified hereby, the Credit
Agreement shall remain in full force and effect in accordance with its terms.
6. Borrower hereby reaffirms that as of the effective date of this
Amendment, the representations and warranties contained in Article V of the
Credit Agreement are true and correct on the date hereof as though made on and
as of the date of this Amendment, except as such representations and warranties
are expressly limited to an earlier date.
7. This Amendment (including, but not limited to, the validity and
enforceability hereof) shall be governed by, and construed in accordance with,
the laws of the State of New York.
8. This Amendment may be executed in two or more counterparts, and it
shall not be necessary that the signatures of all parties hereto be contained on
any one counterpart hereof; each counterpart shall be deemed an original, but
all of which together shall constitute one and the same instrument. Delivery of
an executed signature page of this Amendment by facsimile transmission shall be
effective as delivery of a manually executed counterpart hereof.
[SIGNATURES BEGIN NEXT PAGE]
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of date first above written.
BORROWER: SPINNAKER EXPLORATION COMPANY, L.L.C.
By: /s/ Roger L. Jarvis
-----------------------------
Name: Roger L. Jarvis
Title: President
S-1
<PAGE>
ADMINISTRATIVE AGENT: CREDIT SUISSE FIRST BOSTON, as
Administrative Agent
By: /s/ Douglas E. Maher
-----------------------------------
Name: Douglas E. Maher
Title: Vice President
LENDERS: CREDIT SUISSE FIRST BOSTON
By: /s/ Douglas E. Maher
-----------------------------------
Name: Douglas E. Maher
Title: Vice President
BANK OF MONTREAL
By: /s/ Melissa A. Bauman
-----------------------------------
Name: Melissa A. Bauman
Title: Director
BANK OF AMERICA, N.A., formerly Nationsbank,
N.A.
By: /s/ Michael J. Dillon
-----------------------------------
Name: Michael J. Dillion
Title: Managing Director
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THIRD AMENDMENT TO CREDIT AGREEMENT
THIS THIRD AMENDMENT TO CREDIT AGREEMENT (this "Amendment") dated as of
September 27, 1999 is among: SPINNAKER EXPLORATION COMPANY, L.L.C., a limited
liability company formed under the laws of the State of Delaware (the
"Borrower"); each of the lenders that is a signatory hereto; and CREDIT SUISSE
FIRST BOSTON, a bank organized under the laws of Switzerland, acting through its
New York Branch, as administrative agent (in such capacity, the "Administrative
Agent"), BANK OF MONTREAL, a bank organized under the laws of Canada, acting
through its Chicago Branch, as syndication agent (in such capacity, the
"Syndication Agent"), BANK OF AMERICA, N.A., formerly Nationsbank, N.A., a
national banking association, as documentation agent (in such capacity, the
"Documentation Agent").
R E C I T A L S
A. The Borrower, the Administrative Agent, the Syndication Agent, the
Documentation Agent and the Lenders (as defined in the Credit Agreement as
hereafter defined) have entered into that certain Credit Agreement dated as of
September 30, 1998, as amended by FirstAmendment to Credit Agreement dated as of
March 15, 1999 and Second Amendment to Credit Agreement dated as of August 19,
1999 (as amended, the "Credit Agreement"), pursuant to which the Lenders have
agreed to make certain loans and extensions of credit to the Borrower upon the
terms and conditions as provided therein; and
B. Borrower has requested this Amendment and the Lenders have agreed to
such Amendment on the terms provided in this Amendment.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration and the mutual benefits, covenants and agreements herein
expressed, the parties hereto now agree as follows:
1. All capitalized terms used in this Amendment and not otherwise defined
herein shall have the meanings ascribed to such terms in the Credit Agreement.
2. Section 2.10 (a)(ii) of the Credit Agreement is amended to read as
follows:
"Borrower shall prepay the Loans with 75% of all Net Proceeds of Equity.
Such prepayments shall be applied ratably first to the principal of the PGS
Loans and Warburg Loans until the PGS Loans and Warburg Loans are paid in
full and then to the principal of the Spinnnaker Loans until the Spinnaker
Loans are paid in full. Upon such prepayments, the Warburg Commitment and
the PGS Commitment shall be automatically terminated and the Sponsor
Agreements shall be automatically terminated (subject to the second
paragraph of Section 2 of each such Sponsor Agreement)."
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3. The Administrative Agent and the Borrower will have until October 30,
1999 to amend the Security Documents as provided in the Second Amendment to
Credit Agreement dated as of August 19, 1999.
4. This Amendment shall become binding on the Lenders when, and only when,
the Agent shall have received executed counterparts of this Amendment from
Borrower and the Lenders.
5. The parties hereto hereby acknowledge and agree that, except as
specifically supplemented and amended, changed or modified hereby, the Credit
Agreement shall remain in full force and effect in accordance with its terms.
6. Borrower hereby reaffirms that as of the effective date of this
Amendment, the representations and warranties contained in Article V of the
Credit Agreement are true and correct on the date hereof as though made on and
as of the date of this Amendment, except as such representations and warranties
are expressly limited to an earlier date.
7. This Amendment (including, but not limited to, the validity and
enforceability hereof) shall be governed by, and construed in accordance with,
the laws of the State of New York.
8. This Amendment may be executed in two or more counterparts, and it
shall not be necessary that the signatures of all parties hereto be contained on
any one counterpart hereof; each counterpart shall be deemed an original, but
all of which together shall constitute one and the same instrument. Delivery of
an executed signature page of this Amendment by facsimile transmission shall be
effective as delivery of a manually executed counterpart hereof.
[SIGNATURES BEGIN NEXT PAGE]
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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of date first above written.
BORROWER: SPINNAKER EXPLORATION COMPANY, L.L.C.
By:
________________________________
Name: Roger L. Jarvis
Title: President
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ADMINISTRATIVE AGENT: CREDIT SUISSE FIRST BOSTON, as Administrative
Agent
By:
__________________________________
Name: Douglas E. Maher
Title: Vice President
LENDERS: CREDIT SUISSE FIRST BOSTON
By:
__________________________________
Name: Douglas E. Maher
Title: Vice President
BANK OF MONTREAL
By:
__________________________________
Name: Melissa A. Bauman
Title: Director
BANK OF AMERICA, N.A., formerly Nationsbank,
N.A.
By:
__________________________________
Name: Michael J. Dillon
Title: Managing Director
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EXHIBIT 10.6
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made by and between Spinnaker
Exploration Company, L.L.C., a Delaware limited liability company ("Company")
and Roger L. Jarvis ("Employee").
WITNESSETH:
WHEREAS, Company is desirous of employing Employee in a senior executive
capacity on the terms and conditions, and for the consideration, hereinafter set
forth and Employee is desirous of being employed by Company on such terms and
conditions for such consideration;
NOW, THEREFORE, for and in consideration of the mutual promises, covenants
and obligations contained herein, Company and Employee agree as follows:
ARTICLE 1: EMPLOYMENT AND DUTIES
1.1 Employment; Effective Date. Company agrees to employ Employee and
Employee agrees to be employed by Company, beginning as of the Effective Date
(as hereinafter defined) and continuing for the period of time set forth in
Article 2 of this Agreement, subject to the terms and conditions of this
Agreement. For purposes of this Agreement, the "Effective Date" shall be
December 20, 1996.
1.2 Position. From and after the Effective Date, Company shall employ
Employee in the position of President and Chief Executive Officer of Company, or
in such other equivalent senior executive positions as the parties mutually may
agree. At all times while Employee is serving hereunder as President and Chief
Executive Officer, Company shall arrange for Employee to serve on the Board of
Managers or other governing body of Company (the "Board") and each committee of
the Board (other than the audit committee) as a full member thereof.
1.3 Duties and Services. Employee agrees to serve in the offices referred
to in paragraph 1.2 and to perform diligently and to the best of his abilities
the duties and services reasonably appertaining to such offices, as well as such
additional duties and services appropriate to such offices which the parties
mutually may agree upon from time to time.
1.4 Authority and Reporting. Employee shall have full power to direct
Company's activities in conformity with the decisions and directions of the
Board, with full power and authority to bind Company, excepting only the powers
reserved to the Board, or Company's members, or by law. Employee shall report
only to the Board or any Executive Committee formed thereby. Each officer of
Company shall be required by Company to report only to Employee, or to such
other officers as Employee may designate from time to time.
1.5 Other Interests. Employee agrees, during the period of his employment
by Company, to devote his primary business time, energy and best efforts to the
business and affairs of
<PAGE>
Company and its subsidiaries. The parties recognize and agree that Employee may
engage in passive personal investments, civic and other business activities that
do not conflict with the business and affairs of Company or materially interfere
with Employee's performance of his duties hereunder.
1.6 Duty of Loyalty. Employee acknowledges and agrees that Employee owes
a fiduciary duty of loyalty, fidelity and allegiance to act at all times in the
best interests of Company and to do no act which would injure the business,
interests, or reputation of Company or any of its subsidiaries. In keeping with
these duties, Employee shall not appropriate for Employee's own benefit business
opportunities concerning the subject matter of the fiduciary relationship.
ARTICLE 2: TERM AND TERMINATION OF EMPLOYMENT
2.1 Term. Unless sooner terminated pursuant to other provisions hereof,
Company agrees to employ Employee for the period (the "Term") beginning on the
Effective Date and ending on December 31, 2000; provided that (a) commencing on
December 15, 2000 and on each December 15th thereafter, if this Agreement has
not been terminated pursuant to Sections 2.2 or 2.3, the Term of this Agreement
shall automatically be extended for one additional year unless prior to such
December 15th either Company or Employee shall have given written notice to the
other party that the Term of this Agreement shall cease to be so extended and
(b) the Term shall automatically terminate upon Employee's death, if it has not
been earlier terminated as provided above.
2.2 Company's Right to Terminate. Notwithstanding the provisions of
paragraph 2.1, Company shall have the right to terminate Employee's employment
under this Agreement at any time for any of the following reasons:
(i) upon the later of Employee's becoming (a) incapacitated by
accident, sickness, or other circumstance which renders him mentally
or physically incapable of performing the duties and services required
of him hereunder for a period of at least 120 consecutive days or for
a period of 180 days during any 12-month period or (b) entitled to
benefits under Company's long-term disability insurance plan;
(ii) for cause, which for purposes of this Agreement shall mean
Employee (A) has been convicted of a felony, (B) has engaged in gross
negligence or willful misconduct in the performance of the duties
required of him hereunder that he knows or should know is materially
injurious to Company, (C) has willfully disregarded without proper
legal cause material written corporate policies established by Company
or the material written directives of the Board, which results in
material harm to the Company, or (D) has materially breached any
material provision of this Agreement; provided, however, that cause
shall exist with respect to a matter described in clauses (B), (C), or
(D) of this paragraph 2.2(ii) that is capable of being corrected by
Employee only if such matter remains uncorrected for 30 days following
written notice of such matter by Company to Employee; or
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(iii) for any other reason whatsoever, in the sole discretion of the
Board.
2.3 Employee's Right to Terminate. Notwithstanding the provisions of
paragraph 2.1, Employee shall have the right to terminate his employment under
this Agreement at any time for any of the following reasons:
(i) a material breach by Company of any material provision of this
Agreement occurs which, if correctable, remains uncorrected for 30
days following written notice of such breach by Employee to Company;
(ii) an Event of Default occurs with respect to Seismic Energy
Holdings, Inc. ("SEHI"), or WP Spinnaker Holdings, Inc. ("WPV Sub")
under the Purchase Agreement among Company, SEHI and WPV Sub, of even
date herewith (the "Purchase Agreement") which is not corrected within
the grace period provided therein or a WPV Change of Control or PGS
Change of Control occurs and WPV Sub or SEHI fails to timely deliver
the notice specified in Section 3(f)(iii) of the Purchase Agreement
(as all such capitalized terms are defined in the Purchase Agreement);
(iii) Company's principal executive offices are relocated outside the
Houston, Texas metropolitan area without Employee's consent;
(iv) Company fails to obtain the assumption of the obligation to
perform this Agreement by any successor as contemplated in paragraph
7.11 hereof;
(v) any material amendment to, or termination of, the Limited
Liability Company Agreement of Spinnaker Exploration Company, L.L.C.
(the "LLC Agreement"), the Purchase Agreement, the Agreement among the
Company, SEHI, and Petroleum Geo-Services ASA, or the Indemnification
Agreement between the Company and Employee (all or even date herewith)
without Employee's consent;
(vi) failure by the Board or Required Holders (as such term is
defined in the Purchase Agreement) to approve proposals submitted in
good faith by Employee prior to the date on which aggregate Capital
Contributions (as such term is defined in the LLC Agreement) made to
the Company by WPV Sub equal or exceed 50% of WPV Sub's Capital
Commitment (as such term is defined in the Purchase Agreement), if
such proposals (i) are consistent with the Business Strategy (as such
term is defined in the LLC Agreement), and (ii) the Board and Employee
fail to resolve their differences concerning such proposals after
discussions held in good faith over at least 60 days;
(vii) failure to approve that portion of an Operating Budget which
relates to compensation or benefits for employees of Company and is
consistent with the
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<PAGE>
Business Strategy and existing employment agreements, without
Employee's consent; or
(viii) for any other reason whatsoever, in the sole discretion of
Employee.
For purposes of paragraph 2.3(i) above, any breach of paragraphs 1.2 or 1.4
hereof by Company shall be deemed to constitute a material breach by Company of
a material provision of this Agreement.
2.4 Notice of Termination. If Company or Employee desires to terminate
Employee's employment hereunder at any time prior to expiration of the Term
pursuant to paragraph 2.2 or 2.3, respectively, it or he shall do so by giving
written notice to the other party that it or he has elected to terminate
Employee's employment hereunder and stating the effective date and reason for
such termination (if "for cause", as defined in Section 2.2(ii), with
specificity as to the basis therefor), provided that no such action shall alter
or amend any other provisions hereof or rights arising hereunder.
ARTICLE 3: COMPENSATION AND BENEFITS
3.1 Base Salary. During the period of this Agreement, Employee shall
receive a minimum annual base salary equal to the greater of (i) $250,000 or
(ii) such amount as the Board may, in its sole discretion, determine from time
to time; provided, however, that for each calendar year beginning on January 1,
1998 and on January 1 of each calendar year thereafter, such minimum annual base
salary shall be adjusted upward by an amount that shall be at least equal to the
minimum annual base salary of the preceding calendar year multiplied by a
fraction, the numerator of which is the CPI (as hereinafter defined) published
with respect to the preceding October (the "Most Recent October"), and the
denominator of which is the CPI published with respect to the October
immediately preceding the Most Recent October. However, in no event may the
minimum annual base salary as in effect at any time be reduced. Employee's
annual base salary shall be paid in equal installments in accordance with
Company's standard policy regarding payment of compensation to executives but no
less frequently than bimonthly. The term "CPI" as used herein shall mean the
index now known as the Consumer Price Index for Urban Wage Earners and Clerical
Workers (CPI-W), for the Houston-Galveston-Brazoria, Texas area, all items
(1982-84=100), as published by the Bureau of Labor Statistics of the United
States Department of Labor. If the CPI shall be discontinued with no successor
or comparable successor index, the parties shall agree upon a substitute price
index to reflect properly increases from year to year.
3.2 Bonuses. Employee shall receive bonuses, if any, as the Board shall
determine in its sole discretion after consideration of the performance of
Employee and Company and bonuses paid to similarly-situated executives of
companies of comparable size in the oil and gas exploration industry.
3.3 Other Perquisites. During his employment hereunder, Employee, and, to
the extent applicable, Employee's spouse, dependents and beneficiaries, shall be
allowed to participate in all
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benefits, plans and programs, including improvements or modifications of the
same, which are now, or may hereafter be, available to similarly-situated
Company employees. Company shall not, however, by reason of this paragraph be
obligated to institute, maintain, or refrain from changing, amending, or
discontinuing, any such benefit plan or program, so long as Company maintains
plans and programs not materially less beneficial to its executive employees
than those that are provided to similarly-situated executives of companies of
comparable size in the oil and gas exploration industry generally.
ARTICLE 4: CONFIDENTIAL INFORMATION
4.1. Confidential Information
(a) Employee recognizes that by reason of his employment with Company
and the positions described in paragraph 1.2, he may acquire Confidential
Information (defined below), the use or disclosure of which would cause Company
substantial loss and damages which could not be readily calculated and for which
no remedy at law would be adequate. Accordingly, Employee agrees that he will
not (directly or indirectly) at any time, whether during or after his employment
hereunder, disclose any such Confidential Information to any person except (i)
in the performance of his services to Company hereunder, (ii) as required by
applicable law, (iii) in connection with the enforcement of his rights under
this Agreement, (iv) in connection with any disagreement, dispute or litigation
between Employee and Company, or (v) with the prior written consent of the
Board. As used herein, "Confidential Information" means (A) all seismic and
geophysical data, geological data, chemical data, engineering data, interpretive
and analytical reports and studies, logs, formation tests, maps, diagrams, data
bases, computer printouts, computer tapes, agreements and contracts, files,
books, accounts, and other technical information, business records, or financial
data acquired by Company or prepared by Employee or any other employee,
consultant, contractor, agent, or representative of Company during the term of
this Agreement, and (B) any information received by Employee in connection with
his employment to the extent the disclosure of such information by Employee
would result in a breach by Company of any confidentiality obligation known to
Employee; provided that such term shall not include any information that (x) is
or becomes generally known or available other than as a result of a disclosure
by Employee, (y) is or becomes known or available to Employee on a
nonconfidential basis from a source (other than Company) which, to Employee's
knowledge, is not prohibited from disclosing such information to Employee by a
legal, contractual, fiduciary or other obligation to Company, or (z) is known by
Employee prior to executing this Agreement.
(b) Employee confirms that all Confidential Information is the
exclusive property of Company. All business records, papers or documents kept or
made by Employee while employed hereunder relating to the business of Company
shall be and remain the property of Company at all times. Upon the request of
Company at any time, Employee shall promptly deliver to Company, and shall
retain no copies of, any written materials, records and documents made by
Employee or coming into his possession while employed hereunder concerning the
business or affairs of Company other than personal materials, records and
documents (including notes and correspondence) of Employee
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not containing Confidential Information. Notwithstanding the foregoing, Employee
shall be permitted to retain copies of, or have access to, all such materials,
records and documents relating to any disagreement, dispute or litigation
between Employee and Company or any third person.
4.2 Assistance by Employee. Both during the period of Employee's
employment by Company and thereafter, provided Company pays all costs and
expenses, Employee shall assist Company and its nominee, at any time, in the
protection of Company's worldwide right, title, and interest in and to
Confidential Information; provided that any such assistance after termination of
Employee's employment does not, in Employee's good faith judgment, unreasonably
interfere with Employee's other activities.
4.3 Remedies. Employee acknowledges that money damages would not be
sufficient remedy for any breach of this Article by Employee, and Company shall
be entitled to enforce the provisions of this Article by specific performance
and injunctive relief as remedies for such breach or any threatened breach. Such
remedies shall not be deemed the exclusive remedies for a breach of this
Article, but shall be in addition to all remedies available at law or in equity
to Company, including the recovery of damages from Employee and his agents
involved in such breach and remedies available to Company pursuant to other
agreements with Employee.
ARTICLE 5: NON-DISPARAGEMENT. Company agrees that it will not make any
statements to third parties which are intended to disparage, discredit or injure
the reputation of Employee. Employee agrees that he will not make any statements
to third parties which are intended to disparage, discredit or injure the
reputation of Company, its Members, or their respective affiliates.
ARTICLE 6: EFFECT OF TERMINATION ON COMPENSATION
6.1 By Expiration. If Employee's employment hereunder shall terminate
upon expiration of the Term provided in paragraph 2.1, then all compensation and
all benefits to Employee hereunder shall terminate contemporaneously with
termination of his employment. Upon any termination of the employment
relationship by either Employee or Company after the expiration of the Term
provided in paragraph 2.1, Employee shall be entitled to pro-rata salary through
the date of such termination and any and all other compensation to which
Employee is entitled under this Agreement and all future benefits for which
Employee is eligible under this Agreement shall cease and terminate.
6.2 By Company. If Employee's employment hereunder shall be terminated by
Company prior to expiration of the Term provided in paragraph 2.1, then, upon
such termination, regardless of the reason therefor, all compensation and all
benefits to Employee hereunder shall terminate contemporaneously with the
termination of such employment, except that if such termination shall be for any
reason other than those encompassed by paragraphs 2.2(i) or (ii), then Company
shall continue to pay to Employee (or to his beneficiaries or estate) Employee's
then current base salary pursuant to paragraph 3.1 and continue, at Company's
cost, Employee's (and his
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qualified beneficiaries') coverages under Company's group health plan(s), for
the greater of (x) the balance of such Term or (y) one year.
6.3 By Employee. If Employee's employment hereunder shall be terminated
by Employee pursuant to paragraph 2.3(viii) prior to expiration of the Term
provided in paragraph 2.1, then all compensation and benefits to Employee
hereunder shall terminate. If Employee's employment hereunder shall be
terminated by Employee pursuant to paragraph 2.3(i) through (vii) prior to
expiration of the Term provided in paragraph 2.1, then Company shall continue to
pay to Employee (or to his beneficiaries or estate) Employee's then current base
salary pursuant to paragraph 3.1 and continue, at Company's cost, Employee's
(and his qualified beneficiaries') coverages under Company's group health
plan(s), for the greater of (x) the balance of such Term or (y) one year.
6.4 Certain Additional Payments by Company. Notwithstanding anything to
the contrary in this Agreement, in the event that any payment or distribution by
Company or any affiliate of Company to or for the benefit of Employee, whether
paid or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise (a "Payment"), would be subject to the excise tax imposed
by Section 4999 of the Internal Revenue Code of 1986, as amended, or any
interest or penalties with respect to such excise tax (such excise tax, together
with any such interest or penalties, are hereinafter collectively referred to as
the "Excise Tax"), Company shall pay to Employee an additional payment (a
"Gross-up Payment") in an amount such that after payment by Employee of all
taxes (including any interest or penalties imposed with respect to such taxes),
including any Excise Tax imposed on any Gross-up Payment, Employee retains an
amount of the Gross-up Payment equal to the Excise Tax imposed upon the
Payments. Company and Employee shall make an initial determination as to whether
a Gross-up Payment is required and the amount of any such Gross-up Payment.
Employee shall notify Company immediately in writing of any claim by the
Internal Revenue Service which, if successful, would require Company to make a
Gross-up Payment (or a Gross-up Payment in excess of that, if any, initially
determined by Company and Employee) promptly and in any event within 15 days of
the receipt of such claim. Company shall notify Employee in writing at least
five days prior to the due date of any response required with respect to such
claim if it plans to contest the claim. If Company decides to contest such
claim, Employee shall cooperate fully with Company in such action; provided,
however, Company shall bear and pay directly or indirectly all costs and
expenses (including additional interest and penalties) incurred in connection
with such action and shall indemnify and hold Employee harmless, on an after-tax
basis, for any Excise Tax or income tax, including interest and penalties with
respect thereto, imposed as a result of Company's action. If, as a result of
Company's action with respect to a claim, Employee receives a refund of any
amount paid by Company with respect to such claim, Employee shall promptly pay
such refund to Company. If Company fails to timely notify Employee whether it
will contest such claim or Company determines not to contest such claim, then
Company shall immediately pay to Employee the portion of such claim, if any,
which it has not previously paid to Employee.
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6.5 No Duty to Mitigate Losses. Employee shall have no duty to find new
employment following the termination of his employment under circumstances which
require Company to pay any amount to Employee pursuant to this Article. Any
salary or remuneration received by Employee from a third party for the providing
of personal services (whether by employment or by functioning as an independent
contractor) following the termination of his employment under circumstances
pursuant to which paragraphs 6.1, 6.2, 6.3, or 6.4 apply shall not reduce
Company's obligation to make a payment to Employee (or the amount of such
payment) pursuant to the terms of any such paragraph.
6.6 Liquidated Damages. In light of the difficulties in estimating the
damages for an early termination of this Agreement, Company and Employee hereby
agree that the payments, if any, to be received by Employee pursuant to
paragraphs 6.2, 6.3, and/or 6.4 shall be received by Employee as liquidated
damages.
ARTICLE 7: MISCELLANEOUS.
7.1 Notices. For purposes of this Agreement, notices and all other
communications provided for herein shall be in writing and shall be deemed to
have been duly given when personally delivered, when transmitted by telecopier
(on the date of confirmation of receipt), on the next business day when
delivered by a recognized national overnight courier service or on the fourth
business day after the date mailed by United States registered or certified
mail, return receipt requested, postage prepaid, addressed as follows:
If to Company, to: Spinnaker Exploration Company, L.L.C.
16010 Barker's Point Lane
Houston, Texas 77079
Attention: Chairman of the Board
Telecopier: 281-589-1482
With copies to: Seismic Energy Holdings, Inc.
16010 Barkers's Point Lane
Houston, Texas 77079
Attention: Sean M. Gore
Telecopier: 281-589-
WP Spinnaker Holdings, Inc.
c/o Warburg, Pincus Ventures L.P.
466 Lexington Avenue, 10th Floor
New York, New York 10017-314
Attention: Jeffrey A. Harris
Telecopier: 212-878-9361
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If to Employee, to: Mr. Roger L. Jarvis
173 Grogan's Point Road
The Woodlands, Texas 77380
Telecopier: 281-362-1235
or to such other address as either party may furnish to the other in writing in
accordance herewith, except that notices of changes of address shall be
effective only upon receipt.
7.2 Applicable Law. This Agreement is entered into under, and shall be
governed for all purposes by, the laws of the State of Texas.
7.3 No Waiver. No failure by either party hereto at any time to give
notice of any breach by the other party of, or to require compliance with, any
condition or provision of this Agreement shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent
time.
7.4 Severability. If a court of competent jurisdiction determines that
any provision of this Agreement is invalid or unenforceable, then the invalidity
or unenforceability of that provision shall not affect the validity or
enforceability of any other provision of this Agreement, and all other
provisions shall remain in full force and effect.
7.5 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together will constitute one and the same Agreement.
7.6 Withholding of Taxes and Other Employee Deductions. Company may
withhold from any benefits and payments made pursuant to this Agreement all
federal, state, city and other taxes as may be required pursuant to any law or
governmental regulation or ruling and all other normal employee deductions made
with respect to Company's employees generally.
7.7 Headings. The paragraph headings have been inserted for purposes of
convenience and shall not be used for interpretive purposes.
7.8 Gender and Plurals. Wherever the context so requires, the masculine
gender includes the feminine or neuter, and the singular number includes the
plural and conversely.
7.9 Subsidiary. As used in this Agreement, the term "subsidiary" shall
mean any entity which is owned or controlled by Company.
7.10 Cooperation by Employee. Employee shall cooperate with Company by
furnishing any and all information requested by Company, taking such physical
examinations as Company may deem necessary, and taking such other relevant
action as may be requested by Company in order to
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facilitate Company's acquisition and maintenance of a life insurance policy or
policies on the life of Employee.
7.11 Assignment. This Agreement shall be binding upon and inure to the
benefit of Company and any successor of Company, by merger or otherwise. Company
will require any such successor, by agreement in form and substance reasonably
acceptable to Employee, to expressly assume and agree to perform this Agreement
in the same manner and to the same extent that Company would be required to
perform it if no such succession had taken place. Except as provided in the
preceding sentence, this Agreement, and the rights and obligations of the
parties hereunder, are personal and neither this Agreement, nor any right,
benefit, or obligation of either party hereto, shall be subject to voluntary or
involuntary assignment, alienation or transfer, whether by operation of law or
otherwise, without the prior written consent of the other party.
7.12 Survival. Termination of this Agreement shall not affect any right or
obligation of any party which is accrued or vested prior to such termination.
Without limiting the scope of the preceding sentence, the provisions of Articles
4 and 5 shall survive any termination of this Agreement.
7.13 Entire Agreement. This Agreement constitutes the entire agreement of
parties with regard to the subject matter hereof, and contains all the
covenants, promises, representations, warranties and agreements between the
parties with respect to employment of Employee by Company. Each party to this
Agreement acknowledges that no representation, inducement, promise or agreement,
oral or written, has been made by either party, or by anyone acting on behalf of
either party, which is not embodied herein, and that no agreement, statement, or
promise relating to the employment of Employee by Company, which is not
contained in this Agreement, shall be valid or binding. Any modification of this
Agreement will be effective only if it is in writing and signed by the party to
be charged.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
20th day of December, 1996, to be effective as of the Effective Date.
SPINNAKER EXPLORATION COMPANY, L.L.C.
/s/ ROGER L. JARVIS
By:___________________________
Roger L. Jarvis
Name:_________________________
President
Title:________________________
"COMPANY"
/s/ ROGER L. JARVIS
______________________________
Roger L. Jarvis
"EMPLOYEE"
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ASSIGNMENT, ASSUMPTION AND
AMENDMENT OF EMPLOYMENT AGREEMENT
(ROGER L. JARVIS)
Assignment, Assumption and Amendment of Employment Agreement (the
"Agreement") effective as of January 6, 1998, by and between Spinnaker
Exploration Company, L.L.C., a Delaware limited liability company ("Spinnaker
L.L.C."), Spinco Exploration Corp., a Delaware corporation (the "Company"), and
Roger L. Jarvis ("Employee").
WHEREAS, Spinnaker L.L.C. and Employee have entered into an Employment
Agreement effective as of December 20, 1996 (the "Employment Agreement"); and
WHEREAS, the Company has been created as a holding company which owns
directly or indirectly the common ownership interests in Spinnaker L.L.C.; and
WHEREAS, effective as of January 6, 1998 Employee shall transfer employment
from Spinnaker L.L.C. to the Company; and
WHEREAS, the parties to this Agreement desire to have the Employment
Agreement assigned by Spinnaker L.L.C. to the Company and for the Company to
assume the Employment Agreement; and
WHEREAS, the parties to this Agreement desire to amend the Employment
Agreement in connection with such assignment and assumption;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. ASSIGNMENT. Spinnaker L.L.C. hereby assigns, transfers and conveys
unto the Company all of the interest of Spinnaker L.L.C. in the Employment
Agreement.
2. ASSUMPTION. The Company hereby assumes and agrees to pay, perform and
discharge when due in accordance with its terms all liabilities of Spinnaker
L.L.C. arising under the Employment Agreement.
3. AMENDMENT. From and after the effective date of this Agreement:
(a) Reference in the Employment Agreement to Spinnaker L.L.C. shall be
deemed to be reference to the Company.
(b) Reference in the Employment Agreement to the Purchase Agreement
shall be deemed to be reference to the Contribution Agreement, dated as of
January 6, 1998, among Warburg, Pincus Ventures, L.P., Seismic Energy
Holdings, Inc., Roger L. Jarvis, James M.
<PAGE>
Alexander, and any other person or entity executing said agreement as an
investor to, as the same may be amended from time to time (the
"Contribution Agreement").
(c) Reference in the Employment Agreement to the L.L.C. Agreement
shall be deemed to be reference to the Stockholders Agreement of the
Company, dated as of January 6, 1998, among Warburg, Pincus Ventures, L.P.,
Seismic Energy Holdings, Inc., Roger L. Jarvis, James M. Alexander, and any
other person or entity executing said agreement as a Party, as the same may
be amended from time to time.
(d) Reference in the Employment Agreement to the Agreement among the
Company, SEHI, and Petroleum Geo-Services ASA shall be deemed to be
reference to the PGS Agreement as defined in the Contribution Agreement.
4. APPLICABLE LAW. This Agreement is entered into under, and shall be
governed for all purposes by, the laws of the State of Texas.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
6th day of January, 1998.
Spinnaker Exploration Company, L.L.C.
/s/ ROGER L. JARVIS
By: _________________________________
Roger L. Jarvis
Name: _______________________________
President
Title: ______________________________
Spinco Exploration Corp.
/s/ ROGER L. JARVIS
By: _________________________________
Roger L. Jarvis
Name: _______________________________
President
Title: ______________________________
/s/ ROGER L. JARVIS
_____________________________________
Roger L. Jarvis "Employee"
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<PAGE>
AMENDMENT TO EMPLOYMENT AGREEMENT
(ROGER L. JARVIS)
This Amendment to Employment Agreement ("Agreement") is entered into
between Spinnaker Exploration Company, a Delaware corporation having offices at
1200 Smith, Suite 800, Houston, Texas 77002 ("Company"), and Roger L. Jarvis, an
individual currently residing at 173 Grogan's Point Road, The Woodlands, Texas
77380 ("Employee"), to be effective as of September 27, 1999.
WITNESSETH:
WHEREAS, Spinnaker Exploration Company, L.L.C. and Employee entered into
that certain Employment Agreement, dated December 20, 1996; and
WHEREAS, Company and Employee entered into an Assignment, Assumption and
Amendment of Employment Agreement dated as of January 6, 1998 whereby Company
assumed the Employment Agreement as amended (the "Employment Agreement"); and
WHEREAS, Company and Employee desire to further amend the Employment
Agreement on the terms and conditions provided for herein.
NOW, THEREFORE, for and in consideration of the mutual promises, covenants,
and obligations contained herein, Employer and Employee agree as follows:
ARTICLE I
DEFINED TERMS
SECTION 1.1 DEFINED TERMS. Except as otherwise provided herein,
capitalized terms used in this Amendment shall have the meanings ascribed to
them in the Employment Agreement.
ARTICLE II
AMENDMENT
SECTION 2.1 AMENDMENT. Paragraphs (ii), (v) and (vi) of Section 2.3 of
the Employment Agreement shall be and are hereby deleted in their entirety.
ARTICLE III
MISCELLANEOUS
SECTION 3.1 EXTENT OF AMENDMENTS AND REFERENCES. Except as otherwise
expressly provided herein, the Employment Agreement is not amended, modified or
affected by this Amendment. Except as expressly set forth herein, all of the
terms, conditions and all other
<PAGE>
provisions of the Employment Agreement are herein ratified and confirmed and
shall remain in full force and effect. From and after the effectiveness of this
Amendment, the terms "this Agreement", "hereof", "herein", "hereunder" and terms
of like import, when used herein or in the Employment Agreement shall, except
where the context otherwise requires, refer to the Employment Agreement, as
amended by this Amendment.
SECTION 3.2 ENTIRE AGREEMENT. The Employment Agreement as amended by this
Amendment contains the entire agreement of the parties concerning the subject
matter hereof. In the event of irreconcilable conflict between this Amendment
and the other documents contemplated hereby, the provisions of this Amendment
shall control.
SECTION 3.3 HEADINGS. Section headings in this Amendment are included
herein for convenience of reference only and shall not constitute a part of this
Amendment for any other purpose or be given and substantive effect.
SECTION 3.4 COUNTERPARTS. This Amendment may be executed in any number of
counterparts, each of which when so executed shall be deemed an original but all
of which together shall constitute one and the same instrument.
[THE REST OF THIS PAGE IS INTENTIONALLY BLANK]
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
as of the date first set forth above.
SPINNAKER EXPLORATION COMPANY
/s/ ROGER L. JARVIS
By: __________________________________
Roger L. Jarvis
President and Chief Executive
Officer
/s/ ROGER L. JARVIS
______________________________________
Roger L. Jarvis
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<PAGE>
EXHIBIT 10.7
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made by and between Spinnaker
Exploration Company, L.L.C., a Delaware limited liability company ("Company")
and James M. Alexander ("Employee").
WITNESSETH:
WHEREAS, Company is desirous of employing Employee in a senior executive
capacity on the terms and conditions, and for the consideration, hereinafter set
forth and Employee is desirous of being employed by Company on such terms and
conditions for such consideration;
NOW, THEREFORE, for and in consideration of the mutual promises, covenants
and obligations contained herein, Company and Employee agree as follows:
ARTICLE 1: EMPLOYMENT AND DUTIES
1.1 Employment; Effective Date. Company agrees to employ Employee and
Employee agrees to be employed by Company, beginning as of the Effective Date
(as hereinafter defined) and continuing for the period of time set forth in
Article 2 of this Agreement, subject to the terms and conditions of this
Agreement. For purposes of this Agreement, the "Effective Date" shall be
December 20, 1996.
1.2 Position. From and after the Effective Date, Company shall employ
Employee in the position of Vice President and Chief Financial Officer of
Company, or in such other equivalent senior executive position as the parties
mutually may agree.
1.3 Duties and Services. Employee agrees to serve in the office referred
to in paragraph 1.2 and to perform diligently and to the best of his abilities
the duties and services reasonably appertaining to such office, as well as such
additional duties and services appropriate to such office which the parties
mutually may agree upon from time to time.
1.4 Authority and Reporting. Employee shall have the normal authority
associated with Employee's position. Employee shall report only to the Chief
Executive Officer.
1.5 Other Interests. (i) Employee agrees, during the period of his
employment by Company, except as provided below, to devote his primary business
time, energy and best efforts to the business and affairs of Company and its
subsidiaries. The parties recognize and agree that Employee may engage in
passive personal investments, civic and other business activities that do not
conflict with the business and affairs of Company or materially interfere with
Employee's performance of his duties hereunder.
<PAGE>
(ii) Company agrees and acknowledges that until December 31, 1997
Employee's ability to devote his primary business time to Company will be
subject to the following pre-existing commitments:
(1) Until December 31, 1997 Employee may be required to provide
consulting services to Enron Corp. and/or Enron Global Power &
Pipelines L.L.C. for up to 260 hours per calendar quarter;
(2) Until June 30, 1997 Employee may be required to provide
consulting services for up to 200 hours to Dril-Quip, Inc.; and
(3) Until the next annual meeting of Cairn Energy USA, Inc. presently
anticipated to be held in May, 1997, Employee will continue to
serve on its Board of Directors.
1.6 Duty of Loyalty. Employee acknowledges and agrees that Employee owes a
fiduciary duty of loyalty, fidelity and allegiance to act at all times in the
best interests of Company and to do no act which would injure the business,
interests, or reputation of Company or any of its subsidiaries. In keeping with
these duties, Employee shall not appropriate for Employee's own benefit business
opportunities concerning the subject matter of the fiduciary relationship.
ARTICLE 2: TERM AND TERMINATION OF EMPLOYMENT
2.1 Term. Unless sooner terminated pursuant to other provisions hereof,
Company agrees to employ Employee for the period (the "Term") beginning on the
Effective Date and ending on December 31, 2000; provided that (a) commencing on
December 15, 2000 and on each December 15th thereafter, if this Agreement has
not been terminated pursuant to Sections 2.2 or 2.3, the Term of this Agreement
shall automatically be extended for one additional year unless prior to such
December 15th either Company or Employee shall have given written notice to the
other party that the Term of this Agreement shall cease to be so extended and
(b) the Term shall automatically terminate upon Employee's death, if it has not
been earlier terminated as provided above.
2.2 Company's Right to Terminate. Notwithstanding the provisions of
paragraph 2.1, Company shall have the right to terminate Employee's employment
under this Agreement at any time for any of the following reasons:
(i) upon the later of Employee's becoming (a) incapacitated by
accident, sickness, or other circumstance which renders him mentally
or physically incapable of performing the duties and services required
of him hereunder for a period of at least 120 consecutive days or for
a period of 180 days during any 12-month period or (b) entitled to
benefits under Company's long-term disability insurance plan;
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<PAGE>
(ii) for cause, which for purposes of this Agreement shall mean
Employee (A) has been convicted of a felony, (B) has engaged in gross
negligence or willful misconduct in the performance of the duties
required of him hereunder that he knows or should know is materially
injurious to Company, (C) has willfully disregarded without proper
legal cause material written corporate policies established by Company
or the material written directives of the Board, which results in
material harm to the Company, or (D) has materially breached any
material provision of this Agreement; provided, however, that cause
shall exist with respect to a matter described in clauses (B), (C), or
(D) of this paragraph 2.2(ii) that is capable of being corrected by
Employee only if such matter remains uncorrected for 30 days following
written notice of such matter by Company to Employee; or
(iii) for any other reason whatsoever, in the sole discretion of the
Board of Managers or other governing body of Company ("Board").
2.3 Employee's Right to Terminate. Notwithstanding the provisions of
paragraph 2.1, Employee shall have the right to terminate his employment under
this Agreement at any time for any of the following reasons:
(i) a material breach by Company of any material provision of this
Agreement occurs which, if correctable, remains uncorrected for 30
days following written notice of such breach by Employee to Company;
(ii) an Event of Default occurs with respect to Seismic Energy
Holdings, Inc. ("SEHI"), or WP Spinnaker Holdings, Inc. ("WPV Sub")
under the Purchase Agreement among Company, SEHI and WPV Sub, of even
date herewith (the "Purchase Agreement"), which is not corrected
within the grace period provided therein, or a WPV Change of Control
or PGS Change of Control occurs and WPV Sub or SEHI fails to timely
deliver the notice specified in Section 3(f)(iii) of the Purchase
Agreement (as all such capitalized terms are defined in the Purchase
Agreement);
(iii) Company's principal executive offices are relocated outside the
Houston, Texas metropolitan area without Employee's consent;
(iv) Company fails to obtain the assumption of the obligation to
perform this Agreement by any successor as contemplated in paragraph
7.11 hereof;
(v) any material amendment to, or termination of, the Limited
Liability Company Agreement of Spinnaker Exploration Company, L.L.C.
(the "LLC Agreement"), the Purchase Agreement, the Agreement among the
Company, SEHI, and Petroleum Geo-Services ASA, or the Indemnification
Agreement between the Company and Employee (all or even date herewith)
without Employee's consent;
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<PAGE>
(vi) failure by the Board or Required Holders (as such term is
defined in the Purchase Agreement) to approve proposals submitted in
good faith by the Company's chief executive officer prior to the date
on which aggregate Capital Contributions (as such term is defined in
the LLC Agreement) made to the Company by WPV Sub equal or exceed 50%
of WPV Sub's Capital Commitment (as such term is defined in the
Purchase Agreement), if such proposals (i) are consistent with the
Business Strategy (as such term is defined in the LLC Agreement), and
(ii) the Board and Employee fail to resolve their differences
concerning such proposals after discussions held in good faith over at
least 60 days;
(vii) failure to approve that portion of an Operating Budget which
relates to compensation or benefits for existing employees of Company
and is consistent with the Business Strategy and existing employment
agreements, without Employee's consent;
(viii) Roger L. Jarvis's employment as the Company's chief executive
officer is terminated under Sections 2.3(i) through (viii) of his
employment agreement; or
(ix) for any other reason whatsoever, in the sole discretion of
Employee;
provided, however, that Employee may not exercise his right with respect to
those events referred to in clauses (iii), (v), (vi), and (vii), unless such
events occur after the date on which the employment of Roger L. Jarvis shall
have terminated. For purposes of paragraph 2.3(i) above, any breach of
paragraphs 1.2 or 1.4 hereof by Company shall be deemed to constitute a material
breach by Company of a material provision of this Agreement.
2.4 Notice of Termination. If Company or Employee desires to terminate
Employee's employment hereunder at any time prior to expiration of the Term
pursuant to paragraph 2.2 or 2.3, respectively, it or he shall do so by giving
written notice to the other party that it or he has elected to terminate
Employee's employment hereunder and stating the effective date, which shall be
not less than 30 days after the date of such written notice, and reason for such
termination (if "for cause", as defined in Section 2.2(ii), with specificity as
to the basis therefor), provided that no such action shall alter or amend any
other provisions hereof or rights arising hereunder.
ARTICLE 3: COMPENSATION AND BENEFITS
3.1 Base Salary. During the period of this Agreement, Employee shall
receive a minimum annual base salary equal to the greater of (i) $175,000 or
(ii) such amount as the Board may, in its sole discretion, determine from time
to time; provided, however, that for each calendar year beginning on January 1,
1998 and on January 1 of each calendar year thereafter, such minimum annual base
salary shall be adjusted upward by an amount that shall be at least equal to the
minimum annual base salary of the preceding calendar year multiplied by a
fraction, the numerator of which is the CPI (as hereinafter defined) published
with respect to the preceding October (the "Most
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<PAGE>
Recent October"), and the denominator of which is the CPI published with respect
to the October immediately preceding the Most Recent October. However, in no
event may the minimum annual base salary as in effect at any time be reduced.
Employee's annual base salary shall be paid in equal installments in accordance
with Company's standard policy regarding payment of compensation to executives
but no less frequently than bimonthly. The term "CPI" as used herein shall mean
the index now known as the Consumer Price Index for Urban Wage Earners and
Clerical Workers (CPI-W), for the Houston-Galveston-Brazoria, Texas area, all
items (1982-84=100), as published by the Bureau of Labor Statistics of the
United States Department of Labor. If the CPI shall be discontinued with no
successor or comparable successor index, the parties shall agree upon a
substitute price index to reflect properly increases from year to year.
3.2 Bonuses. Employee shall receive bonuses, if any, as the Board shall
determine in its sole discretion after consideration of the performance of
Employee and Company and bonuses paid to similarly-situated executives of
companies of comparable size in the oil and gas exploration industry.
3.3 Other Perquisites. During his employment hereunder, Employee, and, to
the extent applicable, Employee's spouse, dependents and beneficiaries, shall be
allowed to participate on the same basis generally as other senior executives of
Company in all benefits, plans and programs, including improvements or
modifications of the same, which are now, or may hereafter be, available to
similarly-situated Company employees. Company shall not, however, by reason of
this paragraph be obligated to institute, maintain, or refrain from changing,
amending, or discontinuing, any such benefit plan or program, so long as Company
maintains plans and programs not materially less beneficial to its executive
employees than those that are provided to similarly-situated executives of
companies of comparable size in the oil and gas exploration industry generally.
ARTICLE 4: CONFIDENTIAL INFORMATION
4.1. Confidential Information
(a) Employee recognizes that by reason of his employment with Company
and the positions described in paragraph 1.2, he may acquire Confidential
Information (defined below), the use or disclosure of which would cause Company
substantial loss and damages which could not be readily calculated and for which
no remedy at law would be adequate. Accordingly, Employee agrees that he will
not (directly or indirectly) at any time, whether during or after his employment
hereunder, disclose any such Confidential Information to any person except (i)
in the performance of his services to Company hereunder, (ii) as required by
applicable law, (iii) in connection with the enforcement of his rights under
this Agreement, (iv) in connection with any disagreement, dispute or litigation
between Employee and Company, or (v) with the prior written consent of the
Board. As used herein, "Confidential Information" means (A) all seismic and
geophysical data, geological data, chemical data, engineering data, interpretive
and analytical reports and studies, logs, formation tests, maps, diagrams, data
bases, computer printouts, computer tapes, agreements and contracts, files,
books, accounts, and other technical information, business records, or financial
data acquired
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<PAGE>
by Company or prepared by Employee or any other employee, consultant,
contractor, agent, or representative of Company during the term of this
Agreement, and (B) any information received by Employee in connection with his
employment to the extent the disclosure of such information by Employee would
result in a breach by Company of any confidentiality obligation known to
Employee; provided that such term shall not include any information that (x) is
or becomes generally known or available other than as a result of a disclosure
by Employee, (y) is or becomes known or available to Employee on a
nonconfidential basis from a source (other than Company) which, to Employee's
knowledge, is not prohibited from disclosing such information to Employee by a
legal, contractual, fiduciary or other obligation to Company, or (z) is known by
Employee prior to executing this Agreement.
(b) Employee confirms that all Confidential Information is the
exclusive property of Company. All business records, papers or documents kept or
made by Employee while employed hereunder relating to the business of Company
shall be and remain the property of Company at all times. Upon the request of
Company at any time, Employee shall promptly deliver to Company, and shall
retain no copies of, any written materials, records and documents made by
Employee or coming into his possession while employed hereunder concerning the
business or affairs of Company other than personal materials, records and
documents (including notes and correspondence) of Employee not containing
Confidential Information. Notwithstanding the foregoing, Employee shall be
permitted to retain copies of, or have access to, all such materials, records
and documents relating to any disagreement, dispute or litigation between
Employee and Company or any third person.
4.2 Assistance by Employee. Both during the period of Employee's
employment by Company and thereafter, provided Company pays all costs and
expenses, Employee shall assist Company and its nominee, at any time, in the
protection of Company's worldwide right, title, and interest in and to
Confidential Information; provided that any such assistance after termination of
Employee's employment does not, in Employee's good faith judgment, unreasonably
interfere with Employee's other activities.
4.3 Remedies. Employee acknowledges that money damages would not be
sufficient remedy for any breach of this Article by Employee, and Company shall
be entitled to enforce the provisions of this Article by specific performance
and injunctive relief as remedies for such breach or any threatened breach. Such
remedies shall not be deemed the exclusive remedies for a breach of this
Article, but shall be in addition to all remedies available at law or in equity
to Company, including the recovery of damages from Employee and his agents
involved in such breach and remedies available to Company pursuant to other
agreements with Employee.
ARTICLE 5: NON-DISPARAGEMENT. Company agrees that it will not make any
statements to third parties which are intended to disparage, discredit or injure
the reputation of Employee. Employee agrees that he will not make any statements
to third parties which are intended to disparage, discredit or injure the
reputation of Company, its Members, or their respective affiliates.
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<PAGE>
ARTICLE 6: EFFECT OF TERMINATION ON COMPENSATION
6.1 By Expiration. If Employee's employment hereunder shall terminate upon
expiration of the Term provided in paragraph 2.1, then all compensation and all
benefits to Employee hereunder shall terminate contemporaneously with
termination of his employment. Upon any termination of the employment
relationship by either Employee or Company after the expiration of the Term
provided in paragraph 2.1, Employee shall be entitled to pro-rata salary through
the date of such termination and any and all other compensation to which
Employee is entitled under this Agreement and all future benefits for which
Employee is eligible under this Agreement shall cease and terminate.
6.2 By Company. If Employee's employment hereunder shall be terminated by
Company prior to expiration of the Term provided in paragraph 2.1, then, upon
such termination, regardless of the reason therefor, all compensation and all
benefits to Employee hereunder shall terminate contemporaneously with the
termination of such employment, except that if such termination shall be for any
reason other than those encompassed by paragraphs 2.2(i) or (ii), then Company
shall continue to pay to Employee (or to his beneficiaries or estate) Employee's
then current base salary pursuant to paragraph 3.1 and continue, at Company's
cost, Employee's (and his qualified beneficiaries') coverages under Company's
group health plan(s), for the greater of (x) the balance of such Term or (y) one
year.
6.3 By Employee. If Employee's employment hereunder shall be terminated by
Employee pursuant to paragraph 2.3(ix) prior to expiration of the Term provided
in paragraph 2.1, then all compensation and benefits to Employee hereunder shall
terminate. If Employee's employment hereunder shall be terminated by Employee
pursuant to paragraph 2.3(i) through (viii) prior to expiration of the Term
provided in paragraph 2.1, then Company shall continue to pay to Employee (or to
his beneficiaries or estate) Employee's then current base salary pursuant to
paragraph 3.1 and continue, at Company's cost, Employee's (and his qualified
beneficiaries') coverages under Company's group health plan(s), for the greater
of (x) the balance of such Term or (y) one year.
6.4 Certain Additional Payments by Company. Notwithstanding anything to
the contrary in this Agreement, in the event that any payment or distribution by
Company or any affiliate of Company to or for the benefit of Employee, whether
paid or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise (a "Payment"), would be subject to the excise tax imposed
by Section 4999 of the Internal Revenue Code of 1986, as amended, or any
interest or penalties with respect to such excise tax (such excise tax, together
with any such interest or penalties, are hereinafter collectively referred to as
the "Excise Tax"), Company shall pay to Employee an additional payment (a
"Gross-up Payment") in an amount such that after payment by Employee of all
taxes (including any interest or penalties imposed with respect to such taxes),
including any Excise Tax imposed on any Gross-up Payment, Employee retains an
amount of the Gross-up Payment equal to the Excise Tax imposed upon the
Payments. Company and Employee shall make an initial determination as to whether
a Gross-up Payment is required and the amount of any such
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<PAGE>
Gross-up Payment. Employee shall notify Company immediately in writing of any
claim by the Internal Revenue Service which, if successful, would require
Company to make a Gross-up Payment (or a Gross-up Payment in excess of that, if
any, initially determined by Company and Employee) promptly and in any event
within 15 days of the receipt of such claim. Company shall notify Employee in
writing at least five days prior to the due date of any response required with
respect to such claim if it plans to contest the claim. If Company decides to
contest such claim, Employee shall cooperate fully with Company in such action;
provided, however, Company shall bear and pay directly or indirectly all costs
and expenses (including additional interest and penalties) incurred in
connection with such action and shall indemnify and hold Employee harmless, on
an after-tax basis, for any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as a result of Company's action. If, as
a result of Company's action with respect to a claim, Employee receives a refund
of any amount paid by Company with respect to such claim, Employee shall
promptly pay such refund to Company. If Company fails to timely notify Employee
whether it will contest such claim or Company determines not to contest such
claim, then Company shall immediately pay to Employee the portion of such claim,
if any, which it has not previously paid to Employee.
6.5 No Duty to Mitigate Losses. Employee shall have no duty to find new
employment following the termination of his employment under circumstances which
require Company to pay any amount to Employee pursuant to this Article. Any
salary or remuneration received by Employee from a third party for the providing
of personal services (whether by employment or by functioning as an independent
contractor) following the termination of his employment under circumstances
pursuant to which paragraphs 6.1, 6.2, 6.3, or 6.4 apply shall not reduce
Company's obligation to make a payment to Employee (or the amount of such
payment) pursuant to the terms of any such paragraph.
6.6 Liquidated Damages. In light of the difficulties in estimating the
damages for an early termination of this Agreement, Company and Employee hereby
agree that the payments, if any, to be received by Employee pursuant to
paragraphs 6.2, 6.3, and/or 6.4 shall be received by Employee as liquidated
damages.
ARTICLE 7: MISCELLANEOUS.
7.1 Notices. For purposes of this Agreement, notices and all other
communications provided for herein shall be in writing and shall be deemed to
have been duly given when personally delivered, when transmitted by telecopier
(on the date of confirmation of receipt), on the next business day when
delivered by a recognized national overnight courier service or on the fourth
business day after the date mailed by United States registered or certified
mail, return receipt requested, postage prepaid, addressed as follows:
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If to Company, to: Spinnaker Exploration Company, L.L.C.
16010 Barker's Point Lane
Houston, Texas 77079
Attention: Chairman of the Board
Telecopier: 281-589-1482
If to Employee, to: Mr. James M. Alexander
1419 Kirby Drive
Houston, Texas 77019
or to such other address as either party may furnish to the other in writing in
accordance herewith, except that notices of changes of address shall be
effective only upon receipt.
7.2 Applicable Law. This Agreement is entered into under, and shall be
governed for all purposes by, the laws of the State of Texas.
7.3 No Waiver. No failure by either party hereto at any time to give
notice of any breach by the other party of, or to require compliance with, any
condition or provision of this Agreement shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent
time.
7.4 Severability. If a court of competent jurisdiction determines that any
provision of this Agreement is invalid or unenforceable, then the invalidity or
unenforceability of that provision shall not affect the validity or
enforceability of any other provision of this Agreement, and all other
provisions shall remain in full force and effect.
7.5 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together will constitute one and the same Agreement.
7.6 Withholding of Taxes and Other Employee Deductions. Company may
withhold from any benefits and payments made pursuant to this Agreement all
federal, state, city and other taxes as may be required pursuant to any law or
governmental regulation or ruling and all other normal employee deductions made
with respect to Company's employees generally.
7.7 Headings. The paragraph headings have been inserted for purposes of
convenience and shall not be used for interpretive purposes.
7.8 Gender and Plurals. Wherever the context so requires, the masculine
gender includes the feminine or neuter, and the singular number includes the
plural and conversely.
7.9 Subsidiary. As used in this Agreement, the term "subsidiary" shall
mean any entity which is owned or controlled by Company.
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<PAGE>
7.10 Cooperation by Employee. Employee shall cooperate with Company by
furnishing any and all information requested by Company, taking such physical
examinations as Company may deem necessary, and taking such other relevant
action as may be requested by Company in order to facilitate Company's
acquisition and maintenance of a life insurance policy or policies on the life
of Employee.
7.11 Assignment. This Agreement shall be binding upon and inure to the
benefit of Company and any successor of Company, by merger or otherwise. Company
will require any such successor, by agreement in form and substance reasonably
acceptable to Employee, to expressly assume and agree to perform this Agreement
in the same manner and to the same extent that Company would be required to
perform it if no such succession had taken place. Except as provided in the
preceding sentence, this Agreement, and the rights and obligations of the
parties hereunder, are personal and neither this Agreement, nor any right,
benefit, or obligation of either party hereto, shall be subject to voluntary or
involuntary assignment, alienation or transfer, whether by operation of law or
otherwise, without the prior written consent of the other party.
7.12 Survival. Termination of this Agreement shall not affect any right or
obligation of any party which is accrued or vested prior to such termination.
Without limiting the scope of the preceding sentence, the provisions of Articles
4 and 5 shall survive any termination of this Agreement.
7.13 Entire Agreement. This Agreement constitutes the entire agreement of
parties with regard to the subject matter hereof, and contains all the
covenants, promises, representations, warranties and agreements between the
parties with respect to employment of Employee by Company. Each party to this
Agreement acknowledges that no representation, inducement, promise or agreement,
oral or written, has been made by either party, or by anyone acting on behalf of
either party, which is not embodied herein, and that no agreement, statement, or
promise relating to the employment of Employee by Company, which is not
contained in this Agreement, shall be valid or binding. Any modification of this
Agreement will be effective only if it is in writing and signed by the party to
be charged.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
20th day of December, 1996, to be effective as of the Effective Date.
SPINNAKER EXPLORATION COMPANY, L.L.C.
/s/ ROGER L. JARVIS
By: _______________________________
Roger L. Jarvis
Name: _____________________________
President
Title: ____________________________
"COMPANY"
/s/ JAMES M. ALEXANDER
________________________________
James M. Alexander
"EMPLOYEE"
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<PAGE>
ASSIGNMENT, ASSUMPTION AND
AMENDMENT OF EMPLOYMENT AGREEMENT
(JAMES M. ALEXANDER)
Assignment, Assumption and Amendment of Employment Agreement (the
"Agreement") effective as of January 6, 1998, by and between Spinnaker
Exploration Company, L.L.C., a Delaware limited liability company ("Spinnaker
L.L.C."), Spinco Exploration Corp., a Delaware corporation (the "Company"), and
James M. Alexander ("Employee").
WHEREAS, Spinnaker L.L.C. and Employee have entered into an Employment
Agreement effective as of December 20, 1996 (the "Employment Agreement"); and
WHEREAS, the Company has been created as a holding company which owns
directly or indirectly the common ownership interests in Spinnaker L.L.C.; and
WHEREAS, effective as of January 6, 1998 Employee shall transfer employment
from Spinnaker L.L.C. to the Company; and
WHEREAS, the parties to this Agreement desire to have the Employment
Agreement assigned by Spinnaker L.L.C. to the Company and for the Company to
assume the Employment Agreement; and
WHEREAS, the parties to this Agreement desire to amend the Employment
Agreement in connection with such assignment and assumption;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. ASSIGNMENT. Spinnaker L.L.C. hereby assigns, transfers and conveys
unto the Company all of the interest of Spinnaker L.L.C. in the Employment
Agreement.
2. ASSUMPTION. The Company hereby assumes and agrees to pay, perform and
discharge when due in accordance with its terms all liabilities of Spinnaker
L.L.C. arising under the Employment Agreement.
3. AMENDMENT. From and after the effective date of this Agreement:
(a) Reference in the Employment Agreement to Spinnaker L.L.C. shall be
deemed to be reference to the Company.
(b) Reference in the Employment Agreement to the Purchase Agreement shall
be deemed to be reference to the Contribution Agreement, dated as of January 6,
1998, among Warburg, Pincus Ventures, L.P., Seismic Energy Holdings, Inc., Roger
L. Jarvis, James M.
<PAGE>
Alexander, and any other person or entity executing said agreement as an
investor to, as the same may be amended from time to time (the
"Contribution Agreement").
(c) Reference in the Employment Agreement to the L.L.C. Agreement shall
be deemed to be reference to the Stockholders Agreement of the Company,
dated as of January 6, 1998, among Warburg, Pincus Ventures, L.P., Seismic
Energy Holdings, Inc., Roger L. Jarvis, James M. Alexander, and any other
person or entity executing said agreement as a Party, as the same may be
amended from time to time.
(d) Reference in the Employment Agreement to the Agreement among the
Company, SEHI, and Petroleum Geo-Services ASA shall be deemed to be
reference to the PGS Agreement as defined in the Contribution Agreement.
4. APPLICABLE LAW. This Agreement is entered into under, and shall be
governed for all purposes by, the laws of the State of Texas.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
6th day of January, 1998.
Spinnaker Exploration Company, L.L.C.
/s/ ROGER L. JARVIS
By: ____________________________________
Roger L. Jarvis
Name: __________________________________
President
Title: _________________________________
Spinco Exploration Corp.
/s/ ROGER L. JARVIS
By: ____________________________________
Roger L. Jarvis
Name: __________________________________
President
Title: _________________________________
/s/ JAMES M. ALEXANDER
________________________________________
James M. Alexander "Employee"
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<PAGE>
AMENDMENT TO EMPLOYMENT AGREEMENT
(JAMES M. ALEXANDER)
This Amendment to Employment Agreement ("Agreement") is entered into
between Spinnaker Exploration Company, a Delaware corporation having offices at
1200 Smith, Suite 800, Houston, Texas 77002 ("Company"), and James M. Alexander,
an individual currently residing at 1419 Kirby Drive, Houston, Texas 77019
("Employee"), to be effective as of September 27, 1999.
WITNESSETH:
WHEREAS, Spinnaker Exploration Company, L.L.C. and Employee entered into
that certain Employment Agreement, dated December 20, 1996; and
WHEREAS, Company and Employee entered into an Assignment, Assumption and
Amendment of Employment Agreement dated as of January 6, 1998 whereby Company
assumed the Employment Agreement as amended (the "Employment Agreement"); and
WHEREAS, Company and Employee desire to further amend the Employment
Agreement on the terms and conditions provided for herein.
NOW, THEREFORE, for and in consideration of the mutual promises, covenants,
and obligations contained herein, Employer and Employee agree as follows:
ARTICLE I
DEFINED TERMS
SECTION 1.1 DEFINED TERMS. Except as otherwise provided herein,
capitalized terms used in this Amendment shall have the meanings ascribed to
them in the Employment Agreement.
ARTICLE II
AMENDMENT
SECTION 2.1 AMENDMENT. Paragraphs (ii), (v) and (vi) of Section 2.3 of
the Employment Agreement shall be and are hereby deleted in their entirety.
ARTICLE III
MISCELLANEOUS
SECTION 3.1 EXTENT OF AMENDMENTS AND REFERENCES. Except as otherwise
expressly provided herein, the Employment Agreement is not amended, modified or
affected by this Amendment. Except as expressly set forth herein, all of the
terms, conditions and all other provisions of the Employment Agreement are
herein ratified and confirmed and shall remain in full
<PAGE>
force and effect. From and after the effectiveness of this Amendment, the terms
"this Agreement", "hereof", "herein", "hereunder" and terms of like import, when
used herein or in the Employment Agreement shall, except where the context
otherwise requires, refer to the Employment Agreement, as amended by this
Amendment.
SECTION 3.2 ENTIRE AGREEMENT. The Employment Agreement as amended by this
Amendment contains the entire agreement of the parties concerning the subject
matter hereof. In the event of irreconcilable conflict between this Amendment
and the other documents contemplated hereby, the provisions of this Amendment
shall control.
SECTION 3.3 HEADINGS. Section headings in this Amendment are included
herein for convenience of reference only and shall not constitute a part of this
Amendment for any other purpose or be given and substantive effect.
SECTION 3.4 COUNTERPARTS. This Amendment may be executed in any number of
counterparts, each of which when so executed shall be deemed an original but all
of which together shall constitute one and the same instrument.
[THE REST OF THIS PAGE IS INTENTIONALLY BLANK]
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
as of the date first set forth above.
SPINNAKER EXPLORATION COMPANY
/s/ ROGER L. JARVIS
By: ____________________________________
Roger L. Jarvis
President and Chief Executive
Officer
/s/ JAMES M. ALEXANDER
________________________________________
James M. Alexander
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<PAGE>
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made by and between Spinnaker
Exploration Company, L.L.C., a Delaware limited liability company ("Company")
and William D. Hubbard ("Employee").
WITNESSETH:
WHEREAS, Company is desirous of employing Employee in a senior executive
capacity on the terms and conditions, and for the consideration, hereinafter set
forth and Employee is desirous of being employed by Company on such terms and
conditions for such consideration;
NOW, THEREFORE, for and in consideration of the mutual promises, covenants
and obligations contained herein, Company and Employee agree as follows:
ARTICLE I: EMPLOYMENT AND DUTIES
1.1 EMPLOYMENT; EFFECTIVE DATE. Company agrees to employ Employee and
Employee agrees to be employed by Company, beginning as of the Effective Date
(as hereinafter defined) and continuing for the period of time set forth in
Article 2 of this Agreement, subject to the terms and conditions of this
Agreement. For purposes of this Agreement, the "Effective Date" shall be
December 20, 1996.
1.2 POSITION. From and after the Effective Date, Company shall employ
Employee in the position of Vice President and Chief Financial Officer of
Company, or in such other equivalent senior executive position as the parties
mutually may agree.
1.3 DUTIES AND SERVICES. Employee agrees to serve in the office referred
to in paragraph 1.2 and to perform diligently and to the best of his abilities
the duties and services reasonably appertaining to such office, as well as such
additional duties and services appropriate to such office which the parties
mutually may agree upon from time to time.
1.4 OTHER INTERESTS. Employee agrees, during the period of his employment
by Company, except as provided below, to devote his primary business time,
energy and best efforts to the business and affairs of Company and its
subsidiaries. The parties recognize and agree that Employee may engage in
passive personal investments, civic and other business activities that do not
conflict with the business and affairs of Company or materially interfere with
Employee's performance of his duties hereunder.
1.5 DUTY OF LOYALTY. Employee acknowledges and agrees that Employee owes
a fiduciary duty of loyalty, fidelity and allegiance to act at all times in the
best interests of Company and to do no act which would injure the business,
interests, or reputation of Company or any of its subsidiaries. In keeping with
these duties, Employee shall not appropriate for Employee's own benefit business
opportunities concerning the subject matter of the fiduciary relationship.
<PAGE>
ARTICLE II: TERM AND TERMINATION OF EMPLOYMENT
2.1 Term. Unless sooner terminated pursuant to other provisions hereof,
Company agrees to employ Employee for the period (the "Term") beginning on the
Effective Date and ending on December 31, 1998; provided that (a) commencing on
December 15, 1998 and on each December 15th thereafter, if this Agreement has
not been terminated pursuant to Sections 2.2 or 2.3, the Term of this Agreement
shall automatically be extended for one additional year unless prior to such
December 15th either Company or Employee shall have given written notice to the
other party that the Term of this Agreement shall cease to be so extended and
(b) the Term shall automatically terminate upon Employee's death, if it has not
been earlier terminated as provided above.
2.2 COMPANY'S RIGHT TO TERMINATE. Notwithstanding the provisions of
paragraph 2.1, Company shall have the right to terminate Employee's employment
under this Agreement at any time for any of the following reasons:
(i) upon the later of Employee's becoming (a) incapacitated by
accident, sickness, or other circumstance which renders him mentally
or physically incapable of performing the duties and services required
of him hereunder for a period of at least 120 consecutive days or for
a period of 180 days during any 12-month period or (b) entitled to
benefits under Company's long-term disability insurance plan;
(ii) for cause, which for purposes of this Agreement shall mean
Employee (A) has been convicted of a felony, (B) has engaged in gross
negligence or willful misconduct in the performance of the duties
required of him hereunder that he knows or should know is materially
injurious to Company, (C) has willfully disregarded without proper
legal cause material written corporate policies established by Company
or the material written directives of the Board, which results in
material harm to the Company, or (D) has materially breached any
material provision of this Agreement; provided, however, that cause
shall exist with respect to a matter described in clauses (B), (C), or
(D) of this paragraph 2.2(ii) that is capable of being corrected by
Employee only if such matter remains uncorrected for 30 days following
written notice of such matter by Company to Employee; or
(iii) for any other reason whatsoever, in the sole discretion of
the Board of Managers or other governing body of Company ("Board").
2.3 EMPLOYEE'S RIGHT TO TERMINATE. Notwithstanding the provisions of
paragraph 2.1, Employee shall have the right to terminate his employment under
this Agreement at any time for any of the following reasons:
(i) a material breach by Company of any material provision of this
Agreement occurs which, if correctable, remains uncorrected for 30
days following written notice of such breach by Employee to Company;
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<PAGE>
(ii) an Event of Default occurs with respect to Seismic Energy
Holdings, Inc. ("SEHI"), or WP Spinnaker Holdings, Inc. ("WPV Sub")
under the Purchase Agreement among Company, SEHI and WPV Sub, of even
date herewith (the "Purchase Agreement"), which is not corrected
within the grace period provided therein, or a WPV Change of Control
or PGS Change of Control occurs and WPV Sub or SEHI fails to timely
deliver the notice specified in Section 3(f)(iii) of the Purchase
Agreement (as all such capitalized terms are defined in the Purchase
Agreement);
(iii) Company fails to obtain the assumption of the obligation to
perform this Agreement by any successor as contemplated in paragraph
7.11 hereof; or
(iv) for any other reason whatsoever, in the sole discretion of
Employee.
For purposes of paragraph 2.3(i) above, any breach of paragraphs 1.2 hereof by
Company shall be deemed to constitute a material breach by Company of a material
provision of this Agreement.
2.4 NOTICE OF TERMINATION. If Company or Employee desires to terminate
Employee's employment hereunder at any time prior to expiration of the Term
pursuant to paragraph 2.2 or 2.3, respectively, it or he shall do so by giving
written notice to the other party that it or he has elected to terminate
Employee's employment hereunder and stating the effective date, which shall be
not less than 30 days after the date of such written notice, and reason for such
termination (if "for cause", as defined in Section 2.2(ii), with specificity as
to the basis therefor), provided that no such action shall alter or amend any
other provisions hereof or rights arising hereunder.
ARTICLE III: COMPENSATION AND BENEFITS
3.1 Base Salary. During the period of this Agreement, Employee shall
receive a minimum annual base salary equal to the greater of (i) $165,000 or
(ii) such amount as the Board may, in its sole discretion, determine from time
to time; provided, however, that for each calendar year beginning on January 1,
1998 and on January 1 of each calendar year thereafter, such minimum annual base
salary shall be adjusted upward by an amount that shall be at least equal to the
minimum annual base salary of the preceding calendar year multiplied by a
fraction, the numerator of which is the CPI (as hereinafter defined) published
with respect to the preceding October (the "Most Recent October"), and the
denominator of which is the CPI published with respect to the October
immediately preceding the Most Recent October. However, in no event may the
minimum annual base salary as in effect at any time be reduced. Employee's
annual base salary shall be paid in equal installments in accordance with
Company's standard policy regarding payment of compensation to executives but no
less frequently than bimonthly. The term "CPI" as used herein shall mean the
index now known as the Consumer Price Index for Urban Wage Earners and Clerical
Workers (CPI-W), for the Houston-Galveston-Brazoria, Texas area, all items
(1982-84=100), as published by the Bureau of Labor Statistics of the United
States Department of Labor. If the CPI shall be discontinued
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<PAGE>
with no successor or comparable successor index, the parties shall agree upon a
substitute price index to reflect properly increases from year to year.
3.2 BONUSES. Employee shall receive bonuses, if any, as the Board shall
determine in its sole discretion after consideration of the performance of
Employee and Company and bonuses paid to similarly-situated executives of
companies of comparable size in the oil and gas exploration industry.
3.3 OTHER PERQUISITES. During his employment hereunder, Employee, and, to
the extent applicable, Employee's spouse, dependents and beneficiaries, shall be
allowed to participate on the same basis generally as other senior executives of
Company in all benefits, plans and programs, including improvements or
modifications of the same, which are now, or may hereafter be, available to
similarly-situated Company employees. Company shall not, however, by reason of
this paragraph be obligated to institute, maintain, or refrain from changing,
amending, or discontinuing, any such benefit plan or program, so long as Company
maintains plans and programs not materially less beneficial to its executive
employees than those that are provided to similarly-situated executives of
companies of comparable size in the oil and gas exploration industry generally.
ARTICLE IV: CONFIDENTIAL INFORMATION
4.1. CONFIDENTIAL INFORMATION
(i) Employee recognizes that by reason of his employment with Company
and the positions described in paragraph 1.2, he may acquire Confidential
Information (defined below), the use or disclosure of which would cause Company
substantial loss and damages which could not be readily calculated and for which
no remedy at law would be adequate. Accordingly, Employee agrees that he will
not (directly or indirectly) at any time, whether during or after his employment
hereunder, disclose any such Confidential Information to any person except (i)
in the performance of his services to Company hereunder, (ii) as required by
applicable law, (iii) in connection with the enforcement of his rights under
this Agreement, (iv) in connection with any disagreement, dispute or litigation
between Employee and Company, or (v) with the prior written consent of the
Board. As used herein, "Confidential Information" means (A) all seismic and
geophysical data, geological data, chemical data, engineering data, interpretive
and analytical reports and studies, logs, formation tests, maps, diagrams, data
bases, computer printouts, computer tapes, agreements and contracts, files,
books, accounts, and other technical information, business records, or financial
data acquired by Company or prepared by Employee or any other employee,
consultant, contractor, agent, or representative of Company during the term of
this Agreement, and (B) any information received by Employee in connection with
his employment to the extent the disclosure of such information by Employee
would result in a breach by Company of any confidentiality obligation known to
Employee; provided that such term shall not include any information that (x) is
or becomes generally known or available other than as a result of a disclosure
by Employee, (y) is or becomes known or available to Employee on a
nonconfidential basis from a source (other than Company) which, to Employee's
knowledge, is not prohibited from disclosing such information to Employee by a
legal,
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<PAGE>
contractual, fiduciary or other obligation to Company, or (z) is known by
Employee prior to executing this Agreement.
(ii) Employee confirms that all Confidential Information is the
exclusive property of Company. All business records, papers or documents kept
or made by Employee while employed hereunder relating to the business of Company
shall be and remain the property of Company at all times. Upon the request of
Company at any time, Employee shall promptly deliver to Company, and shall
retain no copies of, any written materials, records and documents made by
Employee or coming into his possession while employed hereunder concerning the
business or affairs of Company other than personal materials, records and
documents (including notes and correspondence) of Employee not containing
Confidential Information. Notwithstanding the foregoing, Employee shall be
permitted to retain copies of, or have access to, all such materials, records
and documents relating to any disagreement, dispute or litigation between
Employee and Company or any third person.
4.2 ASSISTANCE BY EMPLOYEE. Both during the period of Employee's
employment by Company and thereafter, provided Company pays all costs and
expenses, Employee shall assist Company and its nominee, at any time, in the
protection of Company's worldwide right, title, and interest in and to
Confidential Information; provided that any such assistance after termination of
Employee's employment does not, in Employee's good faith judgment, unreasonably
interfere with Employee's other activities.
4.3 REMEDIES. Employee acknowledges that money damages would not be
sufficient remedy for any breach of this Article by Employee, and Company shall
be entitled to enforce the provisions of this Article by specific performance
and injunctive relief as remedies for such breach or any threatened breach. Such
remedies shall not be deemed the exclusive remedies for a breach of this
Article, but shall be in addition to all remedies available at law or in equity
to Company, including the recovery of damages from Employee and his agents
involved in such breach and remedies available to Company pursuant to other
agreements with Employee.
ARTICLE V: NON-DISPARAGEMENT
Company agrees that it will not make any statements to third parties which
are intended to disparage, discredit or injure the reputation of Employee.
Employee agrees that he will not make any statements to third parties which are
intended to disparage, discredit or injure the reputation of Company, its
Members, or their respective affiliates.
ARTICLE VI: EFFECT OF TERMINATION ON COMPENSATION
6.1 By Expiration. If Employee's employment hereunder shall terminate
upon expiration of the Term provided in paragraph 2.1, then all compensation and
all benefits to Employee hereunder shall terminate contemporaneously with
termination of his employment. Upon any termination of the employment
relationship by either Employee or Company after the expiration of the Term
provided in paragraph 2.1, Employee shall be entitled to pro-rata salary through
the date
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<PAGE>
of such termination and any and all other compensation to which Employee is
entitled under this Agreement and all future benefits for which Employee is
eligible under this Agreement shall cease and terminate.
6.2 BY COMPANY. If Employee's employment hereunder shall be terminated by
Company prior to expiration of the Term provided in paragraph 2.1, then, upon
such termination, regardless of the reason therefor, all compensation and all
benefits to Employee hereunder shall terminate contemporaneously with the
termination of such employment, except that if such termination shall be for any
reason other than those encompassed by paragraphs 2.2(i) or (ii), then Company
shall continue to pay to Employee (or to his beneficiaries or estate) Employee's
then current base salary pursuant to paragraph 3.1 and continue, at Company's
cost, Employee's (and his qualified beneficiaries') coverages under Company's
group health plan(s), for the greater of (x) the balance of such Term or (y) one
year.
6.3 BY EMPLOYEE. If Employee's employment hereunder shall be terminated
by Employee pursuant to paragraph 2.3(ix) prior to expiration of the Term
provided in paragraph 2.1, then all compensation and benefits to Employee
hereunder shall terminate. If Employee's employment hereunder shall be
terminated by Employee pursuant to paragraph 2.3(i) through (viii) prior to
expiration of the Term provided in paragraph 2.1, then Company shall continue to
pay to Employee (or to his beneficiaries or estate) Employee's then current base
salary pursuant to paragraph 3.1 and continue, at Company's cost, Employee's
(and his qualified beneficiaries') coverages under Company's group health
plan(s), for the greater of (x) the balance of such Term or (y) one year.
6.4 NO DUTY TO MITIGATE LOSSES. Employee shall have no duty to find new
employment following the termination of his employment under circumstances which
require Company to pay any amount to Employee pursuant to this Article. Any
salary or remuneration received by Employee from a third party for the providing
of personal services (whether by employment or by functioning as an independent
contractor) following the termination of his employment under circumstances
pursuant to which paragraphs 6.1, 6.2, 6.3, or 6.4 apply shall not reduce
Company's obligation to make a payment to Employee (or the amount of such
payment) pursuant to the terms of any such paragraph.
6.5 LIQUIDATED DAMAGES. In light of the difficulties in estimating the
damages for an early termination of this Agreement, Company and Employee hereby
agree that the payments, if any, to be received by Employee pursuant to
paragraphs 6.2, 6.3, and/or 6.4 shall be received by Employee as liquidated
damages.
ARTICLE VII: MISCELLANEOUS.
7.1 Notices. For purposes of this Agreement, notices and all other
communications provided for herein shall be in writing and shall be deemed to
have been duly given when personally delivered, when transmitted by telecopier
(on the date of confirmation of receipt), on the next
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<PAGE>
business day when delivered by a recognized national overnight courier service
or on the fourth business day after the date mailed by United States registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to Company, to: Spinnaker Exploration Company, L.L.C.
16010 Barker's Point Lane
Houston, Texas 77079
Attention: Chairman of the Board
Telecopier: 281-589-1482
If to Employee, to: Mr. William B. Hubbard
2624 B Westgate
Houston, Texas 77098
or to such other address as either party may furnish to the other in writing in
accordance herewith, except that notices of changes of address shall be
effective only upon receipt.
7.2 APPLICABLE LAW. This Agreement is entered into under, and shall be
governed for all purposes by, the laws of the State of Texas.
7.3 NO WAIVER. No failure by either party hereto at any time to give
notice of any breach by the other party of, or to require compliance with, any
condition or provision of this Agreement shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent
time.
7.4 SEVERABILITY. If a court of competent jurisdiction determines that
any provision of this Agreement is invalid or unenforceable, then the
invalidity or unenforceability of that provision shall not affect the validity
or enforceability of any other provision of this Agreement, and all other
provisions shall remain in full force and effect.
7.5 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together will constitute one and the same Agreement.
7.6 WITHHOLDING OF TAXES AND OTHER EMPLOYEE DEDUCTIONS. Company may
withhold from any benefits and payments made pursuant to this Agreement all
federal, state, city and other taxes as may be required pursuant to any law or
governmental regulation or ruling and all other normal employee deductions made
with respect to Company's employees generally.
7.7 HEADINGS. The paragraph headings have been inserted for purposes of
convenience and shall not be used for interpretive purposes.
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<PAGE>
7.8 GENDER AND PLURALS. Wherever the context so requires, the masculine
gender includes the feminine or neuter, and the singular number includes the
plural and conversely.
7.9 SUBSIDIARY. As used in this Agreement, the term "subsidiary" shall
mean any entity which is owned or controlled by Company.
7.10 COOPERATION BY EMPLOYEE. Employee shall cooperate with Company by
furnishing any and all information requested by Company, taking such physical
examinations as Company may deem necessary, and taking such other relevant
action as may be requested by Company in order to facilitate Company's
acquisition and maintenance of a life insurance policy or policies on the life
of Employee.
7.11 ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of Company and any successor of Company, by merger or otherwise.
Company will require any such successor, by agreement in form and substance
reasonably acceptable to Employee, to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that Company would be
required to perform it if no such succession had taken place. Except as
provided in the preceding sentence, this Agreement, and the rights and
obligations of the parties hereunder, are personal and neither this Agreement,
nor any right, benefit, or obligation of either party hereto, shall be subject
to voluntary or involuntary assignment, alienation or transfer, whether by
operation of law or otherwise, without the prior written consent of the other
party.
7.12 SURVIVAL. Termination of this Agreement shall not affect any right
or obligation of any party which is accrued or vested prior to such termination.
Without limiting the scope of the preceding sentence, the provisions of Articles
4 and 5 shall survive any termination of this Agreement.
7.13 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement of
parties with regard to the subject matter hereof, and contains all the
covenants, promises, representations, warranties and agreements between the
parties with respect to employment of Employee by Company. Each party to this
Agreement acknowledges that no representation, inducement, promise or agreement,
oral or written, has been made by either party, or by anyone acting on behalf of
either party, which is not embodied herein, and that no agreement, statement, or
promise relating to the employment of Employee by Company, which is not
contained in this Agreement, shall be valid or binding. Any modification of this
Agreement will be effective only if it is in writing and signed by the party to
be charged.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
24th day of February, 1997, to be effective as of the Effective Date.
SPINNAKER EXPLORATION COMPANY, L.L.C.
/s/ ROGER L. JARVIS
By: ___________________________________
Roger L. Jarvis
Name: _________________________________
President
Title: ________________________________
"COMPANY"
/s/ WILLIAM D. HUBBARD
________________________________________
William D. Hubbard
"EMPLOYEE"
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<PAGE>
ASSIGNMENT, ASSUMPTION AND
AMENDMENT OF EMPLOYMENT AGREEMENT
(WILLIAM D. HUBBARD)
Assignment, Assumption and Amendment of Employment Agreement (the
"Agreement") effective as of January 6, 1998, by and between Spinnaker
Exploration Company, L.L.C., a Delaware limited liability company ("Spinnaker
L.L.C."), Spinco Exploration Corp., a Delaware corporation (the "Company"), and
William D. Hubbard ("Employee").
WHEREAS, Spinnaker L.L.C. and Employee have entered into an Employment
Agreement effective as of December 20, 1996 (the "Employment Agreement"); and
WHEREAS, the Company has been created as a holding company which owns
directly or indirectly the common ownership interests in Spinnaker L.L.C.; and
WHEREAS, effective as of January 6, 1998 Employee shall transfer employment
from Spinnaker L.L.C. to the Company; and
WHEREAS, the parties to this Agreement desire to have the Employment
Agreement assigned by Spinnaker L.L.C. to the Company and for the Company to
assume the Employment Agreement; and
WHEREAS, the parties to this Agreement desire to amend the Employment
Agreement in connection with such assignment and assumption;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. ASSIGNMENT. Spinnaker L.L.C. hereby assigns, transfers and conveys
unto the Company all of the interest of Spinnaker L.L.C. in the Employment
Agreement.
2. ASSUMPTION. The Company hereby assumes and agrees to pay, perform and
discharge when due in accordance with its terms all liabilities of Spinnaker
L.L.C. arising under the Employment Agreement.
3. AMENDMENT. From and after the effective date of this Agreement:
(a) Reference in the Employment Agreement to Spinnaker L.L.C. shall be
deemed to be reference to the Company.
(b) Reference in the Employment Agreement to the Purchase Agreement shall
be deemed to be reference to the Contribution Agreement, dated as of January 6,
1998, among Warburg, Pincus Ventures, L.P., Seismic Energy Holdings, Inc., Roger
L. Jarvis, James M.
<PAGE>
Alexander, and any other person or entity executing said agreement as an
investor to, as the same may be amended from time to time (the "Contribution
Agreement").
4. APPLICABLE LAW. This Agreement is entered into under, and shall be
governed for all purposes by, the laws of the State of Texas.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
6th day of January, 1998.
Spinnaker Exploration Company, L.L.C.
/s/ ROGER L. JARVIS
By: _____________________________________
Roger L. Jarvis
Name: ___________________________________
President
Title: __________________________________
Spinco Exploration Corp.
/s/ ROGER L. JARVIS
By: _____________________________________
Roger L. Jarvis
Name: ___________________________________
President
Title: __________________________________
/s/ WILLIAM D. HUBBARD
_________________________________________
William D. Hubbard "Employee"
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<PAGE>
AMENDMENT TO EMPLOYMENT AGREEMENT
(WILLIAM D. HUBBARD)
This Amendment to Employment Agreement ("Agreement") is entered into
between Spinnaker Exploration Company, a Delaware corporation having offices at
1200 Smith, Suite 800, Houston, Texas 77002 ("Company"), and William D. Hubbard,
an individual currently residing at 2624B Westgate, Houston, Texas 77098
("Employee"), to be effective as of September 27, 1999.
WITNESSETH:
WHEREAS, Spinnaker Exploration Company, L.L.C. and Employee entered into
that certain Employment Agreement, dated February 24, 1997; and
WHEREAS, Company and Employee entered into an Assignment, Assumption and
Amendment of Employment Agreement dated as of January 6, 1998 whereby Company
assumed the Employment Agreement as amended (the "Employment Agreement"); and
WHEREAS, Company and Employee desire to further amend the Employment
Agreement on the terms and conditions provided for herein.
NOW, THEREFORE, for and in consideration of the mutual promises, covenants,
and obligations contained herein, Employer and Employee agree as follows:
ARTICLE I
DEFINED TERMS
SECTION 1.1 DEFINED TERMS. Except as otherwise provided herein,
capitalized terms used in this Amendment shall have the meanings ascribed to
them in the Employment Agreement.
ARTICLE II
AMENDMENT
SECTION 2.1 AMENDMENT. Paragraph (ii) of Section 2.3 of the Employment
Agreement shall be and is hereby deleted in its entirety.
ARTICLE III
MISCELLANEOUS
SECTION 3.1 EXTENT OF AMENDMENTS AND REFERENCES. Except as otherwise
expressly provided herein, the Employment Agreement is not amended, modified or
affected by this Amendment. Except as expressly set forth herein, all of the
terms, conditions and all other provisions of the Employment Agreement are
herein ratified and confirmed and shall remain in full
<PAGE>
force and effect. From and after the effectiveness of this Amendment, the terms
"this Agreement", "hereof", "herein", "hereunder" and terms of like import, when
used herein or in the Employment Agreement shall, except where the context
otherwise requires, refer to the Employment Agreement, as amended by this
Amendment.
SECTION 3.2 ENTIRE AGREEMENT. The Employment Agreement as amended by this
Amendment contains the entire agreement of the parties concerning the subject
matter hereof. In the event of irreconcilable conflict between this Amendment
and the other documents contemplated hereby, the provisions of this Amendment
shall control.
SECTION 3.3 HEADINGS. Section headings in this Amendment are included
herein for convenience of reference only and shall not constitute a part of this
Amendment for any other purpose or be given and substantive effect.
SECTION 3.4 COUNTERPARTS. This Amendment may be executed in any number of
counterparts, each of which when so executed shall be deemed an original but all
of which together shall constitute one and the same instrument.
[THE REST OF THIS PAGE IS INTENTIONALLY BLANK]
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
as of the date first set forth above.
SPINNAKER EXPLORATION COMPANY
/s/ ROGER L. JARVIS
By: ______________________________
Roger L. Jarvis
President and Chief Executive
Officer
/s/ WILLIAM D. HUBBARD
__________________________________
William D. Hubbard
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<PAGE>
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made by and between Spinnaker
Exploration Company, L.L.C., a Delaware limited liability company ("Company")
and Kelly M. Barnes ("Employee").
WITNESSETH:
WHEREAS, Company is desirous of employing Employee in a senior executive
capacity on the terms and conditions, and for the consideration, hereinafter set
forth and Employee is desirous of being employed by Company on such terms and
conditions for such consideration;
NOW, THEREFORE, for and in consideration of the mutual promises, covenants
and obligations contained herein, Company and Employee agree as follows:
ARTICLE I: EMPLOYMENT AND DUTIES
1.1 EMPLOYMENT; EFFECTIVE DATE. Company agrees to employ Employee and
Employee agrees to be employed by Company, beginning as of the Effective Date
(as hereinafter defined) and continuing for the period of time set forth in
Article 2 of this Agreement, subject to the terms and conditions of this
Agreement. For purposes of this Agreement, the "Effective Date" shall be
December 20, 1996.
1.2 POSITION. From and after the Effective Date, Company shall employ
Employee in the position of Vice President and Chief Financial Officer of
Company, or in such other equivalent senior executive position as the parties
mutually may agree.
1.3 DUTIES AND SERVICES. Employee agrees to serve in the office referred
to in paragraph 1.2 and to perform diligently and to the best of his abilities
the duties and services reasonably appertaining to such office, as well as such
additional duties and services appropriate to such office which the parties
mutually may agree upon from time to time.
1.4 OTHER INTERESTS. Employee agrees, during the period of his employment
by Company, except as provided below, to devote his primary business time,
energy and best efforts to the business and affairs of Company and its
subsidiaries. The parties recognize and agree that Employee may engage in
passive personal investments, civic and other business activities that do not
conflict with the business and affairs of Company or materially interfere with
Employee's performance of his duties hereunder.
1.5 DUTY OF LOYALTY. Employee acknowledges and agrees that Employee owes
a fiduciary duty of loyalty, fidelity and allegiance to act at all times in the
best interests of Company and to do no act which would injure the business,
interests, or reputation of Company or any of its subsidiaries. In keeping with
these duties, Employee shall not appropriate for Employee's own benefit business
opportunities concerning the subject matter of the fiduciary relationship.
<PAGE>
ARTICLE II: TERM AND TERMINATION OF EMPLOYMENT
2.1 TERM. Unless sooner terminated pursuant to other provisions hereof,
Company agrees to employ Employee for the period (the "Term") beginning on the
Effective Date and ending on December 31, 1998; provided that (a) commencing on
December 15, 1998 and on each December 15th thereafter, if this Agreement has
not been terminated pursuant to Sections 2.2 or 2.3, the Term of this Agreement
shall automatically be extended for one additional year unless prior to such
December 15th either Company or Employee shall have given written notice to the
other party that the Term of this Agreement shall cease to be so extended and
(b) the Term shall automatically terminate upon Employee's death, if it has not
been earlier terminated as provided above.
2.2 COMPANY'S RIGHT TO TERMINATE. Notwithstanding the provisions of
paragraph 2.1, Company shall have the right to terminate Employee's employment
under this Agreement at any time for any of the following reasons:
(i) upon the later of Employee's becoming (a) incapacitated by
accident, sickness, or other circumstance which renders him mentally
or physically incapable of performing the duties and services required
of him hereunder for a period of at least 120 consecutive days or for
a period of 180 days during any 12-month period or (b) entitled to
benefits under Company's long-term disability insurance plan;
(ii) for cause, which for purposes of this Agreement shall mean
Employee (A) has been convicted of a felony, (B) has engaged in gross
negligence or willful misconduct in the performance of the duties
required of him hereunder that he knows or should know is materially
injurious to Company, (C) has willfully disregarded without proper
legal cause material written corporate policies established by Company
or the material written directives of the Board, which results in
material harm to the Company, or (D) has materially breached any
material provision of this Agreement; provided, however, that cause
shall exist with respect to a matter described in clauses (B), (C), or
(D) of this paragraph 2.2(ii) that is capable of being corrected by
Employee only if such matter remains uncorrected for 30 days following
written notice of such matter by Company to Employee; or
(iii) for any other reason whatsoever, in the sole discretion of
the Board of Managers or other governing body of Company ("Board").
2.3 EMPLOYEE'S RIGHT TO TERMINATE. Notwithstanding the provisions of
paragraph 2.1, Employee shall have the right to terminate his employment under
this Agreement at any time for any of the following reasons:
(i) a material breach by Company of any material provision of this
Agreement occurs which, if correctable, remains uncorrected for 30
days following written notice of such breach by Employee to Company;
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<PAGE>
(ii) an Event of Default occurs with respect to Seismic Energy
Holdings, Inc. ("SEHI"), or WP Spinnaker Holdings, Inc. ("WPV Sub")
under the Purchase Agreement among Company, SEHI and WPV Sub, of even
date herewith (the "Purchase Agreement"), which is not corrected
within the grace period provided therein, or a WPV Change of Control
or PGS Change of Control occurs and WPV Sub or SEHI fails to timely
deliver the notice specified in Section 3(f)(iii) of the Purchase
Agreement (as all such capitalized terms are defined in the Purchase
Agreement);
(iii) Company fails to obtain the assumption of the obligation to
perform this Agreement by any successor as contemplated in paragraph
7.11 hereof; or
(iv) for any other reason whatsoever, in the sole discretion of
Employee.
For purposes of paragraph 2.3(i) above, any breach of paragraphs 1.2 hereof by
Company shall be deemed to constitute a material breach by Company of a material
provision of this Agreement.
2.4 NOTICE OF TERMINATION. If Company or Employee desires to terminate
Employee's employment hereunder at any time prior to expiration of the Term
pursuant to paragraph 2.2 or 2.3, respectively, it or he shall do so by giving
written notice to the other party that it or he has elected to terminate
Employee's employment hereunder and stating the effective date, which shall be
not less than 30 days after the date of such written notice, and reason for such
termination (if "for cause", as defined in Section 2.2(ii), with specificity as
to the basis therefor), provided that no such action shall alter or amend any
other provisions hereof or rights arising hereunder.
ARTICLE III: COMPENSATION AND BENEFITS
3.1 Base Salary. During the period of this Agreement, Employee shall
receive a minimum annual base salary equal to the greater of (i) $110,000 or
(ii) such amount as the Board may, in its sole discretion, determine from time
to time; provided, however, that for each calendar year beginning on January 1,
1998 and on January 1 of each calendar year thereafter, such minimum annual base
salary shall be adjusted upward by an amount that shall be at least equal to the
minimum annual base salary of the preceding calendar year multiplied by a
fraction, the numerator of which is the CPI (as hereinafter defined) published
with respect to the preceding October (the "Most Recent October"), and the
denominator of which is the CPI published with respect to the October
immediately preceding the Most Recent October. However, in no event may the
minimum annual base salary as in effect at any time be reduced. Employee's
annual base salary shall be paid in equal installments in accordance with
Company's standard policy regarding payment of compensation to executives but no
less frequently than bimonthly. The term "CPI" as used herein shall mean the
index now known as the Consumer Price Index for Urban Wage Earners and Clerical
Workers (CPI-W), for the Houston-Galveston-Brazoria, Texas area, all items
(1982-84=100), as published by the Bureau of Labor Statistics of the United
States Department of Labor. If the CPI shall be discontinued
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<PAGE>
with no successor or comparable successor index, the parties shall agree upon a
substitute price index to reflect properly increases from year to year.
3.2 BONUSES. Employee shall receive bonuses, if any, as the Board shall
determine in its sole discretion after consideration of the performance of
Employee and Company and bonuses paid to similarly-situated executives of
companies of comparable size in the oil and gas exploration industry.
3.3 OTHER PERQUISITES. During his employment hereunder, Employee, and, to
the extent applicable, Employee's spouse, dependents and beneficiaries, shall be
allowed to participate on the same basis generally as other senior executives of
Company in all benefits, plans and programs, including improvements or
modifications of the same, which are now, or may hereafter be, available to
similarly-situated Company employees. Company shall not, however, by reason of
this paragraph be obligated to institute, maintain, or refrain from changing,
amending, or discontinuing, any such benefit plan or program, so long as Company
maintains plans and programs not materially less beneficial to its executive
employees than those that are provided to similarly-situated executives of
companies of comparable size in the oil and gas exploration industry generally.
ARTICLE IV: CONFIDENTIAL INFORMATION
4.1. CONFIDENTIAL INFORMATION
(i) Employee recognizes that by reason of his employment with Company
and the positions described in paragraph 1.2, he may acquire Confidential
Information (defined below), the use or disclosure of which would cause Company
substantial loss and damages which could not be readily calculated and for which
no remedy at law would be adequate. Accordingly, Employee agrees that he will
not (directly or indirectly) at any time, whether during or after his employment
hereunder, disclose any such Confidential Information to any person except (i)
in the performance of his services to Company hereunder, (ii) as required by
applicable law, (iii) in connection with the enforcement of his rights under
this Agreement, (iv) in connection with any disagreement, dispute or litigation
between Employee and Company, or (v) with the prior written consent of the
Board. As used herein, "Confidential Information" means (A) all seismic and
geophysical data, geological data, chemical data, engineering data, interpretive
and analytical reports and studies, logs, formation tests, maps, diagrams, data
bases, computer printouts, computer tapes, agreements and contracts, files,
books, accounts, and other technical information, business records, or financial
data acquired by Company or prepared by Employee or any other employee,
consultant, contractor, agent, or representative of Company during the term of
this Agreement, and (B) any information received by Employee in connection with
his employment to the extent the disclosure of such information by Employee
would result in a breach by Company of any confidentiality obligation known to
Employee; provided that such term shall not include any information that (x) is
or becomes generally known or available other than as a result of a disclosure
by Employee, (y) is or becomes known or available to Employee on a
nonconfidential basis from a source (other than Company) which, to Employee's
knowledge, is not prohibited from disclosing such information to Employee by a
legal,
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<PAGE>
contractual, fiduciary or other obligation to Company, or (z) is known by
Employee prior to executing this Agreement.
(ii) Employee confirms that all Confidential Information is the
exclusive property of Company. All business records, papers or documents kept
or made by Employee while employed hereunder relating to the business of Company
shall be and remain the property of Company at all times. Upon the request of
Company at any time, Employee shall promptly deliver to Company, and shall
retain no copies of, any written materials, records and documents made by
Employee or coming into his possession while employed hereunder concerning the
business or affairs of Company other than personal materials, records and
documents (including notes and correspondence) of Employee not containing
Confidential Information. Notwithstanding the foregoing, Employee shall be
permitted to retain copies of, or have access to, all such materials, records
and documents relating to any disagreement, dispute or litigation between
Employee and Company or any third person.
4.2 ASSISTANCE BY EMPLOYEE. Both during the period of Employee's
employment by Company and thereafter, provided Company pays all costs and
expenses, Employee shall assist Company and its nominee, at any time, in the
protection of Company's worldwide right, title, and interest in and to
Confidential Information; provided that any such assistance after termination of
Employee's employment does not, in Employee's good faith judgment, unreasonably
interfere with Employee's other activities.
4.3 REMEDIES. Employee acknowledges that money damages would not be
sufficient remedy for any breach of this Article by Employee, and Company shall
be entitled to enforce the provisions of this Article by specific performance
and injunctive relief as remedies for such breach or any threatened breach. Such
remedies shall not be deemed the exclusive remedies for a breach of this
Article, but shall be in addition to all remedies available at law or in equity
to Company, including the recovery of damages from Employee and his agents
involved in such breach and remedies available to Company pursuant to other
agreements with Employee.
ARTICLE V: NON-DISPARAGEMENT
Company agrees that it will not make any statements to third parties which
are intended to disparage, discredit or injure the reputation of Employee.
Employee agrees that he will not make any statements to third parties which are
intended to disparage, discredit or injure the reputation of Company, its
Members, or their respective affiliates.
ARTICLE VI: EFFECT OF TERMINATION ON COMPENSATION
6.1 By Expiration. If Employee's employment hereunder shall terminate
upon expiration of the Term provided in paragraph 2.1, then all compensation and
all benefits to Employee hereunder shall terminate contemporaneously with
termination of his employment. Upon any termination of the employment
relationship by either Employee or Company after the expiration of the Term
provided in paragraph 2.1, Employee shall be entitled to pro-rata salary through
the date
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<PAGE>
of such termination and any and all other compensation to which Employee is
entitled under this Agreement and all future benefits for which Employee is
eligible under this Agreement shall cease and terminate.
6.2 BY COMPANY. If Employee's employment hereunder shall be terminated by
Company prior to expiration of the Term provided in paragraph 2.1, then, upon
such termination, regardless of the reason therefor, all compensation and all
benefits to Employee hereunder shall terminate contemporaneously with the
termination of such employment, except that if such termination shall be for any
reason other than those encompassed by paragraphs 2.2(i) or (ii), then Company
shall continue to pay to Employee (or to his beneficiaries or estate) Employee's
then current base salary pursuant to paragraph 3.1 and continue, at Company's
cost, Employee's (and his qualified beneficiaries') coverages under Company's
group health plan(s), for the greater of (x) the balance of such Term or (y) one
year.
6.3 BY EMPLOYEE. If Employee's employment hereunder shall be terminated
by Employee pursuant to paragraph 2.3(ix) prior to expiration of the Term
provided in paragraph 2.1, then all compensation and benefits to Employee
hereunder shall terminate. If Employee's employment hereunder shall be
terminated by Employee pursuant to paragraph 2.3(i) through (viii) prior to
expiration of the Term provided in paragraph 2.1, then Company shall continue to
pay to Employee (or to his beneficiaries or estate) Employee's then current base
salary pursuant to paragraph 3.1 and continue, at Company's cost, Employee's
(and his qualified beneficiaries') coverages under Company's group health
plan(s), for the greater of (x) the balance of such Term or (y) one year.
6.4 NO DUTY TO MITIGATE LOSSES. Employee shall have no duty to find new
employment following the termination of his employment under circumstances which
require Company to pay any amount to Employee pursuant to this Article. Any
salary or remuneration received by Employee from a third party for the providing
of personal services (whether by employment or by functioning as an independent
contractor) following the termination of his employment under circumstances
pursuant to which paragraphs 6.1, 6.2, 6.3, or 6.4 apply shall not reduce
Company's obligation to make a payment to Employee (or the amount of such
payment) pursuant to the terms of any such paragraph.
6.5 LIQUIDATED DAMAGES. In light of the difficulties in estimating the
damages for an early termination of this Agreement, Company and Employee hereby
agree that the payments, if any, to be received by Employee pursuant to
paragraphs 6.2, 6.3, and/or 6.4 shall be received by Employee as liquidated
damages.
ARTICLE VII: MISCELLANEOUS.
7.1 Notices. For purposes of this Agreement, notices and all other
communications provided for herein shall be in writing and shall be deemed to
have been duly given when personally delivered, when transmitted by telecopier
(on the date of confirmation of receipt), on the next
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<PAGE>
business day when delivered by a recognized national overnight courier service
or on the fourth business day after the date mailed by United States registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to Company, to: Spinnaker Exploration Company, L.L.C.
16010 Barker's Point Lane
Houston, Texas 77079
Attention: Chairman of the Board
Telecopier: 281-589-1482
If to Employee, to: Mr. Kelly Barnes
16107 Lafone
Spring, Texas 77379
or to such other address as either party may furnish to the other in writing in
accordance herewith, except that notices of changes of address shall be
effective only upon receipt.
7.2 APPLICABLE LAW. This Agreement is entered into under, and shall be
governed for all purposes by, the laws of the State of Texas.
7.3 NO WAIVER. No failure by either party hereto at any time to give
notice of any breach by the other party of, or to require compliance with, any
condition or provision of this Agreement shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent
time.
7.4 SEVERABILITY. If a court of competent jurisdiction determines that
any provision of this Agreement is invalid or unenforceable, then the
invalidity or unenforceability of that provision shall not affect the validity
or enforceability of any other provision of this Agreement, and all other
provisions shall remain in full force and effect.
7.5 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together will constitute one and the same Agreement.
7.6 WITHHOLDING OF TAXES AND OTHER EMPLOYEE DEDUCTIONS. Company may
withhold from any benefits and payments made pursuant to this Agreement all
federal, state, city and other taxes as may be required pursuant to any law or
governmental regulation or ruling and all other normal employee deductions made
with respect to Company's employees generally.
7.7 HEADINGS. The paragraph headings have been inserted for purposes of
convenience and shall not be used for interpretive purposes.
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<PAGE>
7.8 GENDER AND PLURALS. Wherever the context so requires, the masculine
gender includes the feminine or neuter, and the singular number includes the
plural and conversely.
7.9 SUBSIDIARY. As used in this Agreement, the term "subsidiary" shall
mean any entity which is owned or controlled by Company.
7.10 COOPERATION BY EMPLOYEE. Employee shall cooperate with Company by
furnishing any and all information requested by Company, taking such physical
examinations as Company may deem necessary, and taking such other relevant
action as may be requested by Company in order to facilitate Company's
acquisition and maintenance of a life insurance policy or policies on the life
of Employee.
7.11 ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of Company and any successor of Company, by merger or otherwise.
Company will require any such successor, by agreement in form and substance
reasonably acceptable to Employee, to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that Company would be
required to perform it if no such succession had taken place. Except as
provided in the preceding sentence, this Agreement, and the rights and
obligations of the parties hereunder, are personal and neither this Agreement,
nor any right, benefit, or obligation of either party hereto, shall be subject
to voluntary or involuntary assignment, alienation or transfer, whether by
operation of law or otherwise, without the prior written consent of the other
party.
7.12 SURVIVAL. Termination of this Agreement shall not affect any right
or obligation of any party which is accrued or vested prior to such termination.
Without limiting the scope of the preceding sentence, the provisions of Articles
4 and 5 shall survive any termination of this Agreement.
7.13 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement of
parties with regard to the subject matter hereof, and contains all the
covenants, promises, representations, warranties and agreements between the
parties with respect to employment of Employee by Company. Each party to this
Agreement acknowledges that no representation, inducement, promise or agreement,
oral or written, has been made by either party, or by anyone acting on behalf of
either party, which is not embodied herein, and that no agreement, statement, or
promise relating to the employment of Employee by Company, which is not
contained in this Agreement, shall be valid or binding. Any modification of this
Agreement will be effective only if it is in writing and signed by the party to
be charged.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
24th day of February, 1997, to be effective as of the Effective Date.
SPINNAKER EXPLORATION COMPANY, L.L.C.
/s/ ROGER L. JARVIS
By: ____________________________________
Roger L. Jarvis
Name: __________________________________
President
Title: _________________________________
"COMPANY"
/s/ KELLY M. BARNES
_______________________________________
Kelly M. Barnes
"EMPLOYEE"
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<PAGE>
ASSIGNMENT, ASSUMPTION AND
AMENDMENT OF EMPLOYMENT AGREEMENT
(KELLY M. BARNES)
Assignment, Assumption and Amendment of Employment Agreement (the
"Agreement") effective as of January 6, 1998, by and between Spinnaker
Exploration Company, L.L.C., a Delaware limited liability company ("Spinnaker
L.L.C."), Spinco Exploration Corp., a Delaware corporation (the "Company"), and
Kelly M. Barnes ("Employee").
WHEREAS, Spinnaker L.L.C. and Employee have entered into an Employment
Agreement effective as of December 20, 1996 (the "Employment Agreement"); and
WHEREAS, the Company has been created as a holding company which owns
directly or indirectly the common ownership interests in Spinnaker L.L.C.; and
WHEREAS, effective as of January 6, 1998 Employee shall transfer employment
from Spinnaker L.L.C. to the Company; and
WHEREAS, the parties to this Agreement desire to have the Employment
Agreement assigned by Spinnaker L.L.C. to the Company and for the Company to
assume the Employment Agreement; and
WHEREAS, the parties to this Agreement desire to amend the Employment
Agreement in connection with such assignment and assumption;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. ASSIGNMENT. Spinnaker L.L.C. hereby assigns, transfers and conveys
unto the Company all of the interest of Spinnaker L.L.C. in the Employment
Agreement.
2. ASSUMPTION. The Company hereby assumes and agrees to pay, perform and
discharge when due in accordance with its terms all liabilities of Spinnaker
L.L.C. arising under the Employment Agreement.
3. AMENDMENT. From and after the effective date of this Agreement:
(a) Reference in the Employment Agreement to Spinnaker L.L.C. shall be
deemed to be reference to the Company.
(b) Reference in the Employment Agreement to the Purchase Agreement
shall be deemed to be reference to the Contribution Agreement, dated as of
January 6, 1998, among Warburg, Pincus Ventures, L.P., Seismic Energy
Holdings, Inc., Roger L. Jarvis, James M.
<PAGE>
Alexander, and any other person or entity executing said agreement as an
investor to, as the same may be amended from time to time (the
"Contribution Agreement").
4. APPLICABLE LAW. This Agreement is entered into under, and shall be
governed for all purposes by, the laws of the State of Texas.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
6th day of January, 1998.
Spinnaker Exploration Company, L.L.C.
/s/ ROGER L. JARVIS
By: _____________________________________
Roger L. Jarvis
Name: ___________________________________
President
Title: __________________________________
Spinco Exploration Corp.
/s/ ROGER L. JARVIS
By: _____________________________________
Roger L. Jarvis
Name: ___________________________________
President
Title: __________________________________
/s/ KELLY M. BARNES
_________________________________________
Kelly M. Barnes "Employee"
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<PAGE>
AMENDMENT TO EMPLOYMENT AGREEMENT
(Kelly M. Barnes)
This Amendment to Employment Agreement ("Agreement") is entered into
between Spinnaker Exploration Company, a Delaware corporation having offices at
1200 Smith, Suite 800, Houston, Texas 77002 ("Company"), and Kelly M. Barnes, an
individual currently residing at 1610 Lafone, Spring, Texas 77379 ("Employee"),
to be effective as of September 27, 1999.
WITNESSETH:
WHEREAS, Spinnaker Exploration Company, L.L.C. and Employee entered into
that certain Employment Agreement, dated February 24, 1997; and
WHEREAS, Company and Employee entered into an Assignment, Assumption and
Amendment of Employment Agreement dated as of January 6, 1998 whereby Company
assumed the Employment Agreement as amended (the "Employment Agreement"); and
WHEREAS, Company and Employee desire to further amend the Employment
Agreement on the terms and conditions provided for herein
NOW, THEREFORE, for and in consideration of the mutual promises,
convenants, and obligations contained herein, Employer and Employee agree as
follows:
ARTICLE I
DEFINED TERMS
Section 1.1 DEFINED TERMS. Except as otherwise provided herein, capitalized
terms used in this Amendment shall have the meanings ascribed to them in the
Employment Agreement.
ARTICLE II
AMENDMENT
Section 2.1 AMENDMENT. Paragraph (ii) of Section 2.3 of the Employment
Agreement shall be and is hereby deleted in its entirety.
ARTICLE III
MISCELLANEOUS
Section 3.1 EXTENT OF AMENDMENTS AND REFERENCES. Except as otherwise
expressly provided herein, the Employment Agreement is no amended, modified or
affected by this Amendment. Except as expressly set forth herein, all of the
terms, conditions and other provisions of the Employment Agreement are herein
ratified and confirmed and shall remain in full
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force and effect. From and after the effectiveness of this Amendment, the terms
"this Agreement", "hereof", "herein", "hereunder" and terms of like import, when
used herein or in the Employment Agreement shall, except where the context
otherwise requires, refer to the Employment Agreement, as amended by this
Amendment.
Section 3.2 ENTIRE AGREEMENT. The Employment Agreement as amended by this
Amendment contains the entire agreement of the parties concerning the subject
matter hereof. In the event of irreconcilable conflict between this Amendment
and the other documents contemplated herby, the provisions of this Amendment
shall control.
Section 3.3 HEADINGS. Section headings in this Amendment are included
herein for convenience of reference only and shall not constitute a part of this
Amendment for any other purpose or be given and substantive effect.
Section 3.4 COUNTERPARTS. This Amendment may be executed in any number of
counterparts, each of which when so executed shall be deemed an original but all
of which together shall constitute on and the same instrument.
[THE REST OF THIS PAGE IS INTENTIONALLY BLANK]
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IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
as of the date first set forth above.
SPINNAKER EXPLORATION COMPANY
/s/ ROGER L. JARVIS
By:________________________
Roger L. Jarvis
President and Chief Executive
Officer
/s/ KELLY M. BARNES
----------------------------
Kelly M. Barnes
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EXHIBIT 10.10
SPINNAKER EXPLORATION COMPANY
1999 STOCK INCENTIVE PLAN
I. PURPOSE
The purpose of the SPINNAKER EXPLORATION COMPANY 1999 STOCK INCENTIVE PLAN
is to provide a means through which SPINNAKER EXPLORATION COMPANY, a Delaware
corporation, and its subsidiaries may attract able persons to serve as
directors, consultants, or advisors or to enter the employ of the Company or its
subsidiaries and to provide a means whereby those individuals upon whom the
responsibilities of the successful administration and management of the Company
and its subsidiaries rest, and whose present and potential contributions to the
welfare of the Company and its subsidiaries are of importance, can acquire and
maintain stock ownership, thereby strengthening their concern for the welfare of
the Company and its subsidiaries. A further purpose of the Plan is to provide
such individuals with additional incentive and reward opportunities designed to
enhance the profitable growth of the Company and its subsidiaries. Accordingly,
the Plan provides for granting Incentive Stock Options, options that do not
constitute Incentive Stock Options, Restricted Stock Awards, or any combination
of the foregoing, as is best suited to the circumstances of the particular
employee, consultant, advisor, or director as provided herein.
II. DEFINITIONS
The following definitions shall be applicable throughout the Plan unless
specifically modified by any paragraph:
(a) "Award" means, individually or collectively, any Option or Restricted
Stock Award.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
Reference in the Plan to any section of the Code shall be deemed to include any
amendments or successor provisions to such section and any regulations under
such section.
(d) "Committee" means the Board or a committee of the Board that is
selected by the Board as provided in Paragraph IV(a).
(e) "Common Stock" means the common stock, par value $.01 per share, of
the Company, or any security into which such Common Stock may be changed by
reason of any transaction or event of the type described in Paragraph IX.
(f) "Company" means Spinnaker Exploration Company, a Delaware corporation.
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(g) "Consultant" means any person who is not an employee and who is
providing advisory or consulting services to the Company or any parent or
subsidiary entity.
(h) "Director" means an individual elected to the Board by the
stockholders of the Company or by the Board under applicable corporate law who
is serving on the Board on the date the Plan is adopted by the Board or is
elected to the Board after such date.
(i) An "employee" means any person (including a Director) in an
employment relationship with the Company or any parent or subsidiary entity.
(j) "Fair Market Value" means, as of any specified date, the mean of the
high and low sales prices of the Common Stock (i) reported by the National
Market System of NASDAQ on that date or (ii) if the Common Stock is listed on a
national stock exchange, reported on the stock exchange composite tape on that
date; or, in either case, if no prices are reported on that date, on the last
preceding date on which such prices of the Common Stock are so reported. If the
Common Stock is traded over the counter at the time a determination of its fair
market value is required to be made hereunder, its fair market value shall be
deemed to be equal to the average between the reported high and low or closing
bid and asked prices of Common Stock on the most recent date on which Common
Stock was publicly traded. In the event Common Stock is not publicly traded at
the time a determination of its value is required to be made hereunder, the
determination of its fair market value shall be made by the Committee in such
manner as it deems appropriate. Notwithstanding the foregoing, the Fair Market
Value of a share of Common Stock on the date of an initial public offering of
Common Stock shall be the offering price under such initial public offering.
(k) "Holder" means an employee, Consultant, or Director who has been
granted an Award.
(l) "Incentive Stock Option" means an incentive stock option within the
meaning of section 422 of the Code.
(m) "1934 Act" means the Securities Exchange Act of 1934, as amended.
(n) "Option" means an Award granted under Paragraph VII of the Plan and
includes both Incentive Stock Options to purchase Common Stock and Options that
do not constitute Incentive Stock Options to purchase Common Stock.
(o) "Option Agreement" means a written agreement between the Company and a
Holder with respect to an Option.
(p) "Plan" means the Spinnaker Exploration Company 1999 Stock Incentive
Plan, as amended from time to time.
(q) "Restricted Stock Agreement" means a written agreement between the
Company and a Holder with respect to a Restricted Stock Award.
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(r) "Restricted Stock Award" means an Award granted under Paragraph VIII
of the Plan.
(s) "Rule 16b-3" means SEC Rule 16b-3 promulgated under the 1934 Act, as
such may be amended from time to time, and any successor rule, regulation or
statute fulfilling the same or a similar function.
(t) "Stock Appreciation Right" shall have the meaning assigned to such
term in Paragraph VII(d) of the Plan.
III. EFFECTIVE DATE AND DURATION OF THE PLAN
The Plan shall become effective upon the date of its adoption by the Board,
provided the Plan is approved by the stockholders of the Company within twelve
months thereafter. Notwithstanding any provision in the Plan, in any Option
Agreement or in any Restricted Stock Agreement, no Option shall be exercisable
and no Restricted Stock Award shall vest prior to such stockholder approval. No
further Awards may be granted under the Plan after ten years from the date the
Plan is adopted by the Board. The Plan shall remain in effect until all Options
granted under the Plan have been exercised or expired, and all Restricted Stock
Awards granted under the Plan have vested or been forfeited.
IV. ADMINISTRATION
(a) COMPOSITION OF COMMITTEE. The Plan shall be administered by the Board
and/or a committee of, and appointed by, the Board, comprised solely of two or
more outside Directors (within the meaning of the term "outside directors" as
used in section 162(m) of the Code and applicable interpretive authority
thereunder and within the meaning of "Non-Employee Director" as defined in Rule
16b-3).
(b) POWERS. Subject to the express provisions of the Plan, the Committee
shall have authority, in its discretion, to determine which employees,
Consultants, or Directors shall receive an Award, the time or times when such
Award shall be made, whether an Incentive Stock Option or nonqualified Option
shall be granted, and the number of shares to be subject to each Option or
Restricted Stock Award. In making such determinations, the Committee shall take
into account the nature of the services rendered by the respective employees,
Consultants, or Directors, their present and potential contribution to the
Company's success and such other factors as the Committee in its sole discretion
shall deem relevant.
(c) ADDITIONAL POWERS. The Committee shall have such additional powers as
are delegated to it by the other provisions of the Plan. Subject to the express
provisions of the Plan, this shall include the power to construe the Plan and
the respective agreements executed hereunder, to prescribe rules and regulations
relating to the Plan, and to determine the terms, restrictions and provisions of
the agreement relating to each Award, including such terms, restrictions and
provisions as shall be requisite in the judgment of the Committee to cause
designated Options to qualify as Incentive Stock Options, and to make all other
determinations necessary or advisable for administering the Plan. The Committee
may correct any defect or supply any omission or reconcile any inconsistency in
the Plan or in any agreement relating to an Award in the manner and to the
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extent it shall deem expedient to carry it into effect. The determinations of
the Committee on the matters referred to in this Paragraph IV shall be
conclusive.
V. SHARES SUBJECT TO THE PLAN; GRANT OF OPTIONS;
GRANT OF RESTRICTED STOCK AWARDS
(a) SHARES SUBJECT TO THE PLAN AND AWARD LIMITS. Subject to adjustment
in the same manner as provided in Paragraph IX with respect to shares of Common
Stock subject to Options then outstanding, the aggregate number of shares of
Common Stock that may be issued under the Plan shall not exceed 1,300,000
shares. Shares shall be deemed to have been issued under the Plan only (i) to
the extent actually issued and delivered pursuant to an Award or (ii) to the
extent an Award is settled in cash. To the extent that an Award lapses or the
rights of its Holder terminate, any shares of Common Stock subject to such Award
shall again be available for the grant of an Award under the Plan.
Notwithstanding any provision in the Plan to the contrary, the maximum number of
shares of Common Stock that may be subject to Awards granted to any one
individual during any calendar year may not exceed 300,000 shares of Common
Stock (subject to adjustment in the same manner as provided in paragraph IX with
respect to shares of Common Stock subject to Options then outstanding). The
limitation set forth in the preceding sentence shall be applied in a manner
which will permit compensation generated under the Plan to constitute
"performance-based" compensation for purposes of section 162(m) of the Code,
including, without limitation, counting against such maximum number of shares,
to the extent required under section 162(m) of the Code and applicable
interpretive authority thereunder, any shares subject to Options that are
canceled or repriced.
(b) GRANT OF OPTIONS. The Committee may from time to time grant Options to
one or more employees, Consultants, or Directors determined by it to be eligible
for participation in the Plan in accordance with the terms of the Plan.
(c) GRANT OF RESTRICTED STOCK AWARDS. The Committee may from time to time
grant Restricted Stock Awards to one or more employees, Consultants, or
Directors determined by it to be eligible for participation in the Plan in
accordance with the terms of the Plan.
(d) STOCK OFFERED. Subject to the limitations set forth in Paragraph V(a),
the stock to be offered pursuant to the grant of an Award may be authorized but
unissued Common Stock or Common Stock previously issued and outstanding and
reacquired by the Company. Any of such shares which remain unissued and which
are not subject to outstanding Awards at the termination of the Plan shall cease
to be subject to the Plan but, until termination of the Plan, the Company shall
at all times make available a sufficient number of shares to meet the
requirements of the Plan.
VI. ELIGIBILITY
Awards may be granted only to persons who, at the time of grant, are
employees, Consultants, or Directors. An Award may be granted on more than one
occasion to the same person, and, subject to the limitations set forth in the
Plan, such Award may include an Incentive Stock Option, an Option that is not an
Incentive Stock Option, a Restricted Stock Award, or any combination thereof.
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VII. STOCK OPTIONS
(a) OPTION PERIOD. The term of each Option shall be as specified by the
Committee at the date of grant.
(b) LIMITATIONS ON EXERCISE OF OPTION. An Option shall be exercisable in
whole or in such installments and at such times as determined by the
Committee.
(c) SPECIAL LIMITATIONS ON INCENTIVE STOCK OPTIONS. An Incentive Stock
Option may be granted only to an individual who is an employee of the Company or
any parent or subsidiary corporation (as defined in Section 424 of the Code) at
the time the Option is granted. To the extent that the aggregate Fair Market
Value (determined at the time the respective Incentive Stock Option is granted)
of Common Stock with respect to which Incentive Stock Options granted after 1986
are exercisable for the first time by an individual during any calendar year
under all incentive stock option plans of the Company and its parent and
subsidiary corporations exceeds $100,000, such Incentive Stock Options shall be
treated as Options which do not constitute Incentive Stock Options. The
Committee shall determine, in accordance with applicable provisions of the Code,
Treasury Regulations and other administrative pronouncements, which of a
Holder's Incentive Stock Options will not constitute Incentive Stock Options
because of such limitation and shall notify the Holder of such determination as
soon as practicable after such determination. No Incentive Stock Option shall be
granted to an individual if, at the time the Option is granted, such individual
owns stock possessing more than 10% of the total combined voting power of all
classes of stock of the Company or of its parent or subsidiary corporation,
within the meaning of section 422(b)(6) of the Code, unless (i) at the time such
Option is granted the option price is at least 110% of the Fair Market Value of
the Common Stock subject to the Option and (ii) such Option by its terms is not
exercisable after the expiration of five years from the date of grant. An
Incentive Stock Option shall not be transferable otherwise than by will or the
laws of descent and distribution, and shall be exercisable during the Holder's
lifetime only by such Holder or the Holder's guardian or legal representative.
(d) OPTION AGREEMENT. Each Option shall be evidenced by an Option
Agreement in such form and containing such provisions not inconsistent with the
provisions of the Plan as the Committee from time to time shall approve,
including, without limitation, provisions to qualify an Incentive Stock Option
under section 422 of the Code. Each Option Agreement shall specify the effect of
termination of (i) employment, (ii) the consulting or advisory relationship, or
(iii) membership on the Board, as applicable, on the exercisability of the
Option. An Option Agreement may provide for the payment of the option price, in
whole or in part, by the delivery of a number of shares of Common Stock (plus
cash if necessary) having a Fair Market Value equal to such option price.
Moreover, an Option Agreement may provide for a "cashless exercise" of the
Option by establishing procedures satisfactory to the Committee with respect
thereto. Further, an Option Agreement may provide for the surrender of the right
to purchase shares under the Option in return for a payment in cash or shares of
Common Stock or a combination of cash and shares of Common Stock equal in value
to the excess of the Fair Market Value of the shares with respect to which the
right to purchase is surrendered over the option price therefor ("Stock
Appreciation Rights"), on such terms and conditions as the Committee in its sole
discretion may prescribe. In the case of any such Stock Appreciation Right that
is granted in connection with an Incentive Stock Option, such right shall be
exercisable only when the Fair Market Value of the Common Stock exceeds the
price
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specified therefor in the Option or the portion thereof to be surrendered.
The terms and conditions of the respective Option Agreements need not be
identical.
(e) OPTION PRICE AND PAYMENT. The price at which a share of Common Stock
may be purchased upon exercise of an Option shall be determined by the Committee
but, subject to adjustment as provided in Paragraph IX, (i) in the case of an
Incentive Stock Option, such purchase price shall not be less than the Fair
Market Value of a share of Common Stock on the date such Option is granted, and
(ii) in the case of an Option that does not constitute an Incentive Stock
Option, such purchase price shall not be less than the Fair Market Value of a
share of Common Stock on the date such Option is granted. The Option or portion
thereof may be exercised by delivery of an irrevocable notice of exercise to the
Company, as specified by the Committee. The purchase price of the Option or
portion thereof shall be paid in full in the manner prescribed by the Committee.
Separate stock certificates shall be issued by the Company for those shares
acquired pursuant to the exercise of an Incentive Stock Option and for those
shares acquired pursuant to the exercise of any Option that does not constitute
an Incentive Stock Option.
(f) STOCKHOLDER RIGHTS AND PRIVILEGES. The Holder shall be entitled to all
the privileges and rights of a stockholder only with respect to such shares of
Common Stock as have been purchased under the Option and for which certificates
of stock have been registered in the Holder's name.
(g) OPTIONS AND RIGHTS IN SUBSTITUTION FOR STOCK OPTIONS GRANTED BY OTHER
CORPORATIONS. Options and Stock Appreciation Rights may be granted under the
Plan from time to time in substitution for stock options held by individuals
employed by corporations who become employees as a result of a merger or
consolidation or other business combination of the employing corporation with
the Company or any subsidiary.
VIII. RESTRICTED STOCK AWARDS
(a) FORFEITURE RESTRICTIONS TO BE ESTABLISHED BY THE COMMITTEE. Shares of
Common Stock that are the subject of a Restricted Stock Award shall be subject
to restrictions on disposition by the Holder and an obligation of the Holder to
forfeit and surrender the shares to the Company under certain circumstances (the
"Forfeiture Restrictions"). The Forfeiture Restrictions shall be determined by
the Committee in its sole discretion, and the Committee may provide that the
Forfeiture Restrictions shall lapse upon (i) the attainment of one or more
performance targets established by the Committee that are based on (1) the price
of a share of Common Stock, (2) the Company's earnings per share, (3) the
Company's market share, (4) the market share of a business unit of the Company
designated by the Committee, (5) the Company's sales, (6) the sales of a
business unit of the Company designated by the Committee, (7) the net income
(before or after taxes) of the Company or any business unit of the Company
designated by the Committee, (8) the cash flow return on investment of the
Company or any business unit of the Company designated by the Committee, (9) the
earnings before or after interest, taxes, depreciation, and/or amortization of
the Company or any business unit of the Company designated by the Committee,
(10) the economic value added, or (11) the return on stockholders' equity
achieved by the Company, (ii) the Holder's continued employment with the Company
or continued service as a Consultant or Director for a specified period of time,
(iii) the occurrence of any event or the satisfaction of any other condition
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specified by the Committee in its discretion, or (iv) a combination of any of
the foregoing. Each Restricted Stock Award may have different Forfeiture
Restrictions, in the discretion of the Committee.
(b) OTHER TERMS AND CONDITIONS. Common Stock awarded pursuant to a
Restricted Stock Award shall be represented by a stock certificate registered in
the name of the Holder of such Restricted Stock Award. The Holder shall have the
right to receive dividends with respect to Common Stock subject to a Restricted
Stock Award, to vote Common Stock subject thereto and to enjoy all other
stockholder rights, except that (i) the Holder shall not be entitled to delivery
of the stock certificate until the Forfeiture Restrictions have expired, (ii)
the Company shall retain custody of the stock until the Forfeiture Restrictions
have expired, (iii) the Holder may not sell, transfer, pledge, exchange,
hypothecate or otherwise dispose of the stock until the Forfeiture Restrictions
have expired, and (iv) a breach of the terms and conditions established by the
Committee pursuant to the Restricted Stock Agreement shall cause a forfeiture of
the Restricted Stock Award. At the time of such Award, the Committee may, in its
sole discretion, prescribe additional terms, conditions or restrictions relating
to Restricted Stock Awards, including, but not limited to, rules pertaining to
the termination of employment or service as a Consultant or Director (by
retirement, disability, death or otherwise) of a Holder prior to expiration of
the Forfeitures Restrictions. Such additional terms, conditions or restrictions
shall be set forth in a Restricted Stock Agreement made in conjunction with the
Award.
(c) PAYMENT FOR RESTRICTED STOCK. The Committee shall determine the amount
and form of any payment for Common Stock received pursuant to a Restricted Stock
Award, provided that in the absence of such a determination, a Holder shall not
be required to make any payment for Common Stock received pursuant to a
Restricted Stock Award, except to the extent otherwise required by law.
(d) COMMITTEE'S DISCRETION TO ACCELERATE VESTING OF RESTRICTED STOCK
AWARDS. The Committee may, in its discretion and as of a date determined by the
Committee, fully vest any or all Common Stock awarded to a Holder pursuant to a
Restricted Stock Award and, upon such vesting, all restrictions applicable to
such Restricted Stock Award shall terminate as of such date. Any action by the
Committee pursuant to this Subparagraph may vary among individual Holders and
may vary among the Restricted Stock Awards held by any individual Holder.
Notwithstanding the preceding provisions of this Subparagraph, the Committee may
not take any action described in this Subparagraph with respect to a Restricted
Stock Award that has been granted to a "covered employee" (within the meaning of
Treasury Regulation section 1.162-27(c)(2)) if such Award has been designed to
meet the exception for performance-based compensation under section 162(m) of
the Code.
(e) RESTRICTED STOCK AGREEMENTS. At the time any Award is made under this
Paragraph VIII, the Company and the Holder shall enter into a Restricted Stock
Agreement setting forth each of the matters contemplated hereby and such other
matters as the Committee may determine to be appropriate. The terms and
provisions of the respective Restricted Stock Agreements need not be identical.
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IX. RECAPITALIZATION OR REORGANIZATION
(a) NO EFFECT ON RIGHT OR POWER. The existence of the Plan and the
Awards granted hereunder shall not affect in any way the right or power of the
Board or the stockholders of the Company to make or authorize any adjustment,
recapitalization, reorganization or other change in the Company's or any
subsidiary's capital structure or its business, any merger or consolidation of
the Company or any subsidiary, any issue of debt or equity securities ahead of
or affecting Common Stock or the rights thereof, the dissolution or liquidation
of the Company or any subsidiary or any sale, lease, exchange or other
disposition of all or any part of its assets or business or any other corporate
act or proceeding.
(b) SUBDIVISION OR CONSOLIDATION OF SHARES; STOCK DIVIDENDS. The shares
with respect to which Options may be granted are shares of Common Stock as
presently constituted, but if, and whenever, prior to the expiration of an
Option theretofore granted, the Company shall effect a subdivision or
consolidation of shares of Common Stock or the payment of a stock dividend on
Common Stock without receipt of consideration by the Company, the number of
shares of Common Stock with respect to which such Option may thereafter be
exercised (i) in the event of an increase in the number of outstanding shares
shall be proportionately increased, and the purchase price per share shall be
proportionately reduced, and (ii) in the event of a reduction in the number of
outstanding shares shall be proportionately reduced, and the purchase price per
share shall be proportionately increased. Any fractional share resulting from
such adjustment shall be rounded up to the next whole share.
(c) RECAPITALIZATIONS AND CORPORATE CHANGES. If the Company recapitalizes,
reclassifies its capital stock, or otherwise changes its capital structure (a
"recapitalization"), the number and class of shares of Common Stock covered by
an Option theretofore granted shall be adjusted so that such Option shall
thereafter cover the number and class of shares of stock and securities to which
the Holder would have been entitled pursuant to the terms of the
recapitalization if, immediately prior to the recapitalization, the Holder had
been the holder of record of the number of shares of Common Stock then covered
by such Option. If (i) the Company merges with or into any entity or is a party
to a consolidation, (ii) the Company sells, leases or exchanges or agrees to
sell, lease or exchange all or substantially all of its assets to any other
person or entity, (iii) the Company is to be dissolved and liquidated, (iv) any
person or entity, including a "group" as contemplated by Section 13(d)(3) of the
1934 Act, acquires or gains ownership or control (including, without limitation,
power to vote) of more than 50% of the outstanding shares of the Company's
voting stock (based upon voting power), or (v) as a result of or in connection
with a contested election of Directors, the persons who were Directors of the
Company before such election shall cease to constitute a majority of the Board
(each such event is referred to herein as a "Corporate Change"), no later than
(x) ten days after the approval by the stockholders of the Company of such
merger, consolidation, reorganization, sale, lease or exchange of assets or
dissolution or such election of Directors or (y) thirty days after a Corporate
Change of the type described in clause (iv), the Committee, acting in its sole
discretion without the consent or approval of any Holder, shall effect one or
more of the following alternatives, which alternatives may vary among individual
Holders and which may vary among Options held by any individual Holder: (1)
accelerate the time at which Options then outstanding may be exercised so that
such Options may be exercised in full for a limited period of time on or before
a specified date (before or after such Corporate Change)
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fixed by the Committee, after which specified date all unexercised Options and
all rights of Holders thereunder shall terminate, (2) require the mandatory
surrender to the Company by selected Holders of some or all of the outstanding
Options held by such Holders (irrespective of whether such Options are then
exercisable under the provisions of the Plan) as of a date, before or after such
Corporate Change, specified by the Committee, in which event the Committee shall
thereupon cancel each such Option and pay or cause to be paid to each Holder the
securities or other property (including, without limitation, cash) referred to
in clause (4) below with respect to the shares subject to such Option in
exchange for payment by such Holder of the exercise price(s) under such Option
for such shares, (3) make such adjustments to Options then outstanding as the
Committee deems appropriate to reflect such Corporate Change (provided, however,
that the Committee may determine in its sole discretion that no adjustment is
necessary to Options then outstanding), or (4) provide that the number and class
of shares of Common Stock covered by an Option theretofore granted shall be
adjusted so that such Option shall thereafter cover the number and class of
shares of stock or other securities or property (including, without limitation,
cash) to which the Holder would have been entitled pursuant to the terms of the
agreement of merger, consolidation or sale of assets and dissolution if,
immediately prior to such merger, consolidation or sale of assets and
dissolution, the Holder had been the holder of record of the number of shares of
Common Stock then covered by such Option. Notwithstanding the foregoing, if (A)
the Company is involved in a merger or consolidation and, immediately after
giving effect to such merger or consolidation, less than 50% of the total voting
power of the outstanding voting stock of the surviving or resulting entity and
of the parent company of the surviving or resulting entity is then "beneficially
owned" (within the meaning of Rule 13d-3 under the 1934 Act) in the aggregate by
the stockholders of the Company immediately prior to such merger or
consolidation or (B) any person or entity, including a "group" as contemplated
by Section 13(d)(3) of the 1934 Act, acquires or gains ownership or control
(including, without limitation, power to vote) of more than 50% of the
outstanding shares of the Company's voting stock (based upon voting power),
then, except as provided in any Award agreement, (I) outstanding Awards shall
immediately vest and become exercisable or satisfiable, as applicable, and (II)
any such Award that is an Option shall continue to be exercisable for the
remainder of the applicable Option term unless the Committee has determined, in
its sole discretion, to take the action described in clause (1) or (2) above
with respect to such Option. The provisions contained in this Subparagraph shall
not terminate any rights of the Holder to further payments pursuant to any other
agreement with the Company following a Corporate Change.
(d) OTHER CHANGES IN THE COMMON STOCK. In the event of changes in the
outstanding Common Stock by reason of recapitalizations, reorganizations,
mergers, consolidations, combinations, split-ups, split-offs, spin-offs,
exchanges or other relevant changes in capitalization or distributions to the
holders of Common Stock occurring after the date of the grant of any Award and
not otherwise provided for by this Paragraph IX, such Award and any agreement
evidencing such Award shall be subject to adjustment by the Committee at its
discretion as to the number and price of shares of Common Stock or other
consideration subject to such Award. In the event of any such change in the
outstanding Common Stock or distribution to the holders of Common Stock, the
aggregate number of shares available under the Plan and the maximum number of
shares that may be subject to Awards granted to any one individual may be
appropriately adjusted by the Committee, whose determination shall be
conclusive.
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(e) STOCKHOLDER ACTION. Any adjustment provided for in the above
Subparagraphs shall be subject to any required stockholder action.
(f) NO ADJUSTMENTS UNLESS OTHERWISE PROVIDED. Except as hereinbefore
expressly provided, the issuance by the Company of shares of stock of any class
or securities convertible into shares of stock of any class, for cash, property,
labor or services, upon direct sale, upon the exercise of rights or warrants to
subscribe therefor, or upon conversion of shares or obligations of the Company
convertible into such shares or other securities, and in any case whether or not
for fair value, shall not affect, and no adjustment by reason thereof shall be
made with respect to, the number of shares of Common Stock subject to Awards
theretofore granted or the purchase price per share, if applicable.
X. AMENDMENT AND TERMINATION OF THE PLAN
The Board in its discretion may terminate the Plan at any time with respect
to any shares of Common Stock for which Awards have not theretofore been
granted. The Board shall have the right to alter or amend the Plan or any part
thereof from time to time; provided that no change in any Award theretofore
granted may be made which would impair the rights of the Holder without the
consent of the Holder, and provided, further, that the Board may not, without
approval of the stockholders, amend the Plan to increase the maximum aggregate
number of shares that may be issued under the Plan or change the class of
individuals eligible to receive Awards under the Plan.
XI. MISCELLANEOUS
(a) NO RIGHT TO AN AWARD. Neither the adoption of the Plan nor any action
of the Board or of the Committee shall be deemed to give an employee,
Consultant, or Director any right to be granted an Option, a right to a
Restricted Stock Award, or any other rights hereunder except as may be evidenced
by an Option Agreement or a Restricted Stock Agreement duly executed on behalf
of the Company, and then only to the extent and on the terms and conditions
expressly set forth therein. The Plan shall be unfunded. The Company shall not
be required to establish any special or separate fund or to make any other
segregation of funds or assets to assure the performance of its obligations
under any Award.
(b) NO EMPLOYMENT/MEMBERSHIP RIGHTS CONFERRED. Nothing contained in the
Plan shall (i) confer upon any employee or Consultant any right with respect to
continuation of employment or of a consulting or advisory relationship with the
Company or any subsidiary or (ii) interfere in any way with the right of the
Company or any subsidiary to terminate his or her employment or consulting or
advisory relationship at any time. Nothing contained in the Plan shall confer
upon any Director any right with respect to continuation of membership on the
Board.
(c) OTHER LAWS; WITHHOLDING. The Company shall not be obligated to issue
any Common Stock pursuant to any Award granted under the Plan at any time when
the shares covered by such Award have not been registered under the Securities
Act of 1933, as amended, and such other state and federal laws, rules and
regulations as the Company or the Committee deems applicable and, in the opinion
of legal counsel for the Company, there is no exemption from the registration
requirements of such laws, rules and regulations available for the issuance and
sale of
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such shares. No fractional shares of Common Stock shall be delivered, nor shall
any cash in lieu of fractional shares be paid. The Company shall have the right
to deduct in connection with all Awards any taxes required by law to be withheld
and to require any payments required to enable it to satisfy its withholding
obligations.
(d) NO RESTRICTION ON CORPORATE ACTION. Nothing contained in the Plan
shall be construed to prevent the Company or any subsidiary from taking any
corporate action which is deemed by the Company or such subsidiary to be
appropriate or in its best interest, whether or not such action would have an
adverse effect on the Plan or any Award made under the Plan. No employee,
Consultant, Director, beneficiary or other person shall have any claim against
the Company or any subsidiary as a result of any such action.
(e) RESTRICTIONS ON TRANSFER. An Award (other than an Incentive Stock
Option, which shall be subject to the transfer restrictions set forth in
Paragraph VII(c)) shall not be transferable otherwise than (i) by will or the
laws of descent and distribution, (ii) pursuant to a qualified domestic
relations order as defined by the Code or Title I of the Employee Retirement
Income Security Act of 1974, as amended, or the rules thereunder, or (iii) with
the consent of the Committee.
(f) GOVERNING LAW. THE PLAN SHALL BE CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF DELAWARE.
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EXHIBIT 10.11
SPINNAKER EXPLORATION COMPANY
1999 EMPLOYEE STOCK PURCHASE PLAN
1. PURPOSE. The SPINNAKER EXPLORATION COMPANY 1999 EMPLOYEE STOCK PURCHASE
PLAN (the "Plan") is intended to provide an incentive for employees of SPINNAKER
EXPLORATION COMPANY (the "Company") and certain of its subsidiaries to acquire
or increase a proprietary interest in the Company through the purchase of shares
of the Company's common stock. The Plan is intended to qualify as an "employee
stock purchase plan" under Section 423 of the Internal Revenue Code of 1986, as
amended (the "Code"). The provisions of the Plan shall be construed in a manner
consistent with the requirements of that section of the Code.
2. DEFINITIONS. Where the following words and phrases are used in the
Plan, they shall have the respective meanings set forth below, unless the
context clearly indicates to the contrary:
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as amended.
(c) "Committee" means the Spinnaker Exploration Company Compensation
Committee.
(d) "Company" means Spinnaker Exploration Company, a Delaware
corporation.
(e) "Date of Exercise" means the last day of each Option Period.
(f) "Date of Grant" means January 1, 2000, and, thereafter, the first
day of each successive July and January.
(g) "Eligible Compensation" means regular straight-time earnings or
base salary, determined before giving effect to any salary reduction
agreement pursuant to (i) a qualified cash or deferred arrangement (within
the meaning of Section 401(k) of the Code) or (ii) a cafeteria plan (within
the meaning of Section 125 of the Code). Eligible Compensation shall not
include overtime, bonuses, commissions, severance pay, incentive pay, shift
premium differentials, pay in lieu of vacation, reimbursements, or any
other special or incentive payments excluded by the Committee in its
discretion (applied in a uniform basis).
(h) "Eligible Employee" means, with respect to each Date of Grant, each
employee of the Company or a Participating Company who, as of such Date of
Grant, is regularly scheduled to work more than 20 hours per week and more
than five months in any calendar year.
(i) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
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(j) "Option Period" means the six month period beginning on each Date
of Grant.
(k) "Option Price" shall have the meaning assigned to such term in
paragraph 8(b).
(l) "Participating Company" means any present or future parent or
subsidiary corporation of the Company that participates in the Plan
pursuant to paragraph 4.
(m) "Plan" means this Spinnaker Exploration Company 1999 Employee
Stock Purchase Plan, as amended from time to time.
(n) "Restriction Period" means the period of time during which shares
of Stock acquired by a participant in the Plan may not be sold, assigned,
pledged, exchanged, hypothecated or otherwise transferred, encumbered or
disposed of by such participant as provided in paragraph 8(d).
(o) "Stock" means the shares of the Company's common stock, par value
$.01 per share.
3. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the
Committee. Subject to the provisions of the Plan, the Committee shall interpret
the Plan and all options granted under the Plan, make such rules as it deems
necessary for the proper administration of the Plan, and make all other
determinations necessary or advisable for the administration of the Plan. In
addition, the Committee shall correct any defect or supply any omission or
reconcile any inconsistency in the Plan, or in any option granted under the
Plan, in the manner and to the extent that the Committee deems desirable to
carry the Plan or any option into effect. The Committee shall, in its sole
discretion, make such decisions or determinations and take such actions, and all
such decisions, determinations and actions taken or made by the Committee
pursuant to this and the other paragraphs of the Plan shall be conclusive on all
parties. The Committee shall not be liable for any decision, determination or
action taken in good faith in connection with the administration of the Plan.
The Committee shall have the authority to delegate routine day-to-day
administration of the Plan to such officers and employees of the Company as the
Committee deems appropriate.
4. PARTICIPATING COMPANIES. The Committee may designate any present or
future parent or subsidiary corporation of the Company that is eligible by law
to participate in the Plan as a Participating Company by written instrument
delivered to the designated Participating Company. Such written instrument
shall specify the effective date of such designation and shall become, as to
such designated Participating Company and persons in its employment, a part of
the Plan. The terms of the Plan may be modified as applied to the Participating
Company only to the extent permitted under Section 423 of the Code. Transfer of
employment among the Company and Participating Companies (and among any other
parent or subsidiary corporation of the Company) shall not be considered a
termination of employment hereunder. Any Participating Company may, by
appropriate action of its Board of Directors, terminate its participation in the
Plan. Moreover, the Committee may, in its discretion, terminate a Participating
Company's Plan participation at any time.
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5. ELIGIBILITY. Subject to the provisions hereof, all Eligible Employees
as of a Date of Grant shall be eligible to participate in the Plan with respect
to options granted under the Plan as of such date.
6. STOCK SUBJECT TO THE PLAN. Subject to the provisions of paragraph 13,
the aggregate number of shares which may be sold pursuant to options granted
under the Plan shall not exceed 100,000 shares of the authorized Stock plus on
each December 31 commencing December 31, 2000 the lesser of 25,000 shares or a
lesser number of shares determined by the Board, which shares may be unissued
shares or reacquired shares, including shares bought on the market or otherwise
for purposes of the Plan. Should any option granted under the Plan expire or
terminate prior to its exercise in full, the shares theretofore subject to such
option may again be subject to an option granted under the Plan. Any shares that
are not subject to outstanding options upon the termination of the Plan shall
cease to be subject to the Plan.
7. GRANT OF OPTIONS.
(a) IN GENERAL. Commencing on January 1, 2000, and continuing while
the Plan remains in force, the Company shall, on each Date of Grant, grant an
option under the Plan to purchase shares of Stock to each Eligible Employee as
of such Date of Grant who elects to participate in the Plan; provided, however,
that no option shall be granted to an Eligible Employee if such individual,
immediately after the option is granted, owns stock possessing five percent or
more of the total combined voting power or value of all classes of stock of the
Company or of its parent or subsidiary corporations (within the meaning of
Sections 423(b)(3) and 424(d) of the Code). Except as provided in paragraph 13,
the term of each option shall be for six months, which shall begin on a Date of
Grant and end on the last day of such six-month period. Subject to subparagraph
7(d), the number of shares of Stock subject to an option for a participant shall
be equal to the quotient of (i) the aggregate payroll deductions withheld on
behalf of such participant during the Option Period in accordance with
subparagraph 7(b), divided by (ii) the Option Price of the Stock applicable to
the Option Period, rounded down to the nearest whole share; provided, however,
that the maximum number of shares of Stock that may be subject to any option for
a participant may not exceed 5,000 (subject to adjustment as provided in
paragraph 13).
(b) ELECTION TO PARTICIPATE; PAYROLL DEDUCTION AUTHORIZATION. An
Eligible Employee may participate in the Plan only by means of payroll
deduction. Except as provided in subparagraph 7(f), each Eligible Employee who
elects to participate in the Plan shall deliver to the Company, within the time
period prescribed by the Committee, a written payroll deduction authorization in
a form prepared by the Company whereby he gives notice of his election to
participate in the Plan as of the next following Date of Grant, and whereby he
designates a specified whole dollar amount or an integral percentage of his
Eligible Compensation to be deducted from his compensation for each pay period
and paid into the Plan for his account. The designated percentage may not be
less than 1% nor exceed 15%.
(c) CHANGES IN PAYROLL AUTHORIZATION. The payroll deduction
authorization referred to in subparagraph 7(b) may not be changed during the
Option Period. However, a participant may withdraw from the Plan as provided in
paragraph 9.
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(d) $25,000 LIMITATION. No employee shall be granted an option under
the Plan which permits his rights to purchase Stock under the Plan and under all
other employee stock purchase plans of the Company and its parent and subsidiary
corporations to accrue at a rate which exceeds $25,000 of fair market value of
Stock (determined at the time such option is granted) for each calendar year in
which such option is outstanding at any time (within the meaning of Section
423(b)(8) of the Code). Any payroll deductions in excess of the amount specified
in the foregoing sentence shall be returned to the participant as soon as
administratively feasible after the next following Date of Exercise.
(e) LEAVES OF ABSENCE. During a paid leave of absence approved by the
Company and meeting the requirements of Treasury Regulation (S) 1.421-7(h)(2), a
participant's elected payroll deductions shall continue. A participant may not
contribute to the Plan during an unpaid leave of absence. If a participant takes
an unpaid leave of absence that is approved by the Company and meets the
requirements of Treasury Regulation (S) 1.421-7(h)(2), then such participant's
payroll deductions for such Option Period that were made prior to such leave may
remain in the Plan and be used to purchase Stock under the Plan on the Date of
Exercise relating to such Option Period. If a participant takes a leave of
absence that is not described in the first or third sentence of this
subparagraph 7(e), then he shall be considered to have terminated his employment
and withdrawn from the Plan pursuant to the provisions of paragraph 9 hereof.
Further, notwithstanding the preceding provisions of this subparagraph 7(e), if
a participant takes a leave of absence that is described in the first or third
sentence of this subparagraph 7(e) and such leave of absence exceeds 90 days,
then he shall be considered to have withdrawn from the Plan pursuant to the
provisions of paragraph 9 hereof and terminated his employment for purposes of
the Plan on the 91st day of such leave of absence.
(f) CONTINUING ELECTION. Subject to the limitation set forth in
subparagraph 7(d), a participant (i) who has elected to participate in the Plan
pursuant to subparagraph 7(b) as of a Date of Grant and (ii) who takes no action
to change or revoke such election as of the next following Date of Grant and/or
as of any subsequent Date of Grant prior to any such respective Date of Grant
shall be deemed to have made the same election, including the same attendant
payroll deduction authorization, for such next following and/or subsequent
Date(s) of Grant as was in effect immediately prior to such respective Date of
Grant. Payroll deductions that are limited by subparagraph 7(d) shall recommence
at the rate provided in such participant's payroll deduction authorization at
the beginning of the first Option Period that is scheduled to end in the
following calendar year, unless the participant changes the amount of his
payroll deduction authorization pursuant to paragraph 7, withdraws from the Plan
as provided in paragraph 9, or is terminated from participation in the Plan as
provided in paragraph 10.
8. EXERCISE OF OPTIONS.
(a) GENERAL STATEMENT. Subject to the limitation set forth in
subparagraph 7(d), each participant in the Plan automatically and without any
act on his part shall be deemed to have exercised his option on each Date of
Exercise to the extent his unused payroll deductions under the Plan are
sufficient to purchase at the Option Price whole shares of Stock and to the
extent the issuance of Stock to such participant upon such exercise is lawful.
Any amount relating to such option that remains in his account representing a
fractional share shall be applied to the purchase of
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shares of Stock during the next Option Period as if such participant had
contributed such amount by payroll deduction to the Plan during such period for
the option that relates to such period.
(b) "OPTION PRICE" DEFINED. The term "Option Price" shall mean the per
share price of Stock to be paid by each participant on each exercise of his
option, which price shall be equal to 85% of the fair market value of the Stock
on the Date of Exercise or on the Date of Grant, whichever amount is less. For
all purposes under the Plan, the fair market value of a share of Stock on a
particular date shall be equal to the closing price of the Stock on The Nasdaq
Stock Market's National Market or if not traded thereon, on the principal
exchange or market for the trading of stock, on that date (or, if no shares of
Stock have been traded on that date, on the next regular business date on which
shares of the Stock are so traded).
(c) DELIVERY OF SHARE CERTIFICATES. As soon as practicable after each
Date of Exercise, the Company shall deliver to a custodian selected by the
Committee one or more certificates representing (or shall otherwise cause to be
credited to the account of such custodian) the total number of whole shares of
Stock respecting options exercised on such Date of Exercise in the aggregate of
all of the participating employees hereunder. Such custodian shall keep accurate
records of the beneficial interests of each participating employee in such
shares by means of participant accounts under the Plan, and shall provide each
participating employee with quarterly or such other periodic statements with
respect thereto as may be directed by the Committee. If the Company is required
to obtain from any U.S. commission or agency authority to issue any such shares,
the Company shall seek to obtain such authority. Inability of the Company to
obtain from any commission or agency (whether U.S. or foreign) authority which
counsel for the Company deems necessary for the lawful issuance of any such
shares shall relieve the Company from liability to any participant in the Plan
except to return to him the amount of his payroll deductions under the Plan
which would have otherwise been used upon exercise of the relevant option.
(d) RESTRICTIONS ON TRANSFER. The Committee may from time to time
specify with respect to a particular grant of options the Restriction Period
that shall apply to the shares of Stock acquired pursuant to such options.
Unless otherwise specified by the Committee, the Restriction Period applicable
to shares of Stock acquired under the Plan shall be a period of six months after
the Date of Exercise of the options pursuant to which such shares were acquired.
Except as hereinafter provided, during the Restriction Period applicable to
shares of Stock acquired under the Plan, such shares may not be sold, assigned,
pledged, exchanged, hypothecated or otherwise transferred, encumbered or
disposed of by the participant who has purchased such shares; provided, however,
that such restriction shall not apply to the transfer, exchange or conversion of
such shares of Stock pursuant to a merger, consolidation or other plan of
reorganization of the Company, but the stock, securities or other property
(other than cash) received upon any such transfer, exchange or conversion shall
also become subject to the same transfer restrictions applicable to the original
shares of Stock, and shall be held by the custodian, pursuant to the provisions
hereof. Upon the expiration of such Restriction Period, the transfer
restrictions set forth in this subparagraph 8(d) shall cease to apply and the
optionee may, pursuant to procedures established by the Committee and the
custodian, direct the sale or distribution of some or all of the whole shares of
Stock in his Company stock account that are not then subject to transfer
restrictions and, in the event of a sale, request payment of the net proceeds
from such sale. The Committee may cause the Stock issued in connection with the
exercise of options under the Plan to bear such legends or other appropriate
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restrictions, and the Committee may take such other actions, as it deems
appropriate in order to reflect the transfer restrictions set forth in this
subparagraph 8(d) and to assure compliance with applicable laws.
9. WITHDRAWAL FROM THE PLAN.
(a) GENERAL STATEMENT. Any participant may withdraw in whole from the
Plan at any time prior to the Date of Exercise relating to a particular Option
Period. Partial withdrawals shall not be permitted. A participant who wishes to
withdraw from the Plan must timely deliver to the Company a notice of withdrawal
in a form prepared by the Company. The Company, promptly following the time when
the notice of withdrawal is delivered, shall refund to the participant the
amount of his payroll deductions under the Plan which have not yet been
otherwise returned to him or used upon exercise of options; and thereupon,
automatically and without any further act on his part, his payroll deduction
authorization and his interest in unexercised options under the Plan shall
terminate.
(b) ELIGIBILITY FOLLOWING WITHDRAWAL. A participant who withdraws from
the Plan shall be eligible to participate again in the Plan upon expiration of
the Option Period during which he withdrew (provided that he is otherwise
eligible to participate in the Plan at such time).
10. TERMINATION OF EMPLOYMENT.
(a) GENERAL STATEMENT. Except as provided in subparagraph 10(b), if
the employment of a participant terminates for any reason whatsoever, then his
participation in the Plan automatically and without any act on his part shall
terminate as of the date of the termination of his employment. The Company shall
promptly refund to him the amount of his payroll deductions under the Plan which
have not yet been otherwise returned to him or used upon exercise of options,
and thereupon his interest in unexercised options under the Plan shall
terminate.
(b) TERMINATION BY RETIREMENT, DEATH OR DISABILITY. If (i) the
employment of a participant terminates due to such participant's death or (ii)
during the last three months of an Option Period, the employment of a
participant terminates after such participant has attained age 65 or due to such
participant's permanent and total disability (within the meaning of Section
22(e)(3) of the Code), then such participant, or such participant's personal
representative, as applicable, shall have the right to elect either to:
(1) withdraw all of such participant's accumulated unused payroll
deductions under the Plan; or
(2) exercise such participant's option for the purchase of Stock
on the last day of the Option Period during which termination of employment
occurs for the purchase of the number of whole shares of Stock which the
accumulated payroll deductions at the date of such participant's
termination of employment will purchase at the applicable Option Price
(subject to subparagraph 7(d)), and receive a payment from the Company
promptly after such exercise in the amount of such participant's payroll
deductions under the Plan which have not yet been otherwise returned to him
or used upon exercise of options.
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The participant or, if applicable, such personal representative, must make such
election by giving written notice to the Committee at such time and in such
manner as the Committee prescribes. In the event that no such written notice of
election is timely received by the Committee, the participant or personal
representative will automatically be deemed to have elected as set forth in
clause (2) above.
11. RESTRICTION UPON ASSIGNMENT OF OPTION. An option granted under the
Plan shall not be transferable otherwise than by will or the laws of descent and
distribution. Each option shall be exercisable, during his lifetime, only by the
employee to whom granted. The Company shall not recognize and shall be under no
duty to recognize any assignment or purported assignment by an employee of his
option or of any rights under his option or under the Plan.
12. NO RIGHTS OF SHAREHOLDER UNTIL EXERCISE OF OPTION. With respect to
shares of Stock subject to an option, an optionee shall not be deemed to be a
shareholder, and he shall not have any of the rights or privileges of a
shareholder, until such option has been exercised. With respect to an
individual's Stock held by the custodian pursuant to subparagraph 8(d), the
custodian shall, as soon as practicable, pay the individual any cash dividends
attributable thereto or credit such dividends to such individual's account (as
directed by the Committee in its discretion applied in a uniform manner) and
shall, in accordance with procedures adopted by the custodian, facilitate the
individual's voting rights attributable thereto.
13. CHANGES IN STOCK; ADJUSTMENTS. Whenever any change is made in the
Stock, by reason of a stock dividend or by reason of subdivision, stock split,
reverse stock split, recapitalization, reorganization, combination,
reclassification of shares or other similar change, appropriate action will be
taken by the Committee to adjust accordingly the number of shares subject to the
Plan, the maximum number of shares that may be subject to any option, and the
number and Option Price of shares subject to options outstanding under the Plan.
If the Company shall not be the surviving corporation in any merger or
consolidation (or survives only as a subsidiary of another entity), or if the
Company is to be dissolved or liquidated, then, unless a surviving corporation
assumes or substitutes new options (within the meaning of Section 424(a) of the
Code) for all options then outstanding, (i) the Date of Exercise for all options
then outstanding shall be accelerated to a date fixed by the Committee prior to
the effective date of such merger or consolidation or such dissolution or
liquidation and (ii) upon such effective date any unexercised options shall
expire and the Company promptly shall refund to each participant the amount of
such participant's payroll deductions under the Plan which have not yet been
otherwise returned to him or used upon exercise of options.
14. USE OF FUNDS; NO INTEREST PAID. All funds received or held by the
Company under the Plan shall be included in the general funds of the Company
free of any trust or other restriction, and may be used for any corporate
purpose. No interest shall be paid to any participant.
15. TERM OF THE PLAN. The Plan shall be effective upon the date of its
adoption by the Board, provided the Plan is approved by the shareholders of the
Company within 12 months thereafter. Notwithstanding any provision in the Plan,
no option granted under the Plan shall be exercisable prior to such shareholder
approval, and, if the shareholders of the Company do not
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approve the Plan by the Date of Exercise of the first option granted hereunder,
then the Plan shall automatically terminate, no options may be exercised
hereunder, and the Company promptly shall refund to each participant the amount
of such participant's payroll deductions under the Plan; and thereupon,
automatically and without any further act on his part, his payroll deduction
authorization and his interest in unexercised options under the Plan shall
terminate. Except with respect to options then outstanding, if not sooner
terminated under the provisions of paragraph 16, the Plan shall terminate upon
and no further payroll deductions shall be made and no further options shall be
granted after July 1, 2009.
16. AMENDMENT OR TERMINATION OF THE PLAN. The Board in its discretion may
terminate the Plan at any time with respect to any Stock for which options have
not theretofore been granted. The Board shall have the right to alter or amend
the Plan or any part thereof from time to time; provided, however, that no
change in any option theretofore granted may be made that would impair the
rights of the optionee without the consent of such optionee.
17. SECURITIES LAWS. The Company shall not be obligated to issue any Stock
pursuant to any option granted under the Plan at any time when the offer,
issuance or sale of shares covered by such option has not been registered under
the Securities Act of 1933, as amended, or does not comply with such other
state, federal or foreign laws, rules or regulations, or the requirements of any
stock exchange upon which the Stock may then be listed, as the Company or the
Committee deems applicable and, in the opinion of legal counsel for the Company,
there is no exemption from the requirements of such laws, rules, regulations or
requirements available for the offer, issuance and sale of such shares. Further,
all Stock acquired pursuant to the Plan shall be subject to the Company's
policies concerning compliance with securities laws and regulations, as such
policies may be amended from time to time. The terms and conditions of options
granted hereunder to, and the purchase of shares by, persons subject to Section
16 of the Exchange Act shall comply with any applicable provisions of Rule 16b-
3. As to such persons, the Plan shall be deemed to contain, and such options
shall contain, and the shares issued upon exercise thereof shall be subject to,
such additional conditions and restrictions as may be required from time to time
by Rule 16b-3 to qualify for the maximum exemption from Section 16 of the
Exchange Act with respect to Plan transactions.
18. NO RESTRICTION ON CORPORATE ACTION. Nothing contained in the Plan
shall be construed to prevent the Company or any subsidiary from taking any
corporate action that is deemed by the Company or such subsidiary to be
appropriate or in its best interest, whether or not such action would have an
adverse effect on the Plan or any option granted under the Plan. No employee,
beneficiary or other person shall have any claim against the Company or any
subsidiary as a result of any such action.
19. MISCELLANEOUS PROVISIONS.
(a) PARENT AND SUBSIDIARY CORPORATIONS. For all purposes of the Plan,
a corporation shall be considered to be a parent or subsidiary corporation of
the Company only if such corporation is a parent or subsidiary corporation of
the Company within the meaning of Sections 424(e) and (f) of the Code.
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(b) NUMBER AND GENDER. Wherever appropriate herein, words used in the
singular shall be considered to include the plural and words used in the plural
shall be considered to include the singular. The masculine gender, where
appearing in the Plan, shall be deemed to include the feminine gender.
(c) HEADINGS. The headings and subheadings in the Plan are included
solely for convenience, and if there is any conflict between such headings or
subheadings and the text of the Plan, the text shall control.
(d) NOT A CONTRACT OF EMPLOYMENT. The adoption and maintenance of the
Plan shall not be deemed to be a contract between the Company or any
Participating Company and any person or to be consideration for the employment
of any person. Participation in the Plan at any given time shall not be deemed
to create the right to participate in the Plan, or any other arrangement
permitting an employee of the Company or any Participating Company to purchase
Stock at a discount, in the future. The rights and obligations under any
participant's terms of employment with the Company or any Participating Company
shall not be affected by participation in the Plan. Nothing herein contained
shall be deemed to give any person the right to be retained in the employ of the
Company or any Participating Company or to restrict the right of the Company or
any Participating Company to discharge any person at any time, nor shall the
Plan be deemed to give the Company or any Participating Company the right to
require any person to remain in the employ of the Company or such Participating
Company or to restrict any person's right to terminate his employment at any
time. The Plan shall not afford any participant any additional right to
compensation as a result of the termination of such participant's employment for
any reason whatsoever.
(e) COMPLIANCE WITH APPLICABLE LAWS. The Company's obligation to
offer, issue, sell or deliver Stock under the Plan is at all times subject to
all approvals of and compliance with any governmental authorities (whether
domestic or foreign) required in connection with the authorization, offer,
issuance, sale or delivery of Stock as well as all federal, state, local and
foreign laws. Without limiting the scope of the preceding sentence, and
notwithstanding any other provision in the Plan, the Company shall not be
obligated to grant options or to offer, issue, sell or deliver Stock under the
Plan to any employee who is a citizen or resident of a jurisdiction the laws of
which, for reasons of its public policy, prohibit the Company from taking any
such action with respect to such employee.
(f) SEVERABILITY. If any provision of the Plan shall be held illegal
or invalid for any reason, said illegality or invalidity shall not affect the
remaining provisions hereof; instead, each provision shall be fully severable
and the Plan shall be construed and enforced as if said illegal or invalid
provision had never been included herein.
(g) GOVERNING LAW. All provisions of the Plan shall be construed in
accordance with the laws of Texas except to the extent preempted by federal law.
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EXHIBIT 10.12
INDEMNIFICATION AGREEMENT
This Indemnification Agreement (the "Agreement") is made as of
_______________, by and between Spinnaker Exploration Company, a Delaware
corporation (the "Company"), and ______________ (the "Indemnitee").
AGREEMENT
In consideration of the mutual promises made in this Agreement, and for
other good and valuable consideration, receipt of which is hereby acknowledged,
the Company and Indemnitee hereby agree as follows:
1. INDEMNIFICATION.
(a) THIRD PARTY PROCEEDINGS. The Company shall indemnify Indemnitee if
Indemnitee is or was a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in
the right of the Company) by reason of the fact that Indemnitee is or was a
director, officer, employee or agent of the Company, or any subsidiary of
the Company, by reason of any action or inaction on the part of Indemnitee
while an officer or director or by reason of the fact that Indemnitee is or
was serving at the request of the Company as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement (if such settlement is approved in advance
by the Company, which approval shall not be unreasonably withheld) actually
and reasonably incurred by Indemnitee in connection with such action, suit
or proceeding if Indemnitee acted in good faith and in a manner Indemnitee
reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe Indemnitee's conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that Indemnitee did
not act in good faith and in a manner which Indemnitee reasonably believed
to be in or not opposed to the best interests of the Company, or, with
respect to any criminal action or proceeding, that Indemnitee had
reasonable cause to believe that Indemnitee's conduct was unlawful.
(b) PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY. The Company shall
indemnify Indemnitee if Indemnitee was or is a party or is threatened to be
made a party to any threatened, pending or completed action or proceeding
by or in the right of the Company or any subsidiary of the Company to
procure a judgment in its favor by reason of the fact that Indemnitee is or
was a director, officer, employee or agent of the Company, or any
subsidiary of the Company, by reason of any action or inaction on the part
of Indemnitee while an officer or director or by reason of the fact that
Indemnitee is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including
<PAGE>
attorneys' fees) and, to the fullest extent permitted by law, amounts paid
in settlement (if such settlement is approved in advance by the Company,
which approval shall not be unreasonably withheld), in each case to the
extent actually and reasonably incurred by Indemnitee in connection with
the defense or settlement of such action or suit if Indemnitee acted in
good faith and in a manner Indemnitee reasonably believed to be in or not
opposed to the best interests of the Company and its stockholders, except
that no indemnification shall be made in respect of any claim, issue or
matter as to which Indemnitee shall have been finally adjudicated by court
order or judgment to be liable to the Company in the performance of
Indemnitee's duty to the Company and its stockholders unless and only to
the extent that the court in which such action or proceeding is or was
pending shall determine upon application that, in view of all the
circumstances of the case, Indemnitee is fairly and reasonably entitled to
indemnity for such expenses which such court shall deem proper.
(c) MANDATORY PAYMENT OF EXPENSES. To the extent that Indemnitee has
been successful on the merits or otherwise in defense of any action, suit
or proceeding referred to in Section 1(a) or Section 1(b) or the defense of
any claim, issue or matter therein, Indemnitee shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by
Indemnitee in connection therewith.
2. NO EMPLOYMENT RIGHTS. Nothing contained in this Agreement is intended
to create in Indemnitee any right to continued employment.
3. EXPENSES; INDEMNIFICATION PROCEDURE.
(a) ADVANCEMENT OF EXPENSES. The Company shall advance all expenses
incurred by Indemnitee in connection with the investigation, defense,
settlement or appeal of any civil or criminal action, suit or proceeding
referred to in Section l(a) or Section 1(b) hereof (including amounts
actually paid in settlement of any such action, suit or proceeding).
Indemnitee hereby undertakes to repay such amounts advanced only if, and to
the extent that, it shall ultimately be determined that Indemnitee is not
entitled to be indemnified by the Company as authorized hereby.
(b) NOTICE COOPERATION BY INDEMNITEE. Indemnitee shall, as a condition
precedent to his or her right to be indemnified under this Agreement, give
the Company notice in writing as soon as practicable of any claim made
against Indemnitee for which indemnification will or could be sought under
this Agreement. Notice to the Company shall be directed to the Chief
Executive Officer of the Company (unless the Indemnitee is then the Chief
Executive Officer, in which event then to the Chief Financial Officer of
the Company) and shall be given in accordance with the provisions of
Section 12(d) below. In addition, Indemnitee shall give the Company such
information and cooperation as it may reasonably require and as shall be
within Indemnitee's power.
(c) PROCEDURE. Any indemnification and advances provided for in Section
1 and this Section 3 shall be made no later than twenty (20) days after
receipt of the written request of Indemnitee. If a claim under this
Agreement, under any statute, or under any provision of the Company's
Certificate of Incorporation or Bylaws providing for
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indemnification, is not paid in full by the Company within twenty (20) days
after a written request for payment thereof has first been received by the
Company, Indemnitee may, but need not, at any time thereafter bring an
action against the Company to recover the unpaid amount of the claim and,
subject to Section 11 of this Agreement, Indemnitee shall also be entitled
to be paid for the expenses (including attorneys' fees) of bringing such
action. It shall be a defense to any such action (other than an action
brought to enforce a claim for expenses incurred in connection with any
action, suit or proceeding in advance of its final disposition) that
Indemnitee has not met the standards of conduct which make it permissible
under applicable law for the Company to indemnify Indemnitee for the amount
claimed, but the burden of proving such defense shall be on the Company and
Indemnitee shall be entitled to receive interim payments of expenses
pursuant to Section 3(a) unless and until such defense may be finally
adjudicated by court order or judgment from which no further right of
appeal exists. It is the parties' intention that if the Company contests
Indemnitee's right to indemnification, the question of Indemnitee's right
to indemnification shall be for the court to decide, and neither the
failure of the Company (including its Board of Directors, any committee or
subgroup of the Board of Directors, independent legal counsel, or its
stockholders) to have made a determination that indemnification of
Indemnitee is proper in the circumstances because Indemnitee has met the
applicable standard of conduct required by applicable law, nor an actual
determination by the Company (including its Board of Directors, any
committee or subgroup of the Board of Directors, independent legal counsel,
or its stockholders) that Indemnitee has not met such applicable standard
of conduct, shall create a presumption that Indemnitee has or has not met
the applicable standard of conduct.
(d) NOTICE TO INSURERS. If, at the time of the receipt of a notice of a
claim pursuant to Section 3(b) hereof, the Company has director and officer
liability insurance in effect, the Company shall give prompt notice of the
commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall
thereafter take all necessary or desirable action to cause such insurers to
pay, on behalf of the Indemnitee, all amounts payable as a result of such
proceeding in accordance with the terms of such policies.
(e) SELECTION OF COUNSEL. In the event the Company shall be obligated
under Section 3(a) hereof to pay the expenses of any proceeding against
Indemnitee, the Company, if appropriate, shall be entitled to assume the
defense of such proceeding, with counsel approved by Indemnitee, upon the
delivery to Indemnitee of written notice of its election so to do. After
delivery of such notice, approval of such counsel by Indemnitee and the
retention of such counsel by the Company, the Company will not be liable to
Indemnitee under this Agreement for any fees of counsel subsequently
incurred by Indemnitee with respect to the same proceeding, provided that
(i) Indemnitee shall have the right to employ counsel in any such
proceeding at Indemnitee's expense; and (ii) if (A) the employment of
counsel by Indemnitee has been previously authorized by the Company, (B)
Indemnitee shall have reasonably concluded that there may be a conflict of
interest between the Company and Indemnitee in the conduct of any such
defense or (C) the Company shall not, in fact, have employed counsel to
assume the defense of such proceeding, then the fees and expenses of
Indemnitee's counsel shall be at the expense of the Company.
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4. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY.
(a) SCOPE. Notwithstanding any other provision of this Agreement, the
Company hereby agrees to indemnify the Indemnitee to the fullest extent
permitted by law, notwithstanding that such indemnification is not
specifically authorized by the other provisions of this Agreement, the
Company's Certificate of Incorporation, the Company's Bylaws or by statute.
In the event of any change, after the date of this Agreement, in any
applicable law, statute, or rule which expands the right of a Delaware
corporation to indemnify a member of its board of directors or an officer,
such changes shall be deemed to be within the purview of Indemnitee's
rights and the Company's obligations under this Agreement. In the event of
any change in any applicable law, statute or rule which narrows the right
of a Delaware corporation to indemnify a member of its board of directors
or an officer, such changes, to the extent not otherwise required by such
law, statute or rule to be applied to this Agreement shall have no effect
on this Agreement or the parties' rights and obligations hereunder.
(b) NONEXCLUSIVITY. The indemnification provided by this Agreement
shall not be deemed exclusive of any rights to which Indemnitee may be
entitled under the Company's Certificate of Incorporation, its Bylaws, any
agreement, any vote of stockholders or disinterested members of the
Company's Board of Directors, the General Corporation Law of the State of
Delaware, or otherwise, both as to action in Indemnitee's official capacity
and as to action in another capacity while holding such office. The
indemnification provided under this Agreement shall continue as to
Indemnitee for any action taken or not taken while serving in an
indemnified capacity even though he or she may have ceased to serve in any
such capacity at the time of any action, suit or other covered proceeding.
5. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any provision
of this Agreement to indemnification by the Company for some or a portion of the
expenses, judgments, fines or penalties actually or reasonably incurred in the
investigation, defense, appeal or settlement of any civil or criminal action,
suit or proceeding, but not, however, for the total amount thereof, the Company
shall nevertheless indemnify Indemnitee for the portion of such expenses,
judgments, fines or penalties to which Indemnitee is entitled.
6. MUTUAL ACKNOWLEDGMENT. Both the Company and Indemnitee acknowledge
that in certain instances, Federal law or public policy may override applicable
state law and prohibit the Company from indemnifying its directors and officers
under this Agreement or otherwise. For example, the Company and Indemnitee
acknowledge that the Securities and Exchange Commission (the "SEC") has taken
the position that indemnification is not permissible for liabilities arising
under certain federal securities laws, and federal legislation prohibits
indemnification for certain ERISA violations. Indemnitee understands and
acknowledges that the Company has undertaken or may be required in the future to
undertake with the SEC to submit the question of indemnification to a court in
certain circumstances for a determination of the Company's right under public
policy to indemnify Indemnitee.
7. OFFICER AND DIRECTOR LIABILITY INSURANCE. The Company shall, from time
to time, make the good faith determination whether or not it is practicable for
the Company to
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obtain and maintain a policy or policies of insurance with reputable insurance
companies providing the officers and directors of the Company with coverage for
losses from wrongful acts, or to ensure the Company's performance of its
indemnification obligations under this Agreement. Among other considerations,
the Company will weigh the costs of obtaining such insurance coverage against
the protection afforded by such coverage. In all policies of director and
officer liability insurance, Indemnitee shall be named as an insured in such a
manner as to provide Indemnitee the same rights and benefits as are accorded to
the most favorably insured of the Company's directors, if Indemnitee is a
director; or of the Company's officers, if Indemnitee is not a director of the
Company but is an officer; or of the Company's key employees, if Indemnitee is
not an officer or director but is a key employee. Notwithstanding the foregoing,
the Company shall have no obligation to obtain or maintain such insurance if the
Company determines in good faith that such insurance is not reasonably
available, if the premium costs for such insurance are disproportionate to the
amount of coverage provided, if the coverage provided by such insurance is
limited by exclusions so as to provide an insufficient benefit, or if Indemnitee
is covered by similar insurance maintained by a parent or subsidiary of the
Company.
8. SEVERABILITY. Nothing in this Agreement is intended to require or
shall be construed as requiring the Company to do or fail to do any act in
violation of applicable law. The Company's inability, pursuant to court order,
to perform its obligations under this Agreement shall not constitute a breach of
this Agreement. The provisions of this Agreement shall be severable as provided
in this Section 8. If this Agreement or any portion hereof shall be invalidated
on any ground by any court of competent jurisdiction, then the Company shall
nevertheless indemnify Indemnitee to the full extent permitted by any applicable
portion of this Agreement that shall not have been invalidated, and the balance
of this Agreement not so invalidated shall be enforceable in accordance with its
terms.
9. EXCEPTIONS. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) CLAIMS INITIATED BY INDEMNITEE. To indemnify or advance expenses to
Indemnitee with respect to proceedings or claims initiated or brought
voluntarily by Indemnitee and not by way of defense, except with respect to
proceedings brought to establish or enforce a right to indemnification
under this Agreement or any other statute or law or otherwise as required
under Section 145 of the Delaware General Corporation Law, but such
indemnification or advancement of expenses may be provided by the Company
in specific cases if the Board of Directors finds it to be appropriate;
(b) LACK OF GOOD FAITH. To indemnify Indemnitee for any expenses
incurred by Indemnitee with respect to any proceeding instituted by
Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by
Indemnitee in such proceeding was not made in good faith or was frivolous;
(c) INSURED CLAIMS. To indemnify Indemnitee for expenses or liabilities
of any type whatsoever (including, but not limited to, judgments, fines,
ERISA excise taxes or penalties, and amounts paid in settlement) to the
extent such expenses or liabilities have been
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<PAGE>
paid directly to Indemnitee by an insurance carrier under a policy of
officers' and directors' liability insurance maintained by the Company; or
(d) CLAIMS UNDER SECTION 16(B). To indemnify Indemnitee for expenses or
the payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of Section 16(b) of the Securities Exchange Act of
1934, as amended, or any similar successor statute.
10. CONSTRUCTION OF CERTAIN PHRASES.
(a) For purposes of this Agreement, references to the "Company" shall
include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors, officers,
and employees or agents, so that if Indemnitee is or was a director,
officer, employee or agent of such constituent corporation, or is or was
serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, Indemnitee shall stand in the same
position under the provisions of this Agreement with respect to the
resulting or surviving corporation as Indemnitee would have with respect to
such constituent corporation if its separate existence had continued.
(b) For purposes of this Agreement, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include
any excise taxes assessed on Indemnitee with respect to an employee benefit
plan; and references to "serving at the request of the Company" shall
include any service as a director, officer, employee or agent of the
Company which imposes duties on, or involves services by, such director,
officer, employee or agent with respect to an employee benefit plan, its
participants, or beneficiaries; and if Indemnitee acted in good faith and
in a manner Indemnitee reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan, Indemnitee
shall be deemed to have acted in a manner "not opposed to the best
interests of the Company" as referred to in this Agreement.
11. ATTORNEYS' FEES. In the event that any action is instituted by
Indemnitee under this Agreement to enforce or interpret any of the terms hereof,
Indemnitee shall be entitled to be paid all court costs and expenses, including
reasonable attorneys' fees, incurred by Indemnitee with respect to such action,
unless as a part of such action, the court of competent jurisdiction determines
that each of the material assertions made by Indemnitee as a basis for such
action were not made in good faith or were frivolous. In the event of an action
instituted by or in the name of the Company under this Agreement or to enforce
or interpret any of the terms of this Agreement, Indemnitee shall be entitled to
be paid all court costs and expenses, including attorneys' fees, incurred by
Indemnitee in defense of such action (including with respect to Indemnitee's
counterclaims and cross-claims made in such action), unless as a part of such
action the court determines that each of Indemnitee's material defenses to such
action were made in bad faith or were frivolous.
12. MISCELLANEOUS.
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(a) GOVERNING LAW. This Agreement and all acts and transactions
pursuant hereto and the rights and obligations of the parties hereto shall
be governed, construed and interpreted in accordance with the laws of the
State of Delaware, without giving effect to principles of conflict of law.
(b) ENTIRE AGREEMENT; ENFORCEMENT OF RIGHTS. This Agreement sets forth
the entire agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between them. No
modification of or amendment to this Agreement, nor any waiver of any
rights under this Agreement, shall be effective unless in writing signed by
the parties to this Agreement. The failure by either party to enforce any
rights under this Agreement shall not be construed as a waiver of any
rights of such party.
(c) CONSTRUCTION. This Agreement is the result of negotiations between
and has been reviewed by each of the parties hereto and their respective
counsel, if any; accordingly, this Agreement shall be deemed to be the
product of all of the parties hereto, and no ambiguity shall be construed
in favor of or against any one of the parties hereto.
(d) NOTICES. Any notice, demand or request required or permitted to be
given under this Agreement shall be in writing and shall be deemed
sufficient when delivered personally or sent by telegram or forty-eight
(48) hours after being deposited in the U.S. mail, as certified or
registered mail, with postage prepaid, and addressed to the party to be
notified at such party's address as set forth below or as subsequently
modified by written notice.
(e) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(f) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
Company and its successors and assigns, and inure to the benefit of
Indemnitee and Indemnitee's heirs, legal representatives and assigns.
(g) SUBROGATION. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the
rights of recovery of Indemnitee, who shall execute all documents required
and shall do all acts that may be necessary to secure such rights and to
enable the Company to effectively bring suit to enforce such rights.
[Signature Page Follows]
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The parties hereto have executed this Agreement as of the day and year set
forth on the first page of this Agreement.
SPINNAKER EXPLORATION COMPANY
By: ______________________________
Title: ___________________________
1200 Smith Street, Suite 800
Houston, Texas 77002
AGREED TO AND ACCEPTED:
Indemnitee: ________________________
____________________________________
(Signature)
Address:
____________________________________
____________________________________
____________________________________
____________________________________
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EXHIBIT 21.1
SUBSIDIARIES OF SPINNAKER EXPLORATION COMPANY
Name: Jurisdiction:
----- -------------
WP Spinnaker Holdings, Inc. Delaware
Spinnaker Exploration Company, LLC Delaware
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated April 13, 1999 and to all references to our Firm included in or
made a part of this registration statement.
ARTHUR ANDERSEN LLP
Houston, Texas
September 24, 1999
