<PAGE>
________________________________________________________________________________
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 1, 2000
AROC Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 333-85237 74-2932492
- ------------------------------- -------------------- ---------------------
(State or other jurisdiction of (Commission File (IRS Employer
incorporation) Number) Identification No.)
4200 East Skelly Drive, Suite 1000, Tulsa, Oklahoma 74135
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (918) 491-1100
________________________________________________________________________________
(Former name or former address, if changed since last report)
________________________________________________________________________________
________________________________________________________________________________
<PAGE>
Item 1. Changes in Control of Registrant
--------------------------------
Effective May 1, 2000, AROC Inc., a Delaware company (the "Company"),
designated 2,200,000 shares of its authorized preferred stock as Series A
Preferred Stock. The Series A Preferred Stock accrues cumulative dividends at
the rate of $5.00 per share per year, payable semiannually. Until May 1, 2002,
dividends are payable in kind through the issuance of additional shares of
preferred stock at a price equal to the fair market value of the preferred stock
at the time of the payment. The preferred stock has a liquidation preference of
$50.00 per share and may be redeemable at $50.00 per share at either the
Company's or the holder's option upon the occurrence of certain events. Each
share of preferred stock is convertible at any time into 384.6 shares of the
Company's common stock and has the right to vote in all matters on the same
basis as if the preferred stock had been converted into common stock. The terms
of the preferred stock prohibit the Company from taking certain actions without
the consent of the holders of the preferred stock.
On May 1, 2000, the Company sold to affiliates of EnCap Investments, L.L.C.
("EnCap") and Bank of America, N.A. ("Bank of America") 850,163 shares of the
Company's newly created Series A Preferred Stock for a total consideration of
approximately $42.5 million, received in satisfaction of outstanding obligations
to those parties and in consideration of cash and the purchase of an oil and gas
property interest.
On May 1, 2000, the Company also acquired from affiliates of EnCap direct
or indirect ownership of oil and gas properties having a net present value,
discounted at 10%, of approximately $62 million at May 1, 2000, using non-
escalated prices of $2.50 per mcf of gas and $22.00 per barrel of oil. The
properties include approximately 280 wells located in Texas, Louisiana, New
Mexico and Wyoming. The properties were acquired in exchange for the issuance to
the EnCap affiliates of an aggregate of 930,140 shares of the Company's Series A
Preferred Stock.
On May 1, 2000, the Company also issued to affiliates of EnCap warrants to
purchase 39,541,233 shares of the Company's common stock at a price of $0.01 per
share at any time until April 30, 2007 in connection with receiving $17,000,000
in cash pursuant to a subordinated debt agreement with the EnCap affiliates
discussed in Item 5 below. The subordinated notes bear interest at the rate of
12% per year, payable semiannually. Principal is due May 1, 2007. Until May 1,
2002, interest is payable in kind by increasing the principal amount of the
debt.
As a result of these transactions, the Company has outstanding 55,278,837
shares of common stock, 10,000,000 convertible restricted voting shares,
warrants to purchase 45,813,963 shares of common stock, and 1,780,303 shares of
Series A Preferred Stock that are convertible into an aggregate of 684,731,854
shares of common stock. EnCap and its affiliates have the right to vote
approximately 80% of the Company's voting securities and Bank of America and its
affiliates have the right to vote approximately 11.6% of the Company's voting
securities.
1
<PAGE>
Item 2. Acquisition or Disposition of Assets
------------------------------------
See the discussion under Item 1 regarding the purchase of certain oil and
gas properties by the Company in exchange for the issuance of Series A Preferred
Stock by the Company.
Item 5. Other Events.
------------
Pursuant to a Credit Agreement dated as of May 1, 2000, among AROC Inc.,
Toronto Dominion (Texas), Inc., individually and as Agent, and the lenders named
in that agreement (the "Credit Agreement"), the Company obtained a new
$35,000,000 credit facility. The credit facility is secured by a first lien on
substantially all of the Company's assets and the credit facility imposes
certain restrictions on the Company's activities, including the payment of
dividends and purchases of stock. The credit facility provides for a revolving
line of credit for three years. Borrowings under the credit facility bear
interest at either the LIBOR rate plus from 1.75% to 3.0% or the agent's prime
rate plus from .25% to 1.5%, at the Company's election. Interest is payable
quarterly beginning July 31, 2000. Principal is payable in full on the third
anniversary of the closing of the credit facility. The borrowing base for the
credit facility will typically be redetermined semiannually, although the
lenders have the right to make a redetermination at any time.
Also on May 1, 2000, the Company entered into a Purchase Agreement with
affiliates of EnCap providing for the sale to the EnCap affiliates of a total of
$17,000,000 in subordinated notes in exchange for a cash in that amount. The
subordinated notes bear interest at the rate of 12% per year, payable
semiannually. Principal is due May 1, 2007. Until May 1, 2002, interest is
payable in kind by increasing the principal amount of the debt.
A portion of the proceeds of the cash received from the credit facility and
the sale of the subordinated debt were used to satisfy the Company's obligations
under its previous credit facility with Bank of America and the remainder will
be used for working capital.
Item 7. Financial Statements and Exhibits.
---------------------------------
(a) Financial statements of businesses acquired.
It is impractical to file financial statements at this time. The Registrant
will file such statements as soon as practical. It is expected that such
statements will be filed by amendment to this Form 8-K on or before July 15,
2000.
(b) Pro forma financial information.
It is impractical to file pro forma financial information at this time. The
Registrant will file such information as soon as practical. It is expected that
such information will be filed by amendment to this Form 8-K on or before July
15, 2000.
2
<PAGE>
(c) Exhibits
3.1 Certificate of Designation of the Series A Preferred Stock of the
Company as filed with the Secretary of State of the State of
Delaware May 1, 2000.
4.1 Warrant Agreement dated April 30, 2000, relating to the issuance
of Series J Warrants of the Company
10.1 Purchase and Sale Agreement, dated April 30, 2000, by and between
EnCap Equity 1996 Limited Partnership and AROC Inc.
10.2 Purchase and Sale Agreement, dated April 30, 2000, by and among
Energy Capital Investment Company PLC, ECIC Corporation and AROC
Inc.
10.3 Purchase and Sale Agreement, dated April 30, 2000, by and between
EnCap Equity 1994 Limited Partnership and AROC Inc.
10.4 Purchase and Sale Agreement, dated April 30, 2000, by and between
Mountaineer Limited Partnership and AROC Inc.
10.5 Purchase Agreement, dated May 1, 2000, by and between AROC Inc.,
EnCap Equity 1996 Limited Partnership, Energy Capital Investment
Company PLC and El Paso Capital Investments, L.L.C.
10.6 Preferred Stock Purchase Agreement, dated as of May 1, 2000,
among Bank of America, N.A., EnCap 1996 Limited Partnership,
Energy Capital Investment Company PLC, El Paso Capital
Investments, L.L.C., EF-II Holdings, LLC, Picosa Creek Limited
Partnership, EnCap Investments, L.L.C., and AROC Inc.
10.7 Amended and Restated Registration Rights Agreement, dated as of
April 30, 2000, by and among AROC Inc., EnCap 1996 Limited
Partnership, EnCap 1996 Limited Partnership, Energy Capital
Investment Company PLC, Shahara Oil, L.L.C., El Paso Capital
Investments, L.L.C., and Picosa Creek Limited Partnership.
10.8 Amended and Restated Registration Rights Agreement, dated as of
April 30, 2000, by and among AROC Inc., Bank of America, N.A.,
and LaSalle Street Natural Resources Corporation.
10.9 Credit Agreement dated as of May 1, 2000, among AROC Inc.,
Toronto Dominion (Texas), Inc., individually and as Agent, and
the Lenders.
3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
AROC INC.
(Registrant)
Date: May 17, 2000 By: /s/ John A. Keenan
----------------------------------------------
Name: John A. Keenan
Title: President and Chief Executive Officer
4
<PAGE>
INDEX TO EXHIBITS
Exhibit Number Description of Exhibit
- -------------- ----------------------
3.1 Certificate of Designation of the Series A Preferred Stock of
AROC Inc. as filed with the Secretary of State of the State of
Delaware May 1, 2000.
4.1 Warrant Agreement dated April 30, 2000, relating to the issuance
of Series J Warrants of AROC Inc.
10.1 Purchase and Sale Agreement, dated April 30, 2000, by and between
EnCap Equity 1996 Limited Partnership and AROC Inc.
10.2 Purchase and Sale Agreement, dated April 30, 2000, by and among
Energy Capital Investment Company PLC, ECIC Corporation and AROC
Inc.
10.3 Purchase and Sale Agreement, dated April 30, 2000, by and between
EnCap Equity 1994 Limited Partnership and AROC Inc.
10.4 Purchase and Sale Agreement, dated April 30, 2000, by and between
Mountaineer Limited Partnership and AROC Inc.
10.5 Purchase Agreement, dated May 1, 2000, by and between AROC Inc.,
EnCap Equity 1996 Limited Partnership, Energy Capital Investment
Company PLC and El Paso Capital Investments, L.L.C.
10.6 Preferred Stock Purchase Agreement, dated as of May 1, 2000,
among Bank of America, N.A., EnCap 1996 Limited Partnership,
Energy Capital Investment Company PLC, El Paso Capital
Investments, L.L.C., EF-II Holdings, LLC, Picosa Creek Limited
Partnership, EnCap Investments, L.L.C., and AROC Inc.
10.7 Amended and Restated Registration Rights Agreement, dated as of
April 30, 2000, by and among AROC Inc., EnCap Equity 1996 Limited
Partnership, EnCap Equity 1994 Limited Partnership, Energy
Capital Investment Company PLC, an English investment company,
EnCap Investments L.L.C., Shahara Oil, L.L.C., Creek Limited
Partnership, EF-II Holdings, LLC, and El Paso Capital
Investments.
10.8 Amended and Restated Registration Rights Agreement, dated as of
April 30, 2000, by and among AROC Inc., Bank of America, N.A.,
and LaSalle Street Natural Resources Corporation.
10.9 Credit Agreement dated as of May 1, 2000, among AROC Inc.,
Toronto Dominion (Texas), Inc., individually and as Agent, and
the Lenders.
5
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF DESIGNATION
OF THE
SERIES A PREFERRED STOCK
OFAROC INC.
Pursuant to Section 151 of theGeneral Corporation Law of the State of Delaware
AROC Inc. (the "Company"), a corporation organized and existing under
and by virtue of the provisions of the General Corporation Law of the State of
Delaware (the "General Corporation Law"), does hereby certify that pursuant to
the authority contained in Article V of its Certificate of Incorporation, and in
accordance with the provisions of Section 151 of the General Corporation Law,
its Board of Directors has adopted the following resolution creating a series of
its preferred stock, par value $.001 per share, designated as Series A Preferred
Stock.
RESOLVED, that a series of the class of authorized preferred stock
entitled "Series A Preferred Stock", par value $.001 per share, of the Company
be hereby created, to consist of 2,200,000 shares and that the designations,
preferences, limitations, and relative, participating and optional rights of
such Series A Preferred Stock be as follows:
1. Dividend Provisions.
-- -------------------
(a) The holders of shares of Series A Preferred Stock shall be
entitled to receive dividends, out of any assets legally available therefor,
prior and in preference to any declaration or payment of any dividend (payable
other than in Common Stock or other securities and rights convertible into or
entitling the holder thereof to receive, directly or indirectly, additional
shares of Common Stock of the Company) on the capital stock of the Company, at
the rate of $5.00 per share per annum for the Series A Preferred Stock (as
adjusted for any stock splits, stock dividends, recapitalizations or the like),
and (as determined on a per annum basis and on an as converted basis for the
Series A Preferred Stock), an amount equal to that paid on any other outstanding
shares of the Company, payable when, as, and if declared by the Board of
Directors.
(b) The dividend described in Section 1(a) shall be fully cumulative
and shall accrue from the date of issuance of each share of Series A Preferred
Stock and shall be payable in cash, to the extent permitted by applicable law
(and if not then permitted by applicable law, at such time as the Company is
permitted by applicable law to pay any such dividends) on each May 1 and
November 1 beginning November 1, 2000 to the holders of record of the Series A
Preferred Stock on each corresponding April 15 and October 15. The amount of
dividends which accrue shall be computed on the basis of a 365-day year and the
actual number of days elapsed (including the first day, but not the last day)
occurring in the period for which such amount is payable. Notwithstanding
<PAGE>
anything to the contrary set forth above, from the date of issuance of each
share of Series A Preferred Stock until May 1, 2002, the Company may at its
option pay such accrued but unpaid dividends by converting them into the number
of fully paid and nonassessable shares of Series A Preferred Stock which results
from dividing the fair market value of a share of Series A Preferred Stock, into
the aggregate of all such accrued or unpaid dividends (whether declared or
undeclared). Fair market value of a share of Series A Preferred Stock shall be
determined in accordance with Section 2(c)(ii)(A)(1), (2) or (3), as applicable.
2. Liquidation Preference.
-- ----------------------
(a) In the event of any liquidation, dissolution or winding up of
the Company, either voluntary or involuntary, the holders of Series A Preferred
Stock shall be entitled to receive, prior and in preference to any distribution
of any of the assets of the Company to the holders of any other class of capital
stock by reason of their ownership thereof, an amount per share equal to the sum
of (i) $50.00 for each outstanding share of Series A Preferred Stock plus (ii)
declared or accrued but unpaid dividends on such share (subject to adjustment of
such fixed dollar amounts for any stock splits, stock dividends, combinations,
recapitalizations or the like). If upon the occurrence of such event, the assets
and funds thus distributed among the holders of the Series A Preferred Stock
shall be insufficient to permit the payment to such holders of the full
aforesaid preferential amounts, then the entire assets and funds of the Company
legally available for distribution shall be distributed ratably among the
holders of the Series A Preferred Stock in proportion to the full preferential
amount each such holder is otherwise entitled to receive under this Section
2(a).
(b) Upon the completion of the distribution required by subsection
(a) of this Section 2, the remaining assets of the Company available for
distribution to stockholders shall be distributed among the holders of Series A
Preferred Stock and Common Stock pro rata based on the number of shares of
Common Stock held by each (assuming full conversion of all such Series A
Preferred Stock).
(c)
(i) For purposes of this Section 2, a liquidation,
dissolution or winding up of the Company shall be deemed to be occasioned by, or
to include (unless the holders of at least a majority of the Series A Preferred
Stock then outstanding shall determine otherwise), (A) the acquisition of the
Company by another entity by means of any transaction or series of related trans
actions (including, without limitation, any reorganization, merger or
consolidation) that results in the transfer of fifty percent (50%) or more of
the outstanding voting power of the Company; or (B) a sale or other disposition
of all or substantially all of the assets of the Company.
<PAGE>
(ii) In any of such events, if the consideration received by
the holders of the Series A Preferred Stock is other than cash, its value will
be deemed its fair market value. Any securities shall be valued as follows:
(A) Securities not subject to investment letter or
other similar restrictions on free marketability covered by (B) below:
(1) If traded on a securities exchange or
through the Nasdaq National Market, the value shall be deemed to be the average
of the closing prices of the securities on such exchange or system over the
thirty (30) day period ending three (3) days prior to the closing;
(2) If actively traded over-the-counter, the
value shall be deemed to be the average of the closing bid or sale prices
(whichever is applicable) over the thirty (30) day period ending three (3) days
prior to the closing; and
(3) If there is no active public market, the
value shall be the fair market value thereof, as mutually determined by the
Company and the holders of at least a majority of the Series A Preferred Stock
then outstanding.
(B) The method of valuation of securities subject to
investment letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a stockholder's status as an affiliate
or former affiliate) shall be to make an appropriate discount from the market
value determined as above in (A) (1), (2) or (3) to reflect the approximate fair
market value thereof, as mutually determined by the Company and the holders of
at least a majority of the Series A Preferred Stock then outstanding.
(iii) In the event the requirements of this Section 2 are not
complied with, the Company shall forthwith either:
(A) cause such closing to be postponed until such
time as the requirements of this Section 2 have been complied with; or
(B) cancel such transaction, in which event the
rights, preferences and privileges of the holders of the Series A Preferred
Stock shall revert to and be the same as such
<PAGE>
rights, preferences and privileges existing immediately prior to the date of the
first notice referred to in Section 2(c)(iv) hereof.
(iv) The Company shall give each holder of record of Series A
Preferred Stock written notice of such impending transaction not later than
twenty (20) days prior to the stockholders' meeting called to approve such
transaction, or twenty (20) days prior to the closing of such transaction,
whichever is earlier, and shall also notify such holders in writing of the final
approval of such transaction. The first of such notices shall describe the
material terms and conditions of the impending transaction and the provisions of
this Section 2, and the Company shall thereafter give such holders prompt notice
of any material changes. The transaction shall in no event take place sooner
than twenty (20) days after the Company has given the first notice provided for
herein or sooner than ten (10) days after the Company has given notice of any
material changes provided for herein; provided, however, that such periods may
be shortened upon the written consent of the holders of Series A Preferred that
are entitled to such notice rights or similar notice rights and that represent
at least a majority of the Series A Preferred Stock then outstanding.
3. Redemption.
-- ----------
(a) Upon the earlier of May 1, 2004 or the date that the lowest
closing price for the Company's common stock on any securities exchange or
through the Nasdaq National Market for the twenty (20) trading day period
immediately preceding the date of notice of redemption is at least $0.1625 (as
adjusted for any stock splits, stock dividends, recapitalizations or the like),
the Company may redeem all or a portion of the Series A Preferred (in multiples
of $1,000,000), by paying in cash therefor a sum equal to $50.00 per share of
Series A Preferred Stock (as adjusted for any stock splits, stock dividends,
recapitalizations or the like) plus all declared or accrued but unpaid dividends
on such share (the "Redemption Price"). Any redemption of Series A Preferred
Stock effected pursuant to this subsection 3(a) shall be made on a pro rata
basis among the holders of the Series A Preferred Stock in the same proportion
that the number of shares of Series A Preferred Stock proposed to be redeemed by
the Company bears to the total number of the then outstanding shares of Series A
Preferred Stock.
(b) Upon the first to occur of (i) an Event of Default, as defined
in Section 5(b) below, or (ii) May 1, 2005, each holder of a share of Series A
Preferred Stock shall be entitled to require that the Company redeem all of the
Series A Preferred Stock held by such holder by paying in cash therefor a sum
equal to the Redemption Price.
(c) In the case of a redemption pursuant to Section 3(a), at least
thirty (30) but no more than forty-five (45) days prior to each date on which
the Series A Preferred Stock may be redeemed or, in the case of a redemption
pursuant to Section 3(b), no more than two (2) business
<PAGE>
days after the event giving rise to such redemption, written notice shall be
mailed, first class postage prepaid, to each holder of record (at the close of
business on the business day next preceding the day on which notice is given) of
the Series A Preferred Stock to be redeemed in the case of a redemption pursuant
to Section 3(a) or eligible to be redeemed in the case of a redemption pursuant
to Section 3(b), at the address last shown on the records of the Company for
such holder, notifying such holder of the same, specifying the number of shares
that may be subject to any such redemption, the date set for such redemption in
the case of a redemption pursuant to Section 3(a) or the procedures to be
followed by such holder in the case of a redemption pursuant to Section 3(b) ,
the Redemption Price for any such redemption, the place at which payment may be
obtained and calling upon such holder to surrender to the Company in the case of
a redemption pursuant to Section 3(a) or notifying such holder of the
opportunity to require the Company to redeem such holder's Series A Preferred
Stock in the case of a redemption pursuant to Section 3(b), in the manner and at
the place designated, his, her or its certificate or certificates representing
the shares to be redeemed (the "Redemption Notice"). For purposes hereof, the
term "Redemption Date" shall be deemed to refer to the date set by the Company
for a redemption effected pursuant to Section 3(a) and the date specified by the
holder for a redemption effected pursuant to Section 3(b). Except as provided in
Section (3)(d), on or after each Redemption Date, each holder of Series A
Preferred Stock to be redeemed on such Redemption Date shall surrender to the
Company the certificate or certificates representing such shares, in the manner
and at the place designated in the Redemption Notice, and thereupon the
applicable Redemption Price of such shares shall be payable to the order of the
person whose name appears on such certificate or certificates as the owner
thereof and each surrendered certificate shall be cancelled. In the event less
than all the shares represented by any such certificate are redeemed, a new
certificate shall be issued representing the unredeemed shares.
(d) From and after each Redemption Date, unless there shall have
been a default in payment of the Redemption Price, all rights of the holders of
shares of Series A Preferred Stock designated for redemption on such Redemption
Date as holders of Series A Preferred Stock (except the right to receive the
applicable Redemption Price without interest (except as otherwise provided
below) upon surrender of their certificate or certificates) shall cease with
respect to such redeemed shares, and such shares shall not thereafter be
transferred on the books of the Company or be deemed to be outstanding for any
purpose whatsoever. If the funds of the Company legally available for redemption
of shares of Series A Preferred on a Redemption Date are insufficient to redeem
the total number of shares of Series A Preferred Stock to be redeemed on such
date, those funds that are legally available will be used to redeem the maximum
possible number of such shares ratably among the holders of such shares to be
redeemed such that each holder of a share of Series A Preferred Stock receives
the same percentage of the applicable Series A Redemption Price, as the case may
be. The shares of Series A Preferred Stock not redeemed shall remain outstanding
and entitled to all the rights and preferences provided herein. At any time
thereafter when additional funds of the Company are legally available for the
redemption of shares of Series A Preferred Stock, such funds will immediately be
used to redeem the balance of the shares that the Company has become obliged to
redeem on any Redemption Date but that it has not redeemed. In any event,
interest shall accrue at a rate of 10% per annum on the Redemption Price from
the Redemption Date until the Redemption Price is paid in full to the holders of
the shares of Series A Preferred Stock.
<PAGE>
4. Conversion. The holders of the Series A Preferred Stock shall
-- ----------
have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Series A Preferred Stock shall
--- ----------------
be convertible, at the option of the holder thereof, at any time after the date
of issuance of such share into such number of fully paid and nonassessable
shares of Common Stock as is determined by dividing the Conversion Price per
share of such Series A Preferred in effect at the time of conversion into the
sum of (i) $50.00 (as adjusted for any stock splits, stock dividends,
recapitalizations or the like) plus (ii) all accrued and unpaid dividends
(whether declared or undeclared) on the Series A Preferred Stock so converted.
The initial "Conversion Price" per share for shares of Series A Preferred Stock
shall be $0.13; provided, however, that the Conversion Price for the Series A
Preferred Stock shall be subject to adjustment as set forth in subsection 4(d).
(b) Automatic Conversion. Each share of Series A Preferred shall
--- --------------------
automatically be converted into shares of Common Stock at the Conversion Price
at that time in effect for such Series A Preferred Stock immediately, in the
manner specified in Section 4(a) above, upon the effective date of the amendment
of the Company's Certificate of Incorporation contemplated by Section 4(j) and
the occurrence of either of (i) the Company's sale of its equity securities
with an aggregate offering price of $5,000,000 and a per share price that is not
less than an amount that in the good faith judgment of the Board of Directors of
the Company is fair to the Company (which per share price may adjust the
Conversion Price as provided in Section 4(d)), or (ii) the Company's sale of
$17,000,000 or more of subordinated debt having substantially the following
terms: a stated interest rate of 12% (with a two year payment in kind option),
a stated maturity of seven years and accompanied by warrants having a nominal
exercise price and market standard antidilution provisions which are exercisable
into 5% of the post transaction fully diluted common equity of the Company;
provided that if a conversion occurs pursuant to this Section 4(b) prior to May
1, 2003, the Company shall also pay to El Paso Capital Investments, L.L.C. or
its registered transferees, an amount equal to the aggregate dividends that
would have been payable to it or them under Section 1 if such conversion of the
shares of its Series A Preferred Stock owned by El Paso Capital Investments,
L.L.C. or its registered transferees had not occurred until May 1, 2003. Upon
an automatic conversion as described in this Section 4(b), the Company shall
within two (2) business days of such conversion provide written notice to the
holders of the Series A Preferred Stock that such an automatic conversion has
occurred.
(c) Mechanics of Conversion. Before any holder of Series A
--- ------------------------
Preferred Stock shall be entitled to convert the same into shares of Common
Stock as provided in Section 4(a) (or upon the mandatory conversion of such
shares pursuant to Section 4(b)), he or she shall surrender the certificate or
certificates therefor, duly endorsed, at the office of the Company or of any
transfer agent for the Series A Preferred Stock, and shall give written notice
to the Company at its principal corporate office, of the election to convert the
same (if pursuant to Section 4(a)) and shall state therein the name or names in
which the certificate or certificates for shares of Common Stock are to be
issued. The Company shall, as soon as practicable thereafter, issue and deliver
at such office to
<PAGE>
such holder of Series A Preferred Stock, or to the nominee or nominees of
such holder, a certificate or certificates for the number of shares of Common
Stock to which such holder shall be entitled as aforesaid. Such conversion shall
be deemed to have been made immediately prior to the close of business on the
date of such surrender of the shares of Series A Preferred Stock to be converted
if pursuant to Section 4(a), and the person or persons entitled to receive the
shares of Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such shares of Common Stock as of
such date. An automatic conversion as provided in Section 4(b) shall be deemed
to have been made immediately prior to the close of business on the date on
which all conditions requiring such automatic conversion have been satisfied,
and the person or persons entitled to receive the shares of Common Stock
issuable upon such conversion shall be treated for all purposes as the record
holder or holders of such shares of Common Stock as of such date.
(d) Conversion Price Adjustments of Preferred Stock for Certain
--- -----------------------------------------------------------
Dilutive Issuances, Splits and Combinations. The Conversion Price of the Series
- -------------------------------------------
A Preferred Stock shall be subject to adjustment from time to time as follows:
(i) (A) If the Company shall issue after the date upon
which any shares of Series A Preferred Stock are first issued pursuant to the
Stock Purchase Agreement, any Additional Stock (as defined below) without
consideration or for a consideration per share less than the Conversion Price
for the Series A Preferred Stock in effect immediately prior to the issuance of
such Additional Stock, the Conversion Price for the Series A Preferred Stock in
effect immediately prior to each such issuance shall forthwith (except as
otherwise provided in this clause (i)) be adjusted to a price equal to the price
paid per share for such Additional Stock.
(B) No adjustment of the Conversion Price for the
Series A Preferred Stock shall be made in an amount less than one percent (1%)
of the Conversion Price, provided that any adjustments that are not required to
be made by reason of this sentence shall be carried forward and shall be either
taken into account in any subsequent adjustment made prior to three (3) years
from the date of the event giving rise to the adjustment being carried forward,
or shall be made at the end of three (3) years from the date of the event giving
rise to the adjustment being carried forward. Except to the limited extent
provided for in subsections (E)(3) and (E)(4) of this Section 4(d), no
adjustment of such Conversion Price pursuant to this subsection 4(d)(i) shall
have the effect of increasing the Conversion Price above the Conversion Price in
effect immediately prior to such adjustment.
(C) In the case of the issuance of Common Stock for
cash, the consideration shall be deemed to be the amount of cash paid therefor
before deducting any reasonable discounts, commissions or other expenses
allowed, paid or incurred by the Company for any underwriting or otherwise in
connection with the issuance and sale thereof.
(D) In the case of the issuance of Common Stock for
a consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair
<PAGE>
value thereof as determined by the Board of Directors and the holders of a
majority of the shares of Series A Preferred Stock then outstanding,
irrespective of any accounting treatment.
(E) In the case of the issuance (whether before, on
or after the May 1, 2000) of options to purchase or rights to subscribe for
Common Stock, securities by their terms convertible into or exchangeable for
Common Stock or options to purchase or rights to subscribe for such convertible
or exchangeable securities, the following provisions shall apply for all
purposes of this Section 4(d)(i) and Section 4(d)(ii):
(1) The aggregate maximum number of shares of Common Stock
deliverable upon exercise of such options to purchase or rights to subscribe for
Common Stock shall be deemed to have been issued at the time such options or
rights were issued and for a consideration equal to the consideration
(determined in the manner provided in Sections 4(d)(i)(C) and (d)(i)(D)), if
any, received by the Company upon the issuance of such options or rights plus
the minimum exercise price provided in such options or rights (without taking
into account potential antidilution adjustments) 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 to purchase or rights to
subscribe for such convertible or exchangeable securities and subsequent
conversion or exchange thereof shall be deemed to have been issued at the time
such securities were issued or such options or rights were issued and for a
consideration equal to the consideration, if any, received by the Company for
any such securities and related options or rights (excluding any cash received
on account of accrued interest or accrued dividends), plus the minimum
additional consideration, if any, to be received by the Company (without taking
into account potential antidilution adjustments) upon the conversion or exchange
of such securities or the exercise of any related options or rights (the
consideration in each case to be determined in the manner provided in Sections
4(d)(i)(C) and (d)(i)(D)).
(3) In the event of any change in the number of shares of
Common Stock deliverable or in the consideration payable to the Company upon
exercise of such options or rights or upon conversion of or in exchange for such
convertible or exchangeable securities, including, but not limited to, a change
resulting from the antidilution provisions thereof, the Conversion Price of the
Series A Preferred Stock, to the extent in any way affected by or computed using
such options, rights or securities, shall be recomputed to reflect such change,
but no further adjustment shall be made for the actual issuance of Common Stock
or any payment of such consideration upon the exercise of any such options or
rights or the conversion or exchange of such securities.
<PAGE>
(4) Upon the expiration of any such options or
rights, the termination of any such rights to convert or exchange or the
expiration of any options or rights related to such convertible or exchangeable
securities, the Conversion Price of the Series A Preferred Stock, to the extent
in any way affected by or computed using such options, rights or securities or
options or rights related to such securities, shall be recomputed to reflect the
issuance of only the number of shares of Common Stock (and convertible or
exchangeable securities that remain in effect) actually issued upon the exercise
of such options or rights, upon the conversion or exchange of such securities or
upon the exercise of the options or rights related to such securities.
(5) The number of shares of Common Stock deemed
issued and the consideration deemed paid therefor pursuant to Sections
4(d)(i)(E)(1) and (2) shall be appropriately adjusted to reflect any change,
termination or expiration of the type described in either Section 4(d)(i)(E)(3)
or (4).
(ii) "Additional Stock" shall mean any shares of Common Stock
issued (or deemed to have been issued pursuant to Section 4(d)(i)(E)) by the
Company after May 1, 2000, other than:
(A) Common Stock issued pursuant to a transaction
described in subsection 4(d)(iii) hereof; or
(B) up to an aggregate of 85,000,000 shares of
Common Stock (which number shall be subject to either a proportionate increase
or decrease, as the case may be, in the event of a stock subdivision or
combination effected by charter amendment) issuable to employees, consultants,
directors or vendors (if in transactions with primarily non-financing purposes)
of the Company directly or pursuant to a stock option, restricted stock or other
employee plan approved by the Board of Directors of the Company;
(C) Common Stock issued or issuable upon conversion
of the Series A Preferred Stock;
(D) Common Stock issued upon the exercise of any
warrant or convertible security of the Company outstanding as of the date of the
filing of this Certificate of Designation;
<PAGE>
(E) The issuance of securities in connection with a
bona fide business acquisition of or by the Company, whether by merger,
consolidation, sale of assets, sale or exchange of stock or otherwise and on
terms which in the good faith judgement of the Board of Directors of the Company
are fair to the Company and are approved by the holders of a majority of the
then outstanding shares of Series A Preferred; and
(F) Series A Preferred Stock issued pursuant
to a dividend payment as described in Section 1(b) hereof.
(iii) In the event the Company should at any time or from time
to time after May 1, 2000 fix a record date for the effectuation of a split or
subdivision of the outstanding shares of Common Stock or the determination of
holders of Common Stock entitled to receive a dividend or other distribution
payable in additional shares of Common Stock or other securities or rights
convertible into, or entitling the holder thereof to receive directly or
indirectly, additional shares of Common Stock (hereinafter referred to as
"Common Stock Equivalents") without payment of any consideration by such holder
for the additional shares of Common Stock or the Common Stock Equivalents
(including the additional shares of Common Stock issuable upon conversion or
exercise thereof), then, as of such record date (or the date of such dividend
distribution, split or subdivision if no record date is fixed), the Conversion
Price of the Series A Preferred Stock shall be appropriately decreased so that
the number of shares of Common Stock issuable on conversion of each share of
Series A Preferred Stock shall be increased in proportion to such increase of
the aggregate of shares of Common Stock outstanding and those issuable with
respect to such Common Stock Equivalents with the number of shares issuable with
respect to Common Stock Equivalents determined from time to time in the manner
provided for deemed issuances in Section 4(d)(i)(E).
(iv) If the number of shares of Common Stock outstanding at
any time after May 1, 2000 is decreased by a combination of the outstanding
shares of Common Stock, then, following the record date of such combination, the
Conversion Price for the Series A Preferred Stock shall be appropriately
increased so that the number of shares of Common Stock issuable on conversion of
each share of Series A Preferred Stock shall be decreased in proportion to such
decrease in outstanding shares and those issuable with respect to such Common
Stock Equivalents with the number of shares issuable with respect to Common
Stock Equivalents determined from time to time in the manner provided for deemed
issuances in subsection 4(d)(i)(E).
(e) Other Distributions. In the event the Company
-------------------
shall declare a distribution payable in securities of other persons, evidences
of indebtedness issued by the Company or other persons, assets (excluding cash
dividends) or options or rights not referred to in Section 4(d)(iii), then, in
each such case for the purpose of this Section 4(e), the holders of the Series A
Preferred Stock shall be entitled to a proportionate share of any such
distribution as though they were the holders of the number of shares of Common
Stock of the Company into which their shares of Series A Preferred Stock are
convertible as of the record date fixed for the determination of the holders of
Common Stock of the Company entitled to receive such distribution.
<PAGE>
(f) Recapitalizations. If at any time or from time
-----------------
to time there shall be a recapitalization of the Common Stock provision shall be
made so that the holders of the Series A Preferred Stock shall thereafter be
entitled to receive upon conversion of the Series A Preferred Stock the number
of shares of stock or other securities or property of the Company or otherwise,
to which a holder of Common Stock deliverable upon conversion would have been
entitled on such recapitalization. In any such case, appropriate adjustment
shall be made in the application of the provisions of this Section 4 with
respect to the rights of the holders of the Series A Preferred Stock after the
recapitalization to the end that the provisions of this Section 4 (including
adjustment of the Conversion Price then in effect and the number of shares
purchasable upon conversion of the Series A Preferred Stock) shall be applicable
after that event as nearly equivalent as may be practicable.
(g) No Impairment. The Company will not, by
-------------
amendment of its Certificate of Incorporation, this Certificate of Designation
or through any reorganization, recapitalization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Company, but will at all
times in good faith assist in the carrying out of all the provisions of this
Section 4 and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the holders of the
Series A Preferred Stock against impairment.
(h) No Fractional Shares and Certificate as to
------------------------------------------
Adjustments.
- -----------
(i) No fractional shares shall be issued
upon the conversion of any share or shares of the Series A Preferred Stock, and
the number of shares of Common Stock to be issued shall be rounded to the
nearest whole share. Whether or not fractional shares are issuable upon such
conversion shall be determined on the basis of the total number of shares of
Series A Preferred Stock the holder is at the time converting into Common Stock
and the number of shares of Common Stock issuable upon such aggregate
conversion.
(ii) Upon the occurrence of each adjustment
or readjustment of the Conversion Price of Series A Preferred Stock pursuant to
this Section 4, the Company, at its expense, shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and prepare and
furnish to each holder of Series A Preferred Stock a certificate setting forth
such adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. This Company shall, upon the written
request at any time of any holder of Series A Preferred Stock, furnish or cause
to be furnished to such holder a like certificate setting forth (A) such
adjustment and readjustment, (B) the Conversion Price for such series of
Preferred Stock at the time in effect, and (C) the number of shares of Common
Stock and the amount, if any, of other property that at the time would be
received upon the conversion of a share of Series A Preferred Stock.
<PAGE>
(i) Notices of Record Date. In the event of any
----------------------
taking by the Company of a record of the holders of any class of securities for
the purpose of determining the holders thereof who are entitled to receive any
dividend or other distribution, any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other securities or
property, or to receive any other right, the Company shall mail to each holder
of Series A Preferred Stock, at least twenty (20) days prior to the date
specified therein, a notice specifying the date on which any such record is to
be taken for the purpose of such dividend, distribution or right, and the amount
and character of such dividend, distribution or right.
(j) Reservation of Stock Issuable Upon Conversion.
---------------------------------------------
The Company shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Series A Preferred Stock, such number of its
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of the Series A Preferred Stock; and if at
any time the number of authorized but unissued shares of Common Stock shall not
be sufficient to effect the conversion of all then outstanding shares of the
Series A Preferred Stock, in addition to such other remedies as shall be
available to the holder of such Preferred Stock, the Company will take such
corporate action as may, in the opinion of its counsel, be necessary to increase
its authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purposes, including, without limitation, engaging
in best efforts to obtain the requisite shareholder approval of any necessary
amendment to the Certificate of Incorporation of the Company. In that regard, as
of the date of the filing of this Certificate of Designation with the Delaware
Secretary of State, the Company does not have a sufficient number of shares of
Common Stock available under its Certificate of Incorporation to permit the full
conversion of the outstanding shares of Series A Preferred. As a result, not
later than September 30, 2000 (which date shall be subject to extension from
time to time by the holders of a majority of the then outstanding shares of
Series A Preferred) the Company agrees to amend its Certificate of Incorporation
to increase the number of shares of authorized Common Stock to permit the full
conversion of the shares of Series A Preferred outstanding from time to time.
(k) Notices. Any notice required by the provisions
-------
of this Section 4 to be given to the holders of shares of Series A Preferred
Stock shall be deemed given if deposited in the United States mail, postage
prepaid, and addressed to each holder of record at his address appearing on the
books of the Company.
<PAGE>
5. Voting Rights.
-- -------------
(a) General Voting Rights. The holder of each share of Series A
--- ---------------------
Preferred Stock shall have the right to one vote for each share of Common Stock
into which such Series A Preferred Stock could then be converted, and with
respect to such vote, such holder shall have full voting rights and powers equal
to the voting rights and powers of the holders of Common Stock, and shall be
entitled, notwithstanding any provision hereof, to notice of any stockholders'
meeting in accordance with the bylaws of the Company, and shall be entitled to
vote, together with holders of Common Stock, with respect to any question upon
which holders of Common Stock have the right to vote. Fractional votes shall
not, however, be permitted and any fractional voting rights available on an as-
converted basis (after aggregating all shares into which shares of Series A
Preferred Stock held by each holder could be converted) shall be rounded to the
nearest whole number (with one-half being rounded upward).
(b) Voting for the Election of Directors. The holders of Series A
--- ------------------------------------
Preferred Stock and Common Stock (voting together as a single class and not as
separate series, and on an as-converted basis regardless of whether or not the
Company has a sufficient number of shares of authorized Common Stock to permit
the full conversion of the then outstanding shares of Series A Preferred) shall
be entitled to elect the directors of the Company; provided, however, upon the
occurance of an Event of a Default (as defined in this Section 5(b) below), for
so long as a majority of the shares of Series A Preferred Stock originally
issued remain outstanding, the holders of a majority of the shares of Series A
Preferred then outstanding shall be entitled to elect at least a majority of the
directors of the Company and the Company will take such steps as shall be
necessary under the circumstances to cause such election to take place.
In the case of any vacancy (other than a vacancy caused by removal) in
the office of a director occurring among the directors elected by the holders of
a class or series of stock pursuant to this Section 5(b), the remaining
directors so elected by that class or series may by affirmative vote of a
majority thereof (or the remaining director so elected if there be but one, or
if there are no such directors remaining, by the affirmative vote of the holders
of a majority of the shares of that class or series), elect a successor or
successors to hold office for the unexpired term of the director or directors
whose place or places shall be vacant. Any director who shall have been elected
by the holders of a class or series of stock or by any directors so elected as
provided in the immediately preceding sentence hereof may be removed during the
aforesaid term of office, either with or without cause, by, and only by, the
affirmative vote of the holders of the shares of the class or series of stock
entitled to elect such director or directors, given either at a special meeting
of such stockholders duly called for that purpose or pursuant to a written
consent of stockholders, and any vacancy thereby created may be filled by the
holders of that class or series of stock represented at the meeting or pursuant
to unanimous written consent.
For all purposes of this Certificate of Designation, an "Event of
Default" shall be deemed to have occurred if any of the events described in
Section 7.01 of that certain Preferred Stock Purchase Agreement dated as of May
1, 2000 among the Company, Bank of America, N. A., EnCap
<PAGE>
Equity 1996 Limited Partnership, Energy Capital Investment Company PLC, El Paso
Capital Investments, L.L.C., EF-II Holdings, LLC, Picosa Creek Limited
Partnership, SETEX Oil Company, L.P., EnCap Equity 1994 Limited Partnership, and
Encap Investments L.C. (the "Stock Purchase Agreement"), shall have occurred and
be continuing.
6. Protective Provisions. (a) So long as any shares of Series A
-- ---------------------
Preferred Stock are outstanding, the Company shall not without first obtaining
the approval (by vote or written consent, as provided by law) of the holders of
at least 80% of the then outstanding shares of Series A Preferred Stock:
(i) sell, convey, or otherwise dispose of all or
substantially all of its property or business or, other than as described in
Section 6(b)(i) below, merge into or consolidate with any other corporation or
entity (other than a wholly-owned subsidiary) or effect any transaction or
series of related transactions in which more than 50% of the voting power of the
Company is disposed of;
(ii) alter or change the rights, preferences or privileges of
the shares of Series A Preferred Stock;
(iii) authorize or issue, or obligate itself to issue, any
other equity security, including any other security convertible into or
exercisable for any equity security, having a preference over the Series A
Preferred Stock with respect to dividends, liquidation, redemption or voting;
(iv) redeem, purchase or otherwise acquire (or pay into or
set aside for a sinking fund for such purpose) any share or shares of Series A
Preferred Stock or Common Stock; provided, however, that this restriction shall
not apply to (A) the repurchase of shares of Common Stock from employees,
officers, directors, consultants or other persons performing services for the
Company or any subsidiary pursuant to agreements under which the Company has the
option to repurchase such shares at cost or at cost upon the occurrence of
certain events, such as the termination of employment or (B) the redemption of
any share or shares of Series A Preferred Stock in accordance with Section 3; or
(v) authorize any dividend or other distribution (other than
a stock dividend) with respect to any capital stock of the Company, other than
the stock or cash dividends payable to the holders of the Series A Preferred
Stock as provided herein.
<PAGE>
In all cases described in this Section 6(a), however, the Company shall have
received from a nationally recognized investment banking firm selected by the
Company and (so long as such parties remain beneficial owners of the Series A
Preferred Stock) acceptable to Bank of America, N.A., EnCap Investments L.C., El
Paso Capital Investments, L.L.C., Encap Equity 1994 Limited Partnership, and
Encap Equity 1996 Limited Partnership, a written opinion indicating that such
transaction is fair to each holder of Series A Preferred Stock from a financial
point of view; provided, however, if such an opinion cannot be given or, at the
sole option of the Company, will not be pursued, then the consent of the holders
of 90% of the then outstanding shares of Series A Preferred Stock shall be
required for any action described in this Section 6(a).
(b) So long as any shares of Series A Preferred Stock are
outstanding, the Company shall not without first obtaining the approval (by vote
or written consent, as provided by law) of the holders of at least a majority of
the then outstanding shares of Series A Preferred Stock:
(i) merge into or consolidate with any other corporation or
entity (other than a wholly-owned subsidiary) if the Company shall have caused
the Series A Preferred Stock to remain outstanding after the merger or
consolidation and be convertible into the same consideration received by the
holders of the Common Stock in the merger or consolidation;
(ii) increase or decrease (other than by redemption or
conversion) the total number of authorized shares of Series A Preferred Stock
(other than as necessary to distribute the dividend to the holders of the Series
A Preferred Stock as described in Section (1)(b));
(iii) authorize or issue, or obligate itself to issue, any
other equity security, including any other security convertible into or
exercisable for any equity security, having a parity with the Series A Preferred
Stock with respect to dividends, liquidation, redemption or voting; or
(iv) amend the Company's Certificate of Incorporation or
bylaws.
7. Status of Redeemed or Converted Stock. All shares of Series A
-- -------------------------------------
Preferred Stock acquired by the Company by reason of redemption, purchase,
conversion or otherwise shall be retired and canceled promptly after the
acquisition thereof. All such shares shall upon their cancellation become
authorized, unissued shares of undesignated preferred stock available for
issuance by the Company.
<PAGE>
IN WITNESS WHEREOF, this Certificate of Designation has been executed by
the Vice President of the Company as of the 1st day of May, 2000.
AROC INC.
By: Francis M. Munchinski, Vice President
<PAGE>
EXHIBIT 4.1
DATED APRIL 30, 2000
--------------------
AROC INC.
________________________________
WARRANT AGREEMENT
relating to the issuance of
Series J Warrants of
AROC Inc.
_______________________________
<PAGE>
THIS WARRANT AGREEMENT (the "Agreement") is entered into as of April 30,
2000 among AROC Inc., a Delaware corporation ("the Company") and those persons
identified on the signature page of this Agreement as Warrant Holders (the
"Warrant Holders").
Recitals
The Warrant Holders have concurrently with this Warrant Agreement, entered
into a Purchase Agreement (the "Subordinated Debt Purchase Agreement") by and
between the Company and the Warrant Holders providing for the Warrant Holders to
purchase from the Company the Company's 12% Subordinated Notes due 2007 and
warrants to purchase the Company's Common Stock.
One of the conditions to the completion of the Subordinated Debt Purchase
Agreement is that the Company shall enter into this Warrant Agreement.
Now, therefore, in consideration of the premises and the mutual agreements
of the parties, the parties to this Agreement hereby agree as follows:
Agreement
I. INTERPRETATION
In this Warrant Agreement, unless the context otherwise requires, the
expressions defined in the particulars of Warrants set out in the Schedule
hereto shall have the meanings thereby given.
II. WARRANTS
A. The Warrants shall be constituted as 39,541,233 Series "J" Warrants
entitling the holders to subscribe for shares of the common stock,
$0.001 par value per share (the "Common Stock") of the Company at a
fixed price of $0.01 per share (subject to the provisions of the
Schedule hereto) at any time prior to 5:00 p.m. (Tulsa, Oklahoma time)
on April 30, 2007, the final date for exercise of a Warrant being the
"Expiration Date" and the price payable upon exercise of a Warrant
being the "Subscription Price".
B. Each of the Warrant Holders represents and agrees as follows:
(i) It has the requisite power and authority to enter into and
perform this Agreement and this Agreement and any other documents executed
by it in connection with this Agreement will, when executed, constitute
binding obligations of the Warrant Holder enforceable in accordance with
their respective terms.
(ii) It is an "accredited investor" as that term is defined in the
Securities Act of 1933, as amended, and is acquiring the Warrants for its
own account, and has received all information it believes necessary to
evaluate its investment in the Warrants.
2
<PAGE>
(iii) Each of the Warrant Holders hereby acknowledges and confirms
that the Warrants and the Common Stock, whether issued or arising as a
consequence of exercise of the Warrants will be "restricted securities"
under the United States Securities Act of 1933 (as amended) and that the
ability to resell such Warrants and such Common Stock will therefore be
limited.
C. The Company represents and agrees as follows:
(i) The representations and warranties made by it in Subordinated
Debt Purchase Agreement are true and correct.
(ii) The execution and performance of this Agreement by it has been
duly and validly authorized by its board of directors, and, subject to the
Charter Amendment, no other corporate action is necessary to authorize the
execution, delivery and performance of this Agreement by it. Subject to the
Charter Amendment, it has full, absolute and unrestricted right, power and
authority to execute and perform this Agreement and to carry out the
transactions contemplated hereby. This Agreement has been duly and validly
executed by it and this Agreement and any other documents executed by it in
connection with this Agreement is constitute valid and binding obligations
of it, enforceable in accordance with their respective terms.
III. CERTIFICATES
Every Warrant Holder shall be entitled to receive one certificate for each
Series of the Warrant(s) held by him but joint holders shall be entitled to
only one certificate in respect of the Warrants held jointly by them which
certificates shall be delivered to the joint holder whose name stands first
in the Register. The Company shall comply with the terms and conditions of
the Schedule hereto and the Warrants shall be held subject to such terms
and conditions all of which terms shall be deemed to be incorporated in
this Warrant Agreement and shall be binding on the Company and the Warrant
Holders and all persons claiming through or under them respectively.
IV. APPOINTMENT OF WARRANT AGENT
The Company may in its absolute discretion by resolution of its Board of
Directors appoint as agent of the Company such person or persons as it
thinks fit to act in connection with the issue, registration, transfer and
exchange or otherwise of warrants (the "Warrant Agent"). The Company agrees
that the Warrant Agent shall perform the duties and obligations required of
it in accordance with the terms and conditions of the Schedule hereto and
any other terms that the Company sees fit and to undertake all
responsibilities hereby vested for the time being in the Company.
V. MISCELLANEOUS
A. The representations, warranties, covenants and agreements of the
parties to this Agreement shall survive after the Offer is declared
unconditional.
3
<PAGE>
B. Except as otherwise provided in this Agreement, the parties shall each
pay their own expenses and costs in connection with this Agreement and
the transactions contemplated hereby.
C. Subject to the requirements of law and regulatory bodies, no party
shall make any public announcement or press release with respect to
this transaction without first consulting with the other parties and
giving such parties the opportunity to review and comment thereon.
D. This Agreement and all of the provisions hereof shall be binding upon
and inure to the benefit of the parties hereto and their respective
heirs, personal representatives, successors and assigns.
E. Any provision of this Agreement that is prohibited or unenforceable in
any jurisdiction shall, in such jurisdiction, be ineffective to the
extent of such prohibition or unenforceability without invalidating
the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
F. This Agreement (including the instruments between the parties referred
to herein and any waivers delivered pursuant hereto) constitutes the
entire agreement among the parties with respect to the subject matter
hereof and supersedes all other prior agreements and understandings,
both written and oral, among the parties, or any of them, with respect
to the subject matter hereof. The exhibits are a part of this Agreement
as if fully set forth herein. All references to articles, sections,
subsections, paragraphs, clauses, exhibits and schedules shall be
deemed references to such part of this Agreement, unless the context
shall otherwise require.
G. No supplement, modification, or amendment of this Agreement or waiver
of any provision of this Agreement will be binding unless executed in
writing by, or on behalf of, all parties to this Agreement. No waiver
of any of the provisions of this Agreement will be deemed or will
constitute a waiver of any other provision of this Agreement
(regardless of whether similar), nor will any such waiver constitute a
continuing waiver unless otherwise expressly provided.
H. Descriptive headings contained herein are for convenience of reference
only and shall not affect the meaning or interpretation hereof.
I. This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original but all of which together
shall constitute but one agreement.
J. The parties shall execute, acknowledge and deliver or cause to be
executed, acknowledged and delivered such instruments and take such
other action as may be necessary or advisable to carry out their
obligations under this Agreement and
4
<PAGE>
under any document, certificate or other instrument delivered pursuant
hereto or required by law.
5
<PAGE>
IN WITNESS whereof the undersigned have caused this Warrant Agreement to be duly
executed and issued the day and year first above written.
The Company:
AROC INC.
By: ____________________________________
Name: __________________________________
Title: _________________________________
Warrant Holders:
ENCAP EQUITY 1996 LIMITED PARTNERSHIP
(Holder of 20,933,594 Series J Warrants)
By: ENCAP INVESTMENTS L.L.C.
By: ____________________________________
Name: __________________________________
Title: _________________________________
ENERGY CAPITAL INVESTMENT COMPANY PLC
(Holder of 6,977,865 Series J Warrants)
By: ____________________________________
Name: __________________________________
Title: _________________________________
EL PASO CAPITAL INVESTMENTS, L.L.C.
(Holder of 11,629,774 Series J Warrants)
By: ____________________________________
Name: __________________________________
Title: _________________________________
6
<PAGE>
SCHEDULE
1. Subscription Rights
(a) At any time after the Company has obtained approval of the increase in
authorized shares of Common stock of the Company in an amount
sufficient to permit the exercise of all of the Company's then
outstanding warrants and the conversion of all of its then outstanding
Series A Convertible Preferred Stock (the "Charter Amendment"), then a
registered holder (a "holder") of a Warrant shall have the right,
exercisable in accordance with paragraph 1(c) below, to subscribe (the
"subscription rights") in cash on any date on or after January 1,
2001, but prior to the Expiration Date in respect of such Warrant, on
the following terms: for each Warrant specified in the Warrant
certificate one share of Common Stock at the Subscription Price in
respect of such Warrant payable in full on subscription. The number of
shares of Common Stock to be subscribed and the subscription price are
subject to adjustment pursuant to paragraph 2 below. The subscription
rights will not be exercisable in respect of a fraction of a share of
Common Stock. Failure to exercise a Warrant prior to 5:00 p.m. (Tulsa,
Oklahoma time) on the relative Expiration Date will mean that the
Warrant shall become void and all rights attaching to such Warrant
shall cease.
(b) The number of Warrants to which each registered holder of Warrants
shall be entitled shall be evidenced by a Warrant certificate issued
by the Company. Warrant certificates shall be dated as of the date of
issue, whether on initial issue, transfer, exchange or in lieu of
mutilated, lost, stolen or destroyed Warrant certificates. Warrants
shall be deemed to have been exercised immediately prior to the close
of business on the date of the surrender for exercise of the Warrant
certificate.
(c) In order to exercise the subscription rights in respect of any
Warrants, the registered Warrant Holder must, after completing the
notice of exercise on his Warrant certificate, deliver it to the
office of the Warrant Agent for the Company accompanied by a
remittance for the total subscription price of the shares of Common
Stock in respect of which the subscription rights are being exercised.
Once delivered, a notice of subscription shall be irrevocable except
with the consent of the Directors of the Company.
(d) Shares of Common Stock issued pursuant to the exercise of subscription
rights will be issued not later than 14 days after, and with effect
from, the date on which the related duly completed subscription notice
shall be delivered to the Warrant Agent for the Company (the
"subscription date") and Common Stock certificates in respect of such
shares of Common Stock will be issued free of charge and mailed (at
the risk of the persons entitled thereto) not later than 14 days after
the relevant subscription date to the first named person in whose name
the Warrants are registered at the relevant subscription date or
(subject as provided by law) to such other persons as may be named in
the form of nomination upon the reverse of the Warrant certificate. In
the event that not all of the Warrants evidenced by a Warrant
certificate are exercised, the Company shall at the same time issue
for no payment a fresh Warrant
1
<PAGE>
certificate in the name of the Warrant Holder for any balance of the
subscription rights remaining exercisable.
(e) Shares of Common Stock issued pursuant to the exercise of subscription
rights will not be deemed outstanding for any dividends or other
distributions declared, made or paid in respect of any financial year
of the Company prior to the financial year in which the relevant
subscription date falls, nor shall they be deemed outstanding for any
dividends or other distributions declared, made or paid on a date (or
by reference to a record date) prior to the relevant subscription date
but, subject thereto, will be treated pari passu in all other respects
with the shares of Common Stock issued at the relevant subscription
date including being deemed issued for all dividends and other
distributions in respect of the financial year in which the relevant
subscription date occurs provided that on any issuance failing to be
made pursuant to paragraph 3(c) below the shares of Common Stock so to
be issued shall not be deemed outstanding for any dividends or other
distributions declared, made or paid by reference to a record date
prior to the date of issuance.
(f) To the extent not then exercised, all subscription rights in respect
of the Warrants shall lapse at 5:00 p.m. (Tulsa, Oklahoma time) on the
Expiration Date in respect of such Warrants.
(g) No sale, offering or transfer of the Warrants or the shares underlying
the Warrants is permitted unless validly registered under the
Securities Act of 1933, as amended, or exempt from the registration
requirements of that Act.
2. Adjustment of Subscription Price
(a) If, on a date (or by reference to a record date) on or before the
relative Expiration Date in respect of a Warrant, the Company shall
issue any Common Stock by way of dividend to holders of Common Stock
of record on a date (or by reference to a record date) before the
relative Expiration Date or upon any consolidation or sub-division of
the Common Stock before such Expiration Date, the number of shares of
Common Stock to be issued on any subsequent exercise of the
subscription rights in respect of that Warrant will be increased or,
as the case may be, reduced in due proportion and the subscription
price per share of Common Stock will be adjusted accordingly. On any
such dividend, consolidation or sub-division the Company will cause
the auditors of the Company to verify the correctness of the
appropriate adjustments and, within 28 days of such adjustments,
notice will be sent to each Warrant Holder of the adjusted number of
shares of Common Stock to which the Warrant Holder is entitled to
subscribe in consequence thereof, fractional entitlements being
ignored, such notice being accompanied by a new Warrant certificate in
respect of such adjusted number of shares of Common Stock.
(b) If, on a date (or by reference to a record date) on or before the
relative Expiration Date, the Company makes any offer or invitation
(whether by rights issue, rights offer or otherwise but not being an
offer to which paragraph 3(c) below applies or an offer
2
<PAGE>
of shares in lieu of a cash dividend payment) to the holders of Common
Stock in their capacity as such, or any offer or invitation is made to
such holders otherwise than by the Company, then the Company shall, as
far as it is able, cause at the same time the same offer or invitation
to be made to the then Warrant Holders as if their subscription rights
had been exercisable and had been exercised on the day immediately
preceding the date (or record date) of such offer or invitation on the
terms (subject to any adjustment pursuant to paragraph 2(a) above) on
which the same could have been exercised on the basis then applicable
provided that, if the Directors shall so resolve, in the case of any
offer or invitation made by the Company, the Company shall not be
required to cause the same offer or invitation to be made to the
Warrant Holders but the subscription price and/or the number of shares
of Common Stock to be subscribed on any subsequent exercise of the
subscription rights shall be adjusted accordingly. The Company will
cause the auditors of the Company to certify in writing the
appropriateness of the adjustments and, within 28 days, notice will be
sent to each Warrant Holder together with a new Warrant certificate in
respect of the adjusted number of share of Common Stock to which that
Warrant Holder is entitled to subscribe in consequence thereof,
fractional entitlements being ignored.
(c) No adjustment shall be made to the subscription price of a Series of
Warrants pursuant to paragraph 2(a) or (b) if such adjustment would
(taken together with the amount of any adjustment carried forward
under the provisions of this paragraph 2(c)) be less than 1 percent of
the relative subscription price then in force and on any adjustment
the adjusted subscription price will be rounded down to the nearest
$0.01. Any adjustment not so made and any amount by which the
subscription price is rounded down will be carried forward and taken
into account in any subsequent adjustment.
3. Other Provisions
So long as any subscription rights remain exercisable:
(a) after obtaining approval of the Charter Amendment, the Company shall
reserve for issuance sufficient authorized but unissued shares to
satisfy in full (without the need for the passing of any further
resolution by shareholders) all subscription rights remaining
exercisable;
(b) the Company shall not (except with the consent of the holders of at
least three-fourths of the Warrants of each Series) issue any Common
Stock by way of a dividend nor make any such offer as is referred to
in paragraph 2(b) above if as a result the Company would on any
subsequent exercise of the subscription rights be obliged to issue
Common Stock for less than the par value thereof;
(c) if at any time an offer or invitation is made by the Company to the
holders of Common Stock for the purchase by the Company of any of its
Common Stock, the Company shall simultaneously give notice thereof to
the Warrant Holders and each
3
<PAGE>
such Warrant Holder shall be entitled at any time while such offer or
invitation is open for acceptance to exercise his subscription rights
as if they were then exercisable so as to take effect as if he had
exercised his rights immediately prior to the date (or record date) of
such offer or invitation;
(d) if the Company commences liquidation, whether voluntary or compulsory
(except on terms sanctioned by the consent of the holders of at least
three-fourths of the Warrants), it shall forthwith give notice thereof
to all holders of Warrants; thereupon each Warrant shall be
exercisable and each holder of a Warrant will (if in such winding-up
there shall be a surplus available for distribution among the holders
of Common Stock (including for this purpose the Common Stock which
would be issued on the exercise of all the outstanding subscription
rights) which, taking into account the amounts payable on the exercise
of the subscription rights, exceeds in respect of each share of Common
Stock a sum equal to the subscription price) be deemed, as of
immediately before the date of such order or resolution, to have
exercised his subscription rights in full and shall accordingly be
entitled to receive out of the assets available on liquidation pari
passu with the holders of the Common Stock such a sum as he is
entitled as a holder of Common Stock to which he becomes entitled by
virtue of such subscription after deducting a sum per share equal to
the subscription price; subject to the foregoing, all subscription
rights shall lapse on liquidation of the Company; and
(e) the Company shall not (except with the consent of the holders of at
least three-fourths of the Warrants of each Series) issue Common Stock
by way of a dividend unless at the date of such issuance the Directors
have authority to grant the additional rights to subscribe to which
the Warrant Holders will by virtue of paragraph 2(a) above to be
entitled in consequence of such capitalization.
4. Modification of Rights and Warrant Instrument
All or any of the rights attached to the Warrants may from time to time
(whether or not the Company is being wound up) be altered or abrogated with
the consent of the holders of at least three-fourths of the Warrants of
each Series affected by such alteration or abrogation. Such alteration or
abrogation approved as aforesaid shall be effected by a majority vote of
the Board of Directors executed by the Company and expressed to be
supplemental to this Warrant Instrument. Modifications to this Warrant
Instrument which are of a formal, minor or technical nature, or made to
correct a manifest error, or any modifications which the Directors consider
appropriate may be effected by a majority vote of the Board of Directors
executed by the Company and expressed to be supplemental to this Warrant
Instrument and notice of such alteration or abrogation or modification
shall be given by the Company to the Warrant Holders.
5. Purchase by the Company
4
<PAGE>
The Company shall be entitled at any time to purchase Warrants on the open
market or otherwise. Any Warrants so purchased shall be canceled
immediately and shall not be available for re-issue.
6. Transfer
(a) The Warrants will be registered and transferable in whole or in part
by instrument of transfer in any usual or common form or in any other
form which may be approved by the Board of Directors except that no
transfer of a right to subscribe for a fraction of a share of Common
Stock shall be effected. Except insofar as the same would be
inconsistent with this Warrant Instrument, the provisions of the
Bylaws of the Company relating to the registration, transfer and
transmission of shares shall apply mutatis mutandis to the Warrants.
(b) Notwithstanding any other provision contained herein, for so long as
any Regulated Entity (as defined herein) holds any Warrants which,
upon exercise, would result in such Regulated Entity holding more than
5% of the outstanding Common Stock, such Regulated Entity may only
transfer the Warrants under the following circumstances: (i) in a
widely distributed public offering; (ii) in a transfer pursuant to
Rule 144 under the United States of America ("U.S.") Securities Act of
1933, as amended, or any similar rule then in force; (iii) in a
transfer where the Common Stock underlying the Warrants being
transferred represent two percent or less of the outstanding Common
Stock (not including the transfer from the Regulated Entity); (v) in a
transfer to the Company; (vi) in a transfer to an affiliate or such
holder or any other Regulated Entity; or (vii) in any method of
transfer permitted by the Board of Governors of the Federal Reserve
System of the U.S.
Once such Regulated Entity holds Warrants and share of Common Stock
which, after exercise of the Warrants, would constitute 5.0% or less
of the outstanding Common Stock, the foregoing restrictions on
transfer shall cease to apply.
"Regulated Entity" means (i) any entity that is a "bank holding
company" (as defined in Section 2(a) of the U.S. Bank Holding Company
Act of 1956, as amended (the "BHC Act")) or any non-bank subsidiary of
such an entity or (ii) any entity that, pursuant to Section 8(a) of
the U.S. International Banking Act of 1978, as amended, is subject to
the provisions of the BHC Act or any non-bank subsidiary of such an
entity.
7. Indemnification of Warrant Agent
(a) The Warrant Agent shall act as Agent of the Company. The Warrant Agent
shall not, by issuing and delivering Warrant certificates or by any
other act, be deemed to make any representations as to the validity or
value of the Warrant certificates or the Warrants represented thereby
or of the Common Stock or other property delivered on exercise of any
Warrant. The Warrant Agent shall not be under any duty or
responsibility to any holder of the Warrant certificates to make or
cause to be made
5
<PAGE>
any adjustment of the Subscription Price or to determine whether any
fact exists which may require any such adjustments.
(b) The Warrant Agent shall not (i) be liable for any statement or fact
contained in this instrument or for any action taken or omitted by it
in reliance on any Warrant certificate or other document or instrument
believed by it in good faith to be valid and to have been signed or
presented by the proper party or parties, (ii) be responsible for any
failure on the part of the Company to comply with any of its covenants
and obligations contained in this instrument or in the Warrant
certificates, or (iii) be liable for any act or omission in connection
with this Agreement except for its own negligence or willful
misconduct.
(c) The Warrant Agent may at any time seek legal advice of counsel (who
may be counsel to the Company) and shall incur no liability or
responsibility for any action taken or omitted by it in good faith in
accordance with such notice, statement, instrument, request,
direction, order or demand.
(d) Any notice, statement, instruction, request, direction, order or
demand of the Company shall be sufficiently evidenced by an instrument
signed by any officer of the Company. The Warrant Agent shall not be
liable for any action taken or omitted by it in accordance with such
notice, statement, instruction, request, direction, order or demand.
(e) The Company agrees to pay the Warrant Agent reasonable compensation
for its services hereunder and to reimburse the Warrant Agent for its
reasonable expenses. The Company further agrees to indemnify the
Warrant Agent against any and all losses, expenses and liabilities,
including judgments, costs and fees, for any action taken or omitted
by the Warrant Agent in the execution of its duties and powers,
excepting losses, expenses and liabilities arising as a result of the
Warrant Agent's negligence or willful misconduct.
8. General
(a) The Company will concurrently with the issue of the same to holders of
Common Stock send to each holder of a Warrant (or, in the case of
joint holders, to the first named) a copy of each published annual
report and accounts of the Company and unaudited interim report of the
Company together with all documents required by law to be annexed
thereto, and copies of every statement, notice or report issued to
holders of Common Stock.
(b) For the purposes of this Warrant Instrument, "business day" means a
day (excluding Saturdays and public holidays) on which banks in the
States of Oklahoma and Texas are open for business. All the provisions
of the Bylaws of the Company as to meetings of the shareholders shall
apply mutatis mutandis as though each series of the Warrants formed a
separate class of Common Stock of the Company but so that (i) the
period of notice shall be 21 days at least, (ii) the necessary quorum
shall be
6
<PAGE>
Warrant Holders of the relevant series (present in person or
by proxy) entitled to subscribe for one-third of the Common Stock
attributable to the then outstanding Warrants of that series, (iii)
every Warrant Holder present in person at any such meeting shall be
entitled to one vote for every such share of Common Stock for which he
is entitled to subscribe, and (iv) if at any adjourned meeting a
quorum as defined above is not present, a Warrant Holder who is then
present in person or by proxy shall be a quorum.
(c) The invalidity of any undertaking, or any part of any undertaking, in
paragraph 3 shall not affect the validity of any other part of that
paragraph.
(d) Any determination or adjustment made pursuant to these terms and
conditions by the auditors of the Company shall be made by them as
experts and not arbitrators and shall be final and binding on the
Company and all Warrant Holders.
9. Governing Law
THIS AGREEMENT AND THE LEGAL RELATIONS AMONG THE PARTIES HERETO SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE
OF OKLAHOMA, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.
7
<PAGE>
WARRANT CERTIFICATE
- ---------------------------------------------------------------
Date
_______________, ____
- ---------------------------------------------------------------
Certificate No. Exercise Price per Share Number of Warrants
J_______ $____ _______
- ---------------------------------------------------------------
AROC INC.
_________________________________
SERIES "J" WARRANTS TO SUBSCRIBE FOR COMMON SHARES
THIS IS TO CERTIFY that _________________ of _________________________________
is the Registered holder of Warrants to subscribe for __________ shares of
common stock, par value $0.001 per share, ("Common Stock") of AROC Inc. subject
to the conditions endorsed hereon and the provisions of the Certificate of
Incorporation of the Company.
AROC Inc.
By: ______________________________
Name: ____________________________
Title: ___________________________
Dated: ___________________, _____
<PAGE>
NOTICE OF EXERCISE
To: AROC Inc. (the "Company")
1. I/We, being the registered holder(s) of the Warrants represented by this
certificate, hereby give notice of my/our desire to exercise my/our
subscription rights in respect of _________/1/ shares of Common Stock of
the Company in accordance with the conditions applicable thereto and
request that such shares be issued for the total price of $__________ for
which we enclose my/our check.
2. I/We agree to accept all of the shares of Common Stock of the Company to be
issued to me/us pursuant hereto subject to the Certificate of Incorporation
of the Company. I/We desire all such Common Stock to be registered in
my/our name(s) and hereby authorize the entry of my/our name(s) in the
stock transfer records of the Company in respect thereof and the delivery
of a certificate therefor by United States mail at my/our risk to the
person whose name and address is set out below or, if none is set out, to
the registered address of the sole or first named holder.
3. I/We hereby authorize the delivery of a certificate for the balance (if
any) of the Warrants represented by this certificate which are not
exercised by United States mail at my/our risk to the person whose name and
address is set out below or, if none is set out, to the sole or first named
holders at his/her registered address.
Dated: ____________________________
Signature(s) of Warrant Holder(s)/2/:
_________________________________________________
_________________________________________________
Name/3/: _________________________________________________
__________________________
/1/ Delete or complete as appropriate. If no amount is inserted, the
notice of exercise will be deemed to relate to all of the shares of
common stock subject to the Warrant.
/2/ In the case of joint holders ALL should sign. A corporation or other
entity should execute through an officer or attorney duly authorized
in that behalf in which event the Warrant must be accompanied by the
authority under which this notice is completed.
/3/ Please insert in BLOCK CAPITALS the name and/or the address of the
person to whom you wish the common stock share certificate and any
balance certificate for Warrants to be sent if it is different from
that of the sole or first named Warrantholder.
<PAGE>
Address: _______________________________________________________________
<PAGE>
EXHIBIT 10.1
================================================================================
PURCHASE AND SALE AGREEMENT
Dated: April 30, 2000
By and Between
ENCAP EQUITY 1996 LIMITED PARTNERSHIP, SELLER
and
AROC INC., BUYER
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
Definitions and References.............................................................. 1
Section 1.1. Certain Defined Terms............................................... 1
Section 1.2. Certain Additional Defined Terms.................................... 8
Section 1.3. References, Titles and Construction................................. 9
ARTICLE II
Interests to be Sold and Purchased...................................................... 10
ARTICLE III
Purchase Price.......................................................................... 10
ARTICLE IV
Representations and Warranties of Seller................................................ 10
Section 4.1. Organization and Existence.......................................... 10
Section 4.2. Authority Relative to This Agreement................................ 10
Section 4.3. Valid and Binding Agreement......................................... 11
Section 4.4. Non-Contravention................................................... 11
Section 4.5. Approvals........................................................... 11
Section 4.6. Pending Litigation.................................................. 11
Section 4.7. Basic Documents..................................................... 11
Section 4.8. Commitments, Abandonments or Proposals............................. 12
Section 4.9. Production Sales Contracts.......................................... 13
Section 4.10. Plugging and Abandonment............................................ 13
Section 4.11. Licenses and Permits................................................ 13
Section 4.12. Area of Mutual Interest and Other Agreements;
Tax Partnerships.................................................... 13
Section 4.13. Payment of Expenses................................................. 13
Section 4.14. Compliance with Laws................................................ 14
Section 4.15. Partnerships; Title to Interests; Partnership Agreements............ 14
Section 4.16. Physical Condition of Facilities.................................... 14
Section 4.17. Environmental Matters............................................... 14
Section 4.18. Production Data..................................................... 15
Section 4.19. Ordinary Course Operations.......................................... 15
Section 4.20. Sale of Production.................................................. 15
Section 4.21. Brokerage Fees...................................................... 15
Section 4.22. Bankruptcy.......................................................... 16
Section 4.23. Full Disclosure..................................................... 16
Section 4.24. Disclaimer of Warranties............................................ 16
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
ARTICLE V
Representations and Warranties of Buyer.................................................. 16
Section 5.1. Organization and Existence........................................... 16
Section 5.2. Qualification........................................................ 16
Section 5.3. Charter and Bylaws................................................... 16
Section 5.4. Capitalization of Buyer.............................................. 17
Section 5.5. Authority Relative to This Agreement................................. 17
Section 5.6. No Conflict.......................................................... 17
Section 5.7. Consents and Approvals, Licenses, Etc................................ 18
Section 5.8. Subsidiaries......................................................... 18
Section 5.9. Preferred Shares; Conversion Shares.................................. 19
Section 5.10. Financial Statements................................................. 19
Section 5.11. Securities Filings................................................... 20
Section 5.12. Absence of Undisclosed Liabilities................................... 20
Section 5.13. Absence of Certain Changes........................................... 20
Section 5.14. Tax Matters.......................................................... 21
Section 5.15. Environmental and Other Laws......................................... 22
Section 5.16. Legal Proceedings.................................................... 23
Section 5.17. Title to Properties; Permits; Licenses; Condition of Assets.......... 23
Section 5.18. ERISA................................................................ 24
Section 5.19. Agreements........................................................... 25
Section 5.20. Labor Disputes and Acts of God....................................... 27
Section 5.21. Insurance............................................................ 27
Section 5.22. Offering of Securities............................................... 27
Section 5.23. Government Regulation................................................ 27
Section 5.24. Brokerage Fees....................................................... 27
Section 5.25. Bankruptcy........................................................... 28
Section 5.26. Nature of Company Assets............................................. 28
Section 5.27. Full Disclosure...................................................... 28
ARTICLE VI
Certain Convenants of Seller and Buyer Pending Closing................................... 28
Section 6.1. Pre-Closing Covenants of Seller...................................... 28
Section 6.2. Pre-Closing Covenants of Buyer....................................... 30
Section 6.3. Pre-Closing Covenants of Seller and Buyer............................ 32
ARTICLE VII
Due Diligence Examination With Respect to the Properties................................. 32
SECTION 7.1. Inspection and Assertion of Defects.................................. 32
Section 7.2. Certain Price Adjustments............................................ 33
Section 7.3. Waiver............................................................... 34
Section 7.4. Casualty Loss........................................................ 34
Section 7.5. Disputes............................................................. 34
ARTICLE VIII
Conditions Precedent to the Obligations of the Parties................................... 35
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
Section 8.1. Conditions Precedent to the Obligations of Buyer..................... 35
Section 8.2. Conditions Precedent to the Obligations of Seller.................... 36
ARTICLE IX
Closing of Transaction................................................................... 37
Section 9.1. The Closing.......................................................... 37
Section 9.2. Seller's Closing Obligations......................................... 37
Section 9.3. Buyer's Closing Obligations.......................................... 38
Section 9.4. Delivery of Files.................................................... 38
ARTICLE X
Pre-Closing Termination.................................................................. 38
Section 10.1. Termination.......................................................... 38
Section 10.2. Effect of Termination................................................ 39
ARTICLE XI
Rights to Distributions, Assumption of Liabilities and Indemnification................... 39
ARTICLE XII
Affirmative Post Closing Covenants of Buyer.............................................. 39
Section 12.1. Inspection Rights.................................................... 39
Section 12.2. Books, Financial Statements and Reports.............................. 40
Section 12.3. Notice of Material Events and Change of Address...................... 41
Section 12.4. Maintenance of Properties............................................ 42
Section 12.5. Maintenance of Existence and Qualifications.......................... 42
Section 12.6. Payment of Trade Liabilities, Taxes, etc............................. 42
Section 12.7. Insurance............................................................ 42
Section 12.8. Compliance with Agreements and Law................................... 42
Section 12.9. Charter Amendment Approval........................................... 42
ARTICLE XIII
Post Closing Negative Covenants of Buyer................................................. 43
Section 13.1. Indebtedness......................................................... 43
Section 13.2. Limitation on Liens.................................................. 43
Section 13.3. Limitation on Mergers................................................ 43
Section 13.4. Limitation on Sales of Property...................................... 44
Section 13.5. Limitation on Investments and New Businesses......................... 44
Section 13.6. Transactions with Affiliates......................................... 44
Section 13.7. Restricted Payments.................................................. 44
ARTICLE XIV
Events of Default and Remedies........................................................... 44
Section 14.1. Events of Default.................................................... 44
Section 14.2. Annulment of Defaults................................................ 47
Section 14.3. Expiration........................................................... 47
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
ARTICLE XV
Notices................................................................................... 47
ARTICLE XVI
Miscellaneous Matters.................................................................... 48
Section 16.1. Survival of Provisions.............................................. 48
Section 16.2. Public Announcements................................................ 48
Section 16.3. Fees and Expenses................................................... 48
Section 16.4. Costs of Enforcement................................................ 49
Section 16.5. Indemnification..................................................... 49
Section 16.6. Waiver and Amendment................................................ 50
Section 16.7. Entire Agreement.................................................... 50
Section 16.8. Binding Effect; Assignment; No Third Party Benefit.................. 51
Section 16.9. Severability........................................................ 51
Section 16.10. Governing Law....................................................... 51
Section 16.11. Remedies Not Exclusive.............................................. 51
Section 16.12. Further Assurances.................................................. 51
Section 16.13. Counterparts........................................................ 51
Section 16.14. Injunctive Relief................................................... 52
Section 16.15. Consent to Jurisdiction............................................. 52
Section 16.16. Payments............................................................ 52
Section 16.17. Right to Purchase New Equity Securities............................. 52
</TABLE>
iv
<PAGE>
PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT dated April 30, 2000, is made by and
between ENCAP EQUITY 1996 LIMITED PARTNERSHIP, a Texas limited partnership
("Seller"), and AROC INC., a Delaware corporation ("Buyer");
W I T N E S S E T H:
--------------------
WHEREAS, Seller desires to sell, assign and convey to Buyer, and Buyer
desires to purchase and accept certain limited partnership interests; and
WHEREAS, Seller and Buyer deem it in their mutual best interests to execute
and deliver this Agreement;
NOW, THEREFORE, in consideration of the foregoing Recitals and the mutual
covenants and agreements contained herein, Seller and Buyer do hereby agree as
follows:
ARTICLE I
Definitions and References
--------------------------
Section 1.1. Certain Defined Terms. When used in this Agreement, the
---------------------
following terms shall have the respective meanings assigned to them in this
Section 1.1 or in the section, subsections or other subdivisions referred to
below:
"Affiliate" means, with respect to any Person, any other Person that,
directly or indirectly, through one or more intermediaries, controls, is
controlled by or is under common control with, such Person. For the purposes of
this definition, "control" when used with respect to any Person means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract, or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Agreement" means this Agreement, as hereafter changed, amended or modified
in accordance with the terms hereof.
"Alliance Group" means Alliance Resources Group, Inc., a Delaware
corporation.
"Alliance PLC" means Alliance Resources PLC, a public limited company
incorporated in England and Wales.
"Alliance USA" means Alliance Resources (USA), Inc., a Delaware
corporation.
<PAGE>
"Ancillary Documents" means each agreement, certificate, document,
commitment and writing (other than this Agreement) executed or to be executed by
Buyer or Seller in connection with the transactions contemplated herein or
therein, including the Assignment.
"Applicable Law" means any statute, law, rule or regulation, or any
judgment, order, writ, injunction or decree of, any Governmental Entity to which
a specified Person or property is subject.
"AROC (Texas)" means AROC (Texas), Inc., a Texas corporation.
"Certificate of Designation" means the document attached hereto as Exhibit
-------
3.1.
- ---
"Change of Control" means the occurrence of any of the following events
after giving effect to the transactions contemplated by this Agreement, the
Other Acquisition Agreements and the Preferred Stock Purchase Agreement: (a) any
Person or two or more Persons, other than Buyer or any affiliate of Buyer,
acting as a group shall acquire beneficial ownership (within the meaning of Rule
13d-3 of the Securities and Exchange Commission under the Exchange Act, and
including holding proxies to vote for the election of directors other than
proxies held by Buyer's management or their designees to be voted in favor of
persons nominated by Buyer's Board of Directors) of 33% or more of the
outstanding voting securities of Buyer, measured by voting power (including
both ordinary shares and any preferred stock or other equity securities
entitling the holders thereof to vote with the holders of common stock in
elections for directors of Buyer.), (b) Buyer shall fail beneficially to own,
directly or indirectly, 100% of the outstanding shares of voting capital stock
of Alliance PLC, Alliance Group, Source, Difco, AROC (Texas), Alliance USA, LPC
or GOC, on a fully diluted basis, (c) one-third or more of the directors of
Buyer shall consist of persons not nominated by Buyer's Board of Directors (not
including as Board nominees any directors which the Board is obligated to
nominate pursuant to shareholders agreements, voting trust arrangements or
similar arrangements) or (d) within three years of the Closing Date, the
employment by Buyer of John Keenan or Paul Fenemore terminates for any reason.
"Charter Amendment Approval" means approval of the increase in authorized
shares of Common Stock of the Company to such level as shall permit the full and
complete conversion of the Preferred Shares into the Preferred Conversion Shares
in accordance with the Certificate of Designation, all in accordance with the
Organic Documents and Applicable Law.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" means common stock, $0.001 par value per share, of Buyer and
any securities issued or issuable with respect to such shares by way of a stock
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization.
"Companies Act" means the Companies Act 1985 as amended.
"Data" has the meaning assigned to it in Schedule 4.7 of the Seller
------------
Disclosure Schedule.
2
<PAGE>
"Default" means an 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.
"Difco" means Difco Limited, a private limited company incorporated under
the laws of England and Wales.
"Environmental Laws" means any and all laws relating to the environment or
to emissions, discharges, releases or threatened releases of pollutants,
contaminants, chemicals, or industrial, toxic or hazardous substances or wastes
into the environment including ambient air, surface water, ground water, or
land, or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling of pollutants,
contaminants, chemicals, or industrial, toxic or hazardous substances or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" means the U.S. Securities Exchange Act of 1934, as amended.
"Fiscal Quarter" means a three-month period ending on July 31, October 31,
January 31 or April 30 of any year.
"Fiscal Year" means the twelve-month period ending on April 30 of any year.
"GOC" means Germany Oil Company, a Delaware corporation.
"Governmental Entity" means any court or tribunal in any jurisdiction
(domestic or foreign) or any federal, state, municipal or other governmental
body, agency, authority, department, commission, board, bureau or
instrumentality (domestic or foreign).
"GP Approval" means, as to a given Partnership, the approval of the general
partner of such Partnership to the assignment by Seller of its respective
Interest in such Partnership to Buyer and the admission of Buyer as a
substituted limited partner of such Partnership in place of Seller.
"Hazardous Materials" means any substance regulated under Environmental
Law, whether as pollutants, contaminants, or chemicals, or as industrial, toxic
or hazardous substances or wastes, or otherwise.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended.
"Indebtedness" of any Person means Liabilities in any of the following
categories: (a) Liabilities for borrowed money; (b) Liabilities constituting an
obligation to pay the deferred purchase price of property or services; (c)
Liabilities evidenced by a bond, debenture, note or similar instrument; (d)
Liabilities which would under U.S. GAAP be shown on such Person's balance sheet
as a liability, and is payable more than one year from the date of creation
thereof (other than reserves
3
<PAGE>
for taxes and reserves for contingent obligations); (e) Liabilities arising
under futures contracts, forward contracts, swap, cap or collar contracts,
option contracts, hedging contracts, other derivative contracts, or similar
agreements; (f) Liabilities constituting principal under leases capitalized in
accordance with U.S. GAAP; (g) Liabilities arising under conditional sales or
other title retention agreements; (h) Liabilities owing under direct or indirect
guaranties of Liabilities of any other Person or constituting obligations to
purchase or acquire or to otherwise protect or insure a creditor against loss in
respect of Liabilities of any other Person (such as obligations under working
capital maintenance agreements, agreements to keep-well, or agreements to
purchase Liabilities, assets, goods, securities or services), but excluding
endorsements in the ordinary course of business of negotiable instruments in the
course of collection; (i) Liabilities (for example, repurchase agreements)
consisting of an obligation to purchase securities or other property, if such
Liabilities arise out of or in connection with the sale of the same or similar
securities or property; (j) Liabilities with respect to letters of credit or
applications or reimbursement agreements therefor; (k) Liabilities with respect
to payments received in consideration of oil, gas, or other minerals yet to be
acquired or produced at the time of payment (including obligations under "take-
or-pay" contracts to deliver gas in return for payments already received and the
undischarged balance of any production payment created by such Person or for the
creation of which such Person directly or indirectly received payment); or (l)
Liabilities with respect to other obligations to deliver goods or services in
consideration of advance payments therefor; provided, however, that the
"Indebtedness" of any Person shall not include Liabilities that were incurred by
such Person on ordinary trade terms to vendors, suppliers, or other Persons
providing goods and services for use by such Person in the ordinary course of
its business, unless and until such Liabilities are outstanding more than 90
days past the original invoice or billing date therefor.
"IRS" means the Internal Revenue Service.
"Key Employment Agreements" means (i) that certain Executive Employment
Agreement dated as of December 8, 1999 between Buyer and John A. Keenan, and
(ii) that certain Service Agreement dated September 20, 1996 between Alliance
PLC and Paul Raymond Fenemore, as amended by Supplemental Agreement dated
September 20, 1996, Second Supplemental Agreement dated December 1, 1998, and
letter agreement dated as of December 8, 1999.
"Liabilities" means, as to any Person, all indebtedness, liabilities and
obligations of such Person, whether matured or unmatured, liquidated or
unliquidated, primary or secondary, direct or absolute, fixed or contingent, and
whether or not required to be considered pursuant to U.S. GAAP.
"Lien" means, with respect to any property or assets, any right or interest
therein of a creditor to secure Liabilities owed to such creditor or any other
arrangement with such creditor which provides for the payment of such
Liabilities out of such property or assets or which allows him to have such
Liabilities satisfied out of such property or assets prior to the general
creditors of any owner thereof, including any lien, mortgage, security interest,
pledge, deposit, production payment, rights of a vendor under any title
retention or conditional sale agreement or lease substantially equivalent
thereto, tax lien, mechanic's or materialman's lien, or any other charge or
encumbrance for security purposes, whether arising by law or agreement or
otherwise, but excluding any right of
4
<PAGE>
offset which arises without agreement in the ordinary course of business. "Lien"
shall also mean 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.
"Listing Rules" means the listing rules of the London Stock Exchange.
"London Stock Exchange" means the London Stock Exchange Limited.
"LPC" means LaTex Petroleum Corporation, an Oklahoma corporation.
"LRI" means LaTex Resources, Inc., a Delaware corporation.
"LRI Merger" means the merger of Alliance Resources (Delaware) Inc. with
and into LRI whereby Alliance PLC became the sole shareholder of LRI.
"Material Adverse Effect" means (a) when used with respect to Buyer, a
material adverse change in, or a material adverse effect upon (i) the business,
assets, results of operations, condition (financial or otherwise) or prospects
of Buyer and its Subsidiaries on a consolidated basis, (ii) Buyer's ability to
timely pay the Obligations or to perform on a timely basis any material
obligation of Buyer under this Agreement or any agreement, instrument, or
document entered into or delivered in connection herewith or (iii) the
enforceability of the material terms of this Agreement or any Ancillary
Document; and (b) when used with respect to Seller, a material adverse change
in, or a material adverse effect upon (i) the Interests or the Properties or
(ii) the enforceability of the material terms of this Agreement or any Ancillary
Document.
"Oil and Gas Properties" has the meaning assigned to it in Schedule 4.7 of
------------
the Seller Disclosure Schedule.
"Old LaTex Payables" means those current accounts payable to Buyer or its
consolidated Subsidiaries that meet one or more of the following tests and have
been certified to Seller by Buyer and applicable Subsidiary as being an Old
LaTex Payable:
(a) accounts payable the collection of which is barred by the
applicable statute of limitations;
(b) accounts payable the collection of which has been compromised or
forgiven in part, in either case to the extent of the amount that has been
compromised or forgiven; or
(c) accounts payable in respect of which the indebtedness was incurred
prior to the LRI Merger and where each of the following is true: (i) no payment
has been made on an individual amount of indebtedness payable since the LRI
Merger, (ii) no contact has been received by Buyer or applicable Subsidiary from
the applicable creditor since the LRI Merger pertaining to
5
<PAGE>
such account or if contact has been received, such account is being diligently
contested in good faith, (iii) no promise to pay such account has been made by
Buyer or applicable Subsidiary since the LRI Merger and (iv) no judgment has
been obtained by, or settlement agreement entered into with, such creditor with
respect to such indebtedness.
"Other Acquisition Agreements" means other agreements or proposed
agreements to which Buyer is a party and disclosed in writing to Seller, whereby
Buyer will issue shares of Series A Preferred, in exchange for limited
partnership interests and interests in oil, gas and mineral properties and
related assets.
"Outstanding Common Stock" means, at any time, the aggregate of all Common
Stock then outstanding, including all shares of Common Stock which could be
acquired from the Company upon exercise or conversion of any outstanding
warrants, options or other securities then exercisable or convertible into
Common Stock.
"Partnership Agreements" means the Agreement of Limited Partnership of each
of the Partnerships, as amended, modified or changed to the date hereof.
"Permits" means licenses, permits, franchises, consents, approvals,
variances, exemptions and other authorizations of or from Governmental Entities.
"Permitted Investment" means any investment, loan, advance, guaranty or
capital contribution by Buyer or any Subsidiary in any of the following: (a)
properties or assets to be used in the ordinary course of business of Buyer and
its Subsidiaries; (b) current assets arising from the sale of goods and services
in the ordinary course of business of Buyer and its Subsidiaries; (c)
investments in one or more of Buyer's Subsidiaries or in any Person that
concurrently with such investment becomes a Subsidiary; (d) any marketable
obligation maturing not later than one year after the date of acquisition
therefor, issued or guaranteed by the United States of America or by any agency
of the United States of America which has the full faith and credit of the
United States of America; (e) commercial paper which is given the highest rating
by a credit rating agency of recognized national standing and maturing not more
than 270 days from the date of creation thereof; and (f) any demand deposit or
time deposit (including certificates of deposit and money market or sweep
accounts) with a commercial bank or trust company organized and doing business
under the laws of the United States of America or any state thereof which has
capital, surplus and undivided profits of at least $250,000,000, provided that
such deposit must be either payable on demand or mature not more than twelve
months from the date of investment therein.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, enterprise, unincorporated organization
or Governmental Entity.
"Preferred Conversion Shares" means the shares of Common Stock issuable
upon conversion of the Preferred Shares.
6
<PAGE>
"Preferred Stock Purchase Agreement" means that certain Preferred Stock
Purchase Agreement dated as of May 1, 2000, by and among Buyer, Bank of America,
N.A., EnCap Equity 1996 Limited Partnership, Energy Capital Investment Company
PLC, El Paso Capital Investments, L.L.C., EF-II Holdings, LLC, Picosa Creek
Limited Partnership and EnCap Investments L.L.C.
"Proceedings" means all proceedings, actions, claims, suits, investigations
and inquiries by or before any arbitrator or Governmental Entity.
"Properties" has the meaning assigned to it in Schedule 4.7 of the Seller
------------
Disclosure Schedule.
"Reasonable best efforts" means a party's reasonable best efforts in
accordance with reasonable commercial practice and without the incurrence of
unreasonable expense.
"Restricted Payment" shall mean any Distribution (as defined below) in
respect of Buyer or any Subsidiary thereof (other than on account of capital
stock or other equity interests of a Subsidiary owned legally or beneficially by
the Seller or another Subsidiary), including any Distribution resulting in the
acquisition by Buyer of securities that would constitute treasury stock. As used
in this definition, "Distribution" shall mean, in respect of any corporation,
partnership or other business entity (a) dividends or other distributions or
payments on capital stock or other equity interest of such corporation,
partnership or other business entity (except distributions in such stock or
other equity interest) and (b) the redemption or acquisition of such stock or
other equity interests or of warrants, rights or other options to purchase such
stock or other equity interests (except when solely in exchange for such stock
or other equity interests); provided, that "Distribution" shall not mean any
dividend or other distribution made, or redemption effected, in accordance with
the terms of the Certificate of Designation.
"Securities Act" means the U.S. Securities Act of 1933, as amended.
"Securities and Exchange Commission" means the U.S. Securities and Exchange
Commission.
"Seller Disclosure Schedule" mean a schedule delivered by Seller to Buyer
which sets forth additional information regarding the representations and
warranties of Seller contained herein and information called for hereby.
"Senior Credit Facility" means that certain Credit Agreement dated as of
May 1, 2000, by and among Buyer, Toronto Dominion (Texas), Inc. as Agent, and
the lenders signatory thereto.
"Series A Preferred" means shares of Buyer's Series A Preferred Stock,
$0.001 par value per share.
"Source" means Source Petroleum, Inc., a Louisiana corporation.
"Subordinated Debt" means that certain Indebtedness of Buyer evidenced by
the Subordinated Debt Agreement.
7
<PAGE>
"Subordinated Debt Agreement" means that certain Purchase Agreement dated
as of May 1, 2000, by and among Buyer, EnCap Equity 1996 Limited Partnership,
Energy Capital Investment Company PLC and El Paso Capital Investments, L.L.C.
"Subsidiary" means any corporation more than 50% of whose outstanding
voting securities, or any general partnership, joint venture or similar entity
more than 50% of whose total equity interests, is owned, directly or indirectly,
by the Buyer, or any limited partnership of which Buyer or any Subsidiary is a
general partner.
"Taxes" means any income taxes or similar assessments or any sales, excise,
occupation, use, ad valorem, property, production, severance, transportation,
employment, payroll, franchise, transfer, stamp, withholding or other tax
imposed by any United States federal, state or local (or any foreign or
provincial) taxing authority, including any interest, penalties or additions
attributable thereto.
"Tax Return" means any return or report (including but not limited to any
related or supporting information, any amended return or report or any
information return or report) with respect to Taxes.
"Treasury Regulations" means one or more treasury regulations promulgated
under the Code by the Treasury Department of the United States.
"U.S. GAAP" means generally accepted accounting principles in the United
States of America from time to time.
Section 1.2. Certain Additional Defined Terms. In addition to such terms
--------------------------------
as are defined in the opening paragraph and in Section 1.1 of this Agreement,
the following terms are used in this Agreement as defined in the Sections set
forth opposite such terms:
Defined Term Section Reference
----------------------------------------- -------------------
Asserted Defects......................... 7.1(a)
Assignment............................... 9.2(a)
Audited Financial Statements............. 5.10
Base Purchase Price...................... Article III
Basic Documents.......................... 4.7
Closing.................................. 9.1
Closing Date............................. 9.1
Effective Date........................... 9.2(a)
Event of Default......................... 14.1
Financial Statements..................... 5.10
Interests Article II
Latest Balance Sheet..................... 5.10
Net Title Adjustments.................... 7.2(c)
Organic Documents........................ 5.3
Partnerships Article II
8
<PAGE>
Defined Term Section Reference
----------------------------------------- -------------------
Permitted Liens.......................... 13.2
Preferred Shares......................... Article III
Purchase Price........................... Article III
Scheduled Production Sales Contracts..... 4.9
Unaudited Financial Statements........... 5.10
Section 1.3. References, Titles and Construction.
------------------------------------
(a) All references in this Agreement to articles, sections,
subsections and other subdivisions refer to corresponding articles, sections,
subsections and other subdivisions of this Agreement unless expressly provided
otherwise.
(b) Titles appearing at the beginning of any of such subdivisions are
for convenience only and shall not constitute part of such subdivisions and
shall be disregarded in construing the language contained in such subdivisions.
(c) 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.
(d) Words in the singular form shall be construed to include the
plural and vice versa, unless the context otherwise requires. Pronouns in
---- -----
masculine, feminine and neuter genders shall be construed to include any other
gender.
(e) 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 or restatements of such agreement,
instrument or document, provided that nothing contained in this subsection shall
be construed to authorize such renewal, extension, modification, amendment or
restatement.
(f) Examples shall not be construed to limit, expressly or by
implication, the matter they illustrate.
(g) The word "or" is not intended to be exclusive and the word
"includes" and its derivatives means "includes, but is not limited to" and
corresponding derivative expressions.
(h) No consideration shall be given to the fact or presumption that
one party had a greater or lesser hand in drafting this Agreement.
(i) All references herein to "$" or "dollars" shall refer to U.S.
Dollars.
ARTICLE II
9
<PAGE>
Interests to be Sold and Purchased
----------------------------------
Seller agrees to sell, assign and transfer and Buyer agrees to purchase and
accept, for the consideration hereinafter set forth, and subject to the terms
and provisions herein contained, all of Seller's interests as a limited partner
(the "Interests") in the following limited partnerships: (i) Famcor Oil W.T.,
L.P.; (ii) Pledger Partners, Ltd.; (iii) St.Martinville Partners, Ltd.; and (iv)
Wheel-Moore, Ltd. (the "Partnerships").
ARTICLE III
Purchase Price
--------------
In consideration of the sale of the Interests by Seller to Buyer, Buyer
shall pay to Seller at Closing an aggregate purchase price (the "Base Purchase
Price") consisting of 363,825 shares of Series A Preferred (the "Preferred
Shares"). The rights, designations, preferences and other terms and conditions
relating to the Preferred Shares shall be as set forth in the Certificate of
Designation attached hereto as Exhibit 3.1. The Base Purchase Price may be
-----------
adjusted as provided in Article VII (the Base Purchase Price, as so adjusted,
and as the same may be otherwise adjusted by the mutual agreement of the
parties, being called the "Purchase Price").
ARTICLE IV
Representations and Warranties of Seller
----------------------------------------
Subject to the Seller Disclosure Schedule, Seller represents and warrants
to Buyer as follows:
Section 4.1. Organization and Existence. Seller is a limited partnership
--------------------------
duly formed and validly existing under the laws of the State of Texas.
Section 4.2. Authority Relative to This Agreement. Seller has full power
------------------------------------
and authority to execute, deliver, and perform this Agreement and the Ancillary
Documents and to consummate the transactions contemplated hereby and thereby.
The execution, delivery, and performance by Seller of this Agreement and the
Ancillary Documents and the consummation by it of the transactions contemplated
hereby and thereby, have been duly authorized by all necessary action of Seller.
Section 4.3. Valid and Binding Agreement. This Agreement has been duly
---------------------------
executed and delivered by Seller and constitutes, and each Ancillary Document
has been, or when executed will be, duly executed and delivered by Seller and
constitutes, or when executed and delivered will constitute, a valid and legally
binding obligation of Seller, enforceable against it in accordance with their
respective terms, except that such enforceability may be limited by (a)
applicable bankruptcy, insolvency, reorganization, moratorium, and similar laws
affecting creditors' rights generally and
10
<PAGE>
(b) equitable principles which may limit the availability of certain equitable
remedies (such as specific performance) in certain instances.
Section 4.4. Non-Contravention. Subject to receipt of GP Approval,
-----------------
neither the execution, delivery, and performance by Seller of this Agreement and
each other agreement, instrument, or document executed or to be executed by
Seller in connection with the transactions contemplated hereby nor the
consummation by it of the transactions contemplated hereby and thereby do and
will (a) conflict with or result in a violation of any provision of the
partnership agreement or other governing instruments of Seller, (b) conflict
with or result in a violation of any provision of, or constitute (with or
without the giving of notice or the passage of time or both) a default under, or
give rise (with or without the giving of notice or the passage of time or both)
to any right of termination, cancellation, or acceleration under, any bond,
debenture, note, mortgage, indenture, lease, contract, agreement, or other
instrument or obligation to which Seller is a party or by which Seller, any of
its properties or the Interests may be bound, (c) result in the creation or
imposition of any lien or other encumbrance upon the properties of Seller or the
Interests, or (d) violate any Applicable Law binding upon Seller.
Section 4.5. Approvals. Other than GP Approval, no consent, approval,
---------
authorization. license, order or permit of, or declaration, filing, or
registration with, any Governmental Entity or any other Person or entity is
required to be obtained or made by Seller in connection with the execution,
delivery, or performance by Seller of this Agreement or any Ancillary Document
and the consummation of the transactions contemplated hereby and thereby.
Section 4.6. Pending Litigation. There are no Proceedings pending, or to
------------------
the best knowledge of Seller, threatened, which affect the Interests or the
Properties (including any actions challenging or pertaining to Seller's title to
the Interests or the Partnership's title to any of their respective Properties),
or affecting the execution and delivery of this Agreement or the consummation of
the transactions contemplated hereby. None of Seller or any of the Interests or,
to the best knowledge of Seller, the Properties is subject to any judgment,
order, writ, injunction, or decree of any Governmental Entity.
Section 4.7. Basic Documents. To Seller's knowledge, the oil, gas and/or
---------------
mineral leases, interests in which comprise parts of the Oil and Gas Properties,
and all other material contracts and agreements, licenses, permits and
easements, rights-of-way and other rights-of-surface use comprising any part of
or otherwise relating to the Properties (such leases and such material
contracts, agreements, licenses, permits, easements, rights-of-way and other
rights-of-surface use, including any amendments or modifications, being herein
called the "Basic Documents"), are in full force and effect and constitute valid
and binding obligations of the parties thereto and are enforceable in accordance
with their respective terms. To the best of Seller's knowledge, all Basic
Documents are disclosed on Schedule 4.7 of the Seller Disclosure Schedule in
------------
connection with the descriptions of the Oil and Gas Properties to which they
relate or otherwise in the Seller Disclosure Schedule. To the best of Seller's
knowledge, no Partnership is in breach or default (and no situation exists which
with the passing of time or giving of notice would create a breach or default)
of its obligations under the Basic Documents to which it is a party or any
regulations incorporated in or governing same, and (to the
11
<PAGE>
best of Seller's knowledge) no breach or default by any third party (or
situation which with the passage of time or giving of notice would create a
breach or default) exists, to the extent such breach or default (whether by a
Partnership or such a third party) could materially adversely affect the
ownership, operation, value or use of any Oil and Gas Property of a Partnership
after the Effective Date. To the best of Seller's knowledge, all payments
(including all delay rentals, royalties, shut-in royalties and valid calls for
payment or prepayment under operating agreements) owing under Basic Documents
have been and are being made (timely, and before the same became delinquent) by
the Partnerships in all material respects (and, where the non-payment of same by
a third party could materially adversely affect the ownership, operation, value
or use of an Oil and Gas Property after the Effective Date, have been and are
being made, to the best knowledge of Seller, by such third parties). For the
purposes of the representations contained in this Section (and without
limitation of such representations), the non-payment of an amount, or non-
performance of an obligation, where such non-payment, or non-performance, could
result in the forfeiture or termination of rights of a Partnership under a Basic
Document, shall be considered material. To the best of Seller's knowledge,
Seller has rights in the Data.
Section 4.8. Commitments, Abandonments or Proposals.
--------------------------------------
(a) Seller has made no commitments to make capital contributions to any of
the Partnerships after the Effective Date.
(b) To the best knowledge of Seller: (i) no Partnership has incurred any
expenses, and has made any commitments to make expenditures, in connection with
(and no other obligations or liabilities have been incurred which would
adversely affect) the ownership or operation of such Partnership's Oil and Gas
Properties after the Effective Date, other than routine expenses incurred in the
normal operation of existing wells; (b) no Partnership has abandoned, nor
entered into any agreements or arrangements to abandon, any wells (or removed
any material items of equipment, except those replaced by items of equal
suitability and value) on such Partnership's Oil and Gas Properties since the
Effective Date; and (c) no proposals are currently outstanding (whether made by
a Partnership or by any other party) to drill additional wells, or to deepen,
plug back, or rework existing wells, or to conduct other operations for which
consent is required under the applicable operating agreement, or to conduct any
other operations other than normal operation of existing wells on the
Properties, or to abandon any wells, on the Oil and Gas Properties. To the best
knowledge of Seller, there are no operations involving any of the Oil and Gas
Properties with respect to which a Partnership has become a non-consenting
party.
Section 4.9. Production Sales Contracts. To the best knowledge of
--------------------------
Seller, there exist no agreements or arrangements for the sale of production
from the Oil and Gas Properties (including without limitation, calls on, or
other rights to purchase, production, whether or not the same are currently
being exercised) other than (a) production sales contracts (in this Section, the
"Scheduled Production Sales Contracts") disclosed in Section 4.9 of the Seller
Disclosure Schedule or (b) agreements or arrangements which are cancelable on 60
days notice or less without penalty or detriment. To the best knowledge of
Seller, each Partnership is presently receiving a price for all production from
(or attributable to) such Partnership's Oil and Gas Properties covered by a
12
<PAGE>
Scheduled Production Sales Contract as computed in accordance with the terms of
such contract, and is not having deliveries of gas from any Property subject to
a Scheduled Production Sale Contract curtailed substantially below such
Property's delivery capacity. To the best knowledge of Seller, there are no
prepayments, advance payments, take-or-pay payments or similar payments
affecting the Oil and Gas Properties.
Section 4.10. Plugging and Abandonment. To the best knowledge of Seller,
------------------------
there are no dry holes, or shut in or otherwise inactive wells, located on the
Oil and Gas Properties or on lands pooled or unitized therewith (including any
wells which would, if located in Texas, require compliance with Railroad
Commission Rule 14(b)(2)), except for wells that have been properly plugged and
abandoned, and except for wells drilled to depths not included within the Oil
and Gas Properties or within units in which the Oil and Gas Properties
participate which have never been completed in such depths.
Section 4.11. Licenses and Permits. To the best knowledge of Seller, (i)
--------------------
each Partnership has all Permits necessary or appropriate to own and operate the
Oil and Gas Properties as presently being owned and operated by such
Partnership, (ii) such Permits are in full force and effect, and (iii) the
Partnerships have not received written notice of any violations in respect of
any such Permits.
Section 4.12. Area of Mutual Interest and Other Agreements; Tax
-------------------------------------------------
Partnerships. To the best knowledge of Seller: (i) no Oil and Gas Property is
- ------------
subject to (or has related to it) any area of mutual interest agreements; (ii)
no Oil and Gas Property is subject to (or has related to it) any farm-out or
farm-in agreement under which any party thereto is entitled to receive
assignments not yet made, or could earn additional assignments after the
Effective Date; and (iii) no Oil and Gas Property is subject to (or has related
to it) any tax partnership.
Section 4.13. Payment of Expenses. To the best knowledge of Seller all
-------------------
expenses (including all bills for labor, materials and supplies used or
furnished for use in connection with the Properties, and all severance,
production, ad valorem, windfall profit and other similar taxes) and liabilities
relating to the ownership or operation of the Properties, have been, and are
being, paid (timely, and before the same become delinquent) by the Partnership
that owns such Properties.
Section 4.14. Compliance with Laws. To the best knowledge of Seller, the
--------------------
ownership and operation of Properties, to the extent that non-conformance could
adversely affect the ownership, operation, value or use thereof after the
Effective Date (or otherwise affect Buyer), has been in conformity, in all
material respects, with all Applicable Laws, except for such non-compliance
which would not have a Material Adverse Effect.
Section 4.15. Partnerships; Title to Interests; Partnership Agreements.
--------------------------------------------------------
(a) Each Partnership has been duly formed and is validly existing under the
laws of the State of Texas.
13
<PAGE>
(b) Seller has good and marketable title to the Interests, free and clear
of all Liens and other encumbrances, save and except for the Partnership
Agreements.
(c) Each Partnership Agreement is in full force and effect and constitutes
the valid and binding obligation of the parties thereto and is enforceable in
accordance with its respective terms, except that such enforceability may be
limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium,
and similar laws affecting creditors' rights generally and (ii) equitable
principles which may limit the availability of certain equitable remedies (such
as specific performance) in certain instances. Seller is not in breach or
default (and no situation exists which with the passing of time or giving of
notice would create a breach or default) of its obligations under any
Partnership Agreement and (to the best of Seller's knowledge) no breach or
default by any other party to any Partnership Agreement (or situation which with
the passage of time or giving of notice would create a breach or default)
exists, to the extent such breach or default (whether by Seller or such other
party) could materially adversely affect the ownership or value of any Interest
after the Effective Date.
Section 4.16. Physical Condition of Facilities. To the best of Seller's
--------------------------------
knowledge, the surface physical facilities on the Oil and Gas Properties have
been maintained in accordance with normal industry maintenance practices and are
in a state of repair (normal wear and tear excepted) that Seller believes to be
adequate for the normal use of such facilities in the ordinary conduct of the
business of Seller. Without limiting the foregoing, but subject to ordinary wear
and tear, to the best of Seller's knowledge, such facilities are not in need of
maintenance or improvements except for maintenance and improvements in the
ordinary course in accordance with normal industry practice.
Section 4.17. Environmental Matters. To the best knowledge of Seller:
---------------------
(i) each Partnership is in material compliance with all applicable federal,
state, local and foreign laws, regulations, rules, orders, decrees, treaties,
judicial decisions, judgments, injunctions, permits and governmental
restrictions relating to pollution or protection of human health or the
environment (including ambient air, surface water, ground water, land surface or
subsurface strata) (collectively "Environmental Laws"), except for such non-
compliance as could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect, and there are no circumstances that
are reasonably likely to materially prevent or interfere with such compliance in
the next three years, and (ii) no Partnership has received written notice of or
is the subject of, any actions, causes of action, claims, investigations,
demands, notices, requests for information, complaints, suits or proceedings by
any Person alleging liability under or non-compliance with any Environmental Law
that are reasonably likely, individually or in the aggregate, to have a Material
Adverse Effect. Buyer acknowledges that this Section 4.17 is the exclusive
representation and warranty made by Seller in this Agreement with respect to
applicable Environmental Laws and no other representation and warranty in this
Agreement shall be deemed to cover such matters.
Section 4.18. Production Data. Seller has provided to representatives of
---------------
Buyer aggregate production data on the Properties and data on lease operating
expenses incurred on the Properties. To the best knowledge of Seller, all of
such data is accurate and complete in all material respects as of the date
provided.
14
<PAGE>
Section 4.19. Ordinary Course Operations. To the best of Seller's
--------------------------
knowledge, since January 1, 2000, (i) no Partnership has operated or in any
manner dealt with, incurred obligations with respect to, or undertaken any
transactions relating to, the Properties of such Partnership other than in the
ordinary course of business consistent with past practice and (ii) none of the
Properties has suffered any material destruction, damage, or loss (except
depreciation of equipment through ordinary wear and tear) or been subjected by
any Partnership to any mortgage, lien, encumbrance, claim, or security interest
that has not previously been disclosed to representatives of Buyer or that would
constitute a Material Adverse Effect.
Section 4.20. Sale of Production. To the best of Seller's knowledge,
------------------
except as described in Section 4.20 of the Seller Disclosure Schedule there is
no well on the Properties with respect to which any Partnership and its
predecessors in title to the Properties have collectively taken more (referred
to herein as "overproduced") or less (referred to herein as "underproduced")
production from such well than the ownership of such Partnership and such
predecessors would entitle such Partnership and such predecessors (absent any
gas balancing agreement or arrangement) to receive. To the best of Seller's
knowledge, the overproduced and underproduced positions disclosed on Section
4.20 of the Seller Disclosure Schedule are, in each case, materially accurate
as of the dates shown on such schedule.
Section 4.21. Brokerage Fees. Neither Seller nor any of its affiliates
--------------
has retained any financial advisor, broker, agent or finder or paid or agreed to
pay any financial advisor, broker, agent or finder on account of this Agreement
or any transaction contemplated hereby, which action would subject Buyer or any
of its affiliates to any liability. Seller shall indemnify and hold harmless
Buyer from and against any and all losses, claims, damages and liabilities
(including legal and other expenses reasonably incurred in connection with
investigating or defending any claims or actions) with respect to any finder's
fee, brokerage commission or similar payment in connection with any transaction
contemplated hereby asserted by any Person on the basis of any act or statement
made or alleged to have been made by Seller or any of its affiliates.
Section 4.22. Bankruptcy. There are no bankruptcy, reorganization or
----------
arrangement proceedings pending, being contemplated by, or to the knowledge of
Seller, threatened against Seller.
Section 4.23. Full Disclosure. No representation or warranty made by
---------------
Seller in this Agreement, and no statement of Seller contained in any document,
certificate or other writing furnished or to be furnished by Seller or its
representatives to Buyer pursuant hereto or in connection herewith, contains or
will contain, at the time of delivery, any untrue statement of a material fact
or omits or will omit, at the time of delivery, to state any material fact
(other than industry-wide risks normally associated with the type of business
conducted by Seller) necessary to make the statements contained therein, in
light of the circumstances in which they are made, not misleading. There is no
fact known to Seller (other than industry-wide risks normally associated with
the type of business conducted by Seller) that has not been disclosed to Buyer
in writing which Seller reasonably anticipates would result in a Material
Adverse Effect.
15
<PAGE>
Section 4.24. Disclaimer of Warranties. Other than those expressly set
------------------------
out in this Article IV, Seller hereby expressly disclaims any and all
representations or warranties with respect to the Interests, the Partnerships
and the Properties or the transaction contemplated hereby, and Buyer agrees that
the Interests are being sold by Seller "where is" and "as is". Specifically as
a part of (but not in limitation of) the foregoing, Buyer acknowledges that
Seller has not made, and Seller hereby expressly disclaims, any representation
or warranty (express, implied, under common law, by statute or otherwise) as to
(a) the condition of the Properties (INCLUDING WITHOUT LIMITATION, SELLER
DISCLAIMS ANY IMPLIED OR EXPRESS WARRANTY OF MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE, OR CONFORMITY TO MODELS OR SAMPLES OF MATERIALS), (b) the
status of title to the Properties or (c) as the extent of oil, gas or other
mineral reserves, the recoverability of or the cost of recovering any such
reserves, the value of such reserves, prices (or anticipated prices) at which
production will be sold and the ability to sell oil or gas production from the
Properties.
ARTICLE V
Representations and Warranties of Buyer
---------------------------------------
Section 5.1. Organization and Existence. Buyer is a corporation duly
--------------------------
organized and validly existing under the laws of Delaware.
Section 5.2. Qualification. Each of Buyer and the Subsidiaries is duly
-------------
qualified or licensed to do business and, with respect to non-U.K. entities, in
good standing in each of the jurisdictions in which it owns, leases or operates
property or in which such qualification or licensing is required for the conduct
of its business.
Section 5.3. Charter and Bylaws. Buyer has made available to Seller
------------------
accurate and complete copies of Buyer's certificate of incorporation and bylaws
("Organic Documents") as currently in effect, and stock records of Buyer.
Neither Buyer nor any Subsidiary is in violation of its Organic Documents or its
partnership agreement or similar governing document, as the case may be.
Section 5.4. Capitalization of Buyer. Subject to Schedule 5.4, the
----------------------- ------------
authorized capital stock of Buyer, the number of shares outstanding and the
number of shares held in Buyer's treasury are set forth on Schedule 5.4 hereto.
------------
All outstanding shares of capital stock of Buyer have been validly issued and
are fully paid and nonassessable, and no shares of capital stock of Buyer are
subject to, nor have any been issued in violation of, preemptive or similar
rights. Except as set forth on Schedule 5.4 hereto, there are (and as of the
------------
Closing Date there will be) outstanding (i) no shares of capital stock or other
voting securities of Buyer, (ii) no securities of Buyer convertible into or
exchangeable for shares of capital stock or other voting securities of Buyer,
(iii) no options or other rights to acquire from Buyer, and no obligation of
Buyer to issue or sell, any shares of capital stock or other voting securities
of Buyer or any securities of Buyer convertible into or exchangeable for such
capital stock or voting securities, and (iv) no equity equivalents, interests in
the ownership or earnings or other similar rights of or with respect to Buyer.
There are (and as of the Closing Date
16
<PAGE>
there will be) no outstanding obligations of Buyer or any Subsidiary to
repurchase, redeem, or otherwise acquire any of the foregoing shares,
securities, options, equity equivalents, interests, or rights. Except as set
forth on Schedule 5.4, Buyer is not a party to, and is not aware of, any voting
------------
agreement, voting trust, or similar agreement or arrangement relating to any
class or series of its capital stock.
Section 5.5. Authority Relative to This Agreement. Subject to Charter
------------------------------------
Amendment Approval as it pertains to Buyer's ability to permit the full
conversion of the Preferred Shares into the Preferred Conversion Shares, Buyer
has full power and authority to execute, deliver, and perform this Agreement and
the Ancillary Documents to which it is a party and to consummate the
transactions contemplated hereby and thereby. The execution, delivery, and
performance by Buyer of this Agreement and the Ancillary Documents to which it
is a party, and the consummation by it of the transactions contemplated hereby
and thereby, have been duly authorized by all necessary action of Buyer. This
Agreement has been duly executed and delivered by Buyer and constitutes, and
each Ancillary Document executed or to be executed by Buyer has been, or when
executed will be, duly executed and delivered by Buyer and constitutes, or when
executed and delivered will constitute, a valid and legally binding obligation
of Buyer, enforceable against Buyer in accordance with their respective terms,
except that such enforceability may be limited by (i) applicable bankruptcy,
insolvency, reorganization, moratorium, and similar laws affecting creditors'
rights generally and (ii) equitable principles which may limit the availability
of certain equitable remedies (such as specific performance) in certain
instances.
Section 5.6. No Conflict. Assuming all consents, approvals,
-----------
authorizations and other actions described in Section 5.7 have been obtained and
all filings and notifications listed on Schedule 5.7 have been made and except
------------
as described on Schedule 5.6, the execution, delivery and performance of this
------------
Agreement by Buyer, the execution, delivery and performance by each Subsidiary
of the Ancillary Documents to which it is a party, and the consummation by them
of the transactions contemplated hereby and thereby do not and will not (a)
violate or conflict with the Organic Documents of Buyer or any Subsidiary,
subject to Charter Amendment Approval as it pertains to Buyer's ability to
permit the full conversion of the Preferred Shares into Preferred Conversion
Shares, (b) conflict with or result in any violation of any provision of, or
constitute (with or without the giving of notice or the passage of time or both)
a default under, or give rise (with or without the giving of notice or the
passage of time or both) to any right of termination, cancellation, or
acceleration under, or require any consent, approval, authorization or waiver
of, or notice to, any party to, any bond, debenture, note, mortgage, indenture,
lease, contract, agreement, or other instrument or obligation to which Buyer or
any Subsidiary is a party or by which Buyer or any Subsidiary or any of their
respective properties may be bound or any Permit held by Buyer or any
Subsidiary, (iii) result in the creation or imposition of any Lien upon the
properties of Buyer or any Subsidiary (other than as provided in the Senior
Credit Facility) or (iv) violate any Applicable Law binding upon Buyer or any
Subsidiary.
Section 5.7. Consents and Approvals, Licenses, Etc. Except as set forth
--------------------------------------
on Schedule 5.7, no consent, approval, authorization, license, order or permit
------------
of, or declaration, filing or registration with, or notification to, any
Governmental Entity, or any other Person or entity, is
17
<PAGE>
required to be made or obtained by Buyer or any Subsidiary in connection with
the execution, delivery and performance of this Agreement or any Ancillary
Document and the consummation of the transactions contemplated hereby and
thereby.
Section 5.8. Subsidiaries.
------------
(a) Buyer does not own, directly or indirectly, any capital stock or
equity securities of any corporation or have any direct or indirect equity or
ownership interest in any other Person, other than the Subsidiaries. Schedule
--------
5.8 lists each Subsidiary, the jurisdiction of incorporation or formation of
- ---
each Subsidiary and the authorized (in the case of capital stock) and
outstanding capital stock or other equity interests of each Subsidiary. Each
U.K. Subsidiary is duly formed and validly existing under the laws of the
jurisdiction of its formation, and each other Subsidiary is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation. Each Subsidiary has all requisite corporate
or other, as applicable, power and authority to own, lease, and operate its
properties and to carry on its business as now being conducted. No actions or
proceedings to dissolve any Subsidiary are pending.
(b) Except as otherwise indicated on Schedule 5.8, all the outstanding
------------
capital stock or other equity interests of each Subsidiary are owned directly or
indirectly by Buyer, free and clear of all Liens. All outstanding shares of
capital stock of each corporate Subsidiary have been validly issued and are
fully paid and nonassessable. All equity interests of each other Subsidiary
have been validly issued and are fully paid (to the extent required at such
time). No shares of capital stock or other equity interests of any Subsidiary
are subject to, nor have any been issued in violation of, preemptive or similar
rights.
(c) Except as set forth on Schedule 5.8, there are (and as of the
------------
Closing Date there will be) outstanding (i) no shares of capital stock or other
voting securities of any Subsidiary, (ii) no securities of Buyer or any
Subsidiary convertible into or exchangeable for shares of capital stock or other
voting securities of any Subsidiary, (iii) no options or other rights to acquire
from Buyer or any Subsidiary, and no obligation of Buyer or any Subsidiary to
issue or sell, any shares of capital stock or other voting securities of any
Subsidiary or any securities convertible into or exchangeable for such capital
stock or voting securities and (iv) no equity equivalents, interests in the
ownership or earnings, or other similar rights of or with respect to any
Subsidiary. There are (and as of the Closing Date there will be) no outstanding
obligations of Buyer or any Subsidiary to repurchase, redeem or otherwise
acquire any of the foregoing shares, securities, options, equity equivalents,
interests or rights.
Section 5.9. Preferred Shares; Conversion Shares.
-----------------------------------
(a) The Preferred Shares, when issued under the terms of this Agreement,
will be duly authorized, validly issued and fully paid and nonassessable.
Subject to Charter Amendment Approval as it pertains to Buyer's ability to
permit the full conversion of the Preferred Shares into the Preferred Conversion
Shares, the Preferred Conversion Shares, when issued against payment of the
conversion price for such shares, will be duly authorized, validly issued and
fully paid and nonassessable.
18
<PAGE>
(b) Subject to Charter Amendment Approval as it pertains to Buyer's
ability to permit the full conversion of the Preferred Shares into the Preferred
Conversion Shares, sufficient shares of authorized but unissued Common Stock of
Buyer will have been reserved by appropriate action in connection with the
Preferred Conversion Shares.
(c) Neither the issuance of the Preferred Shares, nor the issuance of
shares of Common Stock upon the conversion of the Preferred Shares, is subject
to any unwaived preemptive or other similar statutory or contractual rights or
will conflict with any provision of any agreement or instrument to which the
Company or any Subsidiary is a party or by which it is bound.
Section 5.10. Financial Statements. Buyer has delivered to Seller
--------------------
accurate and complete copies of (i) Alliance PLC's audited consolidated balance
sheet as of April 30, 1999, and the related audited consolidated statements of
income, stockholders' equity and cash flows for the year then ended, and the
notes and schedules thereto, together with the unqualified report thereon of
KPMG Audit Plc, independent public accountants (the "Audited Financial
Statements") and (ii) Buyer's unaudited consolidated balance sheet as of
January 31, 2000 (the "Latest Balance Sheet"), and the related unaudited
consolidated statements of income, stockholders' equity, and cash flows for the
three-month period then ended (the "Unaudited Financial Statements"), certified
by Buyer's chief financial officer (collectively, the "Financial Statements").
The Financial Statements (i) represent actual bona fide transactions, (ii) have
been prepared from the books and records of Alliance PLC and Buyer and their
respective consolidated Subsidiaries in conformity with U.S. GAAP accounting
principles applied on a basis consistent with preceding years throughout the
periods involved and (iii) fairly present Alliance PLC's and Buyer's (as
applicable) consolidated financial position as of the respective dates thereof
and Alliance PLC's and Buyer's (as applicable) consolidated results of
operations and cash flows for the periods then ended. The statements of income
included in the Financial Statements do not contain any items of special or
nonrecurring income except as identified in the notes thereto, and the balance
sheets included in the Financial Statements do not reflect any write-up or
revaluation increasing the book value of any assets, nor have there been any
transactions since the date of the Latest Balance Sheet giving rise to special
or nonrecurring income or any such write-up or revaluation.
Section 5.11. Securities Filings. Buyer and its Subsidiaries has filed
------------------
with the Securities and Exchange Commission, the London Stock Exchange and the
Registrar of Companies all forms, reports, schedules, statements and other
documents required to be filed by them since May 1, 1997 under the Companies Act
and the Listing Rules and since April 30, 1997 under the Securities Act, the
Exchange Act and all other federal securities laws. All final forms, reports,
schedules, statements and other documents (including all amendments thereto)
filed by Buyer and its Subsidiaries with the Securities and Exchange Commission
and the London Stock Exchange since such date are herein collectively referred
to as the "SEC Filings". Buyer has delivered or made available to Seller
accurate and complete copies of all the SEC Filings in the form filed by Buyer
and its Subsidiaries with the Securities and Exchange Commission and the London
Stock Exchange. The SEC Filings, at the time filed, complied in all material
respects with all applicable requirements of federal securities laws. None of
the SEC Filings, including any financial statements or schedules included
therein, at the time filed, contained any untrue statement of a material fact or
omitted to state any material fact required
19
<PAGE>
to be stated therein or necessary in order to make the statements contained
therein, in light of the circumstances under which they were made, not
misleading. All material contracts of Buyer and the Subsidiaries have been
included in the SEC Filings, except for those contracts not required to be filed
pursuant to the rules and regulations of the Securities and Exchange Commission
and the London Stock Exchange. Buyer shall deliver to Seller as soon as they
become available accurate and complete copies of all forms, reports, and other
documents furnished by it to its shareholders generally or filed by it with the
Securities and Exchange Commission and the London Stock Exchange subsequent to
the date hereof and prior to the Closing Date.
Section 5.12. Absence of Undisclosed Liabilities. Neither Buyer nor any
----------------------------------
Subsidiary has any liability or obligation (whether accrued, absolute,
contingent, unliquidated, or otherwise, whether or not known to Buyer or any
Subsidiary, and whether due or to become due), except (i) liabilities reflected
on the Latest Balance Sheet, (ii) liabilities which have arisen since the date
of the Latest Balance Sheet in the ordinary course of business (none of which is
a material liability for breach of contract, breach of warranty, tort, or
infringement), (iii) liabilities arising under executory contracts entered into
in the ordinary course of business (none of which is a material liability for
breach of contract) and (iv) liabilities specifically set forth on Schedule
--------
5.12.
- ----
Section 5.13. Absence of Certain Changes. Except as disclosed on Schedule
-------------------------- --------
5.13, since the date of the Latest Balance Sheet, (i) there has not been any
- ----
material adverse change in, or any event or condition that might reasonably be
expected to result in a material adverse change in, the business assets, results
of operations, condition (financial or otherwise) or prospects of Buyer and the
Subsidiaries considered as a whole; (ii) the businesses of Buyer and the
Subsidiaries have been conducted only in the ordinary course consistent with
past practice; (iii) neither Buyer nor any Subsidiary has incurred any material
liability, engaged in any material transaction or entered into any material
agreement outside the ordinary course of business consistent with past practice;
(iv) neither Buyer nor any Subsidiary has suffered any material loss, damage,
destruction, or other casualty to any of its assets (whether or not covered by
insurance); and (v) neither Buyer nor any Subsidiary has taken any of the
actions set forth in Section 6.2 except as permitted thereunder.
Section 5.14. Tax Matters. Except as disclosed on Schedule 5.14:
----------- -------------
(a) Buyer and each Subsidiary has filed, or has had filed on its
behalf, in a timely manner (within any applicable extension periods) with the
appropriate taxing authority all Tax Returns with respect to Taxes of Buyer and
of each of the Subsidiaries, all of which Tax Returns are true, correct and
complete in all material respects;
(b) All Taxes due and payable (whether or not reflected in Tax
Returns as filed) with respect to all taxable periods of Buyer and the
Subsidiaries have been paid in full or adequate reserves have been provided for
on the Financial Statements;
(c) There are no outstanding agreements or waivers extending the
statutory period of limitations applicable to any federal, state, local or
foreign income or other material Tax Returns required to be filed by or with
respect to Buyer or any of the Subsidiaries;
20
<PAGE>
(d) None of the Tax Returns of or with respect to Buyer or any of the
Subsidiaries is currently being audited or examined by any taxing authority;
(e) No material deficiency for any Taxes has been assessed with
respect Buyer or to any of the Subsidiaries that has not either (i) been abated
or (ii) paid in full or for which adequate reserves have been provided;
(f) No Tax litigation is currently pending;
(g) No waiver or extension of any statute of limitations to any
federal, state, local or foreign Tax matter has been given by or requested from
Buyer or any Subsidiary; and
(h) Neither Buyer nor any Subsidiary has filed a consent under
Section 341(f) of the Code.
(i) Buyer and the Subsidiaries have complied with all Applicable Laws
relating to the withholding of Taxes and the payment thereof (including
withholding of Taxes under Sections 1441 and 1442 of the Code, or similar
provisions under foreign laws), and has timely and properly withheld from the
appropriate party and paid over to the proper Governmental Entity all amounts
required to be withheld and be paid over under Applicable Law.
(j) Neither Buyer nor any Subsidiary is required to include in income
any adjustment under Section 481(a) of the Code by reason of a change in
accounting method, and neither Buyer nor any Subsidiary, nor the Internal
Revenue Service, has proposed any such adjustment or change in accounting
method. Buyer and the Subsidiaries do not have pending any private letter
ruling with the IRS.
(k) Other than as a result of this transaction, none of Buyer's or
any Subsidiary's tax attributes is subject to the limitations of Section 382,
383 or 384 of the Code or Temporary Treasury Regulation Sections 1.1502-15T or
1.1502-21T(c).
(l) There are no liens for Taxes upon any assets of Buyer or any
Subsidiary, except liens for Taxes not yet due and payable.
(m) The tax basis of each of the assets of Buyer and the Subsidiaries
as set forth on the books, accounts and records of Buyer and the Subsidiaries is
true, correct and complete in all material respects.
Section 5.15. Environmental and Other Laws. Except as disclosed on
----------------------------
Schedule 5.15 or in the SEC Filings filed prior to the date hereof, (a) Buyer
- -------------
and the Subsidiaries are conducting their businesses in compliance in all
material respects with all Applicable Laws, including all Environmental Laws,
and are in material compliance with all licenses and permits required under any
such laws; (b) to the best of Buyer's knowledge, none of the operations or
properties of Buyer or any Subsidiary is the subject of foreign, federal, state
or local investigation evaluating whether any material remedial
21
<PAGE>
action is needed to respond to a release of any Hazardous Materials into the
environment or to the improper storage or disposal (including storage or
disposal at offsite locations) of any Hazardous Materials; (c) neither Buyer nor
any Subsidiary has filed any notice under any Applicable Law indicating that it
is responsible for the improper release into the environment, or the improper
storage or disposal, of any material amount of any Hazardous Materials or that
any Hazardous Materials have been improperly released, or are improperly stored
or disposed of, upon any property of Buyer or any Subsidiary; (d) neither Buyer
nor any Subsidiary has transported or arranged for the transportation of any
Hazardous Material to any location which is (i) listed on the National
Priorities List under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, listed for possible inclusion on such
National Priorities List by the Environmental Protection Agency in its
Comprehensive Environmental Response, Compensation and Liability Information
System List, or listed on any similar state list or foreign jurisdiction list or
(ii) the subject of foreign, federal, state or local enforcement actions or
other investigations which may lead to material claims against Buyer or any
Subsidiary for clean-up costs, remedial work, damages to natural resources or
for personal injury claims (whether under Environmental Laws or otherwise); and
(e) to the best of Buyer's knowledge, neither Buyer or any Subsidiary has any
material contingent liability under any Environmental Laws or in connection with
the release into the environment, or the storage or disposal, of any Hazardous
Materials.
Section 5.16. Legal Proceedings. Except as disclosed on Schedule 5.16,
----------------- -------------
there are no Proceedings pending or, to the best knowledge of Buyer, threatened
against or involving Buyer or any Subsidiary (or any of their respective
directors or officers in connection with the business or affairs of Buyer or any
Subsidiary) or any properties or rights of Buyer or any Subsidiary which,
individually or in the aggregate, might reasonably be expected to have a
Material Adverse Effect. Neither Buyer nor any Subsidiary is subject to any
judgment, order, writ, injunction, or decree of any Governmental Entity which
has had or is reasonably likely to have a Material Adverse Effect. There are no
Proceedings pending or, to the best knowledge of Buyer, threatened seeking to
restrain, prohibit, or obtain damages or other relief in connection with, or
questioning the legality or validity of, this Agreement or any Ancillary
Document or the transactions contemplated hereby or thereby.
Section 5.17. Title to Properties; Permits; Licenses; Condition of Assets.
-----------------------------------------------------------
(a) Each of Buyer and the Subsidiaries has good and defensible title
to all of its material properties and assets, free and clear of all Liens other
than Permitted Liens and of all material impediments to the use of such
properties and assets in the businesses of Buyer and the Subsidiaries.
(b) Each of Buyer and the Subsidiaries holds all material Permits
necessary or required for the conduct of its business. Each of such Permits is
in full force and effect, Buyer and the Subsidiaries are in compliance with all
of its material obligations with respect thereto, and, to the best knowledge of
Buyer, no event has occurred which allows, or with or without the giving of
notice or the passage of time or both would allow, the revocation or termination
of any thereof. No notice has been issued by any Governmental Entity and no
proceeding is pending or, to the best knowledge of Buyer, threatened with
respect to any alleged failure by Buyer or any Subsidiary to have any material
Permit.
22
<PAGE>
(c) Buyer and the Subsidiaries possess all licenses, permits,
franchises, patents, copyrights, trademarks and trade names, and other
intellectual property (or otherwise possesses the right to use such intellectual
property without violation of the rights of any other Person) which are
necessary to carry out their businesses as presently conducted and as presently
proposed to be conducted hereafter, and neither Buyer nor any Subsidiary is in
violation in any material respect of the terms under which it possesses such
intellectual property or the right to use such intellectual property.
(d) The equipment and other tangible assets of Buyer and the
Subsidiaries are in good operating condition (except for reasonable wear and
tear), and have been reasonably maintained.
Section 5.18. ERISA.
-----
(a) Set forth on Schedule 5.18 is a list identifying each "employee
-------------
benefit plan", as defined in Section 3(3) of ERISA, (i) which is subject to any
provision of ERISA, (ii) which is maintained, administered, or contributed to by
Buyer or any affiliate of Buyer, and (iii) which covers any employee or former
employee of Buyer or any affiliate of Buyer or under which Buyer or any
affiliate of Buyer has any liability. Buyer has delivered or made available to
Seller accurate and complete copies of such plans (and, if applicable, the
related trust agreements) and all amendments thereto and written interpretations
thereof, together with (i) the three most recent annual reports (Form 5500
including, if applicable, Schedule B thereto) prepared in connection with any
such plan and (ii) the most recent actuarial valuation report prepared in
connection with any such plan. Such plans are referred to in this Section as
the "Employee Plans". For purposes of this Section only, an "affiliate" of any
person means any other person which, together with such person, would be treated
as a single employer under Section 414 of the Code. The only Employee Plans
which individually or collectively would constitute an "employee pension benefit
plan" as defined in Section 3(2) of ERISA are identified as such on Schedule
--------
5.18.
- ----
(b) Except as otherwise identified on Schedule 5.18, (i) no Employee
-------------
Plan constitutes a "multiemployer plan", as defined in Section 3(37) of ERISA
(for purposes of this Section, a "Multiemployer Plan"), (ii) no Employee Plan is
maintained in connection with any trust described in Section 501(c)(9) of the
Code, (iii) no Employee Plan is subject to Title IV of ERISA or to the minimum
funding standards of ERISA and the Code, and (iv) during the past five years,
neither Buyer nor any of its affiliates have made or been required to make
contributions to any Multiemployer Plan. There are no accumulated funding
deficiencies as defined in Section 412 of the Code (whether or not waived) with
respect to any Employee Plan. The fair market value of the assets held with
respect to each Employee Plan which is an employee pension benefit plan, as
defined in Section 3(2) of ERISA, exceeds the actuarially determined present
value of all benefit liabilities accrued under such Employee Plan (whether or
not vested) determined using reasonable actuarial assumptions. Neither Buyer
nor any affiliate of Buyer has incurred any material liability under Title IV of
ERISA arising in connection with the termination of, or complete or partial
withdrawal from, any plan covered or previously covered by Title IV of ERISA.
Buyer and all of the affiliates of Buyer have paid and discharged promptly when
due all liabilities and obligations arising under
23
<PAGE>
ERISA or the Code of a character which if unpaid or unperformed might result in
the imposition of a lien against any of the assets of Buyer or any Subsidiary.
Nothing done or omitted to be done and no transaction or holding of any asset
under or in connection with any Employee Plan has or will make Buyer or any
Subsidiary or any director or officer of Buyer or any Subsidiary subject to any
liability under Title I of ERISA or liable for any Tax pursuant to Section 4975
of the Code that could have a Material Adverse Effect. There are no threatened
or pending claims by or on behalf of the Employee Plans, or by any participant
therein, alleging a breach or breaches of fiduciary duties or violations of
Applicable Laws which could result in liability on the part of Buyer, its
officers or directors, or such Employee Plans, under ERISA or any other
Applicable Law and there is no basis for any such claim.
(c) Each Employee Plan which is intended to be qualified under
Section 401(a) of the Code is so qualified and has been so qualified since the
date of its adoption, and each trust forming a part thereof is exempt from Tax
pursuant to Section 501(a) of the Code. Set forth on Schedule 5.18 is a list of
-------------
the most recent IRS determination letters with respect to any such Plans,
accurate and complete copies of which letters have been delivered or made
available to Buyer. Each Employee Plan has been maintained in compliance with
its terms and with the requirements prescribed by all Applicable Laws, including
but not limited to ERISA and the Code, which are applicable to such Employee
Plans.
(d) Set forth on Schedule 5.18 is a list of each employment,
-------------
severance, or other similar contract, arrangement, or policy and each plan or
arrangement (written or oral) providing for insurance coverage (including any
self-insured arrangements), workers' compensation, disability benefits,
supplemental unemployment benefits, vacation benefits, retirement benefits,
deferred compensation, profit-sharing, bonuses, stock options, stock
appreciation rights, or other forms of incentive compensation or post-retirement
insurance, compensation, or benefits which (i) is not an Employee Plan, (ii) is
entered into, maintained, or contributed to, as the case may be, by Buyer or any
affiliate of Buyer, and (iii) covers any employee or former employee of Buyer or
any affiliate of Buyer or under which Buyer or any affiliate of Buyer has any
liability. Such contracts, plans, and arrangements as are described in the
preceding sentence are referred to for purposes of this Section as the "Benefit
Arrangements". Each Benefit Arrangement has been maintained in substantial
compliance with its terms and with the requirements prescribed by Applicable
Laws.
(e) Neither Buyer nor any affiliate of Buyer has performed any act or
failed to perform any act, and there is no contract, agreement, plan, or
arrangement covering any employee or former employee of Buyer or any affiliate
of Buyer, that, individually or collectively, could give rise to the payment of
any amount that would not be deductible pursuant to the terms of Section
162(a)(1) or 280G of the Code, or could give rise to any penalty or excise Tax
pursuant to Section 4980B or 4999 of the Code.
Section 5.19. Agreements.
----------
(a) Set forth on Schedule 5.19 is a list of all the following
-------------
agreements, arrangements, and understandings (written or oral, formal or
informal) (collectively, for purposes of
24
<PAGE>
this Section, "agreements") to which Buyer or any Subsidiary is a party or by
which Buyer or any Subsidiary or any of their respective properties is otherwise
bound:
(i) collective bargaining agreements and similar agreements
with employees as a group;
(ii) agreements with any current or former shareholder,
director, officer, employee, consultant or advisor or any affiliate of any
such Person;
(iii) agreements between or among Buyer and any of the
Subsidiaries;
(iv) exclusive of those relating to the Senior Credit Facility,
indentures, mortgages, security agreements, notes, loan or credit
agreements, or other agreements relating to the borrowing of money by Buyer
or any Subsidiary or to the direct or indirect guarantee or assumption by
Buyer or any Subsidiary of any obligation of others, including any
agreement that has the economic effect although not the legal form of any
of the foregoing;
(v) agreements relating to the acquisition or disposition of
assets, other than those entered into in the ordinary course of business
consistent with past practice;
(vi) agreements relating to the acquisition or disposition of
any interest in any business enterprise;
(vii) exclusive of oil, gas and mineral leases, agreements with
respect to the lease of real or personal property;
(viii) exclusive of oil and gas operating or similar agreements,
agreements concerning the management or operation of any real property;
(ix) partnership, joint venture, and profit sharing agreements;
(x) agreements with any Governmental Entity;
(xi) agreements relating to the release or disposal of
Hazardous Material;
(xii) agreements containing any covenant limiting the freedom of
Buyer or any Subsidiary to engage in any line of business or compete with
any other Person in any geographic area or during any period of time, other
than those that would not have a Material Adverse Effect;
(xiii) agreements not made in the ordinary course of business;
and
25
<PAGE>
(xiv) other agreements, whether or not made in the ordinary
course of business, that are material to the business, assets, results of
operations, condition (financial or otherwise), or prospects of Buyer and
the Subsidiaries considered as a whole.
(b) Buyer has delivered or made available to Seller accurate and
complete copies of the agreements listed in Schedule 5.19. Each of such
-------------
agreements is a valid and binding agreement of Buyer and the Subsidiaries (to
the extent each is a party thereto) and (to the best knowledge of Buyer) the
other party or parties thereto, enforceable against Buyer and the Subsidiaries
(to the extent each is a party thereto) and (to the best knowledge of Buyer)
such other party or parties in accordance with its terms. Neither Buyer nor any
Subsidiary is in breach of or in default under, nor has any event occurred which
(with or without the giving of notice or the passage of time or both) would
constitute a default by Buyer or any Subsidiary under, any of such agreements,
and neither Buyer nor any Subsidiary has received any notice from, or given any
notice to, any other party indicating that Buyer or any Subsidiary is in breach
of or in default under any of such agreements. To the best knowledge of Buyer,
no other party to any of such agreements is in breach of or in default under
such agreements, nor has any assertion been made by Buyer or any Subsidiary of
any such breach or default.
(c) Neither Buyer nor any Subsidiary has received notice of any plan
or intention of any other party to any agreement to exercise any right of offset
with respect to, or any right to cancel or terminate, any agreement, and neither
Buyer nor any Subsidiary knows of any fact or circumstance that would justify
the exercise by any such other party of such a right other than the automatic
termination of such agreement in accordance with its terms. Neither Buyer nor
any Subsidiary currently contemplates, or has reason to believe any other Person
currently contemplates, any amendment or change to any agreement, which
amendment or change could have a Material Adverse Effect.
(d) Without limiting the generality of the other provisions in this
Section 5.19, the Key Employment Agreements are in full force and effect, and
each of John Keenan and Paul Fenemore is currently employed by Buyer pursuant to
a renewal term under such agreements.
Section 5.20. Labor Disputes and Acts of God. Neither the business nor
------------------------------
the properties of Buyer nor any Subsidiary has been affected by any fire,
explosion, accident, strike, lockout or other labor dispute, drought, storm,
hail, earthquake, embargo, act of God or of the public enemy or other casualty
(whether or not covered by insurance), which, individually or in the aggregate,
could cause a Material Adverse Effect.
Section 5.21. Insurance. The Company and each Subsidiary carries
---------
insurance covering its properties and business adequate and customary for the
type and scope of its properties and business.
Section 5.22. Offering of Securities. All securities which have been
----------------------
offered or sold by Buyer and it Subsidiaries have been registered pursuant to
the Securities Act and applicable foreign and state securities laws or were
offered and sold pursuant to valid exemptions therefrom.
26
<PAGE>
Section 5.23. Government Regulation. Buyer is not subject to regulation
---------------------
under the Public Utility Holding Company Act of 1935. Buyer is not an
"investment company" or a company "controlled" by an "investment company" within
the meaning of the Investment Company Act of 1940, as amended, or an "investment
advisor" within the meaning of the Investment Advisers Act of 1940, as amended.
Section 5.24. Brokerage Fees. Neither Buyer nor any of its affiliates has
--------------
retained any financial advisor, broker, agent or finder or paid or agreed to pay
any financial advisor, broker, agent or finder on account of this Agreement or
any transaction contemplated hereby, which action would subject Seller or any of
its affiliates to any liability. Buyer shall indemnify and hold harmless Seller
from and against any and all losses, claims, damages and liabilities (including
legal and other expenses reasonably incurred in connection with investigating or
defending any claims or actions) with respect to any finder's fee, brokerage
commission or similar payment in connection with any transaction contemplated
hereby asserted by any Person on the basis of any act or statement made or
alleged to have been made by Buyer or any of its affiliates.
Section 5.25. Bankruptcy. There are no bankruptcy, reorganization or
----------
arrangement proceedings pending, being contemplated by, or to the knowledge of
Seller, threatened against Seller.
Section 5.26. Nature of Company Assets. The assets of the Buyer and its
------------------------
Subsidiaries consist solely of (a) reserves of oil, rights to reserves of oil
and associated exploration and production assets with a fair market value not
exceeding $500,000,000 and (b) other assets with a fair market value not
exceeding $15,000,000. For purposes of this Section 5.26, the term "associated
exploration and production assets" shall have the meaning ascribed thereto in
Section 802.3 of the Rules promulgated pursuant to the HSR Act.
Section 5.27. Full Disclosure. No representation or warranty made by
---------------
Buyer in this Agreement, and no statement of Buyer contained in any document,
certificate or other writing furnished or to be furnished by Buyer or its
representatives to Seller pursuant hereto or in connection herewith, contains or
will contain, at the time of delivery, any untrue statement of a material fact
or omits or will omit, at the time of delivery, to state any material fact
(other than industry-wide risks normally associated with the type of business
conducted by Buyer) necessary to make the statements contained therein, in light
of the circumstances in which they are made, not misleading. There is no fact
known to Buyer (other than industry-wide risks normally associated with the type
of business conducted by Buyer) that has not been disclosed to Seller in writing
which Buyer reasonably anticipates would result in a Material Adverse Effect.
27
<PAGE>
ARTICLE VI
Certain Covenants of Seller and Buyer Pending Closing
------------------------------------------------------
Section 6.1. Pre-Closing Covenants of Seller.
-------------------------------
(a) From the date hereof until Closing, Seller will use its
reasonable best efforts to give Buyer, and its attorneys and other
representatives, access at all reasonable times to the Properties and to any
contract files, lease or other title files, production files, well files and
other files of Seller pertaining to the ownership and/or operation by the
Partnerships of the Properties, and Seller will use its reasonable best efforts
to arrange for Buyer, and its attorneys and other representatives, to have
access to any such files. Seller shall not be obligated to provide Buyer with
access to any records or data which Seller or any Partnership cannot provide to
Buyer without, in its opinion, breaching confidentiality agreements with other
parties.
(b) Seller will use its reasonable best efforts to cause the
Partnerships to (i) continue the routine operation of the Properties in the
ordinary course of business and as would a prudent operator, (ii) operate the
Properties in conformity (in all material respects) with all applicable laws,
and all applicable rules, regulations and orders of all governmental agencies
having jurisdiction, and in conformity with all oil, gas and/or mineral leases,
and in conformity (in all material respects) with all Basic Documents other than
such leases, and (iii) fulfill all obligations (including without limitation all
obligations to make payments under leases or other Basic Documents) under such
leases, and (in all material respects) under such other Basic Documents and (in
all material respects) under such laws, rules, regulations and orders (without
limitation of the foregoing, the failure to perform an obligation, when such
failure could result in forfeiture or termination of rights of a Partnership
under a Basic Document, shall be considered material).
(c) Seller will not, without Buyer's prior consent:
(i) agree to make any new capital contributions to any
Partnership in connection with the ownership of the Interests;
(ii) to the extent of its rights under the Partnership
Agreements, propose the drilling of any additional wells, or propose the
deepening, plugging back or reworking of any existing wells, or propose the
conducting of any other operations which require consent under the
applicable operating agreement, or propose the conducting of any other
operations other than the normal operation of the existing wells on the Oil
and Gas Properties, or propose the abandonment of any wells on the Oil and
Gas Properties (and Seller agrees that it will advise Buyer of any such
proposals made by a general partner of a Partnership or (to the extent it
has knowledge) any third party and will respond to each such proposal in
the manner requested by Buyer);
(iii) to the extent of its rights under the Partnership
Agreements, consent to the sale, transfer or abandonment of any portion of
the Properties other than items of
28
<PAGE>
materials, supplies, machinery, equipment, improvements or other personal
property or fixtures forming a part of the Properties (and then only if the
same is replaced with an item of equal suitability and value free of liens
and security interests, which replacement item will then, for the purposes
of this Agreement, become part of the Properties); or
(iv) agree to any amendment, modification or change to any
Partnership Agreement or waive any rights, duties or obligations of any
general partner of the Partnerships.
Notwithstanding the foregoing or anything else herein to the contrary, it is
acknowledged and agreed that Seller either has or will, prior to Closing,
execute and deliver an agreement to liquidate and dissolve each of the
Partnerships (exclusive of Famcor Oil W.T., L.P.), substantially in the form of
the instrument heretofore provided to Buyer in all material respects, and that
such execution and delivery will not be deemed a breach by Seller of any
covenant and agreement contained in this Section 6.1 or elsewhere herein.
Section 6.2. Pre-Closing Covenants of Buyer.
------------------------------
(a) During the period from the date hereof to the Closing, Buyer covenants
and agrees with Seller that Buyer and its Subsidiaries (i) shall each conduct
its operations according to its ordinary course of business consistent with past
practice and in compliance with Applicable Laws; (ii) shall each use its
reasonable best efforts to preserve, maintain and protect its properties; and
(iii) shall each use its reasonable best efforts to preserve intact its business
organization, to keep available the services of its officers and employees and
to maintain existing relationships with suppliers, operators, customers and
others having business relationships with it.
(b) During the period from the date hereof to the Closing, neither Buyer
nor any Subsidiary shall without the prior written consent of Seller:
(i) amend its Organic Documents or other governing instruments;
(ii) (A) issue, sell, or deliver (whether through the issuance
or granting of options, warrants, commitments, subscriptions, rights to
purchase or otherwise) any shares of its capital stock of any class or any
other securities or equity equivalents, exclusive of any shares issued
pursuant to options, warrants, commitments, subscriptions, rights to
purchase or otherwise existing on the date hereof); or (B) amend in any
respect any of the terms of any such securities outstanding as of the date
hereof;
(iii) (A) split, combine, or reclassify any shares of its
capital stock; or (B) adopt a plan of complete or partial liquidation or
resolutions providing for or authorizing a liquidation or dissolution of
Buyer or any Subsidiary;
29
<PAGE>
(iv) except as provided in subsection (c) below, make any
loans, advances, or capital contributions to, or investments in, any other
Person (other than customary loans or advances to employees in amounts not
material to the maker of such loan or advance);
(v) (A) enter into, adopt, or (except as may be required by
law) amend or terminate any bonus, profit sharing, compensation, severance,
termination, stock option, stock appreciation right, restricted stock,
performance unit, stock equivalent, stock purchase, pension, retirement,
deferred compensation, employment, severance or other employee benefit
agreement, trust, plan, fund or other arrangement for the benefit or
welfare of any director, officer or employee; (B) except for normal
increases in the ordinary course of business consistent with past practice
that, in the aggregate, do not result in a material increase in benefits or
compensation expense to Buyer, increase in any manner the compensation or
fringe benefits of any director, officer or employee; or (C) pay to any
director, officer or employee any benefit not required by any employee
benefit agreement, trust, plan, fund or other arrangement as in effect on
the date hereof;
(vi) make any capital expenditure or expenditures which,
individually, is in excess of $100,000 or, in the aggregate, are in excess
of $250,000;
(vii) amend any Tax Return or make any Tax election or settle or
compromise any federal, state, local, or foreign Tax liability material to
Buyer and the Subsidiaries considered as a whole;
(viii) pay, discharge, or satisfy any claims, liabilities, or
obligations (whether accrued, absolute, contingent, unliquidated, or
otherwise, and whether asserted or unasserted), other than the payment,
discharge, or satisfaction in the ordinary course of business consistent
with past practice, or in accordance with their terms, of liabilities
reflected or reserved against in the Financial Statements or incurred since
the date of the Latest Balance Sheet in the ordinary course of business
consistent with past practice; provided, however, that in no event shall
Buyer or any Subsidiary repay any long-term indebtedness except to the
extent required by the terms thereof;
(ix) take any action which would or might make any of the
representations or warranties of Buyer contained in this Agreement untrue
or inaccurate as of any time from the date of this Agreement to the Closing
or would or might result in any of the conditions set forth in this
Agreement not being satisfied; or
(x) authorize or propose, or agree in writing or otherwise to
take, any of the actions described in this Section.
(c) Notwithstanding anything in this Section 6.2 to the contrary, it
is expressly agreed that the execution and delivery by Buyer of (i) the Other
Acquisition Agreements, (ii) the Preferred Stock Purchase Agreement, (iii) the
Senior Credit Facility and (iv) the Subordinated Debt Agreement, and the
consummation of the respective transactions contemplated thereunder will not
30
<PAGE>
be deemed to be a breach by Buyer of any covenant and agreement contained in
this Section 6.2 or elsewhere herein.
(d) Between the date hereof and the Closing, Buyer (i) shall give
Seller and its authorized representatives reasonable access, during regular
business hours, to all employees, all plants, offices, warehouses, and other
facilities, and all books and records, including work papers and other materials
prepared by Buyer's independent public accountants, of Buyer and the
Subsidiaries, (ii) shall permit Seller and its authorized representatives to
make such inspections as they may reasonably require and (iii) shall cause
Buyer's officers and those of the Subsidiaries to furnish Seller and its
authorized representatives with such financial and operating data and other
information with respect to Buyer and the Subsidiaries as Seller may from time
to time reasonably request; provided, however, that Buyer shall have the right
to have a representative present at all times of any such inspections,
interviews and examinations conducted at or on the offices or other facilities
or properties of Buyer or its affiliates or representatives.
Section 6.3. Pre-Closing Covenants of Seller and Buyer. Each party
-----------------------------------------
hereto agrees that it will not voluntarily undertake any course of action
inconsistent with the provisions or intent of this Agreement and will use its
reasonable best efforts to take, or cause to be taken, all action and to do, or
cause to be done, all things reasonably necessary, proper or advisable under
Applicable Law to consummate the transactions contemplated by this Agreement.
ARTICLE VII
Due Diligence Examination With Respect to the Properties
--------------------------------------------------------
Section 7.1. Inspection and Assertion of Defects.
-----------------------------------
(a) Buyer may, to the extent it deems appropriate, conduct, at its
sole cost, such title examination or investigation as it may choose to conduct
with respect to the Properties. Should, as a result of such examination and
investigation, or otherwise, matters come to Buyer's attention which would
constitute "Defects" (as below defined), and should there be one or more of such
Defects which Buyer determines it is unwilling to waive and close the
transaction contemplated hereby notwithstanding the fact that such Defects
exist, Buyer shall notify Seller in writing of such Defects as soon as they are
identified by Buyer, but in no event later than two business days prior to
Closing. Such Defects of which Buyer so provides notice are herein called
"Asserted Defects." All Defects with respect to which Buyer fails to so give
Seller notice will be deemed waived for all purposes. In the event that Buyer
notifies Seller of Asserted Defects, Seller shall have the right (but not the
obligation) to attempt to cure, prior to Closing, such Asserted Defects to the
reasonable satisfaction of Buyer (exclusive of a Defect in subsection (b)(iii)
below.
(b) The term "Defect" as used in this Section shall mean the
following:
31
<PAGE>
(i) A Partnership's ownership of its Oil and Gas Properties is
such that, with respect to a well listed in Section 7.1(b)(i) of the Seller
Disclosure Schedule for such Partnership, it (A) entitles such Partnership
to receive a percentage share of the oil, gas and other hydrocarbons
produced from, or allocated to, such well which is less than the percentage
share set forth in Section 7.1(b)(i) of the Seller Disclosure Schedule in
connection with such well in the column headed "NRI" or (B) causes the
Partnership to be obligated to bear a percentage share of the cost of
operation of such well greater than the percentage share set forth in
Section 7.1(b)(i) of the Seller Disclosure Schedule in connection with such
well in the column headed "WI" (unless the share of production from such
well to which such Partnership is entitled is proportionately larger than
the "NRI" shown for such well in Section 7.1(b)(i) of the Seller Disclosure
Schedule); or
(ii) A Partnership's ownership of an Oil and Gas Property is
subject to a lien other than (A) a lien for taxes not yet delinquent, or
(B) a mechanic's or materialmen's lien (or other similar lien), or a lien
under an operating agreement or similar agreement, to the extent the same
relates to expenses incurred which are not yet due; or
(iii) A Partnership's ownership of an Oil and Gas Property is
subject to an imperfection in title which, if asserted, would cause a
Defect, as defined in clause (i) above, to exist, and such imperfection in
title is not such as would normally be waived by persons engaged in the oil
and gas business who are purchasing producing properties.
Section 7.2. Certain Price Adjustments.
-------------------------
(a) In the event that, as a part of the due diligence review provided
for in Section 7.1 above, Asserted Defects are presented to Seller and Seller is
unable (or unwilling) to cure such Asserted Defects, or in the event that Buyer
has elected to treat an Oil and Gas Property affected by a casualty loss as if
it was an Oil and Gas Property affected by an Asserted Defect (as provided in
Section 7.4), then Buyer and Seller shall, with respect to each Oil and Gas
Property affected by one or more Asserted Defects, attempt in good faith to
agree upon an appropriate adjustment to the Purchase Price to account for such
Asserted Defects. Notwithstanding the foregoing or anything herein to the
contrary, Seller may elect to specify as an appropriate adjustment to the
Purchase Price for a Defect of the type specified in Section 7.1(b)(ii), the
------------------
amount required to discharge the lien.
(b) Should Seller determine (or should Buyer, in the course of its
due diligence review contemplated by Section 7.1, determine) that the ownership
of Properties by a Partnership entitles such Partnership to a share of the
production from a well listed in Section 7.1(b)(i) of the Seller Disclosure
Schedule greater than the share shown for such well under the column headed
"NRI" on Schedule 7.1(b)(i) of the Seller Disclosure Schedule, then Seller may
propose an upward adjustment to the Base Purchase Price to account for such
fact, in which case such adjustment shall be handled in a similar manner as
provided above with respect to adjustments for Asserted Defects; provided that
the party making such determination shall notify the other party no later than
ten business days prior to the Closing.
32
<PAGE>
(c) If the Net Title Adjustments (as defined below) do not exceed
$100,000, then the Base Purchase Price shall not be adjusted. If the Net Title
Adjustments do exceed $100,000, the Base Purchase Price shall be adjusted as
provided in subsection (d) or subsection (e) below by the amount by which the
Net Title Adjustments exceed $100,000. As used in this subsection (c), the term
"Net Title Adjustments" means the net amount of the adjustments to the Base
Purchase Price resulting from the procedures provided for above or Section 7.5
and attributable to any of the Defects referenced in subsections (i) through
(iv) of Section 7.1(b).
(d) Any reduction to the Base Purchase Price under subsection (c)
shall be effected by a decrease in the number of Preferred Shares equal to A
minus B, where "A" equals the number of shares of Buyer's Series A Convertible
Preferred Stock specified in Article III, where "B" equals C divided by D, where
"C" equals the Net Title Adjustments minus $100,000, and where "D" equals
$50.00.
(e) Any increase in the Base Purchase Price under subsection (c)
shall be effected by an increase in the number of Preferred Shares equal to A
plus B, with "A" and "B" being determined as provided in subsection (d) above.
Section 7.3. Waiver. Without limiting Section 7.1 and notwithstanding
------
anything else herein to the contrary, all Defects not raised by Buyer within the
time period specified in Section 7.1 shall be waived by Buyer for all purposes,
and Buyer shall have no right to seek an adjustment to the Purchase Price, make
a claim against Seller or seek indemnification from Seller with respect thereto.
Section 7.4. Casualty Loss. In the event of damage by fire or other
-------------
casualty to the Properties after the Effective Date and prior to the Closing,
then this Agreement shall remain in full force and effect, and (unless Buyer and
Seller shall otherwise agree) in such event as to each such Property so damaged
which is an Oil and Gas Property, such Property shall be treated as if it had an
Asserted Defect associated with it and the procedure provided for in this
Article VII shall be applicable thereto.
Section 7.5. Disputes. In the event Buyer and Seller are unable to agree
--------
prior to the Closing upon the existence of one or more Defects affecting an Oil
and Gas Property or one or more adjustments claimed by Buyer or Seller pursuant
to this Article VII as it relates to an Oil and Gas Property, any such dispute
(a "Disputed Claim") shall be settled pursuant to this Section 7.5 and shall not
prevent or delay the Closing. At Closing, the Purchase Price shall not be
adjusted on account of and no effect shall be given to the Disputed Claim.
Either Buyer or Seller shall have the right to submit the Disputed Claim to
final and binding arbitration in accordance with the Commercial Arbitration
Rules of the American Arbitration Association (the "AAA Rules"). Buyer and
Seller shall endeavor to select three neutral arbitrators by mutual agreement.
If such agreement cannot be reached within 30 calendar days after the Closing,
each party shall select its own neutral arbitrator within 15 days of the
expiration of such 30-day period and the two neutral arbitrators so selected
shall select a third neutral arbitrator within 10 days of the expiration of such
15-day period. If they fail to do so, either arbitrator or Buyer or Seller may
request the judge of the United States District Court for the Southern District
of Texas having greatest tenure, but not yet on retired or senior status, to
33
<PAGE>
appoint a third neutral arbitrator. The three persons thus selected shall be
the arbitrators for such arbitration. Each arbitrator must be experienced in
and knowledgeable about the oil and gas exploration business and third
arbitrator shall be required to meet the qualification requirements of the AAA
Rules, whether appointed by the arbitrators or by the judge as provided above.
The board of arbitrators may in all matters act through a majority of its
members on each Disputed Claim if unanimity is not attained. The award as to
any Disputed Claim shall be made within 30 days following the close of the final
hearing and the filing of any post hearing briefs authorized by the
arbitrator(s) in respect of such claim. The award of the arbitrator shall be
final and binding on the parties hereto and the subject matter. Judgment upon
the award rendered by the arbitrator(s) may be entered by any court having
jurisdiction. The place of arbitration shall be in Houston, Texas. The amount
of any reduction in the Purchase Price to which Buyer becomes entitled under the
final and binding decision of the arbitrators shall be effected in a manner
similar to that set forth in Section 7.2(d). Each party shall be entitled to
inspect and obtain a copy of relevant documents in the possession or control of
the other party and to take depositions of the other parties' employees, agents,
representatives and witnesses (including expert witnesses). All such discovery
shall be in accordance with procedures approved by the arbitrators. Unless
otherwise provided in the award, each party shall bear its own costs of
discovery. All discovery shall be expedited, consistent with the nature and
complexity of the Disputed Claim and consistent with fairness and justice. The
arbitrators shall have the power to compel any party to comply with discovery
requests of the other parties and to issue binding orders relating to any
discovery dispute which shall be enforceable in the same manner as awards. The
arbitrators also shall have the power to impose sanctions for abuse or
frustration of the arbitration process, including without limitation, the
refusal to comply with orders of the arbitrators relating to discovery and
compliance with subpoenas. Each of the parties hereto hereby irrevocably
submits to the jurisdiction of the courts of the State of Texas for entry of any
arbitration decision or to obtain any preliminary relief which may be necessary
and hereby consents to the enforcement by such courts of any award rendered in
such arbitration. The compensation and expenses of the arbitrators shall be
borne equally by the parties. Each party shall bear and pay any and all costs
and expenses incurred by it in connection with the arbitration.
ARTICLE VIII
Conditions Precedent to the Obligations of the Parties
------------------------------------------------------
Section 8.1. Conditions Precedent to the Obligations of Buyer. The
------------------------------------------------
obligations of Buyer under this Agreement are subject to each of the following
conditions being met:
(a) All the representations and warranties of Seller contained in
this Agreement, and in any agreement, instrument or document delivered pursuant
hereto or in connection herewith on or prior to the Closing Date, shall be true
and correct in all material respects on and as of the Closing Date as if made on
and as of such date, except as affected by transactions permitted by this
Agreement, and except to the extent that any such representation or warranty is
made as of a specified date, in which case such representation or warranty shall
have been true and correct in all material respects as of such specified date.
For the sole purpose of determining whether or not any
34
<PAGE>
of such representations and warranties are true and correct as aforesaid on and
as of the Closing Date, no effect shall be given to any materiality
qualification contained in such representation or warranty.
(b) Seller shall have performed and complied in all material respects
with (or compliance therewith shall have been waived by Buyer) each and every
covenant, agreement and condition required by this Agreement to be performed or
complied with by Seller prior to or at the Closing.
(c) No suit, action or other proceedings shall, on the Closing Date,
be pending or threatened before any Governmental Entity seeking to restrain,
prohibit, or obtain damages or other relief in connection with the consummation
of the transactions contemplated by this Agreement.
(d) There shall have been obtained any and all consents, approvals,
authorizations, licenses, orders or permits set forth on Schedule 5.7; and no
------------
other consent, approval, authorization, license, order or permit of, or
declaration, filing or registration with, or notification to, any Governmental
Entity, or any other Person or entity, the failure to comply with which would
have a Material Adverse Effect, shall be required to be made or obtained by
Buyer or any Subsidiary in connection with the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby.
(e) All waiting periods (and any extensions thereof) applicable to
this Agreement and the transactions contemplated hereby under the HSR Act shall
have expired or been terminated.
(f) GP Approval shall have been obtained.
Section 8.2. Conditions Precedent to the Obligations of Seller. The
-------------------------------------------------
obligations of Seller under this Agreement are subject to each of the following
conditions being met:
(a) All the representations and warranties of Buyer contained in this
Agreement, and in any agreement, instrument or document delivered pursuant
hereto or in connection herewith on or prior to the Closing Date, shall be true
and correct in all material respects on and as of the Closing Date as if made on
and as of such date, except as affected by transactions permitted by this
Agreement, and except to the extent that any such representation or warranty is
made as of a specified date, in which case such representation or warranty shall
have been true and correct in all material respects as of such specified date.
For the sole purpose of determining whether or not any of such representations
and warranties are true and correct as aforesaid on and as of the Closing Date,
no effect shall be given to any materiality qualification contained in such
representation or warranty.
(b) Buyer shall have performed and complied in all material respects
with (or compliance therewith shall have been waived by Seller) each and every
covenant, agreement and condition required by this Agreement to be performed or
complied with by Buyer prior to or at the Closing.
35
<PAGE>
(c) No suit, action or other proceedings shall, on the date of
Closing, be pending or threatened before any Governmental Entity seeking to
restrain, prohibit, or obtain damages or other relief in connection with the
consummation of the transactions contemplated by this Agreement.
(d) The total of the net Purchase Price reductions (if any) which
result from the application of Article VII do not exceed 30% of the original
aggregate stated value of the Preferred Shares.
(e) All waiting periods (and any extensions thereof) applicable to
this Agreement and the transactions contemplated hereby under the HSR Act shall
have expired or been terminated.
(f) There shall have been obtained any and all consents, approvals,
authorizations, licenses, orders or permits set forth on Schedule 5.7; and no
------------
other consent, approval, authorization, license, order or permit of, or
declaration, filing or registration with, or notification to, any Governmental
Entity, or any other Person or entity, the failure to comply with which would
have a Material Adverse Effect, shall be required to be made or obtained by
Buyer or any Subsidiary in connection with the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby.
(g) Since the date of this Agreement, there shall not have been any
material adverse change in the business, assets, results of operations,
condition (financial or otherwise) or prospects of Buyer and the Subsidiaries
considered as a whole.
(h) GP Approval shall have been obtained.
ARTICLE IX
Closing of Transaction
----------------------
Section 9.1. The Closing. The closing (herein called the "Closing") of
-----------
the transaction contemplated hereby shall take place in the offices of Thompson
Knight Brown Parker & Leahy L.L.P., at Two Allen Center, Suite 3600, Houston,
Texas, at 10:00 a.m. Central Standard Time, on May 1, 2000, or at such other
date and time as Buyer and Seller may mutually agree upon (such date and time
being herein called the "Closing Date").
Section 9.2. Seller's Closing Obligations. At the Closing, Seller shall:
----------------------------
(a) execute, acknowledge and deliver to Buyer (or its designated
Subsidiary) an assignment or assignments of the Interests (the "Assignment"),
substantially in the form attached hereto as Exhibit 9.2(a) in all material
--------------
respects, effective as of 12:01 o'clock a.m., Central Daylight Time on May 1,
2000 (the "Effective Date"); and
36
<PAGE>
(b) deliver to Buyer such other certificates, instruments, and
documents as may be reasonably requested by Buyer prior to the Closing Date to
carry out the intent and purposes of this Agreement.
Section 9.3. Buyer's Closing Obligations. At the Closing, Buyer shall:
---------------------------
(a) deliver to Seller a stock certificate evidencing the Preferred
Shares;
(b) execute and deliver to Seller a certificate executed on behalf of
Buyer by an authorized signatory of Buyer, dated the Closing Date, representing
and certifying, in such detail as Seller may reasonably request, that the
conditions set forth in Sections 8.2(a) and 8.2(b) have been fulfilled;
(c) deliver to Seller an opinion, in form, scope and content
reasonably acceptable to Seller, of Jenkens & Gilchrist, counsel to Buyer,
dated the Closing Date;
(d) deliver to Seller the certificates, instruments and documents
listed below:
(i) certified copy of a written consent or resolutions of the
Board of Directors of Buyer authorizing the execution, delivery and
performance by Buyer of this Agreement and the Ancillary Documents, as
necessary;
(ii) such other certificates, instruments, and documents as may
be reasonably requested by Seller prior to the Closing Date to carry out
the intent and purposes of this Agreement.
Section 9.4. Delivery of Files. No later than 10 business days after the
-----------------
Closing, Seller shall deliver to Buyer such of Seller's files and other
materials pertaining to the ownership of the Interests as Buyer may request.
ARTICLE X
Pre-Closing Termination
-----------------------
Section 10.1. Termination. This Agreement may be terminated and the
-----------
transactions contemplated hereby abandoned at any time prior to the Closing in
the following manner:
(a) by mutual written consent of Seller and Buyer;
(b) by either Seller or Buyer if any Governmental Entity with
jurisdiction over such matters shall have issued an order or injunction
restraining, enjoining or otherwise prohibiting the consummation of the
transactions contemplated hereunder, and such order, decree, ruling or other
action shall have become final and unappealable; or
37
<PAGE>
(c) by either Seller or Buyer if the Closing shall not have occurred
on or before May 30, 2000; provided, however, that the right to terminate this
Agreement under this Section 10.1(c) shall not be available to any party whose
failure to fulfill any obligation under this Agreement shall have been the cause
of, or shall have resulted in, the failure of the Closing to occur prior to such
date.
Section 10.2. Effect of Termination. In the event of termination of this
---------------------
Agreement pursuant to Section 10.1 by Seller, on the one hand, or Buyer, on the
other hand, written notice thereof shall forthwith be given to the other party
specifying the provision hereof pursuant to which such termination is made, and
this Agreement shall become void and have no effect, except that the agreements
contained in this Section and in Article XVI shall survive the termination
hereof. Nothing contained in this Section shall relieve any party from liability
for damages actually incurred as a result of any breach of this Agreement.
ARTICLE XI
Rights to Distributions, Assumption of Liabilities and Indemnification
----------------------------------------------------------------------
Upon consummation of the transactions contemplated hereunder, Buyer (a)
shall (i) be entitled to receive all distributions of cash and property made by
the Partnerships on or after the Closing Date and attributable to the Interests,
regardless of whether such distributions arise or are otherwise attributable to
sales of production or other events occurring before, on or after the Effective
Date and (ii) assume and timely pay and perform all duties, obligations and
liabilities relating to the ownership of the Interests, regardless of whether
such duties, obligations and liabilities arise or are otherwise attributable to
events occurring before, on or after the Effective Date, and (b) shall,
indemnify and hold Seller harmless from and against any and all claims,
obligations, actions, liabilities, damages, or expenses arising out of the
ownership of the Interests, whether arising before, on or after the Effective
Date.
ARTICLE XII
Affirmative Post Closing Covenants of Buyer
-------------------------------------------
To induce Seller to enter into this Agreement, Buyer warrants, covenants
and agrees that it will comply with and observe the following covenants and
provisions, and will cause each Subsidiary to comply with and observe such of
the following covenants and provisions as are applicable to such Subsidiary:
Section 12.1. Inspection Rights. At any reasonable time and from time to
-----------------
time upon reasonable notice, Buyer will permit Seller or its agents or
representatives to examine and make copies of and extracts from the records and
books of account of, and visit and inspect the properties of Buyer and any
Subsidiary, and to discuss the affairs, finances and accounts of Buyer and any
Subsidiary with any of their officers or directors and independent accountants.
38
<PAGE>
Section 12.2. Books, Financial Statements and Reports. Buyer and each of
---------------------------------------
its Subsidiaries will at all times maintain full and accurate books of account
and records. Buyer will maintain and will cause its Subsidiaries to maintain a
standard system of accounting, will maintain its Fiscal Year, and will furnish
the following statements and reports to Seller at Buyer's expense:
(a) As soon as available, and in any event within one hundred five
(105) days after the end of each Fiscal Year, complete consolidated financial
statements of Buyer together with all notes thereto, prepared in reasonable
detail in accordance with U.S. GAAP, together with an unqualified opinion, based
on an audit using generally accepted auditing standards, by independent
certified public accountants selected by Buyer and reasonably acceptable to
Seller, 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.
(b) As soon as available, and in any event within fifty (50) days
after the end of each Fiscal Quarter, Buyer's consolidated balance sheet as of
the end of such Fiscal Quarter and consolidated statements of Buyer's 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 U.S. GAAP, subject to changes resulting from normal year-end
adjustments. In addition Buyer will, together with each such set of financial
statements and each set of financial statements furnished under subsection (a)
of this section, furnish a certificate in a form reasonably acceptable to Seller
signed by the chief financial officer of Buyer stating that such financial
statements are accurate and complete (subject to normal year-end adjustments)
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.
(c) Promptly upon their becoming available, copies of all financial
statements, reports, notices and proxy statements sent by Buyer to its
stockholders and all registration statements, periodic reports and other
statements and schedules filed by Buyer with any securities exchange, the
Securities and Exchange Commission or any similar Governmental Entity.
(d) Annually within 60 days after the end of each Fiscal Year
beginning with the Fiscal Year ending April 30, 2000, a report containing (i) an
estimation of the oil and gas reserves, classified by appropriate categories, as
of the end of the preceding fiscal year attributable to the interest of Buyer
therein, (ii) a projection of the rate of production of and net income from such
reserves with respect to each such interest, (iii) a calculation of the present
worth of such net income discounted at a rate of 10% and (iv) a schedule or
complete description of all assumptions, estimates and projections made or used
in the preparation of such report. Each such report shall be prepared in
accordance with customary and generally accepted standards and practices for
petroleum engineers, and shall be based on (1) prices determined by the Holders
of a Requisite Majority, (2) lease operating expenses and production taxes
derived from and consistent with those actually incurred by Buyer, escalated at
the same rate, if any, being applied to prices and (3) such other
39
<PAGE>
assumptions as shall be designated by the Holders of a Requisite Majority. In
addition to the foregoing, the Holders of a Requisite Majority shall have the
right from time to time to cause the independent petroleum engineer referenced
below to prepare an additional report of the type described above, not to exceed
one additional report in any one calendar year, in which event all fees and
expenses incurred in connection with obtaining such additional report shall be
paid by Buyer. Each report under this subsection shall be prepared by an
independent petroleum engineer designated by Buyer and approved by the Holders
of a Requisite Majority. Each annual report referenced above shall also include
an estimate of Buyer's proved oil and gas reserves (as defined in Regulation S-X
promulgated by the Securities and Exchange Commission) and a calculation of the
"present value of estimated future net revenues" from such proved oil and gas
reserves, with such present worth calculation to be made in accordance with
Regulation S-X, as promulgated by the Securities and Exchange Commission.
(e) Promptly, such other information with respect to the business and
operations of Buyer and its Subsidiaries, as Seller may reasonably request.
Section 12.3. Notice of Material Events and Change of Address. Buyer will
-----------------------------------------------
promptly notify Seller in writing, stating that such notice is being given
pursuant to this Agreement, of:
(a) the occurrence of an event or circumstance that could reasonably
be expected to have a Material Adverse Effect,
(b) the occurrence of any Default,
(c) the acceleration of the maturity of any indebtedness owed by
Buyer or any Subsidiary thereof or of any default by any Buyer or any such
Subsidiary 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 could reasonably be
expected to have a Material Adverse Effect,
(d) any claim of $100,000 or more, any notice of potential liability
under any Environmental Laws which might exceed such amount, or any other
material adverse claim asserted against Buyer or any Subsidiary thereof or with
respect to Buyer or any of such Subsidiary's properties, and
(e) the filing of any suit or proceeding against Buyer or any
Subsidiary thereof in which an adverse decision could cause a Material Adverse
Effect.
Upon the occurrence of any of the foregoing Buyer and any Subsidiary thereof
will take all necessary or appropriate steps to remedy promptly any such
Material Adverse Effect, Default, acceleration or default, 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.
40
<PAGE>
Section 12.4. Maintenance of Properties. Buyer and each of its
-------------------------
Subsidiaries will maintain, preserve, protect, and keep all property used or
useful in the conduct of its business in good condition and in compliance with
all Applicable Laws, 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 promptly and advantageously conducted at all times.
Section 12.5. Maintenance of Existence and Qualifications. Buyer and each
-------------------------------------------
of its Subsidiaries will maintain and preserve its existence and its rights and
franchises in full force and effect and will qualify to do business in all
states or jurisdictions where required by Applicable Law, except where the
failure so to qualify will not cause a Material Adverse Effect.
Section 12.6. Payment of Trade Liabilities, Taxes, etc. Buyer and each of
-----------------------------------------
its Subsidiaries will (a) timely file all required Tax Returns; (b) timely pay
all Taxes, assessments, and other governmental charges or levies imposed upon it
or upon its income, profits or property; (c) timely withhold and pay over to the
proper Governmental Entity all amounts required to be withheld and paid over
under Applicable Laws; (d) pay when due all Liabilities owed by it on ordinary
trade terms to vendors, suppliers and other Persons providing goods and services
used by it in the ordinary course of its business; (e) pay and discharge when
due all other Liabilities now or hereafter owed by it; and (f) maintain
appropriate accruals and reserves for all of the foregoing in accordance with
U.S. GAAP. Buyer and each of its Subsidiaries 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.
Section 12.7. Insurance. Buyer and each of its Subsidiaries will keep or
---------
cause to be kept insured by financially sound and reputable insurers its
properties in such forms and amounts and against such risks as are customary for
Persons engaged in the same or similar business of owning and operating similar
properties.
Section 12.8. Compliance with Agreements and Law. Buyer and each of its
----------------------------------
Subsidiaries 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. Buyer and each
of its Subsidiaries will conduct its business and affairs in compliance with all
Applicable Law.
Section 12.9. Charter Amendment Approval. Buyer shall cause Charter
--------------------------
Amendment Approval by September 30, 2000.
ARTICLE XIII
Post Closing Negative Covenants of Buyer
----------------------------------------
To induce Seller to enter into this Agreement, Buyer warrants, covenants
and agrees that, until all of the Preferred Shares have been converted into
Preferred Conversion Shares, it will comply
41
<PAGE>
with and observe the following covenants and provisions, and will cause each
Subsidiary to comply with and observe such of the following covenants and
provisions as are applicable to such Subsidiary:
Section 13.1. Indebtedness. Neither Buyer nor any Subsidiary thereof will
------------
in any manner owe or be liable for Indebtedness except:
(a) the Senior Credit Facility;
(b) the Subordinated Debt;
(c) purchase money Indebtedness and Indebtedness under leases of
Buyer or such Subsidiary as lessee which are capitalized in accordance with U.S.
GAAP, in an aggregate principal amount not to exceed $100,000 at any time,
provided that such purchase money Indebtedness and Indebtedness under capital
leases do not in the aggregate exceed $250,000; and
(d) Old Latex Payables.
Section 13.2. Limitation on Liens. Neither Buyer nor any Subsidiary
-------------------
thereof will create, assume or permit to exist any Lien upon any of the
properties or assets which it now owns or hereafter acquires, except the
following ("Permitted Liens"):
(a) Liens which secure the Senior Credit Facility; and
(b) Statutory Liens for taxes, statutory mechanics' and materialmen's
Liens incurred in the ordinary course of business, and other similar Liens
incurred in the ordinary course of business, provided such Liens do not secure
Indebtedness or secure only Indebtedness which is not delinquent or for which
adequate reserves have been set aside.
Section 13.3. Limitation on Mergers. Except as expressly provided in this
---------------------
Section, neither Buyer nor any Subsidiary thereof will merge or consolidate with
or into any other business entity. Any Subsidiary of Buyer may, however, be
merged into or consolidated with either Buyer or another Subsidiary which is
wholly-owned by Buyer, so long as Buyer or the Subsidiary wholly-owned by Buyer
is the surviving business entity. Buyer will not issue any securities other than
(i) Common Stock (including the shares of Common Stock to be issued upon the
conversion of the Series A Preferred) or (ii) any options or warrants giving
the holders thereof only the right to acquire such shares. No Subsidiary of
Buyer will issue any additional shares of its capital stock or other securities
or any options, warrants or other rights to acquire such additional shares or
other securities except to Buyer or to another Subsidiary. No Subsidiary of
Buyer which is a partnership will allow any diminution of Buyer's interest
(direct or indirect) therein.
Section 13.4. Limitation on Sales of Property. Neither Buyer nor any
-------------------------------
Subsidiary thereof will sell, transfer, lease, exchange, alienate or dispose of
any of its assets or properties except:
42
<PAGE>
(a) equipment which is worthless or obsolete or which is replaced by
equipment of equal suitability and value;
(b) inventory (including oil and gas sold as produced and seismic
data) which is sold in the ordinary course of business on ordinary trade terms;
or
(c) other property which is sold for fair consideration not in the
aggregate in excess of $500,000 in any Fiscal Year (commencing with Fiscal Year
2000).
Section 13.5. Limitation on Investments and New Businesses. Neither Buyer
--------------------------------------------
nor any Subsidiary thereof will make any expenditure or commitment or incur any
obligation or enter into or engage in any transaction except in the ordinary
course of business (which ordinary course of business includes the acquisition,
directly or indirectly, of oil and gas properties), engage directly or
indirectly in any business or conduct any operations except in connection with
or incidental to its present businesses and operations, make any acquisitions of
or capital contributions to or other investments in any Person, other than
Permitted Investments, or make any significant acquisitions or investments in
any properties other than oil and gas properties.
Section 13.6. Transactions with Affiliates. Neither Buyer nor any of its
----------------------------
Subsidiaries will engage in any material 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.
Section 13.7. Restricted Payments. Buyer will not, and will not permit
-------------------
any of its Subsidiaries to, declare or make, or incur any liability to declare
or make, any Restricted Payment.
ARTICLE XIV
Events of Default and Remedies
-------------------------------
Section 14.1. Events of Default. If any of the following events ("Events
-----------------
of Default") shall occur and be continuing:
(a) Buyer fails to pay any dividends on the Preferred Shares when due
as required under the terms of the Certificate of Designation;
(b) Buyer fails to redeem the Preferred Shares when due as required
under the terms of the Certificate of Designation;
(c) a default in the performance or observation of any covenant,
agreement or condition contained in (i) Article XII or Article XIII, (ii) the
Organic Documents with respect to the Series A Preferred (exclusive of a
default described in subsection (a) or subsection (b) above, or (iii) any other
Ancillary Document, which default is not remedied within 15 days after the
earlier of (A)
43
<PAGE>
the day on which Buyer first obtains knowledge of such default or (B) the day on
which written notice thereof is given to Buyer by any registered holder of the
Preferred Shares;
(d) any representation or warranty previously, presently or hereafter
made in writing by or on behalf of Buyer or any Subsidiary thereof in
connection with this Agreement or any Ancillary Document shall prove to have
been false or incorrect in any material respect on any date on or as of which
made, which default is not remedied within 30 days after the earlier of (i) the
day on which Buyer first obtains knowledge of such default or (ii) the day on
which written notice thereof is given to Buyer by any registered holder of the
Preferred Shares;
(e) Buyer or any Subsidiary fails to duly observe, perform or comply
with any term or condition of any loan document relating to the Senior Credit
Facility, the Subordinated Debt Agreement or any other agreement or instrument
with any Person, if such agreement or instrument is materially significant to
Buyer or such Subsidiary, and such failure is not remedied within the applicable
period of grace (if any) provided in such agreement or instrument (it being
agreed that each of the Other Acquisition Agreements and the Preferred Stock
Purchase Agreement is materially significant to Buyer);
(f) Buyer or any Subsidiary thereof fails to pay any portion, when
such portion is due, of any of its Indebtedness in excess of $100,000 (exclusive
of the Old LaTex Payables), or breaches or defaults in the performance of any
Agreement or instrument by which any such Indebtedness is issued, evidenced,
governed, or secured, and any such failure, breach or default continues beyond
any applicable period of grace provided therefor;
(g) Buyer or any Subsidiary thereof:
(i) suffers the entry against it of a judgment, decree or order
for relief by a tribunal of competent jurisdiction in an involuntary
proceeding commenced under any applicable bankruptcy, insolvency or other
similar Applicable Law of any jurisdiction now or hereafter in effect,
including the United States federal Bankruptcy Code or similar foreign law,
as from time to time amended, or has any such proceeding commenced against
it which remains undismissed for a period of thirty days; or
(ii) commences a voluntary case under any applicable bankruptcy,
insolvency or similar Applicable Law now or hereafter in effect, including
the United States federal Bankruptcy Code or similar foreign law, 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 Applicable 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 corporate or other action to authorize any of the foregoing;
or
(iii) suffers the appointment of or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator or similar
official of all or a substantial part of its assets in a proceeding brought
against or initiated by it, and such appointment or
44
<PAGE>
taking possession is neither made ineffective nor discharged within thirty
days after the making thereof, or such appointment or taking possession is
at any time consented to, requested by, or acquiesced to by it; or
(iv) suffers the entry against it of a final judgment for the
payment of money in excess of $250,000 (not covered by insurance), 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 tribunal against all or any substantial part of
its assets, and such writ or warrant of attachment or any similar process
is not stayed or released within thirty days after the entry or levy
thereof or after any stay is vacated or set aside;
(h) Any Change in Control occurs; and
(i) Any Material Adverse Effect occurs.
Upon the occurrence of an Event of Default, (x) Seller or any other holder
of the Preferred Shares holding a majority of the Outstanding Common Stock may,
by notice to the Company, request that Buyer redeem all of the Preferred Shares
at a per share purchase price of $50.00 plus all accrued and unpaid dividends
thereon; (y) Seller shall have such rights as provided in the Organic
Documents; and (z) Seller may proceed to protect and enforce its rights by suit
in equity (including a suit for recission), action at law or other appropriate
proceeding either for specific performance of any covenant, provision or
condition contained or incorporated by reference to this Agreement or in aid of
the exercise of any power granted in this Agreement.
Without limiting the rights of the holders of the Series A Preferred, Buyer
and the Subsidiaries hereby agree that the holders of the Series A Preferred
would have no adequate remedy at law, for monetary compensation or otherwise,
for the damages that would be suffered if Buyer or the Subsidiaries were to fail
to comply with its obligations under Article IX, and that Buyer and the
Subsidiaries therefore agree that the holders of the Series A Preferred shall be
entitled to obtain specific performance of Buyer's obligations under this
Agreement.
Section 14.2. Annulment of Defaults. Section 14.1 is subject to the
---------------------
condition that if, at any time after a dividend shall have become due and
payable, and before any judgment or decree for the payment of the moneys so due,
or any thereof, shall have been entered, then and in every such case Seller may,
by written instrument filed with Buyer, rescind and annul such declaration and
its consequences; but no such recission or annulment shall extend to or affect
and subsequent default or Event of Default or impair any right consequent
thereon.
45
<PAGE>
Section 14.3. Expiration. The provisions of Sections 14.1 and 14.2 shall
----------
automatically expire and be of no further force or effect upon such date as all
of the Preferred Shares have been converted into Preferred Conversion Shares.
ARTICLE XV
Notices
-------
All notices, requests, demands, and other communications required or
permitted to be given or made hereunder by any party hereto shall be in writing
and shall be deemed to have been duly given or made if (i) delivered personally,
(ii) transmitted by first class registered or certified mail, postage prepaid,
return receipt requested, (iii) sent by prepaid overnight courier service, or
(iv) sent by telecopy or facsimile transmission, answer back requested, to the
parties at the following addresses (or at such other addresses as shall be
specified by the parties by like notice):
If to Seller: EnCap Equity 1996 Limited Partnership
------------
c/o EnCap Investments L.L.C.
1100 Louisiana, Suite 3150
Houston, Texas 77002
Attention: Robert L. Zorich
Fax No.: 713-659-6130
If to Buyer: AROC Inc.
-----------
4200 East Skelly Drive, Suite 1000
Tulsa, Oklahoma 74135
Attention: John A. Keenan
Fax No.: 918-494-4918
with a copy to: Jenkens & Gilchrist, a Professional Corporation
1445 Ross Avenue, Suite 3200
Dallas, Texas 75202
Attention: W. Alan Kailer
Fax No.: 214-855-4300
Such notices, requests, demands, and other communications shall be effective (i)
if delivered personally or sent by courier service, upon actual receipt by the
intended recipient, (ii) if mailed, upon the earlier of five days after deposit
in the mail or the date of delivery as shown by the return receipt therefor or
(iii) if sent by telecopy or facsimile transmission, when the answer back is
received.
46
<PAGE>
ARTICLE XVI
Miscellaneous Matters
----------------------
Section 16.1. Survival of Provisions. All representations and warranties
----------------------
made herein by Buyer and Seller shall be continuing and shall be true and
correct on and as of the date of Closing with the same force and effect as if
made at that time and, except as provided below, all of such representations and
warranties shall survive the Closing and the delivery of the Assignment. The
representations of Seller contained in Section 4.6 (to the extent such
representations relate to the Properties), in Sections 4.7 through 4.20 and in
Section 4.25 shall expire with, and be terminated and extinguished by, the
Closing, and Seller shall have no liability with respect to such representations
and warranties pursuant to this Section 16.1, 16.5 or otherwise. The provisions
of, and the obligations of the parties under, Article IX (to the extent the
same are, by mutual agreement, not performed at Closing), and Articles X through
XVI inclusive shall survive the Closing and the delivery of the Assignment.
Section 16.2. Public Announcements. Except as may be required by
--------------------
Applicable Law, neither Seller, on the one hand, nor Buyer, on the other, shall
issue any press release or otherwise make any public statement with respect to
this Agreement or the transactions contemplated hereby without the prior written
consent of the other party (which consent shall not be unreasonably withheld).
Any such press release or public statement required by Applicable Law shall only
be made after reasonable notice to the other party, and in such case the party
proposing to make such a press release or public statement shall consult with
the other party.
Section 16.3. Fees and Expenses.
-----------------
(a) Except as otherwise expressly provided in this Agreement or as
agreed upon by the parties hereto, all fees and expense, including fees and
expenses of counsel, incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such fee
or expense.
(b) Notwithstanding anything to the contrary herein, since the
transaction contemplated hereby is an isolated transaction, no sales tax will be
collected from Buyer. If, however, this transaction is later deemed to be other
than an occasional sale, Buyer agrees to be solely responsible, and shall
indemnify and hold Seller (and their respective partners, and each of their and
each such partners' parent and subsidiary companies and other affiliates, and
shareholders, managers, owners, directors, officers, employees, consultants, and
agents, respectively) harmless, from any and all sales or transfer taxes or fees
(including related penalty, interest or legal costs) due by virtue of this
transaction on the Interests or Properties transferred pursuant hereto and Buyer
shall remit such sales or transfer taxes at that time. Seller and Buyer agree
to cooperate with each other in demonstrating that the requirements for an
occasional or isolated sale or any other sales tax exemption have been met.
47
<PAGE>
(c) All sales, transfer, filing, recordation, registration, stamp and
similar Taxes and fees arising from or associated with the issue and sale of the
Preferred Shares contemplated hereunder or any transfer hereafter by a
Partnership to Buyer of an interest in the Properties, whether levied on Seller
or Buyer, shall be borne by Buyer, and Buyer shall file all necessary
documentation with respect to, and make all payments of, such Taxes and fees on
a timely basis.
Section 16.4. Costs of Enforcement. If any party hereto is required to
--------------------
take action to enforce its rights under this Agreement, the prevailing party
shall be entitled to its reasonable expenses, including attorneys' fees and
expenses, in connection with any such action.
Section 16.5. Indemnification.
---------------
(a) Subject to the terms and conditions of this Section 16.5, Buyer
shall indemnify, defend and hold harmless Seller from and against any and all
claims, actions, causes of action, demands, assessments, losses, damages,
liabilities, judgments, settlements, penalties, costs and expenses (including
reasonable attorneys' fees and expenses), of any nature (collectively,
"Damages") whatsoever, asserted against, resulting to, imposed upon, or incurred
by Seller, directly or indirectly, by reason of or resulting from any breach by
Buyer of any of its representations, warranties, covenants or agreements
contained in this Agreement or in any certificate, instrument or document
delivered pursuant hereto.
(b) Subject to the terms and conditions of this Section 16.5 (and
Section 16.1), Seller shall indemnify, defend and hold harmless Buyer from and
against any and all Damages, asserted against, resulting to, imposed upon, or
incurred by Buyer, directly or indirectly, by reason of or resulting from any
breach by Seller of any of its representations, warranties, covenants or
agreements contained in this Agreement or in any certificate, instrument or
document delivered pursuant hereto.
(c) Promptly after receipt by an indemnified party under Section
16.5(a) or Section 16.5(b) of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against an
indemnifying party under such Section, give written notice to the indemnifying
party of the commencement thereof, but the failure so to notify the
indemnifying party shall not relieve it of any liability that it may have to any
indemnified party except to the extent the indemnifying party demonstrates that
the defense of such action is prejudiced thereby. In case any such action shall
be brought against an indemnified party and it shall give written notice to the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it may wish, to assume
the defense thereof with counsel reasonably satisfactory to such indemnified
party. If the indemnifying party elects to assume the defense of such action,
the indemnified party shall have the right to employ separate counsel at its own
expense and to participate in the defense thereof. If the indemnifying party
elects not to assume (or fails to assume) the defense of such action, the
indemnified party shall be entitled to assume the defense of such action with
counsel of its own choice, at the expense of the indemnifying party. If the
action is asserted against both the
48
<PAGE>
indemnifying party and the indemnified party and there is a conflict of
interests which renders it inappropriate for the same counsel to represent both
the indemnifying party and the indemnified party, the indemnifying party shall
be responsible for paying for separate counsel for the indemnified party;
provided, however, that if there is more than one indemnified party, the
indemnifying party shall not be responsible for paying for more than one
separate firm of attorneys to represent the indemnified parties, regardless of
the number of indemnified parties. If the indemnifying party elects to assume
the defense of such action, (a) no compromise or settlement thereof may be
effected by the indemnifying party without the indemnified party's written
consent (which shall not be unreasonably withheld) unless the sole relief
provided is monetary damages that are paid in full by the indemnifying party and
(b) the indemnifying party shall have no liability with respect to any
compromise or settlement thereof effected without its written consent (which
shall not be unreasonably withheld).
(d) It is the express intention of the parties hereto that each
-----------------------------------------------------------
person to be indemnified pursuant to this Section 16.5 or Article XI shall be
- -----------------------------------------------------------------------------
indemnified and held harmless from and against all Damages as to which indemnity
- --------------------------------------------------------------------------------
is provided for under this Section 16.5 or Article XI notwithstanding that any
- ------------------------------------------------------------------------------
such Damages arise out of or result from the ordinary, strict, sole, or
- -----------------------------------------------------------------------
contributory negligence of such person and regardless of whether any other
- --------------------------------------------------------------------------
person (including the other party to this Agreement) is or is not also
- ----------------------------------------------------------------------
negligent.
- ----------
Section 16.6. Waiver and Amendment. No failure or delay (whether by
--------------------
course of conduct or otherwise) by any party hereto in exercising any right,
power or remedy which such holder may have under the Agreement or any of the
Ancillary Documents shall operate as a waiver thereof or of any other right,
power or remedy, nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or of any other right, power or remedy. No
waiver of any provision of this Agreement or any Ancillary 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 waiver,
consent, release, modification or amendment of or supplement to this Agreement
or any of the Ancillary Documents shall be valid or effective against any party
hereto unless the same is in writing and signed by such party.
Section 16.7. Entire Agreement. This Agreement, together with the
----------------
Schedules and other writings referred to herein or delivered pursuant hereto,
constitute the entire agreement between the parties hereto with respect to the
subject matter hereof and supersede all prior agreements and understandings,
both written and oral, between the parties with respect to the subject matter
hereof.
Section 16.8. Binding Effect; Assignment; No Third Party Benefit. This
--------------------------------------------------
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns; provided, however, that prior to
Closing, neither party may assign its rights or delegate any of its duties and
obligations under this Agreement or the Ancillary Documents without the prior
written consent of the other; provided, further, that after the Closing, Buyer
may not assign its rights or delegate any of its duties and obligations under
this Agreement and the Ancillary Documents without the prior written consent of
Seller. Except as expressly provided herein, nothing in this Agreement, express
or implied, is intended to or shall confer upon any Person other than the
parties
49
<PAGE>
hereto, and their respective successors and permitted assigns, any rights,
benefits, or remedies of any nature whatsoever under or by reason of this
Agreement.
Section 16.9. Severability. If any provision of this Agreement is held to
------------
be unenforceable, this Agreement shall be considered divisible and such
provision shall be deemed inoperative to the extent it is deemed unenforceable,
and in all other respects this Agreement shall remain in full force and effect;
provided, however, that if any such provision may be made enforceable by
limitation thereof, then such provision shall be deemed to be so limited and
shall be enforceable to the maximum extent permitted by Applicable Law.
Section 16.10. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
-------------
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS,
WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
Section 16.11. Remedies Not Exclusive. The rights and remedies herein
----------------------
provided shall be cumulative and not exclusive of any rights or remedies
provided by law. The rights and remedies of any party based upon, arising out
of, or otherwise in respect of any inaccuracy in or breach of any
representation, warranty, covenant, or agreement contained in this Agreement
shall in no way be limited by the fact that the act, omission, occurrence, or
other state of facts upon which any claim of any such inaccuracy or breach is
based may also be the subject matter of any other representation, warranty,
covenant, or agreement contained in this Agreement (or in any other agreement
between the parties) as to which there is no inaccuracy or breach.
Section 16.12. Further Assurances. From time to time following the
------------------
Closing, at the request of any party hereto and without further consideration,
the other party or parties hereto shall execute and deliver to such requesting
party such instruments and documents and take such other action (but without
incurring any material financial obligation) as such requesting party may
reasonably request in order to consummate more fully and effectively the
transactions contemplated hereby.
Section 16.13. Counterparts. This Agreement may be executed by the
------------
parties hereto in any number of counterparts, each of which shall be deemed an
original, but all of which shall constitute one and the same agreement. Each
counterpart may consist of a number of copies hereof each signed by less than
all, but together signed by all, the parties hereto.
Section 16.14. Injunctive Relief. The parties hereto acknowledge and
-----------------
agree that irreparable damage would occur in the event any of the provisions of
this Agreement were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent breaches of the provisions
of this Agreement, and shall be entitled to enforce specifically the provisions
of this Agreement, in any court of the United States or any state thereof having
jurisdiction, in addition to any other remedy to which the parties may be
entitled under this Agreement or at law or in equity.
50
<PAGE>
Section 16.15. Consent to Jurisdiction. Subject to Section 7.5, the
-----------------------
parties hereto hereby irrevocably submit to the jurisdiction of the courts of
the State of Texas and the federal courts of the United States of America
located in Harris County, Texas, and appropriate appellate courts therefrom,
over any dispute arising out of or relating to this Agreement or any of the
transactions contemplated hereby, and each party hereby irrevocably agrees that
all claims in respect of such dispute or proceeding shall be heard and
determined in such courts. Subject to Section 7.5, the parties hereby
irrevocably waive, to the fullest extent permitted by Applicable Law, any
objection which they may now or hereafter have to the laying of venue of any
dispute arising out of or relating to this Agreement or any of the transactions
contemplated hereby brought in such court or any defense of inconvenient forum
for the maintenance of such dispute. Each of the parties hereto agrees that a
judgment in any such dispute may be enforced in other jurisdictions by suit on
the judgment or in any other manner provided by law. This consent to
jurisdiction is being given solely for purposes of this Agreement and is not
intended to, and shall not, confer consent to jurisdiction with respect to any
other dispute in which a party to this Agreement may become involved.
Section 16.16. Payments. All payments to be made hereunder shall be in
--------
lawful money of the United States of America.
Section 16.17. Right to Purchase New Equity Securities. Buyer grants to
---------------------------------------
Seller the same rights as provided to the "Purchasers" under Section 2.03 of the
Preferred Stock Purchase Agreement, and the terms and conditions of such Section
are hereby incorporated herein, mutatis mutandis.
----------------
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
51
<PAGE>
IN WITNESS WHEREOF, this Agreement is executed by the parties hereto on the
date set forth above.
SELLER:
ENCAP EQUITY 1996 LIMITED PARTNERSHIP
By: ENCAP INVESTMENTS L.L.C.
By:_____________________________________
Name:______________________________
Title: Managing Director
BUYER:
AROC INC.
By: __________________________________
Name: Francis M. Munchinski
Title: Vice President
<PAGE>
EXHIBIT 10.2
================================================================================
PURCHASE AND SALE AGREEMENT
Dated: April 30, 2000
By and Among
ENERGY CAPITAL INVESTMENT COMPANY PLC
and
ECIC CORPORATION
AS SELLER
and
AROC INC.
AS BUYER
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
Definitions and References............................................................................... 1
Section 1.1. Certain Defined Terms................................................................ 1
Section 1.2. Certain Additional Defined Terms..................................................... 9
Section 1.3. References, Titles and Construction.................................................. 9
ARTICLE II
Interests to be Sold and Purchased....................................................................... 10
ARTICLE III
Purchase Price........................................................................................... 11
ARTICLE IV
Representations and Warranties of Seller................................................................. 11
Section 4.1. Organization and Existence........................................................... 11
Section 4.2. Authority Relative to This Agreement................................................. 11
Section 4.3. Valid and Binding Agreement.......................................................... 11
Section 4.4. Non-Contravention.................................................................... 11
Section 4.5. Approvals............................................................................ 12
Section 4.6. Pending Litigation................................................................... 12
Section 4.7. Basic Documents...................................................................... 12
Section 4.8. Commitments, Abandonments or Proposals.............................................. 13
Section 4.9. Production Sales Contracts........................................................... 13
Section 4.10. Plugging and Abandonment............................................................. 14
Section 4.11. Licenses and Permits................................................................. 14
Section 4.12. Area of Mutual Interest and Other Agreements; Tax Partnerships....................... 14
Section 4.13. Payment of Expenses.................................................................. 14
Section 4.14. Compliance with Laws................................................................. 14
Section 4.15. Partnerships; Title to Interests; Partnership Agreements............................. 14
Section 4.16. Physical Condition of Facilities..................................................... 15
Section 4.17. Environmental Matters................................................................ 15
Section 4.18. Production Data...................................................................... 16
Section 4.19. Ordinary Course Operations........................................................... 16
Section 4.20. Sale of Production................................................................... 16
Section 4.21. Brokerage Fees....................................................................... 16
Section 4.22. Bankruptcy........................................................................... 16
Section 4.23. Full Disclosure...................................................................... 16
Section 4.24. Disclaimer of Warranties............................................................. 17
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
ARTICLE V
Representations and Warranties of Buyer.................................................................. 17
Section 5.1. Organization and Existence........................................................... 17
Section 5.2. Qualification........................................................................ 17
Section 5.3. Charter and Bylaws................................................................... 17
Section 5.4. Capitalization of Buyer.............................................................. 17
Section 5.5. Authority Relative to This Agreement................................................. 18
Section 5.6. No Conflict.......................................................................... 18
Section 5.7. Consents and Approvals, Licenses, Etc................................................ 19
Section 5.8. Subsidiaries......................................................................... 19
Section 5.9. Preferred Shares; Conversion Shares.................................................. 20
Section 5.10. Financial Statements................................................................. 20
Section 5.11. Securities Filings................................................................... 21
Section 5.12. Absence of Undisclosed Liabilities................................................... 21
Section 5.13. Absence of Certain Changes........................................................... 21
Section 5.14. Tax Matters.......................................................................... 22
Section 5.15. Environmental and Other Laws......................................................... 23
Section 5.16. Legal Proceedings.................................................................... 24
Section 5.17. Title to Properties; Permits; Licenses; Condition of Assets.......................... 24
Section 5.18. ERISA................................................................................ 25
Section 5.19. Agreements........................................................................... 26
Section 5.20. Labor Disputes and Acts of God....................................................... 28
Section 5.21. Insurance............................................................................ 28
Section 5.22. Offering of Securities............................................................... 28
Section 5.23. Government Regulation................................................................ 28
Section 5.24. Brokerage Fees....................................................................... 29
Section 5.25. Bankruptcy........................................................................... 29
Section 5.26. Nature of Company Assets............................................................. 29
Section 5.27. Full Disclosure...................................................................... 29
ARTICLE VI
Certain Covenants of Seller and Buyer Pending Closing................................................... 30
Section 6.1. Pre-Closing Covenants of Seller...................................................... 30
Section 6.2. Pre-Closing Covenants of Buyer....................................................... 31
Section 6.3. Pre-Closing Covenants of Seller and Buyer............................................ 33
ARTICLE VII
Due Diligence Examination With Respect to the Properties................................................. 33
Section 7.1. Inspection and Assertion of Defects.................................................. 33
Section 7.2. Certain Price Adjustments............................................................ 34
Section 7.3. Waiver............................................................................... 35
Section 7.4. Casualty Loss........................................................................ 35
Section 7.5. Disputes............................................................................. 35
ARTICLE VIII
Conditions Precedent to the Obligations of the Parties................................................... 37
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
Section 8.1. Conditions Precedent to the Obligations of Buyer..................................... 37
Section 8.2. Conditions Precedent to the Obligations of Seller.................................... 38
ARTICLE IX
Closing of Transaction................................................................................... 39
Section 9.1. The Closing.......................................................................... 39
Section 9.2. Seller's Closing Obligations......................................................... 39
Section 9.3. Buyer's Closing Obligations.......................................................... 39
Section 9.4. Delivery of Files.................................................................... 40
ARTICLE X
Pre-Closing Termination.................................................................................. 40
Section 10.1. Termination.......................................................................... 40
Section 10.2. Effect of Termination................................................................ 40
ARTICLE XI
Rights to Distributions, Assumption of Liabilities and Indemnification................................... 40
ARTICLE XII
Affirmative Post Closing Covenants of Buyer.............................................................. 41
Section 12.1. Inspection Rights.................................................................... 41
Section 12.2. Books, Financial Statements and Reports.............................................. 41
Section 12.3. Notice of Material Events and Change of Address...................................... 43
Section 12.4. Maintenance of Properties............................................................ 43
Section 12.5. Maintenance of Existence and Qualifications.......................................... 43
Section 12.6. Payment of Trade Liabilities, Taxes, etc............................................. 43
Section 12.7. Insurance............................................................................ 44
Section 12.8. Compliance with Agreements and Law................................................... 44
Section 12.9. Charter Amendment Approval........................................................... 44
ARTICLE XIII
Post Closing Negative Covenants of Buyer................................................................. 44
Section 13.1. Indebtedness......................................................................... 44
Section 13.2. Limitation on Liens.................................................................. 45
Section 13.3. Limitation on Mergers................................................................ 45
Section 13.4. Limitation on Sales of Property...................................................... 45
Section 13.5. Limitation on Investments and New Businesses......................................... 46
Section 13.6. Transactions with Affiliates......................................................... 46
Section 13.7. Restricted Payments.................................................................. 46
ARTICLE XIV
Events of Default and Remedies........................................................................... 46
Section 14.1. Events of Default.................................................................... 46
Section 14.2. Annulment of Defaults................................................................ 48
Section 14.3. Expiration........................................................................... 48
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
ARTICLE XV
Notices.................................................................................................. 49
ARTICLE XVI
Miscellaneous Matters.................................................................................... 50
Section 16.1. Survival of Provisions.............................................................. 50
Section 16.2. Public Announcements................................................................ 50
Section 16.3. Fees and Expenses................................................................... 50
Section 16.4. Costs of Enforcement................................................................ 51
Section 16.5. Indemnification..................................................................... 51
Section 16.6. Waiver and Amendment................................................................ 52
Section 16.7. Entire Agreement.................................................................... 52
Section 16.8. Binding Effect; Assignment; No Third Party Benefit.................................. 52
Section 16.9. Severability........................................................................ 53
Section 16.10. Governing Law....................................................................... 53
Section 16.11. Remedies Not Exclusive.............................................................. 53
Section 16.12. Further Assurances.................................................................. 53
Section 16.13. Counterparts........................................................................ 53
Section 16.14. Injunctive Relief................................................................... 54
Section 16.15. Consent to Jurisdiction............................................................. 54
Section 16.16. Payments............................................................................ 54
Section 16.17. Right to Purchase New Equity Securities............................................. 54
</TABLE>
iv
<PAGE>
PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT dated April 30, 2000, is made by and among
ENERGY CAPITAL INVESTMENT COMPANY PLC, an English investment company, ECIC
CORPORATION, a Texas corporation (collectively, "Seller"), and AROC INC., a
Delaware corporation ("Buyer");
W I T N E S S E T H:
--------------------
WHEREAS, Seller desires to sell, assign and convey to Buyer, and Buyer
desires to purchase and accept certain limited partnership interests; and
WHEREAS, Seller and Buyer deem it in their mutual best interests to execute
and deliver this Agreement;
NOW, THEREFORE, in consideration of the foregoing Recitals and the mutual
covenants and agreements contained herein, Seller and Buyer do hereby agree as
follows:
ARTICLE I
Definitions and References
--------------------------
Section 1.1. Certain Defined Terms. When used in this Agreement, the
---------------------
following terms shall have the respective meanings assigned to them in this
Section 1.1 or in the section, subsections or other subdivisions referred to
below:
"Affiliate" means, with respect to any Person, any other Person that,
directly or indirectly, through one or more intermediaries, controls, is
controlled by or is under common control with, such Person. For the purposes of
this definition, "control" when used with respect to any Person means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract, or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Agreement" means this Agreement, as hereafter changed, amended or modified
in accordance with the terms hereof.
"Alliance Group" means Alliance Resources Group, Inc., a Delaware
corporation.
"Alliance PLC" means Alliance Resources PLC, a public limited company
incorporated in England and Wales.
"Alliance USA" means Alliance Resources (USA), Inc., a Delaware
corporation.
<PAGE>
"Ancillary Documents" means each agreement, certificate, document,
commitment and writing (other than this Agreement) executed or to be executed by
Buyer or Seller in connection with the transactions contemplated herein or
therein, including the Assignment.
"Applicable Law" means any statute, law, rule or regulation, or any
judgment, order, writ, injunction or decree of, any Governmental Entity to which
a specified Person or property is subject.
"AROC (Texas)" means AROC (Texas), Inc., a Texas corporation.
"Certificate of Designation" means the document attached hereto as Exhibit
-------
3.1.
- ---
"Change of Control" means the occurrence of any of the following events
after giving effect to the transactions contemplated by this Agreement, the
Other Acquisition Agreements and the Preferred Stock Purchase Agreement: (a) any
Person or two or more Persons, other than Buyer or any affiliate of Buyer,
acting as a group shall acquire beneficial ownership (within the meaning of Rule
13d-3 of the Securities and Exchange Commission under the Exchange Act, and
including holding proxies to vote for the election of directors other than
proxies held by Buyer's management or their designees to be voted in favor of
persons nominated by Buyer's Board of Directors) of 33% or more of the
outstanding voting securities of Buyer, measured by voting power (including both
ordinary shares and any preferred stock or other equity securities entitling the
holders thereof to vote with the holders of common stock in elections for
directors of Buyer.), (b) Buyer shall fail beneficially to own, directly or
indirectly, 100% of the outstanding shares of voting capital stock of Alliance
PLC, Alliance Group, Source, Difco, AROC (Texas), Alliance USA, LPC or GOC, on a
fully diluted basis, (c) one-third or more of the directors of Buyer shall
consist of persons not nominated by Buyer's Board of Directors (not including as
Board nominees any directors which the Board is obligated to nominate pursuant
to shareholders agreements, voting trust arrangements or similar arrangements)
or (d) within three years of the Closing Date, the employment by Buyer of John
Keenan or Paul Fenemore terminates for any reason.
"Charter Amendment Approval" means approval of the increase in authorized
shares of Common Stock of the Company to such level as shall permit the full and
complete conversion of the Preferred Shares into the Preferred Conversion Shares
in accordance with the Certificate of Designation, all in accordance with the
Organic Documents and Applicable Law.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" means common stock, $0.001 par value per share, of Buyer and
any securities issued or issuable with respect to such shares by way of a stock
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization.
"Companies Act" means the Companies Act 1985 as amended.
2
<PAGE>
"Data" has the meaning assigned to it in Schedule 4.7 of the Seller
------------
Disclosure Schedule.
"Default" means an 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.
"Difco" means Difco Limited, a private limited company incorporated under
the laws of England and Wales.
"Environmental Laws" means any and all laws relating to the environment or
to emissions, discharges, releases or threatened releases of pollutants,
contaminants, chemicals, or industrial, toxic or hazardous substances or wastes
into the environment including ambient air, surface water, ground water, or
land, or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling of pollutants,
contaminants, chemicals, or industrial, toxic or hazardous substances or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" means the U.S. Securities Exchange Act of 1934, as amended.
"Fiscal Quarter" means a three-month period ending on July 31, October 31,
January 31 or April 30 of any year.
"Fiscal Year" means the twelve-month period ending on April 30 of any year.
"GOC" means Germany Oil Company, a Delaware corporation.
"Governmental Entity" means any court or tribunal in any jurisdiction
(domestic or foreign) or any federal, state, municipal or other governmental
body, agency, authority, department, commission, board, bureau or
instrumentality (domestic or foreign).
"GP Approval" means, as to a given Partnership, the approval of the general
partner of such Partnership to the assignment by Seller of its respective
Interest in such Partnership to Buyer and the admission of Buyer as a
substituted limited partner of such Partnership in place of Seller.
"Hazardous Materials" means any substance regulated under Environmental
Law, whether as pollutants, contaminants, or chemicals, or as industrial, toxic
or hazardous substances or wastes, or otherwise.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended.
3
<PAGE>
"Indebtedness" of any Person means Liabilities in any of the following
categories: (a) Liabilities for borrowed money; (b) Liabilities constituting an
obligation to pay the deferred purchase price of property or services; (c)
Liabilities evidenced by a bond, debenture, note or similar instrument; (d)
Liabilities which would under U.S. GAAP be shown on such Person's balance sheet
as a liability, and is payable more than one year from the date of creation
thereof (other than reserves for taxes and reserves for contingent obligations);
(e) Liabilities arising under futures contracts, forward contracts, swap, cap or
collar contracts, option contracts, hedging contracts, other derivative
contracts, or similar agreements; (f) Liabilities constituting principal under
leases capitalized in accordance with U.S. GAAP; (g) Liabilities arising under
conditional sales or other title retention agreements; (h) Liabilities owing
under direct or indirect guaranties of Liabilities of any other Person or
constituting obligations to purchase or acquire or to otherwise protect or
insure a creditor against loss in respect of Liabilities of any other Person
(such as obligations under working capital maintenance agreements, agreements to
keep-well, or agreements to purchase Liabilities, assets, goods, securities or
services), but excluding endorsements in the ordinary course of business of
negotiable instruments in the course of collection; (i) Liabilities (for
example, repurchase agreements) consisting of an obligation to purchase
securities or other property, if such Liabilities arise out of or in connection
with the sale of the same or similar securities or property; (j) Liabilities
with respect to letters of credit or applications or reimbursement agreements
therefor; (k) Liabilities with respect to payments received in consideration of
oil, gas, or other minerals yet to be acquired or produced at the time of
payment (including obligations under "take-or-pay" contracts to deliver gas in
return for payments already received and the undischarged balance of any
production payment created by such Person or for the creation of which such
Person directly or indirectly received payment); or (l) Liabilities with respect
to other obligations to deliver goods or services in consideration of advance
payments therefor; provided, however, that the "Indebtedness" of any Person
shall not include Liabilities that were incurred by such Person on ordinary
trade terms to vendors, suppliers, or other Persons providing goods and services
for use by such Person in the ordinary course of its business, unless and until
such Liabilities are outstanding more than 90 days past the original invoice or
billing date therefor.
"IRS" means the Internal Revenue Service.
"Key Employment Agreements" means (i) that certain Executive Employment
Agreement dated as of December 8, 1999 between Buyer and John A. Keenan, and
(ii) that certain Service Agreement dated September 20, 1996 between Alliance
PLC and Paul Raymond Fenemore, as amended by Supplemental Agreement dated
September 20, 1996, Second Supplemental Agreement dated December 1, 1998, and
letter agreement dated as of December 8, 1999.
"Liabilities" means, as to any Person, all indebtedness, liabilities and
obligations of such Person, whether matured or unmatured, liquidated or
unliquidated, primary or secondary, direct or absolute, fixed or contingent, and
whether or not required to be considered pursuant to U.S. GAAP.
4
<PAGE>
"Lien" means, with respect to any property or assets, any right or interest
therein of a creditor to secure Liabilities owed to such creditor or any other
arrangement with such creditor which provides for the payment of such
Liabilities out of such property or assets or which allows him to have such
Liabilities satisfied out of such property or assets prior to the general
creditors of any owner thereof, including any lien, mortgage, security interest,
pledge, deposit, production payment, rights of a vendor under any title
retention or conditional sale agreement or lease substantially equivalent
thereto, tax lien, mechanic's or materialman's lien, or any other charge or
encumbrance for security purposes, whether arising by law or agreement or
otherwise, but excluding any right of offset which arises without agreement in
the ordinary course of business. "Lien" shall also mean 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.
"Listing Rules" means the listing rules of the London Stock Exchange.
"London Stock Exchange" means the London Stock Exchange Limited.
"LPC" means LaTex Petroleum Corporation, an Oklahoma corporation.
"LRI" means LaTex Resources, Inc., a Delaware corporation.
"LRI Merger" means the merger of Alliance Resources (Delaware) Inc. with
and into LRI whereby Alliance PLC became the sole shareholder of LRI.
"Material Adverse Effect" means (a) when used with respect to Buyer, a
material adverse change in, or a material adverse effect upon (i) the business,
assets, results of operations, condition (financial or otherwise) or prospects
of Buyer and its Subsidiaries on a consolidated basis, (ii) Buyer's ability to
timely pay the Obligations or to perform on a timely basis any material
obligation of Buyer under this Agreement or any agreement, instrument, or
document entered into or delivered in connection herewith or (iii) the
enforceability of the material terms of this Agreement or any Ancillary
Document; and (b) when used with respect to Seller, a material adverse change
in, or a material adverse effect upon (i) the Interests or the Properties or
(ii) the enforceability of the material terms of this Agreement or any Ancillary
Document.
"Oil and Gas Properties" has the meaning assigned to it in Schedule 4.7 of
------------
the Seller Disclosure Schedule.
"Old LaTex Payables" means those current accounts payable to Buyer or its
consolidated Subsidiaries that meet one or more of the following tests and have
been certified to Seller by Buyer and applicable Subsidiary as being an Old
LaTex Payable:
5
<PAGE>
(a) accounts payable the collection of which is barred by the
applicable statute of limitations;
(b) accounts payable the collection of which has been compromised or
forgiven in part, in either case to the extent of the amount that has been
compromised or forgiven; or
(c) accounts payable in respect of which the indebtedness was
incurred prior to the LRI Merger and where each of the following is true: (i) no
payment has been made on an individual amount of indebtedness payable since the
LRI Merger, (ii) no contact has been received by Buyer or applicable Subsidiary
from the applicable creditor since the LRI Merger pertaining to such account or
if contact has been received, such account is being diligently contested in good
faith, (iii) no promise to pay such account has been made by Buyer or applicable
Subsidiary since the LRI Merger and (iv) no judgment has been obtained by, or
settlement agreement entered into with, such creditor with respect to such
indebtedness.
"Other Acquisition Agreements" means other agreements or proposed
agreements to which Buyer is a party and disclosed in writing to Seller, whereby
Buyer will issue shares of Series A Preferred, in exchange for limited
partnership interests and interests in oil, gas and mineral properties and
related assets.
"Outstanding Common Stock" means, at any time, the aggregate of all Common
Stock then outstanding, including all shares of Common Stock which could be
acquired from the Company upon exercise or conversion of any outstanding
warrants, options or other securities then exercisable or convertible into
Common Stock.
"Partnership Agreements" means the Agreement of Limited Partnership of each
of the Partnerships, as amended, modified or changed to the date hereof.
"Permits" means licenses, permits, franchises, consents, approvals,
variances, exemptions and other authorizations of or from Governmental Entities.
"Permitted Investment" means any investment, loan, advance, guaranty or
capital contribution by Buyer or any Subsidiary in any of the following: (a)
properties or assets to be used in the ordinary course of business of Buyer and
its Subsidiaries; (b) current assets arising from the sale of goods and services
in the ordinary course of business of Buyer and its Subsidiaries; (c)
investments in one or more of Buyer's Subsidiaries or in any Person that
concurrently with such investment becomes a Subsidiary; (d) any marketable
obligation maturing not later than one year after the date of acquisition
therefor, issued or guaranteed by the United States of America or by any agency
of the United States of America which has the full faith and credit of the
United States of America; (e) commercial paper which is given the highest rating
by a credit rating agency of recognized national standing and maturing not more
than 270 days from the date of creation thereof; and (f) any demand deposit or
time deposit (including certificates of deposit and money market or sweep
accounts) with a commercial bank or trust company
6
<PAGE>
organized and doing business under the laws of the United States of America or
any state thereof which has capital, surplus and undivided profits of at least
$250,000,000, provided that such deposit must be either payable on demand or
mature not more than twelve months from the date of investment therein.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, enterprise, unincorporated organization
or Governmental Entity.
"Preferred Conversion Shares" means the shares of Common Stock issuable
upon conversion of the Preferred Shares.
"Preferred Stock Purchase Agreement" means that certain Preferred Stock
Purchase Agreement dated as of May 1, 2000, by and among Buyer, Bank of America,
N.A., EnCap Equity 1996 Limited Partnership, Energy Capital Investment Company
PLC, El Paso Capital Investments, L.L.C., EF-II Holdings, LLC, Picosa Creek
Limited Partnership and EnCap Investments L.L.C.
"Proceedings" means all proceedings, actions, claims, suits, investigations
and inquiries by or before any arbitrator or Governmental Entity.
"Properties" has the meaning assigned to it in Schedule 4.7 of the Seller
------------
Disclosure Schedule.
"Reasonable best efforts" means a party's reasonable best efforts in
accordance with reasonable commercial practice and without the incurrence of
unreasonable expense.
"Restricted Payment" shall mean any Distribution (as defined below) in
respect of Buyer or any Subsidiary thereof (other than on account of capital
stock or other equity interests of a Subsidiary owned legally or beneficially by
the Seller or another Subsidiary), including any Distribution resulting in the
acquisition by Buyer of securities that would constitute treasury stock. As
used in this definition, "Distribution" shall mean, in respect of any
corporation, partnership or other business entity (a) dividends or other
distributions or payments on capital stock or other equity interest of such
corporation, partnership or other business entity (except distributions in such
stock or other equity interest) and (b) the redemption or acquisition of such
stock or other equity interests or of warrants, rights or other options to
purchase such stock or other equity interests (except when solely in exchange
for such stock or other equity interests); provided, that "Distribution" shall
not mean any dividend or other distribution made, or redemption effected, in
accordance with the terms of the Certificate of Designation.
"Securities Act" means the U.S. Securities Act of 1933, as amended.
"Securities and Exchange Commission" means the U.S. Securities and Exchange
Commission.
7
<PAGE>
"Seller Disclosure Schedule" mean a schedule delivered by Seller to Buyer
which sets forth additional information regarding the representations and
warranties of Seller contained herein and information called for hereby.
"Senior Credit Facility" means that certain Credit Agreement dated as of
May 1, 2000, by and among Buyer, Toronto Dominion (Texas), Inc. as Agent, and
the lenders signatory thereto.
"Series A Preferred" means shares of Buyer's Series A Preferred Stock,
$0.001 par value per share.
"Source" means Source Petroleum, Inc., a Louisiana corporation.
"Subordinated Debt" means that certain Indebtedness of Buyer evidenced by
the Subordinated Debt Agreement.
"Subordinated Debt Agreement" means that certain Purchase Agreement dated
as of May 1, 2000, by and among Buyer, EnCap Equity 1996 Limited Partnership,
Energy Capital Investment Company PLC and El Paso Capital Investments, L.L.C.
"Subsidiary" means any corporation more than 50% of whose outstanding
voting securities, or any general partnership, joint venture or similar entity
more than 50% of whose total equity interests, is owned, directly or indirectly,
by the Buyer, or any limited partnership of which Buyer or any Subsidiary is a
general partner.
"Taxes" means any income taxes or similar assessments or any sales, excise,
occupation, use, ad valorem, property, production, severance, transportation,
employment, payroll, franchise, transfer, stamp, withholding or other tax
imposed by any United States federal, state or local (or any foreign or
provincial) taxing authority, including any interest, penalties or additions
attributable thereto.
"Tax Return" means any return or report (including but not limited to any
related or supporting information, any amended return or report or any
information return or report) with respect to Taxes.
"Treasury Regulations" means one or more treasury regulations promulgated
under the Code by the Treasury Department of the United States.
"U.S. GAAP" means generally accepted accounting principles in the United
States of America from time to time.
Section 1.2. Certain Additional Defined Terms. In addition to such terms
--------------------------------
as are defined in the opening paragraph and in Section 1.1 of this Agreement,
the following terms are used in this Agreement as defined in the Sections set
forth opposite such terms:
8
<PAGE>
Defined Term Section Reference
-------------------------------------------- -----------------
Asserted Defects............................ 7.1(a)
Assignment.................................. 9.2(a)
Audited Financial Statements................ 5.10
Base Purchase Price......................... Article III
Basic Documents............................. 4.7
Closing..................................... 9.1
Closing Date................................ 9.1
Effective Date.............................. 9.2(a)
Event of Default............................ 14.1
Financial Statements........................ 5.10
Interests................................... Article II
Latest Balance Sheet........................ 5.10
Net Title Adjustments....................... 7.2(c)
Organic Documents........................... 5.3
Partnerships................................ Article II
Permitted Liens............................. 13.2
Preferred Shares............................ Article III
Purchase Price.............................. Article III
Scheduled Production Sales Contracts........ 4.9
Unaudited Financial Statements.............. 5.10
Section 1.3. References, Titles and Construction.
-----------------------------------
(a) All references in this Agreement to articles, sections,
subsections and other subdivisions refer to corresponding articles, sections,
subsections and other subdivisions of this Agreement unless expressly provided
otherwise.
(b) Titles appearing at the beginning of any of such subdivisions are
for convenience only and shall not constitute part of such subdivisions and
shall be disregarded in construing the language contained in such subdivisions.
(c) 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.
(d) Words in the singular form shall be construed to include the
plural and vice versa, unless the context otherwise requires. Pronouns in
---- -----
masculine, feminine and neuter genders shall be construed to include any other
gender.
(e) 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 or restatements of such agreement,
instrument or document, provided that nothing contained in this
9
<PAGE>
subsection shall be construed to authorize such renewal, extension,
modification, amendment or restatement.
(f) Examples shall not be construed to limit, expressly or by
implication, the matter they illustrate.
(g) The word "or" is not intended to be exclusive and the word
"includes" and its derivatives means "includes, but is not limited to" and
corresponding derivative expressions.
(h) No consideration shall be given to the fact or presumption that
one party had a greater or lesser hand in drafting this Agreement.
(i) All references herein to "$" or "dollars" shall refer to U.S.
Dollars.
ARTICLE II
Interests to be Sold and Purchased
----------------------------------
Seller agrees to sell, assign and transfer and Buyer agrees to purchase and
accept, for the consideration hereinafter set forth, and subject to the terms
and provisions herein contained, all of Seller's interests as a limited partner
(the "Interests") in the following limited partnerships: Famcor Oil W.T., L.P.;
Pledger Partners, Ltd.; RM Acquisition-I Limited Partnership; SE Share, L.P.;
St. Martinville Partners, Ltd.; Tanqueray Limited Partnership; Wheel-Moore, Ltd.
(the "Partnerships").
ARTICLE III
Purchase Price
--------------
In consideration of the sale of the Interests by Seller to Buyer, Buyer
shall pay to Seller at Closing an aggregate purchase price (the "Base Purchase
Price") consisting of 227,962 shares of Series A Preferred (the "Preferred
Shares"). The rights, designations, preferences and other terms and conditions
relating to the Preferred Shares shall be as set forth in the Certificate of
Designation attached hereto as Exhibit 3.1. The Base Purchase Price may be
-----------
adjusted as provided in Article VII (the Base Purchase Price, as so adjusted,
and as the same may be otherwise adjusted by the mutual agreement of the
parties, being called the "Purchase Price").
10
<PAGE>
ARTICLE IV
Representations and Warranties of Seller
----------------------------------------
Subject to the Seller Disclosure Schedule, Seller represents and warrants
to Buyer as follows:
Section 4.1. Organization and Existence. Energy Capital Investment
--------------------------
Company PLC is a duly formed and validly existing English investment company.
ECIC Corporation is duly formed and validly existing under the laws of the State
of Texas and is a wholly-owned subsidiary of Energy Capital Investment Company
PLC.
Section 4.2. Authority Relative to This Agreement. Seller has full power
------------------------------------
and authority to execute, deliver, and perform this Agreement and the Ancillary
Documents and to consummate the transactions contemplated hereby and thereby.
The execution, delivery, and performance by Seller of this Agreement and the
Ancillary Documents and the consummation by it of the transactions contemplated
hereby and thereby, have been duly authorized by all necessary action of Seller.
Section 4.3. Valid and Binding Agreement. This Agreement has been duly
---------------------------
executed and delivered by Seller and constitutes, and each Ancillary Document
has been, or when executed will be, duly executed and delivered by Seller and
constitutes, or when executed and delivered will constitute, a valid and legally
binding obligation of Seller, enforceable against it in accordance with their
respective terms, except that such enforceability may be limited by (a)
applicable bankruptcy, insolvency, reorganization, moratorium, and similar laws
affecting creditors' rights generally and (b) equitable principles which may
limit the availability of certain equitable remedies (such as specific
performance) in certain instances.
Section 4.4. Non-Contravention. Subject to receipt of GP Approval,
-----------------
neither the execution, delivery, and performance by Seller of this Agreement and
each other agreement, instrument, or document executed or to be executed by
Seller in connection with the transactions contemplated hereby nor the
consummation by it of the transactions contemplated hereby and thereby do and
will (a) conflict with or result in a violation of any provision of the
partnership agreement or other governing instruments of Seller, (b) conflict
with or result in a violation of any provision of, or constitute (with or
without the giving of notice or the passage of time or both) a default under, or
give rise (with or without the giving of notice or the passage of time or both)
to any right of termination, cancellation, or acceleration under, any bond,
debenture, note, mortgage, indenture, lease, contract, agreement, or other
instrument or obligation to which Seller is a party or by which Seller, any of
its properties or the Interests may be bound, (c) result in the creation or
imposition of any lien or other encumbrance upon the properties of Seller or the
Interests, or (d) violate any Applicable Law binding upon Seller.
Section 4.5. Approvals. Other than GP Approval, no consent, approval,
---------
authorization. license, order or permit of, or declaration, filing, or
registration with, any
11
<PAGE>
Governmental Entity or any other Person or entity is required to be obtained or
made by Seller in connection with the execution, delivery, or performance by
Seller of this Agreement or any Ancillary Document and the consummation of the
transactions contemplated hereby and thereby.
Section 4.6. Pending Litigation. There are no Proceedings pending, or to
------------------
the best knowledge of Seller, threatened, which affect the Interests or the
Properties (including any actions challenging or pertaining to Seller's title to
the Interests or the Partnership's title to any of their respective Properties),
or affecting the execution and delivery of this Agreement or the consummation of
the transactions contemplated hereby. None of Seller or any of the Interests
or, to the best knowledge of Seller, the Properties is subject to any judgment,
order, writ, injunction, or decree of any Governmental Entity.
Section 4.7. Basic Documents. To Seller's knowledge, the oil, gas and/or
---------------
mineral leases, interests in which comprise parts of the Oil and Gas Properties,
and all other material contracts and agreements, licenses, permits and
easements, rights-of-way and other rights-of-surface use comprising any part of
or otherwise relating to the Properties (such leases and such material
contracts, agreements, licenses, permits, easements, rights-of-way and other
rights-of-surface use, including any amendments or modifications, being herein
called the "Basic Documents"), are in full force and effect and constitute valid
and binding obligations of the parties thereto and are enforceable in accordance
with their respective terms. To the best of Seller's knowledge, all Basic
Documents are disclosed on Schedule 4.7 of the Seller Disclosure Schedule in
------------
connection with the descriptions of the Oil and Gas Properties to which they
relate or otherwise in the Seller Disclosure Schedule. To the best of Seller's
knowledge, no Partnership is in breach or default (and no situation exists which
with the passing of time or giving of notice would create a breach or default)
of its obligations under the Basic Documents to which it is a party or any
regulations incorporated in or governing same, and (to the best of Seller's
knowledge) no breach or default by any third party (or situation which with the
passage of time or giving of notice would create a breach or default) exists, to
the extent such breach or default (whether by a Partnership or such a third
party) could materially adversely affect the ownership, operation, value or use
of any Oil and Gas Property of a Partnership after the Effective Date. To the
best of Seller's knowledge, all payments (including all delay rentals,
royalties, shut-in royalties and valid calls for payment or prepayment under
operating agreements) owing under Basic Documents have been and are being made
(timely, and before the same became delinquent) by the Partnerships in all
material respects (and, where the non-payment of same by a third party could
materially adversely affect the ownership, operation, value or use of an Oil and
Gas Property after the Effective Date, have been and are being made, to the best
knowledge of Seller, by such third parties). For the purposes of the
representations contained in this Section (and without limitation of such
representations), the non-payment of an amount, or non-performance of an
obligation, where such non-payment, or non-performance, could result in the
forfeiture or termination of rights of a Partnership under a Basic Document,
shall be considered material. To the best of Seller's knowledge, Seller has
rights in the Data.
Section 4.8. Commitments, Abandonments or Proposals.
--------------------------------------
12
<PAGE>
(a) Seller has made no commitments to make capital contributions to any of
the Partnerships after the Effective Date.
(b) To the best knowledge of Seller: (i) no Partnership has incurred any
expenses, and has made any commitments to make expenditures, in connection with
(and no other obligations or liabilities have been incurred which would
adversely affect) the ownership or operation of such Partnership's Oil and Gas
Properties after the Effective Date, other than routine expenses incurred in the
normal operation of existing wells; (b) no Partnership has abandoned, nor
entered into any agreements or arrangements to abandon, any wells (or removed
any material items of equipment, except those replaced by items of equal
suitability and value) on such Partnership's Oil and Gas Properties since the
Effective Date; and (c) no proposals are currently outstanding (whether made by
a Partnership or by any other party) to drill additional wells, or to deepen,
plug back, or rework existing wells, or to conduct other operations for which
consent is required under the applicable operating agreement, or to conduct any
other operations other than normal operation of existing wells on the
Properties, or to abandon any wells, on the Oil and Gas Properties. To the best
knowledge of Seller, there are no operations involving any of the Oil and Gas
Properties with respect to which a Partnership has become a non-consenting
party.
Section 4.9. Production Sales Contracts. To the best knowledge of
--------------------------
Seller, there exist no agreements or arrangements for the sale of production
from the Oil and Gas Properties (including without limitation, calls on, or
other rights to purchase, production, whether or not the same are currently
being exercised) other than (a) production sales contracts (in this Section, the
"Scheduled Production Sales Contracts") disclosed in Section 4.9 of the Seller
Disclosure Schedule or (b) agreements or arrangements which are cancelable on 60
days notice or less without penalty or detriment. To the best knowledge of
Seller, each Partnership is presently receiving a price for all production from
(or attributable to) such Partnership's Oil and Gas Properties covered by a
Scheduled Production Sales Contract as computed in accordance with the terms of
such contract, and is not having deliveries of gas from any Property subject to
a Scheduled Production Sale Contract curtailed substantially below such
Property's delivery capacity. To the best knowledge of Seller, there are no
prepayments, advance payments, take-or-pay payments or similar payments
affecting the Oil and Gas Properties.
Section 4.10. Plugging and Abandonment. To the best knowledge of Seller,
------------------------
there are no dry holes, or shut in or otherwise inactive wells, located on the
Oil and Gas Properties or on lands pooled or unitized therewith (including any
wells which would, if located in Texas, require compliance with Railroad
Commission Rule 14(b)(2)), except for wells that have been properly plugged and
abandoned, and except for wells drilled to depths not included within the Oil
and Gas Properties or within units in which the Oil and Gas Properties
participate which have never been completed in such depths.
Section 4.11. Licenses and Permits. To the best knowledge of Seller, (i)
--------------------
each Partnership has all Permits necessary or appropriate to own and operate the
Oil and Gas Properties as presently being owned and operated by such
Partnership, (ii) such Permits are in full
13
<PAGE>
force and effect, and (iii) the Partnerships have not received written notice of
any violations in respect of any such Permits.
Section 4.12. Area of Mutual Interest and Other Agreements; Tax
-------------------------------------------------
Partnerships. To the best knowledge of Seller: (i) no Oil and Gas Property is
- ------------
subject to (or has related to it) any area of mutual interest agreements; (ii)
no Oil and Gas Property is subject to (or has related to it) any farm-out or
farm-in agreement under which any party thereto is entitled to receive
assignments not yet made, or could earn additional assignments after the
Effective Date; and (iii) no Oil and Gas Property is subject to (or has related
to it) any tax partnership.
Section 4.13. Payment of Expenses. To the best knowledge of Seller, all
-------------------
expenses (including all bills for labor, materials and supplies used or
furnished for use in connection with the Properties, and all severance,
production, ad valorem, windfall profit and other similar taxes) and liabilities
relating to the ownership or operation of the Properties, have been, and are
being, paid (timely, and before the same become delinquent) by the Partnership
that owns such Properties.
Section 4.14. Compliance with Laws. To the best knowledge of Seller, the
--------------------
ownership and operation of Properties, to the extent that non-conformance could
adversely affect the ownership, operation, value or use thereof after the
Effective Date (or otherwise affect Buyer), has been in conformity, in all
material respects, with all Applicable Laws, except for such non-compliance
which would not have a Material Adverse Effect.
Section 4.15. Partnerships; Title to Interests; Partnership Agreements.
--------------------------------------------------------
(a) Each Partnership has been duly formed and is validly existing under
the laws of the State of Texas.
(b) Seller has good and marketable title to the Interests, free and clear
of all Liens and other encumbrances, save and except for the Partnership
Agreements.
(c) Each Partnership Agreement is in full force and effect and constitutes
the valid and binding obligation of the parties thereto and is enforceable in
accordance with its respective terms, except that such enforceability may be
limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium,
and similar laws affecting creditors' rights generally and (ii) equitable
principles which may limit the availability of certain equitable remedies (such
as specific performance) in certain instances. Seller is not in breach or
default (and no situation exists which with the passing of time or giving of
notice would create a breach or default) of its obligations under any
Partnership Agreement and (to the best of Seller's knowledge) no breach or
default by any other party to any Partnership Agreement (or situation which with
the passage of time or giving of notice would create a breach or default)
exists, to the extent such breach or default (whether by Seller or such other
party) could materially adversely affect the ownership or value of any Interest
after the Effective Date.
14
<PAGE>
Section 4.16. Physical Condition of Facilities. To the best of Seller's
--------------------------------
knowledge, the surface physical facilities on the Oil and Gas Properties have
been maintained in accordance with normal industry maintenance practices and are
in a state of repair (normal wear and tear excepted) that Seller believes to be
adequate for the normal use of such facilities in the ordinary conduct of the
business of Seller. Without limiting the foregoing, but subject to ordinary
wear and tear, to the best of Seller's knowledge, such facilities are not in
need of maintenance or improvements except for maintenance and improvements in
the ordinary course in accordance with normal industry practice.
Section 4.17. Environmental Matters. To the best knowledge of Seller:
---------------------
(i) each Partnership is in material compliance with all applicable federal,
state, local and foreign laws, regulations, rules, orders, decrees, treaties,
judicial decisions, judgments, injunctions, permits and governmental
restrictions relating to pollution or protection of human health or the
environment (including ambient air, surface water, ground water, land surface or
subsurface strata) (collectively "Environmental Laws"), except for such non-
compliance as could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect, and there are no circumstances that
are reasonably likely to materially prevent or interfere with such compliance in
the next three years, and (ii) no Partnership has received written notice of or
is the subject of, any actions, causes of action, claims, investigations,
demands, notices, requests for information, complaints, suits or proceedings by
any Person alleging liability under or non-compliance with any Environmental Law
that are reasonably likely, individually or in the aggregate, to have a Material
Adverse Effect. Buyer acknowledges that this Section 4.17 is the exclusive
representation and warranty made by Seller in this Agreement with respect to
applicable Environmental Laws and no other representation and warranty in this
Agreement shall be deemed to cover such matters.
Section 4.18. Production Data. Seller has provided to representatives of
---------------
Buyer aggregate production data on the Properties and data on lease operating
expenses incurred on the Properties. To the best knowledge of Seller, all of
such data is accurate and complete in all material respects as of the date
provided.
Section 4.19. Ordinary Course Operations. To the best of Seller's
--------------------------
knowledge, since January 1, 2000, (i) no Partnership has operated or in any
manner dealt with, incurred obligations with respect to, or undertaken any
transactions relating to, the Properties of such Partnership other than in the
ordinary course of business consistent with past practice and (ii) none of the
Properties has suffered any material destruction, damage, or loss (except
depreciation of equipment through ordinary wear and tear) or been subjected by
any Partnership to any mortgage, lien, encumbrance, claim, or security interest
that has not previously been disclosed to representatives of Buyer or that would
constitute a Material Adverse Effect.
Section 4.20. Sale of Production. To the best of Seller's knowledge,
------------------
except as described in Section 4.20 of the Seller Disclosure Schedule there is
no well on the Properties with respect to which any Partnership and its
predecessors in title to the Properties have collectively taken more (referred
to herein as "overproduced") or less (referred to herein as "underproduced")
production from such well than the ownership of such Partnership and such
predecessors would
15
<PAGE>
entitle such Partnership and such predecessors (absent any gas balancing
agreement or arrangement) to receive. To the best of Seller's knowledge, the
overproduced and underproduced positions disclosed on Section 4.20 of the Seller
Disclosure Schedule are, in each case, materially accurate as of the dates shown
on such schedule.
Section 4.21. Brokerage Fees. Neither Seller nor any of its affiliates
--------------
has retained any financial advisor, broker, agent or finder or paid or agreed to
pay any financial advisor, broker, agent or finder on account of this Agreement
or any transaction contemplated hereby, which action would subject Buyer or any
of its affiliates to any liability. Seller shall indemnify and hold harmless
Buyer from and against any and all losses, claims, damages and liabilities
(including legal and other expenses reasonably incurred in connection with
investigating or defending any claims or actions) with respect to any finder's
fee, brokerage commission or similar payment in connection with any transaction
contemplated hereby asserted by any Person on the basis of any act or statement
made or alleged to have been made by Seller or any of its affiliates.
Section 4.22. Bankruptcy. There are no bankruptcy, reorganization or
----------
arrangement proceedings pending, being contemplated by, or to the knowledge of
Seller, threatened against Seller.
Section 4.23. Full Disclosure. No representation or warranty made by
---------------
Seller in this Agreement, and no statement of Seller contained in any document,
certificate or other writing furnished or to be furnished by Seller or its
representatives to Buyer pursuant hereto or in connection herewith, contains or
will contain, at the time of delivery, any untrue statement of a material fact
or omits or will omit, at the time of delivery, to state any material fact
(other than industry-wide risks normally associated with the type of business
conducted by Seller) necessary to make the statements contained therein, in
light of the circumstances in which they are made, not misleading. There is no
fact known to Seller (other than industry-wide risks normally associated with
the type of business conducted by Seller) that has not been disclosed to Buyer
in writing which Seller reasonably anticipates would result in a Material
Adverse Effect.
Section 4.24. Disclaimer of Warranties. Other than those expressly set
------------------------
out in this Article IV, Seller hereby expressly disclaims any and all
representations or warranties with respect to the Interests, the Partnerships
and the Properties or the transaction contemplated hereby, and Buyer agrees that
the Interests are being sold by Seller "where is" and "as is". Specifically as a
part of (but not in limitation of) the foregoing, Buyer acknowledges that Seller
has not made, and Seller hereby expressly disclaims, any representation or
warranty (express, implied, under common law, by statute or otherwise) as to (a)
the condition of the Properties (INCLUDING WITHOUT LIMITATION, SELLER DISCLAIMS
ANY IMPLIED OR EXPRESS WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR
PURPOSE, OR CONFORMITY TO MODELS OR SAMPLES OF MATERIALS), (b) the status of
title to the Properties or (c) as the extent of oil, gas or other mineral
reserves, the recoverability of or the cost of recovering any such reserves, the
value of such reserves, prices (or anticipated prices) at which production will
be sold and the ability to sell oil or gas production from the Properties.
16
<PAGE>
ARTICLE V
Representations and Warranties of Buyer
----------------------------------------
Section 5.1. Organization and Existence. Buyer is a corporation duly
--------------------------
organized and validly existing under the laws of Delaware.
Section 5.2. Qualification. Each of Buyer and the Subsidiaries is duly
-------------
qualified or licensed to do business and, with respect to non-U.K. entities, in
good standing in each of the jurisdictions in which it owns, leases or operates
property or in which such qualification or licensing is required for the conduct
of its business.
Section 5.3. Charter and Bylaws. Buyer has made available to Seller
------------------
accurate and complete copies of Buyer's certificate of incorporation and bylaws
("Organic Documents") as currently in effect, and stock records of Buyer.
Neither Buyer nor any Subsidiary is in violation of its Organic Documents or its
partnership agreement or similar governing document, as the case may be.
Section 5.4. Capitalization of Buyer. Subject to Schedule 5.4, the
----------------------- ------------
authorized capital stock of Buyer, the number of shares outstanding and the
number of shares held in Buyer's treasury are set forth on Schedule 5.4 hereto.
------------
All outstanding shares of capital stock of Buyer have been validly issued and
are fully paid and nonassessable, and no shares of capital stock of Buyer are
subject to, nor have any been issued in violation of, preemptive or similar
rights. Except as set forth on Schedule 5.4 hereto, there are (and as of the
------------
Closing Date there will be) outstanding (i) no shares of capital stock or other
voting securities of Buyer, (ii) no securities of Buyer convertible into or
exchangeable for shares of capital stock or other voting securities of Buyer,
(iii) no options or other rights to acquire from Buyer, and no obligation of
Buyer to issue or sell, any shares of capital stock or other voting securities
of Buyer or any securities of Buyer convertible into or exchangeable for such
capital stock or voting securities, and (iv) no equity equivalents, interests in
the ownership or earnings or other similar rights of or with respect to Buyer.
There are (and as of the Closing Date there will be) no outstanding obligations
of Buyer or any Subsidiary to repurchase, redeem, or otherwise acquire any of
the foregoing shares, securities, options, equity equivalents, interests, or
rights. Except as set forth on Schedule 5.4, Buyer is not a party to, and is
-------------
not aware of, any voting agreement, voting trust, or similar agreement or
arrangement relating to any class or series of its capital stock.
Section 5.5. Authority Relative to This Agreement. Subject to Charter
------------------------------------
Amendment Approval as it pertains to Buyer's ability to permit the full
conversion of the Preferred Shares into the Preferred Conversion Shares, Buyer
has full power and authority to execute, deliver, and perform this Agreement and
the Ancillary Documents to which it is a party and to consummate the
transactions contemplated hereby and thereby. The execution, delivery, and
performance by Buyer of this Agreement and the Ancillary Documents to which it
is a party, and the consummation by it of the transactions contemplated hereby
and thereby, have been duly authorized by all necessary action of Buyer. This
Agreement has been duly executed and
17
<PAGE>
delivered by Buyer and constitutes, and each Ancillary Document executed or to
be executed by Buyer has been, or when executed will be, duly executed and
delivered by Buyer and constitutes, or when executed and delivered will
constitute, a valid and legally binding obligation of Buyer, enforceable against
Buyer in accordance with their respective terms, except that such enforceability
may be limited by (i) applicable bankruptcy, insolvency, reorganization,
moratorium, and similar laws affecting creditors' rights generally and (ii)
equitable principles which may limit the availability of certain equitable
remedies (such as specific performance) in certain instances.
Section 5.6. No Conflict. Assuming all consents, approvals,
-----------
authorizations and other actions described in Section 5.7 have been obtained and
all filings and notifications listed on Schedule 5.7 have been made and except
------------
as described on Schedule 5.6, the execution, delivery and performance of this
------------
Agreement by Buyer, the execution, delivery and performance by each Subsidiary
of the Ancillary Documents to which it is a party, and the consummation by them
of the transactions contemplated hereby and thereby do not and will not (a)
violate or conflict with the Organic Documents of Buyer or any Subsidiary,
subject to Charter Amendment Approval as it pertains to Buyer's ability to
permit the full conversion of the Preferred Shares into Preferred Conversion
Shares, (b) conflict with or result in any violation of any provision of, or
constitute (with or without the giving of notice or the passage of time or both)
a default under, or give rise (with or without the giving of notice or the
passage of time or both) to any right of termination, cancellation, or
acceleration under, or require any consent, approval, authorization or waiver
of, or notice to, any party to, any bond, debenture, note, mortgage, indenture,
lease, contract, agreement, or other instrument or obligation to which Buyer or
any Subsidiary is a party or by which Buyer or any Subsidiary or any of their
respective properties may be bound or any Permit held by Buyer or any
Subsidiary, (iii) result in the creation or imposition of any Lien upon the
properties of Buyer or any Subsidiary (other than as provided in the Senior
Credit Facility) or (iv) violate any Applicable Law binding upon Buyer or any
Subsidiary.
Section 5.7. Consents and Approvals, Licenses, Etc. Except as set forth
--------------------------------------
on Schedule 5.7, no consent, approval, authorization, license, order or permit
------------
of, or declaration, filing or registration with, or notification to, any
Governmental Entity, or any other Person or entity, is required to be made or
obtained by Buyer or any Subsidiary in connection with the execution, delivery
and performance of this Agreement or any Ancillary Document and the consummation
of the transactions contemplated hereby and thereby.
Section 5.8. Subsidiaries.
------------
(a) Buyer does not own, directly or indirectly, any capital stock or
equity securities of any corporation or have any direct or indirect equity or
ownership interest in any other Person, other than the Subsidiaries. Schedule
--------
5.8 lists each Subsidiary, the jurisdiction of incorporation or formation of
- ---
each Subsidiary and the authorized (in the case of capital stock) and
outstanding capital stock or other equity interests of each Subsidiary. Each
U.K. Subsidiary is duly formed and validly existing under the laws of the
jurisdiction of its formation, and each other Subsidiary is a corporation duly
organized, validly existing and in good standing under the laws of
18
<PAGE>
the jurisdiction of its incorporation. Each Subsidiary has all requisite
corporate or other, as applicable, power and authority to own, lease, and
operate its properties and to carry on its business as now being conducted. No
actions or proceedings to dissolve any Subsidiary are pending.
(b) Except as otherwise indicated on Schedule 5.8, all the outstanding
------------
capital stock or other equity interests of each Subsidiary are owned directly or
indirectly by Buyer, free and clear of all Liens. All outstanding shares of
capital stock of each corporate Subsidiary have been validly issued and are
fully paid and nonassessable. All equity interests of each other Subsidiary
have been validly issued and are fully paid (to the extent required at such
time). No shares of capital stock or other equity interests of any Subsidiary
are subject to, nor have any been issued in violation of, preemptive or similar
rights.
(c) Except as set forth on Schedule 5.8, there are (and as of the
------------
Closing Date there will be) outstanding (i) no shares of capital stock or other
voting securities of any Subsidiary, (ii) no securities of Buyer or any
Subsidiary convertible into or exchangeable for shares of capital stock or other
voting securities of any Subsidiary, (iii) no options or other rights to acquire
from Buyer or any Subsidiary, and no obligation of Buyer or any Subsidiary to
issue or sell, any shares of capital stock or other voting securities of any
Subsidiary or any securities convertible into or exchangeable for such capital
stock or voting securities and (iv) no equity equivalents, interests in the
ownership or earnings, or other similar rights of or with respect to any
Subsidiary. There are (and as of the Closing Date there will be) no outstanding
obligations of Buyer or any Subsidiary to repurchase, redeem or otherwise
acquire any of the foregoing shares, securities, options, equity equivalents,
interests or rights.
Section 5.9. Preferred Shares; Conversion Shares.
-----------------------------------
(a) The Preferred Shares, when issued under the terms of this Agreement,
will be duly authorized, validly issued and fully paid and nonassessable.
Subject to Charter Amendment Approval as it pertains to Buyer's ability to
permit the full conversion of the Preferred Shares into the Preferred Conversion
Shares, the Preferred Conversion Shares, when issued against payment of the
conversion price for such shares, will be duly authorized, validly issued and
fully paid and nonassessable.
(b) Subject to Charter Amendment Approval as it pertains to Buyer's
ability to permit the full conversion of the Preferred Shares into the Preferred
Conversion Shares, sufficient shares of authorized but unissued Common Stock of
Buyer will have been reserved by appropriate action in connection with the
Preferred Conversion Shares.
(c) Neither the issuance of the Preferred Shares, nor the issuance of
shares of Common Stock upon the conversion of the Preferred Shares, is subject
to any unwaived preemptive or other similar statutory or contractual rights or
will conflict with any provision of any agreement or instrument to which the
Company or any Subsidiary is a party or by which it is bound.
19
<PAGE>
Section 5.10. Financial Statements. Buyer has delivered to Seller
--------------------
accurate and complete copies of (i) Alliance PLC's audited consolidated balance
sheet as of April 30, 1999, and the related audited consolidated statements of
income, stockholders' equity and cash flows for the year then ended, and the
notes and schedules thereto, together with the unqualified report thereon of
KPMG Audit Plc, independent public accountants (the "Audited Financial
Statements") and (ii) Buyer's unaudited consolidated balance sheet as of
January 31, 2000 (the "Latest Balance Sheet"), and the related unaudited
consolidated statements of income, stockholders' equity, and cash flows for the
three-month period then ended (the "Unaudited Financial Statements"), certified
by Buyer's chief financial officer (collectively, the "Financial Statements").
The Financial Statements (i) represent actual bona fide transactions, (ii) have
been prepared from the books and records of Alliance PLC and Buyer and their
respective consolidated Subsidiaries in conformity with U.S. GAAP accounting
principles applied on a basis consistent with preceding years throughout the
periods involved and (iii) fairly present Alliance PLC's and Buyer's (as
applicable) consolidated financial position as of the respective dates thereof
and Alliance PLC's and Buyer's (as applicable) consolidated results of
operations and cash flows for the periods then ended. The statements of income
included in the Financial Statements do not contain any items of special or
nonrecurring income except as identified in the notes thereto, and the balance
sheets included in the Financial Statements do not reflect any write-up or
revaluation increasing the book value of any assets, nor have there been any
transactions since the date of the Latest Balance Sheet giving rise to special
or nonrecurring income or any such write-up or revaluation.
Section 5.11. Securities Filings. Buyer and its Subsidiaries has filed
------------------
with the Securities and Exchange Commission, the London Stock Exchange and the
Registrar of Companies all forms, reports, schedules, statements and other
documents required to be filed by them since May 1, 1997 under the Companies Act
and the Listing Rules and since April 30, 1997 under the Securities Act, the
Exchange Act and all other federal securities laws. All final forms, reports,
schedules, statements and other documents (including all amendments thereto)
filed by Buyer and its Subsidiaries with the Securities and Exchange Commission
and the London Stock Exchange since such date are herein collectively referred
to as the "SEC Filings". Buyer has delivered or made available to Seller
accurate and complete copies of all the SEC Filings in the form filed by Buyer
and its Subsidiaries with the Securities and Exchange Commission and the London
Stock Exchange. The SEC Filings, at the time filed, complied in all material
respects with all applicable requirements of federal securities laws. None of
the SEC Filings, including any financial statements or schedules included
therein, at the time filed, contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or necessary in
order to make the statements contained therein, in light of the circumstances
under which they were made, not misleading. All material contracts of Buyer and
the Subsidiaries have been included in the SEC Filings, except for those
contracts not required to be filed pursuant to the rules and regulations of the
Securities and Exchange Commission and the London Stock Exchange. Buyer shall
deliver to Seller as soon as they become available accurate and complete copies
of all forms, reports, and other documents furnished by it to its shareholders
generally or filed by it with the Securities and Exchange Commission and the
London Stock Exchange subsequent to the date hereof and prior to the Closing
Date.
20
<PAGE>
Section 5.12. Absence of Undisclosed Liabilities. Neither Buyer nor any
----------------------------------
Subsidiary has any liability or obligation (whether accrued, absolute,
contingent, unliquidated, or otherwise, whether or not known to Buyer or any
Subsidiary, and whether due or to become due), except (i) liabilities reflected
on the Latest Balance Sheet, (ii) liabilities which have arisen since the date
of the Latest Balance Sheet in the ordinary course of business (none of which is
a material liability for breach of contract, breach of warranty, tort, or
infringement), (iii) liabilities arising under executory contracts entered into
in the ordinary course of business (none of which is a material liability for
breach of contract) and (iv) liabilities specifically set forth on Schedule
--------
5.12.
Section 5.13. Absence of Certain Changes. Except as disclosed on Schedule
-------------------------- --------
5.13, since the date of the Latest Balance Sheet, (i) there has not been any
- ----
material adverse change in, or any event or condition that might reasonably be
expected to result in a material adverse change in, the business assets, results
of operations, condition (financial or otherwise) or prospects of Buyer and the
Subsidiaries considered as a whole; (ii) the businesses of Buyer and the
Subsidiaries have been conducted only in the ordinary course consistent with
past practice; (iii) neither Buyer nor any Subsidiary has incurred any material
liability, engaged in any material transaction or entered into any material
agreement outside the ordinary course of business consistent with past practice;
(iv) neither Buyer nor any Subsidiary has suffered any material loss, damage,
destruction, or other casualty to any of its assets (whether or not covered by
insurance); and (v) neither Buyer nor any Subsidiary has taken any of the
actions set forth in Section 6.2 except as permitted thereunder.
Section 5.14. Tax Matters. Except as disclosed on Schedule 5.14:
----------- -------------
(a) Buyer and each Subsidiary has filed, or has had filed on its
behalf, in a timely manner (within any applicable extension periods) with the
appropriate taxing authority all Tax Returns with respect to Taxes of Buyer and
of each of the Subsidiaries, all of which Tax Returns are true, correct and
complete in all material respects;
(b) All Taxes due and payable (whether or not reflected in Tax Returns
as filed) with respect to all taxable periods of Buyer and the Subsidiaries have
been paid in full or adequate reserves have been provided for on the Financial
Statements;
(c) There are no outstanding agreements or waivers extending the
statutory period of limitations applicable to any federal, state, local or
foreign income or other material Tax Returns required to be filed by or with
respect to Buyer or any of the Subsidiaries;
(d) None of the Tax Returns of or with respect to Buyer or any of the
Subsidiaries is currently being audited or examined by any taxing authority;
(e) No material deficiency for any Taxes has been assessed with
respect Buyer or to any of the Subsidiaries that has not either (i) been abated
or (ii) paid in full or for which adequate reserves have been provided;
21
<PAGE>
(f) No Tax litigation is currently pending;
(g) No waiver or extension of any statute of limitations to any
federal, state, local or foreign Tax matter has been given by or requested from
Buyer or any Subsidiary; and
(h) Neither Buyer nor any Subsidiary has filed a consent under Section
341(f) of the Code.
(i) Buyer and the Subsidiaries have complied with all Applicable Laws
relating to the withholding of Taxes and the payment thereof (including
withholding of Taxes under Sections 1441 and 1442 of the Code, or similar
provisions under foreign laws), and has timely and properly withheld from the
appropriate party and paid over to the proper Governmental Entity all amounts
required to be withheld and be paid over under Applicable Law.
(j) Neither Buyer nor any Subsidiary is required to include in income
any adjustment under Section 481(a) of the Code by reason of a change in
accounting method, and neither Buyer nor any Subsidiary, nor the Internal
Revenue Service, has proposed any such adjustment or change in accounting
method. Buyer and the Subsidiaries do not have pending any private letter
ruling with the IRS.
(k) Other than as a result of this transaction, none of Buyer's or any
Subsidiary's tax attributes is subject to the limitations of Section 382, 383 or
384 of the Code or Temporary Treasury Regulation Sections 1.1502-15T or 1.1502-
21T(c).
(l) There are no liens for Taxes upon any assets of Buyer or any
Subsidiary, except liens for Taxes not yet due and payable.
(m) The tax basis of each of the assets of Buyer and the Subsidiaries
as set forth on the books, accounts and records of Buyer and the Subsidiaries is
true, correct and complete in all material respects.
Section 5.15. Environmental and Other Laws. Except as disclosed on
----------------------------
Schedule 5.15 or in the SEC Filings filed prior to the date hereof, (a) Buyer
- --------------
and the Subsidiaries are conducting their businesses in compliance in all
material respects with all Applicable Laws, including all Environmental Laws,
and are in material compliance with all licenses and permits required under any
such laws; (b) to the best of Buyer's knowledge, none of the operations or
properties of Buyer or any Subsidiary is the subject of foreign, federal, state
or local investigation evaluating whether any material remedial action is needed
to respond to a release of any Hazardous Materials into the environment or to
the improper storage or disposal (including storage or disposal at offsite
locations) of any Hazardous Materials; (c) neither Buyer nor any Subsidiary has
filed any notice under any Applicable Law indicating that it is responsible for
the improper release into the environment, or the improper storage or disposal,
of any material amount of any Hazardous Materials or that any Hazardous
Materials have been improperly released, or are improperly stored or disposed
of, upon any property of Buyer or any Subsidiary; (d) neither
22
<PAGE>
Buyer nor any Subsidiary has transported or arranged for the transportation of
any Hazardous Material to any location which is (i) listed on the National
Priorities List under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, listed for possible inclusion on such
National Priorities List by the Environmental Protection Agency in its
Comprehensive Environmental Response, Compensation and Liability Information
System List, or listed on any similar state list or foreign jurisdiction list or
(ii) the subject of foreign, federal, state or local enforcement actions or
other investigations which may lead to material claims against Buyer or any
Subsidiary for clean-up costs, remedial work, damages to natural resources or
for personal injury claims (whether under Environmental Laws or otherwise); and
(e) to the best of Buyer's knowledge, neither Buyer or any Subsidiary has any
material contingent liability under any Environmental Laws or in connection with
the release into the environment, or the storage or disposal, of any Hazardous
Materials.
Section 5.16. Legal Proceedings. Except as disclosed on Schedule 5.16,
----------------- -------------
there are no Proceedings pending or, to the best knowledge of Buyer, threatened
against or involving Buyer or any Subsidiary (or any of their respective
directors or officers in connection with the business or affairs of Buyer or any
Subsidiary) or any properties or rights of Buyer or any Subsidiary which,
individually or in the aggregate, might reasonably be expected to have a
Material Adverse Effect. Neither Buyer nor any Subsidiary is subject to any
judgment, order, writ, injunction, or decree of any Governmental Entity which
has had or is reasonably likely to have a Material Adverse Effect. There are no
Proceedings pending or, to the best knowledge of Buyer, threatened seeking to
restrain, prohibit, or obtain damages or other relief in connection with, or
questioning the legality or validity of, this Agreement or any Ancillary
Document or the transactions contemplated hereby or thereby.
Section 5.17. Title to Properties; Permits; Licenses; Condition of Assets.
-----------------------------------------------------------
(a) Each of Buyer and the Subsidiaries has good and defensible title
to all of its material properties and assets, free and clear of all Liens other
than Permitted Liens and of all material impediments to the use of such
properties and assets in the businesses of Buyer and the Subsidiaries.
(b) Each of Buyer and the Subsidiaries holds all material Permits
necessary or required for the conduct of its business. Each of such Permits is
in full force and effect, Buyer and the Subsidiaries are in compliance with all
of its material obligations with respect thereto, and, to the best knowledge of
Buyer, no event has occurred which allows, or with or without the giving of
notice or the passage of time or both would allow, the revocation or termination
of any thereof. No notice has been issued by any Governmental Entity and no
proceeding is pending or, to the best knowledge of Buyer, threatened with
respect to any alleged failure by Buyer or any Subsidiary to have any material
Permit.
(c) Buyer and the Subsidiaries possess all licenses, permits,
franchises, patents, copyrights, trademarks and trade names, and other
intellectual property (or otherwise possesses the right to use such intellectual
property without violation of the rights of any other Person)
23
<PAGE>
which are necessary to carry out their businesses as presently conducted and as
presently proposed to be conducted hereafter, and neither Buyer nor any
Subsidiary is in violation in any material respect of the terms under which it
possesses such intellectual property or the right to use such intellectual
property.
(d) The equipment and other tangible assets of Buyer and the
Subsidiaries are in good operating condition (except for reasonable wear and
tear), and have been reasonably maintained.
Section 5.18. ERISA.
-----
(a) Set forth on Schedule 5.18 is a list identifying each "employee
-------------
benefit plan", as defined in Section 3(3) of ERISA, (i) which is subject to any
provision of ERISA, (ii) which is maintained, administered, or contributed to by
Buyer or any affiliate of Buyer, and (iii) which covers any employee or former
employee of Buyer or any affiliate of Buyer or under which Buyer or any
affiliate of Buyer has any liability. Buyer has delivered or made available to
Seller accurate and complete copies of such plans (and, if applicable, the
related trust agreements) and all amendments thereto and written interpretations
thereof, together with (i) the three most recent annual reports (Form 5500
including, if applicable, Schedule B thereto) prepared in connection with any
such plan and (ii) the most recent actuarial valuation report prepared in
connection with any such plan. Such plans are referred to in this Section as
the "Employee Plans". For purposes of this Section only, an "affiliate" of any
person means any other person which, together with such person, would be treated
as a single employer under Section 414 of the Code. The only Employee Plans
which individually or collectively would constitute an "employee pension benefit
plan" as defined in Section 3(2) of ERISA are identified as such on Schedule
--------
5.18.
- ----
(b) Except as otherwise identified on Schedule 5.18, (i) no Employee
-------------
Plan constitutes a "multiemployer plan", as defined in Section 3(37) of ERISA
(for purposes of this Section, a "Multiemployer Plan"), (ii) no Employee Plan is
maintained in connection with any trust described in Section 501(c)(9) of the
Code, (iii) no Employee Plan is subject to Title IV of ERISA or to the minimum
funding standards of ERISA and the Code, and (iv) during the past five years,
neither Buyer nor any of its affiliates have made or been required to make
contributions to any Multiemployer Plan. There are no accumulated funding
deficiencies as defined in Section 412 of the Code (whether or not waived) with
respect to any Employee Plan. The fair market value of the assets held with
respect to each Employee Plan which is an employee pension benefit plan, as
defined in Section 3(2) of ERISA, exceeds the actuarially determined present
value of all benefit liabilities accrued under such Employee Plan (whether or
not vested) determined using reasonable actuarial assumptions. Neither Buyer
nor any affiliate of Buyer has incurred any material liability under Title IV of
ERISA arising in connection with the termination of, or complete or partial
withdrawal from, any plan covered or previously covered by Title IV of ERISA.
Buyer and all of the affiliates of Buyer have paid and discharged promptly when
due all liabilities and obligations arising under ERISA or the Code of a
character which if unpaid or unperformed might result in the imposition of a
lien against any of the assets of Buyer or any Subsidiary. Nothing done or
omitted to be done and no transaction or holding of any asset under
24
<PAGE>
or in connection with any Employee Plan has or will make Buyer or any Subsidiary
or any director or officer of Buyer or any Subsidiary subject to any liability
under Title I of ERISA or liable for any Tax pursuant to Section 4975 of the
Code that could have a Material Adverse Effect. There are no threatened or
pending claims by or on behalf of the Employee Plans, or by any participant
therein, alleging a breach or breaches of fiduciary duties or violations of
Applicable Laws which could result in liability on the part of Buyer, its
officers or directors, or such Employee Plans, under ERISA or any other
Applicable Law and there is no basis for any such claim.
(c) Each Employee Plan which is intended to be qualified under Section
401(a) of the Code is so qualified and has been so qualified since the date of
its adoption, and each trust forming a part thereof is exempt from Tax pursuant
to Section 501(a) of the Code. Set forth on Schedule 5.18 is a list of the most
-------------
recent IRS determination letters with respect to any such Plans, accurate and
complete copies of which letters have been delivered or made available to Buyer.
Each Employee Plan has been maintained in compliance with its terms and with the
requirements prescribed by all Applicable Laws, including but not limited to
ERISA and the Code, which are applicable to such Employee Plans.
(d) Set forth on Schedule 5.18 is a list of each employment,
-------------
severance, or other similar contract, arrangement, or policy and each plan or
arrangement (written or oral) providing for insurance coverage (including any
self-insured arrangements), workers' compensation, disability benefits,
supplemental unemployment benefits, vacation benefits, retirement benefits,
deferred compensation, profit-sharing, bonuses, stock options, stock
appreciation rights, or other forms of incentive compensation or post-retirement
insurance, compensation, or benefits which (i) is not an Employee Plan, (ii) is
entered into, maintained, or contributed to, as the case may be, by Buyer or any
affiliate of Buyer, and (iii) covers any employee or former employee of Buyer or
any affiliate of Buyer or under which Buyer or any affiliate of Buyer has any
liability. Such contracts, plans, and arrangements as are described in the
preceding sentence are referred to for purposes of this Section as the "Benefit
Arrangements". Each Benefit Arrangement has been maintained in substantial
compliance with its terms and with the requirements prescribed by Applicable
Laws.
(e) Neither Buyer nor any affiliate of Buyer has performed any act or
failed to perform any act, and there is no contract, agreement, plan, or
arrangement covering any employee or former employee of Buyer or any affiliate
of Buyer, that, individually or collectively, could give rise to the payment of
any amount that would not be deductible pursuant to the terms of Section
162(a)(1) or 280G of the Code, or could give rise to any penalty or excise Tax
pursuant to Section 4980B or 4999 of the Code.
Section 5.19. Agreements.
----------
(a) Set forth on Schedule 5.19 is a list of all the following
-------------
agreements, arrangements, and understandings (written or oral, formal or
informal) (collectively, for purposes of this Section, "agreements") to which
Buyer or any Subsidiary is a party or by which Buyer or any Subsidiary or any of
their respective properties is otherwise bound:
25
<PAGE>
(i) collective bargaining agreements and similar agreements
with employees as a group;
(ii) agreements with any current or former shareholder,
director, officer, employee, consultant or advisor or any affiliate of any
such Person;
(iii) agreements between or among Buyer and any of the
Subsidiaries;
(iv) exclusive of those relating to the Senior Credit Facility,
indentures, mortgages, security agreements, notes, loan or credit
agreements, or other agreements relating to the borrowing of money by Buyer
or any Subsidiary or to the direct or indirect guarantee or assumption by
Buyer or any Subsidiary of any obligation of others, including any
agreement that has the economic effect although not the legal form of any
of the foregoing;
(v) agreements relating to the acquisition or disposition of
assets, other than those entered into in the ordinary course of business
consistent with past practice;
(vi) agreements relating to the acquisition or disposition of
any interest in any business enterprise;
(vii) exclusive of oil, gas and mineral leases, agreements with
respect to the lease of real or personal property;
(viii) exclusive of oil and gas operating or similar agreements,
agreements concerning the management or operation of any real property;
(ix) partnership, joint venture, and profit sharing agreements;
(x) agreements with any Governmental Entity;
(xi) agreements relating to the release or disposal of
Hazardous Material;
(xii) agreements containing any covenant limiting the freedom of
Buyer or any Subsidiary to engage in any line of business or compete with
any other Person in any geographic area or during any period of time, other
than those that would not have a Material Adverse Effect;
(xiii) agreements not made in the ordinary course of business;
and
(xiv) other agreements, whether or not made in the ordinary
course of business, that are material to the business, assets, results of
operations, condition (financial or otherwise), or prospects of Buyer and
the Subsidiaries considered as a whole.
26
<PAGE>
(b) Buyer has delivered or made available to Seller accurate and
complete copies of the agreements listed in Schedule 5.19. Each of such
-------------
agreements is a valid and binding agreement of Buyer and the Subsidiaries (to
the extent each is a party thereto) and (to the best knowledge of Buyer) the
other party or parties thereto, enforceable against Buyer and the Subsidiaries
(to the extent each is a party thereto) and (to the best knowledge of Buyer)
such other party or parties in accordance with its terms. Neither Buyer nor any
Subsidiary is in breach of or in default under, nor has any event occurred which
(with or without the giving of notice or the passage of time or both) would
constitute a default by Buyer or any Subsidiary under, any of such agreements,
and neither Buyer nor any Subsidiary has received any notice from, or given any
notice to, any other party indicating that Buyer or any Subsidiary is in breach
of or in default under any of such agreements. To the best knowledge of Buyer,
no other party to any of such agreements is in breach of or in default under
such agreements, nor has any assertion been made by Buyer or any Subsidiary of
any such breach or default.
(c) Neither Buyer nor any Subsidiary has received notice of any plan
or intention of any other party to any agreement to exercise any right of offset
with respect to, or any right to cancel or terminate, any agreement, and neither
Buyer nor any Subsidiary knows of any fact or circumstance that would justify
the exercise by any such other party of such a right other than the automatic
termination of such agreement in accordance with its terms. Neither Buyer nor
any Subsidiary currently contemplates, or has reason to believe any other Person
currently contemplates, any amendment or change to any agreement, which
amendment or change could have a Material Adverse Effect.
(d) Without limiting the generality of the other provisions in this
Section 5.19, the Key Employment Agreements are in full force and effect, and
each of John Keenan and Paul Fenemore is currently employed by Buyer pursuant to
a renewal term under such agreements.
Section 5.20. Labor Disputes and Acts of God. Neither the business nor
------------------------------
the properties of Buyer nor any Subsidiary has been affected by any fire,
explosion, accident, strike, lockout or other labor dispute, drought, storm,
hail, earthquake, embargo, act of God or of the public enemy or other casualty
(whether or not covered by insurance), which, individually or in the aggregate,
could cause a Material Adverse Effect.
Section 5.21. Insurance. The Company and each Subsidiary carries
---------
insurance covering its properties and business adequate and customary for the
type and scope of its properties and business.
Section 5.22. Offering of Securities. All securities which have been
----------------------
offered or sold by Buyer and it Subsidiaries have been registered pursuant to
the Securities Act and applicable foreign and state securities laws or were
offered and sold pursuant to valid exemptions therefrom.
Section 5.23. Government Regulation. Buyer is not subject to regulation
---------------------
under the Public Utility Holding Company Act of 1935. Buyer is not an
"investment company" or a company "controlled" by an "investment company" within
the meaning of the Investment
27
<PAGE>
Company Act of 1940, as amended or an "investment advisor" within the meaning of
the Advisers Act of 1940, as amended.
Section 5.24. Brokerage Fees. Neither Buyer nor any of its affiliates has
--------------
retained any financial advisor, broker, agent or finder or paid or agreed to pay
any financial advisor, broker, agent or finder on account of this Agreement or
any transaction contemplated hereby, which action would subject Seller or any of
its affiliates to any liability. Buyer shall indemnify and hold harmless Seller
from and against any and all losses, claims, damages and liabilities (including
legal and other expenses reasonably incurred in connection with investigating or
defending any claims or actions) with respect to any finder's fee, brokerage
commission or similar payment in connection with any transaction contemplated
hereby asserted by any Person on the basis of any act or statement made or
alleged to have been made by Buyer or any of its affiliates.
Section 5.25. Bankruptcy. There are no bankruptcy, reorganization or
----------
arrangement proceedings pending, being contemplated by, or to the knowledge of
Seller, threatened against Seller.
Section 5.26. Nature of Company Assets. The assets of the Buyer and its
------------------------
Subsidiaries consist solely of (a) reserves of oil, rights to reserves of oil
and associated exploration and production assets with a fair market value not
exceeding $500,000,000 and (b) other assets with a fair market value not
exceeding $15,000,000. For purposes of this Section 5.26, the term "associated
exploration and production assets" shall have the meaning ascribed thereto in
Section 802.3 of the Rules promulgated pursuant to the HSR Act.
Section 5.27. Full Disclosure. No representation or warranty made by
---------------
Buyer in this Agreement, and no statement of Buyer contained in any document,
certificate or other writing furnished or to be furnished by Buyer or its
representatives to Seller pursuant hereto or in connection herewith, contains or
will contain, at the time of delivery, any untrue statement of a material fact
or omits or will omit, at the time of delivery, to state any material fact
(other than industry-wide risks normally associated with the type of business
conducted by Buyer) necessary to make the statements contained therein, in light
of the circumstances in which they are made, not misleading. There is no fact
known to Buyer (other than industry-wide risks normally associated with the type
of business conducted by Buyer) that has not been disclosed to Seller in writing
which Buyer reasonably anticipates would result in a Material Adverse Effect.
ARTICLE VI
Certain Covenants of Seller and Buyer Pending Closing
-------------------------------------------------------
Section 6.1. Pre-Closing Covenants of Seller.
-------------------------------
(a) From the date hereof until Closing, Seller will use its reasonable
best efforts to give Buyer, and its attorneys and other representatives, access
at all reasonable times to
28
<PAGE>
the Properties and to any contract files, lease or other title files, production
files, well files and other files of Seller pertaining to the ownership and/or
operation by the Partnerships of the Properties, and Seller will use its
reasonable best efforts to arrange for Buyer, and its attorneys and other
representatives, to have access to any such files. Seller shall not be obligated
to provide Buyer with access to any records or data which Seller or any
Partnership cannot provide to Buyer without, in its opinion, breaching
confidentiality agreements with other parties.
(b) Seller will use its reasonable best efforts to cause the
Partnerships to (i) continue the routine operation of the Properties in the
ordinary course of business and as would a prudent operator, (ii) operate the
Properties in conformity (in all material respects) with all applicable laws,
and all applicable rules, regulations and orders of all governmental agencies
having jurisdiction, and in conformity with all oil, gas and/or mineral leases,
and in conformity (in all material respects) with all Basic Documents other than
such leases, and (iii) fulfill all obligations (including without limitation all
obligations to make payments under leases or other Basic Documents) under such
leases, and (in all material respects) under such other Basic Documents and (in
all material respects) under such laws, rules, regulations and orders (without
limitation of the foregoing, the failure to perform an obligation, when such
failure could result in forfeiture or termination of rights of a Partnership
under a Basic Document, shall be considered material).
(c) Seller will not, without Buyer's prior consent:
(i) agree to make any new capital contributions to any
Partnership in connection with the ownership of the Interests;
(ii) to the extent of its rights under the Partnership
Agreements, propose the drilling of any additional wells, or propose the
deepening, plugging back or reworking of any existing wells, or propose the
conducting of any other operations which require consent under the
applicable operating agreement, or propose the conducting of any other
operations other than the normal operation of the existing wells on the Oil
and Gas Properties, or propose the abandonment of any wells on the Oil and
Gas Properties (and Seller agrees that it will advise Buyer of any such
proposals made by a general partner of a Partnership or (to the extent it
has knowledge) any third party and will respond to each such proposal in
the manner requested by Buyer);
(iii) to the extent of its rights under the Partnership
Agreements, consent to the sale, transfer or abandonment of any portion of
the Properties other than items of materials, supplies, machinery,
equipment, improvements or other personal property or fixtures forming a
part of the Properties (and then only if the same is replaced with an item
of equal suitability and value free of liens and security interests, which
replacement item will then, for the purposes of this Agreement, become part
of the Properties); or
29
<PAGE>
(iv) agree to any amendment, modification or change to any
Partnership Agreement or waive any rights, duties or obligations of any
general partner of the Partnerships.
Notwithstanding the foregoing or anything else herein to the contrary, it is
acknowledged and agreed that Seller either has or will, prior to Closing,
execute and deliver an agreement to liquidate and dissolve the Partnerships
(exclusive of Famcor Oil W.T., L.P.), substantially in the form of the
instrument heretofore provided to Buyer in all material respects, and that such
execution and delivery will not be deemed a breach by Seller of any covenant and
agreement contained in this Section 6.1 or elsewhere herein.
Section 6.2. Pre-Closing Covenants of Buyer.
------------------------------
(a) During the period from the date hereof to the Closing, Buyer covenants
and agrees with Seller that Buyer and its Subsidiaries (i) shall each conduct
its operations according to its ordinary course of business consistent with past
practice and in compliance with Applicable Laws; (ii) shall each use its
reasonable best efforts to preserve, maintain and protect its properties; and
(iii) shall each use its reasonable best efforts to preserve intact its business
organization, to keep available the services of its officers and employees and
to maintain existing relationships with suppliers, operators, customers and
others having business relationships with it.
(b) During the period from the date hereof to the Closing, neither Buyer
nor any Subsidiary shall without the prior written consent of Seller:
(i) amend its Organic Documents or other governing instruments;
(ii) (A) issue, sell, or deliver (whether through the issuance
or granting of options, warrants, commitments, subscriptions, rights to
purchase or otherwise) any shares of its capital stock of any class or any
other securities or equity equivalents, exclusive of any shares issued
pursuant to options, warrants, commitments, subscriptions, rights to
purchase or otherwise existing on the date hereof); or (B) amend in any
respect any of the terms of any such securities outstanding as of the date
hereof;
(iii) (A) split, combine, or reclassify any shares of its
capital stock; or (B) adopt a plan of complete or partial liquidation or
resolutions providing for or authorizing a liquidation or dissolution of
Buyer or any Subsidiary;
(iv) except as provided in subsection (c) below, make any loans,
advances, or capital contributions to, or investments in, any other Person
(other than customary loans or advances to employees in amounts not
material to the maker of such loan or advance);
(v) (A) enter into, adopt, or (except as may be required by
law) amend or terminate any bonus, profit sharing, compensation, severance,
termination, stock
30
<PAGE>
option, stock appreciation right, restricted stock, performance unit, stock
equivalent, stock purchase, pension, retirement, deferred compensation,
employment, severance or other employee benefit agreement, trust, plan,
fund or other arrangement for the benefit or welfare of any director,
officer or employee; (B) except for normal increases in the ordinary course
of business consistent with past practice that, in the aggregate, do not
result in a material increase in benefits or compensation expense to Buyer,
increase in any manner the compensation or fringe benefits of any director,
officer or employee; or (C) pay to any director, officer or employee any
benefit not required by any employee benefit agreement, trust, plan, fund
or other arrangement as in effect on the date hereof;
(vi) make any capital expenditure or expenditures which,
individually, is in excess of $100,000 or, in the aggregate, are in excess
of $250,000;
(vii) amend any Tax Return or make any Tax election or settle or
compromise any federal, state, local, or foreign Tax liability material to
Buyer and the Subsidiaries considered as a whole;
(viii) pay, discharge, or satisfy any claims, liabilities, or
obligations (whether accrued, absolute, contingent, unliquidated, or
otherwise, and whether asserted or unasserted), other than the payment,
discharge, or satisfaction in the ordinary course of business consistent
with past practice, or in accordance with their terms, of liabilities
reflected or reserved against in the Financial Statements or incurred since
the date of the Latest Balance Sheet in the ordinary course of business
consistent with past practice; provided, however, that in no event shall
Buyer or any Subsidiary repay any long-term indebtedness except to the
extent required by the terms thereof;
(ix) take any action which would or might make any of the
representations or warranties of Buyer contained in this Agreement untrue
or inaccurate as of any time from the date of this Agreement to the Closing
or would or might result in any of the conditions set forth in this
Agreement not being satisfied; or
(x) authorize or propose, or agree in writing or otherwise to
take, any of the actions described in this Section.
(c) Notwithstanding anything in this Section 6.2 to the contrary, it
is expressly agreed that the execution and delivery by Buyer of (i) the Other
Acquisition Agreements, (ii) the Preferred Stock Purchase Agreement, (iii) the
Senior Credit Facility and (iv) the Subordinated Debt Agreement, and the
consummation of the respective transactions contemplated thereunder will not be
deemed to be a breach by Buyer of any covenant and agreement contained in this
Section 6.2 or elsewhere herein.
(d) Between the date hereof and the Closing, Buyer (i) shall give
Seller and its authorized representatives reasonable access, during regular
business hours, to all employees, all plants, offices, warehouses, and other
facilities, and all books and records, including work papers
31
<PAGE>
and other materials prepared by Buyer's independent public accountants, of Buyer
and the Subsidiaries, (ii) shall permit Seller and its authorized
representatives to make such inspections as they may reasonably require and
(iii) shall cause Buyer's officers and those of the Subsidiaries to furnish
Seller and its authorized representatives with such financial and operating data
and other information with respect to Buyer and the Subsidiaries as Seller may
from time to time reasonably request; provided, however, that Buyer shall have
the right to have a representative present at all times of any such inspections,
interviews and examinations conducted at or on the offices or other facilities
or properties of Buyer or its affiliates or representatives.
Section 6.3. Pre-Closing Covenants of Seller and Buyer. Each party
-----------------------------------------
hereto agrees that it will not voluntarily undertake any course of action
inconsistent with the provisions or intent of this Agreement and will use its
reasonable best efforts to take, or cause to be taken, all action and to do, or
cause to be done, all things reasonably necessary, proper or advisable under
Applicable Law to consummate the transactions contemplated by this Agreement.
ARTICLE VII
Due Diligence Examination With Respect to the Properties
--------------------------------------------------------
Section 7.1. Inspection and Assertion of Defects.
-----------------------------------
(a) Buyer may, to the extent it deems appropriate, conduct, at its
sole cost, such title examination or investigation as it may choose to conduct
with respect to the Properties. Should, as a result of such examination and
investigation, or otherwise, matters come to Buyer's attention which would
constitute "Defects" (as below defined), and should there be one or more of such
Defects which Buyer determines it is unwilling to waive and close the
transaction contemplated hereby notwithstanding the fact that such Defects
exist, Buyer shall notify Seller in writing of such Defects as soon as they are
identified by Buyer, but in no event later than two business days prior to
Closing. Such Defects of which Buyer so provides notice are herein called
"Asserted Defects." All Defects with respect to which Buyer fails to so give
Seller notice will be deemed waived for all purposes. In the event that Buyer
notifies Seller of Asserted Defects, Seller shall have the right (but not the
obligation) to attempt to cure, prior to Closing, such Asserted Defects to the
reasonable satisfaction of Buyer (exclusive of a Defect in subsection (b)(iii)
below.
(b) The term "Defect" as used in this Section shall mean the
following:
(i) A Partnership's ownership of its Oil and Gas Properties is
such that, with respect to a well listed in Section 7.1(b)(i) of the Seller
Disclosure Schedule for such Partnership, it (A) entitles such Partnership
to receive a percentage share of the oil, gas and other hydrocarbons
produced from, or allocated to, such well which is less than the percentage
share set forth in Section 7.1(b)(i) of the Seller Disclosure Schedule in
connection with such well in the column headed "NRI" or (B) causes the
Partnership to be
32
<PAGE>
obligated to bear a percentage share of the cost of operation of such well
greater than the percentage share set forth in Section 7.1(b)(i) of the
Seller Disclosure Schedule in connection with such well in the column
headed "WI" (unless the share of production from such well to which such
Partnership is entitled is proportionately larger than the "NRI" shown for
such well in Section 7.1(b)(i) of the Seller Disclosure Schedule); or
(ii) A Partnership's ownership of an Oil and Gas Property is
subject to a lien other than (A) a lien for taxes not yet delinquent, or
(B) a mechanic's or materialmen's lien (or other similar lien), or a lien
under an operating agreement or similar agreement, to the extent the same
relates to expenses incurred which are not yet due; or
(iii) A Partnership's ownership of an Oil and Gas Property is
subject to an imperfection in title which, if asserted, would cause a
Defect, as defined in clause (i) above, to exist, and such imperfection in
title is not such as would normally be waived by persons engaged in the oil
and gas business who are purchasing producing properties.
Section 7.2. Certain Price Adjustments.
-------------------------
(a) In the event that, as a part of the due diligence review provided
for in Section 7.1 above, Asserted Defects are presented to Seller and Seller is
unable (or unwilling) to cure such Asserted Defects, or in the event that Buyer
has elected to treat an Oil and Gas Property affected by a casualty loss as if
it was an Oil and Gas Property affected by an Asserted Defect (as provided in
Section 7.4), then Buyer and Seller shall, with respect to each Oil and Gas
Property affected by one or more Asserted Defects, attempt in good faith to
agree upon an appropriate adjustment to the Purchase Price to account for such
Asserted Defects. Notwithstanding the foregoing or anything herein to the
contrary, Seller may elect to specify as an appropriate adjustment to the
Purchase Price for a Defect of the type specified in Section 7.1(b)(ii), the
------------------
amount required to discharge the lien.
(b) Should Seller determine (or should Buyer, in the course of its
due diligence review contemplated by Section 7.1, determine) that the ownership
of Properties by a Partnership entitles such Partnership to a share of the
production from a well listed in Section 7.1(b)(i) of the Seller Disclosure
Schedule greater than the share shown for such well under the column headed
"NRI" on Schedule 7.1(b)(i) of the Seller Disclosure Schedule, then Seller may
propose an upward adjustment to the Base Purchase Price to account for such
fact, in which case such adjustment shall be handled in a similar manner as
provided above with respect to adjustments for Asserted Defects; provided that
the party making such determination shall notify the other party no later than
ten business days prior to the Closing.
(c) If the Net Title Adjustments (as defined below) do not exceed
$100,000, then the Base Purchase Price shall not be adjusted. If the Net Title
Adjustments do exceed $100,000, the Base Purchase Price shall be adjusted as
provided in subsection (d) or subsection (e) below by the amount by which the
Net Title Adjustments exceed $100,000. As used in this subsection (c), the term
"Net Title Adjustments" means the net amount of the adjustments to the
33
<PAGE>
Base Purchase Price resulting from the procedures provided for above or Section
7.5 and attributable to any of the Defects referenced in subsections (i) through
(iv) of Section 7.1(b).
(d) Any reduction to the Base Purchase Price under subsection (c)
shall be effected by a decrease in the number of Preferred Shares equal to A
minus B, where "A" equals the number of shares of Buyer's Series A Convertible
Preferred Stock specified in Article III, where "B" equals C divided by D, where
"C" equals the Net Title Adjustments minus $100,000, and where "D" equals
$50.00.
(e) Any increase in the Base Purchase Price under subsection (c)
shall be effected by an increase in the number of Preferred Shares equal to A
plus B, with "A" and "B" being determined as provided in subsection (d) above.
Section 7.3. Waiver. Without limiting Section 7.1 and notwithstanding
------
anything else herein to the contrary, all Defects not raised by Buyer within the
time period specified in Section 7.1 shall be waived by Buyer for all purposes,
and Buyer shall have no right to seek an adjustment to the Purchase Price, make
a claim against Seller or seek indemnification from Seller with respect thereto.
Section 7.4. Casualty Loss. In the event of damage by fire or other
-------------
casualty to the Properties after the Effective Date and prior to the Closing,
then this Agreement shall remain in full force and effect, and (unless Buyer and
Seller shall otherwise agree) in such event as to each such Property so damaged
which is an Oil and Gas Property, such Property shall be treated as if it had an
Asserted Defect associated with it and the procedure provided for in this
Article VII shall be applicable thereto.
Section 7.5. Disputes. In the event Buyer and Seller are unable to agree
--------
prior to the Closing upon the existence of one or more Defects affecting an Oil
and Gas Property or one or more adjustments claimed by Buyer or Seller pursuant
to this Article VII as it relates to an Oil and Gas Property, any such dispute
(a "Disputed Claim") shall be settled pursuant to this Section 7.5 and shall
not prevent or delay the Closing. At Closing, the Purchase Price shall not be
adjusted on account of and no effect shall be given to the Disputed Claim.
Either Buyer or Seller shall have the right to submit the Disputed Claim to
final and binding arbitration in accordance with the Commercial Arbitration
Rules of the American Arbitration Association (the "AAA Rules"). Buyer and
Seller shall endeavor to select three neutral arbitrators by mutual agreement.
If such agreement cannot be reached within 30 calendar days after the Closing,
each party shall select its own neutral arbitrator within 15 days of the
expiration of such 30-day period and the two neutral arbitrators so selected
shall select a third neutral arbitrator within 10 days of the expiration of such
15-day period. If they fail to do so, either arbitrator or Buyer or Seller may
request the judge of the United States District Court for the Southern District
of Texas having greatest tenure, but not yet on retired or senior status, to
appoint a third neutral arbitrator. The three persons thus selected shall be
the arbitrators for such arbitration. Each arbitrator must be experienced in
and knowledgeable about the oil and gas exploration business and third
arbitrator shall be required to meet the qualification requirements of the AAA
Rules, whether appointed by
34
<PAGE>
the arbitrators or by the judge as provided above. The board of arbitrators may
in all matters act through a majority of its members on each Disputed Claim if
unanimity is not attained. The award as to any Disputed Claim shall be made
within 30 days following the close of the final hearing and the filing of any
post hearing briefs authorized by the arbitrator(s) in respect of such claim.
The award of the arbitrator shall be final and binding on the parties hereto and
the subject matter. Judgment upon the award rendered by the arbitrator(s) may be
entered by any court having jurisdiction. The place of arbitration shall be in
Houston, Texas. The amount of any reduction in the Purchase Price to which Buyer
becomes entitled under the final and binding decision of the arbitrators shall
be effected in a manner similar to that set forth in Section 7.2(d). Each party
shall be entitled to inspect and obtain a copy of relevant documents in the
possession or control of the other party and to take depositions of the other
parties' employees, agents, representatives and witnesses (including expert
witnesses). All such discovery shall be in accordance with procedures approved
by the arbitrators. Unless otherwise provided in the award, each party shall
bear its own costs of discovery. All discovery shall be expedited, consistent
with the nature and complexity of the Disputed Claim and consistent with
fairness and justice. The arbitrators shall have the power to compel any party
to comply with discovery requests of the other parties and to issue binding
orders relating to any discovery dispute which shall be enforceable in the same
manner as awards. The arbitrators also shall have the power to impose sanctions
for abuse or frustration of the arbitration process, including without
limitation, the refusal to comply with orders of the arbitrators relating to
discovery and compliance with subpoenas. Each of the parties hereto hereby
irrevocably submits to the jurisdiction of the courts of the State of Texas for
entry of any arbitration decision or to obtain any preliminary relief which may
be necessary and hereby consents to the enforcement by such courts of any award
rendered in such arbitration. The compensation and expenses of the arbitrators
shall be borne equally by the parties. Each party shall bear and pay any and all
costs and expenses incurred by it in connection with the arbitration.
ARTICLE VIII
Conditions Precedent to the Obligations of the Parties
------------------------------------------------------
Section 8.1. Conditions Precedent to the Obligations of Buyer. The
------------------------------------------------
obligations of Buyer under this Agreement are subject to each of the following
conditions being met:
(a) All the representations and warranties of Seller contained in
this Agreement, and in any agreement, instrument or document delivered pursuant
hereto or in connection herewith on or prior to the Closing Date, shall be true
and correct in all material respects on and as of the Closing Date as if made on
and as of such date, except as affected by transactions permitted by this
Agreement, and except to the extent that any such representation or warranty is
made as of a specified date, in which case such representation or warranty shall
have been true and correct in all material respects as of such specified date.
For the sole purpose of determining whether or not any of such representations
and warranties are true and correct as aforesaid on and as of the Closing Date,
no effect shall be given to any materiality qualification contained in such
representation or warranty.
35
<PAGE>
(b) Seller shall have performed and complied in all material respects
with (or compliance therewith shall have been waived by Buyer) each and every
covenant, agreement and condition required by this Agreement to be performed or
complied with by Seller prior to or at the Closing.
(c) No suit, action or other proceedings shall, on the Closing Date,
be pending or threatened before any Governmental Entity seeking to restrain,
prohibit, or obtain damages or other relief in connection with the consummation
of the transactions contemplated by this Agreement.
(d) There shall have been obtained any and all consents, approvals,
authorizations, licenses, orders or permits set forth on Schedule 5.7; and no
------------
other consent, approval, authorization, license, order or permit of, or
declaration, filing or registration with, or notification to, any Governmental
Entity, or any other Person or entity, the failure to comply with which would
have a Material Adverse Effect, shall be required to be made or obtained by
Buyer or any Subsidiary in connection with the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby.
(e) All waiting periods (and any extensions thereof) applicable to
this Agreement and the transactions contemplated hereby under the HSR Act shall
have expired or been terminated.
(f) GP Approval shall have been obtained.
Section 8.2. Conditions Precedent to the Obligations of Seller. The
-------------------------------------------------
obligations of Seller under this Agreement are subject to each of the following
conditions being met:
(a) All the representations and warranties of Buyer contained in this
Agreement, and in any agreement, instrument or document delivered pursuant
hereto or in connection herewith on or prior to the Closing Date, shall be true
and correct in all material respects on and as of the Closing Date as if made on
and as of such date, except as affected by transactions permitted by this
Agreement, and except to the extent that any such representation or warranty is
made as of a specified date, in which case such representation or warranty shall
have been true and correct in all material respects as of such specified date.
For the sole purpose of determining whether or not any of such representations
and warranties are true and correct as aforesaid on and as of the Closing Date,
no effect shall be given to any materiality qualification contained in such
representation or warranty.
(b) Buyer shall have performed and complied in all material respects
with (or compliance therewith shall have been waived by Seller) each and every
covenant, agreement and condition required by this Agreement to be performed or
complied with by Buyer prior to or at the Closing.
36
<PAGE>
(c) No suit, action or other proceedings shall, on the date of
Closing, be pending or threatened before any Governmental Entity seeking to
restrain, prohibit, or obtain damages or other relief in connection with the
consummation of the transactions contemplated by this Agreement.
(d) The total of the net Purchase Price reductions (if any) which
result from the application of Article VII do not exceed 30% of the original
aggregate stated value of the Preferred Shares.
(e) All waiting periods (and any extensions thereof) applicable to
this Agreement and the transactions contemplated hereby under the HSR Act shall
have expired or been terminated.
(f) There shall have been obtained any and all consents, approvals,
authorizations, licenses, orders or permits set forth on Schedule 5.7; and no
------------
other consent, approval, authorization, license, order or permit of, or
declaration, filing or registration with, or notification to, any Governmental
Entity, or any other Person or entity, the failure to comply with which would
have a Material Adverse Effect, shall be required to be made or obtained by
Buyer or any Subsidiary in connection with the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby.
(g) Since the date of this Agreement, there shall not have been any
material adverse change in the business, assets, results of operations,
condition (financial or otherwise) or prospects of Buyer and the Subsidiaries
considered as a whole.
(h) GP Approval shall have been obtained.
ARTICLE IX
Closing of Transaction
----------------------
Section 9.1. The Closing. The closing (herein called the "Closing") of
-----------
the transaction contemplated hereby shall take place in the offices of Thompson
Knight Brown Parker & Leahy L.L.P., at Two Allen Center, Suite 3600, Houston,
Texas, at 10:00 a.m. Central Standard Time, on May 1, 2000, or at such other
date and time as Buyer and Seller may mutually agree upon (such date and time
being herein called the "Closing Date").
Section 9.2. Seller's Closing Obligations. At the Closing, Seller shall:
----------------------------
(a) execute, acknowledge and deliver to Buyer (or its designated
Subsidiary) an assignment or assignments of the Interests (the "Assignment"),
substantially in the form attached hereto as Exhibit 9.2(a) in all material
--------------
respects, effective as of 12:01 o'clock a.m., Central Daylight Time on May 1,
2000 (the "Effective Date"); and
37
<PAGE>
(b) deliver to Buyer such other certificates, instruments, and
documents as may be reasonably requested by Buyer prior to the Closing Date to
carry out the intent and purposes of this Agreement.
Section 9.3. Buyer's Closing Obligations. At the Closing, Buyer shall:
---------------------------
(a) deliver to Seller a stock certificate evidencing the Preferred
Shares;
(b) execute and deliver to Seller a certificate executed on behalf of
Buyer by an authorized signatory of Buyer, dated the Closing Date, representing
and certifying, in such detail as Seller may reasonably request, that the
conditions set forth in Sections 8.2(a) and 8.2(b) have been fulfilled;
(c) deliver to Seller an opinion, in form, scope and content
reasonably acceptable to Seller, of Jenkens & Gilchrist, counsel to Buyer,
dated the Closing Date;
(d) deliver to Seller the certificates, instruments and documents
listed below:
(i) certified copy of a written consent or resolutions of the
Board of Directors of Buyer authorizing the execution, delivery and
performance by Buyer of this Agreement and the Ancillary Documents, as
necessary;
(ii) such other certificates, instruments, and documents as may
be reasonably requested by Seller prior to the Closing Date to carry out
the intent and purposes of this Agreement.
Section 9.4. Delivery of Files. No later than 10 business days after the
-----------------
Closing, Seller shall deliver to Buyer such of Seller's files and other
materials pertaining to the ownership of the Interests as Buyer may request.
ARTICLE X
Pre-Closing Termination
------------------------
Section 10.1. Termination. This Agreement may be terminated and the
-----------
transactions contemplated hereby abandoned at any time prior to the Closing in
the following manner:
(a) by mutual written consent of Seller and Buyer;
(b) by either Seller or Buyer if any Governmental Entity with
jurisdiction over such matters shall have issued an order or injunction
restraining, enjoining or otherwise prohibiting the consummation of the
transactions contemplated hereunder, and such order, decree, ruling or other
action shall have become final and unappealable; or
38
<PAGE>
(c) by either Seller or Buyer if the Closing shall not have occurred
on or before May 30, 2000; provided, however, that the right to terminate this
Agreement under this Section 10.1(c) shall not be available to any party whose
failure to fulfill any obligation under this Agreement shall have been the cause
of, or shall have resulted in, the failure of the Closing to occur prior to such
date.
Section 10.2. Effect of Termination. In the event of termination of this
---------------------
Agreement pursuant to Section 10.1 by Seller, on the one hand, or Buyer, on the
other hand, written notice thereof shall forthwith be given to the other party
specifying the provision hereof pursuant to which such termination is made, and
this Agreement shall become void and have no effect, except that the agreements
contained in this Section and in Article XVI shall survive the termination
hereof. Nothing contained in this Section shall relieve any party from
liability for damages actually incurred as a result of any breach of this
Agreement.
ARTICLE XI
Rights to Distributions, Assumption of Liabilities and Indemnification
----------------------------------------------------------------------
Upon consummation of the transactions contemplated hereunder, Buyer (a)
shall (i) be entitled to receive all distributions of cash and property made by
the Partnerships on or after the Closing Date and attributable to the Interests,
regardless of whether such distributions arise or are otherwise attributable to
sales of production or other events occurring before, on or after the Effective
Date and (ii) assume and timely pay and perform all duties, obligations and
liabilities relating to the ownership of the Interests, regardless of whether
such duties, obligations and liabilities arise or are otherwise attributable to
events occurring before, on or after the Effective Date, and (b) shall,
indemnify and hold Seller harmless from and against any and all claims,
obligations, actions, liabilities, damages, or expenses arising out of the
ownership of the Interests, whether arising before, on or after the Effective
Date.
ARTICLE XII
Affirmative Post Closing Covenants of Buyer
-------------------------------------------
To induce Seller to enter into this Agreement, Buyer warrants, covenants
and agrees that it will comply with and observe the following covenants and
provisions, and will cause each Subsidiary to comply with and observe such of
the following covenants and provisions as are applicable to such Subsidiary:
Section 12.1. Inspection Rights. At any reasonable time and from time to
-----------------
time upon reasonable notice, Buyer will permit Seller or its agents or
representatives to examine and make copies of and extracts from the records and
books of account of, and visit and inspect the properties of Buyer and any
Subsidiary, and to discuss the affairs, finances and accounts of Buyer and any
Subsidiary with any of their officers or directors and independent accountants.
39
<PAGE>
Section 12.2. Books, Financial Statements and Reports. Buyer and each of
---------------------------------------
its Subsidiaries will at all times maintain full and accurate books of account
and records. Buyer will maintain and will cause its Subsidiaries to maintain a
standard system of accounting, will maintain its Fiscal Year, and will furnish
the following statements and reports to Seller at Buyer's expense:
(a) As soon as available, and in any event within one hundred five
(105) days after the end of each Fiscal Year, complete consolidated financial
statements of Buyer together with all notes thereto, prepared in reasonable
detail in accordance with U.S. GAAP, together with an unqualified opinion, based
on an audit using generally accepted auditing standards, by independent
certified public accountants selected by Buyer and reasonably acceptable to
Seller, 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.
(b) As soon as available, and in any event within fifty (50) days
after the end of each Fiscal Quarter, Buyer's consolidated balance sheet as of
the end of such Fiscal Quarter and consolidated statements of Buyer's 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 U.S. GAAP, subject to changes resulting from normal year-end
adjustments. In addition Buyer will, together with each such set of financial
statements and each set of financial statements furnished under subsection (a)
of this section, furnish a certificate in a form reasonably acceptable to Seller
signed by the chief financial officer of Buyer stating that such financial
statements are accurate and complete (subject to normal year-end adjustments)
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.
(c) Promptly upon their becoming available, copies of all financial
statements, reports, notices and proxy statements sent by Buyer to its
stockholders and all registration statements, periodic reports and other
statements and schedules filed by Buyer with any securities exchange, the
Securities and Exchange Commission or any similar Governmental Entity.
(d) Annually within 60 days after the end of each Fiscal Year
beginning with the Fiscal Year ending April 30, 2000, a report containing (i) an
estimation of the oil and gas reserves, classified by appropriate categories, as
of the end of the preceding fiscal year attributable to the interest of Buyer
therein, (ii) a projection of the rate of production of and net income from such
reserves with respect to each such interest, (iii) a calculation of the present
worth of such net income discounted at a rate of 10% and (iv) a schedule or
complete description of all assumptions, estimates and projections made or used
in the preparation of such report. Each such report shall be prepared in
accordance with customary and generally accepted standards and practices for
petroleum engineers, and shall be based on (1) prices determined by the Holders
of a Requisite Majority, (2) lease operating expenses and production taxes
derived from and
40
<PAGE>
consistent with those actually incurred by Buyer, escalated at the same rate, if
any, being applied to prices and (3) such other assumptions as shall be
designated by the Holders of a Requisite Majority. In addition to the foregoing,
the Holders of a Requisite Majority shall have the right from time to time to
cause the independent petroleum engineer referenced below to prepare an
additional report of the type described above, not to exceed one additional
report in any one calendar year, in which event all fees and expenses incurred
in connection with obtaining such additional report shall be paid by Buyer. Each
report under this subsection shall be prepared by an independent petroleum
engineer designated by Buyer and approved by the Holders of a Requisite
Majority. Each annual report referenced above shall also include an estimate of
Buyer's proved oil and gas reserves (as defined in Regulation S-X promulgated by
the Securities and Exchange Commission) and a calculation of the "present value
of estimated future net revenues" from such proved oil and gas reserves, with
such present worth calculation to be made in accordance with Regulation S-X, as
promulgated by the Securities and Exchange Commission.
(e) Promptly, such other information with respect to the business and
operations of Buyer and its Subsidiaries, as Seller may reasonably request.
Section 12.3. Notice of Material Events and Change of Address. Buyer will
-----------------------------------------------
promptly notify Seller in writing, stating that such notice is being given
pursuant to this Agreement, of:
(a) the occurrence of an event or circumstance that could reasonably
be expected to have a Material Adverse Effect,
(b) the occurrence of any Default,
(c) the acceleration of the maturity of any indebtedness owed by
Buyer or any Subsidiary thereof or of any default by any Buyer or any such
Subsidiary 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 could reasonably be
expected to have a Material Adverse Effect,
(d) any claim of $100,000 or more, any notice of potential liability
under any Environmental Laws which might exceed such amount, or any other
material adverse claim asserted against Buyer or any Subsidiary thereof or with
respect to Buyer or any of such Subsidiary's properties, and
(e) the filing of any suit or proceeding against Buyer or any
Subsidiary thereof in which an adverse decision could cause a Material Adverse
Effect.
Upon the occurrence of any of the foregoing Buyer and any Subsidiary thereof
will take all necessary or appropriate steps to remedy promptly any such
Material Adverse Effect, Default, acceleration or default, 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.
41
<PAGE>
Section 12.4. Maintenance of Properties. Buyer and each of its
-------------------------
Subsidiaries will maintain, preserve, protect, and keep all property used or
useful in the conduct of its business in good condition and in compliance with
all Applicable Laws, 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 promptly and advantageously conducted at all times.
Section 12.5. Maintenance of Existence and Qualifications. Buyer and each
-------------------------------------------
of its Subsidiaries will maintain and preserve its existence and its rights and
franchises in full force and effect and will qualify to do business in all
states or jurisdictions where required by Applicable Law, except where the
failure so to qualify will not cause a Material Adverse Effect.
Section 12.6. Payment of Trade Liabilities, Taxes, etc. Buyer and each of
-----------------------------------------
its Subsidiaries will (a) timely file all required Tax Returns; (b) timely pay
all Taxes, assessments, and other governmental charges or levies imposed upon it
or upon its income, profits or property; (c) timely withhold and pay over to the
proper Governmental Entity all amounts required to be withheld and paid over
under Applicable Laws; (d) pay when due all Liabilities owed by it on ordinary
trade terms to vendors, suppliers and other Persons providing goods and services
used by it in the ordinary course of its business; (e) pay and discharge when
due all other Liabilities now or hereafter owed by it; and (f) maintain
appropriate accruals and reserves for all of the foregoing in accordance with
U.S. GAAP. Buyer and each of its Subsidiaries 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.
Section 12.7. Insurance. Buyer and each of its Subsidiaries will keep or
---------
cause to be kept insured by financially sound and reputable insurers its
properties in such forms and amounts and against such risks as are customary for
Persons engaged in the same or similar business of owning and operating similar
properties.
Section 12.8. Compliance with Agreements and Law. Buyer and each of its
----------------------------------
Subsidiaries 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. Buyer and each
of its Subsidiaries will conduct its business and affairs in compliance with all
Applicable Law.
Section 12.9. Charter Amendment Approval. Buyer shall cause Charter
--------------------------
Amendment Approval by September 30, 2000.
42
<PAGE>
ARTICLE XIII
Post Closing Negative Covenants of Buyer
----------------------------------------
To induce Seller to enter into this Agreement, Buyer warrants, covenants
and agrees that, until all of the Preferred Shares have been converted into
Preferred Conversion Shares, it will comply with and observe the following
covenants and provisions, and will cause each Subsidiary to comply with and
observe such of the following covenants and provisions as are applicable to such
Subsidiary:
Section 13.1. Indebtedness. Neither Buyer nor any Subsidiary thereof will
------------
in any manner owe or be liable for Indebtedness except:
(a) the Senior Credit Facility;
(b) the Subordinated Debt;
(c) purchase money Indebtedness and Indebtedness under leases of
Buyer or such Subsidiary as lessee which are capitalized in accordance with U.S.
GAAP, in an aggregate principal amount not to exceed $100,000 at any time,
provided that such purchase money Indebtedness and Indebtedness under capital
leases do not in the aggregate exceed $250,000; and
(d) Old Latex Payables.
Section 13.2. Limitation on Liens. Neither Buyer nor any Subsidiary
-------------------
thereof will create, assume or permit to exist any Lien upon any of the
properties or assets which it now owns or hereafter acquires, except the
following ("Permitted Liens"):
(a) Liens which secure the Senior Credit Facility; and
(b) Statutory Liens for taxes, statutory mechanics' and materialmen's
Liens incurred in the ordinary course of business, and other similar Liens
incurred in the ordinary course of business, provided such Liens do not secure
Indebtedness or secure only Indebtedness which is not delinquent or for which
adequate reserves have been set aside.
Section 13.3. Limitation on Mergers. Except as expressly provided in this
---------------------
Section, neither Buyer nor any Subsidiary thereof will merge or consolidate with
or into any other business entity. Any Subsidiary of Buyer may, however, be
merged into or consolidated with either Buyer or another Subsidiary which is
wholly-owned by Buyer, so long as Buyer or the Subsidiary wholly-owned by Buyer
is the surviving business entity. Buyer will not issue any securities other than
(i) Common Stock (including the shares of Common Stock to be issued upon the
conversion of the Series A Preferred) or (ii) any options or warrants giving
the holders thereof only the right to acquire such shares. No Subsidiary of
Buyer will issue any additional shares of its capital stock or other securities
or any options, warrants or other rights to acquire such additional shares or
43
<PAGE>
other securities except to Buyer or to another Subsidiary. No Subsidiary of
Buyer which is a partnership will allow any diminution of Buyer's interest
(direct or indirect) therein.
Section 13.4. Limitation on Sales of Property. Neither Buyer nor any
-------------------------------
Subsidiary thereof will sell, transfer, lease, exchange, alienate or dispose of
any of its assets or properties except:
(a) equipment which is worthless or obsolete or which is replaced by
equipment of equal suitability and value;
(b) inventory (including oil and gas sold as produced and seismic
data) which is sold in the ordinary course of business on ordinary trade terms;
or
(c) other property which is sold for fair consideration not in the
aggregate in excess of $500,000 in any Fiscal Year (commencing with Fiscal Year
2000).
Section 13.5. Limitation on Investments and New Businesses. Neither Buyer
--------------------------------------------
nor any Subsidiary thereof will make any expenditure or commitment or incur any
obligation or enter into or engage in any transaction except in the ordinary
course of business (which ordinary course of business includes the acquisition,
directly or indirectly, of oil and gas properties), engage directly or
indirectly in any business or conduct any operations except in connection with
or incidental to its present businesses and operations, make any acquisitions of
or capital contributions to or other investments in any Person, other than
Permitted Investments, or make any significant acquisitions or investments in
any properties other than oil and gas properties.
Section 13.6. Transactions with Affiliates. Neither Buyer nor any of its
----------------------------
Subsidiaries will engage in any material 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.
Section 13.7. Restricted Payments. Buyer will not, and will not permit
-------------------
any of its Subsidiaries to, declare or make, or incur any liability to declare
or make, any Restricted Payment.
ARTICLE XIV
Events of Default and Remedies
------------------------------
Section 14.1. Events of Default. If any of the following events ("Events
-----------------
of Default") shall occur and be continuing:
(a) Buyer fails to pay any dividends on the Preferred Shares when due
as required under the terms of the Certificate of Designation;
44
<PAGE>
(b) Buyer fails to redeem the Preferred Shares when due as required
under the terms of the Certificate of Designation;
(c) a default in the performance or observation of any covenant,
agreement or condition contained in (i) Article XII or Article XIII, (ii) the
Organic Documents with respect to the Series A Preferred (exclusive of a
default described in subsection (a) or subsection (b) above, or (iii) any other
Ancillary Document, which default is not remedied within 15 days after the
earlier of (A) the day on which Buyer first obtains knowledge of such default or
(B) the day on which written notice thereof is given to Buyer by any registered
holder of the Preferred Shares;
(d) any representation or warranty previously, presently or hereafter
made in writing by or on behalf of Buyer or any Subsidiary thereof in
connection with this Agreement or any Ancillary Document shall prove to have
been false or incorrect in any material respect on any date on or as of which
made, which default is not remedied within 30 days after the earlier of (i) the
day on which Buyer first obtains knowledge of such default or (ii) the day on
which written notice thereof is given to Buyer by any registered holder of the
Preferred Shares;
(e) Buyer or any Subsidiary fails to duly observe, perform or comply
with any term or condition of any loan document relating to the Senior Credit
Facility, the Subordinated Debt Agreement or any other agreement or instrument
with any Person, if such agreement or instrument is materially significant to
Buyer or such Subsidiary, and such failure is not remedied within the applicable
period of grace (if any) provided in such agreement or instrument (it being
agreed that each of the Other Acquisition Agreements and the Preferred Stock
Purchase Agreement is materially significant to Buyer);
(f) Buyer or any Subsidiary thereof fails to pay any portion, when
such portion is due, of any of its Indebtedness in excess of $100,000 (exclusive
of the Old LaTex Payables), or breaches or defaults in the performance of any
Agreement or instrument by which any such Indebtedness is issued, evidenced,
governed, or secured, and any such failure, breach or default continues beyond
any applicable period of grace provided therefor;
(g) Buyer or any Subsidiary thereof:
(i) suffers the entry against it of a judgment, decree or order
for relief by a tribunal of competent jurisdiction in an involuntary
proceeding commenced under any applicable bankruptcy, insolvency or other
similar Applicable Law of any jurisdiction now or hereafter in effect,
including the United States federal Bankruptcy Code or similar foreign law,
as from time to time amended, or has any such proceeding commenced against
it which remains undismissed for a period of thirty days; or
(ii) commences a voluntary case under any applicable bankruptcy,
insolvency or similar Applicable Law now or hereafter in effect, including
the United States federal Bankruptcy Code or similar foreign law, 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
45
<PAGE>
such Applicable 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 corporate or other action
to authorize any of the foregoing; or
(iii) suffers the appointment of or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator or similar
official of all or a substantial part of its assets in a proceeding brought
against or initiated by it, and such appointment or taking possession is
neither made ineffective nor discharged within thirty days after the making
thereof, or such appointment or taking possession is at any time consented
to, requested by, or acquiesced to by it; or
(iv) suffers the entry against it of a final judgment for the
payment of money in excess of $250,000 (not covered by insurance), 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 tribunal against all or any substantial part of
its assets, and such writ or warrant of attachment or any similar process
is not stayed or released within thirty days after the entry or levy
thereof or after any stay is vacated or set aside;
(h) Any Change in Control occurs; and
(i) Any Material Adverse Effect occurs.
Upon the occurrence of an Event of Default, (x) Seller or any other holder
of the Preferred Shares holding a majority of the Outstanding Common Stock may,
by notice to the Company, request that Buyer redeem all of the Preferred Shares
at a per share purchase price of $50.00 plus all accrued and unpaid dividends
thereon; (y) Seller shall have such rights as provided in the Organic
Documents; and (z) Seller may proceed to protect and enforce its rights by suit
in equity (including a suit for recission), action at law or other appropriate
proceeding either for specific performance of any covenant, provision or
condition contained or incorporated by reference to this Agreement or in aid of
the exercise of any power granted in this Agreement.
Without limiting the rights of the holders of the Series A Preferred, Buyer
and the Subsidiaries hereby agree that the holders of the Series A Preferred
would have no adequate remedy at law, for monetary compensation or otherwise,
for the damages that would be suffered if Buyer or the Subsidiaries were to fail
to comply with its obligations under Article IX, and that Buyer and the
Subsidiaries therefore agree that the holders of the Series A Preferred shall be
entitled to obtain specific performance of Buyer's obligations under this
Agreement.
Section 14.2. Annulment of Defaults. Section 14.1 is subject to the
---------------------
condition that if, at any time after a dividend shall have become due and
payable, and before any judgment or decree
46
<PAGE>
for the payment of the moneys so due, or any thereof, shall have been entered,
then and in every such case Seller may, by written instrument filed with Buyer,
rescind and annul such declaration and its consequences; but no such recission
or annulment shall extend to or affect and subsequent default or Event of
Default or impair any right consequent thereon.
Section 14.3. Expiration. The provisions of Sections 14.1 and 14.2 shall
----------
automatically expire and be of no further force or effect upon such date as all
of the Preferred Shares have been converted into Preferred Conversion Shares.
ARTICLE XV
Notices
-------
All notices, requests, demands, and other communications required or
permitted to be given or made hereunder by any party hereto shall be in writing
and shall be deemed to have been duly given or made if (i) delivered personally,
(ii) transmitted by first class registered or certified mail, postage prepaid,
return receipt requested, (iii) sent by prepaid overnight courier service, or
(iv) sent by telecopy or facsimile transmission, answer back requested, to the
parties at the following addresses (or at such other addresses as shall be
specified by the parties by like notice):
If to Seller: Energy Capital Investment Company PLC
------------
ECIC Corporation
c/o EnCap Investments L.L.C.
1100 Louisiana, Suite 3150
Houston, Texas 77002
Attention: Robert L. Zorich
Fax No.: 713-659-6130
If to Buyer: AROC Inc.
-----------
4200 East Skelly Drive, Suite 1000
Tulsa, Oklahoma 74135
Attention: John A. Keenan
Fax No.: 918-494-4918
with a copy to: Jenkens & Gilchrist, a Professional Corporation
1445 Ross Avenue, Suite 3200
Dallas, Texas 75202
Attention: W. Alan Kailer
Fax No.: 214-855-4300
Such notices, requests, demands, and other communications shall be effective (i)
if delivered personally or sent by courier service, upon actual receipt by the
intended recipient, (ii) if mailed, upon the earlier of five days after deposit
in the mail or the date of delivery as shown by the return
47
<PAGE>
receipt therefor or (iii) if sent by telecopy or facsimile transmission, when
the answer back is received.
ARTICLE XVI
Miscellaneous Matters
---------------------
Section 16.1. Survival of Provisions. All representations and warranties
----------------------
made herein by Buyer and Seller shall be continuing and shall be true and
correct on and as of the date of Closing with the same force and effect as if
made at that time and, except as provided below, all of such representations and
warranties shall survive the Closing and the delivery of the Assignment. The
representations of Seller contained in Section 4.6 (to the extent such
representations relate to the Properties), in Sections 4.7 through 4.20 and in
Section 4.25 shall expire with, and be terminated and extinguished by, the
Closing, and Seller shall have no liability with respect to such representations
and warranties pursuant to this Section 16.1, 16.5 or otherwise. The provisions
of, and the obligations of the parties under, Article IX (to the extent the
same are, by mutual agreement, not performed at Closing), and Articles X through
XVI inclusive shall survive the Closing and the delivery of the Assignment.
Section 16.2. Public Announcements. Except as may be required by
--------------------
Applicable Law, neither Seller, on the one hand, nor Buyer, on the other, shall
issue any press release or otherwise make any public statement with respect to
this Agreement or the transactions contemplated hereby without the prior written
consent of the other party (which consent shall not be unreasonably withheld).
Any such press release or public statement required by Applicable Law shall only
be made after reasonable notice to the other party, and in such case the party
proposing to make such a press release or public statement shall consult with
the other party.
Section 16.3. Fees and Expenses.
-----------------
(a) Except as otherwise expressly provided in this Agreement or as
agreed upon by the parties hereto, all fees and expense, including fees and
expenses of counsel, incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such fee
or expense.
(b) Notwithstanding anything to the contrary herein, since the
transaction contemplated hereby is an isolated transaction, no sales tax will be
collected from Buyer. If, however, this transaction is later deemed to be other
than an occasional sale, Buyer agrees to be solely responsible, and shall
indemnify and hold Seller (and their respective partners, and each of their and
each such partners' parent and subsidiary companies and other affiliates, and
shareholders, managers, owners, directors, officers, employees, consultants, and
agents, respectively) harmless, from any and all sales or transfer taxes or fees
(including related penalty, interest or legal costs) due by virtue of this
transaction on the Interests or Properties transferred pursuant hereto and Buyer
shall remit such sales or transfer taxes at that time. Seller and Buyer
48
<PAGE>
agree to cooperate with each other in demonstrating that the requirements for an
occasional or isolated sale or any other sales tax exemption have been met.
(c) All sales, transfer, filing, recordation, registration, stamp and
similar Taxes and fees arising from or associated with the issue and sale of the
Preferred Shares contemplated hereunder or any transfer hereafter by a
Partnership to Buyer of an interest in the Properties, whether levied on Seller
or Buyer, shall be borne by Buyer, and Buyer shall file all necessary
documentation with respect to, and make all payments of, such Taxes and fees on
a timely basis.
Section 16.4. Costs of Enforcement. If any party hereto is required to
--------------------
take action to enforce its rights under this Agreement, the prevailing party
shall be entitled to its reasonable expenses, including attorneys' fees and
expenses, in connection with any such action.
Section 16.5. Indemnification.
---------------
(a) Subject to the terms and conditions of this Section 16.5, Buyer
shall indemnify, defend and hold harmless Seller from and against any and all
claims, actions, causes of action, demands, assessments, losses, damages,
liabilities, judgments, settlements, penalties, costs and expenses (including
reasonable attorneys' fees and expenses), of any nature (collectively,
"Damages") whatsoever, asserted against, resulting to, imposed upon, or incurred
by Seller, directly or indirectly, by reason of or resulting from any breach by
Buyer of any of its representations, warranties, covenants or agreements
contained in this Agreement or in any certificate, instrument or document
delivered pursuant hereto.
(b) Subject to the terms and conditions of this Section 16.5 (and
Section 16.1), Seller shall indemnify, defend and hold harmless Buyer from and
against any and all Damages, asserted against, resulting to, imposed upon, or
incurred by Buyer, directly or indirectly, by reason of or resulting from any
breach by Seller of any of its representations, warranties, covenants or
agreements contained in this Agreement or in any certificate, instrument or
document delivered pursuant hereto.
(c) Promptly after receipt by an indemnified party under Section
16.5(a) or Section 16.5(b) of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against an
indemnifying party under such Section, give written notice to the indemnifying
party of the commencement thereof , but the failure so to notify the
indemnifying party shall not relieve it of any liability that it may have to any
indemnified party except to the extent the indemnifying party demonstrates that
the defense of such action is prejudiced thereby. In case any such action shall
be brought against an indemnified party and it shall give written notice to the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it may wish, to assume
the defense thereof with counsel reasonably satisfactory to such indemnified
party. If the indemnifying party elects to assume the defense of such action,
the indemnified party shall have the right to employ separate counsel at its own
expense and to participate in the defense thereof. If the indemnifying party
elects not to assume (or fails to assume) the defense of such action, the
49
<PAGE>
indemnified party shall be entitled to assume the defense of such action with
counsel of its own choice, at the expense of the indemnifying party. If the
action is asserted against both the indemnifying party and the indemnified party
and there is a conflict of interests which renders it inappropriate for the same
counsel to represent both the indemnifying party and the indemnified party, the
indemnifying party shall be responsible for paying for separate counsel for the
indemnified party; provided, however, that if there is more than one indemnified
party, the indemnifying party shall not be responsible for paying for more than
one separate firm of attorneys to represent the indemnified parties, regardless
of the number of indemnified parties. If the indemnifying party elects to
assume the defense of such action, (a) no compromise or settlement thereof may
be effected by the indemnifying party without the indemnified party's written
consent (which shall not be unreasonably withheld) unless the sole relief
provided is monetary damages that are paid in full by the indemnifying party and
(b) the indemnifying party shall have no liability with respect to any
compromise or settlement thereof effected without its written consent (which
shall not be unreasonably withheld).
(d) It is the express intention of the parties hereto that each person
------------------------------------------------------------------
to be indemnified pursuant to this Section 16.5 or Article XI shall be
- ----------------------------------------------------------------------
indemnified and held harmless from and against all Damages as to which indemnity
- --------------------------------------------------------------------------------
is provided for under this Section 16.5 or Article XI notwithstanding that any
- ------------------------------------------------------------------------------
such Damages arise out of or result from the ordinary, strict, sole, or
- -----------------------------------------------------------------------
contributory negligence of such person and regardless of whether any other
- --------------------------------------------------------------------------
person (including the other party to this Agreement) is or is not also
- ----------------------------------------------------------------------
negligent.
- ---------
Section 16.6. Waiver and Amendment. No failure or delay (whether by
--------------------
course of conduct or otherwise) by any party hereto in exercising any right,
power or remedy which such holder may have under the Agreement or any of the
Ancillary Documents shall operate as a waiver thereof or of any other right,
power or remedy, nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or of any other right, power or remedy. No
waiver of any provision of this Agreement or any Ancillary 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 waiver,
consent, release, modification or amendment of or supplement to this Agreement
or any of the Ancillary Documents shall be valid or effective against any party
hereto unless the same is in writing and signed by such party.
Section 16.7. Entire Agreement. This Agreement, together with the
----------------
Schedules and other writings referred to herein or delivered pursuant hereto,
constitute the entire agreement between the parties hereto with respect to the
subject matter hereof and supersede all prior agreements and understandings,
both written and oral, between the parties with respect to the subject matter
hereof.
Section 16.8. Binding Effect; Assignment; No Third Party Benefit. This
--------------------------------------------------
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns; provided, however, that prior to
Closing, neither party may assign its rights or
50
<PAGE>
delegate any of its duties and obligations under this Agreement or the Ancillary
Documents without the prior written consent of the other; provided, further,
that after the Closing, Buyer may not assign its rights or delegate any of its
duties and obligations under this Agreement and the Ancillary Documents without
the prior written consent of Seller. Except as expressly provided herein,
nothing in this Agreement, express or implied, is intended to or shall confer
upon any Person other than the parties hereto, and their respective successors
and permitted assigns, any rights, benefits, or remedies of any nature
whatsoever under or by reason of this Agreement.
Section 16.9. Severability. If any provision of this Agreement is held
------------
to be unenforceable, this Agreement shall be considered divisible and such
provision shall be deemed inoperative to the extent it is deemed unenforceable,
and in all other respects this Agreement shall remain in full force and effect;
provided, however, that if any such provision may be made enforceable by
limitation thereof, then such provision shall be deemed to be so limited and
shall be enforceable to the maximum extent permitted by Applicable Law.
Section 16.10. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
-------------
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS,
WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
Section 16.11. Remedies Not Exclusive. The rights and remedies herein
----------------------
provided shall be cumulative and not exclusive of any rights or remedies
provided by law. The rights and remedies of any party based upon, arising out
of, or otherwise in respect of any inaccuracy in or breach of any
representation, warranty, covenant, or agreement contained in this Agreement
shall in no way be limited by the fact that the act, omission, occurrence, or
other state of facts upon which any claim of any such inaccuracy or breach is
based may also be the subject matter of any other representation, warranty,
covenant, or agreement contained in this Agreement (or in any other agreement
between the parties) as to which there is no inaccuracy or breach.
Section 16.12. Further Assurances. From time to time following the
------------------
Closing, at the request of any party hereto and without further consideration,
the other party or parties hereto shall execute and deliver to such requesting
party such instruments and documents and take such other action (but without
incurring any material financial obligation) as such requesting party may
reasonably request in order to consummate more fully and effectively the
transactions contemplated hereby.
Section 16.13. Counterparts. This Agreement may be executed by the
------------
parties hereto in any number of counterparts, each of which shall be deemed an
original, but all of which shall constitute one and the same agreement. Each
counterpart may consist of a number of copies hereof each signed by less than
all, but together signed by all, the parties hereto.
Section 16.14. Injunctive Relief. The parties hereto acknowledge and
-----------------
agree that irreparable damage would occur in the event any of the provisions of
this Agreement were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly
51
<PAGE>
agreed that the parties shall be entitled to an injunction or injunctions to
prevent breaches of the provisions of this Agreement, and shall be entitled to
enforce specifically the provisions of this Agreement, in any court of the
United States or any state thereof having jurisdiction, in addition to any other
remedy to which the parties may be entitled under this Agreement or at law or in
equity.
Section 16.15. Consent to Jurisdiction. Subject to Section 7.5, the
-----------------------
parties hereto hereby irrevocably submit to the jurisdiction of the courts of
the State of Texas and the federal courts of the United States of America
located in Harris County, Texas, and appropriate appellate courts therefrom,
over any dispute arising out of or relating to this Agreement or any of the
transactions contemplated hereby, and each party hereby irrevocably agrees that
all claims in respect of such dispute or proceeding shall be heard and
determined in such courts. Subject to Section 7.5, the parties hereby
irrevocably waive, to the fullest extent permitted by Applicable Law, any
objection which they may now or hereafter have to the laying of venue of any
dispute arising out of or relating to this Agreement or any of the transactions
contemplated hereby brought in such court or any defense of inconvenient forum
for the maintenance of such dispute. Each of the parties hereto agrees that a
judgment in any such dispute may be enforced in other jurisdictions by suit on
the judgment or in any other manner provided by law. This consent to
jurisdiction is being given solely for purposes of this Agreement and is not
intended to, and shall not, confer consent to jurisdiction with respect to any
other dispute in which a party to this Agreement may become involved.
Section 16.16. Payments. All payments to be made hereunder shall be in
--------
lawful money of the United States of America.
Section 16.17. Right to Purchase New Equity Securities. Buyer grants to
---------------------------------------
Seller the same rights as provided to the "Purchasers" under Section 2.03 of the
Preferred Stock Purchase Agreement, and the terms and conditions of such Section
are hereby incorporated herein, mutatis mutandis.
----------------
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
52
<PAGE>
IN WITNESS WHEREOF, this Agreement is executed by the parties hereto on the
date set forth above.
SELLER:
ENERGY CAPITAL INVESTMENT COMPANY PLC
By: ______________________________
Director
ECIC CORPORATION
By: ______________________________
Officer
BUYER:
AROC INC.
By: _________________________________________
Name: Francis M. Munchinski
Title: Vice President
<PAGE>
EXHIBIT 10.3
================================================================================
PURCHASE AND SALE AGREEMENT
Dated: April 30, 2000
By and Between
ENCAP EQUITY 1994 LIMITED PARTNERSHIP, SELLER
and
AROC INC., BUYER
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
Definitions and References........................................... 1
Section 1.1. Certain Defined Terms......................... 1
Section 1.2. Certain Additional Defined Terms.............. 8
Section 1.3. References, Titles and Construction........... 9
ARTICLE II
Interests to be Sold and Purchased................................... 10
ARTICLE III
Purchase Price....................................................... 10
ARTICLE IV
Representations and Warranties of Seller............................. 10
Section 4.1. Organization and Existence.................... 10
Section 4.2. Authority Relative to This Agreement.......... 10
Section 4.3. Valid and Binding Agreement................... 11
Section 4.4. Non-Contravention............................. 11
Section 4.5. Approvals..................................... 11
Section 4.6. Pending Litigation............................ 11
Section 4.7. Basic Documents............................... 11
Section 4.8. Commitments, Abandonments or Proposals....... 12
Section 4.9. Production Sales Contracts.................... 13
Section 4.10. Plugging and Abandonment...................... 13
Section 4.11. Licenses and Permits.......................... 13
Section 4.12. Area of Mutual Interest and Other Agreements;
Tax Partnerships.............................. 13
Section 4.13. Payment of Expenses........................... 13
Section 4.14. Compliance with Laws.......................... 14
Section 4.15. Partnerships; Title to Interests; Partnership
Agreements.................................... 14
Section 4.16. Physical Condition of Facilities.............. 14
Section 4.17. Environmental Matters......................... 14
Section 4.18. Production Data............................... 15
Section 4.19. Ordinary Course Operations.................... 15
Section 4.20. Sale of Production............................ 15
Section 4.21. Brokerage Fees................................ 15
Section 4.22. Bankruptcy.................................... 16
Section 4.23. Full Disclosure............................... 16
Section 4.24. Disclaimer of Warranties...................... 16
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
ARTICLE V
Representations and Warranties of Buyer.............................. 16
Section 5.1. Organization and Existence.................... 16
Section 5.2. Qualification................................. 16
Section 5.3. Charter and Bylaws............................ 16
Section 5.4. Capitalization of Buyer....................... 17
Section 5.5. Authority Relative to This Agreement.......... 17
Section 5.6. No Conflict................................... 17
Section 5.7. Consents and Approvals, Licenses, Etc......... 18
Section 5.8. Subsidiaries.................................. 18
Section 5.9. Preferred Shares; Conversion Shares........... 19
Section 5.10. Financial Statements.......................... 19
Section 5.11. Securities Filings............................ 20
Section 5.12. Absence of Undisclosed Liabilities............ 20
Section 5.13. Absence of Certain Changes.................... 20
Section 5.14. Tax Matters................................... 21
Section 5.15. Environmental and Other Laws.................. 22
Section 5.16. Legal Proceedings............................. 23
Section 5.17. Title to Properties; Permits; Licenses;
Condition of Assets........................... 23
Section 5.18. ERISA......................................... 24
Section 5.19. Agreements.................................... 25
Section 5.20. Labor Disputes and Acts of God................ 27
Section 5.21. Insurance..................................... 27
Section 5.22. Offering of Securities........................ 27
Section 5.23. Government Regulation......................... 27
Section 5.24. Brokerage Fees................................ 27
Section 5.25. Bankruptcy.................................... 28
Section 5.26. Nature of Company Assets...................... 28
Section 5.27. Full Disclosure............................... 28
ARTICLE VI
Certain Covenants of Seller and Buyer Pending Closing................ 28
Section 6.1. Pre-Closing Covenants of Seller............... 28
Section 6.2. Pre-Closing Covenants of Buyer................ 30
Section 6.3. Pre-Closing Covenants of Seller and Buyer..... 32
ARTICLE VII
Due Diligence Examination With Respect to the Properties............. 32
Section 7.1. Inspection and Assertion of Defects........... 32
Section 7.2. Certain Price Adjustments..................... 33
Section 7.3. Waiver........................................ 34
Section 7.4. Casualty Loss................................. 34
Section 7.5. Disputes...................................... 34
ARTICLE VIII
Conditions Precedent to the Obligations of the Parties............... 35
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
Section 8.1. Conditions Precedent to the Obligations
of Buyer...................................... 35
Section 8.2. Conditions Precedent to the Obligations
of Seller..................................... 36
ARTICLE IX
Closing of Transaction............................................... 37
Section 9.1. The Closing................................... 37
Section 9.2. Seller's Closing Obligations.................. 37
Section 9.3. Buyer's Closing Obligations................... 38
Section 9.4. Delivery of Files............................. 38
ARTICLE X
Pre-Closing Termination.............................................. 38
Section 10.1. Termination................................... 38
Section 10.2. Effect of Termination......................... 39
ARTICLE XI
Rights to Distributions, Assumption of Liabilities
and Indemnification.................................................. 39
ARTICLE XII
Affirmative Post Closing Covenants of Buyer.......................... 39
Section 12.1. Inspection Rights............................. 39
Section 12.2. Books, Financial Statements and Reports....... 40
Section 12.3. Notice of Material Events and Change of
Address....................................... 41
Section 12.4. Maintenance of Properties..................... 42
Section 12.5. Maintenance of Existence and Qualifications... 42
Section 12.6. Payment of Trade Liabilities, Taxes, etc...... 42
Section 12.7. Insurance..................................... 42
Section 12.8. Compliance with Agreements and Law............ 42
Section 12.9. Charter Amendment Approval.................... 42
ARTICLE XIII
Post Closing Negative Covenants of Buyer............................. 43
Section 13.1. Indebtedness.................................. 43
Section 13.2. Limitation on Liens........................... 43
Section 13.3. Limitation on Mergers......................... 43
Section 13.4. Limitation on Sales of Property............... 44
Section 13.5. Limitation on Investments and New Businesses.. 44
Section 13.6. Transactions with Affiliates.................. 44
Section 13.7. Restricted Payments........................... 44
ARTICLE XIV
Events of Default and Remedies....................................... 44
Section 14.1. Events of Default............................. 44
Section 14.2. Annulment of Defaults......................... 47
Section 14.3. Expiration.................................... 47
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
ARTICLE XV
Notices.............................................................. 47
ARTICLE XVI
Miscellaneous Matters................................................ 48
Section 16.1. Survival of Provisions........................ 48
Section 16.2. Public Announcements.......................... 48
Section 16.3. Fees and Expenses............................. 48
Section 16.4. Costs of Enforcement.......................... 49
Section 16.5. Indemnification............................... 49
Section 16.6. Waiver and Amendment.......................... 50
Section 16.7. Entire Agreement.............................. 50
Section 16.8. Binding Effect; Assignment; No Third
Party Benefit................................. 51
Section 16.9. Severability.................................. 51
Section 16.10. Governing Law................................. 51
Section 16.11. Remedies Not Exclusive........................ 51
Section 16.12. Further Assurances............................ 51
Section 16.13. Counterparts.................................. 51
Section 16.14. Injunctive Relief............................. 52
Section 16.15. Consent to Jurisdiction....................... 52
Section 16.16. Payments...................................... 52
Section 16.17. Right to Purchase New Equity Securities....... 52
</TABLE>
iv
<PAGE>
PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT dated April 30, 2000, is made by and
between ENCAP EQUITY 1994 LIMITED PARTNERSHIP, a Texas limited partnership
("Seller"), and AROC INC., a Delaware corporation ("Buyer");
W I T N E S S E T H:
--------------------
WHEREAS, Seller desires to sell, assign and convey to Buyer, and Buyer
desires to purchase and accept certain limited partnership interests; and
WHEREAS, Seller and Buyer deem it in their mutual best interests to execute
and deliver this Agreement;
NOW, THEREFORE, in consideration of the foregoing Recitals and the mutual
covenants and agreements contained herein, Seller and Buyer do hereby agree as
follows:
ARTICLE I
Definitions and References
--------------------------
Section 1.1. Certain Defined Terms. When used in this Agreement, the
---------------------
following terms shall have the respective meanings assigned to them in this
Section 1.1 or in the section, subsections or other subdivisions referred to
below:
"Affiliate" means, with respect to any Person, any other Person that,
directly or indirectly, through one or more intermediaries, controls, is
controlled by or is under common control with, such Person. For the purposes of
this definition, "control" when used with respect to any Person means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract, or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Agreement" means this Agreement, as hereafter changed, amended or modified
in accordance with the terms hereof.
"Alliance Group" means Alliance Resources Group, Inc., a Delaware
corporation.
"Alliance PLC" means Alliance Resources PLC, a public limited company
incorporated in England and Wales.
"Alliance USA" means Alliance Resources (USA), Inc., a Delaware
corporation.
<PAGE>
"Ancillary Documents" means each agreement, certificate, document,
commitment and writing (other than this Agreement) executed or to be executed by
Buyer or Seller in connection with the transactions contemplated herein or
therein, including the Assignment.
"Applicable Law" means any statute, law, rule or regulation, or any
judgment, order, writ, injunction or decree of, any Governmental Entity to which
a specified Person or property is subject.
"AROC (Texas)" means AROC (Texas), Inc., a Texas corporation.
"Certificate of Designation" means the document attached hereto as Exhibit
-------
3.1.
- ---
"Change of Control" means the occurrence of any of the following events
after giving effect to the transactions contemplated by this Agreement, the
Other Acquisition Agreements and the Preferred Stock Purchase Agreement: (a) any
Person or two or more Persons, other than Buyer or any affiliate of Buyer,
acting as a group shall acquire beneficial ownership (within the meaning of Rule
13d-3 of the Securities and Exchange Commission under the Exchange Act, and
including holding proxies to vote for the election of directors other than
proxies held by Buyer's management or their designees to be voted in favor of
persons nominated by Buyer's Board of Directors) of 33% or more of the
outstanding voting securities of Buyer, measured by voting power (including both
ordinary shares and any preferred stock or other equity securities entitling the
holders thereof to vote with the holders of common stock in elections for
directors of Buyer.), (b) Buyer shall fail beneficially to own, directly or
indirectly, 100% of the outstanding shares of voting capital stock of Alliance
PLC, Alliance Group, Source, Difco, AROC (Texas), Alliance USA, LPC or GOC, on a
fully diluted basis, (c) one-third or more of the directors of Buyer shall
consist of persons not nominated by Buyer's Board of Directors (not including as
Board nominees any directors which the Board is obligated to nominate pursuant
to shareholders agreements, voting trust arrangements or similar arrangements)
or (d) within three years of the Closing Date, the employment by Buyer of John
Keenan or Paul Fenemore terminates for any reason.
"Charter Amendment Approval" means approval of the increase in authorized
shares of Common Stock of the Company to such level as shall permit the full and
complete conversion of the Preferred Shares into the Preferred Conversion Shares
in accordance with the Certificate of Designation, all in accordance with the
Organic Documents and Applicable Law.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" means common stock, $0.001 par value per share, of Buyer and
any securities issued or issuable with respect to such shares by way of a stock
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization.
"Companies Act" means the Companies Act 1985 as amended.
"Data" has the meaning assigned to it in Schedule 4.7 of the Seller
------------
Disclosure Schedule.
2
<PAGE>
"Default" means an 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.
"Difco" means Difco Limited, a private limited company incorporated under
the laws of England and Wales.
"Environmental Laws" means any and all laws relating to the environment or
to emissions, discharges, releases or threatened releases of pollutants,
contaminants, chemicals, or industrial, toxic or hazardous substances or wastes
into the environment including ambient air, surface water, ground water, or
land, or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling of pollutants,
contaminants, chemicals, or industrial, toxic or hazardous substances or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" means the U.S. Securities Exchange Act of 1934, as amended.
"Fiscal Quarter" means a three-month period ending on July 31, October 31,
January 31 or April 30 of any year.
"Fiscal Year" means the twelve-month period ending on April 30 of any year.
"GOC" means Germany Oil Company, a Delaware corporation.
"Governmental Entity" means any court or tribunal in any jurisdiction
(domestic or foreign) or any federal, state, municipal or other governmental
body, agency, authority, department, commission, board, bureau or
instrumentality (domestic or foreign).
"GP Approval" means, as to a given Partnership, the approval of the general
partner of such Partnership to the assignment by Seller of its respective
Interest in such Partnership to Buyer and the admission of Buyer as a
substituted limited partner of such Partnership in place of Seller.
"Hazardous Materials" means any substance regulated under Environmental
Law, whether as pollutants, contaminants, or chemicals, or as industrial, toxic
or hazardous substances or wastes, or otherwise.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended.
"Indebtedness" of any Person means Liabilities in any of the following
categories: (a) Liabilities for borrowed money; (b) Liabilities constituting an
obligation to pay the deferred purchase price of property or services; (c)
Liabilities evidenced by a bond, debenture, note or similar instrument; (d)
Liabilities which would under U.S. GAAP be shown on such Person's balance sheet
as a liability, and is payable more than one year from the date of creation
thereof (other than reserves
3
<PAGE>
for taxes and reserves for contingent obligations); (e) Liabilities arising
under futures contracts, forward contracts, swap, cap or collar contracts,
option contracts, hedging contracts, other derivative contracts, or similar
agreements; (f) Liabilities constituting principal under leases capitalized in
accordance with U.S. GAAP; (g) Liabilities arising under conditional sales or
other title retention agreements; (h) Liabilities owing under direct or indirect
guaranties of Liabilities of any other Person or constituting obligations to
purchase or acquire or to otherwise protect or insure a creditor against loss in
respect of Liabilities of any other Person (such as obligations under working
capital maintenance agreements, agreements to keep-well, or agreements to
purchase Liabilities, assets, goods, securities or services), but excluding
endorsements in the ordinary course of business of negotiable instruments in the
course of collection; (i) Liabilities (for example, repurchase agreements)
consisting of an obligation to purchase securities or other property, if such
Liabilities arise out of or in connection with the sale of the same or similar
securities or property; (j) Liabilities with respect to letters of credit or
applications or reimbursement agreements therefor; (k) Liabilities with respect
to payments received in consideration of oil, gas, or other minerals yet to be
acquired or produced at the time of payment (including obligations under "take-
or-pay" contracts to deliver gas in return for payments already received and the
undischarged balance of any production payment created by such Person or for the
creation of which such Person directly or indirectly received payment); or (l)
Liabilities with respect to other obligations to deliver goods or services in
consideration of advance payments therefor; provided, however, that the
"Indebtedness" of any Person shall not include Liabilities that were incurred by
such Person on ordinary trade terms to vendors, suppliers, or other Persons
providing goods and services for use by such Person in the ordinary course of
its business, unless and until such Liabilities are outstanding more than 90
days past the original invoice or billing date therefor.
"IRS" means the Internal Revenue Service.
"Key Employment Agreements" means (i) that certain Executive Employment
Agreement dated as of December 8, 1999 between Buyer and John A. Keenan, and
(ii) that certain Service Agreement dated September 20, 1996 between Alliance
PLC and Paul Raymond Fenemore, as amended by Supplemental Agreement dated
September 20, 1996, Second Supplemental Agreement dated December 1, 1998, and
letter agreement dated as of December 8, 1999.
"Liabilities" means, as to any Person, all indebtedness, liabilities and
obligations of such Person, whether matured or unmatured, liquidated or
unliquidated, primary or secondary, direct or absolute, fixed or contingent, and
whether or not required to be considered pursuant to U.S. GAAP.
"Lien" means, with respect to any property or assets, any right or interest
therein of a creditor to secure Liabilities owed to such creditor or any other
arrangement with such creditor which provides for the payment of such
Liabilities out of such property or assets or which allows him to have such
Liabilities satisfied out of such property or assets prior to the general
creditors of any owner thereof, including any lien, mortgage, security interest,
pledge, deposit, production payment, rights of a vendor under any title
retention or conditional sale agreement or lease substantially equivalent
thereto, tax lien, mechanic's or materialman's lien, or any other charge or
encumbrance for security purposes, whether arising by law or agreement or
otherwise, but excluding any right of
4
<PAGE>
offset which arises without agreement in the ordinary course of business. "Lien"
shall also mean 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.
"Listing Rules" means the listing rules of the London Stock Exchange.
"London Stock Exchange" means the London Stock Exchange Limited.
"LPC" means LaTex Petroleum Corporation, an Oklahoma corporation.
"LRI" means LaTex Resources, Inc., a Delaware corporation.
"LRI Merger" means the merger of Alliance Resources (Delaware) Inc. with
and into LRI whereby Alliance PLC became the sole shareholder of LRI.
"Material Adverse Effect" means (a) when used with respect to Buyer, a
material adverse change in, or a material adverse effect upon (i) the business,
assets, results of operations, condition (financial or otherwise) or prospects
of Buyer and its Subsidiaries on a consolidated basis, (ii) Buyer's ability to
timely pay the Obligations or to perform on a timely basis any material
obligation of Buyer under this Agreement or any agreement, instrument, or
document entered into or delivered in connection herewith or (iii) the
enforceability of the material terms of this Agreement or any Ancillary
Document; and (b) when used with respect to Seller, a material adverse change
in, or a material adverse effect upon (i) the Interests or the Properties or
(ii) the enforceability of the material terms of this Agreement or any Ancillary
Document.
"Oil and Gas Properties" has the meaning assigned to it in Schedule 4.7 of
------------
the Seller Disclosure Schedule.
"Old LaTex Payables" means those current accounts payable to Buyer or its
consolidated Subsidiaries that meet one or more of the following tests and have
been certified to Seller by Buyer and applicable Subsidiary as being an Old
LaTex Payable:
(a) accounts payable the collection of which is barred by the
applicable statute of limitations;
(b) accounts payable the collection of which has been compromised or
forgiven in part, in either case to the extent of the amount that has been
compromised or forgiven; or
(c) accounts payable in respect of which the indebtedness was
incurred prior to the LRI Merger and where each of the following is true: (i) no
payment has been made on an individual amount of indebtedness payable since the
LRI Merger, (ii) no contact has been received by Buyer or applicable Subsidiary
from the applicable creditor since the LRI Merger pertaining to
5
<PAGE>
such account or if contact has been received, such account is being diligently
contested in good faith, (iii) no promise to pay such account has been made by
Buyer or applicable Subsidiary since the LRI Merger and (iv) no judgment has
been obtained by, or settlement agreement entered into with, such creditor with
respect to such indebtedness.
"Other Acquisition Agreements" means other agreements or proposed
agreements to which Buyer is a party and disclosed in writing to Seller, whereby
Buyer will issue shares of Series A Preferred, in exchange for limited
partnership interests and interests in oil, gas and mineral properties and
related assets.
"Outstanding Common Stock" means, at any time, the aggregate of all Common
Stock then outstanding, including all shares of Common Stock which could be
acquired from the Company upon exercise or conversion of any outstanding
warrants, options or other securities then exercisable or convertible into
Common Stock.
"Partnership Agreements" means the Agreement of Limited Partnership of each
of the Partnerships, as amended, modified or changed to the date hereof.
"Permits" means licenses, permits, franchises, consents, approvals,
variances, exemptions and other authorizations of or from Governmental Entities.
"Permitted Investment" means any investment, loan, advance, guaranty or
capital contribution by Buyer or any Subsidiary in any of the following: (a)
properties or assets to be used in the ordinary course of business of Buyer and
its Subsidiaries; (b) current assets arising from the sale of goods and services
in the ordinary course of business of Buyer and its Subsidiaries; (c)
investments in one or more of Buyer's Subsidiaries or in any Person that
concurrently with such investment becomes a Subsidiary; (d) any marketable
obligation maturing not later than one year after the date of acquisition
therefor, issued or guaranteed by the United States of America or by any agency
of the United States of America which has the full faith and credit of the
United States of America; (e) commercial paper which is given the highest rating
by a credit rating agency of recognized national standing and maturing not more
than 270 days from the date of creation thereof; and (f) any demand deposit or
time deposit (including certificates of deposit and money market or sweep
accounts) with a commercial bank or trust company organized and doing business
under the laws of the United States of America or any state thereof which has
capital, surplus and undivided profits of at least $250,000,000, provided that
such deposit must be either payable on demand or mature not more than twelve
months from the date of investment therein.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, enterprise, unincorporated organization
or Governmental Entity.
"Preferred Conversion Shares" means the shares of Common Stock issuable
upon conversion of the Preferred Shares.
6
<PAGE>
"Preferred Stock Purchase Agreement" means that certain Preferred Stock
Purchase Agreement dated as of May 1, 2000, by and among Buyer, Bank of America,
N.A., EnCap Equity 1996 Limited Partnership, Energy Capital Investment Company
PLC, El Paso Capital Investments, L.L.C., EF-II Holdings, LLC, Picosa Creek
Limited Partnership and EnCap Investments L.L.C.
"Proceedings" means all proceedings, actions, claims, suits, investigations
and inquiries by or before any arbitrator or Governmental Entity.
"Properties" has the meaning assigned to it in Schedule 4.7 of the Seller
------------
Disclosure Schedule.
"Reasonable best efforts" means a party's reasonable best efforts in
accordance with reasonable commercial practice and without the incurrence of
unreasonable expense.
"Restricted Payment" shall mean any Distribution (as defined below) in
respect of Buyer or any Subsidiary thereof (other than on account of capital
stock or other equity interests of a Subsidiary owned legally or beneficially by
the Seller or another Subsidiary), including any Distribution resulting in the
acquisition by Buyer of securities that would constitute treasury stock. As used
in this definition, "Distribution" shall mean, in respect of any corporation,
partnership or other business entity (a) dividends or other distributions or
payments on capital stock or other equity interest of such corporation,
partnership or other business entity (except distributions in such stock or
other equity interest) and (b) the redemption or acquisition of such stock or
other equity interests or of warrants, rights or other options to purchase such
stock or other equity interests (except when solely in exchange for such stock
or other equity interests); provided, that "Distribution" shall not mean any
dividend or other distribution made, or redemption effected, in accordance with
the terms of the Certificate of Designation.
"Securities Act" means the U.S. Securities Act of 1933, as amended.
"Securities and Exchange Commission" means the U.S. Securities and Exchange
Commission.
"Seller Disclosure Schedule" mean a schedule delivered by Seller to Buyer
which sets forth additional information regarding the representations and
warranties of Seller contained herein and information called for hereby.
"Senior Credit Facility" means that certain Credit Agreement dated as of
May 1, 2000, by and among Buyer, Toronto Dominion (Texas), Inc. as Agent, and
the lenders signatory thereto.
"Series A Preferred" means shares of Buyer's Series A Preferred Stock,
$0.001 par value per share.
"Source" means Source Petroleum, Inc., a Louisiana corporation.
"Subordinated Debt" means that certain Indebtedness of Buyer evidenced by
the Subordinated Debt Agreement.
7
<PAGE>
"Subordinated Debt Agreement" means that certain Purchase Agreement dated
as of May 1, 2000, by and among Buyer, EnCap Equity 1996 Limited Partnership,
Energy Capital Investment Company PLC and El Paso Capital Investments, L.L.C.
"Subsidiary" means any corporation more than 50% of whose outstanding
voting securities, or any general partnership, joint venture or similar entity
more than 50% of whose total equity interests, is owned, directly or indirectly,
by the Buyer, or any limited partnership of which Buyer or any Subsidiary is a
general partner.
"Taxes" means any income taxes or similar assessments or any sales, excise,
occupation, use, ad valorem, property, production, severance, transportation,
employment, payroll, franchise, transfer, stamp, withholding or other tax
imposed by any United States federal, state or local (or any foreign or
provincial) taxing authority, including any interest, penalties or additions
attributable thereto.
"Tax Return" means any return or report (including but not limited to any
related or supporting information, any amended return or report or any
information return or report) with respect to Taxes.
"Treasury Regulations" means one or more treasury regulations promulgated
under the Code by the Treasury Department of the United States.
"U.S. GAAP" means generally accepted accounting principles in the United
States of America from time to time.
Section 1.2. Certain Additional Defined Terms. In addition to such terms
--------------------------------
as are defined in the opening paragraph and in Section 1.1 of this Agreement,
the following terms are used in this Agreement as defined in the Sections set
forth opposite such terms:
Defined Term Section Reference
------------------------------------- -----------------
Asserted Defects..................... 7.1(a)
Assignment........................... 9.2(a)
Audited Financial Statements......... 5.10
Base Purchase Price.................. Article III
Basic Documents...................... 4.7
Closing.............................. 9.1
Closing Date......................... 9.1
Effective Date....................... 9.2(a)
Event of Default..................... 14.1
Financial Statements................. 5.10
Interests............................ Article II
Latest Balance Sheet................. 5.10
Net Title Adjustments................ 7.2(c)
Organic Documents.................... 5.3
Partnerships......................... Article II
8
<PAGE>
Defined Term Section Reference
------------------------------------------ -----------------
Permitted Liens........................... 13.2
Preferred Shares.......................... Article III
Purchase Price............................ Article III
Scheduled Production Sales Contracts...... 4.9
Unaudited Financial Statements............ 5.10
Section 1.3. References, Titles and Construction.
------------------------------------
(a) All references in this Agreement to articles, sections,
subsections and other subdivisions refer to corresponding articles, sections,
subsections and other subdivisions of this Agreement unless expressly provided
otherwise.
(b) Titles appearing at the beginning of any of such subdivisions are
for convenience only and shall not constitute part of such subdivisions and
shall be disregarded in construing the language contained in such subdivisions.
(c) 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.
(d) Words in the singular form shall be construed to include the
plural and vice versa, unless the context otherwise requires. Pronouns in
---- -----
masculine, feminine and neuter genders shall be construed to include any other
gender.
(e) 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 or restatements of such agreement,
instrument or document, provided that nothing contained in this subsection shall
be construed to authorize such renewal, extension, modification, amendment or
restatement.
(f) Examples shall not be construed to limit, expressly or by
implication, the matter they illustrate.
(g) The word "or" is not intended to be exclusive and the word
"includes" and its derivatives means "includes, but is not limited to" and
corresponding derivative expressions.
(h) No consideration shall be given to the fact or presumption that
one party had a greater or lesser hand in drafting this Agreement.
(i) All references herein to "$" or "dollars" shall refer to U.S.
Dollars.
ARTICLE II
9
<PAGE>
Interests to be Sold and Purchased
----------------------------------
Seller agrees to sell, assign and transfer and Buyer agrees to purchase and
accept, for the consideration hereinafter set forth, and subject to the terms
and provisions herein contained, all of Seller's interests as a limited partner
(the "Interests") in the following limited partnerships: (i) RM Acquisition-I
Limited Partnership; (ii) SE Share, L.P.; and (iii) Tanqueray Limited
Partnership (the "Partnerships").
ARTICLE III
Purchase Price
--------------
In consideration of the sale of the Interests by Seller to Buyer, Buyer
shall pay to Seller at Closing an aggregate purchase price (the "Base Purchase
Price") consisting of 135,713 shares of Series A Preferred (the "Preferred
Shares"). The rights, designations, preferences and other terms and conditions
relating to the Preferred Shares shall be as set forth in the Certificate of
Designation attached hereto as Exhibit 3.1. The Base Purchase Price may be
-----------
adjusted as provided in Article VII (the Base Purchase Price, as so adjusted,
and as the same may be otherwise adjusted by the mutual agreement of the
parties, being called the "Purchase Price").
ARTICLE IV
Representations and Warranties of Seller
----------------------------------------
Subject to the Seller Disclosure Schedule, Seller represents and warrants
to Buyer as follows:
Section 4.1. Organization and Existence. Seller is a limited partnership
--------------------------
duly formed and validly existing under the laws of the State of Texas.
Section 4.2. Authority Relative to This Agreement. Seller has full power
------------------------------------
and authority to execute, deliver, and perform this Agreement and the Ancillary
Documents and to consummate the transactions contemplated hereby and thereby.
The execution, delivery, and performance by Seller of this Agreement and the
Ancillary Documents and the consummation by it of the transactions contemplated
hereby and thereby, have been duly authorized by all necessary action of Seller.
Section 4.3. Valid and Binding Agreement. This Agreement has been duly
---------------------------
executed and delivered by Seller and constitutes, and each Ancillary Document
has been, or when executed will be, duly executed and delivered by Seller and
constitutes, or when executed and delivered will constitute, a valid and legally
binding obligation of Seller, enforceable against it in accordance with their
respective terms, except that such enforceability may be limited by (a)
applicable bankruptcy, insolvency, reorganization, moratorium, and similar laws
affecting creditors' rights generally and
10
<PAGE>
(b) equitable principles which may limit the availability of certain equitable
remedies (such as specific performance) in certain instances.
Section 4.4. Non-Contravention. Subject to receipt of GP Approval,
-----------------
neither the execution, delivery, and performance by Seller of this Agreement and
each other agreement, instrument, or document executed or to be executed by
Seller in connection with the transactions contemplated hereby nor the
consummation by it of the transactions contemplated hereby and thereby do and
will (a) conflict with or result in a violation of any provision of the
partnership agreement or other governing instruments of Seller, (b) conflict
with or result in a violation of any provision of, or constitute (with or
without the giving of notice or the passage of time or both) a default under, or
give rise (with or without the giving of notice or the passage of time or both)
to any right of termination, cancellation, or acceleration under, any bond,
debenture, note, mortgage, indenture, lease, contract, agreement, or other
instrument or obligation to which Seller is a party or by which Seller, any of
its properties or the Interests may be bound, (c) result in the creation or
imposition of any lien or other encumbrance upon the properties of Seller or the
Interests, or (d) violate any Applicable Law binding upon Seller.
Section 4.5. Approvals. Other than GP Approval, no consent, approval,
---------
authorization. license, order or permit of, or declaration, filing, or
registration with, any Governmental Entity or any other Person or entity is
required to be obtained or made by Seller in connection with the execution,
delivery, or performance by Seller of this Agreement or any Ancillary Document
and the consummation of the transactions contemplated hereby and thereby.
Section 4.6. Pending Litigation. There are no Proceedings pending, or to
------------------
the best knowledge of Seller, threatened, which affect the Interests or the
Properties (including any actions challenging or pertaining to Seller's title to
the Interests or the Partnership's title to any of their respective Properties),
or affecting the execution and delivery of this Agreement or the consummation of
the transactions contemplated hereby. None of Seller or any of the Interests or,
to the best knowledge of Seller, the Properties is subject to any judgment,
order, writ, injunction, or decree of any Governmental Entity.
Section 4.7. Basic Documents. To Seller's knowledge, the oil, gas and/or
---------------
mineral leases, interests in which comprise parts of the Oil and Gas Properties,
and all other material contracts and agreements, licenses, permits and
easements, rights-of-way and other rights-of-surface use comprising any part of
or otherwise relating to the Properties (such leases and such material
contracts, agreements, licenses, permits, easements, rights-of-way and other
rights-of-surface use, including any amendments or modifications, being herein
called the "Basic Documents"), are in full force and effect and constitute valid
and binding obligations of the parties thereto and are enforceable in accordance
with their respective terms. To the best of Seller's knowledge, all Basic
Documents are disclosed on Schedule 4.7 of the Seller Disclosure Schedule in
------------
connection with the descriptions of the Oil and Gas Properties to which they
relate or otherwise in the Seller Disclosure Schedule. To the best of Seller's
knowledge, no Partnership is in breach or default (and no situation exists which
with the passing of time or giving of notice would create a breach or default)
of its obligations under the Basic Documents to which it is a party or any
regulations incorporated in or governing same, and (to the
11
<PAGE>
best of Seller's knowledge) no breach or default by any third party (or
situation which with the passage of time or giving of notice would create a
breach or default) exists, to the extent such breach or default (whether by a
Partnership or such a third party) could materially adversely affect the
ownership, operation, value or use of any Oil and Gas Property of a Partnership
after the Effective Date. To the best of Seller's knowledge, all payments
(including all delay rentals, royalties, shut-in royalties and valid calls for
payment or prepayment under operating agreements) owing under Basic Documents
have been and are being made (timely, and before the same became delinquent) by
the Partnerships in all material respects (and, where the non-payment of same by
a third party could materially adversely affect the ownership, operation, value
or use of an Oil and Gas Property after the Effective Date, have been and are
being made, to the best knowledge of Seller, by such third parties). For the
purposes of the representations contained in this Section (and without
limitation of such representations), the non-payment of an amount, or non-
performance of an obligation, where such non-payment, or non-performance, could
result in the forfeiture or termination of rights of a Partnership under a Basic
Document, shall be considered material. To the best of Seller's knowledge,
Seller has rights in the Data.
Section 4.8. Commitments, Abandonments or Proposals.
--------------------------------------
(a) Seller has made no commitments to make capital contributions to any of
the Partnerships after the Effective Date.
(b) To the best knowledge of Seller: (i) no Partnership has incurred any
expenses, and has made any commitments to make expenditures, in connection with
(and no other obligations or liabilities have been incurred which would
adversely affect) the ownership or operation of such Partnership's Oil and Gas
Properties after the Effective Date, other than routine expenses incurred in the
normal operation of existing wells; (b) no Partnership has abandoned, nor
entered into any agreements or arrangements to abandon, any wells (or removed
any material items of equipment, except those replaced by items of equal
suitability and value) on such Partnership's Oil and Gas Properties since the
Effective Date; and (c) no proposals are currently outstanding (whether made by
a Partnership or by any other party) to drill additional wells, or to deepen,
plug back, or rework existing wells, or to conduct other operations for which
consent is required under the applicable operating agreement, or to conduct any
other operations other than normal operation of existing wells on the
Properties, or to abandon any wells, on the Oil and Gas Properties. To the best
knowledge of Seller, there are no operations involving any of the Oil and Gas
Properties with respect to which a Partnership has become a non-consenting
party.
Section 4.9. Production Sales Contracts. To the best knowledge of
--------------------------
Seller, there exist no agreements or arrangements for the sale of production
from the Oil and Gas Properties (including without limitation, calls on, or
other rights to purchase, production, whether or not the same are currently
being exercised) other than (a) production sales contracts (in this Section, the
"Scheduled Production Sales Contracts") disclosed in Section 4.9 of the Seller
Disclosure Schedule or (b) agreements or arrangements which are cancelable on 60
days notice or less without penalty or detriment. To the best knowledge of
Seller, each Partnership is presently receiving a price for all production from
(or attributable to) such Partnership's Oil and Gas Properties covered by a
12
<PAGE>
Scheduled Production Sales Contract as computed in accordance with the terms of
such contract, and is not having deliveries of gas from any Property subject to
a Scheduled Production Sale Contract curtailed substantially below such
Property's delivery capacity. To the best knowledge of Seller, there are no
prepayments, advance payments, take-or-pay payments or similar payments
affecting the Oil and Gas Properties.
Section 4.10. Plugging and Abandonment. To the best knowledge of Seller,
------------------------
there are no dry holes, or shut in or otherwise inactive wells, located on the
Oil and Gas Properties or on lands pooled or unitized therewith (including any
wells which would, if located in Texas, require compliance with Railroad
Commission Rule 14(b)(2)), except for wells that have been properly plugged and
abandoned, and except for wells drilled to depths not included within the Oil
and Gas Properties or within units in which the Oil and Gas Properties
participate which have never been completed in such depths.
Section 4.11. Licenses and Permits. To the best knowledge of Seller, (i)
--------------------
each Partnership has all Permits necessary or appropriate to own and operate the
Oil and Gas Properties as presently being owned and operated by such
Partnership, (ii) such Permits are in full force and effect, and (iii) the
Partnerships have not received written notice of any violations in respect of
any such Permits.
Section 4.12. Area of Mutual Interest and Other Agreements; Tax
-------------------------------------------------
Partnerships. To the best knowledge of Seller: (i) no Oil and Gas Property is
- ------------
subject to (or has related to it) any area of mutual interest agreements; (ii)
no Oil and Gas Property is subject to (or has related to it) any farm-out or
farm-in agreement under which any party thereto is entitled to receive
assignments not yet made, or could earn additional assignments after the
Effective Date; and (iii) no Oil and Gas Property is subject to (or has related
to it) any tax partnership.
Section 4.13. Payment of Expenses. To the best knowledge of Seller, all
-------------------
expenses (including all bills for labor, materials and supplies used or
furnished for use in connection with the Properties, and all severance,
production, ad valorem, windfall profit and other similar taxes) and liabilities
relating to the ownership or operation of the Properties, have been, and are
being, paid (timely, and before the same become delinquent) by the Partnership
that owns such Properties.
Section 4.14. Compliance with Laws. To the best knowledge of Seller, the
--------------------
ownership and operation of Properties, to the extent that non-conformance could
adversely affect the ownership, operation, value or use thereof after the
Effective Date (or otherwise affect Buyer), has been in conformity, in all
material respects, with all Applicable Laws, except for such non-compliance
which would not have a Material Adverse Effect.
Section 4.15. Partnerships; Title to Interests; Partnership Agreements.
--------------------------------------------------------
(a) Each Partnership has been duly formed and is validly existing under
the laws of the State of Texas.
13
<PAGE>
(b) Seller has good and marketable title to the Interests, free and clear
of all Liens and other encumbrances, save and except for the Partnership
Agreements.
(c) Each Partnership Agreement is in full force and effect and constitutes
the valid and binding obligation of the parties thereto and is enforceable in
accordance with its respective terms, except that such enforceability may be
limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium,
and similar laws affecting creditors' rights generally and (ii) equitable
principles which may limit the availability of certain equitable remedies (such
as specific performance) in certain instances. Seller is not in breach or
default (and no situation exists which with the passing of time or giving of
notice would create a breach or default) of its obligations under any
Partnership Agreement and (to the best of Seller's knowledge) no breach or
default by any other party to any Partnership Agreement (or situation which with
the passage of time or giving of notice would create a breach or default)
exists, to the extent such breach or default (whether by Seller or such other
party) could materially adversely affect the ownership or value of any Interest
after the Effective Date.
Section 4.16. Physical Condition of Facilities. To the best of Seller's
--------------------------------
knowledge, the surface physical facilities on the Oil and Gas Properties have
been maintained in accordance with normal industry maintenance practices and are
in a state of repair (normal wear and tear excepted) that Seller believes to be
adequate for the normal use of such facilities in the ordinary conduct of the
business of Seller. Without limiting the foregoing, but subject to ordinary
wear and tear, to the best of Seller's knowledge, such facilities are not in
need of maintenance or improvements except for maintenance and improvements in
the ordinary course in accordance with normal industry practice.
Section 4.17. Environmental Matters. To the best knowledge of Seller: (i)
---------------------
each Partnership is in material compliance with all applicable federal, state,
local and foreign laws, regulations, rules, orders, decrees, treaties, judicial
decisions, judgments, injunctions, permits and governmental restrictions
relating to pollution or protection of human health or the environment
(including ambient air, surface water, ground water, land surface or subsurface
strata) (collectively "Environmental Laws"), except for such non-compliance as
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect, and there are no circumstances that are reasonably
likely to materially prevent or interfere with such compliance in the next three
years, and (ii) no Partnership has received written notice of or is the subject
of, any actions, causes of action, claims, investigations, demands, notices,
requests for information, complaints, suits or proceedings by any Person
alleging liability under or non-compliance with any Environmental Law that are
reasonably likely, individually or in the aggregate, to have a Material Adverse
Effect. Buyer acknowledges that this Section 4.17 is the exclusive
representation and warranty made by Seller in this Agreement with respect to
applicable Environmental Laws and no other representation and warranty in this
Agreement shall be deemed to cover such matters.
Section 4.18. Production Data. Seller has provided to representatives of
---------------
Buyer aggregate production data on the Properties and data on lease operating
expenses incurred on the Properties. To the best knowledge of Seller, all of
such data is accurate and complete in all material respects as of the date
provided.
14
<PAGE>
Section 4.19. Ordinary Course Operations. To the best of Seller's
--------------------------
knowledge, since January 1, 2000, (i) no Partnership has operated or in any
manner dealt with, incurred obligations with respect to, or undertaken any
transactions relating to, the Properties of such Partnership other than in the
ordinary course of business consistent with past practice and (ii) none of the
Properties has suffered any material destruction, damage, or loss (except
depreciation of equipment through ordinary wear and tear) or been subjected by
any Partnership to any mortgage, lien, encumbrance, claim, or security interest
that has not previously been disclosed to representatives of Buyer or that would
constitute a Material Adverse Effect.
Section 4.20. Sale of Production. To the best of Seller's knowledge, except
------------------
as described in Section 4.20 of the Seller Disclosure Schedule there is no well
on the Properties with respect to which any Partnership and its predecessors in
title to the Properties have collectively taken more (referred to herein as
"overproduced") or less (referred to herein as "underproduced") production from
such well than the ownership of such Partnership and such predecessors would
entitle such Partnership and such predecessors (absent any gas balancing
agreement or arrangement) to receive. To the best of Seller's knowledge, the
overproduced and underproduced positions disclosed on Section 4.20 of the Seller
Disclosure Schedule are, in each case, materially accurate as of the dates shown
on such schedule.
Section 4.21. Brokerage Fees. Neither Seller nor any of its affiliates has
--------------
retained any financial advisor, broker, agent or finder or paid or agreed to pay
any financial advisor, broker, agent or finder on account of this Agreement or
any transaction contemplated hereby, which action would subject Buyer or any of
its affiliates to any liability. Seller shall indemnify and hold harmless Buyer
from and against any and all losses, claims, damages and liabilities (including
legal and other expenses reasonably incurred in connection with investigating or
defending any claims or actions) with respect to any finder's fee, brokerage
commission or similar payment in connection with any transaction contemplated
hereby asserted by any Person on the basis of any act or statement made or
alleged to have been made by Seller or any of its affiliates.
Section 4.22. Bankruptcy. There are no bankruptcy, reorganization or
----------
arrangement proceedings pending, being contemplated by, or to the knowledge of
Seller, threatened against Seller.
Section 4.23. Full Disclosure. No representation or warranty made by Seller
---------------
in this Agreement, and no statement of Seller contained in any document,
certificate or other writing furnished or to be furnished by Seller or its
representatives to Buyer pursuant hereto or in connection herewith, contains or
will contain, at the time of delivery, any untrue statement of a material fact
or omits or will omit, at the time of delivery, to state any material fact
(other than industry-wide risks normally associated with the type of business
conducted by Seller) necessary to make the statements contained therein, in
light of the circumstances in which they are made, not misleading. There is no
fact known to Seller (other than industry-wide risks normally associated with
the type of business conducted by Seller) that has not been disclosed to Buyer
in writing which Seller reasonably anticipates would result in a Material
Adverse Effect.
15
<PAGE>
Section 4.24. Disclaimer of Warranties. Other than those expressly set
------------------------
out in this Article IV, Seller hereby expressly disclaims any and all
representations or warranties with respect to the Interests, the Partnerships
and the Properties or the transaction contemplated hereby, and Buyer agrees that
the Interests are being sold by Seller "where is" and "as is". Specifically as a
part of (but not in limitation of) the foregoing, Buyer acknowledges that Seller
has not made, and Seller hereby expressly disclaims, any representation or
warranty (express, implied, under common law, by statute or otherwise) as to (a)
the condition of the Properties (INCLUDING WITHOUT LIMITATION, SELLER DISCLAIMS
ANY IMPLIED OR EXPRESS WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR
PURPOSE, OR CONFORMITY TO MODELS OR SAMPLES OF MATERIALS), (b) the status of
title to the Properties or (c) as the extent of oil, gas or other mineral
reserves, the recoverability of or the cost of recovering any such reserves, the
value of such reserves, prices (or anticipated prices) at which production will
be sold and the ability to sell oil or gas production from the Properties.
ARTICLE V
Representations and Warranties of Buyer
---------------------------------------
Section 5.1. Organization and Existence. Buyer is a corporation duly
--------------------------
organized and validly existing under the laws of Delaware.
Section 5.2. Qualification. Each of Buyer and the Subsidiaries is duly
-------------
qualified or licensed to do business and, with respect to non-U.K. entities, in
good standing in each of the jurisdictions in which it owns, leases or operates
property or in which such qualification or licensing is required for the conduct
of its business.
Section 5.3. Charter and Bylaws. Buyer has made available to Seller
------------------
accurate and complete copies of Buyer's certificate of incorporation and bylaws
("Organic Documents") as currently in effect, and stock records of Buyer.
Neither Buyer nor any Subsidiary is in violation of its Organic Documents or its
partnership agreement or similar governing document, as the case may be.
Section 5.4. Capitalization of Buyer. Subject to Schedule 5.4, the
----------------------- ------------
authorized capital stock of Buyer, the number of shares outstanding and the
number of shares held in Buyer's treasury are set forth on Schedule 5.4 hereto.
------------
All outstanding shares of capital stock of Buyer have been validly issued and
are fully paid and nonassessable, and no shares of capital stock of Buyer are
subject to, nor have any been issued in violation of, preemptive or similar
rights. Except as set forth on Schedule 5.4 hereto, there are (and as of the
------------
Closing Date there will be) outstanding (i) no shares of capital stock or other
voting securities of Buyer, (ii) no securities of Buyer convertible into or
exchangeable for shares of capital stock or other voting securities of Buyer,
(iii) no options or other rights to acquire from Buyer, and no obligation of
Buyer to issue or sell, any shares of capital stock or other voting securities
of Buyer or any securities of Buyer convertible into or exchangeable for such
capital stock or voting securities, and (iv) no equity equivalents, interests in
the ownership or earnings or other similar rights of or with respect to Buyer.
There are (and as of the Closing Date
16
<PAGE>
there will be) no outstanding obligations of Buyer or any Subsidiary to
repurchase, redeem, or otherwise acquire any of the foregoing shares,
securities, options, equity equivalents, interests, or rights. Except as set
forth on Schedule 5.4, Buyer is not a party to, and is not aware of, any voting
-------------
agreement, voting trust, or similar agreement or arrangement relating to any
class or series of its capital stock.
Section 5.5. Authority Relative to This Agreement. Subject to Charter
------------------------------------
Amendment Approval as it pertains to Buyer's ability to permit the full
conversion of the Preferred Shares into the Preferred Conversion Shares, Buyer
has full power and authority to execute, deliver, and perform this Agreement and
the Ancillary Documents to which it is a party and to consummate the
transactions contemplated hereby and thereby. The execution, delivery, and
performance by Buyer of this Agreement and the Ancillary Documents to which it
is a party, and the consummation by it of the transactions contemplated hereby
and thereby, have been duly authorized by all necessary action of Buyer. This
Agreement has been duly executed and delivered by Buyer and constitutes, and
each Ancillary Document executed or to be executed by Buyer has been, or when
executed will be, duly executed and delivered by Buyer and constitutes, or when
executed and delivered will constitute, a valid and legally binding obligation
of Buyer, enforceable against Buyer in accordance with their respective terms,
except that such enforceability may be limited by (i) applicable bankruptcy,
insolvency, reorganization, moratorium, and similar laws affecting creditors'
rights generally and (ii) equitable principles which may limit the availability
of certain equitable remedies (such as specific performance) in certain
instances.
Section 5.6. No Conflict. Assuming all consents, approvals,
-----------
authorizations and other actions described in Section 5.7 have been obtained and
all filings and notifications listed on Schedule 5.7 have been made and except
------------
as described on Schedule 5.6, the execution, delivery and performance of this
------------
Agreement by Buyer, the execution, delivery and performance by each Subsidiary
of the Ancillary Documents to which it is a party, and the consummation by them
of the transactions contemplated hereby and thereby do not and will not (a)
violate or conflict with the Organic Documents of Buyer or any Subsidiary,
subject to Charter Amendment Approval as it pertains to Buyer's ability to
permit the full conversion of the Preferred Shares into Preferred Conversion
Shares, (b) conflict with or result in any violation of any provision of, or
constitute (with or without the giving of notice or the passage of time or both)
a default under, or give rise (with or without the giving of notice or the
passage of time or both) to any right of termination, cancellation, or
acceleration under, or require any consent, approval, authorization or waiver
of, or notice to, any party to, any bond, debenture, note, mortgage, indenture,
lease, contract, agreement, or other instrument or obligation to which Buyer or
any Subsidiary is a party or by which Buyer or any Subsidiary or any of their
respective properties may be bound or any Permit held by Buyer or any
Subsidiary, (iii) result in the creation or imposition of any Lien upon the
properties of Buyer or any Subsidiary (other than as provided in the Senior
Credit Facility) or (iv) violate any Applicable Law binding upon Buyer or any
Subsidiary.
Section 5.7. Consents and Approvals, Licenses, Etc. Except as set forth
--------------------------------------
on Schedule 5.7, no consent, approval, authorization, license, order or permit
------------
of, or declaration, filing or registration with, or notification to, any
Governmental Entity, or any other Person or entity, is
17
<PAGE>
required to be made or obtained by Buyer or any Subsidiary in connection with
the execution, delivery and performance of this Agreement or any Ancillary
Document and the consummation of the transactions contemplated hereby and
thereby.
Section 5.8. Subsidiaries.
------------
(a) Buyer does not own, directly or indirectly, any capital stock or
equity securities of any corporation or have any direct or indirect equity or
ownership interest in any other Person, other than the Subsidiaries. Schedule
--------
5.8 lists each Subsidiary, the jurisdiction of incorporation or formation of
- ---
each Subsidiary and the authorized (in the case of capital stock) and
outstanding capital stock or other equity interests of each Subsidiary. Each
U.K. Subsidiary is duly formed and validly existing under the laws of the
jurisdiction of its formation, and each other Subsidiary is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation. Each Subsidiary has all requisite corporate
or other, as applicable, power and authority to own, lease, and operate its
properties and to carry on its business as now being conducted. No actions or
proceedings to dissolve any Subsidiary are pending.
(b) Except as otherwise indicated on Schedule 5.8, all the
------------
outstanding capital stock or other equity interests of each Subsidiary are owned
directly or indirectly by Buyer, free and clear of all Liens. All outstanding
shares of capital stock of each corporate Subsidiary have been validly issued
and are fully paid and nonassessable. All equity interests of each other
Subsidiary have been validly issued and are fully paid (to the extent required
at such time). No shares of capital stock or other equity interests of any
Subsidiary are subject to, nor have any been issued in violation of, preemptive
or similar rights.
(c) Except as set forth on Schedule 5.8, there are (and as of the
------------
Closing Date there will be) outstanding (i) no shares of capital stock or other
voting securities of any Subsidiary, (ii) no securities of Buyer or any
Subsidiary convertible into or exchangeable for shares of capital stock or other
voting securities of any Subsidiary, (iii) no options or other rights to acquire
from Buyer or any Subsidiary, and no obligation of Buyer or any Subsidiary to
issue or sell, any shares of capital stock or other voting securities of any
Subsidiary or any securities convertible into or exchangeable for such capital
stock or voting securities and (iv) no equity equivalents, interests in the
ownership or earnings, or other similar rights of or with respect to any
Subsidiary. There are (and as of the Closing Date there will be) no outstanding
obligations of Buyer or any Subsidiary to repurchase, redeem or otherwise
acquire any of the foregoing shares, securities, options, equity equivalents,
interests or rights.
Section 5.9. Preferred Shares; Conversion Shares.
-----------------------------------
(a) The Preferred Shares, when issued under the terms of this Agreement,
will be duly authorized, validly issued and fully paid and nonassessable.
Subject to Charter Amendment Approval as it pertains to Buyer's ability to
permit the full conversion of the Preferred Shares into the Preferred Conversion
Shares, the Preferred Conversion Shares, when issued against payment of the
conversion price for such shares, will be duly authorized, validly issued and
fully paid and nonassessable.
18
<PAGE>
(b) Subject to Charter Amendment Approval as it pertains to Buyer's
ability to permit the full conversion of the Preferred Shares into the Preferred
Conversion Shares, sufficient shares of authorized but unissued Common Stock of
Buyer will have been reserved by appropriate action in connection with the
Preferred Conversion Shares.
(c) Neither the issuance of the Preferred Shares, nor the issuance of
shares of Common Stock upon the conversion of the Preferred Shares, is subject
to any unwaived preemptive or other similar statutory or contractual rights or
will conflict with any provision of any agreement or instrument to which the
Company or any Subsidiary is a party or by which it is bound.
Section 5.10. Financial Statements. Buyer has delivered to Seller accurate
--------------------
and complete copies of (i) Alliance PLC's audited consolidated balance sheet as
of April 30, 1999, and the related audited consolidated statements of income,
stockholders' equity and cash flows for the year then ended, and the notes and
schedules thereto, together with the unqualified report thereon of KPMG Audit
Plc, independent public accountants (the "Audited Financial Statements") and
(ii) Buyer's unaudited consolidated balance sheet as of January 31, 2000 (the
"Latest Balance Sheet"), and the related unaudited consolidated statements of
income, stockholders' equity, and cash flows for the three-month period then
ended (the "Unaudited Financial Statements"), certified by Buyer's chief
financial officer (collectively, the "Financial Statements"). The Financial
Statements (i) represent actual bona fide transactions, (ii) have been prepared
from the books and records of Alliance PLC and Buyer and their respective
consolidated Subsidiaries in conformity with U.S. GAAP accounting principles
applied on a basis consistent with preceding years throughout the periods
involved and (iii) fairly present Alliance PLC's and Buyer's (as applicable)
consolidated financial position as of the respective dates thereof and Alliance
PLC's and Buyer's (as applicable) consolidated results of operations and cash
flows for the periods then ended. The statements of income included in the
Financial Statements do not contain any items of special or nonrecurring income
except as identified in the notes thereto, and the balance sheets included in
the Financial Statements do not reflect any write-up or revaluation increasing
the book value of any assets, nor have there been any transactions since the
date of the Latest Balance Sheet giving rise to special or nonrecurring income
or any such write-up or revaluation.
Section 5.11. Securities Filings. Buyer and its Subsidiaries has filed
------------------
with the Securities and Exchange Commission, the London Stock Exchange and the
Registrar of Companies all forms, reports, schedules, statements and other
documents required to be filed by them since May 1, 1997 under the Companies Act
and the Listing Rules and since April 30, 1997 under the Securities Act, the
Exchange Act and all other federal securities laws. All final forms, reports,
schedules, statements and other documents (including all amendments thereto)
filed by Buyer and its Subsidiaries with the Securities and Exchange Commission
and the London Stock Exchange since such date are herein collectively referred
to as the "SEC Filings". Buyer has delivered or made available to Seller
accurate and complete copies of all the SEC Filings in the form filed by Buyer
and its Subsidiaries with the Securities and Exchange Commission and the London
Stock Exchange. The SEC Filings, at the time filed, complied in all material
respects with all applicable requirements of federal securities laws. None of
the SEC Filings, including any financial statements or schedules included
therein, at the time filed, contained any untrue statement of a material fact or
omitted to state any material fact required
19
<PAGE>
to be stated therein or necessary in order to make the statements contained
therein, in light of the circumstances under which they were made, not
misleading. All material contracts of Buyer and the Subsidiaries have been
included in the SEC Filings, except for those contracts not required to be filed
pursuant to the rules and regulations of the Securities and Exchange Commission
and the London Stock Exchange. Buyer shall deliver to Seller as soon as they
become available accurate and complete copies of all forms, reports, and other
documents furnished by it to its shareholders generally or filed by it with the
Securities and Exchange Commission and the London Stock Exchange subsequent to
the date hereof and prior to the Closing Date.
Section 5.12. Absence of Undisclosed Liabilities. Neither Buyer nor any
----------------------------------
Subsidiary has any liability or obligation (whether accrued, absolute,
contingent, unliquidated, or otherwise, whether or not known to Buyer or any
Subsidiary, and whether due or to become due), except (i) liabilities reflected
on the Latest Balance Sheet, (ii) liabilities which have arisen since the date
of the Latest Balance Sheet in the ordinary course of business (none of which is
a material liability for breach of contract, breach of warranty, tort, or
infringement), (iii) liabilities arising under executory contracts entered into
in the ordinary course of business (none of which is a material liability for
breach of contract) and (iv) liabilities specifically set forth on Schedule
--------
5.12.
- ----
Section 5.13. Absence of Certain Changes. Except as disclosed on Schedule
-------------------------- --------
5.13, since the date of the Latest Balance Sheet, (i) there has not been any
- ----
material adverse change in, or any event or condition that might reasonably be
expected to result in a material adverse change in, the business assets, results
of operations, condition (financial or otherwise) or prospects of Buyer and the
Subsidiaries considered as a whole; (ii) the businesses of Buyer and the
Subsidiaries have been conducted only in the ordinary course consistent with
past practice; (iii) neither Buyer nor any Subsidiary has incurred any material
liability, engaged in any material transaction or entered into any material
agreement outside the ordinary course of business consistent with past practice;
(iv) neither Buyer nor any Subsidiary has suffered any material loss, damage,
destruction, or other casualty to any of its assets (whether or not covered by
insurance); and (v) neither Buyer nor any Subsidiary has taken any of the
actions set forth in Section 6.2 except as permitted thereunder.
Section 5.14. Tax Matters. Except as disclosed on Schedule 5.14:
----------- -------------
(a) Buyer and each Subsidiary has filed, or has had filed on its
behalf, in a timely manner (within any applicable extension periods) with the
appropriate taxing authority all Tax Returns with respect to Taxes of Buyer and
of each of the Subsidiaries, all of which Tax Returns are true, correct and
complete in all material respects;
(b) All Taxes due and payable (whether or not reflected in Tax
Returns as filed) with respect to all taxable periods of Buyer and the
Subsidiaries have been paid in full or adequate reserves have been provided for
on the Financial Statements;
(c) There are no outstanding agreements or waivers extending the
statutory period of limitations applicable to any federal, state, local or
foreign income or other material Tax Returns required to be filed by or with
respect to Buyer or any of the Subsidiaries;
20
<PAGE>
(d) None of the Tax Returns of or with respect to Buyer or any of the
Subsidiaries is currently being audited or examined by any taxing authority;
(e) No material deficiency for any Taxes has been assessed with
respect Buyer or to any of the Subsidiaries that has not either (i) been abated
or (ii) paid in full or for which adequate reserves have been provided;
(f) No Tax litigation is currently pending;
(g) No waiver or extension of any statute of limitations to any
federal, state, local or foreign Tax matter has been given by or requested from
Buyer or any Subsidiary; and
(h) Neither Buyer nor any Subsidiary has filed a consent under
Section 341(f) of the Code.
(i) Buyer and the Subsidiaries have complied with all Applicable Laws
relating to the withholding of Taxes and the payment thereof (including
withholding of Taxes under Sections 1441 and 1442 of the Code, or similar
provisions under foreign laws), and has timely and properly withheld from the
appropriate party and paid over to the proper Governmental Entity all amounts
required to be withheld and be paid over under Applicable Law.
(j) Neither Buyer nor any Subsidiary is required to include in income
any adjustment under Section 481(a) of the Code by reason of a change in
accounting method, and neither Buyer nor any Subsidiary, nor the Internal
Revenue Service, has proposed any such adjustment or change in accounting
method. Buyer and the Subsidiaries do not have pending any private letter
ruling with the IRS.
(k) Other than as a result of this transaction, none of Buyer's or
any Subsidiary's tax attributes is subject to the limitations of Section 382,
383 or 384 of the Code or Temporary Treasury Regulation Sections 1.1502-15T or
1.1502-21T(c).
(l) There are no liens for Taxes upon any assets of Buyer or any
Subsidiary, except liens for Taxes not yet due and payable.
(m) The tax basis of each of the assets of Buyer and the Subsidiaries
as set forth on the books, accounts and records of Buyer and the Subsidiaries is
true, correct and complete in all material respects.
Section 5.15. Environmental and Other Laws. Except as disclosed on
----------------------------
Schedule 5.15 or in the SEC Filings filed prior to the date hereof, (a) Buyer
- -------------
and the Subsidiaries are conducting their businesses in compliance in all
material respects with all Applicable Laws, including all Environmental Laws,
and are in material compliance with all licenses and permits required under any
such laws; (b) to the best of Buyer's knowledge, none of the operations or
properties of Buyer or any Subsidiary is the subject of foreign, federal, state
or local investigation evaluating whether any material remedial
21
<PAGE>
action is needed to respond to a release of any Hazardous Materials into the
environment or to the improper storage or disposal (including storage or
disposal at offsite locations) of any Hazardous Materials; (c) neither Buyer nor
any Subsidiary has filed any notice under any Applicable Law indicating that it
is responsible for the improper release into the environment, or the improper
storage or disposal, of any material amount of any Hazardous Materials or that
any Hazardous Materials have been improperly released, or are improperly stored
or disposed of, upon any property of Buyer or any Subsidiary; (d) neither Buyer
nor any Subsidiary has transported or arranged for the transportation of any
Hazardous Material to any location which is (i) listed on the National
Priorities List under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, listed for possible inclusion on such
National Priorities List by the Environmental Protection Agency in its
Comprehensive Environmental Response, Compensation and Liability Information
System List, or listed on any similar state list or foreign jurisdiction list or
(ii) the subject of foreign, federal, state or local enforcement actions or
other investigations which may lead to material claims against Buyer or any
Subsidiary for clean-up costs, remedial work, damages to natural resources or
for personal injury claims (whether under Environmental Laws or otherwise); and
(e) to the best of Buyer's knowledge, neither Buyer or any Subsidiary has any
material contingent liability under any Environmental Laws or in connection with
the release into the environment, or the storage or disposal, of any Hazardous
Materials.
Section 5.16. Legal Proceedings. Except as disclosed on Schedule 5.16,
----------------- -------------
there are no Proceedings pending or, to the best knowledge of Buyer, threatened
against or involving Buyer or any Subsidiary (or any of their respective
directors or officers in connection with the business or affairs of Buyer or any
Subsidiary) or any properties or rights of Buyer or any Subsidiary which,
individually or in the aggregate, might reasonably be expected to have a
Material Adverse Effect. Neither Buyer nor any Subsidiary is subject to any
judgment, order, writ, injunction, or decree of any Governmental Entity which
has had or is reasonably likely to have a Material Adverse Effect. There are no
Proceedings pending or, to the best knowledge of Buyer, threatened seeking to
restrain, prohibit, or obtain damages or other relief in connection with, or
questioning the legality or validity of, this Agreement or any Ancillary
Document or the transactions contemplated hereby or thereby.
Section 5.17. Title to Properties; Permits; Licenses; Condition of Assets.
-----------------------------------------------------------
(a) Each of Buyer and the Subsidiaries has good and defensible title
to all of its material properties and assets, free and clear of all Liens other
than Permitted Liens and of all material impediments to the use of such
properties and assets in the businesses of Buyer and the Subsidiaries.
(b) Each of Buyer and the Subsidiaries holds all material Permits
necessary or required for the conduct of its business. Each of such Permits is
in full force and effect, Buyer and the Subsidiaries are in compliance with all
of its material obligations with respect thereto, and, to the best knowledge of
Buyer, no event has occurred which allows, or with or without the giving of
notice or the passage of time or both would allow, the revocation or termination
of any thereof. No notice has been issued by any Governmental Entity and no
proceeding is pending or, to the best knowledge of Buyer, threatened with
respect to any alleged failure by Buyer or any Subsidiary to have any material
Permit.
22
<PAGE>
(c) Buyer and the Subsidiaries possess all licenses, permits,
franchises, patents, copyrights, trademarks and trade names, and other
intellectual property (or otherwise possesses the right to use such intellectual
property without violation of the rights of any other Person) which are
necessary to carry out their businesses as presently conducted and as presently
proposed to be conducted hereafter, and neither Buyer nor any Subsidiary is in
violation in any material respect of the terms under which it possesses such
intellectual property or the right to use such intellectual property.
(d) The equipment and other tangible assets of Buyer and the
Subsidiaries are in good operating condition (except for reasonable wear and
tear), and have been reasonably maintained.
Section 5.18. ERISA.
-----
(a) Set forth on Schedule 5.18 is a list identifying each "employee
-------------
benefit plan", as defined in Section 3(3) of ERISA, (i) which is subject to any
provision of ERISA, (ii) which is maintained, administered, or contributed to by
Buyer or any affiliate of Buyer, and (iii) which covers any employee or former
employee of Buyer or any affiliate of Buyer or under which Buyer or any
affiliate of Buyer has any liability. Buyer has delivered or made available to
Seller accurate and complete copies of such plans (and, if applicable, the
related trust agreements) and all amendments thereto and written interpretations
thereof, together with (i) the three most recent annual reports (Form 5500
including, if applicable, Schedule B thereto) prepared in connection with any
such plan and (ii) the most recent actuarial valuation report prepared in
connection with any such plan. Such plans are referred to in this Section as the
"Employee Plans". For purposes of this Section only, an "affiliate" of any
person means any other person which, together with such person, would be treated
as a single employer under Section 414 of the Code. The only Employee Plans
which individually or collectively would constitute an "employee pension benefit
plan" as defined in Section 3(2) of ERISA are identified as such on Schedule
--------
5.18.
- ----
(b) Except as otherwise identified on Schedule 5.18, (i) no Employee
-------------
Plan constitutes a "multiemployer plan", as defined in Section 3(37) of ERISA
(for purposes of this Section, a "Multiemployer Plan"), (ii) no Employee Plan is
maintained in connection with any trust described in Section 501(c)(9) of the
Code, (iii) no Employee Plan is subject to Title IV of ERISA or to the minimum
funding standards of ERISA and the Code, and (iv) during the past five years,
neither Buyer nor any of its affiliates have made or been required to make
contributions to any Multiemployer Plan. There are no accumulated funding
deficiencies as defined in Section 412 of the Code (whether or not waived) with
respect to any Employee Plan. The fair market value of the assets held with
respect to each Employee Plan which is an employee pension benefit plan, as
defined in Section 3(2) of ERISA, exceeds the actuarially determined present
value of all benefit liabilities accrued under such Employee Plan (whether or
not vested) determined using reasonable actuarial assumptions. Neither Buyer
nor any affiliate of Buyer has incurred any material liability under Title IV of
ERISA arising in connection with the termination of, or complete or partial
withdrawal from, any plan covered or previously covered by Title IV of ERISA.
Buyer and all of the affiliates of Buyer have paid and discharged promptly when
due all liabilities and obligations arising under
23
<PAGE>
ERISA or the Code of a character which if unpaid or unperformed might result in
the imposition of a lien against any of the assets of Buyer or any Subsidiary.
Nothing done or omitted to be done and no transaction or holding of any asset
under or in connection with any Employee Plan has or will make Buyer or any
Subsidiary or any director or officer of Buyer or any Subsidiary subject to any
liability under Title I of ERISA or liable for any Tax pursuant to Section 4975
of the Code that could have a Material Adverse Effect. There are no threatened
or pending claims by or on behalf of the Employee Plans, or by any participant
therein, alleging a breach or breaches of fiduciary duties or violations of
Applicable Laws which could result in liability on the part of Buyer, its
officers or directors, or such Employee Plans, under ERISA or any other
Applicable Law and there is no basis for any such claim.
(c) Each Employee Plan which is intended to be qualified under
Section 401(a) of the Code is so qualified and has been so qualified since the
date of its adoption, and each trust forming a part thereof is exempt from Tax
pursuant to Section 501(a) of the Code. Set forth on Schedule 5.18 is a list of
-------------
the most recent IRS determination letters with respect to any such Plans,
accurate and complete copies of which letters have been delivered or made
available to Buyer. Each Employee Plan has been maintained in compliance with
its terms and with the requirements prescribed by all Applicable Laws, including
but not limited to ERISA and the Code, which are applicable to such Employee
Plans.
(d) Set forth on Schedule 5.18 is a list of each employment,
-------------
severance, or other similar contract, arrangement, or policy and each plan or
arrangement (written or oral) providing for insurance coverage (including any
self-insured arrangements), workers' compensation, disability benefits,
supplemental unemployment benefits, vacation benefits, retirement benefits,
deferred compensation, profit-sharing, bonuses, stock options, stock
appreciation rights, or other forms of incentive compensation or post-retirement
insurance, compensation, or benefits which (i) is not an Employee Plan, (ii) is
entered into, maintained, or contributed to, as the case may be, by Buyer or any
affiliate of Buyer, and (iii) covers any employee or former employee of Buyer or
any affiliate of Buyer or under which Buyer or any affiliate of Buyer has any
liability. Such contracts, plans, and arrangements as are described in the
preceding sentence are referred to for purposes of this Section as the "Benefit
Arrangements". Each Benefit Arrangement has been maintained in substantial
compliance with its terms and with the requirements prescribed by Applicable
Laws.
(e) Neither Buyer nor any affiliate of Buyer has performed any act or
failed to perform any act, and there is no contract, agreement, plan, or
arrangement covering any employee or former employee of Buyer or any affiliate
of Buyer, that, individually or collectively, could give rise to the payment of
any amount that would not be deductible pursuant to the terms of Section
162(a)(1) or 280G of the Code, or could give rise to any penalty or excise Tax
pursuant to Section 4980B or 4999 of the Code.
Section 5.19. Agreements.
----------
(a) Set forth on Schedule 5.19 is a list of all the following
-------------
agreements, arrangements, and understandings (written or oral, formal or
informal) (collectively, for purposes of
24
<PAGE>
this Section, "agreements") to which Buyer or any Subsidiary is a party or by
which Buyer or any Subsidiary or any of their respective properties is otherwise
bound:
(i) collective bargaining agreements and similar agreements
with employees as a group;
(ii) agreements with any current or former shareholder,
director, officer, employee, consultant or advisor or any affiliate of any
such Person;
(iii) agreements between or among Buyer and any of the
Subsidiaries;
(iv) exclusive of those relating to the Senior Credit Facility,
indentures, mortgages, security agreements, notes, loan or credit
agreements, or other agreements relating to the borrowing of money by Buyer
or any Subsidiary or to the direct or indirect guarantee or assumption by
Buyer or any Subsidiary of any obligation of others, including any
agreement that has the economic effect although not the legal form of any
of the foregoing;
(v) agreements relating to the acquisition or disposition of
assets, other than those entered into in the ordinary course of business
consistent with past practice;
(vi) agreements relating to the acquisition or disposition of
any interest in any business enterprise;
(vii) exclusive of oil, gas and mineral leases, agreements with
respect to the lease of real or personal property;
(viii) exclusive of oil and gas operating or similar agreements,
agreements concerning the management or operation of any real property;
(ix) partnership, joint venture, and profit sharing agreements;
(x) agreements with any Governmental Entity;
(xi) agreements relating to the release or disposal of
Hazardous Material;
(xii) agreements containing any covenant limiting the freedom of
Buyer or any Subsidiary to engage in any line of business or compete with
any other Person in any geographic area or during any period of time, other
than those that would not have a Material Adverse Effect;
(xiii) agreements not made in the ordinary course of business;
and
25
<PAGE>
(xiv) other agreements, whether or not made in the ordinary
course of business, that are material to the business, assets, results of
operations, condition (financial or otherwise), or prospects of Buyer and
the Subsidiaries considered as a whole.
(b) Buyer has delivered or made available to Seller accurate and
complete copies of the agreements listed in Schedule 5.19. Each of such
-------------
agreements is a valid and binding agreement of Buyer and the Subsidiaries (to
the extent each is a party thereto) and (to the best knowledge of Buyer) the
other party or parties thereto, enforceable against Buyer and the Subsidiaries
(to the extent each is a party thereto) and (to the best knowledge of Buyer)
such other party or parties in accordance with its terms. Neither Buyer nor any
Subsidiary is in breach of or in default under, nor has any event occurred which
(with or without the giving of notice or the passage of time or both) would
constitute a default by Buyer or any Subsidiary under, any of such agreements,
and neither Buyer nor any Subsidiary has received any notice from, or given any
notice to, any other party indicating that Buyer or any Subsidiary is in breach
of or in default under any of such agreements. To the best knowledge of Buyer,
no other party to any of such agreements is in breach of or in default under
such agreements, nor has any assertion been made by Buyer or any Subsidiary of
any such breach or default.
(c) Neither Buyer nor any Subsidiary has received notice of any plan
or intention of any other party to any agreement to exercise any right of offset
with respect to, or any right to cancel or terminate, any agreement, and neither
Buyer nor any Subsidiary knows of any fact or circumstance that would justify
the exercise by any such other party of such a right other than the automatic
termination of such agreement in accordance with its terms. Neither Buyer nor
any Subsidiary currently contemplates, or has reason to believe any other Person
currently contemplates, any amendment or change to any agreement, which
amendment or change could have a Material Adverse Effect.
(d) Without limiting the generality of the other provisions in this
Section 5.19, the Key Employment Agreements are in full force and effect, and
each of John Keenan and Paul Fenemore is currently employed by Buyer pursuant to
a renewal term under such agreements.
Section 5.20. Labor Disputes and Acts of God. Neither the business nor the
------------------------------
properties of Buyer nor any Subsidiary has been affected by any fire, explosion,
accident, strike, lockout or other labor dispute, drought, storm, hail,
earthquake, embargo, act of God or of the public enemy or other casualty
(whether or not covered by insurance), which, individually or in the aggregate,
could cause a Material Adverse Effect.
Section 5.21. Insurance. The Company and each Subsidiary carries insurance
---------
covering its properties and business adequate and customary for the type and
scope of its properties and business.
Section 5.22. Offering of Securities. All securities which have been
----------------------
offered or sold by Buyer and it Subsidiaries have been registered pursuant to
the Securities Act and applicable foreign and state securities laws or were
offered and sold pursuant to valid exemptions therefrom.
26
<PAGE>
Section 5.23. Government Regulation. Buyer is not subject to regulation
---------------------
under the Public Utility Holding Company Act of 1935. Buyer is not an
"investment company" or a company "controlled" by an "investment company" within
the meaning of the Investment Company Act of 1940, as amended, or an "investment
advisor" within the meaning of the Investment Advisers Act of 1940, as amended.
Section 5.24. Brokerage Fees. Neither Buyer nor any of its affiliates has
--------------
retained any financial advisor, broker, agent or finder or paid or agreed to pay
any financial advisor, broker, agent or finder on account of this Agreement or
any transaction contemplated hereby, which action would subject Seller or any of
its affiliates to any liability. Buyer shall indemnify and hold harmless Seller
from and against any and all losses, claims, damages and liabilities (including
legal and other expenses reasonably incurred in connection with investigating or
defending any claims or actions) with respect to any finder's fee, brokerage
commission or similar payment in connection with any transaction contemplated
hereby asserted by any Person on the basis of any act or statement made or
alleged to have been made by Buyer or any of its affiliates.
Section 5.25. Bankruptcy. There are no bankruptcy, reorganization or
----------
arrangement proceedings pending, being contemplated by, or to the knowledge of
Seller, threatened against Seller.
Section 5.26. Nature of Company Assets. The assets of the Buyer and its
------------------------
Subsidiaries consist solely of (a) reserves of oil, rights to reserves of oil
and associated exploration and production assets with a fair market value not
exceeding $500,000,000 and (b) other assets with a fair market value not
exceeding $15,000,000. For purposes of this Section 5.26, the term "associated
exploration and production assets" shall have the meaning ascribed thereto in
Section 802.3 of the Rules promulgated pursuant to the HSR Act.
Section 5.27. Full Disclosure. No representation or warranty made by
---------------
Buyer in this Agreement, and no statement of Buyer contained in any document,
certificate or other writing furnished or to be furnished by Buyer or its
representatives to Seller pursuant hereto or in connection herewith, contains or
will contain, at the time of delivery, any untrue statement of a material fact
or omits or will omit, at the time of delivery, to state any material fact
(other than industry-wide risks normally associated with the type of business
conducted by Buyer) necessary to make the statements contained therein, in light
of the circumstances in which they are made, not misleading. There is no fact
known to Buyer (other than industry-wide risks normally associated with the type
of business conducted by Buyer) that has not been disclosed to Seller in writing
which Buyer reasonably anticipates would result in a Material Adverse Effect.
27
<PAGE>
ARTICLE VI
Certain Covenants of Seller and Buyer Pending Closing
-----------------------------------------------------
Section 6.1. Pre-Closing Covenants of Seller.
-------------------------------
(a) From the date hereof until Closing, Seller will use its
reasonable best efforts to give Buyer, and its attorneys and other
representatives, access at all reasonable times to the Properties and to any
contract files, lease or other title files, production files, well files and
other files of Seller pertaining to the ownership and/or operation by the
Partnerships of the Properties, and Seller will use its reasonable best efforts
to arrange for Buyer, and its attorneys and other representatives, to have
access to any such files. Seller shall not be obligated to provide Buyer with
access to any records or data which Seller or any Partnership cannot provide to
Buyer without, in its opinion, breaching confidentiality agreements with other
parties.
(b) Seller will use its reasonable best efforts to cause the
Partnerships to (i) continue the routine operation of the Properties in the
ordinary course of business and as would a prudent operator, (ii) operate the
Properties in conformity (in all material respects) with all applicable laws,
and all applicable rules, regulations and orders of all governmental agencies
having jurisdiction, and in conformity with all oil, gas and/or mineral leases,
and in conformity (in all material respects) with all Basic Documents other than
such leases, and (iii) fulfill all obligations (including without limitation all
obligations to make payments under leases or other Basic Documents) under such
leases, and (in all material respects) under such other Basic Documents and (in
all material respects) under such laws, rules, regulations and orders (without
limitation of the foregoing, the failure to perform an obligation, when such
failure could result in forfeiture or termination of rights of a Partnership
under a Basic Document, shall be considered material).
(c) Seller will not, without Buyer's prior consent:
(i) agree to make any new capital contributions to any
Partnership in connection with the ownership of the Interests;
(ii) to the extent of its rights under the Partnership
Agreements, propose the drilling of any additional wells, or propose the
deepening, plugging back or reworking of any existing wells, or propose the
conducting of any other operations which require consent under the
applicable operating agreement, or propose the conducting of any other
operations other than the normal operation of the existing wells on the Oil
and Gas Properties, or propose the abandonment of any wells on the Oil and
Gas Properties (and Seller agrees that it will advise Buyer of any such
proposals made by a general partner of a Partnership or (to the extent it
has knowledge) any third party and will respond to each such proposal in
the manner requested by Buyer);
(iii) to the extent of its rights under the Partnership
Agreements, consent to the sale, transfer or abandonment of any portion of
the Properties other than items of
28
<PAGE>
materials, supplies, machinery, equipment, improvements or other personal
property or fixtures forming a part of the Properties (and then only if the
same is replaced with an item of equal suitability and value free of liens
and security interests, which replacement item will then, for the purposes
of this Agreement, become part of the Properties); or
(iv) agree to any amendment, modification or change to any
Partnership Agreement or waive any rights, duties or obligations of any
general partner of the Partnerships.
Notwithstanding the foregoing or anything else herein to the contrary, it is
acknowledged and agreed that Seller either has or will, prior to Closing,
execute and deliver an agreement to liquidate and dissolve Tanqueray Limited
Partnership, substantially in the form of the instrument heretofore provided to
Buyer in all material respects, and that such execution and delivery will not be
deemed a breach by Seller of any covenant and agreement contained in this
Section 6.1 or elsewhere herein.
Section 6.2. Pre-Closing Covenants of Buyer.
------------------------------
(a) During the period from the date hereof to the Closing, Buyer covenants
and agrees with Seller that Buyer and its Subsidiaries (i) shall each conduct
its operations according to its ordinary course of business consistent with past
practice and in compliance with Applicable Laws; (ii) shall each use its
reasonable best efforts to preserve, maintain and protect its properties; and
(iii) shall each use its reasonable best efforts to preserve intact its business
organization, to keep available the services of its officers and employees and
to maintain existing relationships with suppliers, operators, customers and
others having business relationships with it.
(b) During the period from the date hereof to the Closing, neither Buyer
nor any Subsidiary shall without the prior written consent of Seller:
(i) amend its Organic Documents or other governing instruments;
(ii) (A) issue, sell, or deliver (whether through the issuance
or granting of options, warrants, commitments, subscriptions, rights to
purchase or otherwise) any shares of its capital stock of any class or any
other securities or equity equivalents, exclusive of any shares issued
pursuant to options, warrants, commitments, subscriptions, rights to
purchase or otherwise existing on the date hereof); or (B) amend in any
respect any of the terms of any such securities outstanding as of the date
hereof;
(iii) (A) split, combine, or reclassify any shares of its capital
stock; or (B) adopt a plan of complete or partial liquidation or
resolutions providing for or authorizing a liquidation or dissolution of
Buyer or any Subsidiary;
(iv) except as provided in subsection (c) below, make any loans,
advances, or capital contributions to, or investments in, any other Person
(other than customary loans or advances to employees in amounts not
material to the maker of such loan or advance);
29
<PAGE>
(v) (A) enter into, adopt, or (except as may be required by
law) amend or terminate any bonus, profit sharing, compensation, severance,
termination, stock option, stock appreciation right, restricted stock,
performance unit, stock equivalent, stock purchase, pension, retirement,
deferred compensation, employment, severance or other employee benefit
agreement, trust, plan, fund or other arrangement for the benefit or
welfare of any director, officer or employee; (B) except for normal
increases in the ordinary course of business consistent with past practice
that, in the aggregate, do not result in a material increase in benefits or
compensation expense to Buyer, increase in any manner the compensation or
fringe benefits of any director, officer or employee; or (C) pay to any
director, officer or employee any benefit not required by any employee
benefit agreement, trust, plan, fund or other arrangement as in effect on
the date hereof;
(vi) make any capital expenditure or expenditures which,
individually, is in excess of $100,000 or, in the aggregate, are in excess
of $250,000;
(vii) amend any Tax Return or make any Tax election or settle or
compromise any federal, state, local, or foreign Tax liability material to
Buyer and the Subsidiaries considered as a whole;
(viii) pay, discharge, or satisfy any claims, liabilities, or
obligations (whether accrued, absolute, contingent, unliquidated, or
otherwise, and whether asserted or unasserted), other than the payment,
discharge, or satisfaction in the ordinary course of business consistent
with past practice, or in accordance with their terms, of liabilities
reflected or reserved against in the Financial Statements or incurred since
the date of the Latest Balance Sheet in the ordinary course of business
consistent with past practice; provided, however, that in no event shall
Buyer or any Subsidiary repay any long-term indebtedness except to the
extent required by the terms thereof;
(ix) take any action which would or might make any of the
representations or warranties of Buyer contained in this Agreement untrue
or inaccurate as of any time from the date of this Agreement to the Closing
or would or might result in any of the conditions set forth in this
Agreement not being satisfied; or
(x) authorize or propose, or agree in writing or otherwise to
take, any of the actions described in this Section.
(c) Notwithstanding anything in this Section 6.2 to the contrary, it
is expressly agreed that the execution and delivery by Buyer of (i) the Other
Acquisition Agreements, (ii) the Preferred Stock Purchase Agreement, (iii) the
Senior Credit Facility and (iv) the Subordinated Debt Agreement, and the
consummation of the respective transactions contemplated thereunder will not be
deemed to be a breach by Buyer of any covenant and agreement contained in this
Section 6.2 or elsewhere herein.
30
<PAGE>
(d) Between the date hereof and the Closing, Buyer (i) shall give
Seller and its authorized representatives reasonable access, during regular
business hours, to all employees, all plants, offices, warehouses, and other
facilities, and all books and records, including work papers and other materials
prepared by Buyer's independent public accountants, of Buyer and the
Subsidiaries, (ii) shall permit Seller and its authorized representatives to
make such inspections as they may reasonably require and (iii) shall cause
Buyer's officers and those of the Subsidiaries to furnish Seller and its
authorized representatives with such financial and operating data and other
information with respect to Buyer and the Subsidiaries as Seller may from time
to time reasonably request; provided, however, that Buyer shall have the right
to have a representative present at all times of any such inspections,
interviews and examinations conducted at or on the offices or other facilities
or properties of Buyer or its affiliates or representatives.
Section 6.3. Pre-Closing Covenants of Seller and Buyer. Each party hereto
-----------------------------------------
agrees that it will not voluntarily undertake any course of action inconsistent
with the provisions or intent of this Agreement and will use its reasonable best
efforts to take, or cause to be taken, all action and to do, or cause to be
done, all things reasonably necessary, proper or advisable under Applicable Law
to consummate the transactions contemplated by this Agreement.
ARTICLE VII
Due Diligence Examination With Respect to the Properties
--------------------------------------------------------
Section 7.1. Inspection and Assertion of Defects.
-----------------------------------
(a) Buyer may, to the extent it deems appropriate, conduct, at its
sole cost, such title examination or investigation as it may choose to conduct
with respect to the Properties. Should, as a result of such examination and
investigation, or otherwise, matters come to Buyer's attention which would
constitute "Defects" (as below defined), and should there be one or more of such
Defects which Buyer determines it is unwilling to waive and close the
transaction contemplated hereby notwithstanding the fact that such Defects
exist, Buyer shall notify Seller in writing of such Defects as soon as they are
identified by Buyer, but in no event later than two business days prior to
Closing. Such Defects of which Buyer so provides notice are herein called
"Asserted Defects." All Defects with respect to which Buyer fails to so give
Seller notice will be deemed waived for all purposes. In the event that Buyer
notifies Seller of Asserted Defects, Seller shall have the right (but not the
obligation) to attempt to cure, prior to Closing, such Asserted Defects to the
reasonable satisfaction of Buyer (exclusive of a Defect in subsection (b)(iii)
below.
(b) The term "Defect" as used in this Section shall mean the
following:
(i) A Partnership's ownership of its Oil and Gas Properties is
such that, with respect to a well listed in Section 7.1(b)(i) of the Seller
Disclosure Schedule for such Partnership, it (A) entitles such Partnership
to receive a percentage share of the oil, gas and other hydrocarbons
produced from, or allocated to, such well which is less than the
31
<PAGE>
percentage share set forth in Section 7.1(b)(i) of the Seller Disclosure
Schedule in connection with such well in the column headed "NRI" or (B)
causes the Partnership to be obligated to bear a percentage share of the
cost of operation of such well greater than the percentage share set forth
in Section 7.1(b)(i) of the Seller Disclosure Schedule in connection with
such well in the column headed "WI" (unless the share of production from
such well to which such Partnership is entitled is proportionately larger
than the "NRI" shown for such well in Section 7.1(b)(i) of the Seller
Disclosure Schedule); or
(ii) A Partnership's ownership of an Oil and Gas Property is
subject to a lien other than (A) a lien for taxes not yet delinquent, or
(B) a mechanic's or materialmen's lien (or other similar lien), or a lien
under an operating agreement or similar agreement, to the extent the same
relates to expenses incurred which are not yet due; or
(iii) A Partnership's ownership of an Oil and Gas Property is
subject to an imperfection in title which, if asserted, would cause a
Defect, as defined in clause (i) above, to exist, and such imperfection in
title is not such as would normally be waived by persons engaged in the oil
and gas business who are purchasing producing properties.
Section 7.2. Certain Price Adjustments.
-------------------------
(a) In the event that, as a part of the due diligence review provided
for in Section 7.1 above, Asserted Defects are presented to Seller and Seller is
unable (or unwilling) to cure such Asserted Defects, or in the event that Buyer
has elected to treat an Oil and Gas Property affected by a casualty loss as if
it was an Oil and Gas Property affected by an Asserted Defect (as provided in
Section 7.4), then Buyer and Seller shall, with respect to each Oil and Gas
Property affected by one or more Asserted Defects, attempt in good faith to
agree upon an appropriate adjustment to the Purchase Price to account for such
Asserted Defects. Notwithstanding the foregoing or anything herein to the
contrary, Seller may elect to specify as an appropriate adjustment to the
Purchase Price for a Defect of the type specified in Section 7.1(b)(ii), the
------------------
amount required to discharge the lien.
(b) Should Seller determine (or should Buyer, in the course of its
due diligence review contemplated by Section 7.1, determine) that the ownership
of Properties by a Partnership entitles such Partnership to a share of the
production from a well listed in Section 7.1(b)(i) of the Seller Disclosure
Schedule greater than the share shown for such well under the column headed
"NRI" on Schedule 7.1(b)(i) of the Seller Disclosure Schedule, then Seller may
propose an upward adjustment to the Base Purchase Price to account for such
fact, in which case such adjustment shall be handled in a similar manner as
provided above with respect to adjustments for Asserted Defects; provided that
the party making such determination shall notify the other party no later than
ten business days prior to the Closing.
(c) If the Net Title Adjustments (as defined below) do not exceed
$100,000, then the Base Purchase Price shall not be adjusted. If the Net Title
Adjustments do exceed $100,000, the Base Purchase Price shall be adjusted as
provided in subsection (d) or subsection (e) below by the
32
<PAGE>
amount by which the Net Title Adjustments exceed $100,000. As used in this
subsection (c), the term "Net Title Adjustments" means the net amount of the
adjustments to the Base Purchase Price resulting from the procedures provided
for above or Section 7.5 and attributable to any of the Defects referenced in
subsections (i) through (iv) of Section 7.1(b).
(d) Any reduction to the Base Purchase Price under subsection (c)
shall be effected by a decrease in the number of Preferred Shares equal to A
minus B, where "A" equals the number of shares of Buyer's Series A Convertible
Preferred Stock specified in Article III, where "B" equals C divided by D, where
"C" equals the Net Title Adjustments minus $100,000, and where "D" equals
$50.00.
(e) Any increase in the Base Purchase Price under subsection (c)
shall be effected by an increase in the number of Preferred Shares equal to A
plus B, with "A" and "B" being determined as provided in subsection (d) above.
Section 7.3. Waiver. Without limiting Section 7.1 and notwithstanding
------
anything else herein to the contrary, all Defects not raised by Buyer within the
time period specified in Section 7.1 shall be waived by Buyer for all purposes,
and Buyer shall have no right to seek an adjustment to the Purchase Price, make
a claim against Seller or seek indemnification from Seller with respect thereto.
Section 7.4. Casualty Loss. In the event of damage by fire or other
-------------
casualty to the Properties after the Effective Date and prior to the Closing,
then this Agreement shall remain in full force and effect, and (unless Buyer and
Seller shall otherwise agree) in such event as to each such Property so damaged
which is an Oil and Gas Property, such Property shall be treated as if it had an
Asserted Defect associated with it and the procedure provided for in this
Article VII shall be applicable thereto.
Section 7.5. Disputes. In the event Buyer and Seller are unable to agree
--------
prior to the Closing upon the existence of one or more Defects affecting an Oil
and Gas Property or one or more adjustments claimed by Buyer or Seller pursuant
to this Article VII as it relates to an Oil and Gas Property, any such dispute
(a "Disputed Claim") shall be settled pursuant to this Section 7.5 and shall not
prevent or delay the Closing. At Closing, the Purchase Price shall not be
adjusted on account of and no effect shall be given to the Disputed Claim.
Either Buyer or Seller shall have the right to submit the Disputed Claim to
final and binding arbitration in accordance with the Commercial Arbitration
Rules of the American Arbitration Association (the "AAA Rules"). Buyer and
Seller shall endeavor to select three neutral arbitrators by mutual agreement.
If such agreement cannot be reached within 30 calendar days after the Closing,
each party shall select its own neutral arbitrator within 15 days of the
expiration of such 30-day period and the two neutral arbitrators so selected
shall select a third neutral arbitrator within 10 days of the expiration of such
15-day period. If they fail to do so, either arbitrator or Buyer or Seller may
request the judge of the United States District Court for the Southern District
of Texas having greatest tenure, but not yet on retired or senior status, to
appoint a third neutral arbitrator. The three persons thus selected shall be
the arbitrators for such arbitration. Each arbitrator must be experienced in
and knowledgeable about the oil and gas exploration business and third
arbitrator shall be required to meet the qualification requirements of
33
<PAGE>
the AAA Rules, whether appointed by the arbitrators or by the judge as provided
above. The board of arbitrators may in all matters act through a majority of its
members on each Disputed Claim if unanimity is not attained. The award as to any
Disputed Claim shall be made within 30 days following the close of the final
hearing and the filing of any post hearing briefs authorized by the
arbitrator(s) in respect of such claim. The award of the arbitrator shall be
final and binding on the parties hereto and the subject matter. Judgment upon
the award rendered by the arbitrator(s) may be entered by any court having
jurisdiction. The place of arbitration shall be in Houston, Texas. The amount of
any reduction in the Purchase Price to which Buyer becomes entitled under the
final and binding decision of the arbitrators shall be effected in a manner
similar to that set forth in Section 7.2(d). Each party shall be entitled to
inspect and obtain a copy of relevant documents in the possession or control of
the other party and to take depositions of the other parties' employees, agents,
representatives and witnesses (including expert witnesses). All such discovery
shall be in accordance with procedures approved by the arbitrators. Unless
otherwise provided in the award, each party shall bear its own costs of
discovery. All discovery shall be expedited, consistent with the nature and
complexity of the Disputed Claim and consistent with fairness and justice. The
arbitrators shall have the power to compel any party to comply with discovery
requests of the other parties and to issue binding orders relating to any
discovery dispute which shall be enforceable in the same manner as awards. The
arbitrators also shall have the power to impose sanctions for abuse or
frustration of the arbitration process, including without limitation, the
refusal to comply with orders of the arbitrators relating to discovery and
compliance with subpoenas. Each of the parties hereto hereby irrevocably submits
to the jurisdiction of the courts of the State of Texas for entry of any
arbitration decision or to obtain any preliminary relief which may be necessary
and hereby consents to the enforcement by such courts of any award rendered in
such arbitration. The compensation and expenses of the arbitrators shall be
borne equally by the parties. Each party shall bear and pay any and all costs
and expenses incurred by it in connection with the arbitration.
ARTICLE VIII
Conditions Precedent to the Obligations of the Parties
-------------------------------------------------------
Section 8.1. Conditions Precedent to the Obligations of Buyer. The
------------------------------------------------
obligations of Buyer under this Agreement are subject to each of the following
conditions being met:
(a) All the representations and warranties of Seller contained in
this Agreement, and in any agreement, instrument or document delivered pursuant
hereto or in connection herewith on or prior to the Closing Date, shall be true
and correct in all material respects on and as of the Closing Date as if made on
and as of such date, except as affected by transactions permitted by this
Agreement, and except to the extent that any such representation or warranty is
made as of a specified date, in which case such representation or warranty shall
have been true and correct in all material respects as of such specified date.
For the sole purpose of determining whether or not any of such representations
and warranties are true and correct as aforesaid on and as of the Closing Date,
no effect shall be given to any materiality qualification contained in such
representation or warranty.
34
<PAGE>
(b) Seller shall have performed and complied in all material
respects with (or compliance therewith shall have been waived by Buyer) each and
every covenant, agreement and condition required by this Agreement to be
performed or complied with by Seller prior to or at the Closing.
(c) No suit, action or other proceedings shall, on the Closing
Date, be pending or threatened before any Governmental Entity seeking to
restrain, prohibit, or obtain damages or other relief in connection with the
consummation of the transactions contemplated by this Agreement.
(d) There shall have been obtained any and all consents,
approvals, authorizations, licenses, orders or permits set forth on Schedule
--------
5.7; and no other consent, approval, authorization, license, order or permit of,
- ---
or declaration, filing or registration with, or notification to, any
Governmental Entity, or any other Person or entity, the failure to comply with
which would have a Material Adverse Effect, shall be required to be made or
obtained by Buyer or any Subsidiary in connection with the execution, delivery
and performance of this Agreement and the consummation of the transactions
contemplated hereby.
(e) All waiting periods (and any extensions thereof) applicable
to this Agreement and the transactions contemplated hereby under the HSR Act
shall have expired or been terminated.
(f) GP Approval shall have been obtained.
Section 8.2. Conditions Precedent to the Obligations of Seller. The
-------------------------------------------------
obligations of Seller under this Agreement are subject to each of the following
conditions being met:
(a) All the representations and warranties of Buyer contained in
this Agreement, and in any agreement, instrument or document delivered pursuant
hereto or in connection herewith on or prior to the Closing Date, shall be true
and correct in all material respects on and as of the Closing Date as if made on
and as of such date, except as affected by transactions permitted by this
Agreement, and except to the extent that any such representation or warranty is
made as of a specified date, in which case such representation or warranty shall
have been true and correct in all material respects as of such specified date.
For the sole purpose of determining whether or not any of such representations
and warranties are true and correct as aforesaid on and as of the Closing Date,
no effect shall be given to any materiality qualification contained in such
representation or warranty.
(b) Buyer shall have performed and complied in all material
respects with (or compliance therewith shall have been waived by Seller) each
and every covenant, agreement and condition required by this Agreement to be
performed or complied with by Buyer prior to or at the Closing.
(c) No suit, action or other proceedings shall, on the date of
Closing, be pending or threatened before any Governmental Entity seeking to
restrain, prohibit, or obtain damages or other relief in connection with the
consummation of the transactions contemplated by this Agreement.
35
<PAGE>
(d) The total of the net Purchase Price reductions (if any)
which result from the application of Article VII do not exceed 30% of the
original aggregate stated value of the Preferred Shares.
(e) All waiting periods (and any extensions thereof) applicable
to this Agreement and the transactions contemplated hereby under the HSR Act
shall have expired or been terminated.
(f) There shall have been obtained any and all consents,
approvals, authorizations, licenses, orders or permits set forth on Schedule
--------
5.7; and no other consent, approval, authorization, license, order or permit of,
- ---
or declaration, filing or registration with, or notification to, any
Governmental Entity, or any other Person or entity, the failure to comply with
which would have a Material Adverse Effect, shall be required to be made or
obtained by Buyer or any Subsidiary in connection with the execution, delivery
and performance of this Agreement and the consummation of the transactions
contemplated hereby.
(g) Since the date of this Agreement, there shall not have been
any material adverse change in the business, assets, results of operations,
condition (financial or otherwise) or prospects of Buyer and the Subsidiaries
considered as a whole.
(h) GP Approval shall have been obtained.
ARTICLE IX
Closing of Transaction
-----------------------
Section 9.1. The Closing. The closing (herein called the "Closing") of
-----------
the transaction contemplated hereby shall take place in the offices of Thompson
Knight Brown Parker & Leahy L.L.P., at Two Allen Center, Suite 3600, Houston,
Texas, at 10:00 a.m. Central Standard Time, on May 1, 2000, or at such other
date and time as Buyer and Seller may mutually agree upon (such date and time
being herein called the "Closing Date").
Section 9.2. Seller's Closing Obligations. At the Closing, Seller shall:
----------------------------
(a) execute, acknowledge and deliver to Buyer (or its designated
Subsidiary) an assignment or assignments of the Interests (the "Assignment"),
substantially in the form attached hereto as Exhibit 9.2(a) in all material
--------------
respects, effective as of 12:01 o'clock a.m., Central Daylight Time on May 1,
2000 (the "Effective Date"); and
(b) deliver to Buyer such other certificates, instruments, and
documents as may be reasonably requested by Buyer prior to the Closing Date to
carry out the intent and purposes of this Agreement.
Section 9.3. Buyer's Closing Obligations. At the Closing, Buyer shall:
---------------------------
36
<PAGE>
(a) deliver to Seller a stock certificate evidencing the
Preferred Shares;
(b) execute and deliver to Seller a certificate executed on
behalf of Buyer by an authorized signatory of Buyer, dated the Closing Date,
representing and certifying, in such detail as Seller may reasonably request,
that the conditions set forth in Sections 8.2(a) and 8.2(b) have been fulfilled;
(c) deliver to Seller an opinion, in form, scope and content
reasonably acceptable to Seller, of Jenkens & Gilchrist, counsel to Buyer,
dated the Closing Date;
(d) deliver to Seller the certificates, instruments and
documents listed below:
(i) certified copy of a written consent or resolutions of
the Board of Directors of Buyer authorizing the execution, delivery and
performance by Buyer of this Agreement and the Ancillary Documents, as
necessary;
(ii) such other certificates, instruments, and documents as
may be reasonably requested by Seller prior to the Closing Date to carry
out the intent and purposes of this Agreement.
Section 9.4. Delivery of Files. No later than 10 business days after the
-----------------
Closing, Seller shall deliver to Buyer such of Seller's files and other
materials pertaining to the ownership of the Interests as Buyer may request.
ARTICLE X
Pre-Closing Termination
------------------------
Section 10.1. Termination. This Agreement may be terminated and the
-----------
transactions contemplated hereby abandoned at any time prior to the Closing in
the following manner:
(a) by mutual written consent of Seller and Buyer;
(b) by either Seller or Buyer if any Governmental Entity with
jurisdiction over such matters shall have issued an order or injunction
restraining, enjoining or otherwise prohibiting the consummation of the
transactions contemplated hereunder, and such order, decree, ruling or other
action shall have become final and unappealable; or
(c) by either Seller or Buyer if the Closing shall not have
occurred on or before May 30, 2000; provided, however, that the right to
terminate this Agreement under this Section 10.1(c) shall not be available to
any party whose failure to fulfill any obligation under this Agreement shall
have been the cause of, or shall have resulted in, the failure of the Closing to
occur prior to such date.
37
<PAGE>
Section 10.2. Effect of Termination. In the event of termination of this
---------------------
Agreement pursuant to Section 10.1 by Seller, on the one hand, or Buyer, on the
other hand, written notice thereof shall forthwith be given to the other party
specifying the provision hereof pursuant to which such termination is made, and
this Agreement shall become void and have no effect, except that the agreements
contained in this Section and in Article XVI shall survive the termination
hereof. Nothing contained in this Section shall relieve any party from liability
for damages actually incurred as a result of any breach of this Agreement.
ARTICLE XI
Rights to Distributions, Assumption of Liabilities and Indemnification
-----------------------------------------------------------------------
Upon consummation of the transactions contemplated hereunder, Buyer (a)
shall (i) be entitled to receive all distributions of cash and property made by
the Partnerships on or after the Closing Date and attributable to the Interests,
regardless of whether such distributions arise or are otherwise attributable to
sales of production or other events occurring before, on or after the Effective
Date and (ii) assume and timely pay and perform all duties, obligations and
liabilities relating to the ownership of the Interests, regardless of whether
such duties, obligations and liabilities arise or are otherwise attributable to
events occurring before, on or after the Effective Date, and (b) shall,
indemnify and hold Seller harmless from and against any and all claims,
obligations, actions, liabilities, damages, or expenses arising out of the
ownership of the Interests, whether arising before, on or after the Effective
Date.
ARTICLE XII
Affirmative Post Closing Covenants of Buyer
--------------------------------------------
To induce Seller to enter into this Agreement, Buyer warrants, covenants
and agrees that it will comply with and observe the following covenants and
provisions, and will cause each Subsidiary to comply with and observe such of
the following covenants and provisions as are applicable to such Subsidiary:
Section 12.1. Inspection Rights. At any reasonable time and from time to
-----------------
time upon reasonable notice, Buyer will permit Seller or its agents or
representatives to examine and make copies of and extracts from the records and
books of account of, and visit and inspect the properties of Buyer and any
Subsidiary, and to discuss the affairs, finances and accounts of Buyer and any
Subsidiary with any of their officers or directors and independent accountants.
Section 12.2. Books, Financial Statements and Reports. Buyer and each of
---------------------------------------
its Subsidiaries will at all times maintain full and accurate books of account
and records. Buyer will maintain and will cause its Subsidiaries to maintain a
standard system of accounting, will maintain its Fiscal Year, and will furnish
the following statements and reports to Seller at Buyer's expense:
38
<PAGE>
(a) As soon as available, and in any event within one hundred five
(105) days after the end of each Fiscal Year, complete consolidated financial
statements of Buyer together with all notes thereto, prepared in reasonable
detail in accordance with U.S. GAAP, together with an unqualified opinion, based
on an audit using generally accepted auditing standards, by independent
certified public accountants selected by Buyer and reasonably acceptable to
Seller, 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.
(b) As soon as available, and in any event within fifty (50) days
after the end of each Fiscal Quarter, Buyer's consolidated balance sheet as of
the end of such Fiscal Quarter and consolidated statements of Buyer's 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 U.S. GAAP, subject to changes resulting from normal year-end
adjustments. In addition Buyer will, together with each such set of financial
statements and each set of financial statements furnished under subsection (a)
of this section, furnish a certificate in a form reasonably acceptable to Seller
signed by the chief financial officer of Buyer stating that such financial
statements are accurate and complete (subject to normal year-end adjustments)
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.
(c) Promptly upon their becoming available, copies of all financial
statements, reports, notices and proxy statements sent by Buyer to its
stockholders and all registration statements, periodic reports and other
statements and schedules filed by Buyer with any securities exchange, the
Securities and Exchange Commission or any similar Governmental Entity.
(d) Annually within 60 days after the end of each Fiscal Year
beginning with the Fiscal Year ending April 30, 2000, a report containing (i) an
estimation of the oil and gas reserves, classified by appropriate categories, as
of the end of the preceding fiscal year attributable to the interest of Buyer
therein, (ii) a projection of the rate of production of and net income from such
reserves with respect to each such interest, (iii) a calculation of the present
worth of such net income discounted at a rate of 10% and (iv) a schedule or
complete description of all assumptions, estimates and projections made or used
in the preparation of such report. Each such report shall be prepared in
accordance with customary and generally accepted standards and practices for
petroleum engineers, and shall be based on (1) prices determined by the Holders
of a Requisite Majority , (2) lease operating expenses and production taxes
derived from and consistent with those actually incurred by Buyer, escalated at
the same rate, if any, being applied to prices and (3) such other assumptions as
shall be designated by the Holders of a Requisite Majority. In addition to the
foregoing, the Holders of a Requisite Majority shall have the right from time to
time to cause the independent petroleum engineer referenced below to prepare an
additional report of the type described above, not to exceed one additional
report in any one calendar year, in which event all fees and expenses incurred
in connection with obtaining such additional report shall be paid by Buyer. Each
report under this subsection shall be prepared by an independent petroleum
engineer designated
39
<PAGE>
by Buyer and approved by the Holders of a Requisite Majority. Each annual report
referenced above shall also include an estimate of Buyer's proved oil and gas
reserves (as defined in Regulation S-X promulgated by the Securities and
Exchange Commission) and a calculation of the "present value of estimated future
net revenues" from such proved oil and gas reserves, with such present worth
calculation to be made in accordance with Regulation S-X, as promulgated by the
Securities and Exchange Commission.
(e) Promptly, such other information with respect to the business
and operations of Buyer and its Subsidiaries, as Seller may reasonably request.
Section 12.3. Notice of Material Events and Change of Address. Buyer will
-----------------------------------------------
promptly notify Seller in writing, stating that such notice is being given
pursuant to this Agreement, of:
(a) the occurrence of an event or circumstance that could
reasonably be expected to have a Material Adverse Effect,
(b) the occurrence of any Default,
(c) the acceleration of the maturity of any indebtedness owed by
Buyer or any Subsidiary thereof or of any default by any Buyer or any such
Subsidiary 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 could reasonably be
expected to have a Material Adverse Effect,
(d) any claim of $100,000 or more, any notice of potential
liability under any Environmental Laws which might exceed such amount, or any
other material adverse claim asserted against Buyer or any Subsidiary thereof or
with respect to Buyer or any of such Subsidiary's properties, and
(e) the filing of any suit or proceeding against Buyer or any
Subsidiary thereof in which an adverse decision could cause a Material Adverse
Effect.
Upon the occurrence of any of the foregoing Buyer and any Subsidiary thereof
will take all necessary or appropriate steps to remedy promptly any such
Material Adverse Effect, Default, acceleration or default, 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.
Section 12.4. Maintenance of Properties. Buyer and each of its
-------------------------
Subsidiaries will maintain, preserve, protect, and keep all property used or
useful in the conduct of its business in good condition and in compliance with
all Applicable Laws, 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 promptly and advantageously conducted at all times.
40
<PAGE>
Section 12.5. Maintenance of Existence and Qualifications. Buyer and each
-------------------------------------------
of its Subsidiaries will maintain and preserve its existence and its rights and
franchises in full force and effect and will qualify to do business in all
states or jurisdictions where required by Applicable Law, except where the
failure so to qualify will not cause a Material Adverse Effect.
Section 12.6. Payment of Trade Liabilities, Taxes, etc. Buyer and each of
-----------------------------------------
its Subsidiaries will (a) timely file all required Tax Returns; (b) timely pay
all Taxes, assessments, and other governmental charges or levies imposed upon it
or upon its income, profits or property; (c) timely withhold and pay over to the
proper Governmental Entity all amounts required to be withheld and paid over
under Applicable Laws; (d) pay when due all Liabilities owed by it on ordinary
trade terms to vendors, suppliers and other Persons providing goods and services
used by it in the ordinary course of its business; (e) pay and discharge when
due all other Liabilities now or hereafter owed by it; and (f) maintain
appropriate accruals and reserves for all of the foregoing in accordance with
U.S. GAAP. Buyer and each of its Subsidiaries 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.
Section 12.7. Insurance. Buyer and each of its Subsidiaries will keep or
---------
cause to be kept insured by financially sound and reputable insurers its
properties in such forms and amounts and against such risks as are customary for
Persons engaged in the same or similar business of owning and operating similar
properties.
Section 12.8. Compliance with Agreements and Law. Buyer and each of its
----------------------------------
Subsidiaries 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. Buyer and each
of its Subsidiaries will conduct its business and affairs in compliance with all
Applicable Law.
Section 12.9. Charter Amendment Approval. Buyer shall cause Charter
--------------------------
Amendment Approval by September 30, 2000.
ARTICLE XIII
Post Closing Negative Covenants of Buyer
-----------------------------------------
To induce Seller to enter into this Agreement, Buyer warrants, covenants
and agrees that, until all of the Preferred Shares have been converted into
Preferred Conversion Shares, it will comply with and observe the following
covenants and provisions, and will cause each Subsidiary to comply with and
observe such of the following covenants and provisions as are applicable to such
Subsidiary:
Section 13.1. Indebtedness. Neither Buyer nor any Subsidiary thereof will
------------
in any manner owe or be liable for Indebtedness except:
41
<PAGE>
(a) the Senior Credit Facility;
(b) the Subordinated Debt;
(c) purchase money Indebtedness and Indebtedness under leases of
Buyer or such Subsidiary as lessee which are capitalized in accordance with U.S.
GAAP, in an aggregate principal amount not to exceed $100,000 at any time,
provided that such purchase money Indebtedness and Indebtedness under capital
leases do not in the aggregate exceed $250,000; and
(d) Old Latex Payables.
Section 13.2. Limitation on Liens. Neither Buyer nor any Subsidiary
-------------------
thereof will create, assume or permit to exist any Lien upon any of the
properties or assets which it now owns or hereafter acquires, except the
following ("Permitted Liens"):
(a) Liens which secure the Senior Credit Facility; and
(b) Statutory Liens for taxes, statutory mechanics' and
materialmen's Liens incurred in the ordinary course of business, and other
similar Liens incurred in the ordinary course of business, provided such Liens
do not secure Indebtedness or secure only Indebtedness which is not delinquent
or for which adequate reserves have been set aside.
Section 13.3. Limitation on Mergers. Except as expressly provided in this
---------------------
Section, neither Buyer nor any Subsidiary thereof will merge or consolidate with
or into any other business entity. Any Subsidiary of Buyer may, however, be
merged into or consolidated with either Buyer or another Subsidiary which is
wholly-owned by Buyer, so long as Buyer or the Subsidiary wholly-owned by Buyer
is the surviving business entity. Buyer will not issue any securities other than
(i) Common Stock (including the shares of Common Stock to be issued upon the
conversion of the Series A Preferred) or (ii) any options or warrants giving
the holders thereof only the right to acquire such shares. No Subsidiary of
Buyer will issue any additional shares of its capital stock or other securities
or any options, warrants or other rights to acquire such additional shares or
other securities except to Buyer or to another Subsidiary. No Subsidiary of
Buyer which is a partnership will allow any diminution of Buyer's interest
(direct or indirect) therein.
Section 13.4. Limitation on Sales of Property. Neither Buyer nor any
-------------------------------
Subsidiary thereof will sell, transfer, lease, exchange, alienate or dispose of
any of its assets or properties except:
(a) equipment which is worthless or obsolete or which is replaced
by equipment of equal suitability and value;
(b) inventory (including oil and gas sold as produced and seismic
data) which is sold in the ordinary course of business on ordinary trade terms;
or
42
<PAGE>
(c) other property which is sold for fair consideration not in
the aggregate in excess of $500,000 in any Fiscal Year (commencing with Fiscal
Year 2000).
Section 13.5. Limitation on Investments and New Businesses. Neither Buyer
--------------------------------------------
nor any Subsidiary thereof will make any expenditure or commitment or incur any
obligation or enter into or engage in any transaction except in the ordinary
course of business (which ordinary course of business includes the acquisition,
directly or indirectly, of oil and gas properties), engage directly or
indirectly in any business or conduct any operations except in connection with
or incidental to its present businesses and operations, make any acquisitions of
or capital contributions to or other investments in any Person, other than
Permitted Investments, or make any significant acquisitions or investments in
any properties other than oil and gas properties.
Section 13.6. Transactions with Affiliates. Neither Buyer nor any of its
----------------------------
Subsidiaries will engage in any material 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.
Section 13.7. Restricted Payments. Buyer will not, and will not permit
-------------------
any of its Subsidiaries to, declare or make, or incur any liability to declare
or make, any Restricted Payment.
ARTICLE XIV
Events of Default and Remedies
-------------------------------
Section 14.1. Events of Default. If any of the following events ("Events
-----------------
of Default") shall occur and be continuing:
(a) Buyer fails to pay any dividends on the Preferred Shares when
due as required under the terms of the Certificate of Designation;
(b) Buyer fails to redeem the Preferred Shares when due as
required under the terms of the Certificate of Designation;
(c) a default in the performance or observation of any covenant,
agreement or condition contained in (i) Article XII or Article XIII, (ii) the
Organic Documents with respect to the Series A Preferred (exclusive of a default
described in subsection (a) or subsection (b) above, or (iii) any other
Ancillary Document, which default is not remedied within 15 days after the
earlier of (A) the day on which Buyer first obtains knowledge of such default or
(B) the day on which written notice thereof is given to Buyer by any registered
holder of the Preferred Shares;
(d) any representation or warranty previously, presently or
hereafter made in writing by or on behalf of Buyer or any Subsidiary thereof in
connection with this Agreement or any Ancillary Document shall prove to have
been false or incorrect in any material respect on any date
43
<PAGE>
on or as of which made, which default is not remedied within 30 days after the
earlier of (i) the day on which Buyer first obtains knowledge of such default or
(ii) the day on which written notice thereof is given to Buyer by any registered
holder of the Preferred Shares;
(e) Buyer or any Subsidiary fails to duly observe, perform or comply
with any term or condition of any loan document relating to the Senior Credit
Facility, the Subordinated Debt Agreement or any other agreement or instrument
with any Person, if such agreement or instrument is materially significant to
Buyer or such Subsidiary, and such failure is not remedied within the applicable
period of grace (if any) provided in such agreement or instrument (it being
agreed that each of the Other Acquisition Agreements and the Preferred Stock
Purchase Agreement is materially significant to Buyer) ;
(f) Buyer or any Subsidiary thereof fails to pay any portion, when
such portion is due, of any of its Indebtedness in excess of $100,000 (exclusive
of the Old LaTex Payables), or breaches or defaults in the performance of any
Agreement or instrument by which any such Indebtedness is issued, evidenced,
governed, or secured, and any such failure, breach or default continues beyond
any applicable period of grace provided therefor;
(g) Buyer or any Subsidiary thereof:
(i) suffers the entry against it of a judgment, decree or order
for relief by a tribunal of competent jurisdiction in an involuntary
proceeding commenced under any applicable bankruptcy, insolvency or other
similar Applicable Law of any jurisdiction now or hereafter in effect,
including the United States federal Bankruptcy Code or similar foreign law,
as from time to time amended, or has any such proceeding commenced against
it which remains undismissed for a period of thirty days; or
(ii) commences a voluntary case under any applicable bankruptcy,
insolvency or similar Applicable Law now or hereafter in effect, including
the United States federal Bankruptcy Code or similar foreign law, 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 Applicable 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 corporate or other action to authorize any of the foregoing;
or
(iii) suffers the appointment of or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator or similar
official of all or a substantial part of its assets in a proceeding brought
against or initiated by it, and such appointment or taking possession is
neither made ineffective nor discharged within thirty days after the making
thereof, or such appointment or taking possession is at any time consented
to, requested by, or acquiesced to by it; or
(iv) suffers the entry against it of a final judgment for the
payment of money in excess of $250,000 (not covered by insurance), unless
the same is discharged within
44
<PAGE>
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 tribunal against all or any substantial part of
its assets, and such writ or warrant of attachment or any similar process
is not stayed or released within thirty days after the entry or levy
thereof or after any stay is vacated or set aside;
(h) Any Change in Control occurs; and
(i) Any Material Adverse Effect occurs.
Upon the occurrence of an Event of Default, (x) Seller or any other holder
of the Preferred Shares holding a majority of the Outstanding Common Stock may,
by notice to the Company, request that Buyer redeem all of the Preferred Shares
at a per share purchase price of $50.00 plus all accrued and unpaid dividends
thereon; (y) Seller shall have such rights as provided in the Organic
Documents; and (z) Seller may proceed to protect and enforce its rights by suit
in equity (including a suit for recission), action at law or other appropriate
proceeding either for specific performance of any covenant, provision or
condition contained or incorporated by reference to this Agreement or in aid of
the exercise of any power granted in this Agreement.
Without limiting the rights of the holders of the Series A Preferred, Buyer
and the Subsidiaries hereby agree that the holders of the Series A Preferred
would have no adequate remedy at law, for monetary compensation or otherwise,
for the damages that would be suffered if Buyer or the Subsidiaries were to fail
to comply with its obligations under Article IX, and that Buyer and the
Subsidiaries therefore agree that the holders of the Series A Preferred shall be
entitled to obtain specific performance of Buyer's obligations under this
Agreement.
Section 14.2. Annulment of Defaults. Section 14.1 is subject to the
---------------------
condition that if, at any time after a dividend shall have become due and
payable, and before any judgment or decree for the payment of the moneys so due,
or any thereof, shall have been entered, then and in every such case Seller may,
by written instrument filed with Buyer, rescind and annul such declaration and
its consequences; but no such recission or annulment shall extend to or affect
and subsequent default or Event of Default or impair any right consequent
thereon.
Section 14.3. Expiration. The provisions of Sections 14.1 and 14.2 shall
----------
automatically expire and be of no further force or effect upon such date as all
of the Preferred Shares have been converted into Preferred Conversion Shares.
45
<PAGE>
ARTICLE XV
Notices
-------
All notices, requests, demands, and other communications required or
permitted to be given or made hereunder by any party hereto shall be in writing
and shall be deemed to have been duly given or made if (i) delivered personally,
(ii) transmitted by first class registered or certified mail, postage prepaid,
return receipt requested, (iii) sent by prepaid overnight courier service, or
(iv) sent by telecopy or facsimile transmission, answer back requested, to the
parties at the following addresses (or at such other addresses as shall be
specified by the parties by like notice):
If to Seller: EnCap Equity 1994 Limited Partnership
------------
c/o EnCap Investments L.L.C.
1100 Louisiana, Suite 3150
Houston, Texas 77002
Attention: Robert L. Zorich
Fax No.: 713-659-6130
If to Buyer: AROC Inc.
-----------
4200 East Skelly Drive, Suite 1000
Tulsa, Oklahoma 74135
Attention: John A. Keenan
Fax No.: 918-494-4918
with a copy to: Jenkens & Gilchrist, a Professional Corporation
1445 Ross Avenue, Suite 3200
Dallas, Texas 75202
Attention: W. Alan Kailer
Fax No.: 214-855-4300
Such notices, requests, demands, and other communications shall be effective (i)
if delivered personally or sent by courier service, upon actual receipt by the
intended recipient, (ii) if mailed, upon the earlier of five days after deposit
in the mail or the date of delivery as shown by the return receipt therefor or
(iii) if sent by telecopy or facsimile transmission, when the answer back is
received.
ARTICLE XVI
Miscellaneous Matters
---------------------
Section 16.1. Survival of Provisions. All representations and warranties
----------------------
made herein by Buyer and Seller shall be continuing and shall be true and
correct on and as of the date of Closing with the same force and effect as if
made at that time and, except as provided below, all of such representations and
warranties shall survive the Closing and the delivery of the Assignment. The
representations of Seller contained in Section 4.6 (to the extent such
representations relate to the
46
<PAGE>
Properties), in Sections 4.7 through 4.20 and in Section 4.25 shall expire with,
and be terminated and extinguished by, the Closing, and Seller shall have no
liability with respect to such representations and warranties pursuant to this
Section 16.1, 16.5 or otherwise. The provisions of, and the obligations of the
parties under, Article IX (to the extent the same are, by mutual agreement, not
performed at Closing), and Articles X through XVI inclusive shall survive the
Closing and the delivery of the Assignment.
Section 16.2. Public Announcements. Except as may be required by
--------------------
Applicable Law, neither Seller, on the one hand, nor Buyer, on the other, shall
issue any press release or otherwise make any public statement with respect to
this Agreement or the transactions contemplated hereby without the prior written
consent of the other party (which consent shall not be unreasonably withheld).
Any such press release or public statement required by Applicable Law shall only
be made after reasonable notice to the other party, and in such case the party
proposing to make such a press release or public statement shall consult with
the other party.
Section 16.3. Fees and Expenses.
-----------------
(a) Except as otherwise expressly provided in this Agreement or
as agreed upon by the parties hereto, all fees and expense, including fees and
expenses of counsel, incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such fee
or expense.
(b) Notwithstanding anything to the contrary herein, since the
transaction contemplated hereby is an isolated transaction, no sales tax will be
collected from Buyer. If, however, this transaction is later deemed to be other
than an occasional sale, Buyer agrees to be solely responsible, and shall
indemnify and hold Seller (and their respective partners, and each of their and
each such partners' parent and subsidiary companies and other affiliates, and
shareholders, managers, owners, directors, officers, employees, consultants, and
agents, respectively) harmless, from any and all sales or transfer taxes or fees
(including related penalty, interest or legal costs) due by virtue of this
transaction on the Interests or Properties transferred pursuant hereto and Buyer
shall remit such sales or transfer taxes at that time. Seller and Buyer agree
to cooperate with each other in demonstrating that the requirements for an
occasional or isolated sale or any other sales tax exemption have been met.
(c) All sales, transfer, filing, recordation, registration, stamp
and similar Taxes and fees arising from or associated with the issue and sale of
the Preferred Shares contemplated hereunder or any transfer hereafter by a
Partnership to Buyer of an interest in the Properties, whether levied on Seller
or Buyer, shall be borne by Buyer, and Buyer shall file all necessary
documentation with respect to, and make all payments of, such Taxes and fees on
a timely basis.
Section 16.4. Costs of Enforcement. If any party hereto is required to
--------------------
take action to enforce its rights under this Agreement, the prevailing party
shall be entitled to its reasonable expenses, including attorneys' fees and
expenses, in connection with any such action.
47
<PAGE>
Section 16.5. Indemnification.
---------------
(a) Subject to the terms and conditions of this Section 16.5,
Buyer shall indemnify, defend and hold harmless Seller from and against any and
all claims, actions, causes of action, demands, assessments, losses, damages,
liabilities, judgments, settlements, penalties, costs and expenses (including
reasonable attorneys' fees and expenses), of any nature (collectively,
"Damages") whatsoever, asserted against, resulting to, imposed upon, or incurred
by Seller, directly or indirectly, by reason of or resulting from any breach by
Buyer of any of its representations, warranties, covenants or agreements
contained in this Agreement or in any certificate, instrument or document
delivered pursuant hereto.
(b) Subject to the terms and conditions of this Section 16.5 (and
Section 16.1), Seller shall indemnify, defend and hold harmless Buyer from and
against any and all Damages, asserted against, resulting to, imposed upon, or
incurred by Buyer, directly or indirectly, by reason of or resulting from any
breach by Seller of any of its representations, warranties, covenants or
agreements contained in this Agreement or in any certificate, instrument or
document delivered pursuant hereto.
(c) Promptly after receipt by an indemnified party under Section
16.5(a) or Section 16.5(b) of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against an
indemnifying party under such Section, give written notice to the indemnifying
party of the commencement thereof , but the failure so to notify the
indemnifying party shall not relieve it of any liability that it may have to any
indemnified party except to the extent the indemnifying party demonstrates that
the defense of such action is prejudiced thereby. In case any such action shall
be brought against an indemnified party and it shall give written notice to the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it may wish, to assume
the defense thereof with counsel reasonably satisfactory to such indemnified
party. If the indemnifying party elects to assume the defense of such action,
the indemnified party shall have the right to employ separate counsel at its own
expense and to participate in the defense thereof. If the indemnifying party
elects not to assume (or fails to assume) the defense of such action, the
indemnified party shall be entitled to assume the defense of such action with
counsel of its own choice, at the expense of the indemnifying party. If the
action is asserted against both the indemnifying party and the indemnified party
and there is a conflict of interests which renders it inappropriate for the same
counsel to represent both the indemnifying party and the indemnified party, the
indemnifying party shall be responsible for paying for separate counsel for the
indemnified party; provided, however, that if there is more than one indemnified
party, the indemnifying party shall not be responsible for paying for more than
one separate firm of attorneys to represent the indemnified parties, regardless
of the number of indemnified parties. If the indemnifying party elects to
assume the defense of such action, (a) no compromise or settlement thereof may
be effected by the indemnifying party without the indemnified party's written
consent (which shall not be unreasonably withheld) unless the sole relief
provided is monetary damages that are paid in full by the indemnifying party and
(b) the indemnifying party shall have no liability with respect to any
compromise or settlement thereof effected without its written consent (which
shall not be unreasonably withheld).
48
<PAGE>
(d) It is the express intention of the parties hereto that each
-----------------------------------------------------------
person to be indemnified pursuant to this Section 16.5 or Article XI shall be
- -----------------------------------------------------------------------------
indemnified and held harmless from and against all Damages as to which indemnity
- --------------------------------------------------------------------------------
is provided for under this Section 16.5 or Article XI notwithstanding that any
- ------------------------------------------------------------------------------
such Damages arise out of or result from the ordinary, strict, sole, or
- -----------------------------------------------------------------------
contributory negligence of such person and regardless of whether any other
- --------------------------------------------------------------------------
person (including the other party to this Agreement) is or is not also
- ----------------------------------------------------------------------
negligent.
- ----------
Section 16.6. Waiver and Amendment. No failure or delay (whether by
--------------------
course of conduct or otherwise) by any party hereto in exercising any right,
power or remedy which such holder may have under the Agreement or any of the
Ancillary Documents shall operate as a waiver thereof or of any other right,
power or remedy, nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or of any other right, power or remedy. No
waiver of any provision of this Agreement or any Ancillary 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 waiver,
consent, release, modification or amendment of or supplement to this Agreement
or any of the Ancillary Documents shall be valid or effective against any party
hereto unless the same is in writing and signed by such party.
Section 16.7. Entire Agreement. This Agreement, together with the
----------------
Schedules and other writings referred to herein or delivered pursuant hereto,
constitute the entire agreement between the parties hereto with respect to the
subject matter hereof and supersede all prior agreements and understandings,
both written and oral, between the parties with respect to the subject matter
hereof.
Section 16.8. Binding Effect; Assignment; No Third Party Benefit. This
--------------------------------------------------
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns; provided, however, that prior to
Closing, neither party may assign its rights or delegate any of its duties and
obligations under this Agreement or the Ancillary Documents without the prior
written consent of the other; provided, further, that after the Closing, Buyer
may not assign its rights or delegate any of its duties and obligations under
this Agreement and the Ancillary Documents without the prior written consent of
Seller. Except as expressly provided herein, nothing in this Agreement, express
or implied, is intended to or shall confer upon any Person other than the
parties hereto, and their respective successors and permitted assigns, any
rights, benefits, or remedies of any nature whatsoever under or by reason of
this Agreement.
Section 16.9. Severability. If any provision of this Agreement is held to
------------
be unenforceable, this Agreement shall be considered divisible and such
provision shall be deemed inoperative to the extent it is deemed unenforceable,
and in all other respects this Agreement shall remain in full force and effect;
provided, however, that if any such provision may be made enforceable by
limitation thereof, then such provision shall be deemed to be so limited and
shall be enforceable to the maximum extent permitted by Applicable Law.
Section 16.10. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
-------------
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE
49
<PAGE>
STATE OF TEXAS, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
Section 16.11. Remedies Not Exclusive. The rights and remedies herein
----------------------
provided shall be cumulative and not exclusive of any rights or remedies
provided by law. The rights and remedies of any party based upon, arising out
of, or otherwise in respect of any inaccuracy in or breach of any
representation, warranty, covenant, or agreement contained in this Agreement
shall in no way be limited by the fact that the act, omission, occurrence, or
other state of facts upon which any claim of any such inaccuracy or breach is
based may also be the subject matter of any other representation, warranty,
covenant, or agreement contained in this Agreement (or in any other agreement
between the parties) as to which there is no inaccuracy or breach.
Section 16.12. Further Assurances. From time to time following the
------------------
Closing, at the request of any party hereto and without further consideration,
the other party or parties hereto shall execute and deliver to such requesting
party such instruments and documents and take such other action (but without
incurring any material financial obligation) as such requesting party may
reasonably request in order to consummate more fully and effectively the
transactions contemplated hereby.
Section 16.13. Counterparts. This Agreement may be executed by the
------------
parties hereto in any number of counterparts, each of which shall be deemed an
original, but all of which shall constitute one and the same agreement. Each
counterpart may consist of a number of copies hereof each signed by less than
all, but together signed by all, the parties hereto.
Section 16.14. Injunctive Relief. The parties hereto acknowledge and
-----------------
agree that irreparable damage would occur in the event any of the provisions of
this Agreement were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent breaches of the provisions
of this Agreement, and shall be entitled to enforce specifically the provisions
of this Agreement, in any court of the United States or any state thereof having
jurisdiction, in addition to any other remedy to which the parties may be
entitled under this Agreement or at law or in equity.
Section 16.15. Consent to Jurisdiction. Subject to Section 7.5, the
-----------------------
parties hereto hereby irrevocably submit to the jurisdiction of the courts of
the State of Texas and the federal courts of the United States of America
located in Harris County, Texas, and appropriate appellate courts therefrom,
over any dispute arising out of or relating to this Agreement or any of the
transactions contemplated hereby, and each party hereby irrevocably agrees that
all claims in respect of such dispute or proceeding shall be heard and
determined in such courts. Subject to Section 7.5, the parties hereby
irrevocably waive, to the fullest extent permitted by Applicable Law, any
objection which they may now or hereafter have to the laying of venue of any
dispute arising out of or relating to this Agreement or any of the transactions
contemplated hereby brought in such court or any defense of inconvenient forum
for the maintenance of such dispute. Each of the parties hereto agrees that a
judgment in any such dispute may be enforced in other jurisdictions by suit on
the judgment or in any other manner provided by law. This consent to
jurisdiction is being given solely for purposes
50
<PAGE>
of this Agreement and is not intended to, and shall not, confer consent to
jurisdiction with respect to any other dispute in which a party to this
Agreement may become involved.
Section 16.16. Payments. All payments to be made hereunder shall be in
--------
lawful money of the United States of America.
Section 16.17. Right to Purchase New Equity Securities. Buyer grants to
---------------------------------------
Seller the same rights as provided to the "Purchasers" under Section 2.03 of the
Preferred Stock Purchase Agreement, and the terms and conditions of such Section
are hereby incorporated herein, mutatis mutandis.
----------------
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
51
<PAGE>
IN WITNESS WHEREOF, this Agreement is executed by the parties hereto on the
date set forth above.
SELLER:
ENCAP EQUITY 1994 LIMITED PARTNERSHIP
By: ENCAP INVESTMENTS L.L.C.
By:_____________________________________
Name:________________________________
Title: Managing Director
BUYER:
AROC INC.
By: ___________________________________
Name: Francis M. Munchinski
Title: Vice President
<PAGE>
EXHIBIT 10.4
================================================================================
PURCHASE AND SALE AGREEMENT
Dated: April 30, 2000
By and Between
MOUNTAINEER LIMITED PARTNERSHIP, SELLER
and
AROC INC., BUYER
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
Definitions and References.............................................. 1
Section 1.1. Certain Defined Terms............................... 1
Section 1.2. Certain Additional Defined Terms.................... 8
Section 1.3. References, Titles and Construction................. 9
ARTICLE II
Property to be Sold and Purchased....................................... 10
ARTICLE III
Purchase Price.......................................................... 11
ARTICLE IV
Representations and Warranties of Seller................................ 12
Section 4.1. Organization and Existence.......................... 12
Section 4.2. Authority Relative to This Agreement................ 12
Section 4.3. Valid and Binding Agreement......................... 12
Section 4.4. Non-Contravention................................... 12
Section 4.5. Approvals........................................... 13
Section 4.6. Pending Litigation.................................. 13
Section 4.7. Basic Documents..................................... 13
Section 4.8. Commitments, Abandonments or Proposals.............. 14
Section 4.9. Production Sales Contracts.......................... 14
Section 4.10. Plugging and Abandonment............................ 14
Section 4.11. Licenses and Permits................................ 14
Section 4.12. Area of Mutual Interest and Other Agreements;
Tax Partnerships.................................... 15
Section 4.13. Payment of Expenses................................. 15
Section 4.14. Compliance with Laws................................ 15
Section 4.15. Operated Properties................................. 15
Section 4.16. Physical Condition of Facilities.................... 16
Section 4.17. Environmental Matters............................... 16
Section 4.18. Production Data..................................... 16
Section 4.19. Ordinary Course Operations.......................... 16
Section 4.20. Sale of Production.................................. 17
Section 4.21. [Intentionally Omitted]............................. 17
Section 4.22. Brokerage Fees...................................... 17
Section 4.24. Bankruptcy.......................................... 17
Section 4.25. Full Disclosure..................................... 17
Section 4.26. Disclaimer of Warranties............................ 17
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
ARTICLE V
Representations and Warranties of Buyer................................. 18
Section 5.1. Organization and Existence.......................... 18
Section 5.2. Qualification....................................... 18
Section 5.3. Charter and Bylaws.................................. 18
Section 5.4. Capitalization of Buyer............................. 18
Section 5.5. Authority Relative to This Agreement................ 19
Section 5.6. No Conflict......................................... 19
Section 5.7. Consents and Approvals, Licenses, Etc............... 19
Section 5.8. Subsidiaries........................................ 20
Section 5.9. Preferred Shares; Conversion Shares................. 20
Section 5.10. Financial Statements................................ 21
Section 5.11. Securities Filings.................................. 21
Section 5.12. Absence of Undisclosed Liabilities.................. 22
Section 5.13. Absence of Certain Changes.......................... 22
Section 5.14. Tax Matters......................................... 22
Section 5.15. Environmental and Other Laws........................ 24
Section 5.16. Legal Proceedings................................... 24
Section 5.17. Title to Properties; Permits; Licenses; Condition of
Assets............................................ 24
Section 5.18. ERISA............................................... 25
Section 5.19. Agreements.......................................... 27
Section 5.20. Labor Disputes and Acts of God...................... 29
Section 5.21. Insurance........................................... 29
Section 5.22. Offering of Securities.............................. 29
Section 5.23. Government Regulation............................... 29
Section 5.24. Brokerage Fees...................................... 29
Section 5.25. Bankruptcy.......................................... 29
Section 5.26. Nature of Company Assets............................ 29
Section 5.27. Full Disclosure..................................... 29
ARTICLE VI
Certain Covenants of Seller and Buyer Pending Closing................... 30
Section 6.1. Pre-Closing Covenants of Seller..................... 30
Section 6.2. Pre-Closing Covenants of Buyer...................... 32
Section 6.3. Pre-Closing Covenants of Seller and Buyer........... 34
ARTICLE VII
Due Diligence Examination With Respect to the Properties................ 34
Section 7.1. Inspection and Assertion of Defects................. 34
Section 7.2. Certain Price Adjustments........................... 35
Section 7.3. Waiver.............................................. 36
Section 7.4. Casualty Loss....................................... 36
Section 7.5. Disputes............................................ 36
ARTICLE VIII
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
Conditions Precedent to the Obligations of the Parties.................. 38
Section 8.1. Conditions Precedent to the Obligations of Buyer.... 38
Section 8.2. Conditions Precedent to the Obligations of Seller... 39
ARTICLE IX
Closing of Transaction.................................................. 40
Section 9.1. The Closing......................................... 40
Section 9.2. Seller's Closing Obligations........................ 40
Section 9.3. Buyer's Closing Obligations......................... 40
Section 9.4. Delivery of Files................................... 41
ARTICLE X
Pre-Closing Termination................................................. 41
Section 10.1. Termination......................................... 41
Section 10.2. Effect of Termination............................... 41
ARTICLE XI
Certain Accounting Adjustments in Respect of the Properties............. 42
Section 11.1. Adjustments......................................... 42
Section 11.2. Closing and Post-Closing Accounting Settlements..... 42
ARTICLE XII
Assumption and Indemnification.......................................... 43
ARTICLE XIII
Affirmative Post Closing Covenants of Buyer............................. 43
Section 13.1. Inspection Rights................................... 43
Section 13.2. Books, Financial Statements and Reports............. 44
Section 13.3. Notice of Material Events and Change of Address..... 45
Section 13.4. Maintenance of Properties........................... 46
Section 13.5. Maintenance of Existence and Qualifications......... 46
Section 13.6. Payment of Trade Liabilities, Taxes, etc............ 46
Section 13.7. Insurance........................................... 46
Section 13.8. Compliance with Agreements and Law.................. 46
Section 13.9. Charter Amendment Approval.......................... 46
ARTICLE XIV
Post Closing Negative Covenants of Buyer................................ 47
Section 14.1. Indebtedness........................................ 47
Section 14.2. Limitation on Liens................................. 47
Section 14.3. Limitation on Mergers............................... 47
Section 14.4. Limitation on Sales of Property..................... 48
Section 14.5. Limitation on Investments and New Businesses........ 48
Section 14.6. Transactions with Affiliates........................ 48
Section 14.7. Restricted Payments................................. 48
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
ARTICLE XV
Events of Default and Remedies.......................................... 49
Section 15.1. Events of Default................................... 49
Section 15.2. Annulment of Defaults............................... 51
Section 15.3. Expiration.......................................... 51
ARTICLE XVI
Notices................................................................. 51
ARTICLE XVII
Miscellaneous Matters................................................... 52
Section 17.1. Survival of Provisions.............................. 52
Section 17.2. Public Announcements................................ 53
Section 17.3. Fees and Expenses................................... 53
Section 17.4. Costs of Enforcement................................ 53
Section 17.5. Indemnification..................................... 53
Section 17.6. Waiver and Amendment................................ 55
Section 17.7. Entire Agreement.................................... 56
Section 17.8. Binding Effect; Assignment; No Third Party Benefit.. 56
Section 17.9. Severability........................................ 56
Section 17.10. Governing Law....................................... 56
Section 17.11. Remedies Not Exclusive.............................. 56
Section 17.12. Further Assurances.................................. 57
Section 17.13. Counterparts........................................ 57
Section 17.14. Injunctive Relief................................... 57
Section 17.15. Consent to Jurisdiction............................. 57
Section 17.17. Payments............................................ 57
Section 17.18. Right to Purchase New Equity Securities............. 57
</TABLE>
iv
<PAGE>
PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT dated April 30, 2000, is made by and
between MOUNTAINEER LIMITED PARTNERSHIP, a Texas limited partnership
("Seller"), and AROC INC., a Delaware corporation ("Buyer");
W I T N E S S E T H:
--------------------
WHEREAS, Seller desires to sell, assign and convey to Buyer, and Buyer
desires to purchase and accept certain oil and gas properties and related
assets; and
WHEREAS, Seller and Buyer deem it in their mutual best interests to execute
and deliver this Agreement;
NOW, THEREFORE, in consideration of the foregoing Recitals and the mutual
covenants and agreements contained herein, Seller and Buyer do hereby agree as
follows:
ARTICLE I
Definitions and References
---------------------------
Section 1.1. Certain Defined Terms. When used in this Agreement, the
---------------------
following terms shall have the respective meanings assigned to them in this
Section 1.1 or in the section, subsections or other subdivisions referred to
below:
"Affiliate" means, with respect to any Person, any other Person that,
directly or indirectly, through one or more intermediaries, controls, is
controlled by or is under common control with, such Person. For the purposes of
this definition, "control" when used with respect to any Person means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract, or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Agreement" means this Agreement, as hereafter changed, amended or modified
in accordance with the terms hereof.
"Alliance Group" means Alliance Resources Group, Inc., a Delaware
corporation.
"Alliance PLC" means Alliance Resources PLC, a public limited company
incorporated in England and Wales.
"Alliance USA" means Alliance Resources (USA), Inc., a Delaware
corporation.
<PAGE>
"Ancillary Documents" means each agreement, certificate, document,
commitment and writing (other than this Agreement) executed or to be executed by
Buyer or Seller in connection with the transactions contemplated herein or
therein, including the Assignment.
"Applicable Law" means any statute, law, rule or regulation, or any
judgment, order, writ, injunction or decree of, any Governmental Entity to which
a specified Person or property is subject.
"AROC (Texas)" means AROC (Texas), Inc., a Texas corporation.
"Certificate of Designation" means the document attached hereto as Exhibit
-------
3.1.
- ---
"Change of Control" means the occurrence of any of the following events
after giving effect to the transactions contemplated by this Agreement, the
Other Acquisition Agreements and the Preferred Stock Purchase Agreement: (a) any
Person or two or more Persons, other than Buyer or any affiliate of Buyer,
acting as a group shall acquire beneficial ownership (within the meaning of Rule
13d-3 of the Securities and Exchange Commission under the Exchange Act, and
including holding proxies to vote for the election of directors other than
proxies held by Buyer's management or their designees to be voted in favor of
persons nominated by Buyer's Board of Directors) of 33% or more of the
outstanding voting securities of Buyer, measured by voting power (including
both ordinary shares and any preferred stock or other equity securities
entitling the holders thereof to vote with the holders of common stock in
elections for directors of Buyer.), (b) Buyer shall fail beneficially to own,
directly or indirectly, 100% of the outstanding shares of voting capital stock
of Alliance PLC, Alliance Group, Source, Difco, AROC (Texas), Alliance USA, LPC
or GOC, on a fully diluted basis, (c) one-third or more of the directors of
Buyer shall consist of persons not nominated by Buyer's Board of Directors (not
including as Board nominees any directors which the Board is obligated to
nominate pursuant to shareholders agreements, voting trust arrangements or
similar arrangements) or (d) within three years of the Closing Date, the
employment by Buyer of John Keenan or Paul Fenemore terminates for any reason.
"Charter Amendment Approval" means approval of the increase in authorized
shares of Common Stock of the Company to such level as shall permit the full and
complete conversion of the Preferred Shares into the Preferred Conversion Shares
in accordance with the Certificate of Designation, all in accordance with the
Organic Documents and Applicable Law.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" means common stock, $0.001 par value per share, of Buyer and
any securities issued or issuable with respect to such shares by way of a stock
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization.
"Companies Act" means the Companies Act 1985 as amended.
2
<PAGE>
"Default" means an 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.
"Difco" means Difco Limited, a private limited company incorporated under
the laws of England and Wales.
"Environmental Laws" means any and all laws relating to the environment or
to emissions, discharges, releases or threatened releases of pollutants,
contaminants, chemicals, or industrial, toxic or hazardous substances or wastes
into the environment including ambient air, surface water, ground water, or
land, or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling of pollutants,
contaminants, chemicals, or industrial, toxic or hazardous substances or wastes.
"Environmental Obligations" means responsibility and liability for any of
the following occurrences, events and activities relating to the Properties,
whether arising before or after the Effective Date: (i) environmental pollution
or contamination; (ii) underground injection activities or waste disposal onsite
or offsite; (iii) cleanup responses, and the costs of remediation, control or
compliance with respect to surface and subsurface pollution caused by spills,
pits, ponds or lagoons; (iv) failure to comply with applicable land use, surface
disturbance, licensing or notification requirements; or (v) violation of
Environmental Laws.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" means the U.S. Securities Exchange Act of 1934, as amended.
"Excluded Environmental Obligations" means responsibility and liability for
any matter asserted by Buyer to Seller as a breach of a representation and
warranty in Section 4.17 in accordance with, and subject to the provisions of,
Sections 17.1 and 17.5.
"Fiscal Quarter" means a three-month period ending on July 31, October 31,
January 31 or April 30 of any year.
"Fiscal Year" means the twelve-month period ending on April 30 of any
year.
"GOC" means Germany Oil Company, a Delaware corporation.
"Governmental Entity" means any court or tribunal in any jurisdiction
(domestic or foreign) or any federal, state, municipal or other governmental
body, agency, authority, department, commission, board, bureau or
instrumentality (domestic or foreign).
"Hazardous Materials" means any substance regulated under Environmental
Law, whether as pollutants, contaminants, or chemicals, or as industrial, toxic
or hazardous substances or wastes, or otherwise.
3
<PAGE>
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended.
"Indebtedness" of any Person means Liabilities in any of the following
categories: (a) Liabilities for borrowed money; (b) Liabilities constituting an
obligation to pay the deferred purchase price of property or services; (c)
Liabilities evidenced by a bond, debenture, note or similar instrument; (d)
Liabilities which would under U.S. GAAP be shown on such Person's balance sheet
as a liability, and is payable more than one year from the date of creation
thereof (other than reserves for taxes and reserves for contingent obligations);
(e) Liabilities arising under futures contracts, forward contracts, swap, cap or
collar contracts, option contracts, hedging contracts, other derivative
contracts, or similar agreements; (f) Liabilities constituting principal under
leases capitalized in accordance with U.S. GAAP; (g) Liabilities arising under
conditional sales or other title retention agreements; (h) Liabilities owing
under direct or indirect guaranties of Liabilities of any other Person or
constituting obligations to purchase or acquire or to otherwise protect or
insure a creditor against loss in respect of Liabilities of any other Person
(such as obligations under working capital maintenance agreements, agreements to
keep-well, or agreements to purchase Liabilities, assets, goods, securities or
services), but excluding endorsements in the ordinary course of business of
negotiable instruments in the course of collection; (i) Liabilities (for
example, repurchase agreements) consisting of an obligation to purchase
securities or other property, if such Liabilities arise out of or in connection
with the sale of the same or similar securities or property; (j) Liabilities
with respect to letters of credit or applications or reimbursement agreements
therefor; (k) Liabilities with respect to payments received in consideration of
oil, gas, or other minerals yet to be acquired or produced at the time of
payment (including obligations under "take-or-pay" contracts to deliver gas in
return for payments already received and the undischarged balance of any
production payment created by such Person or for the creation of which such
Person directly or indirectly received payment); or (l) Liabilities with respect
to other obligations to deliver goods or services in consideration of advance
payments therefor; provided, however, that the "Indebtedness" of any Person
shall not include Liabilities that were incurred by such Person on ordinary
trade terms to vendors, suppliers, or other Persons providing goods and services
for use by such Person in the ordinary course of its business, unless and until
such Liabilities are outstanding more than 90 days past the original invoice or
billing date therefor.
"IRS" means the Internal Revenue Service.
"Key Employment Agreements" means (i) that certain Executive Employment
Agreement dated as of December 8, 1999 between Buyer and John A. Keenan, and
(ii) that certain Service Agreement dated September 20, 1996 between Alliance
PLC and Paul Raymond Fenemore, as amended by Supplemental Agreement dated
September 20, 1996, Second Supplemental Agreement dated December 1, 1998, and
letter agreement dated as of December 8, 1999.
"Liabilities" means, as to any Person, all indebtedness, liabilities and
obligations of such Person, whether matured or unmatured, liquidated or
unliquidated, primary or secondary, direct or absolute, fixed or contingent, and
whether or not required to be considered pursuant to U.S. GAAP.
4
<PAGE>
"Lien" means, with respect to any property or assets, any right or
interest therein of a creditor to secure Liabilities owed to such creditor or
any other arrangement with such creditor which provides for the payment of such
Liabilities out of such property or assets or which allows him to have such
Liabilities satisfied out of such property or assets prior to the general
creditors of any owner thereof, including any lien, mortgage, security interest,
pledge, deposit, production payment, rights of a vendor under any title
retention or conditional sale agreement or lease substantially equivalent
thereto, tax lien, mechanic's or materialman's lien, or any other charge or
encumbrance for security purposes, whether arising by law or agreement or
otherwise, but excluding any right of offset which arises without agreement in
the ordinary course of business. "Lien" shall also mean 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.
"Listing Rules" means the listing rules of the London Stock Exchange.
"London Stock Exchange" means the London Stock Exchange Limited.
"LPC" means LaTex Petroleum Corporation, an Oklahoma corporation.
"LRI" means LaTex Resources, Inc., a Delaware corporation.
"LRI Merger" means the merger of Alliance Resources (Delaware) Inc. with
and into LRI whereby Alliance PLC became the sole shareholder of LRI.
"Material Adverse Effect" means (a) when used with respect to Buyer, a
material adverse change in, or a material adverse effect upon (i) the business,
assets, results of operations, condition (financial or otherwise) or prospects
of Buyer and its Subsidiaries on a consolidated basis, (ii) Buyer's ability to
timely pay the Obligations or to perform on a timely basis any material
obligation of Buyer under this Agreement or any agreement, instrument, or
document entered into or delivered in connection herewith or (iii) the
enforceability of the material terms of this Agreement or any Ancillary
Document; and (b) when used with respect to Seller, a material adverse change
in, or a material adverse effect upon (i) the Properties or (ii) the
enforceability of the material terms of this Agreement or any Ancillary
Document.
"Old LaTex Payables" means those current accounts payable to Buyer or its
consolidated Subsidiaries that meet one or more of the following tests and have
been certified to Seller by Buyer and applicable Subsidiary as being an Old
LaTex Payable:
(a) accounts payable the collection of which is barred by the
applicable statute of limitations;
(b) accounts payable the collection of which has been compromised or
forgiven in part, in either case to the extent of the amount that has been
compromised or forgiven; or
5
<PAGE>
(c) accounts payable in respect of which the indebtedness was incurred
prior to the LRI Merger and where each of the following is true: (i) no payment
has been made on an individual amount of indebtedness payable since the LRI
Merger, (ii) no contact has been received by Buyer or applicable Subsidiary from
the applicable creditor since the LRI Merger pertaining to such account or if
contact has been received, such account is being diligently contested in good
faith, (iii) no promise to pay such account has been made by Buyer or applicable
Subsidiary since the LRI Merger and (iv) no judgment has been obtained by, or
settlement agreement entered into with, such creditor with respect to such
indebtedness.
"Other Acquisition Agreements" means other agreements or proposed
agreements to which Buyer is a party and disclosed in writing to Seller, whereby
Buyer will issue shares of Series A Preferred, in exchange for interests in
oil, gas and mineral properties and related assets.
"Outstanding Common Stock" means, at any time, the aggregate of all Common
Stock then outstanding, including all shares of Common Stock which could be
acquired from the Company upon exercise or conversion of any outstanding
warrants, options or other securities then exercisable or convertible into
Common Stock.
"Permits" means licenses, permits, franchises, consents, approvals,
variances, exemptions and other authorizations of or from Governmental Entities.
"Permitted Investment" means any investment, loan, advance, guaranty or
capital contribution by Buyer or any Subsidiary in any of the following: (a)
properties or assets to be used in the ordinary course of business of Buyer and
its Subsidiaries; (b) current assets arising from the sale of goods and services
in the ordinary course of business of Buyer and its Subsidiaries; (c)
investments in one or more of Buyer's Subsidiaries or in any Person that
concurrently with such investment becomes a Subsidiary; (d) any marketable
obligation maturing not later than one year after the date of acquisition
therefor, issued or guaranteed by the United States of America or by any agency
of the United States of America which has the full faith and credit of the
United States of America; (e) commercial paper which is given the highest rating
by a credit rating agency of recognized national standing and maturing not more
than 270 days from the date of creation thereof; and (f) any demand deposit or
time deposit (including certificates of deposit and money market or sweep
accounts) with a commercial bank or trust company organized and doing business
under the laws of the United States of America or any state thereof which has
capital, surplus and undivided profits of at least $250,000,000, provided that
such deposit must be either payable on demand or mature not more than twelve
months from the date of investment therein.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, enterprise, unincorporated organization
or Governmental Entity.
"Preferred Conversion Shares" means the shares of Common Stock issuable
upon conversion of the Preferred Shares.
6
<PAGE>
"Preferred Stock Purchase Agreement" means that certain Preferred Stock
Purchase Agreement dated as of May 1, 2000, by and among Buyer, Bank of America,
N.A., EnCap Equity 1996 Limited Partnership, Energy Capital Investment Company
PLC, El Paso Capital Investments, L.L.C., EF-II Holdings, LLC, Picosa Creek
Limited Partnership and EnCap Investments L.L.C.
"Proceedings" means all proceedings, actions, claims, suits, investigations
and inquiries by or before any arbitrator or Governmental Entity.
"Reasonable best efforts" means a party's reasonable best efforts in
accordance with reasonable commercial practice and without the incurrence of
unreasonable expense.
"Restricted Payment" means any Distribution (as defined below) in respect
of Buyer or any Subsidiary thereof (other than on account of capital stock or
other equity interests of a Subsidiary owned legally or beneficially by the
Seller or another Subsidiary), including any Distribution resulting in the
acquisition by Buyer of securities that would constitute treasury stock. As
used in this definition, "Distribution" shall mean, in respect of any
corporation, partnership or other business entity (a) dividends or other
distributions or payments on capital stock or other equity interest of such
corporation, partnership or other business entity (except distributions in such
stock or other equity interest) and (b) the redemption or acquisition of such
stock or other equity interests or of warrants, rights or other options to
purchase such stock or other equity interests (except when solely in exchange
for such stock or other equity interests); provided, that "Distribution" shall
not mean any dividend or other distribution made, or redemption effected, in
accordance with the terms of the Certificate of Designation.
"Securities Act" means the U.S. Securities Act of 1933, as amended.
"Securities and Exchange Commission" means the U.S. Securities and Exchange
Commission.
"Seller Disclosure Schedule" shall mean a schedule delivered by Seller to
Buyer which sets forth additional information regarding the representations and
warranties of Seller contained herein and information called for hereby.
"Senior Credit Facility" means that certain Credit Agreement dated as of
May 1, 2000, by and among Buyer, Toronto Dominion (Texas), Inc., as Agent, and
the lenders signatory.
"Series A Preferred" means shares of Buyer's Series A Preferred Stock,
$.001 par value per share.
"Source" means Source Petroleum, Inc., a Louisiana corporation.
"Subordinated Debt" means that certain Indebtedness of Buyer evidenced by
the Subordinated Debt Agreement.
7
<PAGE>
"Subordinated Debt Agreement" means that certain Purchase Agreement dated
as of May 1, 2000, by and among Buyer, EnCap Equity 1996 Limited Partnership and
El Paso Capital Investments, L.L.C.
"Subsidiary" means any corporation more than 50% of whose outstanding
voting securities, or any general partnership, joint venture or similar entity
more than 50% of whose total equity interests, is owned, directly or indirectly,
by the Buyer, or any limited partnership of which Buyer or any Subsidiary is a
general partner.
"Taxes" means any income taxes or similar assessments or any sales, excise,
occupation, use, ad valorem, property, production, severance, transportation,
employment, payroll, franchise, transfer, stamp, withholding or other tax
imposed by any United States federal, state or local (or any foreign or
provincial) taxing authority, including any interest, penalties or additions
attributable thereto.
"Tax Return" means any return or report (including but not limited to any
related or supporting information, any amended return or report or any
information return or report) with respect to Taxes.
"Treasury Regulations" means one or more treasury regulations promulgated
under the Code by the Treasury Department of the United States.
"U.S. GAAP" means generally accepted accounting principles in the United
States of America from time to time.
Section 1.2. Certain Additional Defined Terms. In addition to such terms
--------------------------------
as are defined in the opening paragraph and in Section 1.1 of this Agreement,
the following terms are used in this Agreement as defined in the Sections set
forth opposite such terms:
Defined Term Section Reference
---------------------------------------- --------------------
Asserted Defects........................ 7.1 (a)
Assignment.............................. 9.2 (a)
Audited Financial Statements............ 5.10
Base Purchase Price..................... Article III
Basic Documents......................... 4.7
Closing................................. 9.1
Closing Date............................ 9.1
Data.................................... Article II(f)
Disbursement Properties................. 4.15
Effective Date.......................... 9.2 (a)
Event of Default........................ 15.1
Financial Statements.................... 5.10
Latest Balance Sheet.................... 5.10
Net Title Adjustments................... 7.2 (c)
non-operators........................... 4.15
8
<PAGE>
Defined Term Section Reference
---------------------------------------- --------------------
Oil and Gas Properties.................. Article II
Operated Properties..................... 4.15
Organic Documents....................... 5.3
Permitted Liens......................... 14.2
Preferred Shares........................ Article II
Properties.............................. Article II
Purchase Price.......................... Article III
Scheduled Production Sales Contracts.... 4.9
Unaudited Financial Statements.......... 5.10
Section 1.3. References, Titles and Construction.
------------------------------------
(a) All references in this Agreement to articles, sections,
subsections and other subdivisions refer to corresponding articles, sections,
subsections and other subdivisions of this Agreement unless expressly provided
otherwise.
(b) Titles appearing at the beginning of any of such subdivisions are
for convenience only and shall not constitute part of such subdivisions and
shall be disregarded in construing the language contained in such subdivisions.
(c) 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.
(d) Words in the singular form shall be construed to include the
plural and vice versa, unless the context otherwise requires. Pronouns in
---- -----
masculine, feminine and neuter genders shall be construed to include any other
gender.
(e) 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 or restatements of such agreement,
instrument or document, provided that nothing contained in this subsection shall
be construed to authorize such renewal, extension, modification, amendment or
restatement.
(f) Examples shall not be construed to limit, expressly or by
implication, the matter they illustrate.
(g) The word "or" is not intended to be exclusive and the word
"includes" and its derivatives means "includes, but is not limited to" and
corresponding derivative expressions.
(h) No consideration shall be given to the fact or presumption that
one party had a greater or lesser hand in drafting this Agreement.
9
<PAGE>
(i) All references herein to "$" or "dollars" shall refer to U.S.
Dollars.
ARTICLE II
Property to be Sold and Purchased
---------------------------------
Seller agrees to sell and Buyer agrees to purchase, for the consideration
hereinafter set forth, and subject to the terms and provisions herein contained,
the following described properties, rights and interests:
(a) All of those properties described in Exhibit II attached
----------
hereto and made a part hereof for all purposes;
(b) Without limitation of the foregoing, all other right, title and
interest (of whatever kind or character, whether legal or equitable, and whether
vested or contingent) of Seller in and to the oil, gas and other minerals in and
under or that may be produced from the lands described in Exhibit II hereto
----------
(including interests in oil, gas and/or mineral leases covering such lands,
overriding royalties, production payments and net profits interests in such
lands or such leases, and fee mineral interests, fee royalty interests and other
interests in such oil, gas and other minerals), whether such lands are described
in a description set forth in such Exhibit II or are described in such Exhibit
---------- -------
II by reference to another instrument (and without limitation by any depth
- --
limitations that may be set forth in such Exhibit II or in any such instrument
----------
so referred to for description), even though Seller's interest in such oil, gas
and other minerals may be incorrectly described in, or omitted from, such
Exhibit II;
- ----------
(c) All rights, titles and interests of Seller in and to, or
otherwise derived from, all presently existing and valid oil, gas and/or mineral
unitization, pooling, and/or communitization agreements, declarations and/or
orders and in and to the properties covered and the units created thereby
(including all units formed under orders, rules, regulations, or other official
acts of any federal, state, or other authority having jurisdiction, voluntary
unitization agreements, designations and/or declarations) relating to the
properties described in paragraphs (a) and (b) above;
(d) All rights, titles and interests of Seller in and to all
presently existing and valid production sales (and sales related) contracts,
operating agreements, and other agreements and contracts which relate to any of
the properties described in paragraphs (a), (b) and (c) above, or which relate
to the exploration, development, operation, or maintenance thereof or the
treatment, storage, transportation or marketing of production therefrom (or
allocated thereto);
(e) All rights, titles and interests of Seller in and to all
materials, supplies, machinery, equipment, improvements and other personal
property and fixtures (including, but not by way of limitation, all wells,
wellhead equipment, pumping units, flowlines, tanks, buildings, injection
facilities, saltwater disposal facilities, compression facilities, gathering
systems, and other equipment), and all easements, rights-of-way, surface leases
and other surface rights, all permits and licenses, and all other appurtenances
being used or held for use in connection with, or otherwise related to, the
10
<PAGE>
exploration, development, operation or maintenance of any of the properties
described in paragraphs (a), (b) and (c) above, or the treatment, storage,
transportation or marketing of production therefrom (or allocated thereto);
(f) All of Seller's lease files, abstracts and title opinions,
production records, well files, accounting records (but not including general
financial accounting records), seismic records and surveys, gravity maps,
electric logs, geological or geophysical data and records, and other files,
documents and records of every kind and description which relate to the
properties described above (collectively "Data"); and
(g) Without limiting the generality of the foregoing, all of Seller's
rights, titles, claims and interests in and to all of the properties, rights and
interests incident to the items specified in the foregoing paragraphs of this
Article II.
The properties and interests specified in the foregoing paragraphs (a), (b) and
(c) are herein sometimes collectively called the "Oil and Gas Properties," and
the properties and interests specified in the foregoing paragraphs (a), (b),
(c), (d), (e), (f) and (g) are herein sometimes collectively called the
"Properties".
ARTICLE III
Purchase Price
---------------
In consideration of the sale of the Properties by Seller to Buyer, Buyer
shall pay to Seller at Closing an aggregate purchase price (the "Base Purchase
Price") consisting of 202,640 shares of Series A Preferred (the "Preferred
Shares"). The rights, designations, preferences and other terms and conditions
relating to the Preferred Shares shall be as set forth in the Certificate of
Designation attached hereto as Exhibit 3.1. The Base Purchase Price may be
-----------
adjusted as provided in Article VII (the Base Purchase Price, as so adjusted,
and as the same may be otherwise adjusted by the mutual agreement of the
parties, being called the "Purchase Price").
ARTICLE IV
Representations and Warranties of Seller
----------------------------------------
Subject to the Seller Disclosure Schedule, Seller represents and warrants
to Buyer as follows:
Section 4.1. Organization and Existence. Seller is a limited partnership
--------------------------
duly formed and validly existing under the laws of the State of Texas.
Section 4.2. Authority Relative to This Agreement. Seller has full power
------------------------------------
and authority to execute, deliver, and perform this Agreement and the Ancillary
Documents and to consummate the transactions contemplated hereby and thereby.
The execution, delivery, and performance by
11
<PAGE>
Seller of this Agreement and the Ancillary Documents and the consummation by it
of the transactions contemplated hereby and thereby, have been duly authorized
by all necessary action of Seller.
Section 4.3. Valid and Binding Agreement. This Agreement has been duly
---------------------------
executed and delivered by Seller and constitutes, and each Ancillary Document
has been, or when executed will be, duly executed and delivered by Seller and
constitutes, or when executed and delivered will constitute, a valid and legally
binding obligation of Seller, enforceable against it in accordance with their
respective terms, except that such enforceability may be limited by (a)
applicable bankruptcy, insolvency, reorganization, moratorium, and similar laws
affecting creditors' rights generally and (b) equitable principles which may
limit the availability of certain equitable remedies (such as specific
performance) in certain instances.
Section 4.4. Non-Contravention. Other than requirements (if any) that
-----------------
there be obtained consents to assignment (or waivers of preferential rights to
purchase) from third parties, and except for approvals required to be obtained
from governmental entities who are lessors under leases forming a part of the
Oil and Gas Properties (or who administer such leases on behalf of such lessors)
which are customarily obtained post-closing, neither the execution, delivery,
and performance by Seller of this Agreement and each other agreement,
instrument, or document executed or to be executed by Seller in connection with
the transactions contemplated hereby nor the consummation by it of the
transactions contemplated hereby and thereby do and will (a) conflict with or
result in a violation of any provision of the partnership agreement or other
governing instruments of Seller, (b) conflict with or result in a violation of
any provision of, or constitute (with or without the giving of notice or the
passage of time or both) a default under, or give rise (with or without the
giving of notice or the passage of time or both) to any right of termination,
cancellation, or acceleration under, any bond, debenture, note, mortgage,
indenture, lease, contract, agreement, or other instrument or obligation to
which Seller is a party or by which Seller, any of its properties or the
Properties may be bound, (c) result in the creation or imposition of any lien or
other encumbrance upon the properties of Seller or the Properties, or (d)
violate any Applicable Law binding upon Seller.
Section 4.5. Approvals. Other than requirements (if any) that there be
---------
obtained consents to assignment (or waivers of preferential rights to purchase)
from third parties, and except for approvals required to be obtained from
governmental entities who are lessors under leases forming a part of the Oil and
Gas Properties (or who administer such leases on behalf of such lessors) which
are customarily obtained post-closing, no consent, approval, authorization.
license, order or permit of, or declaration, filing, or registration with, any
Governmental Entity or any other Person or entity is required to be obtained or
made by Seller in connection with the execution, delivery, or performance by
Seller of this Agreement or any Ancillary Document and the consummation of the
transactions contemplated hereby and thereby.
Section 4.6. Pending Litigation. There are no Proceedings pending, or to
------------------
the best knowledge of Seller, threatened, which affect the Properties (including
any actions challenging or pertaining to Seller's title to any of the
Properties), or affecting the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby. None of Seller or any of
12
<PAGE>
the Properties is subject to any judgment, order, writ, injunction, or decree of
any Governmental Entity.
Section 4.7. Basic Documents. The oil, gas and/or mineral leases,
---------------
interests in which comprise parts of the Oil and Gas Properties, and all other
material contracts and agreements, licenses, permits and easements, rights-of-
way and other rights-of-surface use comprising any part of or otherwise relating
to the Properties (such leases and such material contracts, agreements,
licenses, permits, easements, rights-of-way and other rights-of-surface use,
including any amendments or modifications, being herein called the "Basic
Documents"), are in full force and effect and constitute valid and binding
obligations of the parties thereto and are enforceable in accordance with their
respective terms. All Basic Documents are disclosed on Exhibit II in connection
----------
with the descriptions of the Oil and Gas Properties to which they relate or
otherwise in the Seller Disclosure Schedule. Seller is not in breach or default
(and no situation exists which with the passing of time or giving of notice
would create a breach or default) of its obligations under the Basic Documents
or any regulations incorporated in or governing same, and (to the best of
Seller's knowledge) no breach or default by any third party (or situation which
with the passage of time or giving of notice would create a breach or default)
exists, to the extent such breach or default (whether by Seller or such a third
party) could materially adversely affect the ownership, operation, value or use
of any Oil and Gas Property of Buyer after the Effective Date. All payments
(including all delay rentals, royalties, shut-in royalties and valid calls for
payment or prepayment under operating agreements) owing under Basic Documents
have been and are being made (timely, and before the same became delinquent) by
Seller in all material respects (and, where the non-payment of same by a third
party could materially adversely affect the ownership, operation, value or use
of an Oil and Gas Property after the Effective Date, have been and are being
made, to the best knowledge of Seller, by such third parties). For the purposes
of the representations contained in this Section (and without limitation of such
representations), the non-payment of an amount, or non-performance of an
obligation, where such non-payment, or non-performance, could result in the
forfeiture or termination of rights of Seller (or Buyer after Closing) under a
Basic Document, shall be considered material. Seller is not a party to any
confidentiality agreements relating to the Properties. Seller has rights in the
Data and has the power and authority to transfer the Data to Buyer pursuant to
this Agreement. After Closing, Buyer shall have the power and authority to use
the Data in accordance with the terms of the Basic Documents in connection with
the exploration and development of the properties for oil and gas.
Section 4.8. Commitments, Abandonments or Proposals. Except as set forth
--------------------------------------
on Seller's Disclosure Schedule 4.8: (a) Seller has incurred no expenses, and
has made no commitments to make expenditures (including Seller has not entered
into any agreements that would obligate Seller to make expenditures), in
connection with (and no other obligations or liabilities have been incurred
which would adversely affect) the ownership or operation of the Properties after
the Effective Date, other than routine expenses incurred in the normal operation
of existing wells on the Oil and Gas Properties; (b) Seller has not abandoned,
and has not entered into any agreements or arrangements to abandon, any wells
(or removed any material items of equipment, except those replaced by items of
equal suitability and value) on the Oil and Gas Properties since the Effective
Date; and (c) no proposals are currently outstanding (whether made by Seller or
by any other party) to drill additional wells, or to deepen, plug back, or
rework existing wells, or to conduct other operations for which
13
<PAGE>
consent is required under the applicable operating agreement, or to conduct any
other operations other than normal operation of existing wells on the Oil and
Gas Properties, or to abandon any wells, on the Oil and Gas Properties. There
are no operations involving any of the Properties with respect to which Seller
has become a non-consenting party.
Section 4.9. Production Sales Contracts. There exist no agreements or
--------------------------
arrangements for the sale of production from the Oil and Gas Properties
(including without limitation, calls on, or other rights to purchase,
production, whether or not the same are currently being exercised) other than
(a) production sales contracts (in this Section, the "Scheduled Production Sales
Contracts") disclosed in Section 4.9 of the Seller Disclosure Schedule or (b)
agreements or arrangements which are cancelable on 60 days notice or less
without penalty or detriment. Seller is presently receiving a price for all
production from (or attributable to) each Oil and Gas Property covered by a
Scheduled Production Sales Contract as computed in accordance with the terms of
such contract, and is not having deliveries of gas from any Oil and Gas Property
subject to a Scheduled Production Sale Contract curtailed substantially below
such property's delivery capacity. There are no prepayments, advance payments,
take-or-pay payments or similar payments affecting the Properties.
Section 4.10. Plugging and Abandonment. There are no dry holes, or shut
------------------------
in or otherwise inactive wells, located on the Oil and Gas Properties or on
lands pooled or unitized therewith (including any wells which would, if located
in Texas, require compliance with Railroad Commission Rule 14(b)(2)), except for
wells that have been properly plugged and abandoned, and except for wells
drilled to depths not included within the Oil and Gas Properties or within units
in which the Oil and Gas Properties participate which have never been completed
in such depths.
Section 4.11. Licenses and Permits. Seller has all Permits necessary or
--------------------
appropriate to own and operate the Properties as presently being owned and
operated, and such Permits are in full force and effect (and are transferrable
to Buyer or are subject to being routinely replaced by a license or permit
issued to Buyer as a successor owner of the Properties), and Seller has not
received written notice of any violations in respect of any such Permits.
Section 4.12. Area of Mutual Interest and Other Agreements; Tax
-------------------------------------------------
Partnerships. No Oil and Gas Property is subject to (or has related to it) any
- ------------
area of mutual interest agreements. No Oil and Gas Property is subject to (or
has related to it) any farm-out or farm-in agreement under which any party
thereto is entitled to receive assignments not yet made, or could earn
additional assignments after the Effective Date. No Oil and Gas Property is
subject to (or has related to it) any tax partnership.
Section 4.13. Payment of Expenses. All expenses (including all bills for
-------------------
labor, materials and supplies used or furnished for use in connection with the
Properties, and all severance, production, ad valorem, windfall profit and other
similar taxes) and liabilities relating to the ownership or operation of the
Properties, have been, and are being, paid (timely, and before the same become
delinquent) by Seller.
14
<PAGE>
Section 4.14. Compliance with Laws. The ownership and operation of
--------------------
Properties, to the extent that non-conformance could adversely affect the
ownership, operation, value or use thereof after the Effective Date (or
otherwise affect Buyer), has been in conformity, in all material respects, with
all Applicable Laws, except for such non-compliance which would not have a
Material Adverse Effect. Without limitation of the foregoing, all oil and gas
wells comprising a part of the Properties have been drilled and completed within
the boundaries of the applicable leases or within limits otherwise permitted by
a valid and enforceable pooling, unit, or other agreement or contract or by
applicable law, and no well comprising a part of the Properties is or was
subject to any penalty on allowables after the Effective Date because of any
over-production (or any other judgments, orders or decrees of any court or
governmental authority or agency) which would (or did) prevent such well from
being entitled to its full legal and regular allowable (as prescribed by any
court or governmental body or agency) from and after the Effective Date.
Section 4.15. Operated Properties. Seller has listed in Section 4.15 of
-------------------
the Seller Disclosure Schedule all of the Oil and Gas Properties (in this
Section, the "Operated Properties") where Seller or an Affiliate thereof serves
as operator, for itself and such other parties (in this Section, "non-
operators"). All bills to non-operators for reimbursement of operating expenses
incurred with respect to the Operated Properties are being rendered, and (except
for amounts totaling less than $25,000) paid, on a current basis; Seller has
made no advance billings to non-operators for estimated costs which have not
heretofore been reconciled to actual costs with full credit having been given
for funds advanced (and Seller, therefore, holds no funds advanced by a non-
operator as pre-payment of estimated future costs). Seller has listed in
Section 4.15 of the Seller Disclosure Schedule all wells with respect to which
it is disbursing proceeds of production to third parties owning interests in the
production from such wells (in this Section, the "Disbursement Properties").
All of such proceeds of production being so accounted for (except proceeds,
aggregating less than $25,000, attributable to interests being held in suspense
in accordance with prudent industry practice) have been, and are being,
accounted for under appropriate division orders, transfer orders or similar
documents signed by, or otherwise clearly binding on, the parties receiving such
proceeds and reflecting, as to each party, the decimal interest such party is
being paid upon; to the best of Seller's knowledge, Seller has been correctly
accounting to such third parties for such proceeds of production.
Section 4.16. Physical Condition of Facilities. The surface physical
--------------------------------
facilities on the Properties have been maintained in accordance with normal
industry maintenance practices and are in a state of repair (normal wear and
tear excepted) that Seller believes to be adequate for the normal use of such
facilities in the ordinary conduct of the business of Seller. Without limiting
the foregoing, but subject to ordinary wear and tear, such facilities are not in
need of maintenance or improvements except for maintenance and improvements in
the ordinary course in accordance with normal industry practice.
Section 4.17. Environmental Matters. (i) Seller is in material compliance
---------------------
with all applicable federal, state, local and foreign laws, regulations, rules,
orders, decrees, treaties, judicial decisions, judgments, injunctions, permits
and governmental restrictions relating to pollution or protection of human
health or the environment (including ambient air, surface water, ground water,
land surface or subsurface strata) (collectively "Environmental Laws"), except
for such non-
15
<PAGE>
compliance as could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect, and, to the best knowledge of
Seller, there are no circumstances that are reasonably likely to materially
prevent or interfere with such compliance in the next three years, and (ii)
neither Seller nor any of its Subsidiaries has received written notice of or, to
the best knowledge of Seller, is the subject of, any actions, causes of action,
claims, investigations, demands, notices, requests for information, complaints,
suits or proceedings by any Person alleging liability under or non-compliance
with any Environmental Law that are reasonably likely, individually or in the
aggregate, to have a Material Adverse Effect. Buyer acknowledges that this
Section 4.17 is the exclusive representation and warranty made by Seller in this
Agreement with respect to applicable Environmental Laws and no other
representation and warranty in this Agreement shall be deemed to cover such
matters.
Section 4.18. Production Data. Seller has provided to representatives of
---------------
Buyer aggregate production data on the Properties and data on lease operating
expenses incurred on the Properties. To the best knowledge of Seller, all of
such data is accurate and complete in all material respects as of the date
provided.
Section 4.19. Ordinary Course Operations. Except as set forth on Seller's
--------------------------
Disclosure Schedule 4.8, since January 1, 2000, Seller has not operated or in
any manner dealt with, incurred obligations with respect to, or undertaken any
transactions relating to, the Properties other than in the ordinary course of
business consistent with past practice and none of the Properties has suffered
any material destruction, damage, or loss (except depreciation of equipment
through ordinary wear and tear) or been subjected by Seller to any mortgage,
lien, encumbrance, claim, or security interest that has not previously been
disclosed to representatives of Buyer or that would constitute a Material
Adverse Effect.
Section 4.20. Sale of Production. Except as described in Section 4.20 of
------------------
the Seller Disclosure Schedule, there is no well on the Properties with respect
to which Seller and its predecessors in title to the Properties have
collectively taken more (referred to herein as "overproduced") or less (referred
to herein as "underproduced") production from such well than the ownership of
Seller and such predecessors would entitle Seller and such predecessors (absent
any gas balancing agreement or arrangement) to receive. The overproduced and
underproduced positions disclosed on Section 4.20 of the Seller Disclosure
Schedule are, in each case, materially accurate as of the dates shown on such
schedule.
Section 4.21. [Intentionally Omitted].
-----------------------
Section 4.22. Brokerage Fees. Neither Seller nor any of its affiliates
--------------
has retained any financial advisor, broker, agent or finder or paid or agreed to
pay any financial advisor, broker, agent or finder on account of this Agreement
or any transaction contemplated hereby, which action would subject Buyer or any
of its affiliates to any liability. Seller shall indemnify and hold harmless
Buyer from and against any and all losses, claims, damages and liabilities
(including legal and other expenses reasonably incurred in connection with
investigating or defending any claims or actions) with respect to any finder's
fee, brokerage commission or similar payment in connection with any transaction
16
<PAGE>
contemplated hereby asserted by any Person on the basis of any act or statement
made or alleged to have been made by Seller or any of its affiliates.
Section 4.24. Bankruptcy. There are no bankruptcy, reorganization or
----------
arrangement proceedings pending, being contemplated by, or to the knowledge of
Seller, threatened against Seller.
Section 4.25. Full Disclosure. No representation or warranty made by
---------------
Seller in this Agreement, and no statement of Seller contained in any document,
certificate or other writing furnished or to be furnished by Seller or its
representatives to Buyer pursuant hereto or in connection herewith, contains or
will contain, at the time of delivery, any untrue statement of a material fact
or omits or will omit, at the time of delivery, to state any material fact
(other than industry-wide risks normally associated with the type of business
conducted by Seller) necessary to make the statements contained therein, in
light of the circumstances in which they are made, not misleading. There is no
fact known to Seller (other than industry-wide risks normally associated with
the type of business conducted by Seller) that has not been disclosed to Buyer
in writing which Seller reasonably anticipates would result in a Material
Adverse Effect.
Section 4.26. Disclaimer of Warranties. Other than those expressly set
------------------------
out in this Article IV, Seller hereby expressly disclaims any and all
representations or warranties with respect to the Properties or the transaction
contemplated hereby, and Buyer agrees that the Properties are being sold by
Seller "where is" and "as is". Specifically as a part of (but not in limitation
of) the foregoing, Buyer acknowledges that Seller has not made, and Seller
hereby expressly disclaims, any representation or warranty (express, implied,
under common law, by statute or otherwise) as to (a) the condition of the
Properties (INCLUDING WITHOUT LIMITATION, SELLER DISCLAIMS ANY IMPLIED OR
EXPRESS WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR
CONFORMITY TO MODELS OR SAMPLES OF MATERIALS), (b) the status of title to the
Properties or (c) as the extent of oil, gas or other mineral reserves, the
recoverability of or the cost of recovering any such reserves, the value of such
reserves, prices (or anticipated prices) at which production will be sold and
the ability to sell oil or gas production from the Properties.
ARTICLE V
Representations and Warranties of Buyer
----------------------------------------
Section 5.1. Organization and Existence. Buyer is a corporation duly
--------------------------
organized and validly existing under the laws of Delaware.
Section 5.2. Qualification. Each of Buyer and the Subsidiaries is duly
-------------
qualified or licensed to do business and, with respect to non-U.K. entities, in
good standing in each of the jurisdictions in which it owns, leases or operates
property or in which such qualification or licensing is required for the conduct
of its business.
17
<PAGE>
Section 5.3. Charter and Bylaws. Buyer has made available to Seller
------------------
accurate and complete copies of Buyer's certificate of incorporation and bylaws
("Organic Documents") as currently in effect, and stock records of Buyer.
Neither Buyer nor any Subsidiary is in violation of its Organic Documents or its
partnership agreement or similar governing document, as the case may be.
Section 5.4. Capitalization of Buyer. Subject to Schedule 5.4, the
----------------------- ------------
authorized capital stock of Buyer, the number of shares outstanding and the
number of shares held in Buyer's treasury are set forth on Schedule 5.4 hereto.
------------
All outstanding shares of capital stock of Buyer have been validly issued and
are fully paid and nonassessable, and no shares of capital stock of Buyer are
subject to, nor have any been issued in violation of, preemptive or similar
rights. Except as set forth on Schedule 5.4 hereto, there are (and as of the
------------
Closing Date there will be) outstanding (i) no shares of capital stock or other
voting securities of Buyer, (ii) no securities of Buyer convertible into or
exchangeable for shares of capital stock or other voting securities of Buyer,
(iii) no options or other rights to acquire from Buyer, and no obligation of
Buyer to issue or sell, any shares of capital stock or other voting securities
of Buyer or any securities of Buyer convertible into or exchangeable for such
capital stock or voting securities, and (iv) no equity equivalents, interests in
the ownership or earnings or other similar rights of or with respect to Buyer.
There are (and as of the Closing Date there will be) no outstanding obligations
of Buyer or any Subsidiary to repurchase, redeem, or otherwise acquire any of
the foregoing shares, securities, options, equity equivalents, interests, or
rights. Except as set forth on Schedule 5.4, Buyer is not a party to, and is
------------
not aware of, any voting agreement, voting trust, or similar agreement or
arrangement relating to any class or series of its capital stock.
Section 5.5. Authority Relative to This Agreement. Subject to Charter
------------------------------------
Amendment Approval as it pertains to Buyer's ability to permit the full
conversion of the Preferred Shares into the Preferred Conversion Shares, Buyer
has full power and authority to execute, deliver, and perform this Agreement and
the Ancillary Documents to which it is a party and to consummate the
transactions contemplated hereby and thereby. The execution, delivery, and
performance by Buyer of this Agreement and the Ancillary Documents to which it
is a party, and the consummation by it of the transactions contemplated hereby
and thereby, have been duly authorized by all necessary action of Buyer. This
Agreement has been duly executed and delivered by Buyer and constitutes, and
each Ancillary Document executed or to be executed by Buyer has been, or when
executed will be, duly executed and delivered by Buyer and constitutes, or when
executed and delivered will constitute, a valid and legally binding obligation
of Buyer, enforceable against Buyer in accordance with their respective terms,
except that such enforceability may be limited by (i) applicable bankruptcy,
insolvency, reorganization, moratorium, and similar laws affecting creditors'
rights generally and (ii) equitable principles which may limit the availability
of certain equitable remedies (such as specific performance) in certain
instances.
Section 5.6. No Conflict. Assuming all consents, approvals,
-----------
authorizations and other actions described in Section 5.7 have been obtained and
all filings and notifications listed on Schedule 5.7 have been made and except
------------
as described on Schedule 5.6, the execution, delivery and performance of this
------------
Agreement by Buyer, the execution, delivery and performance by each Subsidiary
18
<PAGE>
of the Ancillary Documents to which it is a party, and the consummation by them
of the transactions contemplated hereby and thereby do not and will not (a)
violate or conflict with the Organic Documents of Buyer or any Subsidiary,
subject to Charter Amendment Approval as it pertains to Buyer's ability to
permit the full conversion of the Preferred Shares into Preferred Conversion
Shares, (b) conflict with or result in any violation of any provision of, or
constitute (with or without the giving of notice or the passage of time or both)
a default under, or give rise (with or without the giving of notice or the
passage of time or both) to any right of termination, cancellation, or
acceleration under, or require any consent, approval, authorization or waiver
of, or notice to, any party to, any bond, debenture, note, mortgage, indenture,
lease, contract, agreement, or other instrument or obligation to which Buyer or
any Subsidiary is a party or by which Buyer or any Subsidiary or any of their
respective properties may be bound or any Permit held by Buyer or any
Subsidiary, (iii) result in the creation or imposition of any Lien upon the
properties of Buyer or any Subsidiary (other than as provided in the Senior
Credit Facility) or (iv) violate any Applicable Law binding upon Buyer or any
Subsidiary.
Section 5.7. Consents and Approvals, Licenses, Etc. Except as set forth
-------------------------------------
on Schedule 5.7, no consent, approval, authorization, license, order or permit
------------
of, or declaration, filing or registration with, or notification to, any
Governmental Entity, or any other Person or entity, is required to be made or
obtained by Buyer or any Subsidiary in connection with the execution, delivery
and performance of this Agreement or any Ancillary Document and the consummation
of the transactions contemplated hereby and thereby.
Section 5.8. Subsidiaries.
------------
(a) Buyer does not own, directly or indirectly, any capital stock or
equity securities of any corporation or have any direct or indirect equity or
ownership interest in any other Person, other than the Subsidiaries. Schedule
--------
5.8 lists each Subsidiary, the jurisdiction of incorporation or formation of
- ---
each Subsidiary and the authorized (in the case of capital stock) and
outstanding capital stock or other equity interests of each Subsidiary. Each
U.K. Subsidiary is duly formed and validly existing under the laws of the
jurisdiction of its formation, and each other Subsidiary is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation. Each Subsidiary has all requisite corporate
or other, as applicable, power and authority to own, lease, and operate its
properties and to carry on its business as now being conducted. No actions or
proceedings to dissolve any Subsidiary are pending.
(b) Except as otherwise indicated on Schedule 5.8, all the
------------
outstanding capital stock or other equity interests of each Subsidiary are owned
directly or indirectly by Buyer, free and clear of all Liens. All outstanding
shares of capital stock of each corporate Subsidiary have been validly issued
and are fully paid and nonassessable. All equity interests of each other
Subsidiary have been validly issued and are fully paid (to the extent required
at such time). No shares of capital stock or other equity interests of any
Subsidiary are subject to, nor have any been issued in violation of, preemptive
or similar rights.
19
<PAGE>
(c) Except as set forth on Schedule 5.8, there are (and as of the
------------
Closing Date there will be) outstanding (i) no shares of capital stock or other
voting securities of any Subsidiary, (ii) no securities of Buyer or any
Subsidiary convertible into or exchangeable for shares of capital stock or other
voting securities of any Subsidiary, (iii) no options or other rights to acquire
from Buyer or any Subsidiary, and no obligation of Buyer or any Subsidiary to
issue or sell, any shares of capital stock or other voting securities of any
Subsidiary or any securities convertible into or exchangeable for such capital
stock or voting securities and (iv) no equity equivalents, interests in the
ownership or earnings, or other similar rights of or with respect to any
Subsidiary. There are (and as of the Closing Date there will be) no outstanding
obligations of Buyer or any Subsidiary to repurchase, redeem or otherwise
acquire any of the foregoing shares, securities, options, equity equivalents,
interests or rights.
Section 5.9. Preferred Shares; Conversion Shares.
-----------------------------------
(a) The Preferred Shares, when issued under the terms of this Agreement,
will be duly authorized, validly issued and fully paid and nonassessable.
Subject to Charter Amendment Approval as it pertains to Buyer's ability to
permit the full conversion of the Preferred Shares into the Preferred Conversion
Shares, the Preferred Conversion Shares, when issued against payment of the
conversion price for such shares, will be duly authorized, validly issued and
fully paid and nonassessable.
(b) Subject to Charter Amendment Approval as it pertains to Buyer's
ability to permit the full conversion of the Preferred Shares into the Preferred
Conversion Shares, sufficient shares of authorized but unissued Common Stock of
Buyer will have been reserved by appropriate action in connection with the
Preferred Conversion Shares.
(c) Neither the issuance of the Preferred Shares, nor the issuance of
shares of Common Stock upon the conversion of the Preferred Shares, is subject
to any unwaived preemptive or other similar statutory or contractual rights or
will conflict with any provision of any agreement or instrument to which the
Company or any Subsidiary is a party or by which it is bound.
Section 5.10. Financial Statements. Buyer has delivered to Seller
--------------------
accurate and complete copies of (i) Alliance PLC's audited consolidated balance
sheet as of April 30, 1999, and the related audited consolidated statements of
income, stockholders' equity and cash flows for the year then ended, and the
notes and schedules thereto, together with the unqualified report thereon of
KPMG Audit Plc, independent public accountants (the "Audited Financial
Statements") and (ii) Buyer's unaudited consolidated balance sheet as of
January 31, 2000 (the "Latest Balance Sheet"), and the related unaudited
consolidated statements of income, stockholders' equity, and cash flows for the
three-month period then ended (the "Unaudited Financial Statements"), certified
by Buyer's chief financial officer (collectively, the "Financial Statements").
The Financial Statements (i) represent actual bona fide transactions, (ii) have
been prepared from the books and records of Alliance PLC and Buyer and their
respective consolidated Subsidiaries in conformity with U.S. GAAP accounting
principles applied on a basis consistent with preceding years throughout the
periods involved and (iii) fairly present Alliance PLC's and Buyer's (as
applicable) consolidated financial position as of the respective dates thereof
and Alliance PLC's and Buyer's (as applicable) consolidated results of
20
<PAGE>
operations and cash flows for the periods then ended. The statements of income
included in the Financial Statements do not contain any items of special or
nonrecurring income except as identified in the notes thereto, and the balance
sheets included in the Financial Statements do not reflect any write-up or
revaluation increasing the book value of any assets, nor have there been any
transactions since the date of the Latest Balance Sheet giving rise to special
or nonrecurring income or any such write-up or revaluation.
Section 5.11. Securities Filings. Buyer and its Subsidiaries have filed
------------------
with the Securities and Exchange Commission, the London Stock Exchange and the
Registrar of Companies all forms, reports, schedules, statements and other
documents required to be filed by them since May 1, 1997 under the Companies Act
and the Listing Rules and since April 30, 1997 under the Securities Act, the
Exchange Act and all other federal securities laws. All final forms, reports,
schedules, statements and other documents (including all amendments thereto)
filed by Buyer and its Subsidiaries with the Securities and Exchange Commission
and the London Stock Exchange since such date are herein collectively referred
to as the "SEC Filings". Buyer has delivered or made available to Seller
accurate and complete copies of all the SEC Filings in the form filed by Buyer
and its Subsidiaries with the Securities and Exchange Commission and the London
Stock Exchange. The SEC Filings, at the time filed, complied in all material
respects with all applicable requirements of federal securities laws. None of
the SEC Filings, including any financial statements or schedules included
therein, at the time filed, contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or necessary in
order to make the statements contained therein, in light of the circumstances
under which they were made, not misleading. All material contracts of Buyer and
the Subsidiaries have been included in the SEC Filings, except for those
contracts not required to be filed pursuant to the rules and regulations of the
Securities and Exchange Commission and the London Stock Exchange. Buyer shall
deliver to Seller as soon as they become available accurate and complete copies
of all forms, reports, and other documents furnished by it to its shareholders
generally or filed by it with the Securities and Exchange Commission and the
London Stock Exchange subsequent to the date hereof and prior to the Closing
Date.
Section 5.12. Absence of Undisclosed Liabilities. Neither Buyer nor any
----------------------------------
Subsidiary has any liability or obligation (whether accrued, absolute,
contingent, unliquidated, or otherwise, whether or not known to Buyer or any
Subsidiary, and whether due or to become due), except (i) liabilities reflected
on the Latest Balance Sheet, (ii) liabilities which have arisen since the date
of the Latest Balance Sheet in the ordinary course of business (none of which is
a material liability for breach of contract, breach of warranty, tort, or
infringement), (iii) liabilities arising under executory contracts entered into
in the ordinary course of business (none of which is a material liability for
breach of contract) and (iv) liabilities specifically set forth on Schedule
--------
5.12.
- ----
Section 5.13. Absence of Certain Changes. Except as disclosed on Schedule
-------------------------- --------
5.13, since the date of the Latest Balance Sheet, (i) there has not been any
- ----
material adverse change in, or any event or condition that might reasonably be
expected to result in a material adverse change in, the business assets, results
of operations, condition (financial or otherwise) or prospects of Buyer and the
Subsidiaries considered as a whole; (ii) the businesses of Buyer and the
Subsidiaries have been conducted only in the ordinary course consistent with
past practice; (iii) neither Buyer nor any
21
<PAGE>
Subsidiary has incurred any material liability, engaged in any material
transaction or entered into any material agreement outside the ordinary course
of business consistent with past practice; (iv) neither Buyer nor any Subsidiary
has suffered any material loss, damage, destruction, or other casualty to any of
its assets (whether or not covered by insurance); and (v) neither Buyer nor any
Subsidiary has taken any of the actions set forth in Section 6.2 except as
permitted thereunder.
Section 5.14. Tax Matters. Except as disclosed on Schedule 5.14:
----------- -------------
(a) Buyer and each Subsidiary has filed, or has had filed on its
behalf, in a timely manner (within any applicable extension periods) with the
appropriate taxing authority all Tax Returns with respect to Taxes of Buyer and
of each of the Subsidiaries, all of which Tax Returns are true, correct and
complete in all material respects;
(b) All Taxes due and payable (whether or not reflected in Tax
Returns as filed) with respect to all taxable periods of Buyer and the
Subsidiaries have been paid in full or adequate reserves have been provided for
on the Financial Statements;
(c) There are no outstanding agreements or waivers extending the
statutory period of limitations applicable to any federal, state, local or
foreign income or other material Tax Returns required to be filed by or with
respect to Buyer or any of the Subsidiaries;
(d) None of the Tax Returns of or with respect to Buyer or any of the
Subsidiaries is currently being audited or examined by any taxing authority;
(e) No material deficiency for any Taxes has been assessed with
respect Buyer or to any of the Subsidiaries that has not either (i) been abated
or (ii) paid in full or for which adequate reserves have been provided;
(f) No Tax litigation is currently pending;
(g) No waiver or extension of any statute of limitations to any
federal, state, local or foreign Tax matter has been given by or requested from
Buyer or any Subsidiary; and
(h) Neither Buyer nor any Subsidiary has filed a consent under
Section 341(f) of the Code.
(i) Buyer and the Subsidiaries have complied with all Applicable Laws
relating to the withholding of Taxes and the payment thereof (including
withholding of Taxes under Sections 1441 and 1442 of the Code, or similar
provisions under foreign laws), and has timely and properly withheld from the
appropriate party and paid over to the proper Governmental Entity all amounts
required to be withheld and be paid over under Applicable Law.
(j) Neither Buyer nor any Subsidiary is required to include in income
any adjustment under Section 481(a) of the Code by reason of a change in
accounting method, and neither
22
<PAGE>
Buyer nor any Subsidiary, nor the Internal Revenue Service, has proposed any
such adjustment or change in accounting method. Buyer and the Subsidiaries do
not have pending any private letter ruling with the IRS.
(k) Other than as a result of this transaction, none of Buyer's or
any Subsidiary's tax attributes is subject to the limitations of Section 382,
383 or 384 of the Code or Temporary Treasury Regulation Sections 1.1502-15T or
1.1502-21T(c).
(l) There are no liens for Taxes upon any assets of Buyer or any
Subsidiary, except liens for Taxes not yet due and payable.
(m) The tax basis of each of the assets of Buyer and the Subsidiaries
as set forth on the books, accounts and records of Buyer and the Subsidiaries is
true, correct and complete in all material respects.
Section 5.15. Environmental and Other Laws. Except as disclosed on
----------------------------
Schedule 5.15 or in the SEC Filings filed prior to the date hereof, (a) Buyer
- -------------
and the Subsidiaries are conducting their businesses in compliance in all
material respects with all Applicable Laws, including all Environmental Laws,
and are in material compliance with all licenses and permits required under any
such laws; (b) to the best of Buyer's knowledge, none of the operations or
properties of Buyer or any Subsidiary is the subject of foreign, federal, state
or local investigation evaluating whether any material remedial action is needed
to respond to a release of any Hazardous Materials into the environment or to
the improper storage or disposal (including storage or disposal at offsite
locations) of any Hazardous Materials; (c) neither Buyer nor any Subsidiary has
filed any notice under any Applicable Law indicating that it is responsible for
the improper release into the environment, or the improper storage or disposal,
of any material amount of any Hazardous Materials or that any Hazardous
Materials have been improperly released, or are improperly stored or disposed
of, upon any property of Buyer or any Subsidiary; (d) neither Buyer nor any
Subsidiary has transported or arranged for the transportation of any Hazardous
Material to any location which is (i) listed on the National Priorities List
under the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended, listed for possible inclusion on such National Priorities
List by the Environmental Protection Agency in its Comprehensive Environmental
Response, Compensation and Liability Information System List, or listed on any
similar state list or foreign jurisdiction list or (ii) the subject of foreign,
federal, state or local enforcement actions or other investigations which may
lead to material claims against Buyer or any Subsidiary for clean-up costs,
remedial work, damages to natural resources or for personal injury claims
(whether under Environmental Laws or otherwise); and (e) to the best of Buyer's
knowledge, neither Buyer or any Subsidiary has any material contingent liability
under any Environmental Laws or in connection with the release into the
environment, or the storage or disposal, of any Hazardous Materials.
Section 5.16. Legal Proceedings. Except as disclosed on Schedule 5.16,
----------------- -------------
there are no Proceedings pending or, to the best knowledge of Buyer, threatened
against or involving Buyer or any Subsidiary (or any of their respective
directors or officers in connection with the business or affairs of Buyer or any
Subsidiary) or any properties or rights of Buyer or any Subsidiary which,
23
<PAGE>
individually or in the aggregate, might reasonably be expected to have a
Material Adverse Effect. Neither Buyer nor any Subsidiary is subject to any
judgment, order, writ, injunction, or decree of any Governmental Entity which
has had or is reasonably likely to have a Material Adverse Effect. There are no
Proceedings pending or, to the best knowledge of Buyer, threatened seeking to
restrain, prohibit, or obtain damages or other relief in connection with, or
questioning the legality or validity of, this Agreement or any Ancillary
Document or the transactions contemplated hereby or thereby.
Section 5.17. Title to Properties; Permits; Licenses; Condition of Assets.
-----------------------------------------------------------
(a) Each of Buyer and the Subsidiaries has good and defensible title
to all of its material properties and assets, free and clear of all Liens other
than Permitted Liens and of all material impediments to the use of such
properties and assets in the businesses of Buyer and the Subsidiaries.
(b) Each of Buyer and the Subsidiaries holds all material Permits
necessary or required for the conduct of its business. Each of such Permits is
in full force and effect, Buyer and the Subsidiaries are in compliance with all
of its material obligations with respect thereto, and, to the best knowledge of
Buyer, no event has occurred which allows, or with or without the giving of
notice or the passage of time or both would allow, the revocation or termination
of any thereof. No notice has been issued by any Governmental Entity and no
proceeding is pending or, to the best knowledge of Buyer, threatened with
respect to any alleged failure by Buyer or any Subsidiary to have any material
Permit.
(c) Buyer and the Subsidiaries possess all licenses, permits,
franchises, patents, copyrights, trademarks and trade names, and other
intellectual property (or otherwise possesses the right to use such intellectual
property without violation of the rights of any other Person) which are
necessary to carry out their businesses as presently conducted and as presently
proposed to be conducted hereafter, and neither Buyer nor any Subsidiary is in
violation in any material respect of the terms under which it possesses such
intellectual property or the right to use such intellectual property.
(d) The equipment and other tangible assets of Buyer and the
Subsidiaries are in good operating condition (except for reasonable wear and
tear), and have been reasonably maintained.
Section 5.18. ERISA.
-----
(a) Set forth on Schedule 5.18 is a list identifying each "employee
-------------
benefit plan", as defined in Section 3(3) of ERISA, (i) which is subject to any
provision of ERISA, (ii) which is maintained, administered, or contributed to by
Buyer or any affiliate of Buyer, and (iii) which covers any employee or former
employee of Buyer or any affiliate of Buyer or under which Buyer or any
affiliate of Buyer has any liability. Buyer has delivered or made available to
Seller accurate and complete copies of such plans (and, if applicable, the
related trust agreements) and all amendments thereto and written interpretations
thereof, together with (i) the three most recent annual reports (Form 5500
including, if applicable, Schedule B thereto) prepared in connection with any
such plan
24
<PAGE>
and (ii) the most recent actuarial valuation report prepared in connection with
any such plan. Such plans are referred to in this Section as the "Employee
Plans". For purposes of this Section only, an "affiliate" of any person means
any other person which, together with such person, would be treated as a single
employer under Section 414 of the Code. The only Employee Plans which
individually or collectively would constitute an "employee pension benefit plan"
as defined in Section 3(2) of ERISA are identified as such on Schedule 5.18.
-------------
(b) Except as otherwise identified on Schedule 5.18, (i) no Employee
-------------
Plan constitutes a "multiemployer plan", as defined in Section 3(37) of ERISA
(for purposes of this Section, a "Multiemployer Plan"), (ii) no Employee Plan is
maintained in connection with any trust described in Section 501(c)(9) of the
Code, (iii) no Employee Plan is subject to Title IV of ERISA or to the minimum
funding standards of ERISA and the Code, and (iv) during the past five years,
neither Buyer nor any of its affiliates have made or been required to make
contributions to any Multiemployer Plan. There are no accumulated funding
deficiencies as defined in Section 412 of the Code (whether or not waived) with
respect to any Employee Plan. The fair market value of the assets held with
respect to each Employee Plan which is an employee pension benefit plan, as
defined in Section 3(2) of ERISA, exceeds the actuarially determined present
value of all benefit liabilities accrued under such Employee Plan (whether or
not vested) determined using reasonable actuarial assumptions. Neither Buyer
nor any affiliate of Buyer has incurred any material liability under Title IV of
ERISA arising in connection with the termination of, or complete or partial
withdrawal from, any plan covered or previously covered by Title IV of ERISA.
Buyer and all of the affiliates of Buyer have paid and discharged promptly when
due all liabilities and obligations arising under ERISA or the Code of a
character which if unpaid or unperformed might result in the imposition of a
lien against any of the assets of Buyer or any Subsidiary. Nothing done or
omitted to be done and no transaction or holding of any asset under or in
connection with any Employee Plan has or will make Buyer or any Subsidiary or
any director or officer of Buyer or any Subsidiary subject to any liability
under Title I of ERISA or liable for any Tax pursuant to Section 4975 of the
Code that could have a Material Adverse Effect. There are no threatened or
pending claims by or on behalf of the Employee Plans, or by any participant
therein, alleging a breach or breaches of fiduciary duties or violations of
Applicable Laws which could result in liability on the part of Buyer, its
officers or directors, or such Employee Plans, under ERISA or any other
Applicable Law and there is no basis for any such claim.
(c) Each Employee Plan which is intended to be qualified under
Section 401(a) of the Code is so qualified and has been so qualified since the
date of its adoption, and each trust forming a part thereof is exempt from Tax
pursuant to Section 501(a) of the Code. Set forth on Schedule 5.18 is a list of
-------------
the most recent IRS determination letters with respect to any such Plans,
accurate and complete copies of which letters have been delivered or made
available to Buyer. Each Employee Plan has been maintained in compliance with
its terms and with the requirements prescribed by all Applicable Laws, including
but not limited to ERISA and the Code, which are applicable to such Employee
Plans.
(d) Set forth on Schedule 5.18 is a list of each employment,
-------------
severance, or other similar contract, arrangement, or policy and each plan or
arrangement (written or oral) providing for
25
<PAGE>
insurance coverage (including any self-insured arrangements), workers'
compensation, disability benefits, supplemental unemployment benefits, vacation
benefits, retirement benefits, deferred compensation, profit-sharing, bonuses,
stock options, stock appreciation rights, or other forms of incentive
compensation or post-retirement insurance, compensation, or benefits which (i)
is not an Employee Plan, (ii) is entered into, maintained, or contributed to, as
the case may be, by Buyer or any affiliate of Buyer, and (iii) covers any
employee or former employee of Buyer or any affiliate of Buyer or under which
Buyer or any affiliate of Buyer has any liability. Such contracts, plans, and
arrangements as are described in the preceding sentence are referred to for
purposes of this Section as the "Benefit Arrangements". Each Benefit Arrangement
has been maintained in substantial compliance with its terms and with the
requirements prescribed by Applicable Laws.
(e) Neither Buyer nor any affiliate of Buyer has performed any act or
failed to perform any act, and there is no contract, agreement, plan, or
arrangement covering any employee or former employee of Buyer or any affiliate
of Buyer, that, individually or collectively, could give rise to the payment of
any amount that would not be deductible pursuant to the terms of Section
162(a)(1) or 280G of the Code, or could give rise to any penalty or excise Tax
pursuant to Section 4980B or 4999 of the Code.
Section 5.19. Agreements.
----------
(a) Set forth on Schedule 5.19 is a list of all the following
-------------
agreements, arrangements, and understandings (written or oral, formal or
informal) (collectively, for purposes of this Section, "agreements") to which
Buyer or any Subsidiary is a party or by which Buyer or any Subsidiary or any of
their respective properties is otherwise bound:
(i) collective bargaining agreements and similar agreements
with employees as a group;
(ii) agreements with any current or former shareholder,
director, officer, employee, consultant or advisor or any affiliate of any
such Person;
(iii) agreements between or among Buyer and any of the
Subsidiaries;
(iv) exclusive of those relating to the Senior Credit Facility,
indentures, mortgages, security agreements, notes, loan or credit
agreements, or other agreements relating to the borrowing of money by Buyer
or any Subsidiary or to the direct or indirect guarantee or assumption by
Buyer or any Subsidiary of any obligation of others, including any
agreement that has the economic effect although not the legal form of any
of the foregoing;
(v) agreements relating to the acquisition or disposition of
assets, other than those entered into in the ordinary course of business
consistent with past practice;
(vi) agreements relating to the acquisition or disposition of
any interest in any business enterprise;
26
<PAGE>
(vii) exclusive of oil, gas and mineral leases, agreements with
respect to the lease of real or personal property;
(viii) exclusive of oil and gas operating or similar agreements,
agreements concerning the management or operation of any real property;
(ix) partnership, joint venture, and profit sharing
agreements;
(x) agreements with any Governmental Entity;
(xi) agreements relating to the release or disposal of
Hazardous Material;
(xii) agreements containing any covenant limiting the freedom
of Buyer or any Subsidiary to engage in any line of business or compete
with any other Person in any geographic area or during any period of time,
other than those that would not have a Material Adverse Effect;
(xiii) agreements not made in the ordinary course of business;
and
(xiv) other agreements, whether or not made in the ordinary
course of business, that are material to the business, assets, results of
operations, condition (financial or otherwise), or prospects of Buyer and
the Subsidiaries considered as a whole.
(b) Buyer has delivered or made available to Seller accurate and
complete copies of the agreements listed in Schedule 5.19. Each of such
-------------
agreements is a valid and binding agreement of Buyer and the Subsidiaries (to
the extent each is a party thereto) and (to the best knowledge of Buyer) the
other party or parties thereto, enforceable against Buyer and the Subsidiaries
(to the extent each is a party thereto) and (to the best knowledge of Buyer)
such other party or parties in accordance with its terms. Neither Buyer nor any
Subsidiary is in breach of or in default under, nor has any event occurred which
(with or without the giving of notice or the passage of time or both) would
constitute a default by Buyer or any Subsidiary under, any of such agreements,
and neither Buyer nor any Subsidiary has received any notice from, or given any
notice to, any other party indicating that Buyer or any Subsidiary is in breach
of or in default under any of such agreements. To the best knowledge of Buyer,
no other party to any of such agreements is in breach of or in default under
such agreements, nor has any assertion been made by Buyer or any Subsidiary of
any such breach or default.
(c) Neither Buyer nor any Subsidiary has received notice of any plan
or intention of any other party to any agreement to exercise any right of offset
with respect to, or any right to cancel or terminate, any agreement, and neither
Buyer nor any Subsidiary knows of any fact or circumstance that would justify
the exercise by any such other party of such a right other than the automatic
termination of such agreement in accordance with its terms. Neither Buyer nor
any Subsidiary currently contemplates, or has reason to believe any other Person
currently contemplates,
27
<PAGE>
any amendment or change to any agreement, which amendment or change could have a
Material Adverse Effect.
(d) Without limiting the generality of the other provisions in this
Section 5.19, the Key Employment Agreements are in full force and effect, and
each of John Keenan and Paul Fenemore is currently employed by Buyer pursuant to
a renewal term under such agreements.
Section 5.20. Labor Disputes and Acts of God. Neither the business nor
------------------------------
the properties of Buyer nor any Subsidiary has been affected by any fire,
explosion, accident, strike, lockout or other labor dispute, drought, storm,
hail, earthquake, embargo, act of God or of the public enemy or other casualty
(whether or not covered by insurance), which, individually or in the aggregate,
could cause a Material Adverse Effect.
Section 5.21. Insurance. Buyer and each Subsidiary carries insurance
---------
covering its properties and business adequate and customary for the type and
scope of its properties and business.
Section 5.22. Offering of Securities. All securities which have been
----------------------
offered or sold by Buyer and it Subsidiaries have been registered pursuant to
the Securities Act and applicable foreign and state securities laws or were
offered and sold pursuant to valid exemptions therefrom.
Section 5.23. Government Regulation. Buyer is not subject to regulation
---------------------
under the Public Utility Holding Company Act of 1935. Buyer is not an
"investment company" or a company "controlled" by an "investment company" within
the meaning of the Investment Company Act of 1940, as amended, or an "investment
advisor" within the meaning of the Investment Advisers Act of 1940, as amended.
Section 5.24. Brokerage Fees. Neither Buyer nor any of its affiliates has
--------------
retained any financial advisor, broker, agent or finder or paid or agreed to pay
any financial advisor, broker, agent or finder on account of this Agreement or
any transaction contemplated hereby, which action would subject Seller or any of
its affiliates to any liability. Buyer shall indemnify and hold harmless Seller
from and against any and all losses, claims, damages and liabilities (including
legal and other expenses reasonably incurred in connection with investigating or
defending any claims or actions) with respect to any finder's fee, brokerage
commission or similar payment in connection with any transaction contemplated
hereby asserted by any Person on the basis of any act or statement made or
alleged to have been made by Buyer or any of its affiliates.
Section 5.25. Bankruptcy. There are no bankruptcy, reorganization or
----------
arrangement proceedings pending, being contemplated by, or to the knowledge of
Seller, threatened against Seller.
Section 5.26. Nature of Company Assets. The assets of the Buyer and its
------------------------
Subsidiaries consist solely of (a) reserves of oil, rights to reserves of oil
and associated exploration and production assets with a fair market value not
exceeding $500,000,000 and (b) other assets with a fair market value not
exceeding $15,000,000. For purposes of this Section 5.26, the term "associated
exploration
28
<PAGE>
and production assets" shall have the meaning ascribed thereto in Section 802.3
of the Rules promulgated pursuant to the HSR Act.
Section 5.27. Full Disclosure. No representation or warranty made by
---------------
Buyer in this Agreement, and no statement of Buyer contained in any document,
certificate or other writing furnished or to be furnished by Buyer or its
representatives to Seller pursuant hereto or in connection herewith, contains or
will contain, at the time of delivery, any untrue statement of a material fact
or omits or will omit, at the time of delivery, to state any material fact
(other than industry-wide risks normally associated with the type of business
conducted by Buyer) necessary to make the statements contained therein, in light
of the circumstances in which they are made, not misleading. There is no fact
known to Buyer (other than industry-wide risks normally associated with the type
of business conducted by Buyer) that has not been disclosed to Seller in writing
which Buyer reasonably anticipates would result in a Material Adverse Effect.
ARTICLE VI
Certain Covenants of Seller and Buyer Pending Closing
------------------------------------------------------
Section 6.1. Pre-Closing Covenants of Seller.
-------------------------------
(a) From the date hereof until Closing, Seller will use its
reasonable best efforts to give Buyer, and its attorneys and other
representatives, access at all reasonable times to the Properties and to any
contract files, lease or other title files, production files, well files and
other files of Seller pertaining to the ownership and/or operation of the
Properties, and Seller will use its reasonable best efforts to arrange for
Buyer, and its attorneys and other representatives, to have access to any such
files. Seller shall not be obligated to provide Buyer with access to any records
or data which Seller cannot provide to Buyer without, in its opinion, breaching
confidentiality agreements with other parties.
(b) Seller will use its reasonable best efforts to (i) continue the
routine operation of the Properties in the ordinary course of business and as
would a prudent operator, (ii) operate the Properties in conformity (in all
material respects) with all applicable laws, and all applicable rules,
regulations and orders of all governmental agencies having jurisdiction, and in
conformity with all oil, gas and/or mineral leases, and in conformity (in all
material respects) with all Basic Documents other than such leases, and (iii)
fulfill all obligations (including without limitation all obligations to make
payments under leases or other Basic Documents) under such leases, and (in all
material respects) under such other Basic Documents and (in all material
respects) under such laws, rules, regulations and orders (without limitation of
the foregoing, the failure to perform an obligation, when such failure could
result in forfeiture or termination of rights of Seller under a Basic Document,
shall be considered material).
(c) Seller will not, without Buyer's prior consent:
29
<PAGE>
(i) expend any funds, or make any commitments to expend funds
(including entering into new agreements which would obligate Seller to
expend funds), or otherwise incur any other obligations or liabilities, in
connection with the ownership or operation of the Properties after the date
hereof, other than routine expenses incurred in the normal operation of the
existing wells on the Oil and Gas Properties;
(ii) propose the drilling of any additional wells, or propose
the deepening, plugging back or reworking of any existing wells, or propose
the conducting of any other operations which require consent under the
applicable operating agreement, or propose the conducting of any other
operations other than the normal operation of the existing wells on the Oil
and Gas Properties, or propose the abandonment of any wells on the Oil and
Gas Properties (and Seller agrees that it will advise Buyer of any such
proposals made by third parties and will respond to each such proposal made
by a third party in the manner requested by Buyer);
(iii) sell, transfer or abandon any portion of the Properties
other than items of materials, supplies, machinery, equipment, improvements
or other personal property or fixtures forming a part of the Properties
(and then only if the same is replaced with an item of equal suitability
and value free of liens and security interests, which replacement item will
then, for the purposes of this Agreement, become part of the Properties);
or
(iv) release (or permit to terminate), or modify or reduce its
rights under, any oil, gas and/or mineral lease forming a part of the Oil
and Gas Properties, or any other Basic Document, or enter into any new
agreements which would be Basic Documents, or modify any existing
production sales contracts or enter into any new production sales
contracts.
(d) Seller will cause all expenses (including all bills for labor,
materials and supplies used or furnished for use in connection with the Property
and all severance, production, windfall profit and similar taxes) and
liabilities relating to the ownership or operation of the Properties prior to
the date of Closing to be promptly paid and discharged.
(e) Seller will request, from the appropriate parties (and in
accordance with the documents creating such rights and/or requirements), waivers
of the preferential rights to purchase, or requirements that consent to
assignment be obtained, which are identified in Section 6.1(e) of the Seller
Disclosure Schedule. Seller shall have no obligation hereunder other than to so
request such waivers (i.e., Seller shall have no obligation to assure that such
waivers are obtained), and if all such waivers (or any other waivers of
preferential rights to purchase or requirements that consent be obtained to
assignment, even if the same are not listed in Section 6.1(e) of the Seller
Disclosure Schedule) are not obtained, Buyer may treat any waiver which is not
obtained as a matter which causes Seller's title to not be sufficient to meet
the standards set forth in Article VII; provided, however, that if the
unobtained waiver is a waiver of a preferential right to purchase, and if both
Buyer and Seller agree to this treatment of such matter (and agree upon an
appropriate allocation of the Purchase Price), Seller will tender (at the agreed
allocated portion of the Purchase Price) the
30
<PAGE>
required interest in the Property affected by such unwaived preferential right
to purchase to the holder, or holders, of such right who have elected not to
waive such preferential right to purchase, and if, and to the extent that, such
preferential right to purchase is exercised by such party or parties, such
interest in such Property will be excluded from the transaction contemplated
hereby and the Purchase Price will be reduced by the amount paid, or to be paid,
by the party exercising such preferential right to purchase (and Seller shall
collect such amount from such purchaser).
Section 6.2. Pre-Closing Covenants of Buyer.
------------------------------
(a) During the period from the date hereof to the Closing, Buyer covenants
and agrees with Seller that Buyer and its Subsidiaries (i) shall each conduct
its operations according to its ordinary course of business consistent with past
practice and in compliance with Applicable Laws; (ii) shall each use its
reasonable best efforts to preserve, maintain and protect its properties; and
(iii) shall each use its reasonable best efforts to preserve intact its business
organization, to keep available the services of its officers and employees and
to maintain existing relationships with suppliers, operators, customers and
others having business relationships with it.
(b) During the period from the date hereof to the Closing, neither Buyer
nor any Subsidiary shall without the prior written consent of Seller:
(i) amend its Organic Documents or other governing
instruments;
(ii) (A) issue, sell, or deliver (whether through the issuance
or granting of options, warrants, commitments, subscriptions, rights to
purchase or otherwise) any shares of its capital stock of any class or any
other securities or equity equivalents, exclusive of any shares issued
pursuant to options, warrants, commitments, subscriptions, rights to
purchase or otherwise existing on the date hereof); or (B) amend in any
respect any of the terms of any such securities outstanding as of the date
hereof;
(iii) (A) split, combine, or reclassify any shares of its
capital stock; or (B) adopt a plan of complete or partial liquidation or
resolutions providing for or authorizing a liquidation or dissolution of
Buyer or any Subsidiary;
(iv) except as provided in subsection (c) below, make any
loans, advances, or capital contributions to, or investments in, any other
Person (other than customary loans or advances to employees in amounts not
material to the maker of such loan or advance);
(v) (A) enter into, adopt, or (except as may be required by
law) amend or terminate any bonus, profit sharing, compensation, severance,
termination, stock option, stock appreciation right, restricted stock,
performance unit, stock equivalent, stock purchase, pension, retirement,
deferred compensation, employment, severance or other employee benefit
agreement, trust, plan, fund or other arrangement for the benefit or
welfare of any director, officer or employee; (B) except for normal
increases in the ordinary course of business consistent with past practice
that, in the aggregate, do not result in a material increase in
31
<PAGE>
benefits or compensation expense to Buyer, increase in any manner the
compensation or fringe benefits of any director, officer or employee; or
(C) pay to any director, officer or employee any benefit not required by
any employee benefit agreement, trust, plan, fund or other arrangement as
in effect on the date hereof;
(vi) make any capital expenditure or expenditures which,
individually, is in excess of $100,000 or, in the aggregate, are in excess
of $250,000;
(vii) amend any Tax Return or make any Tax election or settle or
compromise any federal, state, local, or foreign Tax liability material to
Buyer and the Subsidiaries considered as a whole;
(viii) pay, discharge, or satisfy any claims, liabilities, or
obligations (whether accrued, absolute, contingent, unliquidated, or
otherwise, and whether asserted or unasserted), other than the payment,
discharge, or satisfaction in the ordinary course of business consistent
with past practice, or in accordance with their terms, of liabilities
reflected or reserved against in the Financial Statements or incurred since
the date of the Latest Balance Sheet in the ordinary course of business
consistent with past practice; provided, however, that in no event shall
Buyer or any Subsidiary repay any long-term indebtedness except to the
extent required by the terms thereof;
(ix) take any action which would or might make any of the
representations or warranties of Buyer contained in this Agreement untrue
or inaccurate as of any time from the date of this Agreement to the Closing
or would or might result in any of the conditions set forth in this
Agreement not being satisfied; or
(x) authorize or propose, or agree in writing or otherwise to
take, any of the actions described in this Section.
(c) Notwithstanding anything in this Section 6.2 to the contrary, it
is expressly agreed that the execution and delivery by Buyer of (i) the Other
Acquisition Agreements, (ii) the Preferred Stock Purchase Agreement, (iii) the
Senior Credit Facility and (iv) the Subordinated Debt Agreement, and the
consummation of the respective transactions contemplated thereunder will not be
deemed to be a breach by Buyer of any covenant and agreement contained in this
Section 6.2 or elsewhere herein.
(d) Between the date hereof and the Closing, Buyer (i) shall give
Seller and its authorized representatives reasonable access, during regular
business hours, to all employees, all plants, offices, warehouses, and other
facilities, and all books and records, including work papers and other materials
prepared by Buyer's independent public accountants, of Buyer and the
Subsidiaries, (ii) shall permit Seller and its authorized representatives to
make such inspections as they may reasonably require and (iii) shall cause
Buyer's officers and those of the Subsidiaries to furnish Seller and its
authorized representatives with such financial and operating data and other
information with respect to Buyer and the Subsidiaries as Seller may from time
to time reasonably request; provided,
32
<PAGE>
however, that Buyer shall have the right to have a representative present at all
times of any such inspections, interviews and examinations conducted at or on
the offices or other facilities or properties of Buyer or its affiliates or
representatives.
Section 6.3. Pre-Closing Covenants of Seller and Buyer. Each party
-----------------------------------------
hereto agrees that it will not voluntarily undertake any course of action
inconsistent with the provisions or intent of this Agreement and will use its
reasonable best efforts to take, or cause to be taken, all action and to do, or
cause to be done, all things reasonably necessary, proper or advisable under
Applicable Law to consummate the transactions contemplated by this Agreement.
ARTICLE VII
Due Diligence Examination With Respect to the Properties
---------------------------------------------------------
Section 7.1. Inspection and Assertion of Defects.
-----------------------------------
(a) Buyer may, to the extent it deems appropriate, conduct, at its
sole cost, such title examination or investigation as it may choose to conduct
with respect to the Properties. Should, as a result of such examination and
investigation, or otherwise, matters come to Buyer's attention which would
constitute "Defects" (as below defined), and should there be one or more of such
Defects which Buyer determines it is unwilling to waive and close the
transaction contemplated hereby notwithstanding the fact that such Defects
exist, Buyer shall notify Seller in writing of such Defects as soon as they are
identified by Buyer, but in no event later than two business days prior to
Closing. Such Defects of which Buyer so provides notice are herein called
"Asserted Defects." All Defects with respect to which Buyer fails to so give
Seller notice will be deemed waived for all purposes. In the event that Buyer
notifies Seller of Asserted Defects, Seller shall have the right (but not the
obligation) to attempt to cure, prior to Closing, such Asserted Defects to the
reasonable satisfaction of Buyer (exclusive of a Defect in subsection (b)(iii)
below.
(b) The term "Defect" as used in this Section shall mean the
following:
(i) Seller's ownership of the Properties is such that, with
respect to a well listed in Section 7.1(b)(i) of the Seller Disclosure
Schedule, it (A) entitles Seller to receive a percentage share of the oil,
gas and other hydrocarbons produced from, or allocated to, such well which
is less than the percentage share set forth in Section 7.1(b)(i) of the
Seller Disclosure Schedule in connection with such well in the column
headed "NRI" or (B) causes Seller to be obligated to bear a percentage
share of the cost of operation of such well greater than the percentage
share set forth in Section 7.1(b)(i) of the Seller Disclosure Schedule in
connection with such well in the column headed "WI" (unless the share of
production from such well to which Seller is entitled is proportionately
larger than the "NRI" shown for such well in Section 7.1(b)(i) of the
Seller Disclosure Schedule); or
33
<PAGE>
(ii) Seller's ownership of an Oil and Gas Property is subject
to a lien other than (A) a lien for taxes not yet delinquent, or (B) a
mechanic's or materialmen's lien (or other similar lien), or a lien under
an operating agreement or similar agreement, to the extent the same relates
to expenses incurred which are not yet due; or
(iii) Seller's ownership of an Oil and Gas Property is subject
to a preferential right to purchase such property or a requirement that
consent to assignment of such property be obtained, unless a waiver of such
right has been obtained with respect to the transaction contemplated hereby
or, in the case of a preferential right to purchase, an appropriate tender
of the applicable interest has been made to the party holding such right
and the period of time required for such party to exercise such right has
expired without such party exercising such right; or
(iv) Seller's ownership of an Oil and Gas Property is subject
to an imperfection in title which, if asserted, would cause a Defect, as
defined in clause (i) above, to exist, and such imperfection in title is
not such as would normally be waived by persons engaged in the oil and gas
business who are purchasing producing properties.
Section 7.2. Certain Price Adjustments.
-------------------------
(a) In the event that, as a part of the due diligence review provided
for in Section 7.1 above, Asserted Defects are presented to Seller and Seller is
unable (or unwilling) to cure such Asserted Defects, or in the event that Buyer
has elected to treat an Oil and Gas Property affected by a casualty loss as if
it was an Oil and Gas Property affected by an Asserted Defect (as provided in
Section 7.4), then Buyer and Seller shall, with respect to each Oil and Gas
Property affected by one or more Asserted Defects, attempt in good faith to
agree upon an appropriate adjustment to the Purchase Price to account for such
Asserted Defects. Notwithstanding the foregoing or anything herein to the
contrary, Seller may elect to specify as an appropriate adjustment to the
Purchase Price for a Defect of the type specified in Section 7.1(b)(ii), the
------------------
amount required to discharge such lien.
(b) Should Seller determine (or should Buyer, in the course of its
due diligence review contemplated by Section 7.1, determine) that the ownership
of the Properties by Seller entitles Seller to a share of the production from a
well listed in Section 7.1(b)(i) of the Seller Disclosure Schedule greater than
the share shown for such well under the column headed "NRI" on Schedule
7.1(b)(i) of the Seller Disclosure Schedule, then Seller may propose an upward
adjustment to the Base Purchase Price to account for such fact, in which case
such adjustment shall be handled in a similar manner as provided above with
respect to adjustments for Asserted Defects; provided that the party making such
determination shall notify the other party no later than ten business days prior
to the Closing.
(c) If the Net Title Adjustments (as defined below) do not exceed
$100,000, then the Base Purchase Price shall not be adjusted. If the Net Title
Adjustments do exceed $100,000, the Base Purchase Price shall be adjusted as
provided in subsection (d) or subsection (e) below by the
34
<PAGE>
amount by which the Net Title Adjustments exceed $100,000. As used in this
subsection (c), the term "Net Title Adjustments" means the net amount of the
adjustments to the Base Purchase Price resulting from the procedures provided
for above or Section 7.5 and attributable to any of the Defects referenced in
subsections (i) through (iv) of Section 7.1(b).
(d) Any reduction to the Base Purchase Price under subsection (c)
shall be effected by a decrease in the number of Preferred Shares equal to A
minus B, where "A" equals the number of shares of Buyer's Series A Convertible
Preferred Stock specified in Article III, where "B" equals C divided by D, where
"C" equals the Net Title Adjustments minus $100,000, and where "D" equals
$50.00.
(e) Any increase in the Base Purchase Price under subsection (c)
shall be effected by an increase in the number of Preferred Shares equal to A
plus B, with "A" and "B" being determined as provided in subsection (d) above.
Section 7.3. Waiver. Without limiting Section 7.1 and notwithstanding
------
anything else herein to the contrary, all Defects not raised by Buyer within the
time period specified in Section 7.1 shall be waived by Buyer for all purposes,
and Buyer shall have no right to seek an adjustment to the Purchase Price, make
a claim against Seller or seek indemnification from Seller with respect thereto.
Section 7.4. Casualty Loss. In the event of damage by fire or other
-------------
casualty to the Properties after the Effective Date and prior to the Closing,
then this Agreement shall remain in full force and effect, and (unless Buyer and
Seller shall otherwise agree) in such event
(a) as to each such Property so damaged which is an Oil and Gas
Property, then, at Buyer's election, either (i) such Property shall be treated
as if it had an Asserted Defect associated with it and the procedure provided
for in this Article VII shall be applicable thereto, or (ii) the Purchase Price
will not be adjusted, and if Seller should be entitled to make any claims under
any insurance policy with respect to such damage, Seller shall, at Seller's
election, either collect (and when collected pay over to Buyer), or assign to
Buyer, such claims, and
(b) as to each such Property which is other than an Oil and Gas
Property, Seller shall, at Seller's election, either collect (and when collected
pay over to Buyer), or assign to Buyer, any and all insurance claims relating to
such loss, and Buyer shall take title to the Property affected by such loss
without reduction of the Purchase Price.
Section 7.5. Disputes.
--------
(a) In the event Buyer and Seller are unable to agree upon the
existence of one or more Defects affecting an Oil and Gas Property or one or
more adjustments claimed by Buyer or Seller pursuant to this Article VII as it
relates to an Oil and Gas Property, Seller shall have the option of excluding
such Oil and Gas Property from the transaction contemplated hereby, in which
case the Purchase Price will be reduced by the amount attributed in Section
7.1(b)(i) of the Seller Disclosure Schedule to such Oil and Gas Property.
35
<PAGE>
(b) In the event Buyer and Seller are unable to agree prior to
the Closing upon the existence of one or more Defects affecting an Oil and Gas
Property or one or more adjustments claimed by Buyer or Seller pursuant to this
Article VII as it relates to an Oil and Gas Property (and provided that Seller
does not select the option set forth in subsection (a) above with respect to
such Oil and Gas Property), any such dispute (a "Disputed Claim") shall be
settled pursuant to this Section 7.5 and shall not prevent or delay the Closing.
At Closing, the Purchase Price shall not be adjusted on account of and no effect
shall be given to the Disputed Claim. Either Buyer or Seller shall have the
right to submit the Disputed Claim to final and binding arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association (the "AAA Rules"). Buyer and Seller shall endeavor to select three
neutral arbitrators by mutual agreement. If such agreement cannot be reached
within 30 calendar days after the Closing, each party shall select its own
neutral arbitrator within 15 days of the expiration of such 30-day period and
the two neutral arbitrators so selected shall select a third neutral arbitrator
within 10 days of the expiration of such 15-day period. If they fail to do so,
either arbitrator or Buyer or Seller may request the judge of the United States
District Court for the Southern District of Texas having greatest tenure, but
not yet on retired or senior status, to appoint a third neutral arbitrator. The
three persons thus selected shall be the arbitrators for such arbitration. Each
arbitrator must be experienced in and knowledgeable about the oil and gas
exploration business and third arbitrator shall be required to meet the
qualification requirements of the AAA Rules, whether appointed by the
arbitrators or by the judge as provided above. The board of arbitrators may in
all matters act through a majority of its members on each Disputed Claim if
unanimity is not attained. The award as to any Disputed Claim shall be made
within 30 days following the close of the final hearing and the filing of any
post hearing briefs authorized by the arbitrator(s) in respect of such claim.
The award of the arbitrator shall be final and binding on the parties hereto and
the subject matter. Judgment upon the award rendered by the arbitrator(s) may be
entered by any court having jurisdiction. The place of arbitration shall be in
Houston, Texas. The amount of any reduction in the Purchase Price to which Buyer
becomes entitled under the final and binding decision of the arbitrators shall
be effected in a manner similar to that set forth in Section 7.2(d). Each party
shall be entitled to inspect and obtain a copy of relevant documents in the
possession or control of the other party and to take depositions of the other
parties' employees, agents, representatives and witnesses (including expert
witnesses). All such discovery shall be in accordance with procedures approved
by the arbitrators. Unless otherwise provided in the award, each party shall
bear its own costs of discovery. All discovery shall be expedited, consistent
with the nature and complexity of the Disputed Claim and consistent with
fairness and justice. The arbitrators shall have the power to compel any party
to comply with discovery requests of the other parties and to issue binding
orders relating to any discovery dispute which shall be enforceable in the same
manner as awards. The arbitrators also shall have the power to impose sanctions
for abuse or frustration of the arbitration process, including without
limitation, the refusal to comply with orders of the arbitrators relating to
discovery and compliance with subpoenas. Each of the parties hereto hereby
irrevocably submits to the jurisdiction of the courts of the State of Texas for
entry of any arbitration decision or to obtain any preliminary relief which may
be necessary and hereby consents to the enforcement by such courts of any award
rendered in such arbitration. The compensation and expenses of the arbitrators
shall be borne equally by the parties. Each party shall bear and pay any and all
costs and expenses incurred by it in connection with the arbitration.
36
<PAGE>
ARTICLE VIII
Conditions Precedent to the Obligations of the Parties
------------------------------------------------------
Section 8.1. Conditions Precedent to the Obligations of Buyer. The
------------------------------------------------
obligations of Buyer under this Agreement are subject to each of the following
conditions being met:
(a) All the representations and warranties of Seller contained in
this Agreement, and in any agreement, instrument or document delivered pursuant
hereto or in connection herewith on or prior to the Closing Date, shall be true
and correct in all material respects on and as of the Closing Date as if made on
and as of such date, except as affected by transactions permitted by this
Agreement, and except to the extent that any such representation or warranty is
made as of a specified date, in which case such representation or warranty shall
have been true and correct in all material respects as of such specified date.
For the sole purpose of determining whether or not any of such representations
and warranties are true and correct as aforesaid on and as of the Closing Date,
no effect shall be given to any materiality qualification contained in such
representation or warranty.
(b) Seller shall have performed and complied in all material
respects with (or compliance therewith shall have been waived by Buyer) each and
every covenant, agreement and condition required by this Agreement to be
performed or complied with by Seller prior to or at the Closing.
(c) No suit, action or other proceedings shall, on the Closing
Date, be pending or threatened before any Governmental Entity seeking to
restrain, prohibit, or obtain damages or other relief in connection with the
consummation of the transactions contemplated by this Agreement.
(d) There shall have been obtained any and all consents,
approvals, authorizations, licenses, orders or permits set forth on Schedule
--------
5.7; and no other consent, approval, authorization, license, order or permit of,
- ---
or declaration, filing or registration with, or notification to, any
Governmental Entity, or any other Person or entity, the failure to comply with
which would have a Material Adverse Effect, shall be required to be made or
obtained by Buyer or any Subsidiary in connection with the execution, delivery
and performance of this Agreement and the consummation of the transactions
contemplated hereby.
(e) All waiting periods (and any extensions thereof) applicable
to this Agreement and the transactions contemplated hereby under the HSR Act
shall have expired or been terminated.
Section 8.2. Conditions Precedent to the Obligations of Seller. The
-------------------------------------------------
obligations of Seller under this Agreement are subject to each of the following
conditions being met:
(a) All the representations and warranties of Buyer contained in
this Agreement, and in any agreement, instrument or document delivered pursuant
hereto or in connection herewith on or prior to the Closing Date, shall be true
and correct in all material respects on and as of the Closing Date as if made on
and as of such date, except as affected by transactions permitted by this
37
<PAGE>
Agreement, and except to the extent that any such representation or warranty is
made as of a specified date, in which case such representation or warranty shall
have been true and correct in all material respects as of such specified date.
For the sole purpose of determining whether or not any of such representations
and warranties are true and correct as aforesaid on and as of the Closing Date,
no effect shall be given to any materiality qualification contained in such
representation or warranty.
(b) Buyer shall have performed and complied in all material
respects with (or compliance therewith shall have been waived by Seller) each
and every covenant, agreement and condition required by this Agreement to be
performed or complied with by Buyer prior to or at the Closing.
(c) No suit, action or other proceedings shall, on the date of
Closing, be pending or threatened before any Governmental Entity seeking to
restrain, prohibit, or obtain damages or other relief in connection with the
consummation of the transactions contemplated by this Agreement.
(d) The total of the net Purchase Price reductions (if any) which
result from the application of Article VII do not exceed 30% of the original
aggregate stated value of the Preferred Shares.
(e) All waiting periods (and any extensions thereof) applicable
to this Agreement and the transactions contemplated hereby under the HSR Act
shall have expired or been terminated.
(f) There shall have been obtained any and all consents,
approvals, authorizations, licenses, orders or permits set forth on Schedule
--------
5.7; and no other consent, approval, authorization, license, order or permit of,
- ---
or declaration, filing or registration with, or notification to, any
Governmental Entity, or any other Person or entity, the failure to comply with
which would have a Material Adverse Effect, shall be required to be made or
obtained by Buyer or any Subsidiary in connection with the execution, delivery
and performance of this Agreement and the consummation of the transactions
contemplated hereby.
(g) Since the date of this Agreement, there shall not have been
any material adverse change in the business, assets, results of operations,
condition (financial or otherwise) or prospects of Buyer and the Subsidiaries
considered as a whole.
ARTICLE IX
Closing of Transaction
----------------------
Section 9.1. The Closing. The closing (herein called the "Closing") of
-----------
the transaction contemplated hereby shall take place in the offices of Thompson
Knight Brown Parker & Leahy L.L.P., at Two Allen Center, Suite 3600, Houston,
Texas, at 10:00 a.m. Central Standard Time, on May 1, 2000, or at such other
date and time as Buyer and Seller may mutually agree upon (such date and time
being herein called the "Closing Date").
38
<PAGE>
Section 9.2. Seller's Closing Obligations. At the Closing, Seller shall:
----------------------------
(a) execute, acknowledge and deliver to Buyer (or its designated
Subsidiary) an assignment of the Properties (the "Assignment"), in the form
attached hereto as Exhibit 9.2(a), effective as to runs of oil and deliveries of
--------------
gas as of 12:01 o'clock a.m., Central Standard Time on May 1, 2000 (the
"Effective Date");
(b) to the extent requested by Buyer, execute and deliver to
Buyer (i) letters in lieu of transfer orders (or similar documentation), in form
acceptable to both parties, and, (ii) an affidavit or other certification (as
permitted by such code) that Seller is not a "foreign person" within the meaning
of Section 1445 (or similar provisions) of the Internal Revenue Code of 1986 as
amended (i.e., Seller is not a non-resident alien, foreign corporation, foreign
----
partnership, foreign trust or foreign estate as those terms are defined in such
code and regulations promulgated thereunder); and
(c) deliver to Buyer such other certificates, instruments, and
documents as may be reasonably requested by Buyer prior to the Closing Date to
carry out the intent and purposes of this Agreement.
Section 9.3. Buyer's Closing Obligations. At the Closing, Buyer shall:
---------------------------
(a) deliver to Seller a stock certificate evidencing the
Preferred Shares;
(b) execute and deliver to Seller a certificate executed on
behalf of Buyer by an authorized signatory of Buyer, dated the Closing Date,
representing and certifying, in such detail as Seller may reasonably request,
that the conditions set forth in Sections 8.2(a) and 8.2(b) have been fulfilled;
(c) deliver to Seller opinions of counsel, in form, scope and
content reasonably acceptable to Seller, of Jenkens & Gilchrist, counsel to
Buyer, dated the Closing Date;
(d) deliver to Seller the certificates, instruments and documents
listed below:
(i) certified copy of a written consent or resolutions of
the Board of Directors of Buyer authorizing the execution, delivery and
performance by Buyer of this Agreement and the Ancillary Documents, as
necessary;
(ii) such other certificates, instruments, and documents as
may be reasonably requested by Seller prior to the Closing Date to carry
out the intent and purposes of this Agreement.
Section 9.4. Delivery of Files. No later than 10 business days after the
-----------------
Closing, Seller shall deliver to Buyer such of Seller's contract files, lease
and other title files, production files, well files and other files pertaining
to the ownership and/or operation of the Properties as Buyer may request.
39
<PAGE>
ARTICLE X
Pre-Closing Termination
-----------------------
Section 10.1. Termination. This Agreement may be terminated and the
-----------
transactions contemplated hereby abandoned at any time prior to the Closing in
the following manner:
(a) by mutual written consent of Seller and Buyer;
(b) by either Seller or Buyer if any Governmental Entity with
jurisdiction over such matters shall have issued an order or injunction
restraining, enjoining or otherwise prohibiting the consummation of the
transactions contemplated hereunder, and such order, decree, ruling or other
action shall have become final and unappealable; or
(c) by either Seller or Buyer if the Closing shall not have occurred
on or before May 30, 2000; provided, however, that the right to terminate this
Agreement under this Section 10.1(c) shall not be available to any party whose
failure to fulfill any obligation under this Agreement shall have been the cause
of, or shall have resulted in, the failure of the Closing to occur prior to such
date.
Section 10.2. Effect of Termination. In the event of termination of this
---------------------
Agreement pursuant to Section 10.1 by Seller, on the one hand, or Buyer, on the
other hand, written notice thereof shall forthwith be given to the other party
specifying the provision hereof pursuant to which such termination is made, and
this Agreement shall become void and have no effect, except that the agreements
contained in this Section and in Article XVII shall survive the termination
hereof. Nothing contained in this Section shall relieve any party from liability
for damages actually incurred as a result of any breach of this Agreement.
ARTICLE XI
Certain Accounting Adjustments in Respect of the Properties
------------------------------------------------------------
Section 11.1. Adjustments. Appropriate adjustments shall be made between
-----------
Buyer and Seller so that (a) all expenses (including all drilling costs, all
capital expenditures, and all overhead charges under applicable operating
agreements, and all other overhead charges actually charged by third parties)
which are incurred in the operation of the Properties after the Effective Date
will be borne by Buyer, and all proceeds (net of applicable production,
severance, and similar taxes) from the sale of oil, gas and/or other minerals
produced from the Oil and Gas Properties after the Effective Date will be
received by Buyer, and (b) all expenses which are incurred in the operation of
the Properties before the Effective Date will be borne by Seller and all
proceeds (net of applicable production, severance, and similar taxes) from the
sale of oil, gas and/or other minerals produced therefrom before the Effective
Date will be received by Seller. It is agreed that, in making such adjustments:
(i) oil which was produced from the Oil and Gas Properties and which was, on the
Effective Date, stored in tanks located on the Oil and Gas Properties (or
located elsewhere but used
40
<PAGE>
to store oil produced from the Oil and Gas Properties prior to delivery to oil
purchasers) and above pipeline connections shall be deemed to have been produced
before the Effective Date (it is recognized that such tanks were not gauged on
the Effective Date for the purposes of this Agreement and that determination of
the volume of such oil in storage will be based on the best available data,
which may include estimates), and (ii) ad valorem taxes assessed with respect to
a period which the Effective Date splits shall be prorated based on the number
of days in such period which fall on each side of the Effective Date (with the
day on which the Effective Date falls being counted in the period after the
Effective Date), and (iii) no consideration shall be given to the local, state
or federal income tax liabilities of any party.
Section 11.2. Closing and Post-Closing Accounting Settlements.
-----------------------------------------------
(a) At or before Closing, the parties shall determine, based upon the
best information reasonably available to them, the amount of the adjustments
provided for in Section 11.1. If the amount of adjustments so determined which
would result in a credit to Buyer exceed the amount of adjustments so determined
which would result in a credit to Seller, Buyer shall receive a credit, for the
amount of such excess, against the number of Preferred Shares to be delivered at
Closing, and, if the converse is true, Buyer shall increase the number of
Preferred Shares delivered to Seller, at Closing (in addition to amounts
otherwise then owed), for the amount of such excess, in each case determined on
the basis of one Preferred Share for each $50 of adjustment.
(b) On or before 90 days after Closing, Buyer and Seller shall review
any additional information which may then be available pertaining to the
adjustments provided for in Sections 11.1, shall determine if any additional
adjustments (whether the same be made to account for expenses or revenues not
considered in making the adjustments made at Closing, or to correct errors made
in such adjustments) should be made beyond those made at Closing, and shall make
any such adjustments in the manner provided in subsection (a) above. Following
such additional adjustments, no further adjustments shall be made under this
Article XI.
ARTICLE XII
Assumption and Indemnification
-------------------------------
Subject to Article VII, Section 11.2(b), the last sentence of this Article
XII and the other terms and provisions hereof, Seller shall, on the date of
Closing, agree (and, upon the delivery to Buyer of the Assignment, shall be
deemed to have agreed) to indemnify and hold Buyer harmless from and against any
and all claims, obligations, actions, liabilities, damages, or expenses arising
out of the ownership or operation of the Properties before the Effective Date
(exclusive of Environmental Obligations other than Excluded Environmental
Obligations). Buyer shall, on the date of Closing, agree (and, upon the receipt
by Buyer of the Assignment from Seller, shall be deemed to have agreed) to (a)
assume, and to timely pay and perform all duties, obligations and liabilities
relating to the ownership or operation of the Properties after the Effective
Date (including those arising under the contracts and agreements described in
Article II(d)) and (b) assume full responsibility for Environmental Obligations
other than the Excluded Environmental Obligations. Buyer shall, on the
41
<PAGE>
date of Closing, agree (and upon the receipt by Buyer of the Assignment from
Seller shall be deemed to have agreed) to indemnify and hold Seller harmless
from and against (i) any and all claims, obligations, actions, liabilities,
damages, or expenses arising out of the ownership or operation of the Properties
after the Effective Date and (ii) any Environmental Obligations other than the
Excluded Environmental Obligations.. In connection with (but not in limitation
of) the foregoing, it is specifically understood and agreed that matters arising
out of or otherwise relating to the ownership and/or operation of the Properties
after the Effective Date shall include all obligations to properly plug and
abandon, or replug and re-abandon, wells located on the Properties; it is
further understood and agreed that Seller shall have no liability to Buyer or
obligation to indemnify Buyer for any matter for which Buyer has received an
adjustment to the Base Purchase Price under this Agreement.
ARTICLE XIII
Affirmative Post Closing Covenants of Buyer
--------------------------------------------
To induce Seller to enter into this Agreement, Buyer warrants, covenants
and agrees that it will comply with and observe the following covenants and
provisions, and will cause each Subsidiary to comply with and observe such of
the following covenants and provisions as are applicable to such Subsidiary:
Section 13.1. Inspection Rights. At any reasonable time and from time to
-----------------
time upon reasonable notice, Buyer will permit Seller or its agents or
representatives to examine and make copies of and extracts from the records and
books of account of, and visit and inspect the properties of Buyer and any
Subsidiary, and to discuss the affairs, finances and accounts of Buyer and any
Subsidiary with any of their officers or directors and independent accountants.
Section 13.2. Books, Financial Statements and Reports. Buyer and each of
---------------------------------------
its Subsidiaries will at all times maintain full and accurate books of account
and records. Buyer will maintain and will cause its Subsidiaries to maintain a
standard system of accounting, will maintain its Fiscal Year, and will furnish
the following statements and reports to Seller at Buyer's expense:
(a) As soon as available, and in any event within one hundred
five (105) days after the end of each Fiscal Year, complete consolidated
financial statements of Buyer together with all notes thereto, prepared in
reasonable detail in accordance with U.S. GAAP, together with an unqualified
opinion, based on an audit using generally accepted auditing standards, by
independent certified public accountants selected by Buyer and reasonably
acceptable to Seller, 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.
(b) As soon as available, and in any event within fifty (50) days
after the end of each Fiscal Quarter, Buyer's consolidated balance sheet as of
the end of such Fiscal Quarter and consolidated statements of Buyer's earnings
and cash flows for the period from the beginning of the
42
<PAGE>
then current Fiscal Year to the end of such Fiscal Quarter, all in reasonable
detail and prepared in accordance with U.S. GAAP, subject to changes resulting
from normal year-end adjustments. In addition Buyer will, together with each
such set of financial statements and each set of financial statements furnished
under subsection (a) of this section, furnish a certificate in a form reasonably
acceptable to Seller signed by the chief financial officer of Buyer stating that
such financial statements are accurate and complete (subject to normal year-end
adjustments) 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.
(c) Promptly upon their becoming available, copies of all financial
statements, reports, notices and proxy statements sent by Buyer to its
stockholders and all registration statements, periodic reports and other
statements and schedules filed by Buyer with any securities exchange, the
Securities and Exchange Commission or any similar Governmental Entity.
(d) Annually within 60 days after the end of each Fiscal Year
beginning with the Fiscal Year ending April 30, 2000, a report containing (i) an
estimation of the oil and gas reserves, classified by appropriate categories, as
of the end of the preceding fiscal year attributable to the interest of Buyer
therein, (ii) a projection of the rate of production of and net income from such
reserves with respect to each such interest, (iii) a calculation of the present
worth of such net income discounted at a rate of 10% and (iv) a schedule or
complete description of all assumptions, estimates and projections made or used
in the preparation of such report. Each such report shall be prepared in
accordance with customary and generally accepted standards and practices for
petroleum engineers, and shall be based on (1) prices determined by the Holders
of a Requisite Majority , (2) lease operating expenses and production taxes
derived from and consistent with those actually incurred by Buyer, escalated at
the same rate, if any, being applied to prices and (3) such other assumptions as
shall be designated by the Holders of a Requisite Majority. In addition to the
foregoing, the Holders of a Requisite Majority shall have the right from time to
time to cause the independent petroleum engineer referenced below to prepare an
additional report of the type described above, not to exceed one additional
report in any one calendar year, in which event all fees and expenses incurred
in connection with obtaining such additional report shall be paid by Buyer. Each
report under this subsection shall be prepared by an independent petroleum
engineer designated by Buyer and approved by the Holders of a Requisite
Majority. Each annual report referenced above shall also include an estimate of
Buyer's proved oil and gas reserves (as defined in Regulation S-X promulgated by
the Securities and Exchange Commission) and a calculation of the "present value
of estimated future net revenues" from such proved oil and gas reserves, with
such present worth calculation to be made in accordance with Regulation S-X, as
promulgated by the Securities and Exchange Commission.
(e) Promptly, such other information with respect to the business and
operations of Buyer and its Subsidiaries, as Seller may reasonably request.
Section 13.3. Notice of Material Events and Change of Address. Buyer will
-----------------------------------------------
promptly notify Seller in writing, stating that such notice is being given
pursuant to this Agreement, of:
43
<PAGE>
(a) the occurrence of an event or circumstance that could reasonably
be expected to have a Material Adverse Effect,
(b) the occurrence of any Default,
(c) the acceleration of the maturity of any indebtedness owed by Buyer
or any Subsidiary thereof or of any default by any Buyer or any such Subsidiary
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 could reasonably be expected to have a
Material Adverse Effect,
(d) any claim of $100,000 or more, any notice of potential liability
under any Environmental Laws which might exceed such amount, or any other
material adverse claim asserted against Buyer or any Subsidiary thereof or with
respect to Buyer or any of such Subsidiary's properties, and
(e) the filing of any suit or proceeding against Buyer or any
Subsidiary thereof in which an adverse decision could cause a Material Adverse
Effect.
Upon the occurrence of any of the foregoing Buyer and any Subsidiary thereof
will take all necessary or appropriate steps to remedy promptly any such
Material Adverse Effect, Default, acceleration or default, 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.
Section 13.4. Maintenance of Properties. Buyer and each of its
-------------------------
Subsidiaries will maintain, preserve, protect, and keep all property used or
useful in the conduct of its business in good condition and in compliance with
all Applicable Laws, 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 promptly and advantageously conducted at all times.
Section 13.5. Maintenance of Existence and Qualifications. Buyer and each
-------------------------------------------
of its Subsidiaries will maintain and preserve its existence and its rights and
franchises in full force and effect and will qualify to do business in all
states or jurisdictions where required by Applicable Law, except where the
failure so to qualify will not cause a Material Adverse Effect.
Section 13.6. Payment of Trade Liabilities, Taxes, etc. Buyer and each of
-----------------------------------------
its Subsidiaries will (a) timely file all required Tax Returns; (b) timely pay
all Taxes, assessments, and other governmental charges or levies imposed upon it
or upon its income, profits or property; (c) timely withhold and pay over to the
proper Governmental Entity all amounts required to be withheld and paid over
under Applicable Laws; (d) pay when due all Liabilities owed by it on ordinary
trade terms to vendors, suppliers and other Persons providing goods and services
used by it in the ordinary course of its business; (e) pay and discharge when
due all other Liabilities now or hereafter owed by it; and (f) maintain
appropriate accruals and reserves for all of the foregoing in accordance with
U.S. GAAP. Buyer and each of its Subsidiaries may, however, delay paying or
discharging any of the foregoing
44
<PAGE>
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.
Section 13.7. Insurance. Buyer and each of its Subsidiaries will keep or
---------
cause to be kept insured by financially sound and reputable insurers its
properties in such forms and amounts and against such risks as are customary for
Persons engaged in the same or similar business of owning and operating similar
properties.
Section 13.8. Compliance with Agreements and Law. Buyer and each of its
----------------------------------
Subsidiaries 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. Buyer and each
of its Subsidiaries will conduct its business and affairs in compliance with all
Applicable Law.
Section 13.9. Charter Amendment Approval. Buyer shall cause Charter
--------------------------
Amendment Approval by September 30, 2000.
ARTICLE XIV
Post Closing Negative Covenants of Buyer
----------------------------------------
To induce Seller to enter into this Agreement, Buyer warrants, covenants
and agrees that, until all of the Preferred Shares have been converted into
Preferred Conversion Shares, it will comply with and observe the following
covenants and provisions, and will cause each Subsidiary to comply with and
observe such of the following covenants and provisions as are applicable to such
Subsidiary:
Section 14.1. Indebtedness. Neither Buyer nor any Subsidiary thereof will
------------
in any manner owe or be liable for Indebtedness except:
(a) the Senior Credit Facility;
(b) the Subordinated Debt;
(c) purchase money Indebtedness and Indebtedness under leases of
Buyer or such Subsidiary as lessee which are capitalized in accordance with U.S.
GAAP, in an aggregate principal amount not to exceed $100,000 at any time,
provided that such purchase money Indebtedness and Indebtedness under capital
leases do not in the aggregate exceed $250,000;
(d) gas overproduction or liabilities arising under futures
contracts, forward contracts, swap, cap or collar contracts, option contracts,
hedging contracts, other derivative contracts or similar contracts, to the
extent permitted by the Senior Credit Facility;
(e) Old Latex Payables.
45
<PAGE>
Section 14.2. Limitation on Liens. Neither Buyer nor any Subsidiary
-------------------
thereof will create, assume or permit to exist any Lien upon any of the
properties or assets which it now owns or hereafter acquires, except the
following ("Permitted Liens"):
(a) Liens which secure the Senior Credit Facility; and
(b) Statutory Liens for taxes, statutory mechanics' and materialmen's
Liens incurred in the ordinary course of business, and other similar Liens
incurred in the ordinary course of business, provided such Liens do not secure
Indebtedness and secure only Indebtedness which is not delinquent or for which
adequate reserves have been set aside.
Section 14.3. Limitation on Mergers. Except as expressly provided in this
---------------------
Section, neither Buyer nor any Subsidiary thereof will merge or consolidate with
or into any other business entity. Any Subsidiary of Buyer may, however, be
merged into or consolidated with either Buyer or another Subsidiary which is
wholly-owned by Buyer, so long as Buyer or the Subsidiary wholly-owned by Buyer
is the surviving business entity. Buyer will not issue any securities other than
(i) Common Stock (including the shares of Common Stock to be issued upon the
conversion of the Series A Preferred) or (ii) any options or warrants giving
the holders thereof only the right to acquire such shares. No Subsidiary of
Buyer will issue any additional shares of its capital stock or other securities
or any options, warrants or other rights to acquire such additional shares or
other securities except to Buyer or to another Subsidiary. No Subsidiary of
Buyer which is a partnership will allow any diminution of Buyer's interest
(direct or indirect) therein.
Section 14.4. Limitation on Sales of Property. Neither Buyer nor any
-------------------------------
Subsidiary thereof will sell, transfer, lease, exchange, alienate or dispose of
any of its assets or properties except:
(a) equipment which is worthless or obsolete or which is replaced by
equipment of equal suitability and value;
(b) inventory (including oil and gas sold as produced and seismic
data) which is sold in the ordinary course of business on ordinary trade terms;
or
(c) other property which is sold for fair consideration not in the
aggregate in excess of $500,000 in any Fiscal Year (commencing with Fiscal Year
2000).
Section 14.5. Limitation on Investments and New Businesses. Neither Buyer
--------------------------------------------
nor any Subsidiary thereof will make any expenditure or commitment or incur any
obligation or enter into or engage in any transaction except in the ordinary
course of business (which ordinary course of business includes the acquisition,
directly or indirectly, of oil and gas properties), engage directly or
indirectly in any business or conduct any operations except in connection with
or incidental to its present businesses and operations, make any acquisitions of
or capital contributions to or other investments in any Person, other than
Permitted Investments, or make any significant acquisitions or investments in
any properties other than oil and gas properties.
46
<PAGE>
Section 14.6. Transactions with Affiliates. Neither Buyer nor any of its
----------------------------
Subsidiaries will engage in any material 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.
Section 14.7. Restricted Payments. Buyer will not, and will not permit
-------------------
any of its Subsidiaries to, declare or make, or incur any liability to declare
or make, any Restricted Payment.
ARTICLE XV
Events of Default and Remedies
------------------------------
Section 15.1. Events of Default. If any of the following events ("Events
-----------------
of Default") shall occur and be continuing:
(a) Buyer fails to pay any dividends on the Preferred Shares when due
as required under the terms of the Certificate of Designation;
(b) Buyer fails to redeem the Preferred Shares when due as required
under the terms of the Certificate of Designation;
(c) a default in the performance or observation of any covenant,
agreement or condition contained in (i) Article XIII or Article XIV, (ii) the
Organic Documents with respect to the Series A Preferred (exclusive of a default
described in subsection (a) or subsection (b) above, or (iii) any other
Ancillary Document, which default is not remedied within 15 days after the
earlier of (A) the day on which Buyer first obtains knowledge of such default or
(B) the day on which written notice thereof is given to Buyer by any registered
holder of the Preferred Shares;
(d) any representation or warranty previously, presently or hereafter
made in writing by or on behalf of Buyer or any Subsidiary thereof in
connection with this Agreement or any Ancillary Document shall prove to have
been false or incorrect in any material respect on any date on or as of which
made, which default is not remedied within 30 days after the earlier of (i) the
day on which Buyer first obtains knowledge of such default or (ii) the day on
which written notice thereof is given to Buyer by any registered holder of the
Preferred Shares;
(e) Buyer or any Subsidiary fails to duly observe, perform or comply
with any term or condition of any loan document relating to the Senior Credit
Facility, the Subordinated Debt Agreement or any other agreement or instrument
with any Person, if such agreement or instrument is materially significant to
Buyer or such Subsidiary, and such failure is not remedied within the applicable
period of grace (if any) provided in such agreement or instrument (it being
agreed that each of the Other Acquisition Agreements and the Preferred Stock
Purchase Agreement is materially significant to Buyer);
47
<PAGE>
(f) Buyer or any Subsidiary thereof fails to pay any portion, when
such portion is due, of any of its Indebtedness in excess of $100,000 (exclusive
of the Old LaTex Payables), or breaches or defaults in the performance of any
Agreement or instrument by which any such Indebtedness is issued, evidenced,
governed, or secured, and any such failure, breach or default continues beyond
any applicable period of grace provided therefor;
(g) Buyer or any Subsidiary thereof:
(i) suffers the entry against it of a judgment, decree or order
for relief by a tribunal of competent jurisdiction in an involuntary
proceeding commenced under any applicable bankruptcy, insolvency or other
similar Applicable Law of any jurisdiction now or hereafter in effect,
including the United States federal Bankruptcy Code or similar foreign law,
as from time to time amended, or has any such proceeding commenced against
it which remains undismissed for a period of thirty days; or
(ii) commences a voluntary case under any applicable bankruptcy,
insolvency or similar Applicable Law now or hereafter in effect, including
the United States federal Bankruptcy Code or similar foreign law, 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 Applicable 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 corporate or other action to authorize any of the foregoing;
or
(iii) suffers the appointment of or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator or similar
official of all or a substantial part of its assets in a proceeding brought
against or initiated by it, and such appointment or taking possession is
neither made ineffective nor discharged within thirty days after the making
thereof, or such appointment or taking possession is at any time consented
to, requested by, or acquiesced to by it; or
(iv) suffers the entry against it of a final judgment for the
payment of money in excess of $250,000 (not covered by insurance), 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 tribunal against all or any substantial part of
its assets, and such writ or warrant of attachment or any similar process
is not stayed or released within thirty days after the entry or levy
thereof or after any stay is vacated or set aside;
(h) Any Change in Control occurs; and
(i) Any Material Adverse Effect occurs.
48
<PAGE>
Upon the occurrence of an Event of Default, (x) Seller or any other holder
of the Preferred Shares holding a majority of the Outstanding Common Stock may,
by notice to the Company, request that Buyer redeem all of the Preferred Shares
at a per share purchase price of $50.00 plus all accrued and unpaid dividends
thereon; (y) Seller shall have such rights as provided in the Organic Documents;
and (z) Seller may proceed to protect and enforce its rights by suit in equity
(including a suit for recission), action at law or other appropriate proceeding
either for specific performance of any covenant, provision or condition
contained or incorporated by reference to this Agreement or in aid of the
exercise of any power granted in this Agreement.
Without limiting the rights of the holders of the Series A Preferred, Buyer
and the Subsidiaries hereby agree that the holders of the Series A Preferred
would have no adequate remedy at law, for monetary compensation or otherwise,
for the damages that would be suffered if Buyer or the Subsidiaries were to fail
to comply with its obligations under Article IX, and that Buyer and the
Subsidiaries therefore agree that the holders of the Series A Preferred shall be
entitled to obtain specific performance of Buyer's obligations under this
Agreement.
Section 15.2. Annulment of Defaults. Section 15.1 is subject to the
---------------------
condition that if, at any time after a dividend shall have become due and
payable, and before any judgment or decree for the payment of the moneys so due,
or any thereof, shall have been entered, then and in every such case Seller may,
by written instrument filed with Buyer, rescind and annul such declaration and
its consequences; but no such recission or annulment shall extend to or affect
and subsequent default or Event of Default or impair any right consequent
thereon.
Section 15.3. Expiration. The provisions of Sections 15.1 and 15.2 shall
----------
automatically expire and be of no further force or effect upon such date as all
of the Preferred Shares have been converted into Preferred Conversion Shares.
ARTICLE XVI
Notices
-------
All notices, requests, demands, and other communications required or
permitted to be given or made hereunder by any party hereto shall be in writing
and shall be deemed to have been duly given or made if (i) delivered personally,
(ii) transmitted by first class registered or certified mail, postage prepaid,
return receipt requested, (iii) sent by prepaid overnight courier service, or
(iv) sent by telecopy or facsimile transmission, answer back requested, to the
parties at the following addresses (or at such other addresses as shall be
specified by the parties by like notice):
49
<PAGE>
If to Seller: Mountaineer Limited Partnership
------------
207 West McKay
Carlsbad, New Mexico 88220
Attention: Perry L. Hughes
with a copy to: c/o EnCap Investments L.L.C.
--------------
1100 Louisiana, Suite 3150
Houston, Texas 77002
Attention: Robert L. Zorich
Fax No.: 713-659-6130
If to Buyer: AROC Inc.
-----------
4200 East Skelly Drive, Suite 1000
Tulsa, Oklahoma 74135
Attention: John A. Keenan
Fax No.: 918-494-4918
with a copy to: Jenkens & Gilchrist, a Professional Corporation
1445 Ross Avenue, Suite 3200
Dallas, Texas 75202
Attention: W. Alan Kailer
Fax No.: 214-855-4300
Such notices, requests, demands, and other communications shall be effective (i)
if delivered personally or sent by courier service, upon actual receipt by the
intended recipient, (ii) if mailed, upon the earlier of five days after deposit
in the mail or the date of delivery as shown by the return receipt therefor or
(iii) if sent by telecopy or facsimile transmission, when the answer back is
received.
ARTICLE XVII
Miscellaneous Matters
---------------------
Section 17.1. Survival of Provisions.
----------------------
(a) All representations and warranties made herein by Buyer and
Seller shall be continuing and shall be true and correct on and as of the date
of Closing with the same force and effect as if made at that time and, except as
provided below, all of such representations and warranties shall survive the
Closing and the delivery of the Assignment. The representations of Seller
contained in Section 4.7 through 4.20 (the "Limited Survival Representations")
shall survive the Closing until the six-month anniversary of the Closing (the
"Survival Date"). The provisions of, and the obligations of the parties under,
Article IX (to the extent the same are, by mutual agreement, not performed at
Closing), Section 6.4 and Articles X through XVII inclusive shall survive the
Closing and the delivery of the Assignment.
50
<PAGE>
(b) Seller shall not have any indemnification obligation pursuant to
Section 17.5(b) or otherwise in respect of any Limited Survival Representation
unless before the Survival Date it shall have received from Buyer written notice
of the existence of the claim for or in respect of which indemnification in
respect of such Limited Survival Representation is sought. Such notice shall
set forth with reasonable specificity (i) the basis under this Agreement, and
the facts that otherwise form the basis, of such claim, (ii) an estimate of the
amount of such claim (which estimate shall not be conclusive of the final amount
of such claim) and an explanation of the calculation of such estimate, including
a statement of any significant assumptions employed therein, and (iii) the date
on and manner in which Buyer became aware of the existence of such claim.
Section 17.2. Public Announcements. Except as may be required by
--------------------
Applicable Law, neither Seller, on the one hand, nor Buyer, on the other, shall
issue any press release or otherwise make any public statement with respect to
this Agreement or the transactions contemplated hereby without the prior written
consent of the other party (which consent shall not be unreasonably withheld).
Any such press release or public statement required by Applicable Law shall only
be made after reasonable notice to the other party, and in such case the party
proposing to make such a press release or public statement shall consult with
the other party.
Section 17.3. Fees and Expenses.
-----------------
(a) Except as otherwise expressly provided in this Agreement, all
fees and expense, including fees and expenses of counsel, incurred in connection
with this Agreement and the transactions contemplated hereby shall be paid by
the party incurring such fee or expense.
(b) Notwithstanding anything to the contrary herein, since the
transaction contemplated hereby is an isolated transaction, no sales tax will be
collected from Buyer. If, however, this transaction is later deemed to be other
than an occasional sale, Buyer agrees to be solely responsible, and shall
indemnify and hold Seller (and their respective partners, and each of their and
each such partners' parent and subsidiary companies and other affiliates, and
shareholders, managers, owners, directors, officers, employees, consultants, and
agents, respectively) harmless, from any and all sales or transfer taxes or fees
(including related penalty, interest or legal costs) due by virtue of this
transaction on the Properties transferred pursuant hereto and Buyer shall remit
such sales or transfer taxes at that time. Seller and Buyer agree to cooperate
with each other in demonstrating that the requirements for an occasional or
isolated sale or any other sales tax exemption have been met.
(c) Buyer shall be solely responsible for all filings and recordings
of assignments and other documents related to the Properties and for all fees
connected therewith, and Buyer shall furnish Seller with pertinent recording
data. Seller shall not be responsible for any loss to Buyer because of Buyer's
failure to file or record documents correctly or promptly.
(d) All sales, transfer, filing, recordation, registration, stamp and
similar Taxes and fees arising from or associated with the issue and sale of the
Preferred Shares contemplated hereunder, whether levied on Seller or Buyer,
shall be borne by Buyer, and Buyer shall file all
51
<PAGE>
necessary documentation with respect to, and make all payments of, such Taxes
and fees on a timely basis.
Section 17.4. Costs of Enforcement. If any party hereto is required to
--------------------
take action to enforce its rights under this Agreement, the prevailing party
shall be entitled to its reasonable expenses, including attorneys' fees and
expenses, in connection with any such action.
Section 17.5. Indemnification.
---------------
(a) Subject to the terms and conditions of this Section 17.5, Buyer
shall indemnify, defend and hold harmless Seller from and against any and all
claims, actions, causes of action, demands, assessments, losses, damages,
liabilities, judgments, settlements, penalties, costs and expenses (including
reasonable attorneys' fees and expenses), of any nature (collectively,
"Damages") whatsoever, asserted against, resulting to, imposed upon, or incurred
by Seller, directly or indirectly, by reason of or resulting from any breach by
Buyer of any of its representations, warranties, covenants or agreements
contained in this Agreement or in any certificate, instrument or document
delivered pursuant hereto.
(b) Subject to the terms and conditions of this Section 17.5 (and
Section 17.1(b)), Seller shall indemnify, defend and hold harmless Buyer from
and against any and all Damages, asserted against, resulting to, imposed upon,
or incurred by Buyer, directly or indirectly, by reason of or resulting from any
breach by Seller of any of its representations, warranties, covenants or
agreements contained in this Agreement or in any certificate, instrument or
document delivered pursuant hereto (collectively, "Buyer Claims").
(c) No indemnification shall be required to be made by Seller
pursuant to this Section 17.5 with respect to any Buyer Claims except to the
extent that the aggregate amount of Damages incurred by Buyer with respect to
all Buyer Claims exceeds $50,000.
(d) Seller's liability to Buyer for indemnification pursuant to this
Section 17.5 or elsewhere in this Agreement (including Article XII) shall in no
event exceed the aggregate stated value of the Preferred Shares issued to
Seller; further, the sole manner by which Seller shall be required to satisfy
any indemnification obligation to Buyer pursuant to this Section 17.5 or
elsewhere in this Agreement, including Article XII (in this subsection, an
"Indemnification Obligation") shall be by Seller tendering to Buyer either
Preferred Shares or Preferred Conversion Shares. In connection therewith, (i)
the number of Preferred Shares to be tendered shall be equal to the
Indemnification Obligation (or portion thereof to be satisfied with Preferred
Shares) divided by the greater of (A) $50.00 or (B) the aggregate Current Market
Price of the shares of Common Stock into which such Preferred Shares are then
convertible divided by the number of Preferred Shares to be tendered; and (ii)
the number of Preferred Conversion Shares to be tendered shall be equal to the
Indemnification Obligation (or portion thereof to be satisfied with Preferred
Conversion Shares) divided by the Current Market Price. As used herein, the term
"Current Market Price" shall mean the average of the last reported sales prices
for the Common Stock for the 10 consecutive Trading Days ending on the second
Trading Day prior to delivery in satisfaction of the subject Indemnification
Obligation.
52
<PAGE>
The last reported sales price for each day shall be the last reported sales
price of the Common Stock on such date on the exchange where it is primarily
traded, or, if the Common Stock is not traded on an exchange, the Common Stock
shall be valued at the last reported sales price on such date on the NASDAQ
National Market System, or, if the Common Stock is not traded on the NASDAQ
National Market System or any similar system of automated dissemination of
quotations of securities prices, the Common Stock shall be valued at the closing
bid price (or average of bid prices) last quoted on such date as reported on an
established quotation service for over-the-counter securities. As used in this
subsection (d), the term "Trading Days" shall mean (1) if the Common Stock is
listed or admitted for trading on any generally recognized U.S. securities
exchange, days on which such securities exchange is open for business and (2) if
the Common Stock is quoted on the NASDAQ National Market System or any similar
system of automated dissemination of quotations of securities prices, days on
which trades may be made on such system.
(e) Promptly after receipt by an indemnified party under Section
17.5(a) or Section 17.5(b) of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against an
indemnifying party under such Section, give written notice to the indemnifying
party of the commencement thereof , but the failure so to notify the
indemnifying party shall not relieve it of any liability that it may have to any
indemnified party except to the extent the indemnifying party demonstrates that
the defense of such action is prejudiced thereby. In case any such action shall
be brought against an indemnified party and it shall give written notice to the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it may wish, to assume
the defense thereof with counsel reasonably satisfactory to such indemnified
party. If the indemnifying party elects to assume the defense of such action,
the indemnified party shall have the right to employ separate counsel at its own
expense and to participate in the defense thereof. If the indemnifying party
elects not to assume (or fails to assume) the defense of such action, the
indemnified party shall be entitled to assume the defense of such action with
counsel of its own choice, at the expense of the indemnifying party. If the
action is asserted against both the indemnifying party and the indemnified party
and there is a conflict of interests which renders it inappropriate for the same
counsel to represent both the indemnifying party and the indemnified party, the
indemnifying party shall be responsible for paying for separate counsel for the
indemnified party; provided, however, that if there is more than one indemnified
party, the indemnifying party shall not be responsible for paying for more than
one separate firm of attorneys to represent the indemnified parties, regardless
of the number of indemnified parties. If the indemnifying party elects to assume
the defense of such action, (a) no compromise or settlement thereof may be
effected by the indemnifying party without the indemnified party's written
consent (which shall not be unreasonably withheld) unless the sole relief
provided is monetary damages that are paid in full by the indemnifying party and
(b) the indemnifying party shall have no liability with respect to any
compromise or settlement thereof effected without its written consent (which
shall not be unreasonably withheld).
(f) It is the express intention of the parties hereto that each
-----------------------------------------------------------
person to be indemnified pursuant to this Section 17.5 or Article XII shall be
- ------------------------------------------------------------------------------
indemnified and held harmless from and against all Damages as to which indemnity
- --------------------------------------------------------------------------------
is provided for under this Section 17.5 or Article XII notwithstanding that any
- -------------------------------------------------------------------------------
such Damages arise out of or result from the ordinary,
- ------------------------------------------------------
53
<PAGE>
strict, sole, or contributory negligence of such person and regardless of
- -------------------------------------------------------------------------
whether any other person (including the other party to this Agreement) is or is
- -------------------------------------------------------------------------------
not also negligent.
- ------------------
Section 17.6. Waiver and Amendment. No failure or delay (whether by
--------------------
course of conduct or otherwise) by any party hereto in exercising any right,
power or remedy which such holder may have under the Agreement or any of the
Ancillary Documents shall operate as a waiver thereof or of any other right,
power or remedy, nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or of any other right, power or remedy. No
waiver of any provision of this Agreement or any Ancillary 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 waiver,
consent, release, modification or amendment of or supplement to this Agreement
or any of the Ancillary Documents shall be valid or effective against any party
hereto unless the same is in writing and signed by such party.
Section 17.7. Entire Agreement. This Agreement, together with the
----------------
Schedules and other writings referred to herein or delivered pursuant hereto,
constitute the entire agreement between the parties hereto with respect to the
subject matter hereof and supersede all prior agreements and understandings,
both written and oral, between the parties with respect to the subject matter
hereof.
Section 17.8. Binding Effect; Assignment; No Third Party Benefit. This
--------------------------------------------------
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns; provided, however, that prior to
Closing, neither party may assign its rights or delegate any of its duties and
obligations under this Agreement or the Ancillary Documents without the prior
written consent of the other; provided, further, that after the Closing, Buyer
may not assign its rights or delegate any of its duties and obligations under
this Agreement and the Ancillary Documents without the prior written consent of
Seller. Except as expressly provided herein, nothing in this Agreement, express
or implied, is intended to or shall confer upon any Person other than the
parties hereto, and their respective successors and permitted assigns, any
rights, benefits, or remedies of any nature whatsoever under or by reason of
this Agreement.
Section 17.9. Severability. If any provision of this Agreement is held
------------
to be unenforceable, this Agreement shall be considered divisible and such
provision shall be deemed inoperative to the extent it is deemed unenforceable,
and in all other respects this Agreement shall remain in full force and effect;
provided, however, that if any such provision may be made enforceable by
limitation thereof, then such provision shall be deemed to be so limited and
shall be enforceable to the maximum extent permitted by Applicable Law.
Section 17.10. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
-------------
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS,
WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
54
<PAGE>
Section 17.11. Remedies Not Exclusive. The rights and remedies herein
----------------------
provided shall be cumulative and not exclusive of any rights or remedies
provided by law. The rights and remedies of any party based upon, arising out
of, or otherwise in respect of any inaccuracy in or breach of any
representation, warranty, covenant, or agreement contained in this Agreement
shall in no way be limited by the fact that the act, omission, occurrence, or
other state of facts upon which any claim of any such inaccuracy or breach is
based may also be the subject matter of any other representation, warranty,
covenant, or agreement contained in this Agreement (or in any other agreement
between the parties) as to which there is no inaccuracy or breach.
Section 17.12. Further Assurances. From time to time following the
------------------
Closing, at the request of any party hereto and without further consideration,
the other party or parties hereto shall execute and deliver to such requesting
party such instruments and documents and take such other action (but without
incurring any material financial obligation) as such requesting party may
reasonably request in order to consummate more fully and effectively the
transactions contemplated hereby.
Section 17.13. Counterparts. This Agreement may be executed by the
------------
parties hereto in any number of counterparts, each of which shall be deemed an
original, but all of which shall constitute one and the same agreement. Each
counterpart may consist of a number of copies hereof each signed by less than
all, but together signed by all, the parties hereto.
Section 17.14. Injunctive Relief. The parties hereto acknowledge and
-----------------
agree that irreparable damage would occur in the event any of the provisions of
this Agreement were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent breaches of the provisions
of this Agreement, and shall be entitled to enforce specifically the provisions
of this Agreement, in any court of the United States or any state thereof having
jurisdiction, in addition to any other remedy to which the parties may be
entitled under this Agreement or at law or in equity.
Section 17.15. Consent to Jurisdiction. Subject to Section 7.5, the
-----------------------
parties hereto hereby irrevocably submit to the jurisdiction of the courts of
the State of Texas and the federal courts of the United States of America
located in Harris County, Texas, and appropriate appellate courts therefrom,
over any dispute arising out of or relating to this Agreement or any of the
transactions contemplated hereby, and each party hereby irrevocably agrees that
all claims in respect of such dispute or proceeding shall be heard and
determined in such courts. Subject to Section 7.5, the parties hereby
irrevocably waive, to the fullest extent permitted by Applicable Law, any
objection which they may now or hereafter have to the laying of venue of any
dispute arising out of or relating to this Agreement or any of the transactions
contemplated hereby brought in such court or any defense of inconvenient forum
for the maintenance of such dispute. Each of the parties hereto agrees that a
judgment in any such dispute may be enforced in other jurisdictions by suit on
the judgment or in any other manner provided by law. This consent to
jurisdiction is being given solely for purposes of this Agreement and is not
intended to, and shall not, confer consent to jurisdiction with respect to any
other dispute in which a party to this Agreement may become involved.
55
<PAGE>
Section 17.17. Payments. All payments to be made hereunder shall be in
--------
lawful money of the United States of America.
Section 17.18. Right to Purchase New Equity Securities. Buyer grants to
---------------------------------------
Seller the same rights as provided to the "Purchasers" under Section 2.03 of the
Preferred Stock Purchase Agreement, and the terms and conditions of such Section
are hereby incorporated herein, mutatis mutandis.
----------------
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
56
<PAGE>
IN WITNESS WHEREOF, this Agreement is executed by the parties hereto on the
date set forth above.
SELLER:
MOUNTAINEER LIMITED PARTNERSHIP
By: SHAHARA OIL, LLC
By: _________________________________
Name: Perry L. Hughes
Title: Executive Officer
BUYER:
AROC INC.
By: _________________________________
Name:____________________________
Title:___________________________
57
<PAGE>
EXHIBIT 10.5
________________________________________________________________________________
Purchase Agreement
by and between
Aroc Inc.
and
EnCap Equity 1996 Limited Partnership
and
Energy Capital Investment Company PLC
and
El Paso Capital Investments, L.L.C.
May 1, 2000
________________________________________________________________________________
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I
DEFINITIONS........................................................................ 1
1.1 Certain Defined Terms.................................................... 1
1.2 Certain Additional Defined Terms......................................... 8
1.3 References and Construction.............................................. 9
ARTICLE II
TERMS OF THE TRANSACTION........................................................... 9
2.1 Agreement to Sell and to Purchase Notes and Warrants..................... 9
2.2. Payment................................................................. 10
2.3. Placement Fee............................................................ 10
ARTICLE III
CLOSING............................................................................ 10
3.1 Closing.................................................................. 10
3.2 Deliveries by the Company................................................ 11
3.3 Deliveries by Buyer...................................................... 11
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER........................................... 12
4.1 Corporate Organization................................................... 12
4.2 Qualification............................................................ 12
4.3 Charter and Bylaws....................................................... 12
4.4 Capitalization of the Company............................................ 12
4.5 Authority Relative to This Agreement..................................... 13
4.6 No Conflict.............................................................. 13
4.7 Consents and Approvals, Licenses, Etc.................................... 14
4.8 Subsidiaries............................................................. 14
4.9 Warrants................................................................. 15
4.10 Financial Statements..................................................... 15
4.11 SEC Filings.............................................................. 16
4.12 Absence of Undisclosed Liabilities....................................... 16
4.13 Absence of Certain Changes............................................... 16
4.14 Tax Matters.............................................................. 17
4.15 Environmental and Other Laws............................................. 18
4.16 Legal Proceedings........................................................ 19
4.17 Title to Properties; Permits; Licenses; Condition of Assets.............. 19
4.18 ERISA.................................................................... 20
4.19 Agreements............................................................... 21
4.20 Labor Disputes and Acts of God........................................... 23
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
4.21 Registration Rights...................................................... 23
4.22 Offering of Securities................................................... 23
4.23 Government Regulation.................................................... 23
4.24 Brokerage Fees........................................................... 24
4.25 Solvency................................................................. 24
4.26 Insurance................................................................ 24
4.27 Full Disclosure.......................................................... 24
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER............................................ 24
5.1 Organization............................................................. 24
5.2 Authority Relative to This Agreement..................................... 24
5.3 Investment Intent; Investment Experience;
Restricted Securities.................................................. 25
5.4 Brokerage Fees........................................................... 25
ARTICLE VI
CONDUCT OF COMPANY PENDING CLOSING................................................. 25
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF THE COMPANY........................................... 26
7.1 Representations and Warranties True...................................... 26
7.2 Covenants and Agreements Performed....................................... 26
7.3 HSR Act.................................................................. 26
7.4 Legal Proceedings........................................................ 26
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF BUYER................................................. 27
8.1 Representations and Warranties True...................................... 27
8.2 Covenants and Agreements Performed....................................... 27
8.3 HSR Act.................................................................. 27
8.4 Legal Proceedings........................................................ 27
8.5 Consents................................................................. 27
8.6 No Material Adverse Change............................................... 27
8.7 Subordination Agreement.................................................. 28
8.8 Registration Rights Agreement............................................ 28
8.9. Closing of the Senior Credit Facility.................................... 28
ARTICLE IX
PRE-CLOSING TERMINATION............................................................ 28
9.1 Termination.............................................................. 28
9.2 Effect of Termination.................................................... 28
ARTICLE X
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
AFFIRMATIVE COVENANTS OF THE COMPANY............................................... 29
10.1 Payment and Performance.................................................. 29
10.2 Books, Financial Statements and Reports.................................. 29
10.3 Notice of Material Events and Change of Address.......................... 30
10.4 Maintenance of Properties................................................ 31
10.5 Maintenance of Existence and Qualifications.............................. 31
10.6 Payment of Trade Liabilities, Taxes, etc................................. 31
10.7 Insurance................................................................ 31
10.8 Compliance with Agreements and Law....................................... 32
10.9 Guaranties of Company's Subsidiaries..................................... 32
10.10 Inspection Rights........................................................ 32
10.11 Charter Amendment Approval............................................... 32
ARTICLE XI
NEGATIVE COVENANTS OF THE COMPANY.................................................. 32
11.1 Indebtedness............................................................. 32
11.2 Limitation on Liens...................................................... 33
11.3 Limitation on Mergers.................................................... 33
11.4 Limitation on Sales of Property.......................................... 33
11.5 Limitation on Investments and New Businesses............................. 34
11.6 Transactions with Affiliates............................................. 34
11.7 Restricted Payments...................................................... 34
ARTICLE XII
PREPAYMENT OF THE NOTES............................................................ 34
ARTICLE XIII
EVENTS OF DEFAULT AND REMEDIES..................................................... 35
13.1 Events of Default........................................................ 35
13.2 Remedies................................................................. 37
ARTICLE XIV
ADDITIONAL AGREEMENTS.............................................................. 37
14.1 Third Party Consents..................................................... 37
14.2 Access to Information.................................................... 37
14.3 Use of Proceeds.......................................................... 38
14.4 Public Announcements..................................................... 38
14.5 Fees and Expenses........................................................ 38
14.6 Costs of Enforcement..................................................... 38
14.7 Indemnification.......................................................... 38
ARTICLE XV
MISCELLANEOUS...................................................................... 38
15.1 Notices.................................................................. 38
</TABLE>
-iii-
<PAGE>
<TABLE>
<S> <C>
15.2 Waiver and Amendment..................................................... 40
15.3 Survival................................................................. 40
15.4 Entire Agreement......................................................... 40
15.5 Binding Effect; Assignment; No Third Party Benefit....................... 40
15.6 Severability............................................................. 41
15.7 GOVERNING LAW............................................................ 41
15.8 Remedies Not Exclusive................................................... 41
15.9 Further Assurances....................................................... 41
15.10 Counterparts............................................................. 41
15.11 Injunctive Relief........................................................ 41
15.12 Consent to Jurisdiction.................................................. 42
15.13 Payments................................................................. 42
15.14. Master Subordination Agreement........................................... 42
</TABLE>
-iv-
<PAGE>
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT (this "Agreement"), dated as of May 1, 2000, is
made by and between AROC Inc., a Delaware corporation (the "Company"), EnCap
Equity 1996 Limited Partnership, a Texas limited partnership ("EnCap LP"),
Energy Capital Investment Company PLC, an English investment company ("ECIC"),
and El Paso Capital Investments, L.L.C., a Delaware limited liability company
("El Paso") (with EnCap LP, ECIC and El Paso sometimes being herein collectively
called "Buyer").
WHEREAS, the Company desires to issue and sell to Buyer, and Buyer desires
to purchase from the Company, (i) the Company's 12% Subordinated Notes due 2007
in the aggregate principal amount of $17,000,000 (the "Notes") and (ii) warrants
to purchase the Company's Common Stock (as defined herein);
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby, the
Company and Buyer hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 Certain Defined Terms. As used in this Agreement, each of the
---------------------
following terms has the meaning given it below:
"Affiliate" means, with respect to any Person, any other Person that,
directly or indirectly, through one or more intermediaries, controls, is
controlled by or is under common control with, such Person. For the
purposes of this definition, "control" when used with respect to any Person
means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of such Person, whether
through the ownership of voting securities, by contract, or otherwise; and
the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Agreement" means this Agreement, as hereafter changed, amended or
modified in accordance with the terms hereof.
"Alliance Group" means Alliance Resources Group, Inc., a Delaware
corporation.
"Alliance PLC" means Alliance Resources PLC, a public limited company
incorporated in England and Wales.
"Alliance USA" means Alliance Resources (USA), Inc., a Delaware
corporation.
<PAGE>
"Ancillary Documents" means each agreement, certificate, document,
commitment and writing (other than this Agreement) executed or to be
executed by the Company or Buyer in connection with the transactions
contemplated herein or therein, including the Notes and the Subsidiary
Guarantees.
"Applicable Law" means any statute, law, rule or regulation, or any
judgment, order, writ, injunction or decree of, any Governmental Entity to
which a specified Person or property is subject.
"AROC (Texas)" means AROC (Texas), Inc., a Texas corporation.
"Change of Control" means the occurrence of any of the following
events: (a) any Person or two or more Persons, other than the Company or
any affiliate of the Company, acting as a group shall acquire beneficial
ownership (within the meaning of Rule 13d-3 of the Securities and Exchange
Commission under the Exchange Act, and including holding proxies to vote
for the election of directors other than proxies held by the Company's
management or their designees to be voted in favor of persons nominated by
the Company's Board of Directors) of 33% or more of the outstanding voting
securities of the Company, measured by voting power (including both
ordinary shares and any preferred stock or other equity securities
entitling the holders thereof to vote with the holders of common stock in
elections for directors of the Company), (b) the Company shall fail
beneficially to own, directly or indirectly, 100% of the outstanding shares
of voting capital stock of Alliance PLC, Alliance Group, Difco, Source,
AROC (Texas), Alliance USA, LPC or GOC on a fully-diluted basis, (c) one-
third or more of the directors of the Company shall consist of persons not
nominated by the Company's Board of Directors (not including as Board
nominees any directors which the Board is obligated to nominate pursuant to
shareholders agreements, voting trust arrangements or similar arrangements)
or (d) within three years of the Closing Date, the employment by the
Company of John Keenan or Paul Fenemore terminates for any reason.
"Charter Amendment Approval" means approval of the Charter Matters in
accordance with the Articles of Incorporation of the Company and Applicable
Laws.
"Charter Matters" means an amendment to the Articles of Incorporation
of the Company to increase the number of authorized shares of Common Stock
to a level as shall permit the full and complete exercise of the Warrants
into Common Stock.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" means common stock, $0.001 par value per share, of
Buyer and any securities issued or issuable with respect to such shares by
way of a stock dividend or stock split or in connection with a combination
of shares, recapitalization, merger, consolidation or other reorganization.
"Companies Act" means the Companies Act 1985 as amended.
-2-
<PAGE>
"Default" means an 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.
"Difco" means Difco Limited, a private limited company incorporated
under the laws of England and Wales
"Environmental Laws" means any and all laws relating to the
environment or to emissions, discharges, releases or threatened releases of
pollutants, contaminants, chemicals, or industrial, toxic or hazardous
substances or wastes into the environment including ambient air, surface
water, ground water, or land, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport, or
handling of pollutants, contaminants, chemicals, or industrial, toxic or
hazardous substances or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" means the U.S. Securities Exchange Act of 1934, as
amended.
"Fiscal Quarter" means a three-month period ending on July 31, October
31, January 31 or April 30 of any year.
"Fiscal Year" means the twelve-month period ending on April 30 of any
year.
"GOC" means Germany Oil Company, a Delaware corporation.
"Governmental Entity" means any court or tribunal in any jurisdiction
(domestic or foreign) or any federal, state, municipal or other
governmental body, agency, authority, department, commission, board, bureau
or instrumentality (domestic or foreign).
"Hazardous Materials" means any substance regulated under
Environmental Law, whether as pollutants, contaminants, or chemicals, or as
industrial, toxic or hazardous substances or wastes, or otherwise.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"Indebtedness" of any Person means Liabilities in any of the following
categories: (a) Liabilities for borrowed money; (b) Liabilities
constituting an obligation to pay the deferred purchase price of property
or services; (c) Liabilities evidenced by a bond, debenture, note or
similar instrument; (d) Liabilities which would under U.S. GAAP be shown
on such Person's balance sheet as a liability, and is payable more than
one year from the date of creation thereof (other than reserves for taxes
and reserves for contingent obligations); (e) Liabilities arising under
futures contracts, forward contracts, swap, cap or collar contracts, option
contracts, hedging contracts, other derivative contracts, or similar
agreements; (f)
-3-
<PAGE>
Liabilities constituting principal under leases capitalized in accordance
with U.S. GAAP; (g) Liabilities arising under conditional sales or other
title retention agreements; (h) Liabilities owing under direct or indirect
guaranties of Liabilities of any other Person or constituting obligations
to purchase or acquire or to otherwise protect or insure a creditor against
loss in respect of Liabilities of any other Person (such as obligations
under working capital maintenance agreements, agreements to keep-well, or
agreements to purchase Liabilities, assets, goods, securities or services),
but excluding endorsements in the ordinary course of business of negotiable
instruments in the course of collection; (i) Liabilities (for example,
repurchase agreements) consisting of an obligation to purchase securities
or other property, if such Liabilities arises out of or in connection with
the sale of the same or similar securities or property; (j) Liabilities
with respect to letters of credit or applications or reimbursement
agreements therefor; (k) Liabilities with respect to payments received in
consideration of oil, gas, or other minerals yet to be acquired or produced
at the time of payment (including obligations under "take-or-pay" contracts
to deliver gas in return for payments already received and the undischarged
balance of any production payment created by such Person or for the
creation of which such Person directly or indirectly received payment); or
(l) Liabilities with respect to other obligations to deliver goods or
services in consideration of advance payments therefor; provided, however,
that the "Indebtedness" of any Person shall not include Liabilities that
were incurred by such Person on ordinary trade terms to vendors, suppliers,
or other Persons providing goods and services for use by such Person in the
ordinary course of its business, unless and until such Liabilities are
outstanding more than 90 days past the original invoice or billing date
therefor.
"IRS" means the Internal Revenue Service.
"Key Employment Agreements" means (i) that certain Executive
Employment Agreement dated as of December 8, 1999 between the Company and
John A. Keenan, and (ii) that certain Service Agreement dated September 20,
1996 between Alliance PLC and Paul Raymond Fenemore, as amended by
Supplemental Agreement dated September 20, 1996, Second Supplemental
Agreement dated December 1, 1998, and letter agreement dated as of December
8, 1999.
"Liabilities" means, as to any Person, all indebtedness, liabilities
and obligations of such Person, whether matured or unmatured, liquidated or
unliquidated, primary or secondary, direct or absolute, fixed or
contingent, and whether or not required to be considered pursuant to U.S.
GAAP.
"Lien" means, with respect to any property or assets, any right or
interest therein of a creditor to secure Liabilities owed to such creditor
or any other arrangement with such creditor which provides for the payment
of such Liabilities out of such property or assets or which allows him to
have such Liabilities satisfied out of such property or assets prior to the
general creditors of any owner thereof, including any lien, mortgage,
security interest, pledge, deposit, production payment, rights of a vendor
under any title retention or conditional sale agreement or lease
substantially equivalent thereto, tax lien, mechanic's or materialman's
lien,
-4-
<PAGE>
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.
"Listing Rules" means the listing rules of the London Stock Exchange.
"London Stock Exchange" means the London Stock Exchange Limited.
"LPC" means LaTex Petroleum Corporation, an Oklahoma corporation.
"LRI" means LaTex Resources, Inc., a Delaware corporation.
"LRI Merger" means the merger of Alliance Resources (Delaware) Inc.
with and into LRI whereby the Company became the sole shareholder of LRI.
"Majority of the Noteholders" means those holder(s) of the Notes who
hold a majority in aggregate principal amount of the Notes at the time
outstanding, exclusive of any Notes held by the Company or any Subsidiary.
"Material Adverse Effect" means a material adverse change in, or a
material adverse effect upon (i) the business, assets, results of
operations, condition (financial or otherwise) or prospects of the Company
and its Subsidiaries on a consolidated basis, (ii) the Company's or any
Subsidiary Guarantor's ability to timely pay the Obligations or to perform
on a timely basis any material obligation of the Company under this
Agreement or any agreement, instrument, or document entered into or
delivered in connection herewith or (iii) the enforceability of the
material terms of this Agreement or any Ancillary Document.
"Obligations" means all Liabilities owing Buyer or, if different, the
holder(s) of the Notes, pursuant to the this Agreement, the Notes or any of
the other Ancillary Documents.
"Old LaTex Payables" means those current accounts payable of the
Company or its consolidated Subsidiaries that meet one or more of the
following tests and have been certified to Buyer by the Company and
applicable Subsidiary as being an Old LaTex Payable:
(a) accounts payable the collection of which is barred by the
applicable statute of limitations;
(b) accounts payable the collection of which has been compromised
or forgiven in part, in either case to the extent of the amount that
has been compromised or forgiven; or
-5-
<PAGE>
(c) accounts payable in respect of which the indebtedness was
incurred prior to the LRI Merger and where each of the following is
true: (i) no payment has been made on an individual amount of
indebtedness payable since the LRI Merger, (ii) no contact has been
received by the Company or applicable Subsidiary from the applicable
creditor since the LRI Merger pertaining to such account or if contact
has been received, such account is being diligently contested in good
faith, (iii) no promise to pay such account has been made by the
Company or applicable Subsidiary since the LRI Merger and (iv) no
judgment has been obtained by, or settlement agreement entered into
with, such creditor with respect to such indebtedness.
"Permits" means licenses, permits, franchises, consents, approvals,
variances, exemptions and other authorizations of or from Governmental
Entities.
"Permitted Investment" means any investment, loan, advance, guaranty
or capital contribution by the Company or any Subsidiary in any of the
following: (a) properties or assets to be used in the ordinary course of
business of the Company and its Subsidiaries; (b) current assets arising
from the sale of goods and services in the ordinary course of business of
the Company and its Subsidiaries; (c) investments in one or more of the
Company's Subsidiaries or in any Person that concurrently with such
investment becomes a Subsidiary; (d) any marketable obligation maturing not
later than one year after the date of acquisition therefor, issued or
guaranteed by the United States of America or by any agency of the United
States of America which has the full faith and credit of the United States
of America; (e) commercial paper which is given the highest rating by a
credit rating agency of recognized national standing and maturing not more
than 270 days from the date of creation thereof; and (f) any demand deposit
or time deposit (including certificates of deposit and money market or
sweep accounts) with a commercial bank or trust company organized and doing
business under the laws of the United States of America or any state
thereof which has capital, surplus and undivided profits of at least
$250,000,000, provided that such deposit must be either payable on demand
or mature not more than twelve months from the date of investment therein.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, enterprise,
unincorporated organization or Governmental Entity.
"Proceedings" means all proceedings, actions, claims, suits,
investigations and inquiries by or before any arbitrator or Governmental
Entity.
"reasonable best efforts" means a party's reasonable best efforts in
accordance with reasonable commercial practice and without the incurrence
of unreasonable expense.
"Restricted Payment" means any Distribution (as defined below) in
respect of the Company or any Subsidiary thereof (other than on account of
capital stock or other equity interests of a Subsidiary owned legally or
beneficially by the Company or another Subsidiary), including any
Distribution resulting in the acquisition by the Company of securities that
would
-6-
<PAGE>
constitute treasury stock. As used in this definition, "Distribution"
means, in respect of any corporation, partnership or other business entity
(a) dividends or other distributions or payments on capital stock or other
equity interest of such corporation, partnership or other business entity
(except distributions in such stock or other equity interest) and (b) the
redemption or acquisition of such stock or other equity interests or of
warrants, rights or other options to purchase such stock or other equity
interests (except when solely in exchange for such stock or other equity
interests).
"Securities" means the Notes and the Warrants issued pursuant to
Article II.
"Securities Act" means the U.S. Securities Act of 1933, as amended.
"Securities and Exchange Commission" means the U.S. Securities and
Exchange Commission.
"Senior Credit Facility" means that certain Credit Agreement dated as
of May 1, 2000, by and among the Company, Toronto-Dominion (Texas), Inc.,
as Agent, and the lenders signatory thereto.
"Source" means Source Petroleum, Inc., a Louisiana corporation.
"Subsidiary" means any corporation more than 50% of whose outstanding
voting securities, or any general partnership, joint venture or similar
entity more than 50% of whose total equity interests, is owned, directly or
indirectly, by the Company, or any limited partnership of which the Company
or any Subsidiary is a general partner.
"Subsidiary Guarantors" means Alliance PLC, Difco, Alliance Group,
Source, AROC (Texas), Alliance USA, LPC and GOC.
"Taxes" means any income taxes or similar assessments or any sales,
excise, occupation, use, ad valorem, property, production, severance,
transportation, employment, payroll, franchise, transfer, stamp,
withholding or other tax imposed by any United States federal, state or
local (or any foreign or provincial) taxing authority, including any
interest, penalties or additions attributable thereto.
"Tax Return" means any return or report (including but not limited to
any related or supporting information, any amended return or report or any
information return or report) with respect to Taxes.
"Treasury Regulations" means one or more treasury regulations
promulgated under the Code by the Treasury Department of the United States.
"U.S. GAAP" means generally accepted accounting principles in the
United States of America from time to time.
-7-
<PAGE>
"Warrant" means a warrant to purchase Common Stock issued pursuant to
the terms hereof.
1.2 Certain Additional Defined Terms. In addition to such terms as are
--------------------------------
defined in the opening paragraph of and the recitals to this Agreement and in
Section 1.1, the following terms are used in this Agreement as defined in the
Sections or Articles set forth opposite such terms:
Defined Term Section or Article Reference
------------ -----------------------------
agreements...................................... 4.19
Audited Financial Statements.................... 4.10
Closing......................................... 3.1
Closing Date.................................... 3.1
Event of Default................................ 13.1
Latest Balance Sheet............................ 4.10
Notes........................................... preamble
Organic Documents............................... 4.3
Permitted Liens................................. 11.2
Purchase Price.................................. II
Registration Rights Agreement................... 3.2(c)
SEC Filings..................................... 4.11
Subsidiary Guarantees........................... 3.2(c)
1.3 References and Construction.
---------------------------
(a) All references in this Agreement to articles, sections, subsections
and other subdivisions refer to corresponding articles, sections, subsections
and other subdivisions of this Agreement unless expressly provided otherwise.
(b) Titles appearing at the beginning of any of such subdivisions are for
convenience only and shall not constitute part of such subdivisions and shall be
disregarded in construing the language contained in such subdivisions.
(c) 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.
(d) Words in the singular form shall be construed to include the plural
and vice versa, unless the context otherwise requires. Pronouns in masculine,
---- -----
feminine and neuter genders shall be construed to include any other gender.
(e) 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 or restatements of such
-8-
<PAGE>
agreement, instrument or document, provided that nothing contained in this
subsection shall be construed to authorize such renewal, extension,
modification, amendment or restatement.
(f) Examples shall not be construed to limit, expressly or by implication,
the matter they illustrate.
(g) The word "includes" and its derivatives means "includes, but is not
limited to" and corresponding derivative expressions.
(h) No consideration shall be given to the fact or presumption that one
party had a greater or lesser hand in drafting this Agreement.
(i) Unless otherwise indicated, all references herein to "$" or "dollars"
shall refer to U.S. Dollars.
ARTICLE II
TERMS OF THE TRANSACTION
2.1 Agreement to Sell and to Purchase Notes and Warrants. At the Closing,
----------------------------------------------------
and on the terms and subject to the conditions set forth in this Agreement, the
Company shall issue, allot, sell and deliver to EnCap LP, ECIC and El Paso, and
EnCap LP, ECIC and El Paso shall severally purchase and accept from the Company,
the securities set forth opposite its name below:
EnCap LP (1) $9,000,000 principal amount of Notes; and
(2) Warrant to purchase 20,933,594 shares of
Common Stock
ECIC (1) $3,000,000 principal amount of Notes; and
(2) Warrant to purchase 6,977,865 shares of
Common Stock
El Paso (1) $5,000,000 principal amount of Notes; and
(2) Warrant to purchase 11,629,774 shares of
Common Stock
2.2. Payment. EnCap LP, ECIC and El Paso, respectively, shall severally pay
-------
to the Company at the Closing the aggregate amount set forth opposite its name
below (collectively, the "Purchase Price"):
-9-
<PAGE>
EnCap LP $ 9,000,000
ECIC $ 3,000,000
El Paso $ 5,000,000
2.3. Placement Fee. At the Closing, the Company shall pay to each of EnCap
-------------
LP, ECIC and El Paso, respectively, a placement fee in cash equal to 2% of the
amount set forth opposite its name in Section 2.2.
ARTICLE III
CLOSING
3.1 Closing. The closing of the transactions contemplated hereby (the
-------
"Closing") shall take place at the offices of Thompson Knight Brown Parker &
Leahy, LLP, 1200 Smith, Suite 3600, Houston, Texas, at 10 a.m., local time, on
May 1, 2000, or at such other time or place or on such other date as the parties
hereto shall agree. The date on which the Closing is required to take place is
herein referred to as the "Closing Date." All Closing transactions shall be
deemed to have occurred simultaneously.
3.2 Deliveries by the Company. At the Closing, the Company will deliver
-------------------------
the following documents to Buyer:
(a) A certificate executed on behalf of the Company by an authorized
signatory of the Company, dated the Closing Date, representing and certifying,
in such detail as Buyer may reasonably request, that the conditions set forth in
Sections 8.1 and 8.2 have been fulfilled.
(b) Opinion, in form, scope and content reasonably acceptable to Buyer, of
Jenkens & Gilchrist, counsel to the Company, dated the Closing Date.
(c) The certificates, instruments and documents listed below:
(i) The Notes, substantially in the form of Exhibit 3.2(c)(i) in all
-----------------
material respects, duly executed by the Company.
(ii) Subsidiary guarantees substantially in the form of Exhibit
-------
3.2(c)(ii) in all material respects (the "Subsidiary Guarantees") of each
----------
of the Subsidiary Guarantors, duly executed by the Subsidiary Guarantors.
(iii) The Warrants, substantially in the form of Exhibit 3.2(c)(iii)
-------------------
in all material respects, duly executed by the Company.
-10-
<PAGE>
(iv) A counterpart of that certain Amended and Restated Registration
Rights Agreement substantially in the form of Exhibit 3.2(c)(iv) in all
------------------
material respects (the "Registration Rights Agreement") duly executed by
the Company.
(v) Certified copy of a written consent or resolutions of the Board
of Directors of the Company and the Subsidiary Guarantors authorizing the
execution, delivery and performance by the Company and the Subsidiary
Guarantors of this Agreement and the Ancillary Documents, as necessary.
(vi) Certificates of existence and, for non-U.K. entities, good
standing with respect to the Company and the Subsidiary Guarantors, dated
within a number of days prior to the Closing Date reasonably acceptable to
Buyer.
(vii) Such other certificates, instruments, and documents as may be
reasonably requested by Buyer prior to the Closing Date to carry out the
intent and purposes of this Agreement.
3.3 Deliveries by Buyer. At the Closing, Buyer will deliver the following
-------------------
to the Company:
(a) A certificate executed by an authorized signatory of Buyer, dated the
Closing Date, representing and certifying, in such detail as the Company may
reasonably request, that the conditions set forth in Sections 7.1 and 7.2 have
been fulfilled.
(b) The Purchase Price in immediately available funds by a confirmed wire
transfer to a bank account designated in writing by the Company to Buyer no
later than two business days prior to the Closing Date.
(c) The certificates, instruments, and documents listed below:
(i) A counterpart of the Registration Rights Agreement duly executed
by Buyer.
(ii) Such other certificates, instruments, and documents as may be
reasonably requested by the Company prior to the Closing Date to carry out
the intent and purposes of this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER
The Company represents and warrants to Buyer that:
4.1 Corporate Organization. The Company is a corporation duly organized
----------------------
and validly existing under the laws of the State of Delaware.
-11-
<PAGE>
4.2 Qualification. Each of the Company and the Subsidiaries is duly
-------------
qualified or licensed to do business and, with respect to non-U.K. entities, in
good standing in each of the jurisdictions in which it owns, leases or operates
property or in which such qualification or licensing is required for the conduct
of its business.
4.3 Charter and Bylaws. The Company has made available to Buyer accurate
------------------
and complete copies of the Company's certificate of incorporation, bylaws,
memorandum and articles of association or equivalent organizational documents
("Organic Documents") as currently in effect, and stock records of the Company.
Neither the Company nor any Subsidiary is in violation of its Organic Documents
or its partnership agreement or similar governing document, as the case may be.
4.4 Capitalization of the Company. The authorized capital stock of the
-----------------------------
Company, the number of shares outstanding and the number of shares held in the
Company's treasury are set forth on Schedule 4.4 hereto. All outstanding shares
------------
of capital stock of the Company have been validly issued and are fully paid and
nonassessable, and no shares of capital stock of the Company are subject to, nor
have any been issued in violation of, preemptive or similar rights. Except as
set forth on Schedule 4.4 hereto, there are (and as of the Closing Date there
------------
will be) outstanding (i) no shares of capital stock or other voting securities
of the Company, (ii) no securities of the Company convertible into or
exchangeable for shares of capital stock or other voting securities of the
Company, (iii) no options or other rights to acquire from the Company, and no
obligation of the Company to issue or sell, any shares of capital stock or other
voting securities of the Company or any securities of the Company convertible
into or exchangeable for such capital stock or voting securities, and (iv) no
equity equivalents, interests in the ownership or earnings or other similar
rights of or with respect to the Company. Except as set forth on Schedule 4.4
------------
hereto, there are (and as of the Closing Date there will be) no outstanding
obligations of the Company or any Subsidiary to repurchase, redeem, or otherwise
acquire any of the foregoing shares, securities, options, equity equivalents,
interests, or rights. Except as set forth on Schedule 4.4, the Company is not a
------------
party to, and is not aware of, any voting agreement, voting trust, or similar
agreement or arrangement relating to any class or series of its capital stock.
4.5 Authority Relative to This Agreement. The Company has full power and
------------------------------------
authority to execute, deliver, and perform this Agreement and the Ancillary
Documents, including the Notes, to which it is a party and to consummate the
transactions contemplated hereby and thereby. The execution, delivery, and
performance by the Company of this Agreement and the Ancillary Documents,
including the Notes, to which it is a party, and the consummation by it of the
transactions contemplated hereby and thereby, have been duly authorized by all
necessary action of the Company. This Agreement has been duly executed and
delivered by the Company and constitutes, and each Ancillary Document, including
the Notes, executed or to be executed by the Company has been, or when executed
will be, duly executed and delivered by the Company and constitutes, or when
executed and delivered will constitute, a valid and legally binding obligation
of the Company, enforceable against the Company in accordance with their
respective terms, except that such enforceability may be limited by (i)
applicable bankruptcy, insolvency, reorganization, moratorium, and similar laws
affecting creditors' rights generally and (ii) equitable principles which may
limit the availability of certain equitable remedies (such as specific
performance) in certain instances.
-12-
<PAGE>
4.6 No Conflict. Assuming all consents, approvals, authorizations and
-----------
other actions described in Section 4.7 have been obtained and all filings and
notifications listed on Schedule 4.7 have been made, and except as described on
------------
Schedule 4.6, the execution, delivery and performance of this Agreement by the
- ------------
Company, the execution, delivery and performance by each Subsidiary of the
Ancillary Documents to which it is a party, and the consummation by them of the
transactions contemplated hereby and thereby do not and will not (a) violate or
conflict with the Organic Documents of the Company or any Subsidiary, (b)
conflict with or result in any violation of any provision of, or constitute
(with or without the giving of notice or the passage of time or both) a default
under, or give rise (with or without the giving of notice or the passage of time
or both) to any right of termination, cancellation, or acceleration under, or
require any consent, approval, authorization or waiver of, or notice to, any
party to, any bond, debenture, note, mortgage, indenture, lease, contract,
agreement, or other instrument or obligation to which the Company or any
Subsidiary is a party or by which the Company or any Subsidiary or any of their
respective properties may be bound or any Permit held by the Company or any
Subsidiary, (iii) result in the creation or imposition of any Lien upon the
properties of the Company or any Subsidiary (other than as provided in the
Senior Credit Facility) or (iv) violate any Applicable Law binding upon the
Company or any Subsidiary.
4.7 Consents and Approvals, Licenses, Etc. Except as set forth on
--------------------------------------
Schedule 4.7, no consent, approval, authorization, license, order or permit of,
- ------------
or declaration, filing or registration with, or notification to, any
Governmental Entity, or any other Person or entity, is required to be made or
obtained by the Company or any Subsidiary in connection with the execution,
delivery and performance of this Agreement or any Ancillary Document and the
consummation of the transactions contemplated hereby and thereby.
4.8 Subsidiaries.
------------
(a) The Company does not own, directly or indirectly, any capital stock or
equity securities of any corporation or have any direct or indirect equity or
ownership interest in any other Person, other than the Subsidiaries. Schedule
--------
4.8 lists each Subsidiary, the jurisdiction of incorporation or formation of
- ---
each Subsidiary and the authorized (in the case of capital stock) and
outstanding capital stock or other equity interests of each Subsidiary. Each
U.K. Subsidiary is a duly formed and validly existing under the laws of the
jurisdiction of its formation, and each other Subsidiary is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation. Each Subsidiary has all requisite corporate
or other, as applicable, power and authority to own, lease, and operate its
properties and to carry on its business as now being conducted. No actions or
proceedings to dissolve any Subsidiary are pending.
(b) Except as otherwise indicated on Schedule 4.8, all the outstanding
------------
capital stock or other equity interests of each Subsidiary are owned directly or
indirectly by the Company, free and clear of all Liens. All outstanding shares
of capital stock of each corporate Subsidiary have been validly issued and are
fully paid and nonassessable. All equity interests of each other Subsidiary
have been validly issued and are fully paid (to the extent required at such
time). No shares of capital stock
-13-
<PAGE>
or other equity interests of any Subsidiary are subject to, nor have any been
issued in violation of, preemptive or similar rights.
(c) Except as set forth on Schedule 4.8, there are (and as of the Closing
------------
Date there will be) outstanding (i) no shares of capital stock or other voting
securities of any Subsidiary, (ii) no securities of the Company or any
Subsidiary convertible into or exchangeable for shares of capital stock or other
voting securities of any Subsidiary, (iii) no options or other rights to acquire
from the Company or any Subsidiary, and no obligation of the Company or any
Subsidiary to issue or sell, any shares of capital stock or other voting
securities of any Subsidiary or any securities convertible into or exchangeable
for such capital stock or voting securities and (iv) no equity equivalents,
interests in the ownership or earnings, or other similar rights of or with
respect to any Subsidiary. There are (and as of the Closing Date there will be)
no outstanding obligations of the Company or any Subsidiary to repurchase,
redeem or otherwise acquire any of the foregoing shares, securities, options,
equity equivalents, interests or rights.
(d) Each of the Subsidiary Guarantors has full power and authority to
execute, deliver, and perform the Subsidiary Guarantee and other Ancillary
Documents to which it is a party and to consummate the transactions contemplated
thereby. The execution, delivery, and performance by each of the Subsidiary
Guarantors of the Subsidiary Guarantee and other Ancillary Documents to which it
is a party, and the consummation by it of the transactions contemplated thereby,
have been duly authorized by all necessary action of such Subsidiary Guarantor.
The Subsidiary Guarantees and each Ancillary Document executed or to be executed
by the Subsidiary Guarantors has been, or when executed will be, duly executed
and delivered by the Subsidiary Guarantors and constitutes, or when executed and
delivered will constitute, a valid and legally binding obligation of the
Subsidiary Guarantors, enforceable against the Subsidiary Guarantors in
accordance with their respective terms, except that such enforceability may be
limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium,
and similar laws affecting creditors' rights generally and (ii) equitable
principles which may limit the availability of certain equitable remedies (such
as specific performance) in certain instances.
4.9 Warrants. The Warrants to be issued by the Company at the Closing
--------
have been duly authorized for issuance and, when issued and delivered by the
Company in accordance with the provisions of this Agreement, will be validly
issued and will constitute valid and legally binding obligations of the Company
enforceable against the Company, except that such enforceability may be limited
by (i) applicable bankruptcy, insolvency, reorganization, moratorium, and
similar laws affecting creditors' rights generally and (ii) equitable principles
which may limit the availability of certain equitable remedies (such as specific
performance) in certain instances. Upon Charter Amendment Approval, the shares
of Common Stock issuable upon exercise of the Warrants will have been duly
authorized for issuance and, when issued and delivered by the Company in
accordance with the provisions of the Warrants, will be validly issued, fully
paid and nonassessable.
4.10 Financial Statements. The Company has delivered to Buyer accurate and
--------------------
complete copies of (i) Alliance PLC's audited consolidated balance sheet as of
April 30, 1999, and the related audited consolidated statements of income,
stockholders' equity and cash flows for the year then
-14-
<PAGE>
ended, and the notes and schedules thereto, together with the unqualified report
thereon of KPMG Audit Plc, independent public accountants (the "Audited
Financial Statements") and (ii) the Company's unaudited consolidated balance
sheet as of January 31, 2000 (the "Latest Balance Sheet"), and the related
unaudited consolidated statements of income, stockholders' equity, and cash
flows for the three-month period then ended (the "Unaudited Financial
Statements"), certified by the Company's chief financial officer (collectively,
the "Financial Statements"). The Financial Statements (i) represent actual bona
fide transactions, (ii) have been prepared from the books and records of
Alliance PLC and the Company and their respective consolidated Subsidiaries in
conformity with U.S. GAAP accounting principles applied on a basis consistent
with preceding years throughout the periods involved and (iii) fairly present
Alliance PLC's and the Company's (as applicable) consolidated financial position
as of the respective dates thereof and Alliance PLC's and the Company's (as
applicable) consolidated results of operations and cash flows for the periods
then ended. The statements of income included in the Financial Statements do not
contain any items of special or nonrecurring income except as identified in the
notes thereto, and the balance sheets included in the Financial Statements do
not reflect any write-up or revaluation increasing the book value of any assets,
nor have there been any transactions since the date of the Latest Balance Sheet
giving rise to special or nonrecurring income or any such write-up or
revaluation.
4.11 SEC Filings. The Company and its Subsidiaries have filed with the
-----------
Securities and Exchange Commission, the London Stock Exchange and the Registrar
of Companies all forms, reports, schedules, statements and other documents
required to be filed by it since May 1, 1997 under the Companies Act and the
Listing Rules and since April 30, 1997 under the Securities Act, the Exchange
Act and all other federal securities laws. All final forms, reports, schedules,
statements and other documents (including all amendments thereto) filed by the
Company and its Subsidiaries with the Securities and Exchange Commission and the
London Stock Exchange since such date are herein collectively referred to as the
"SEC Filings". The Company has delivered to Buyer accurate and complete copies
of all the SEC Filings in the form filed by the Company and its Subsidiaries
with the Securities and Exchange Commission and the London Stock Exchange. The
SEC Filings, at the time filed, complied in all material respects with all
applicable requirements of federal securities laws. None of the SEC Filings,
including any financial statements or schedules included therein, at the time
filed, contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary in order to make the
statements contained therein, in light of the circumstances under which they
were made, not misleading. All material contracts of the Company and the
Subsidiaries have been included in the SEC Filings, except for those contracts
not required to be filed pursuant to the rules and regulations of the Securities
and Exchange Commission and the London Stock Exchange. The Company shall deliver
to Buyer as soon as they become available accurate and complete copies of all
forms, reports, and other documents furnished by it to its shareholders
generally or filed by it with the Securities and Exchange Commission and the
London Stock Exchange subsequent to the date hereof and prior to the Closing
Date.
4.12 Absence of Undisclosed Liabilities. Neither the Company nor any
----------------------------------
Subsidiary has any liability or obligation (whether accrued, absolute,
contingent, unliquidated, or otherwise, whether or not known to the Company or
any Subsidiary, and whether due or to become due), except (i) liabilities
reflected on the Latest Balance Sheet, (ii) liabilities which have arisen since
the date of the
-15-
<PAGE>
Latest Balance Sheet in the ordinary course of business (none of which is a
material liability for breach of contract, breach of warranty, tort, or
infringement), (iii) liabilities arising under executory contracts entered into
in the ordinary course of business (none of which is a material liability for
breach of contract) and (iv) liabilities specifically set forth on Schedule
--------
4.12.
- ----
4.13 Absence of Certain Changes. Except as disclosed on Schedule 4.13,
-------------------------- -------------
since the date of the Latest Balance Sheet, (i) there has not been any material
adverse change in, or any event or condition that might reasonably be expected
to result in a material adverse change in, the business assets, results of
operations, condition (financial or otherwise) or prospects of the Company and
the Subsidiaries considered as a whole; (ii) the businesses of the Company and
the Subsidiaries have been conducted only in the ordinary course consistent with
past practice; (iii) neither the Company nor any Subsidiary has incurred any
material liability, engaged in any material transaction or entered into any
material agreement outside the ordinary course of business consistent with past
practice; (iv) neither the Company nor any Subsidiary has suffered any material
loss, damage, destruction, or other casualty to any of its assets (whether or
not covered by insurance); and (v) neither the Company nor any Subsidiary has
taken any of the actions set forth in Article VI except as permitted thereunder.
4.14 Tax Matters. Except as disclosed on Schedule 4.14:
----------- -------------
(a) The Company and each Subsidiary has filed, or has had filed on its
behalf, in a timely manner (within any applicable extension periods) with the
appropriate taxing authority all Tax Returns with respect to Taxes of the
Company and of each of the Subsidiaries, all of which Tax Returns are true,
correct and complete in all material respects;
(b) All Taxes due and payable (whether or not reflected in Tax Returns as
filed) with respect to all taxable periods of the Company and the Subsidiaries
have been paid in full or adequate reserves have been provided for on the
Financial Statements;
(c) There are no outstanding agreements or waivers extending the
statutory period of limitations applicable to any federal, state, local or
foreign income or other material Tax Returns required to be filed by or with
respect to the Company or any of the Subsidiaries;
(d) None of the Tax Returns of or with respect to the Company or any of
the Subsidiaries is currently being audited or examined by any taxing authority;
(e) No material deficiency for any Taxes has been assessed with respect
the Company or to any of the Subsidiaries that has not either (i) been abated or
(ii) paid in full or for which adequate reserves have been provided;
(f) No Tax litigation is currently pending;
(g) No waiver or extension of any statute of limitations to any federal,
state, local or foreign Tax matter has been given by or requested from the
Company or any Subsidiary; and
-16-
<PAGE>
(h) Neither the Company nor any Subsidiary has filed a consent under
Section 341(f) of the Code.
(i) The Company and the Subsidiaries have complied with all Applicable
Laws relating to the withholding of Taxes and the payment thereof (including
withholding of Taxes under Sections 1441 and 1442 of the Code, or similar
provisions under foreign laws), and has timely and properly withheld from the
appropriate party and paid over to the proper Governmental Entity all amounts
required to be withheld and be paid over under Applicable Law.
(j) Neither the Company nor any Subsidiary is required to include in
income any adjustment under Section 481(a) of the Code by reason of a change in
accounting method, and neither the Company nor any Subsidiary, nor the Internal
Revenue Service, has proposed any such adjustment or change in accounting
method. The Company and the Subsidiaries do not have pending any private letter
ruling with the IRS.
(k) Other than as a result of this transaction, none of the Company's or
any Subsidiary's tax attributes is subject to the limitations of Section 382,
383 or 384 of the Code or Temporary Treasury Regulation Sections 1.1502-15T or
1.1502-21T(c).
(l) There are no liens for Taxes upon any assets of the Company or any
Subsidiary, except liens for Taxes not yet due and payable.
(m) The tax basis of each of the assets of the Company and the
Subsidiaries as set forth on the books, accounts and records of the Company and
the Subsidiaries is true, correct and complete in all material respects.
4.15 Environmental and Other Laws. Except as disclosed on Schedule 4.15
---------------------------- -------------
or in the SEC Filings filed prior to the date hereof, (a) the Company and the
Subsidiaries are conducting their businesses in compliance in all material
respects with all Applicable Laws, including all Environmental Laws, and are in
material compliance with all licenses and permits required under any such laws;
(b) to the best of the Company's knowledge, none of the operations or properties
of the Company or any Subsidiary is the subject of foreign, federal, state or
local investigation evaluating whether any material remedial action is needed to
respond to a release of any Hazardous Materials into the environment or to the
improper storage or disposal (including storage or disposal at offsite
locations) of any Hazardous Materials; (c) neither the Company nor any
Subsidiary has filed any notice under any Applicable Law indicating that it is
responsible for the improper release into the environment, or the improper
storage or disposal, of any material amount of any Hazardous Materials or that
any Hazardous Materials have been improperly released, or are improperly stored
or disposed of, upon any property of the Company or any Subsidiary; (d) neither
the Company nor any Subsidiary has transported or arranged for the
transportation of any Hazardous Material to any location which is (i) listed on
the National Priorities List under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, listed for possible
inclusion on such National Priorities List by the Environmental Protection
Agency in its Comprehensive Environmental Response, Compensation and Liability
Information System List, or listed on any similar state list or
-17-
<PAGE>
foreign jurisdiction list or (ii) the subject of foreign, federal, state or
local enforcement actions or other investigations which may lead to material
claims against the Company or any Subsidiary for clean-up costs, remedial work,
damages to natural resources or for personal injury claims (whether under
Environmental Laws or otherwise); and (e) to the best of the Company's
knowledge, neither the Company or any Subsidiary has any material contingent
liability under any Environmental Laws or in connection with the release into
the environment, or the storage or disposal, of any Hazardous Materials.
4.16 Legal Proceedings. Except as disclosed on Schedule 4.16, there are
----------------- -------------
no Proceedings pending or, to the best knowledge of the Company, threatened
against or involving the Company or any Subsidiary (or any of their respective
directors or officers in connection with the business or affairs of the Company
or any Subsidiary) or any properties or rights of the Company or any Subsidiary
which, individually or in the aggregate, might reasonably be expected to have a
Material Adverse Effect. Neither the Company nor any Subsidiary is subject to
any judgment, order, writ, injunction, or decree of any Governmental Entity
which has had or is reasonably likely to have a Material Adverse Effect. There
are no Proceedings pending or, to the best knowledge of the Company, threatened
seeking to restrain, prohibit, or obtain damages or other relief in connection
with, or questioning the legality or validity of, this Agreement or any
Ancillary Document or the transactions contemplated hereby or thereby.
4.17 Title to Properties; Permits; Licenses; Condition of Assets.
-----------------------------------------------------------
(a) Each of the Company and the Subsidiaries has good and defensible
title to all of its material properties and assets, free and clear of all Liens
other than Permitted Liens and of all material impediments to the use of such
properties and assets in the businesses of the Company and the Subsidiaries.
(b) Each of the Company and the Subsidiaries holds all material Permits
necessary or required for the conduct of its business. Each of such Permits is
in full force and effect, the Company and the Subsidiaries are in compliance
with all of its material obligations with respect thereto, and, to the best
knowledge of the Company, no event has occurred which allows, or with or without
the giving of notice or the passage of time or both would allow, the revocation
or termination of any thereof. No notice has been issued by any Governmental
Entity and no proceeding is pending or, to the best knowledge of the Company,
threatened with respect to any alleged failure by the Company or any Subsidiary
to have any material Permit.
(c) The Company and the Subsidiaries possess all licenses, permits,
franchises, patents, copyrights, trademarks and trade names, and other
intellectual property (or otherwise possesses the right to use such intellectual
property without violation of the rights of any other Person) which are
necessary to carry out their businesses as presently conducted and as presently
proposed to be conducted hereafter, and neither the Company nor any Subsidiaries
is in violation in any material respect of the terms under which it possesses
such intellectual property or the right to use such intellectual property.
-18-
<PAGE>
(d) The equipment and other tangible assets of the Company and the
Subsidiaries are in good operating condition (except for reasonable wear and
tear), and have been reasonably maintained.
4.18 ERISA.
-----
(a) Set forth on Schedule 4.18 is a list identifying each "employee
-------------
benefit plan", as defined in Section 3(3) of ERISA, (i) which is subject to any
provision of ERISA, (ii) which is maintained, administered, or contributed to by
the Company or any affiliate of the Company, and (iii) which covers any employee
or former employee of the Company or any affiliate of the Company or under which
the Company or any affiliate of the Company has any liability. The Company has
delivered or made available to Buyer accurate and complete copies of such plans
(and, if applicable, the related trust agreements) and all amendments thereto
and written interpretations thereof, together with (i) the three most recent
annual reports (Form 5500 including, if applicable, Schedule B thereto) prepared
in connection with any such plan and (ii) the most recent actuarial valuation
report prepared in connection with any such plan. Such plans are referred to in
this Section as the "Employee Plans". For purposes of this Section only, an
"affiliate" of any person means any other person which, together with such
person, would be treated as a single employer under Section 414 of the Code.
The only Employee Plans which individually or collectively would constitute an
"employee pension benefit plan" as defined in Section 3(2) of ERISA are
identified as such on Schedule 4.18.
-------------
(b) Except as otherwise identified on Schedule 4.18, (i) no Employee Plan
-------------
constitutes a "multiemployer plan", as defined in Section 3(37) of ERISA (for
purposes of this Section, a "Multiemployer Plan"), (ii) no Employee Plan is
maintained in connection with any trust described in Section 501(c)(9) of the
Code, (iii) no Employee Plan is subject to Title IV of ERISA or to the minimum
funding standards of ERISA and the Code, and (iv) during the past five years,
neither the Company nor any of its affiliates have made or been required to make
contributions to any Multiemployer Plan. There are no accumulated funding
deficiencies as defined in Section 412 of the Code (whether or not waived) with
respect to any Employee Plan. The fair market value of the assets held with
respect to each Employee Plan which is an employee pension benefit plan, as
defined in Section 3(2) of ERISA, exceeds the actuarially determined present
value of all benefit liabilities accrued under such Employee Plan (whether or
not vested) determined using reasonable actuarial assumptions. Neither the
Company nor any affiliate of the Company has incurred any material liability
under Title IV of ERISA arising in connection with the termination of, or
complete or partial withdrawal from, any plan covered or previously covered by
Title IV of ERISA. The Company and all of the affiliates of the Company have
paid and discharged promptly when due all liabilities and obligations arising
under ERISA or the Code of a character which if unpaid or unperformed might
result in the imposition of a lien against any of the assets of the Company or
any Subsidiary. Nothing done or omitted to be done and no transaction or
holding of any asset under or in connection with any Employee Plan has or will
make the Company or any Subsidiary or any director or officer of the Company or
any Subsidiary subject to any liability under Title I of ERISA or liable for any
Tax pursuant to Section 4975 of the Code that could have a Material Adverse
Effect. There are no threatened or pending claims by or on behalf of the
Employee Plans, or by any participant therein, alleging a breach or breaches of
fiduciary duties or violations of Applicable Laws which could result
-19-
<PAGE>
in liability on the part of the Company, its officers or directors, or such
Employee Plans, under ERISA or any other Applicable Law and there is no basis
for any such claim.
(c) Each Employee Plan which is intended to be qualified under Section
401(a) of the Code is so qualified and has been so qualified since the date of
its adoption, and each trust forming a part thereof is exempt from Tax pursuant
to Section 501(a) of the Code. Set forth on Schedule 4.18 is a list of the most
-------------
recent IRS determination letters with respect to any such Plans, accurate and
complete copies of which letters have been delivered or made available to Buyer.
Each Employee Plan has been maintained in compliance with its terms and with the
requirements prescribed by all Applicable Laws, including but not limited to
ERISA and the Code, which are applicable to such Employee Plans.
(d) Set forth on Schedule 4.18 is a list of each employment, severance,
-------------
or other similar contract, arrangement, or policy and each plan or arrangement
(written or oral) providing for insurance coverage (including any self-insured
arrangements), workers' compensation, disability benefits, supplemental
unemployment benefits, vacation benefits, retirement benefits, deferred
compensation, profit-sharing, bonuses, stock options, stock appreciation rights,
or other forms of incentive compensation or post-retirement insurance,
compensation, or benefits which (i) is not an Employee Plan, (ii) is entered
into, maintained, or contributed to, as the case may be, by the Company or any
affiliate of the Company, and (iii) covers any employee or former employee of
the Company or any affiliate of the Company or under which the Company or any
affiliate of the Company has any liability. Such contracts, plans, and
arrangements as are described in the preceding sentence are referred to for
purposes of this Section as the "Benefit Arrangements". Each Benefit Arrangement
has been maintained in substantial compliance with its terms and with the
requirements prescribed by Applicable Laws.
(e) Neither the Company nor any affiliate of the Company has performed
any act or failed to perform any act, and there is no contract, agreement, plan,
or arrangement covering any employee or former employee of the Company or any
affiliate of the Company, that, individually or collectively, could give rise to
the payment of any amount that would not be deductible pursuant to the terms of
Section 162(a)(1) or 280G of the Code, or could give rise to any penalty or
excise Tax pursuant to Section 4980B or 4999 of the Code.
4.19 Agreements.
----------
(a) Set forth on Schedule 4.19 is a list of all the following agreements,
-------------
arrangements, and understandings (written or oral, formal or informal)
(collectively, for purposes of this Section, "agreements") to which the Company
or any Subsidiary is a party or by which the Company or any Subsidiary or any of
their respective properties is otherwise bound:
(i) collective bargaining agreements and similar agreements with
employees as a group;
-20-
<PAGE>
(ii) agreements with any current or former shareholder who owns or
owned 1% or more of the issued and outstanding shares of capital stock of
such Person or any director, officer, employee, consultant or advisor or
any affiliate of any such Person;
(iii) agreements between or among the Company and any of the
Subsidiaries;
(iv) exclusive of those relating to the Senior Credit Facility,
indentures, mortgages, security agreements, notes, loan or credit
agreements, or other agreements relating to the borrowing of money by the
Company or any Subsidiary or to the direct or indirect guarantee or
assumption by the Company or any Subsidiary of any obligation of others,
including any agreement that has the economic effect although not the legal
form of any of the foregoing;
(v) agreements relating to the acquisition or disposition of
assets, other than those entered into in the ordinary course of business
consistent with past practice;
(vi) agreements relating to the acquisition or disposition of any
interest in any business enterprise;
(vii) exclusive of oil, gas and mineral leases, agreements with
respect to the lease of real or personal property;
(viii) exclusive of oil and gas operating or similar agreements,
agreements concerning the management or operation of any real property;
(ix) partnership, joint venture, and profit sharing agreements;
(x) agreements with any Governmental Entity;
(xi) agreements relating to the release or disposal of Hazardous
Material;
(xii) agreements containing any covenant limiting the freedom of the
Company or any Subsidiary to engage in any line of business or compete with
any other Person in any geographic area or during any period of time, other
than those that would not have a Material Adverse Effect;
(xiii) agreements not made in the ordinary course of business; and
(xiv) other agreements, whether or not made in the ordinary course
of business, that are material to the business, assets, results of
operations, condition (financial or otherwise), or prospects of the Company
and the Subsidiaries considered as a whole.
(b) The Company has delivered or made available to Buyer accurate and
complete copies of the agreements listed in Schedule 4.19. Each of such
-------------
agreements is a valid and binding agreement of the Company and the Subsidiaries
(to the extent each is a party thereto) and (to the best knowledge
-21-
<PAGE>
of the Company) the other party or parties thereto, enforceable against the
Company and the Subsidiaries (to the extent each is a party thereto) and (to the
best knowledge of the Company) such other party or parties in accordance with
its terms. Neither the Company nor any Subsidiary is in breach of or in default
under, nor has any event occurred which (with or without the giving of notice or
the passage of time or both) would constitute a default by the Company or any
Subsidiary under, any of such agreements, and neither the Company nor any
Subsidiary has received any notice from, or given any notice to, any other party
indicating that the Company or any Subsidiary is in breach of or in default
under any of such agreements. To the best knowledge of the Company, no other
party to any of such agreements is in breach of or in default under such
agreements, nor has any assertion been made by the Company or any Subsidiary of
any such breach or default.
(c) Neither the Company nor any Subsidiary has received notice of any
plan or intention of any other party to any agreement to exercise any right of
offset with respect to, or any right to cancel or terminate, any agreement, and
neither the Company nor any Subsidiary knows of any fact or circumstance that
would justify the exercise by any such other party of such a right other than
the automatic termination of such agreement in accordance with its terms.
Neither the Company nor any Subsidiary currently contemplates, or has reason to
believe any other Person currently contemplates, any amendment or change to any
agreement, which amendment or change could have a Material Adverse Effect.
(d) Without limiting the generality of the other provisions in this
Section 4.19, the Key Employment Agreements are in full force and effect, and
each of John Keenan and Paul Fenemore is currently employed by the Company
pursuant to a renewal term under such agreements.
4.20 Labor Disputes and Acts of God. Neither the business nor the
------------------------------
properties of the Company nor any Subsidiary has been affected by any fire,
explosion, accident, strike, lockout or other labor dispute, drought, storm,
hail, earthquake, embargo, act of God or of the public enemy or other casualty
(whether or not covered by insurance), which, individually or in the aggregate,
could cause a Material Adverse Effect.
4.21 Registration Rights. Except as set forth on Schedule 4.21, the
------------------- -------------
Company has no obligation to register any of its securities under the Securities
Act, the Listing Rules or applicable similar foreign laws or regulations.
4.22 Offering of Securities. All securities which have been offered or
----------------------
or sold by the Company have been registered pursuant to the Securities Act and
applicable foreign and state securities laws or were offered and sold pursuant
to valid exemptions therefrom.
4.23 Government Regulation. The Company is not subject to regulation
---------------------
under the Public Utility Holding Company Act of 1935. The Company is not an
"investment company" or a company "controlled" by an "investment company" within
the meaning of the Investment Company Act of 1940, as amended, or an "investment
advisor" within the meaning of the Investment Advisers Act of 1940, as amended.
-22-
<PAGE>
4.24 Brokerage Fees. Neither the Company nor any of its affiliates
--------------
has retained any financial advisor, broker, agent or finder or paid or agreed to
pay any financial advisor, broker, agent or finder on account of this Agreement
or any transaction contemplated hereby, which action would subject Buyer or any
of its affiliates to any liability. The Company shall indemnify and hold
harmless Buyer from and against any and all losses, claims, damages and
liabilities (including legal and other expenses reasonably incurred in
connection with investigating or defending any claims or actions) with respect
to any finder's fee, brokerage commission or similar payment in connection with
any transaction contemplated hereby asserted by any Person on the basis of any
act or statement made or alleged to have been made by the Company or any of its
affiliates.
4.25 Solvency. There are no bankruptcy, reorganization or arrangement
--------
proceedings pending, being contemplated by, or to the knowledge of Seller,
threatened against Seller.
4.26 Insurance. The Company and each Subsidiary carries insurance
---------
covering its properties and business adequate and customary for the type and
scope of its properties and business.
4.27 Full Disclosure. No representation or warranty made by the Company
---------------
Company in this Agreement, and no statement of the Company contained in any
document, certificate or other writing furnished or to be furnished by the
Company or its representatives to Buyer pursuant hereto or in connection
herewith taken as a whole, contains or will contain, at the time of delivery,
any untrue statement of a material fact or omits or will omit, at the time of
delivery, to state any material fact (other than industry-wide risks normally
associated with the type of business conducted by the Company) necessary to make
the statements contained therein, in light of the circumstances in which they
are made, not misleading. There is no fact known to the Company (other than
industry-wide risks normally associated with the type of business conducted by
the Company) that has not been disclosed to Buyer in writing which the Company
reasonably anticipates would result in a Material Adverse Effect.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
Each of EnCap LP, ECIC and El Paso hereby severally and as to itself
represents and warrants to the Company that (as used in this Article V the term
"Buyer" shall be deemed to mean only the person making such representation):
5.1 Organization. Buyer is duly organized and validly existing under the
------------
laws of the jurisdiction of its formation.
5.2 Authority Relative to This Agreement. Buyer has full power and
------------------------------------
authority to execute, deliver, and perform this Agreement and the Ancillary
Documents to which it is a party and to consummate the transactions contemplated
hereby and thereby. The execution, delivery, and performance by Buyer of this
Agreement and the Ancillary Documents to which it is a party, and the
-23-
<PAGE>
consummation by it of the transactions contemplated hereby and thereby, have
been duly authorized by all necessary action of Buyer. This Agreement has been
duly executed and delivered by Buyer and constitutes, and each Ancillary
Document executed or to be executed by Buyer has been, or when executed will be,
duly executed and delivered by Buyer and constitutes, or when executed and
delivered will constitute, a valid and legally binding obligation of Buyer,
enforceable against Buyer in accordance with their respective terms, except that
such enforceability may be limited by (i) applicable bankruptcy, insolvency,
reorganization, moratorium, and similar laws affecting creditors' rights
generally and (ii) equitable principles which may limit the availability of
certain equitable remedies (such as specific performance) in certain instances.
5.3 Investment Intent; Investment Experience; Restricted Securities.
---------------------------------------------------------------
Buyer is acquiring the Securities for its own account for investment and not
with a view to, or for sale or other disposition in connection with, any
distribution of all or any part thereof. In acquiring the Securities, Buyer is
not offering or selling, and will not offer or sell, for the Company in
connection with any distribution of the Securities, and Buyer does not have a
participation and will not participate in any such undertaking or in any
underwriting of such an undertaking except in compliance with applicable federal
and state securities laws. Buyer acknowledges that it is able to fend for
itself, can bear the economic risk of its investment in the Securities, and has
such knowledge and experience in financial and business matters that it is
capable of evaluating the merits and risks of an investment in the Securities.
Buyer understands that the Securities will not have been registered pursuant to
the Securities Act or any applicable state securities laws, that the Securities
will be characterized as a "restricted security" under federal securities laws
and that under such laws and applicable regulations the Securities cannot be
sold or otherwise disposed of without registration under the Securities Act or
an exemption therefrom.
5.4 Brokerage Fees. Neither Buyer nor any of its affiliates has retained
--------------
any financial advisor, broker, agent or finder or paid or agreed to pay any
financial advisor, broker, agent or finder on account of this Agreement or any
transaction contemplated hereby, which action would subject the Company or any
of its affiliates to any liability. Buyer shall indemnify and hold harmless the
Company from and against any and all losses, claims, damages and liabilities
(including legal and other expenses reasonably incurred in connection with
investigating or defending any claims or actions) with respect to any finder's
fee, brokerage commission or similar payment in connection with any transaction
contemplated hereby asserted by any Person on the basis of any act or statement
made or alleged to have been made by Buyer or any of its affiliates.
ARTICLE VI
CONDUCT OF COMPANY PENDING CLOSING
The Company hereby covenants and agrees with Buyer that except as expressly
provided in this Agreement, during the period from the date hereof to the
Closing, the Company and the Subsidiaries (a) shall each conduct its operations
according to its ordinary course of business consistent with past practice and
in compliance with all Applicable Laws; (b) shall each use its
-24-
<PAGE>
reasonable best efforts to preserve, maintain and protect its properties; and
(c) shall each use its reasonable best efforts to preserve intact its business
organization, to keep available the services of its officers and employees, and
to maintain existing relationships with licensors, licensees, suppliers,
contractors, distributors, customers and others having business relationships
with it.
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF THE COMPANY
The obligations of the Company to consummate the transactions contemplated
by this Agreement shall be subject to the fulfillment on or prior to the Closing
Date of each of the following conditions:
7.1 Representations and Warranties True. All the representations and
-----------------------------------
warranties of Buyer contained in this Agreement, and in any agreement,
instrument or document delivered pursuant hereto or in connection herewith on or
prior to the Closing Date, shall be true and correct in all material respects on
and as of the Closing Date as if made on and as of such date, except as affected
by transactions permitted by this Agreement, and except to the extent that any
such representation or warranty is made as of a specified date, in which case
such representation or warranty shall have been true and correct in all material
respects as of such specified date. For the sole purpose of determining whether
or not any of such representations and warranties are true and correct as
aforesaid on and as of the Closing Date, no effect shall be given to any
materiality qualification contained in such representation or warranty.
7.2 Covenants and Agreements Performed. Buyer shall have performed and
----------------------------------
complied with in all material respects all covenants and agreements required by
this Agreement to be performed or complied with by it on or prior to the Closing
Date, and all deliveries contemplated by Section 3.3 shall have been made.
7.3 HSR Act. All waiting periods (and any extensions thereof) applicable
-------
to this Agreement and the transactions contemplated hereby under the HSR Act
shall have expired or been terminated.
7.4 Legal Proceedings. No preliminary or permanent injunction or other
-----------------
order, decree or ruling issued by a Governmental Entity or any securities
exchange, and no statute, rule, regulation or executive order promulgated,
enacted or issued by a Governmental Entity or any securities exchange, shall be
in effect which restrains, enjoins, prohibits or otherwise makes illegal or
improper the consummation of the transactions contemplated hereby.
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF BUYER
-25-
<PAGE>
The obligations of Buyer to consummate the transactions contemplated by
this Agreement shall be subject to the fulfillment on or prior to the Closing
Date of each of the following conditions:
8.1 Representations and Warranties True. All the representations and
-----------------------------------
warranties of the Company contained in this Agreement, and in any agreement,
instrument or document delivered pursuant hereto or in connection herewith on or
prior to the Closing Date, shall be true and correct in all material respects on
and as of the Closing Date as if made on and as of such date, and except to the
extent that any such representation or warranty is made as of a specified date,
in which case such representation or warranty shall have been true and correct
in all material respects as of such specified date. For the sole purpose of
determining whether or not any of such representations and warranties are true
and correct as aforesaid on and as of the Closing Date, no effect shall be given
to any materiality qualification contained in such representation or warranty.
8.2 Covenants and Agreements Performed. The Company shall have performed
----------------------------------
and complied with in all material respects all covenants and agreements required
by this Agreement to be performed or complied with by it on or prior to the
Closing Date, and all deliveries contemplated by Section 3.2 shall have been
made.
8.3 HSR Act. All waiting periods (and any extensions thereof) applicable
-------
to this Agreement and the transactions contemplated hereby under the HSR Act
shall have expired or been terminated.
8.4 Legal Proceedings. No preliminary or permanent injunction or other
-----------------
order, decree or ruling issued by a Governmental Entity or any securities
exchange, and no statute, rule, regulation or executive order promulgated,
enacted or issued by a Governmental Entity or any securities exchange, shall be
in effect which restrains, enjoins, prohibits or otherwise makes illegal the
consummation of the transactions contemplated hereby.
8.5 Consents. There shall have been obtained any and all consents,
--------
approvals, authorizations, licenses, orders or permits set forth on Schedule
--------
4.7; and no other consent, approval, authorization, license, order or permit of,
- ---
or declaration, filing or registration with, or notification to, any
Governmental Entity, or any other Person or entity, the failure to comply with
which would have a Material Adverse Effect, shall be required to be made or
obtained by the Company or any Subsidiary in connection with the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby.
8.6 No Material Adverse Change. Since the date of this Agreement, there
--------------------------
shall not have been any material adverse change in the business, assets, results
of operations, condition (financial or otherwise) or prospects of the Company
and the Subsidiaries considered as a whole.
8.7 Subordination Agreement. Buyer and the lender under the Senior Credit
-----------------------
Facility shall have executed and delivered a mutually acceptable subordination
agreement.
-26-
<PAGE>
8.8 Registration Rights Agreement. The Company and the other parties to
-----------------------------
the Registration Rights Agreement shall have executed and delivered such
agreement.
8.9. Closing of the Senior Credit Facility. All conditions precedent to
-------------------------------------
the closing of the Senior Credit Facility (other than transactions with respect
to the consummation, simultaneously with such closing, of the transactions
contemplated hereby) shall have been satisfied at or prior to the Closing, and
such closings shall have occurred prior to or be occurring simultaneously with
the Closing.
ARTICLE IX
PRE-CLOSING TERMINATION
9.1 Termination. This Agreement may be terminated and the transactions
-----------
contemplated hereby abandoned at any time prior to the Closing in the following
manner:
(a) by mutual written consent of the Company and Buyer; or
(b) by either the Company or Buyer, if any Governmental Entity with
jurisdiction over such matters shall have issued an order or injunction
restraining, enjoining or otherwise prohibiting the issuance of the Notes
hereunder and such order, decree, ruling or other action shall have become
final and unappealable;
(c) by either Company or Buyer, if the Closing shall not have
occurred on or before May 30, 2000; provided, however, that the right to
terminate this Agreement under this Section 9.1(c) shall not be available
to any party whose failure to fulfill any obligation under this Agreement
shall have been the cause of, or shall have resulted in, the failure of
the Closing to occur prior to such date.
9.2 Effect of Termination. In the event of the termination of this
---------------------
Agreement pursuant to Section 9.1 by the Company, on the one hand, or Buyer, on
the other, written notice thereof shall forthwith be given to the other party
specifying the provision hereof pursuant to which such termination is made, and
this Agreement shall become void and have no effect, except that the agreements
contained in this Section, in Sections 14.4 and 14.5 and in Article XV shall
survive the termination hereof. Nothing contained in this Section shall relieve
any party from liability for damages actually incurred as a result of any breach
of this Agreement.
ARTICLE X
AFFIRMATIVE COVENANTS OF THE COMPANY
-27-
<PAGE>
To induce Buyer to enter into this Agreement, the Company warrants,
covenants and agrees that until the full and final payment of the Obligations:
10.1 Payment and Performance. The Company will pay all amounts due under
-----------------------
the Notes in accordance with the terms thereof and will observe, perform and
comply with every covenant, term and condition expressed or implied in this
Agreement. The Company will cause each of its Subsidiaries to observe, perform
and comply with every such term, covenant and condition to the extent applicable
to such Subsidiary.
10.2 Books, Financial Statements and Reports. The Company and each of
---------------------------------------
its Subsidiaries will at all times maintain full and accurate books of account
and records. The Company will maintain and will cause its Subsidiaries to
maintain a standard system of accounting, will maintain its Fiscal Year, and
will furnish the following statements and reports to Buyer at the Company's
expense:
(a) As soon as available, and in any event within one hundred five (105)
days after the end of each Fiscal Year, complete consolidated financial
statements of the Company together with all notes thereto, prepared in
reasonable detail in accordance with U.S. GAAP, together with an unqualified
opinion, based on an audit using generally accepted auditing standards, by
independent certified public accountants selected by the Company and reasonably
acceptable to Buyer, 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.
(b) As soon as available, and in any event within fifty (50) days after
the end of each Fiscal Quarter, the Company's consolidated balance sheet as of
the end of such Fiscal Quarter and consolidated statements of the Company's
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 U.S. GAAP, subject to changes resulting from normal
year-end adjustments. In addition the Company will, together with each such set
of financial statements and each set of financial statements furnished under
subsection (a) of this section, furnish a certificate in a form reasonably
acceptable to Buyer signed by the chief financial officer of the Company stating
that such financial statements are accurate and complete (subject to normal
year-end adjustments) 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.
(c) Promptly upon their becoming available, copies of all financial
statements, reports, notices and proxy statements sent by the Company to its
stockholders and all registration statements, periodic reports and other
statements and schedules filed by the Company with any securities exchange, the
Securities and Exchange Commission or any similar Governmental Entity.
(d) Annually within 60 days after the end of each Fiscal Year beginning
with the Fiscal Year ending April 30, 2000, a report containing (i) an
estimation of the oil and gas reserves, classified by appropriate categories, as
of the end of the preceding fiscal year attributable to the interest of the
-28-
<PAGE>
Company therein, (ii) a projection of the rate of production of and net income
from such reserves with respect to each such interest, (iii) a calculation of
the present worth of such net income discounted at a rate of 10% and at any
other rates designated from time to time by a Majority of the Noteholders and
(iv) a schedule or complete description of all assumptions, estimates and
projections made or used in the preparation of such report. Each such report
shall be prepared in accordance with customary and generally accepted standards
and practices for petroleum engineers, and shall be based on (1) prices
determined by a Majority of the Noteholders, (2) lease operating expenses and
production taxes derived from and consistent with those actually incurred by the
Company, escalated at the same rate, if any, being applied to prices and (3)
such other assumptions as shall be designated by a Majority of the Noteholders.
In addition to the foregoing, a Majority of the Noteholders shall have the right
from time to time to cause the independent petroleum engineer referenced below
to prepare an additional report of the type described above, not to exceed one
additional report in any one calendar year, in which event all fees and expenses
incurred in connection with obtaining such additional report shall be paid by
the Company. Each report under this subsection shall be prepared by an
independent petroleum engineer designated by the Company and approved by a
Majority of the Noteholders Each annual report referenced above shall also
include an estimate of the Company's proved oil and gas reserves (as defined in
Regulation S-X promulgated by the Securities and Exchange Commission) and a
calculation of the "present value of estimated future net revenues" from such
proved oil and gas reserves, with such present worth calculation to be made in
accordance with Regulation S-X, as promulgated by the Securities and Exchange
Commission.
(e) Promptly, such other information with respect to the business and
operations of the Company and its Subsidiaries, as Buyer may reasonably request.
10.3 Notice of Material Events and Change of Address. The Company
-----------------------------------------------
will promptly notify Buyer in writing, stating that such notice is being given
pursuant to this Agreement, of:
(a) the occurrence of any Material Adverse Effect,
(b) the occurrence of any Default,
(c) the acceleration of the maturity of any indebtedness owed by
the Company or any Subsidiary thereof or of any default by any the Company
or any such Subsidiary 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
could reasonably be expected to have a Material Adverse Effect,
(d) any claim of $250,000 or more, any notice of potential
liability under any Environmental Laws which might exceed such amount, or
any other material adverse claim asserted against the Company or any
Subsidiary thereof or with respect to the Company or any of such
Subsidiary's properties, and
(e) the filing of any suit or proceeding against the Company or any
Subsidiary thereof in which an adverse decision could cause a Material
Adverse Effect.
-29-
<PAGE>
Upon the occurrence of any of the foregoing the Company and any Subsidiary
thereof will take all necessary or appropriate steps to remedy promptly any such
Material Adverse Effect, Default, acceleration or default, 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.
10.4 Maintenance of Properties. The Company and each of its Subsidiaries
-------------------------
will maintain, preserve, protect, and keep all property used or useful in the
conduct of its business in good condition and in compliance with all Applicable
Laws, 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 promptly and advantageously conducted at all times.
10.5 Maintenance of Existence and Qualifications. The Company and each
-------------------------------------------
of its Subsidiaries will maintain and preserve its existence and its rights and
franchises in full force and effect and will qualify to do business in all
states or jurisdictions where required by Applicable Law, except where the
failure so to qualify will not cause a Material Adverse Effect.
10.6 Payment of Trade Liabilities, Taxes, etc. The Company and each of
-----------------------------------------
its Subsidiaries will (a) timely file all required Tax Returns; (b) timely pay
all Taxes, assessments, and other governmental charges or levies imposed upon it
or upon its income, profits or property; (c) timely withhold and pay over to the
proper Governmental Entity all amounts required to be withheld and paid over
under Applicable Laws; (d) pay when due all Liabilities owed by it on ordinary
trade terms to vendors, suppliers and other Persons providing goods and services
used by it in the ordinary course of its business; (e) pay and discharge when
due all other Liabilities now or hereafter owed by it; and (f) maintain
appropriate accruals and reserves for all of the foregoing in accordance with
U.S. GAAP. The Company and each of its Subsidiaries 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.
10.7 Insurance. The Company and each of its Subsidiaries will keep or
---------
cause to be kept insured by financially sound and reputable insurers its
properties in such forms and amounts and against such risks as are customary for
Persons engaged in the same or similar business of owning and operating similar
properties.
10.8 Compliance with Agreements and Law. The Company and each of its
----------------------------------
Subsidiaries will perform all material obligations it is required to perform
under the terms of 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. The Company and
each of its Subsidiaries will conduct its business and affairs in compliance
with all Applicable Law.
10.9 Guaranties of Company's Subsidiaries. Each Subsidiary (other than
------------------------------------
the Subsidiary Guarantors) of the Company now existing or created, acquired or
coming into existence after the date hereof shall, promptly upon request by
Buyer, execute and deliver to Buyer an absolute and unconditional guaranty of
the timely repayment of the Notes and the due and punctual performance of the
obligations of the Company hereunder, which guaranty shall be satisfactory to
Buyer in form
-30-
<PAGE>
and substance. The Company will cause each of its Subsidiaries to deliver to
Buyer, simultaneously with its delivery of such a guaranty, written evidence
satisfactory to Buyer and its counsel that such Subsidiary has taken all
corporate or partnership action necessary to duly approve and authorize its
execution, delivery and performance of such guaranty and any other documents
which it is required to execute.
10.10 Inspection Rights. At any reasonable time and from time to time
-----------------
upon reasonable notice, the Company will permit Buyer or its agents or
representatives to examine and make copies of and extracts from the records and
books of account of, and visit and inspect the properties of the Company and any
Subsidiary, and to discuss the affairs, finances and accounts of the Company and
any Subsidiary with any of their officers or directors and independent
accountants.
10.11 Charter Amendment Approval. The Company shall cause the Charter
--------------------------
Amendment Approval by September 30,2000.
ARTICLE XI
NEGATIVE COVENANTS OF THE COMPANY
To induce Buyer to enter into this Agreement, the Company warrants,
covenants and agrees that until the full and final payment of the Obligations:
11.1 Indebtedness. Neither the Company nor any Subsidiary thereof will
------------
in any manner owe or be liable for Indebtedness except:
(a) the Obligations;
(b) the Senior Credit Facility;
(c) Indebtedness owed by the Company or any Subsidiary thereof which is
subordinated to the Obligations upon terms and conditions satisfactory to the
holder(s) of the Notes in its (or their) sole and absolute discretion;
(d) purchase money Indebtedness and Indebtedness under leases of the
Company or such Subsidiary as lessee which are capitalized in accordance with
U.S. GAAP, in an aggregate principal amount not to exceed $250,000 at any time,
provided that such purchase money Indebtedness and Indebtedness under capital
leases do not in the aggregate exceed $500,000;
(e) gas overproduction or liabilities arising under futures contracts,
forward contracts, swap, cap or collar contracts, option contracts, hedging
contracts, other derivative contracts or similiar contracts, to the extent
permitted by the Senior Credit Facility; and
-31-
<PAGE>
(f) Old Latex Payables.
11.2 Limitation on Liens. Neither the Company nor any Subsidiary thereof
-------------------
will create, assume or permit to exist any Lien upon any of the properties or
assets which it now owns or hereafter acquires, except the following ("Permitted
Liens"):
(a) Liens which secure Obligations only;
(b) Liens which secure the Senior Credit Facility; and
(c) Statutory Liens for taxes, statutory mechanics' and materialmen's
Liens incurred in the ordinary course of business, and other similar Liens
incurred in the ordinary course of business, provided such Liens do not secure
Indebtedness or secure only Indebtedness which is not delinquent or for which
adequate reserves have been set aside.
11.3 Limitation on Mergers. Except as expressly provided in this
---------------------
Section, neither the Company nor any Subsidiary thereof will merge or
consolidate with or into any other business entity. Any Subsidiary of the
Company may, however, be merged into or consolidated with either the Company or
another Subsidiary which is wholly-owned by the Company, so long as the Company
or the Subsidiary wholly-owned by the Company is the surviving business entity.
The Company will not issue any securities other than (i) Common Stock or (ii)
any options or warrants giving the holders thereof only the right to acquire
such shares. No Subsidiary of the Company will issue any additional shares of
its capital stock or other securities or any options, warrants or other rights
to acquire such additional shares or other securities except to the Company or
to another Subsidiary. No Subsidiary of the Company which is a partnership will
allow any diminution of the Company's interest (direct or indirect) therein.
11.4 Limitation on Sales of Property. Neither the Company nor any
-------------------------------
Subsidiary thereof will sell, transfer, lease, exchange, alienate or dispose of
any of its assets or properties except:
(a) equipment which is worthless or obsolete or which is replaced by
equipment of equal suitability and value;
(b) inventory (including oil and gas sold as produced and seismic data)
which is sold in the ordinary course of business on ordinary trade terms; or
(c) other property which is sold for fair consideration not in the
aggregate in excess of $500,000 in any Fiscal Year (commencing with Fiscal Year
1999).
11.5 Limitation on Investments and New Businesses. Neither the Company
--------------------------------------------
nor any Subsidiary thereof will make any expenditure or commitment or incur any
obligation or enter into or engage in any transaction except in the ordinary
course of business (which ordinary course of business includes the acquisition,
directly or indirectly, of oil and gas properties), engage directly or
indirectly
-32-
<PAGE>
in any business or conduct any operations except in connection with or
incidental to its present businesses and operations, make any acquisitions of or
capital contributions to or other investments in any Person, other than
Permitted Investments, or make any significant acquisitions or investments in
any properties other than oil and gas properties.
11.6 Transactions with Affiliates. Neither the Company nor any of its
----------------------------
Subsidiaries will engage in any material 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.
11.7 Restricted Payments. The Company will not, and will not permit
-------------------
any of its Subsidiaries to, declare or make, or incur any liability to declare
or make, any Restricted Payment.
ARTICLE XII
PREPAYMENT OF THE NOTES
At any time on or after January 1, 2001, the Company may, upon not less
than thirty days' notice to the holders of the Notes, from time to time and
without premium or penalty prepay the Notes in cash, in whole or in part, so
long as the aggregate amount of each partial prepayment of principal on the
Notes equals at least $1,000,000 or any higher integral multiple of $1,000,000.
Each prepayment of principal under this Section 12.1 shall be accompanied by all
interest then accrued and unpaid on the principal so prepaid. All principal and
interest prepaid pursuant to this Section 12.1 shall be in addition to, but not
in lieu of, all payments otherwise required to be paid under the Agreement or
the Ancillary Documents at the time of such prepayment. Any prepayments made
under this Article XII shall be applied against each Note outstanding pro rata,
based upon the ratio that the then outstanding principal amount of a Note bears
to the then total outstanding principal amount of all of the Notes.
ARTICLE XIII
EVENTS OF DEFAULT AND REMEDIES
13.1 Events of Default. Each of the following constitutes an "Event of
-----------------
Default" for purposes of the Notes and this Agreement:
(a) a default in the payment of principal of any Note when and as the
same shall become due and payable;
(b) a default in the payment of any interest upon any Note when such
interest becomes due and payable;
-33-
<PAGE>
(c) a default in the performance or observation of any covenant,
agreement or condition contained in either Article X or Article XI, which
--------- ----------
default is not remedied within 30 days after the earlier of (i) the day on which
the Company first obtains knowledge of such default or (ii) the day on which
written notice thereof is given to the Company by the holder of any Note;
(d) any "default" or "event of default" occurs under any this Agreement
or any Ancillary Document which defines either such term, and the same is not
remedied within the applicable period of grace (if any) provided in this
Agreement or such Ancillary Document;
(e) any representation or warranty previously, presently or hereafter
made in writing by or on behalf of the Company or any Subsidiary thereof in
connection with this Agreement or any Ancillary Document shall prove to have
been false or incorrect in any material respect on any date on or as of which
made, which default is not remedied within 30 days after the earlier of (i) the
day on which the Company first obtains knowledge of such default or (ii) the day
on which written notice thereof is given to the Company by the holder of any
Note;
(f) the Company or any Subsidiary fails to duly observe, perform or
comply with any agreement with any Person or any term or condition of any loan
document relating to the Senior Credit Facility or any other agreement or
instrument, if such agreement or instrument is materially significant to the
Company or such Subsidiary, and such failure is not remedied within the
applicable period of grace (if any) provided in such agreement or instrument;
(g) the Company or any Subsidiary thereof fails to pay any portion, when
such portion is due, of any of its Indebtedness in excess of $250,000 (exclusive
of the Old Latex Payables), or breaches or defaults in the performance of any
Agreement or instrument by which any such Indebtedness is issued, evidenced,
governed, or secured, and any such failure, breach or default continues beyond
any applicable period of grace provided therefor;
(h) the Company or any Subsidiary thereof:
(i) suffers the entry against it of a judgment, decree or order for
relief by a tribunal of competent jurisdiction in an involuntary
proceeding commenced under any applicable bankruptcy, insolvency or other
similar Applicable Law of any jurisdiction now or hereafter in effect,
including the United States federal Bankruptcy Code or similar foreign
law, as from time to time amended, or has any such proceeding commenced
against it which remains undismissed for a period of thirty days; or
(ii) commences a voluntary case under any applicable bankruptcy,
insolvency or similar Applicable Law now or hereafter in effect, including
the United States federal Bankruptcy Code or similar foreign law, 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 Applicable Law; or makes
a general assignment for the benefit of creditors; or fails
-34-
<PAGE>
generally to pay (or admits in writing its inability to pay) its debts as
such debts become due; or takes corporate or other action to authorize any
of the foregoing; or
(iii) suffers the appointment of or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator or
similar official of all or a substantial part of its assets in a
proceeding brought against or initiated by it, and such appointment or
taking possession is neither made ineffective nor discharged within thirty
days after the making thereof, or such appointment or taking possession is
at any time consented to, requested by, or acquiesced to by it; or
(iv) suffers the entry against it of a final judgment for the
payment of money in excess of $250,000 (not covered by insurance
satisfactory to the holder of the Notes in their sole discretion), 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 tribunal against all or any substantial part
of its assets, and such writ or warrant of attachment or any similar
process is not stayed or released within thirty days after the entry or
levy thereof or after any stay is vacated or set aside;
(i) Any Change in Control occurs; and
(j) Any Material Adverse Effect occurs.
Upon the occurrence of an Event of Default described in subsection (h)(i),
(h)(ii) or (h)(iii) of this section with respect to the Company or a Subsidiary
thereof, 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 the Company and each such Subsidiary. Upon
the occurrence of an Event of Default described in subsection (a) or subsection
(b) of this section, any holder of a Note may during its continuance, by written
notice to the Company, declare the Note held by it to be due and payable,
whereupon such Note shall forthwith mature and become due and payable. Upon the
occurrence of any other Event of Default, the Majority of the Noteholders may at
any time during its continuance, declare all of the Notes to be due and payable,
whereupon all of the Notes shall forthwith mature and become due and payable.
13.2 Remedies. If any Default shall occur and be continuing, the
--------
holder of any Note may protect and enforce its rights under the this Agreement
and the Ancillary Documents by any appropriate proceedings, including
proceedings for specific performance of any covenant or agreement contained in
this Agreement or any Ancillary Document, and the holder of any Note may enforce
the payment of any Obligations due it or enforce any other legal or equitable
right
-35-
<PAGE>
which it may have. All rights, remedies and powers conferred upon the holder of
the Notes under this Agreement and the Ancillary Documents shall be deemed
cumulative and not exclusive of any other rights, remedies or powers available
under this Agreement or the Ancillary Documents or at law or in equity.
ARTICLE XIV
ADDITIONAL AGREEMENTS
14.1 Third Party Consents. The Company shall use its reasonable best
--------------------
efforts to obtain all consents, approvals, orders, authorizations, and waivers
of, and to effect all declarations, filings, and registrations with, all third
parties (including Governmental Entities) that are necessary, required, or
deemed by Buyer to be desirable to enable the Company to issue the Notes to
Buyer as contemplated by this Agreement and to otherwise consummate the
transactions contemplated hereby. All costs and expenses of obtaining or
effecting any and all of the consents, approvals, orders, authorizations,
waivers, declarations, filings, and registrations referred to in this Section
shall be borne by the Company.
14.2 Access to Information. Between the date hereof and the Closing,
---------------------
the Company (i) shall give Buyer and its authorized representatives reasonable
access, during regular business hours, to all employees, all plants, offices,
warehouses, and other facilities, and all books and records, including work
papers and other materials prepared by the Company's independent public
accountants, of the Company and the Subsidiaries, (ii) shall permit Buyer and
its authorized representatives to make such inspections as they may reasonably
require and (iii) shall cause the Company's officers and those of the
Subsidiaries to furnish Buyer and its authorized representatives with such
financial and operating data and other information with respect to the Company
and the Subsidiaries as Buyer may from time to time reasonably request;
provided, however, that the Company shall have the right to have a
representative present at all times of any such inspections, interviews and
examinations conducted at or on the offices or other facilities or properties of
the Company or its affiliates or representatives.
14.3 Use of Proceeds. The Company will use the Purchase Price for
---------------
general corporate purposes.
14.4 Public Announcements. Except as may be required by Applicable
--------------------
Law, neither Buyer, on the one hand, nor the Company, on the other, shall issue
any press release or otherwise make any public statement with respect to this
Agreement or the transactions contemplated hereby without the prior written
consent of the other party (which consent shall not be unreasonably withheld).
Any such press release or public statement required by Applicable Law shall only
be made after reasonable notice to the other party, and in such case the party
proposing to make such a press release or public statement shall consult with
the other party.
-36-
<PAGE>
14.5 Fees and Expenses. The Company shall bear its costs and expenses
-----------------
in connection with the negotiation, preparation, execution and delivery of this
Agreement and the Ancillary Documents and the other documents and instruments
contemplated hereby and thereby, as well as the consummation of the transactions
contemplated hereby and thereby. The Company shall promptly (and in any event
within 30 days after any invoice or other statement or notice) pay the
reasonable costs and expenses incurred by or on behalf of Buyer, including
attorneys' fees, consultants' fees and engineering fees, travel costs and
miscellaneous expenses in connection with the negotiation, preparation,
execution and delivery of this Agreement and the Ancillary Documents and the
other documents and instruments contemplated hereby and thereby, as well as the
related due diligence and consummation of the transactions contemplated hereby
and thereby.
14.6 Costs of Enforcement. If any party hereto is required to take
--------------------
action to enforce its rights under this Agreement, the prevailing party shall be
entitled to its reasonable expenses, including attorneys' fees and expenses, in
connection with any such action.
14.7 Indemnification. The Company shall indemnify, defend and hold
---------------
harmless Buyer from and against any and all claims, actions, causes of action,
demands, assessments, losses, damages, liabilities, judgments, settlements,
penalties, costs and expenses (including reasonable attorneys' fees and
expenses), of any nature whatsoever, asserted against, resulting to, imposed
upon, or incurred by Buyer, directly or indirectly, by reason of or resulting
from any breach by the Company of any of its representations, warranties,
covenants or agreements contained in this Agreement or in any certificate,
instrument or document delivered pursuant hereto.
ARTICLE XV
MISCELLANEOUS
15.1 Notices. All notices, requests, demands, and other communications
-------
required or permitted to be given or made hereunder by any party hereto shall be
in writing and shall be deemed to have been duly given or made if (a) delivered
personally, (b) transmitted by first class registered or certified mail, postage
prepaid, return receipt requested, (c) sent by prepaid overnight courier
service, or (d) sent by telecopy or facsimile transmission, answer back
requested, to the parties at the following addresses (or at such other addresses
as shall be specified by the parties by like notice):
-37-
<PAGE>
If to EnCap LP or ECIC:
c/o EnCap Investments L.L.C.
1100 Louisiana, Suite 3150
Houston, Texas 77002
Attention: Robert L. Zorich
Fax No.: 713-659-6130
If to El Paso:
c/o El Paso Energy Corporation
1001 Louisiana Street
Houston, Texas 77002
Attention: Bob Baker
Fax No.: 713-420-2813
with a copy to:
Thompson Knight Brown Parker & Leahy LLP
1200 Smith, Suite 3600
Houston, TX 77002
Attention: Michael K. Pierce
Telefax: 713-217-2828
If to the Company or any Subsidiary:
AROC Inc.
4200 East Skelly Drive, Suite 1000
Tulsa, Oklahoma 74135
Attention: John A. Keenan
Telefax: 918-494-4918
with a copy to:
Jenkens & Gilchrist, a Professional Corporation
1445 Ross Avenue, Suite 3200
Dallas, Texas 75202
Attention: W. Alan Kailer
Telefax: 214-855-4300
Such notices, requests, demands, and other communications shall be effective (i)
if delivered personally or sent by courier service, upon actual receipt by the
intended recipient, (ii) if mailed, upon the earlier of five days after deposit
in the mail or the date of delivery as shown by the return receipt
-38-
<PAGE>
therefor or (iii) if sent by telecopy or facsimile transmission, when the answer
back is received.
15.2 Waiver and Amendment. No failure or delay (whether by course of
--------------------
conduct or otherwise) by any party hereto in exercising any right, power or
remedy which such holder may have under the Agreement or any of the Ancillary
Documents shall operate as a waiver thereof or of any other right, power or
remedy, nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or of any other right, power or remedy. No waiver of
any provision of this Agreement or any Ancillary 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 waiver, consent, release,
modification or amendment of or supplement to this Agreement or any of the
Ancillary Documents shall be valid or effective against any party hereto unless
the same is in writing and signed by such party.
15.3 Survival. The representations and warranties of the parties hereto
--------
contained in this Agreement or in any certificate, instrument or document
delivered pursuant hereto shall survive the Closing, regardless of any
investigation made by or on behalf of any party without contractual limitation.
Except as otherwise provided herein or therein, all agreements and/or covenants
of the Company contained in this Agreement or in any of the Ancillary Documents
shall survive the execution and delivery of this Agreement and the Ancillary
Documents and the performance hereof and thereof, and shall further survive
until all of the Obligations are paid in full and all of Buyer's obligations to
the Company are terminated.
15.4 Entire Agreement. This Agreement, together with the Schedules and
----------------
other writings referred to herein or delivered pursuant hereto, constitute the
entire agreement between the parties hereto with respect to the subject matter
hereof and supersede all prior agreements and understandings, both written and
oral, between the parties with respect to the subject matter hereof.
15.5 Binding Effect; Assignment; No Third Party Benefit. This Agreement
--------------------------------------------------
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; provided, however, that prior to Closing,
neither party may assign its rights or delegate any of its duties and
obligations under this Agreement or the Ancillary Documents without the prior
written consent of the other; provided, further, that after the Closing, the
Company may not assign its rights or delegate any of its duties and obligations
under this Agreement and the Ancillary Documents without the prior written
consent of the holder of the Notes. Except as expressly provided herein, nothing
in this Agreement, express or implied, is intended to or shall confer upon any
Person other than the parties hereto, and their respective successors and
permitted assigns, any rights, benefits, or remedies of any nature whatsoever
under or by reason of this Agreement.
15.6 Severability. If any provision of this Agreement is held to be
------------
unenforceable, this Agreement shall be considered divisible and such provision
shall be deemed inoperative to the extent it is deemed unenforceable, and in all
other respects this Agreement shall remain in full force and effect; provided,
however, that if any such provision may be made enforceable by limitation
thereof, then such provision shall be deemed to be so limited and shall be
enforceable to the maximum extent
-39-
<PAGE>
permitted by Applicable Law.
15.7 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
-------------
AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD
TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
15.8 Remedies Not Exclusive. The rights and remedies herein provided
----------------------
shall be cumulative and not exclusive of any rights or remedies provided by law.
The rights and remedies of any party based upon, arising out of, or otherwise in
respect of any inaccuracy in or breach of any representation, warranty,
covenant, or agreement contained in this Agreement shall in no way be limited by
the fact that the act, omission, occurrence, or other state of facts upon which
any claim of any such inaccuracy or breach is based may also be the subject
matter of any other representation, warranty, covenant, or agreement contained
in this Agreement (or in any other agreement between the parties) as to which
there is no inaccuracy or breach.
15.9 Further Assurances. From time to time following the Closing, at
------------------
the request of any party hereto and without further consideration, the other
party or parties hereto shall execute and deliver to such requesting party such
instruments and documents and take such other action (but without incurring any
material financial obligation) as such requesting party may reasonably request
in order to consummate more fully and effectively the transactions contemplated
hereby.
15.10 Counterparts. This Agreement may be executed by the parties
------------
hereto in any number of counterparts, each of which shall be deemed an original,
but all of which shall constitute one and the same agreement. Each counterpart
may consist of a number of copies hereof each signed by less than all, but
together signed by all, the parties hereto.
15.11 Injunctive Relief. The parties hereto acknowledge and agree that
-----------------
irreparable damage would occur in the event any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of the provisions of this
Agreement, and shall be entitled to enforce specifically the provisions of this
Agreement, in any court of the United States or any state thereof having
jurisdiction, in addition to any other remedy to which the parties may be
entitled under this Agreement or at law or in equity.
15.12 Consent to Jurisdiction. The parties hereto hereby irrevocably
-----------------------
submit to the jurisdiction of the courts of the State of Texas and the federal
courts of the United States of America located in Harris County, Texas, and
appropriate appellate courts therefrom, over any dispute arising out of or
relating to this Agreement or any of the transactions contemplated hereby, and
each party hereby irrevocably agrees that all claims in respect of such dispute
or proceeding shall be heard and determined in such courts. The parties hereby
irrevocably waive, to the fullest extent permitted by Applicable Law, any
objection which they may now or hereafter have to the laying of venue of any
dispute arising out of or relating to this Agreement or any of the transactions
contemplated hereby brought in such court or any defense of inconvenient forum
for the maintenance of such dispute.
-40-
<PAGE>
Each of the parties hereto agrees that a judgment in any such dispute may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. This consent to jurisdiction is being given solely for purposes
of this Agreement and is not intended to, and shall not, confer consent to
jurisdiction with respect to any other dispute in which a party to this
Agreement may become involved.
15.13. Payments. All payments to be made hereunder shall be in lawful
--------
money of the United States of America.
15.14. Master Subordination Agreement. The terms of this Agreement are
------------------------------
subject to the terms of that certain Master Subordination Agreement, dated as of
May 1, 2000, made by and between the "Junior Creditor" therein (including
Buyers) and AROC Inc., a Delaware corporation, Alliance Resources Group, Inc., a
Delaware corporation, LaTex Petroleum Corporation, an Oklahoma corporation, AROC
(Texas), Inc., a Texas corporation, Germany Oil Company, a Delaware corporation,
Alliance Resources (USA), Inc., a Delaware corporation, Source Petroleum, Inc.,
a Louisiana corporation, Alliance Resources PLC, a public limited company
incorporated under the laws of England and Wales (collectively, the "Aroc
Parties"), in favor of Toronto Dominion (Texas), Inc., as Agent, for the lenders
("Lenders") parties to the credit agreement among the Aroc Parties, the Agent
and the Lenders.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-41-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement, or caused
this Agreement to be executed by their duly authorized representatives, all as
of the day and year first above written.
AROC INC.
By: _________________________________________
Name: Francis M. Munchinski
Title: Vice President
ENCAP EQUITY 1996 LIMITED PARTNERSHIP
By: ENCAP INVESTMENTS L.L.C.
By: _________________________________________
Name: __________________________________
Title: Managing Director
ENERGY CAPITAL INVESTMENT COMPANY PLC
By: _________________________________________
Name: Gary R. Petersen
Title: Director
EL PASO CAPITAL INVESTMENTS, L.L.C.
By: _________________________________________
Name: __________________________________
Title: __________________________________
<PAGE>
EXHIBIT 10.6
================================================================================
PREFERRED STOCK PURCHASE AGREEMENT
Among
Bank of America, N.A.,
EnCap Equity 1996 Limited Partnership,
Energy Capital Investment Company PLC,
El Paso Capital Investments, L.L.C.,
EF-II Holdings, LLC,
Picosa Creek Limited Partnership,
Encap Investments L.L.C.
And
AROC Inc.
Dated as of May 1, 2000
================================================================================
<PAGE>
PREFERRED STOCK PURCHASE AGREEMENT, dated as of May 1, 2000, between AROC
Inc., a Delaware corporation (the "Company"), Bank of America, N.A., a national
association ("Bank"), EnCap Equity 1996 Limited Partnership, a Texas limited
partnership ("EnCap LP"), Energy Capital Investment Company PLC, an English
investment company ("ECIC"), EF-II Holdings, LLC, a Texas limited liability
company ("EF-II"), Picosa Creek Limited Partnership, a Texas limited partnership
("Picosa Creek"), EnCap Investments L.L.C., a Delaware limited liability company
("EnCap"), El Paso Capital Investments, L.L.C., a Delaware limited liability
company ("El Paso", and together with the Bank, EnCap LP, EF-II, Picosa Creek,
EnCap and ECIC, the "Purchasers").
In consideration of the representations, warranties and covenants herein
contained, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound, hereby agree as follows:
ARTICLE I
DEFINITIONS
1.01. Definitions. As used herein, the following terms shall have the
-----------
following meanings (such meanings to be equally applicable to both the singular
and plural forms of the terms defined):
"Affiliate" means, with respect to any Person, any other Person that,
---------
directly or indirectly, through one or more intermediaries, controls, is
controlled by or is under common control with, such Person. For the purposes of
this definition, "control" when used with respect to any Person means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract, or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Agreement" means this Preferred Stock Purchase Agreement as from time to
---------
time amended and in effect among the parties.
"Alliance Group" means Alliance Resources Group, Inc., a Delaware
--------------
corporation.
"Alliance PLC" means Alliance Resources PLC, a public limited company
------------
incorporated in England and Wales.
"Alliance USA" means Alliance Resources (USA), Inc., a Delaware
------------
corporation.
"Amended and Restated Registration Rights Agreement" shall have the
--------------------------------------------------
meaning assigned to that term in Section 3.02(e).
"Applicable Laws" means any statute, law, rule or regulation, or any
---------------
judgment, order, writ, injunction or decree of, any Governmental Entity to which
a specified Person or property is subject.
"AROC (Texas)" means AROC (Texas), Inc., a Texas corporation.
------------
<PAGE>
"Budget" shall have the meaning assigned to that term in Section 6.03(d).
------
"Business Day" means any day other than a Saturday, Sunday or public
------------
holiday or the equivalent for banks under the laws of the States of Delaware,
Oklahoma or Texas.
"Certificate of Designation" means the document attached hereto as Exhibit
--------------------------
2.01.
"Change of Control" means the occurrence, from and after the Closing,
-----------------
of any of the following events: (a) any Person or two or more Persons, other
than the Company or a Person who is an Affiliate of the Company immediately
after giving effect to the transactions contemplated by this Agreement, acting
as a group shall acquire beneficial ownership (within the meaning of Rule 13d-3
of the Securities and Exchange Commission under the Exchange Act, and including
holding proxies to vote for the election of directors other than proxies held by
the Company's management or their designees to be voted in favor of persons
nominated by the Company's Board of Directors) of 33% or more of the outstanding
voting securities of the Company, measured by voting power (including both
ordinary shares and any preferred stock or other equity securities entitling the
holders thereof to vote with the holders of common stock in elections for
directors of the Company), (b) the Company shall fail to beneficially own,
directly or indirectly, 100% of the outstanding shares of voting capital stock
of Alliance PLC, Alliance Group, Source, Difco, AROC (Texas), Alliance USA, LPC
or GOC on a fully diluted basis, (c) one-third or more of the directors of the
Company shall consist of persons not nominated by the Company's Board of
Directors (not including as Board nominees any directors which the Board is
obligated to nominate pursuant to shareholders agreements, voting trust
arrangements or similar arrangements) or (d) within three years of the Closing
Date, the employment by the Company of John Keenan or Paul Fenemore terminates
for any reason.
"Charter" means the Certificate of Incorporation of the Company, as
-------
amended from time to time, and as filed with the Secretary of State of the State
of Delaware.
"Charter Amendment Approval" means approval of the increase in authorized
--------------------------
shares of Common Stock of the Company to such level as shall permit the full and
complete conversion of the Preferred Shares into the Preferred Conversion Shares
in accordance with the Certificate of Designation, all in accordance with the
Charter and Applicable Law.
"Closing" shall have the meaning assigned to that term in Section 2.01.
-------
"Closing Date" shall have the meaning assigned to that term in Section
------------
2.01.
"Code" means the Internal Revenue Code of 1986, as amended
----
"Commission" means the United States Securities and Exchange Commission (or
----------
any other federal agency at that time administering the Securities Act).
"Common Stock" means common stock, $0.001 par value per share, of the
------------
Company and any securities issued with respect to such shares by way of a stock
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization.
2
<PAGE>
"Company" means and shall include AROC Inc. and its successors and assigns.
-------
"Consolidated" and "Consolidating" when used with reference to any term
------------ -------------
defined herein shall mean that term as applied to the accounts of the Company
and its Subsidiaries consolidated in accordance with generally accepted
accounting principles.
"Default" means an 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.
"Environmental Laws" means any and all laws relating to the environment or
------------------
to emissions, discharges, releases or threatened releases of pollutants,
contaminants, chemicals, or industrial, toxic or hazardous substances or wastes
into the environment including ambient air, surface water, ground water, or
land, or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling of pollutants,
contaminants, chemicals, or industrial, toxic or hazardous substances or wastes.
"Equity Securities" shall have the meaning assigned to that term in Section
-----------------
2.03.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended.
"Events of Default" shall have the meaning assigned to that term in Section
-----------------
7.01.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
------------
any similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Financial Statements" shall have the meaning assigned to that term in
--------------------
Section 5.10.
"GOC" means Germany Oil Company, a Delaware corporation.
---
"Governmental Entity" means any court or tribunal in any jurisdiction
-------------------
(domestic or foreign) or any federal, state, municipal or other governmental
body, agency, authority, department, commission, board, bureau or
instrumentality (domestic or foreign).
"Hazardous Materials" means any substance regulated under Environmental
-------------------
Law, whether as pollutants, contaminants or chemicals, or as industrial, toxic
or hazardous substances or wastes, or otherwise.
"Holders of a Requisite Majority" means the holders of at least a majority
-------------------------------
of the then outstanding Preferred Shares.
"HSR Act" means the Hart Scott Rodino Antitrust Improvements Act of 1976,
-------
as amended.
"Indebtedness" means Liabilities in any of the following categories:(a)
------------
Liabilities for borrowed money; (b) Liabilities constituting an obligation to
pay the deferred purchase price of
3
<PAGE>
property or services; (c) Liabilities evidenced by a bond, debenture, note or
similar instrument; (d) Liabilities which would under U.S. GAAP be shown on such
Person's balance sheet as a liability, and is payable more than one year from
the date of creation thereof (other than reserves for taxes and reserves for
contingent obligations); (e) Liabilities arising under futures contracts,
forward contracts, swap, cap or collar contracts, option contracts, hedging
contracts, other derivative contracts, or similar agreements; (f) Liabilities
constituting principal under leases capitalized in accordance with U.S. GAAP;
(g) Liabilities arising under conditional sales or other title retention
agreements; (h) Liabilities owing under direct or indirect guaranties of
Liabilities of any other Person or constituting obligations to purchase or
acquire or to otherwise protect or insure a creditor against loss in respect of
Liabilities of any other Person (such as obligations under working capital
maintenance agreements, agreements to keep-well, or agreements to purchase
Liabilities, assets, goods, securities or services), but excluding endorsements
in the ordinary course of business of negotiable instruments in the course of
collection; (i) Liabilities (for example, repurchase agreements) consisting of
an obligation to purchase securities or other property, if such Liabilities
arise out of or in connection with the sale of the same or similar securities or
property; (j) Liabilities with respect to letters of credit or applications or
reimbursement agreements therefor; (k) Liabilities with respect to payments
received in consideration of oil, gas, or other minerals yet to be acquired or
produced at the time of payment (including obligations under "take-or-pay"
contracts to deliver gas in return for payments already received and the
undischarged balance of any production payment created by such Person or for the
creation of which such Person directly or indirectly received payment); or (l)
Liabilities with respect to other obligations to deliver goods or services in
consideration of advance payments therefor; provided, however, that the
"Indebtedness" of any Person shall not include Liabilities that were incurred by
such Person on ordinary trade terms to vendors, suppliers, or other Persons
providing goods and services for use by such Person in the ordinary course of
its business, unless and until such Liabilities are outstanding more than 90
days past the original invoice or billing date therefor.
"IRS" means the Internal Revenue Service.
---
"Key Employment Agreements" means (I) that certain Executive Employment
-------------------------
Agreement dated as of December 8, 1999 between the Company and John A. Keenan,
and (ii) that certain Service Agreement dated September 20, 1996 between
Alliance PLC and Paul Raymond Fenemore, as amended by Supplemental Agreement
dated September 20, 1996, Supplemental Agreement dated December 1, 1998, and
letter agreement dated as of December 8, 1999.
"Liabilities" means, as to any Person, all indebtedness, liabilities and
-----------
obligations of such Person, whether matured or unmatured, liquidated or
unliquidated, primary or secondary, direct or absolute, fixed or contingent, and
whether or not required to be considered pursuant to GAAP.
"Lien" means, with respect to any property or assets, any right or interest
----
therein of a creditor to secure Liabilities owed to such creditor or any other
arrangement with such creditor which provides for the payment of such
Liabilities out of such property or assets or which allows him to have such
Liabilities satisfied out of such property or assets prior to the general
creditors of any owner thereof, including any lien, mortgage, security interest,
pledge, deposit, production payment, rights of a vendor under any title
retention or conditional sale agreement or lease substantially equivalent
thereto, tax lien, mechanic's or materialman's lien, or any other charge or
encumbrance for security purposes, whether arising by law or agreement or
otherwise, but excluding any right of offset which arises without agreement in
the ordinary course of business. "Lien" shall also mean any
4
<PAGE>
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 Agreement" means that Third Amended and Restated Credit Agreement
--------------
dated as of October 26, 1998, as amended by that certain First Amendment to
Third Amended and Restated Credit agreement dated as of July 30, 1999, that
certain Second Amendment to Third Amended and Restated Credit Agreement dated as
of October 13, 1999, and that certain Third Amendment to Third Amended and
Restated Credit Agreement dated as of November 3, 1999.
"LPC" means LaTex Petroleum Corporation, an Oklahoma corporation.
---
"LPC Merger" means the merger of Alliance Resources (Delaware) Inc. with
----------
and into LPC whereby Alliance PLC became the sole shareholder of LPC.
"Material Adverse Effect" means when used with respect to the Company, a
-----------------------
material adverse change in, or a material adverse effect upon (a) the business,
assets, results of operations, condition (financial or otherwise) or prospects
of the Company and its Subsidiaries on a consolidated basis, (b) the Company's
ability to timely pay the Obligations or to perform on a timely basis any
material obligation of the Company under this Agreement or any agreement,
instrument, or document entered into or delivered in connection herewith or (c)
the enforceability of the material terms of this Agreement or any Operative
Document.
"Old Latex Payables" means those current accounts payable to the Company or
------------------
its consolidated Subsidiaries that meet one or more of the following tests and
have been certified to the Company by the Company and applicable Subsidiary as
being an Old LaTex Payable:
(a) accounts payable the collection of which is barred by the applicable
statute of limitations;
(b) accounts payable the collection of which has been compromised or
forgiven in part, in either case to the extent of the amount that has been
compromised or forgiven; or
(c) accounts payable in respect of which the indebtedness was incurred
prior to the LPC Merger and where each of the following is true: (i) no payment
has been made on an individual amount of indebtedness payable since the LPC
Merger, (ii) no contact has been received by the Company or applicable
Subsidiary from the applicable creditor since the LPC Merger pertaining to such
account or if contact has been received, such account is being diligently
contested in good faith, (iii) no promise to pay such account has been made by
the Company or applicable Subsidiary since the LPC Merger and (iv) no judgment
has been obtained by, or settlement agreement entered into with, such creditor
with respect to such indebtedness.
"Operative Documents" means each of this Agreement, the Certificate of
-------------------
Designation, the Preferred Shares and the Amended and Restated Registration
Rights Agreement.
5
<PAGE>
"Outstanding Common Stock" means, at any time, the aggregate of all Common
------------------------
Stock then outstanding, including all shares of Common Stock which could be
acquired from the Company upon exercise or conversion of any outstanding
warrants, options or other securities then exercisable or convertible into
Common Stock.
"Permits" means licenses, permits, franchises, consents, approvals,
-------
variances, exemptions and other authorizations of or from Governmental Entities.
"Permitted Investment" means any investment, loan, advance, guaranty or
--------------------
capital contribution by the Company or any Subsidiary in any of the following:
(a) properties or assets to be used in the ordinary course of business of the
Company and its Subsidiaries; (b) current assets arising from the sale of goods
and services in the ordinary course of business of the Company and its
Subsidiaries; (c) investments in one or more of the Company's Subsidiaries or in
any Person that concurrently with such investment becomes a Subsidiary; (d) any
marketable obligation maturing not later than one year after the date of
acquisition therefor, issued or guaranteed by the United States of America or by
any agency of the United States of America which has the full faith and credit
of the United States of America; (e) commercial paper which is given the highest
rating by a credit rating agency of recognized national standing and maturing
not more than 270 days from the date of creation thereof; and (f) any demand
deposit or time deposit (including certificates of deposit and money market or
sweep accounts) with a commercial bank or trust company organized and doing
business under the laws of the United States of America or any state thereof
which has capital, surplus and undivided profits of at least $250,000,000,
provided that such deposit must be either payable on demand or mature not more
than twelve months from the date of investment therein.
"Permitted Liens" shall have the meaning assigned to that term in Section
---------------
6.02(c).
"Person" means and includes an individual, a corporation, a partnership, a
------
limited liability company, a joint venture, a trust, an unincorporated
organization, or a government or any agency or political subdivision thereof.
"Preferred Conversion Shares" shall have the meaning assigned to that term
---------------------------
in Section 2.01.
"Preferred Shares" shall have the meaning assigned to that term in Section
----------------
2.01.
"Proceedings" means all proceedings, actions, claims, suits, investigations
-----------
and inquiries by or before any arbitrator or Governmental Entity.
"Purchasers" means and shall include the Bank, EnCap LP, ECIC, EF-II,
----------
Picosa Creek, EnCap and El Paso, and any other holder or holders from time to
time of any of the Preferred Shares acting severally and not jointly.
"Restricted Payment" means any Distribution (as defined below) in respect
------------------
of the Company or any Subsidiary thereof (other than on account of capital stock
or other equity interests of a Subsidiary owned legally or beneficially by the
Company or another Subsidiary), including any Distribution resulting in the
acquisition by the Company of securities that would constitute treasury stock.
As used in this definition, "Distribution" shall mean, in respect of any
corporation, partnership or other business entity (a) dividends or other
distributions or payments on capital stock or other equity interest of such
corporation, partnership or other business entity (except distributions in such
6
<PAGE>
stock or other equity interest) and (b) the redemption or acquisition of such
stock or other equity interests or of warrants, rights or other options to
purchase such stock or other equity interests (except when solely in exchange
for such stock or other equity interests); provided, that "Distribution" shall
not mean any dividend or other distribution made, or redemption effected, in
accordance with the terms of the Certificate of Designation.
"Securities" means collectively the Preferred Shares and the Preferred
----------
Conversion Shares.
"Securities Act" means the Securities Act of 1933, as amended, or any
--------------
similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Senior Credit Facility" means that certain Credit Agreement dated as of
----------------------
May 1, 2000, by and between the Company and Toronto Dominion (Texas), Inc.
"Source" means Source Petroleum, Inc., a Louisiana corporation.
------
"Subordinated Debt" means that certain Indebtedness of the Company
-----------------
evidenced by the Subordinated Debt Agreement.
"Subordinated Debt Agreement" means that certain Purchase Agreement dated
---------------------------
as of May 1, 2000, by and among the Company, EnCap LP and El Paso.
"Subsidiary" or "Subsidiaries" means (i) any corporation more than fifty
---------- ------------
percent (50%) of whose stock of any class or classes having by the terms thereof
ordinary voting power to elect a majority of the directors of such corporation
(irrespective of whether or not at the time stock of any class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time owned directly or indirectly by the
Company and (ii) any partnership, limited liability company, association, joint
venture or other entity in which the Company directly or indirectly has more
than a fifty percent (50%) equity interest at the time.
"Taxes" means any income taxes or similar assessments or any sales, excise,
-----
occupation, use, ad valorem, property, production, severance, transportation,
employment, payroll, franchise, transfer, stamp, withholding or other tax
imposed by any United States federal, state or local (or any foreign or
provincial) taxing authority, including any interest, penalties or additions
attributable thereto.
"Tax Return" means any return or report (including but not limited to any
----------
related or supporting information, any amended return or report or any
information return or report) with respect to Taxes.
"U.S. GAAP" means generally accepted accounting principles in the United
---------
States of America from time to time.
1.02. Accounting Terms. All accounting terms not specifically defined
----------------
herein shall be construed in accordance with U.S. GAAP, and all financial data
submitted pursuant to this Agreement and all financial tests to be calculated in
accordance with this Agreement shall be
7
<PAGE>
prepared and calculated in accordance with U.S. GAAP.
ARTICLE II
PURCHASE AND SALE OF PREFERRED STOCK
2.01. The Preferred Shares; The Closing. Concurrent with the execution
----------------------------------
and delivery of this Agreement, the Company agrees to issue and sell to the
Purchasers, acting severally and not jointly, as described in greater detail in
Section 2.02 below, and, subject to and in reliance on the representations,
warranties, terms and conditions of this Agreement, the Purchasers agree to
purchase in the manner described below, the Preferred Shares (as defined below).
The Company has authorized the issuance and sale to the Purchasers, acting
severally and not jointly, of an aggregate of 850,163 shares of the Company's
Series A Convertible Preferred Stock, par value $0.001 per share (the "Preferred
Shares") for a per share purchase price of $50.00 and an aggregate purchase
price of $42,508,150.00. The rights, designations, preferences and other terms
and conditions relating to the Preferred Shares shall be as set forth on the
Certificate of Designation attached hereto as Exhibit 2.01. The shares of
------------
Common Stock issuable upon conversion of the Preferred Shares are referred to
herein as the ("Preferred Conversion Shares"). At the concurrent closing (the
"Closing") and execution of this Agreement to be held at the offices of Thompson
Knight Brown Parker & Leahy L.L.P., 1200 Smith Street, Suite 3600, Houston,
Texas, at 10:00 a.m. local time on May 1, 2000 (the "Closing Date"), the Company
will issue and sell to each Purchaser the Preferred Shares against receipt of
funds or other consideration as described below by wire transfer to an account
or accounts designated by the Company.
2.. Purchase and Sale of Preferred Shares.
(a) Bank Purchase. At the Closing, the Bank agrees to purchase from
-------------
the Company 345,118 Preferred Shares in exchange for its concurrent conversion
of (i) $2,255,900 principal amount of Tranche A Loans payable by the Company to
the Bank under the Loan Agreement (the "Tranche A Loan") into 45,118 Preferred
Shares, (ii) $10,000,000 principal amount of Tranche B Loans payable by the
Company to the Bank under the Loan Agreement (the "Tranche B Loan") into 200,000
Preferred Shares, and (iii) $5,000,000 principal amount of Tranche C Loans
payable by the Company to the Bank under the Loan Agreement (the "Tranche C
Loan, and together with the Tranche A Loan and the Tranche B Loan, the "Loans")
into 100,000 Preferred Shares. The parties further acknowledge that as of the
date of this Agreement the aggregate amount of principal, interest, fees and
commissions outstanding under the Loan Agreement, prior to such conversion, is
$51,893,815.69, and that (x) $17,255,900 of such amount is hereby converted into
the Preferred Shares purchased by the Bank, (y) the Company has paid in full all
accrued but unpaid interest, fees and commissions under the Loan Agreement
(including $1,264,941.00 of accrued but unpaid interest and $500.00 of unpaid
letter of credit fees), and (z) either or a combination of the Company or
Toronto Dominion (Texas), Inc., pursuant to instructions from the Company under
the Senior Credit Facility, has wire transferred to the Bank the amount of
$34,637,915.69 in connection with the assignment from the Bank to Toronto
Dominion (Texas), Inc. of the Bank's right, title and interest in and to the
Loan Agreement and related documentation. At the Closing, in connection with
its assignment of its right, title and interest in and to the Loan Agreement and
related documentation to Toronto Dominion (Texas), Inc., the Bank acknowledges
that it has delivered to Toronto
8
<PAGE>
Dominion (Texas), Inc. each original, executed promissory note issued by the
Company under the Loan Agreement. The Company hereby acknowledges its receipt
from the Bank of the full payment required hereunder for the 345,118 Preferred
Shares purchased by the Bank. The Bank hereby acknowledges that it has conveyed
all of its right, title and interest in and to the Loan Agreement and related
documentation to Toronto Dominion (Texas), Inc. and no longer holds any such
interest therein; provided, that the Bank has not assigned to Toronto Dominion
(Texas), Inc. (a) certain rights to indemnification under the Loan Agreement
(which rights have been reserved by the Bank), or (b) any rights attributable to
any equity interests in the Company held by the Bank or any of its Affiliates.
(b) El Paso Purchase. At the Closing, El Paso agrees to purchase from
----------------
the Company 54,063 Preferred Shares, in exchange for the concurrent payment of
$2,703,150 by wire transfer to an account designated by the Company. The
Company hereby acknowledges receipt from El Paso of this payment in full.
(c) EnCap LP, ECIC, EF-II, Picosa Creek, and EnCap Purchase.
-------------------------------------------------------
(i) At the Closing, EnCap LP and ECIC (collectively, "EnCap Fund
II") agree to purchase from the Company an aggregate 226,203 Preferred Shares in
exchange for concurrent conversion of those certain 10% Subordinated Notes Due
2005 dated as of October 27, 1998, with a currently outstanding balance of
principal and accrued interest of $11,310,150.00, payable by Alliance PLC to
EnCap Fund II (the "First Subordinated Notes").
(ii) At the Closing, EF-II, Picosa Creek, EnCap LP and ECIC
(collectively, the "EnCap Affiliated Entities") agree to purchase from the
Company an aggregate 134,768 Preferred Shares in exchange for the concurrent
conversion of those certain 10% Subordinated Notes Due 2005 dated as of December
21, 1999, with a currently outstanding balance of principal and accrued interest
of $6,738,400.00, payable by the Company to EnCap Affiliated Entities (the
"Second Subordinated Notes" and, together with the First Subordinated Notes, the
"Subordinated Notes").
(iii) The parties hereto further acknowledge that as of the date
of this Agreement the aggregate amount of principal and interest outstanding
under the Subordinated Notes, prior to such exchange, is $18,048,550.00. EnCap
Fund II and the EnCap Affiliated Entities have delivered to the Company the
original executed Subordinated Notes duly stamped with the notation "PAID IN
FULL" and the Company hereby acknowledges receipt from EnCap Fund II and the
EnCap Affiliated Entities of payment for the 360,971 Preferred Shares in full.
EnCap Fund II and the EnCap Affiliated Entities hereby acknowledge receipt from
the Company of full payment of outstanding principal and interest under the
Subordinated Notes.
(d) Additional Bank Purchase. At the Closing, the Bank agrees to
------------------------
purchase from the Company an additional 40,000 Preferred Shares in exchange for
the concurrent cancellation by the Bank of its right to an overriding royalty
interest in certain assets located in the East Irish Sea owned by Difco Limited,
a private limited company incorporated under the laws of England and
9
<PAGE>
Wales, as contemplated by Section 6.1.11 of the Loan Agreement. The parties
acknowledge the value of this consideration is deemed to be $2,000,000. The
Company acknowledges receipt from the Bank of payment in full for the 40,000
Preferred Shares and the Bank acknowledges that the Bank's right to such
overriding royalty interest has been cancelled and is of no further force or
effect.
(e) Transfer of Preferred Shares by the Bank to El Paso. At the
---------------------------------------------------
Closing, the Bank agrees to transfer 145,937 of its Preferred Shares to El Paso
in satisfaction of El Paso's two Tranche A and one Tranche B participation
interests as further described in that certain Participation Agreement dated as
of July 30, 1999 between the Bank and El Paso, that certain Participation
Agreement dated as of November 3, 1999 between the Bank and El Paso and that
certain Participation Agreement dated as of March 10, 2000 between the Bank and
El Paso. El Paso acknowledges and agrees that such transfer is being made to El
Paso without recourse, representation or warranty by the Bank of any nature. El
Paso further acknowledges that the transfer of such shares by the Bank to El
Paso constitutes payment and satisfaction in full to El Paso of all obligations
of the Bank to El Paso under the Participation Agreements pursuant to which El
Paso acquired such participations, and the Bank shall have no further liability
or obligation of any nature to El Paso thereunder.
(f) EnCap Fee. At the Closing, in payment of a $2,500,000.00 fee owed
---------
by the Company to EnCap pursuant to that certain letter agreement dated December
20, 1999, by and between EnCap and the Company (the "Letter Agreement"), the
Company agrees to issue 50,000 shares to EnCap in satisfaction of such fee
obligations. EnCap hereby acknowledges receipt from the Company of all amounts
due and owing under the Letter Agreement.
2.03. Right to Purchase New Equity Securities. Prior to issuing any equity
---------------------------------------
securities or options or convertible securities exercisable for or convertible
into such equity securities (collectively, "Equity Securities") of the Company
to any Person, the Company will first give to each of the holders of the
Preferred Shares the right to purchase, on the same terms, the same proportion
of the Equity Securities proposed to be sold by the Company as the number of
Preferred Conversion Shares into which Preferred Shares are then convertible
bears to the total number of shares of Outstanding Common Stock at such time.
Notwithstanding anything to the contrary contained in this Agreement, for
purposes of this Agreement the definition of "Equity Securities" shall not
include: (a) up to 85,000,000 shares of Common Stock (and/or options, warrants
or other purchase rights to acquire up to that number of shares of Common Stock)
issued pursuant to such options, warrants or other rights) issued or to be
issued to employees, officers or directors of, or consultants or advisors to,
the Company pursuant to stock option plans or other arrangements that are
approved by the Company's board of directors; (b) stock issued pursuant to any
rights or agreements outstanding as of the date of this Agreement or pursuant to
options, warrants or convertible securities outstanding as of the date of this
Agreement; (c) any equity securities issued for consideration other than cash
pursuant to a merger, consolidation, acquisition or similar business
combination; (d) shares of Common Stock offered to the public generally pursuant
to a registration statement under the Securities Act in connection with a
Qualified Public Offering; or (e) shares of Common Stock issued in connection
with any stock split, stock dividend, combination or recapitalization by the
Company. Purchasers electing to purchase such Equity Securities pursuant to this
Section 2.03 shall also be entitled to purchase (pro rata according to their
holdings of Preferred Shares) offered Equity Securities that other Purchasers
decline to purchase pursuant to this Section 2.03. Any such right of purchase
shall be exercisable for a period of twenty (20) days after the holders receive
written
10
<PAGE>
notice of a proposed issuance of Equity Securities (and any such notice by the
Company or Subsidiary shall be given not less than twenty (20) nor more than
ninety (90) days prior to any such issuance). The Company shall be entitled to
sell any Equity Securities not purchased by the holders of Preferred Shares
pursuant to this Section 2.03: (i) during the period ending three (3) months
after the date of the notice to such holders and (ii) at not less than the same
price and upon terms not materially less favorable to the Company than those
offered to the holders of Preferred Shares, but may not otherwise sell such
Equity Securities without renewed compliance with this Section 2.03. The
Purchasers' rights set forth in this Section 2.03 shall terminate upon the
closing of a Qualified Public Offering.
2.04. Use of Proceeds. The Company shall use the cash proceeds from the
---------------
sale of the Preferred Shares in the manner described on Exhibit 2.04.
------------
ARTICLE III
CONDITIONS TO PURCHASERS' OBLIGATION
The obligation of the Purchasers to purchase and pay for the Preferred
Shares at the Closing is subject to satisfaction of the following conditions,
all or any of which may be waived in writing by the Purchasers:
3.01. Representations and Warranties. At the Closing, each of the
------------------------------
representations and warranties of the Company set forth in Article V hereof
shall be true and correct in all respects at the time of the sale of the
Preferred Shares.
3.02. Documentation at Closings. The Purchasers shall have received prior
-------------------------
to or at the Closing all of the following documents or instruments, or evidence
of completion thereof, each in form and substance satisfactory to the Purchasers
and their special counsel:
(a) A certified copy of all Charter documents of the Company and each
Subsidiary; a certified copy of the resolutions of the board of directors and,
to the extent required, the stockholders of the Company evidencing approval, as
applicable, of this Agreement, the Operative Documents and all other matters
contemplated hereby and thereby; a certified copy of the Bylaws of the Company
and each Subsidiary; and certified copies of all documents evidencing other
necessary corporate or other action and governmental approvals, if any, with
respect to this Agreement, the Operative Documents and all other matters
contemplated hereby or thereby.
(b) A favorable opinion of counsel for the Company, in form and
substance reasonably satisfactory to the Purchasers and their special counsel.
(c) A certificate of the Secretary or an Assistant Secretary of the
Company which shall certify the names of the officers of the Company authorized
to sign this Agreement, the Operative Documents and any other documents or
certificates to be delivered pursuant hereto or thereto by such entity or any of
its officers, together with the true signatures of such officers.
(d) A certificate from the Chief Executive Officer and the Chief
Financial Officer
11
<PAGE>
of the Company stating that no litigation is pending or has been threatened
relating to the execution of this Agreement and that the representations and
warranties contained in Article V hereof are true and correct and that no
condition or event has occurred or is continuing or will result from the
execution and delivery of this Agreement or the Operative Documents which
constitutes an Event of Default or would constitute an Event of Default but for
the requirement that notice be given or time elapse or both.
(e) The Amended and Restated Registration Rights Agreement executed by
the Company and certain of its stockholders substantially in the form of Exhibit
-------
3.02(e) attached hereto.
- -------
(f) Payment for the costs, expenses, taxes and filing fees identified
in Section 8.04 as to which the Purchasers give the Company notice prior to the
Closing.
(g) A certificate from the Chief Executive Officer and the Chief
Financial Officer of the Company stating that all the conditions set forth in
this Article III have been satisfied.
(h) The Certificate of Designation of the Company shall provide for
the designation of the rights and preferences of the Preferred Shares in the
form set forth on Exhibit 2.01 hereto and shall have been filed with the
------------
Secretary of State of Delaware.
(i) An Indemnification Agreement executed by the Company and a Board
of Director designee of the Bank in the form attached hereto as Exhibit 3.02(i).
---------------
(j) Such other documents referenced in any Exhibit hereto or relating
to the transactions contemplated by this Agreement as the Purchasers or their
special counsel may reasonably request.
(k) A mutual release executed by the Company, the Purchasers and the
Bank substantially in the form of Exhibit 3.02(k) attached hereto.
---------------
3.03. No Default. At the time of and immediately after giving effect to
----------
the sale of the Preferred Shares at the Closing there shall exist no Event of
Default and no condition, event or act that, with the giving of notice or lapse
of time, or both, would constitute such an Event of Default.
3.04. Waivers & HSR. The Company shall have obtained any waivers or
-------------
consents that may be required under any agreement in order to enter into this
Agreement and the Operative Documents and to consummate the transactions
contemplated hereby and thereby and all applicable waiting periods under the HSR
Act shall have expired or been terminated.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
4.01. Representations and Warranties of the Purchasers. Each Purchaser,
------------------------------------------------
severally for itself only, and not jointly, represents and warrants to the
Company, as follows:
12
<PAGE>
(a) Such Purchaser has duly authorized, executed and delivered this
Agreement and such of the Operative Documents as require execution by the
Purchasers.
(b) It is such Purchaser's present intention to acquire the Securities
for its own account.
(c) The Securities are being and will be acquired for the purpose of
investment and not with a view to distribution or resale thereof; subject,
nevertheless, to the condition that the disposition of the property of such
Purchaser shall at all times be within its control. Notwithstanding the
foregoing, after the Closing Date (i) the Bank shall transfer 145,937 Preferred
Shares to El Paso in satisfaction of pre-existing obligations as described in
Section 2.02(e) above, and (ii) Picosa Creek may distribute the Preferred Shares
received by it to its respective partners in connection with the liquidation and
termination of such entity.
(d) Such Purchaser acknowledges that it has reviewed and discussed the
Company's business, affairs and current prospects with such officers of the
Company and others as it has deemed appropriate or desirable in connection with
the transactions contemplated by this Agreement. Such Purchaser further
acknowledges that it has requested, received and reviewed such information,
undertaken such investigation and made such further inquiries of officers of the
Company and others as it has deemed appropriate or desirable in connection with
such transactions; provided, however, no investigation made heretofore or
-------- -------
hereafter by or on behalf of such Purchaser shall have any effect whatsoever on
the representations and warranties of the Company hereunder, each of which will
survive any such investigation.
(e) Such Purchaser understands that it must bear the economic risk of
its investment in the Securities for an indefinite period of time because the
Securities are not, and will not be, registered under the Securities Act or any
applicable state securities laws, except as may be provided in the Amended and
Restated Registration Rights Agreement, and may not be resold unless
subsequently registered under the Securities Act and such other laws or unless
an exemption from such registration is available. The Purchaser also
understands that except as may be provided in the Amended and Restated
Registration Rights Agreement, it is not contemplated that any of the Securities
will be registered under the Securities Act or any state securities laws or that
the Company will take steps which will make the provisions of Rule 144 under the
Securities Act available to permit resale of the Securities.
(f) Such Purchaser represents that it has such knowledge and
experience in financial and business matters that it is capable of evaluating
the merits and risks of its investment in the Securities.
(g) No Person has or will have, as a result of the transactions
contemplated by this Agreement, any rights, interest or valid claim against or
upon the Company or any Subsidiary for any commission, fee or other compensation
as a finder or broker because of any act or omission by the Purchasers or any
agent of such Purchaser.
(h) Such Purchaser hereby acknowledges that each certificate
representing the Preferred Shares and any other securities issued in respect of
such shares upon any stock split, stock dividend, recapitalization, merger or
similar event (unless no longer required in the opinion of
13
<PAGE>
counsel) shall bear a legend substantially in the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR TRANSFERRED WITHOUT COMPLIANCE WITH THE
REGISTRATION PROVISIONS OF APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR
AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS
NOT REQUIRED.
(i) Such Purchaser is an "accredited investor" within the meaning of
such term as defined in Regulation D promulgated under the Securities Act.
The acquisition by such Purchaser of the Securities shall constitute a
confirmation by it of the foregoing representations.
4.02. Additional Representations of El Paso. With respect to 145,937 of
-------------------------------------
the Preferred Shares being transferred after the Closing Date to El Paso by the
Bank in satisfaction of pre-existing obligations as described in Section 2.02(e)
above, El Paso hereby represents and warrants to the Company that each of the
representations and warranties set forth in Section 4.01 are true and correct
with respect to those Preferred Shares.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Purchasers as follows:
Section 5.01. Organization and Existence. The Company is a corporation
--------------------------
duly organized and validly existing under the laws of Delaware.
Section 5.02. Qualification. Each of the Company and the Subsidiaries is
-------------
duly qualified or licensed to do business and, with respect to non-U.K.
entities, in good standing in each of the jurisdictions in which it owns, leases
or operates property or in which such qualification or licensing is required for
the conduct of its business.
Section 5.03. Charter and Bylaws. The Company has made available to the
------------------
Purchasers accurate and complete copies of the Company's certificate of
incorporation and bylaws ("Organic Documents") as currently in effect, and
stock records of the Company. Neither the Company nor any Subsidiary is in
violation of its Organic Documents or its partnership agreement or similar
governing document, as the case may be.
Section 5.04. Capitalization of the Company. The authorized capital
-----------------------------
stock of the Company, the number of shares outstanding and the number of shares
held in the Company's treasury are set forth on Schedule 5.04 hereto. All
-------------
outstanding shares of capital stock of the Company have been validly issued and
are fully paid and nonassessable, and no shares of capital stock of the Company
are subject to, nor have any been issued in violation of, preemptive or similar
rights. Except as set forth on Schedule 5.04 hereto, there are (and as of the
-------------
Closing Date there will be)
14
<PAGE>
outstanding (i) no shares of capital stock or other voting securities of the
Company, (ii) no securities of the Company convertible into or exchangeable for
shares of capital stock or other voting securities of the Company, (iii) no
options or other rights to acquire from the Company, and no obligation of the
Company to issue or sell, any shares of capital stock or other voting securities
of the Company or any securities of the Company convertible into or exchangeable
for such capital stock or voting securities, and (iv) no equity equivalents,
interests in the ownership or earnings or other similar rights of or with
respect to the Company. There are (and as of the Closing Date there will be) no
outstanding obligations of the Company or any Subsidiary to repurchase, redeem,
or otherwise acquire any of the foregoing shares, securities, options, equity
equivalents, interests, or rights. Except as set forth on Schedule 5.04, the
-------------
Company is not a party to, and is not aware of, any voting agreement, voting
trust, or similar agreement or arrangement relating to any class or series of
its capital stock. Schedule 5.04 has been prepared after giving effect to the
-------------
transactions contemplated by this Agreement and the other transactions to be
completed by the Company as of the date hereof, including, without limitation,
those transactions contemplated by the Subordinated Debt Agreement, the Senior
Credit Facility, and the Purchase and Sale Agreement among Encap, the Company
and others.
Section 5.05. Authority Relative to This Agreement. Subject to Charter
------------------------------------
Amendment Approval as it pertains to the Company's ability to permit the full
conversion of the Preferred Shares into the Preferred Conversion Shares, the
Company has full power and authority to execute, deliver, and perform this
Agreement and the Operative Documents to which it is a party and to consummate
the transactions contemplated hereby and thereby. The execution, delivery, and
performance by the Company of this Agreement and the Operative Documents to
which it is a party, and the consummation by it of the transactions contemplated
hereby and thereby, have been duly authorized by all necessary action of the
Company. This Agreement has been duly executed and delivered by the Company and
constitutes, and each Operative Document executed or to be executed by the
Company has been, or when executed will be, duly executed and delivered by the
Company and constitutes, or when executed and delivered will constitute, a valid
and legally binding obligation of the Company, enforceable against the Company
in accordance with their respective terms, except that such enforceability may
be limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium,
and similar laws affecting creditors' rights generally and (ii) equitable
principles which may limit the availability of certain equitable remedies (such
as specific performance) in certain instances.
Section 5.06. No Conflict. Assuming all consents, approvals,
-----------
authorizations and other actions described in Section 5.07 have been obtained
and all filings and notifications listed on Schedule 5.07 have been made and
-------------
except as described on Schedule 5.06, the execution, delivery and performance of
-------------
this Agreement by the Company, the execution, delivery and performance by each
Subsidiary of the Operative Documents to which it is a party, and the
consummation by them of the transactions contemplated hereby and thereby do not
and will not (a) violate or conflict with the Organic Documents of the Company
or any Subsidiary, subject to Charter Amendment Approval as it pertains to the
Company's ability to permit the full conversion of the Preferred Shares into the
Preferred Conversion Shares, (b) conflict with or result in any violation of any
provision of, or constitute (with or without the giving of notice or the passage
of time or both) a default under, or give rise (with or without the giving of
notice or the passage of time or both) to any right of termination,
cancellation, or acceleration under, or require any consent, approval,
authorization or
15
<PAGE>
waiver of, or notice to, any party to, any bond, debenture, note, mortgage,
indenture, lease, contract, agreement, or other instrument or obligation to
which the Company or any Subsidiary is a party or by which the Company or any
Subsidiary or any of their respective properties may be bound or any Permit held
by the Company or any Subsidiary, (iii) result in the creation or imposition of
any Lien upon the properties of the Company or any Subsidiary (other than as
provided in the Senior Credit Facility) or (iv) violate any Applicable Law
binding upon the Company or any Subsidiary.
Section 5.07. Consents and Approvals, Licenses, Etc. Except as set forth
--------------------------------------
on Schedule 5.07, no consent, approval, authorization, license, order or permit
-------------
of, or declaration, filing or registration with, or notification to, any
Governmental Entity, or any other Person or entity, is required to be made or
obtained by the Company or any Subsidiary in connection with the execution,
delivery and performance of this Agreement or any Operative Document and the
consummation of the transactions contemplated hereby and thereby.
Section 5.08. Subsidiaries.
------------
(a) The Company does not own, directly or indirectly, any capital
stock or equity securities of any corporation or have any direct or indirect
equity or ownership interest in any other Person, other than the Subsidiaries.
Schedule 5.08 lists each Subsidiary, the jurisdiction of incorporation or
- -------------
formation of each Subsidiary and the authorized (in the case of capital stock)
and outstanding capital stock or other equity interests of each Subsidiary.
Each U.K. Subsidiary is duly formed and validly existing under the laws of the
jurisdiction of its formation, and each other Subsidiary is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation. Each Subsidiary has all requisite corporate
or other, as applicable, power and authority to own, lease, and operate its
properties and to carry on its business as now being conducted. No actions or
proceedings to dissolve any Subsidiary are pending.
(b) Except as otherwise indicated on Schedule 5.08, all the
-------------
outstanding capital stock or other equity interests of each Subsidiary are owned
directly or indirectly by the Company, free and clear of all Liens. All
outstanding shares of capital stock of each corporate Subsidiary have been
validly issued and are fully paid and nonassessable. All equity interests of
each other Subsidiary have been validly issued and are fully paid (to the extent
required at such time). No shares of capital stock or other equity interests of
any Subsidiary are subject to, nor have any been issued in violation of,
preemptive or similar rights.
(c) Except as set forth on Schedule 5.08, there are (and as of the
-------------
Closing Date there will be) outstanding (i) no shares of capital stock or other
voting securities of any Subsidiary, (ii) no securities of the Company or any
Subsidiary convertible into or exchangeable for shares of capital stock or other
voting securities of any Subsidiary, (iii) no options or other rights to acquire
from the Company or any Subsidiary, and no obligation of the Company or any
Subsidiary to issue or sell, any shares of capital stock or other voting
securities of any Subsidiary or any securities convertible into or exchangeable
for such capital stock or voting securities and (iv) no equity equivalents,
interests in the ownership or earnings, or other similar rights of or with
respect to any Subsidiary. There are (and as of the Closing Date there will be)
no outstanding obligations of the Company or any Subsidiary to repurchase,
redeem or otherwise acquire any of the foregoing shares, securities, options,
equity equivalents, interests or rights.
Section 5.09. Preferred Shares; Conversion Shares.
-----------------------------------
16
<PAGE>
(a) The Preferred Shares, when issued under the terms of this Agreement,
will be duly authorized, validly issued and fully paid and nonassessable.
Subject to Charter Amendment Approval as it pertains to the Company's ability to
permit the full conversion of the Preferred Shares into the Preferred Conversion
Shares, the Preferred Conversion Shares, when issued against payment of the
conversion price for such shares, will be duly authorized, validly issued and
fully paid and nonassessable.
(b) Subject to Charter Amendment Approval as it pertains to the Company's
ability to permit the full conversion of the Preferred Shares into the Preferred
Conversion Shares, sufficient shares of authorized but unissued Common Stock of
the Company will have been reserved by appropriate action in connection with the
Preferred Conversion Shares.
(c) Neither the issuance of the Preferred Shares, nor the issuance of the
Preferred Conversion Shares, is subject to any unwaived preemptive or other
similar statutory or contractual rights or will conflict with any provision of
any agreement or instrument to which the Company or any Subsidiary is a party or
by which it is bound.
Section 5.10. Financial Statements. The Company has delivered to the
--------------------
Purchasers accurate and complete copies of (i) Alliance PLC's audited
consolidated balance sheet as of April 30, 1999, and the related audited
consolidated statements of income, stockholders' equity and cash flows for the
year then ended, and the notes and schedules thereto, together with the
unqualified report thereon of KPMG Audit Plc, independent public accountants
(the "Audited Financial Statements") and (ii) the Company's unaudited
consolidated balance sheet as of January 31, 2000 (the "Latest Balance Sheet"),
and the related unaudited consolidated statements of income, stockholders'
equity, and cash flows for the three-month period then ended (the "Unaudited
Financial Statements"), certified by the Company's chief financial officer
(collectively, the "Financial Statements"). The Financial Statements (i)
represent actual bona fide transactions, (ii) have been prepared from the books
and records of Alliance PLC and the Company and their respective consolidated
Subsidiaries in conformity with U.S. GAAP accounting principles applied on a
basis consistent with preceding years throughout the periods involved and (iii)
fairly present Alliance PLC's and the Company's (as applicable) consolidated
financial position as of the respective dates thereof and Alliance PLC's and the
Company's (as applicable) consolidated results of operations and cash flows for
the periods then ended. The statements of income included in the Financial
Statements do not contain any items of special or nonrecurring income except as
identified in the notes thereto, and the balance sheets included in the
Financial Statements do not reflect any write-up or revaluation increasing the
book value of any assets, nor have there been any transactions since the date of
the Latest Balance Sheet giving rise to special or nonrecurring income or any
such write-up or revaluation.
Section 5.11. Securities Filings. The Company and its Subsidiaries have
------------------
filed with the Securities and Exchange Commission, the London Stock Exchange and
the Registrar of Companies all forms, reports, schedules, statements and other
documents required to be filed by them since May 1, 1997 under the Companies Act
of 1985, as amended, and the Listing Rules of the London Stock Exchange Limited
and since April 30, 1997 under the Securities Act, the Exchange Act and all
other federal securities laws. All final forms, reports, schedules, statements
and other documents (including all amendments thereto) filed by the Company and
its Subsidiaries with the Securities and
17
<PAGE>
Exchange Commission and the London Stock Exchange since such date are herein
collectively referred to as the "SEC Filings". The Company has delivered or made
available to the Purchasers accurate and complete copies of all the SEC Filings
in the form filed by the Company and its Subsidiaries with the Securities and
Exchange Commission and the London Stock Exchange. The SEC Filings, at the time
filed, complied in all material respects with all applicable requirements of
federal securities laws. None of the SEC Filings, including any financial
statements or schedules included therein, at the time filed, contained any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary in order to make the statements
contained therein, in light of the circumstances under which they were made, not
misleading. All material contracts of the Company and the Subsidiaries have been
included in the SEC Filings, except for those contracts not required to be filed
pursuant to the rules and regulations of the Securities and Exchange Commission
and the London Stock Exchange. The Company shall deliver to the Purchasers as
soon as they become available accurate and complete copies of all forms,
reports, and other documents furnished by it to its shareholders generally or
filed by it with the Securities and Exchange Commission and the London Stock
Exchange subsequent to the date hereof and prior to the Closing Date.
Section 5.12. Absence of Undisclosed Liabilities. Neither the Company nor
----------------------------------
any Subsidiary has any liability or obligation (whether accrued, absolute,
contingent, unliquidated, or otherwise, whether or not known to the Company or
any Subsidiary, and whether due or to become due), except (i) liabilities
reflected on the Latest Balance Sheet, (ii) liabilities which have arisen since
the date of the Latest Balance Sheet in the ordinary course of business (none of
which is a material liability for breach of contract, breach of warranty, tort,
or infringement), (iii) liabilities arising under executory contracts entered
into in the ordinary course of business (none of which is a material liability
for breach of contract) and (iv) liabilities specifically set forth on Schedule
--------
5.12.
- ----
Section 5.13. Absence of Certain Changes. Except as disclosed on
--------------------------
Schedule 5.13, since the date of the Latest Balance Sheet, (i) there has not
- -------------
been any material adverse change in, or any event or condition that might
reasonably be expected to result in a material adverse change in, the business
assets, results of operations, condition (financial or otherwise) or prospects
of the Company and the Subsidiaries considered as a whole; (ii) the businesses
of the Company and the Subsidiaries have been conducted only in the ordinary
course consistent with past practice; (iii) neither the Company nor any
Subsidiary has incurred any material liability, engaged in any material
transaction or entered into any material agreement outside the ordinary course
of business consistent with past practice; and (iv) neither the Company nor any
Subsidiary has suffered any material loss, damage, destruction, or other
casualty to any of its assets (whether or not covered by insurance).
Section 5.14. Tax Matters. Except as disclosed on Schedule 5.14:
----------- -------------
(a) The Company and each Subsidiary has filed, or has had filed on its
behalf, in a timely manner (within any applicable extension periods) with the
appropriate taxing authority all Tax Returns with respect to Taxes of the
Company and of each of the Subsidiaries, all of which Tax Returns are true,
correct and complete in all material respects;
(b) All Taxes due and payable (whether or not reflected in Tax Returns
as filed) with respect to all taxable periods of the Company and the
Subsidiaries have been paid in full or adequate reserves have been provided for
on the Financial Statements;
18
<PAGE>
(c) There are no outstanding agreements or waivers extending the
statutory period of limitations applicable to any federal, state, local or
foreign income or other material Tax Returns required to be filed by or with
respect to the Company or any of the Subsidiaries;
(d) None of the Tax Returns of or with respect to the Company or any
of the Subsidiaries is currently being audited or examined by any taxing
authority;
(e) No material deficiency for any Taxes has been assessed with
respect the Company or to any of the Subsidiaries that has not either (i) been
abated or (ii) paid in full or for which adequate reserves have been provided;
(f) No Tax litigation is currently pending;
(g) No waiver or extension of any statute of limitations to any
federal, state, local or foreign Tax matter has been given by or requested from
the Company or any Subsidiary; and
(h) Neither the Company nor any Subsidiary has filed a consent under
Section 341(f) of the Code.
(i) The Company and the Subsidiaries have complied with all Applicable
Laws relating to the withholding of Taxes and the payment thereof (including
withholding of Taxes under Sections 1441 and 1442 of the Code, or similar
provisions under foreign laws), and has timely and properly withheld from the
appropriate party and paid over to the proper Governmental Entity all amounts
required to be withheld and be paid over under Applicable Law.
(j) Neither the Company nor any Subsidiary is required to include in
income any adjustment under Section 481(a) of the Code by reason of a change in
accounting method, and neither the Company nor any Subsidiary, nor the Internal
Revenue Service, has proposed any such adjustment or change in accounting
method. The Company and the Subsidiaries do not have pending any private letter
ruling with the IRS.
(k) Other than as a result of this transaction, none of the Company's
or any Subsidiary's tax attributes is subject to the limitations of Section 382,
383 or 384 of the Code or Temporary Treasury Regulation Sections 1.1502-15T or
1.1502-21T(c).
(l) There are no liens for Taxes upon any assets of the Company or any
Subsidiary, except liens for Taxes not yet due and payable.
(m) The tax basis of each of the assets of the Company and the
Subsidiaries as set forth on the books, accounts and records of the Company and
the Subsidiaries is true, correct and complete in all material respects.
Section 5.15. Environmental and Other Laws. Except as disclosed on
----------------------------
Schedule 5.15 or in the SEC Filings filed prior to the date hereof, (a) the
- -------------
Company and the Subsidiaries are conducting their businesses in compliance in
all material respects with all Applicable Laws, including all Environmental
Laws, and are in material compliance with all licenses and permits required
under
19
<PAGE>
any such laws; (b) to the best of the Company's knowledge, none of the
operations or properties of the Company or any Subsidiary is the subject of
foreign, federal, state or local investigation evaluating whether any material
remedial action is needed to respond to a release of any Hazardous Materials
into the environment or to the improper storage or disposal (including storage
or disposal at offsite locations) of any Hazardous Materials; (c) neither the
Company nor any Subsidiary has filed any notice under any Applicable Law
indicating that it is responsible for the improper release into the environment,
or the improper storage or disposal, of any material amount of any Hazardous
Materials or that any Hazardous Materials have been improperly released, or are
improperly stored or disposed of, upon any property of the Company or any
Subsidiary; (d) neither the Company nor any Subsidiary has transported or
arranged for the transportation of any Hazardous Material to any location which
is (i) listed on the National Priorities List under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended,
listed for possible inclusion on such National Priorities List by the
Environmental Protection Agency in its Comprehensive Environmental Response,
Compensation and Liability Information System List, or listed on any similar
state list or foreign jurisdiction list or (ii) the subject of foreign, federal,
state or local enforcement actions or other investigations which may lead to
material claims against the Company or any Subsidiary for clean-up costs,
remedial work, damages to natural resources or for personal injury claims
(whether under Environmental Laws or otherwise); and (e) to the best of the
Company's knowledge, neither the Company's or any Subsidiary has any material
contingent liability under any Environmental Laws or in connection with the
release into the environment, or the storage or disposal, of any Hazardous
Materials.
Section 5.16. Legal Proceedings. Except as disclosed on Schedule 5.16,
----------------- -------------
there are no Proceedings pending or, to the best knowledge of the Company,
threatened against or involving the Company or any Subsidiary (or any of their
respective directors or officers in connection with the business or affairs of
the Company or any Subsidiary) or any properties or rights of the Company or any
Subsidiary which, individually or in the aggregate, might reasonably be expected
to have a Material Adverse Effect. Neither the Company nor any Subsidiary is
subject to any judgment, order, writ, injunction, or decree of any Governmental
Entity which has had or is reasonably likely to have a Material Adverse Effect.
There are no Proceedings pending or, to the best knowledge of the Company,
threatened seeking to restrain, prohibit, or obtain damages or other relief in
connection with, or questioning the legality or validity of, this Agreement or
any Operative Document or the transactions contemplated hereby or thereby.
Section 5.17. Title to Properties; Permits; Licenses; Condition of Assets.
------------------------------------------------------------
(a) Each of the Company and the Subsidiaries has good and defensible
title to all of its material properties and assets, free and clear of all Liens
other than Permitted Liens and of all material impediments to the use of such
properties and assets in the businesses of the Company and the Subsidiaries.
(b) Each of the Company and the Subsidiaries holds all material
Permits necessary or required for the conduct of its business. Each of such
Permits is in full force and effect, the Company and the Subsidiaries are in
compliance with all of its material obligations with respect thereto, and, to
the best knowledge of the Company, no event has occurred which allows, or with
or without the giving of notice or the passage of time or both would allow, the
revocation or termination of any thereof. No notice has been issued by any
Governmental Entity and no proceeding is pending or, to the best knowledge of
the Company, threatened with respect to any
20
<PAGE>
alleged failure by the Company or any Subsidiary to have any material Permit.
(c) The Company and the Subsidiaries possess all licenses, permits,
franchises, patents, copyrights, trademarks and trade names, and other
intellectual property (or otherwise possesses the right to use such intellectual
property without violation of the rights of any other Person) which are
necessary to carry out their businesses as presently conducted and as presently
proposed to be conducted hereafter, and neither the Company nor any Subsidiary
is in violation in any material respect of the terms under which it possesses
such intellectual property or the right to use such intellectual property.
(d) The equipment and other tangible assets of the Company and the
Subsidiaries are in good operating condition (except for reasonable wear and
tear), and have been reasonably maintained.
Section 5.18. ERISA.
-----
(a) Set forth on Schedule 5.18 is a list identifying each "employee
-------------
benefit plan", as defined in Section 3(3) of ERISA, (i) which is subject to any
provision of ERISA, (ii) which is maintained, administered, or contributed to by
the Company or any affiliate of the Company, and (iii) which covers any employee
or former employee of the Company or any affiliate of the Company or under which
the Company or any affiliate of the Company has any liability. The Company has
delivered or made available to the Purchasers accurate and complete copies of
such plans (and, if applicable, the related trust agreements) and all amendments
thereto and written interpretations thereof, together with (i) the three most
recent annual reports (Form 5500 including, if applicable, Schedule B thereto)
prepared in connection with any such plan and (ii) the most recent actuarial
valuation report prepared in connection with any such plan. Such plans are
referred to in this Section as the "Employee Plans". For purposes of this
Section only, an "affiliate" of any person means any other person which,
together with such person, would be treated as a single employer under Section
414 of the Code. The only Employee Plans which individually or collectively
would constitute an "employee pension benefit plan" as defined in Section 3(2)
of ERISA are identified as such on Schedule 5.18.
-------------
(b) Except as otherwise identified on Schedule 5.18, (i) no Employee
-------------
Plan constitutes a "multiemployer plan", as defined in Section 3(37) of ERISA
(for purposes of this Section, a "Multiemployer Plan"), (ii) no Employee Plan is
maintained in connection with any trust described in Section 501(c)(9) of the
Code, (iii) no Employee Plan is subject to Title IV of ERISA or to the minimum
funding standards of ERISA and the Code, and (iv) during the past five years,
neither the Company nor any of its affiliates have made or been required to make
contributions to any Multiemployer Plan. There are no accumulated funding
deficiencies as defined in Section 412 of the Code (whether or not waived) with
respect to any Employee Plan. The fair market value of the assets held with
respect to each Employee Plan which is an employee pension benefit plan, as
defined in Section 3(2) of ERISA, exceeds the actuarially determined present
value of all benefit liabilities accrued under such Employee Plan (whether or
not vested) determined using reasonable actuarial assumptions. Neither the
Company nor any affiliate of the Company has incurred any material liability
under Title IV of ERISA arising in connection with the termination of, or
complete or partial withdrawal from, any plan covered or previously covered by
Title IV of ERISA. The
21
<PAGE>
Company and all of the affiliates of the Company have paid and discharged
promptly when due all liabilities and obligations arising under ERISA or the
Code of a character which if unpaid or unperformed might result in the
imposition of a lien against any of the assets of the Company or any Subsidiary.
Nothing done or omitted to be done and no transaction or holding of any asset
under or in connection with any Employee Plan has or will make the Company or
any Subsidiary or any director or officer of the Company or any Subsidiary
subject to any liability under Title I of ERISA or liable for any Tax pursuant
to Section 4975 of the Code that could have a Material Adverse Effect. There are
no threatened or pending claims by or on behalf of the Employee Plans, or by any
participant therein, alleging a breach or breaches of fiduciary duties or
violations of Applicable Laws which could result in liability on the part of the
Company, its officers or directors, or such Employee Plans, under ERISA or any
other Applicable Law and there is no basis for any such claim.
(c) Each Employee Plan which is intended to be qualified under Section
401(a) of the Code is so qualified and has been so qualified since the date of
its adoption, and each trust forming a part thereof is exempt from Tax pursuant
to Section 501(a) of the Code. Set forth on Schedule 5.18 is a list of the most
-------------
recent IRS determination letters with respect to any such Plans, accurate and
complete copies of which letters have been delivered or made available to the
Company. Each Employee Plan has been maintained in compliance with its terms and
with the requirements prescribed by all Applicable Laws, including but not
limited to ERISA and the Code, which are applicable to such Employee Plans.
(d) Set forth on Schedule 5.18 is a list of each employment,
-------------
severance, or other similar contract, arrangement, or policy and each plan or
arrangement (written or oral) providing for insurance coverage (including any
self-insured arrangements), workers' compensation, disability benefits,
supplemental unemployment benefits, vacation benefits, retirement benefits,
deferred compensation, profit-sharing, bonuses, stock options, stock
appreciation rights, or other forms of incentive compensation or post-retirement
insurance, compensation, or benefits which (i) is not an Employee Plan, (ii) is
entered into, maintained, or contributed to, as the case may be, by the Company
or any affiliate of the Company, and (iii) covers any employee or former
employee of the Company or any affiliate of the Company or under which the
Company or any affiliate of the Company has any liability. Such contracts,
plans, and arrangements as are described in the preceding sentence are referred
to for purposes of this Section as the "Benefit Arrangements". Each Benefit
Arrangement has been maintained in substantial compliance with its terms and
with the requirements prescribed by Applicable Laws.
(e) Neither the Company nor any affiliate of the Company has performed
any act or failed to perform any act, and there is no contract, agreement, plan,
or arrangement covering any employee or former employee of the Company or any
affiliate of the Company, that, individually or collectively, could give rise to
the payment of any amount that would not be deductible pursuant to the terms of
Section 162(a)(1) or 280G of the Code, or could give rise to any penalty or
excise Tax pursuant to Section 4980B or 4999 of the Code.
Section 5.19. Agreements.
----------
(a) Set forth on Schedule 5.19 is a list of all the following
-------------
agreements, arrangements, and understandings (written or oral, formal or
informal) (collectively, for purposes of this Section, "agreements") to which
the Company or any Subsidiary is a party or by which the Company or any
Subsidiary or any of their respective properties is otherwise bound:
22
<PAGE>
(i) collective bargaining agreements and similar agreements with
employees as a group;
(ii) agreements with any current or former shareholder, director,
officer, employee, consultant or advisor or any affiliate of any such Person;
(iii) agreements between or among the Company and any of the
Subsidiaries;
(iv) exclusive of those relating to the Senior Credit Facility,
indentures, mortgages, security agreements, notes, loan or credit agreements, or
other agreements relating to the borrowing of money by the Company or any
Subsidiary or to the direct or indirect guarantee or assumption by the Company
or any Subsidiary of any obligation of others, including any agreement that has
the economic effect although not the legal form of any of the foregoing;
(v) agreements relating to the acquisition or disposition of
assets, other than those entered into in the ordinary course of business
consistent with past practice;
(vi) agreements relating to the acquisition or disposition of any
interest in any business enterprise;
(vii) exclusive of oil, gas and mineral leases, agreements with
respect to the lease of real or personal property;
(viii) exclusive of oil and gas operating or similar agreements,
agreements concerning the management or operation of any real property;
(ix) partnership, joint venture, and profit sharing agreements;
(x) agreements with any Governmental Entity;
(xi) agreements relating to the release or disposal of Hazardous
Material;
(xii) agreements containing any covenant limiting the freedom of
the Company or any Subsidiary to engage in any line of business or compete with
any other Person in any geographic area or during any period of time, other than
those that would not have a Material Adverse Effect;
(xiii) agreements not made in the ordinary course of business; and
(xiv) other agreements, whether or not made in the ordinary course
of
23
<PAGE>
business, that are material to the business, assets, results of operations,
condition (financial or otherwise), or prospects of the Company and the
Subsidiaries considered as a whole.
(b) The Company has delivered or made available to the Purchasers
accurate and complete copies of the agreements listed in Schedule 5.19. Each of
-------------
such agreements is a valid and binding agreement of the Company and the
Subsidiaries (to the extent each is a party thereto) and (to the best knowledge
of the Company) the other party or parties thereto, enforceable against the
Company and the Subsidiaries (to the extent each is a party thereto) and (to the
best knowledge of the Company) such other party or parties in accordance with
its terms. Neither the Company nor any Subsidiary is in breach of or in default
under, nor has any event occurred which (with or without the giving of notice or
the passage of time or both) would constitute a default by the Company or any
Subsidiary under, any of such agreements, and neither the Company nor any
Subsidiary has received any notice from, or given any notice to, any other party
indicating that the Company or any Subsidiary is in breach of or in default
under any of such agreements. To the best knowledge of the Company, no other
party to any of such agreements is in breach of or in default under such
agreements, nor has any assertion been made by the Company or any Subsidiary of
any such breach or default.
(c) Neither the Company nor any Subsidiary has received notice of any
plan or intention of any other party to any agreement to exercise any right of
offset with respect to, or any right to cancel or terminate, any agreement, and
neither the Company nor any Subsidiary knows of any fact or circumstance that
would justify the exercise by any such other party of such a right other than
the automatic termination of such agreement in accordance with its terms.
Neither the Company nor any Subsidiary currently contemplates, or has reason to
believe any other Person currently contemplates, any amendment or change to any
agreement, which amendment or change could have a Material Adverse Effect.
(d) Without limiting the generality of the other provisions in this
Section 5.19, the Key Employment Agreements are in full force and effect, and
each of John Keenan and Paul Fenemore is currently employed by the Company
pursuant to a renewal term under such agreements.
Section 5.20. Labor Disputes and Acts of God. Neither the business nor
------------------------------
the properties of the Company nor any Subsidiary has been affected by any fire,
explosion, accident, strike, lockout or other labor dispute, drought, storm,
hail, earthquake, embargo, act of God or of the public enemy or other casualty
(whether or not covered by insurance), which, individually or in the aggregate,
could cause a Material Adverse Effect.
Section 5.21. Insurance. The Company and each Subsidiary carries
---------
insurance covering its properties and business adequate and customary for the
type and scope of its properties and business.
Section 5.22. Offering of Securities. All securities which have been
----------------------
offered or sold by the Company and it Subsidiaries, including without limitation
the Preferred Shares and, when issued, the Preferred Conversion Shares, have
been registered pursuant to the Securities Act and applicable foreign and state
securities laws or were offered and sold (or, in the case of the Preferred
Conversion Shares, will be issued) pursuant to valid exemptions therefrom.
Section 5.23. Government Regulation. The Company is not subject to
---------------------
regulation under the Public Utility Holding Company Act of 1935. The Company is
not an "investment company" or a
24
<PAGE>
company "controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended, or an "investment advisor" within
the meaning of the Investment Advisers Act of 1940, as amended.
Section 5.24. Brokerage Fees. Neither the Company nor any of its
--------------
affiliates has retained any financial advisor, broker, agent or finder or paid
or agreed to pay any financial advisor, broker, agent or finder on account of
this Agreement or any transaction contemplated hereby, which action would
subject the Purchasers or any of its affiliates to any liability. The Company
shall indemnify and hold harmless the Purchasers from and against any and all
losses, claims, damages and liabilities (including legal and other expenses
reasonably incurred in connection with investigating or defending any claims or
actions) with respect to any finder's fee, brokerage commission or similar
payment in connection with any transaction contemplated hereby asserted by any
Person on the basis of any act or statement made or alleged to have been made by
the Company or any of its affiliates.
Section 5.25. Bankruptcy. There are no bankruptcy, reorganization or
----------
arrangement proceedings pending, being contemplated by, or to the knowledge of
the Purchasers, threatened against the Purchasers.
Section 5.26. Nature of Company Assets. The assets of the Company and its
------------------------
Subsidiaries consist solely of (a) reserves of oil, rights to reserves of oil
and associated exploration and production assets with a fair market value not
exceeding $500,000,000 and (b) other assets with a fair market value not
exceeding $15,000,000. For purposes of Section 5.26, the term "associated
exploration and production asset" shall have the meaning ascribed thereto in
Section 802.3 of the Rules promulgated pursuant to the HSR Act.
Section 5.27. Full Disclosure. No representation or warranty made by the
---------------
Company in this Agreement, and no statement of the Company contained in any
document, certificate or other writing furnished or to be furnished by the
Company or its representatives to the Purchasers pursuant hereto or in
connection herewith, contains or will contain, at the time of delivery, any
untrue statement of a material fact or omits or will omit, at the time of
delivery, to state any material fact (other than industry-wide risks normally
associated with the type of business conducted by the Company) necessary to make
the statements contained therein, in light of the circumstances in which they
are made, not misleading. There is no fact known to the Company (other than
industry-wide risks normally associated with the type of business conducted by
the Company) that has not been disclosed to the Purchasers in writing which the
Company reasonably anticipates would result in a Material Adverse Effect.
Section 5.28. Fees. Except for the fees payable to Encap and/or it
----
Affiliates pursuant to Section 2.02(f) hereof and Section 2.3 of the
Subordinated Debt Agreement, no fees are payable to Encap and/or it Affiliates
in connection with the transactions contemplated by this Agreement, the
Subordinated Debt Agreement or the Purchase and Sale Agreement dated as of May
1, 2000, among EnCap LP, the Company and certain other parties.
25
<PAGE>
ARTICLE VI
COVENANTS OF THE COMPANY
6.01. Affirmative Covenants of the Company and the Subsidiaries Other Than
--------------------------------------------------------------------
Reporting Requirements. Without limiting any other covenants and provisions
- ----------------------
hereof, each of the Company and the Subsidiaries covenants and agrees that it
will perform and observe the following covenants and provisions and will cause
each Subsidiary to perform and observe such of the following covenants and
provisions as are applicable to such Subsidiary:
(a) Payment of Taxes and Trade Debt. Pay and discharge, and cause
-------------------------------
each Subsidiary to pay and discharge, all taxes, assessments and governmental
charges or levies imposed upon it or upon its income or profits or business, or
upon any properties belonging to it, prior to the date on which penalties attach
thereto, and all lawful claims which, if unpaid, might become a lien or charge
upon any properties of the Company or any Subsidiary, provided that neither the
Company nor any Subsidiary shall be required to pay any such tax, assessment,
charge, levy or claim which is being contested in good faith and by appropriate
proceedings if the entity concerned shall have set aside on its books adequate
reserves with respect thereto. Pay and cause each Subsidiary to pay, when due,
or in conformity with customary trade terms, all lease obligations, all trade
debt, and all other Indebtedness incident to the operations of, except such as
are being contested in good faith and by appropriate proceedings if the entity
concerned shall have set aside on its books adequate reserves with respect
thereto.
(b) Maintenance of Insurance. Maintain, and cause each Subsidiary to
------------------------
maintain, insurance with responsible and reputable insurance companies or
associations in such amounts and covering such risks as is usually carried by
companies engaged in similar businesses and owning similar properties in the
same general areas in which the Company or such relevant Subsidiary operates.
(c) Preservation of Corporate Existence. Preserve and maintain, and
-----------------------------------
cause each Subsidiary to preserve and maintain, its legal existence, rights,
franchises and privileges in the jurisdiction of its incorporation, and qualify
and remain qualified, and cause each other Subsidiary to qualify and remain
qualified, as a foreign entity in each jurisdiction in which such qualification
is necessary or desirable in view of its business and operations or the
ownership of its properties; and preserve and maintain, and cause each
Subsidiary to preserve and maintain, all licenses and other rights to use
patents, processes, licenses, trademarks, trade names, inventions, intellectual
property rights or copyrights owned or possessed by it and necessary to the
conduct of its business where the failure to so preserve and maintain would have
a Material Adverse Effect.
(d) Compliance with Laws. The Company and each of its Subsidiaries
--------------------
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. The Company will
comply, and cause each Subsidiary to comply, with all Applicable Laws, the
noncompliance with which could be reasonably expected to have a Material Adverse
Effect.
(e) Inspection Rights. At any reasonable time and from time to time
-----------------
upon reasonable notice permit the Purchasers or any of their agents or
representatives, to examine
26
<PAGE>
make copies of and extracts from the records and books of account of, and visit
and inspect the properties of, the Company and any Subsidiary, and to discuss
the affairs, finances and accounts of the Company and any Subsidiary with any of
their officers or directors and independent accountants.
(f) Keeping of Records and Books of Account. Keep, and cause each
---------------------------------------
Subsidiary to keep, adequate records and books of account, in which entries will
be made in accordance with generally accepted accounting principles consistently
applied, reflecting all financial transactions of the Company and the
Subsidiaries, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.
(g) Maintenance of Properties, etc. Maintain and preserve, and cause
------------------------------
each Subsidiary to maintain and preserve, all of its properties, necessary or
useful in the proper conduct of its business, in good repair, working order and
condition, ordinary wear and tear excepted except where the failure to so
maintain or preserve would not have a Material Adverse Effect.
(h) Charter Amendment Approval. The Company shall cause Charter
---------------------------
Amendment Approval to occur prior to September 30, 2000.
6.02. Negative Covenants of the Company and the Subsidiaries. Without
------------------------------------------------------
limiting any other covenants and provisions hereof, the Company and each
Subsidiary jointly and severally covenants and agrees that, until all of the
Preferred Shares have been converted into Preferred Conversion Shares (at which
time the covenants set forth in this Section 6.02 shall automatically expire and
be of no further force or effect), it will comply with and observe the following
covenants and provisions, and will cause each Subsidiary to comply with and
observe such of the following covenants and provisions as are applicable to such
Subsidiary, and will not take any of the following actions:
(a) No Amendment of Certificate of Incorporation or Bylaws. Other
------------------------------------------------------
than the Charter Amendment Approval or as otherwise permitted by Section 6 of
the Certificate of Designation, the Company will not amend or alter its
Certificate of Incorporation (or comparable charter document), as the case may
be, or Bylaws without the prior written consent of the Purchasers.
(b) Indebtedness. Neither the Company nor any Subsidiary thereof
------------
will in any manner owe or be liable for Indebtedness except:
(i) the Senior Credit Facility;
(ii) the Subordinated Debt;
(iii) purchase money Indebtedness and Indebtedness under leases
of the Company or such Subsidiary as lessee which are capitalized in accordance
with U.S. GAAP, in an aggregate principal amount not to exceed $100,000 at any
time, provided that such purchase money Indebtedness and Indebtedness under
capital leases do not in the aggregate exceed $250,000; and
27
<PAGE>
(iv) Old Latex Payables.
(c) Limitation on Liens. Neither the Company nor any Subsidiary
-------------------
thereof will create, assume or permit to exist any Lien upon any of the
properties or assets which it now owns or hereafter acquires, except the
following ("Permitted Liens"):
---------------
(i) Liens which secure the Senior Credit Facility; and
(ii) Statutory Liens for taxes, statutory mechanics' and
materialmen's Liens incurred in the ordinary course of business, and other
similar Liens incurred in the ordinary course of business, provided such Liens
do not secure Indebtedness and secure only Indebtedness which is not delinquent
or for which adequate reserves have been set aside.
(d) Limitations on Mergers. Except as expressly provided in this
----------------------
Section or in Section 6 of the Certificate of Designation, neither the Company
nor any Subsidiary thereof will merge or consolidate with or into any other
business entity. Any Subsidiary of the Company may, however, be merged into or
consolidated with either the Company or another Subsidiary which is wholly-owned
by the Company, so long as the Company or the Subsidiary wholly-owned by the
Company is the surviving business entity. The Company will not issue any
securities other than (i) Preferred Shares or Common Stock (including the
Preferred Conversion Shares) or (ii) any options or warrants giving the holders
thereof only the right to acquire Common Stock. No Subsidiary of the Company
will issue any additional shares of its capital stock or other securities or any
options, warrants or other rights to acquire such additional shares or other
securities except to the Company or to another Subsidiary. No Subsidiary of the
Company which is a partnership will allow any diminution of the Company's
interest (direct or indirect) therein.
(e) Limitation on Sales of Property. Except to the extent permitted
-------------------------------
under Section 6 of the Certificate of Designation, neither the Company nor any
Subsidiary thereof will sell, transfer, lease, exchange, alienate or dispose of
any of its assets or properties 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 in the ordinary course of business on ordinary trade
terms; or
(iii) other property which is sold for fair consideration not
in the aggregate in excess of $500,000 in any fiscal year (commencing with
fiscal year 2000).
(f) Limitation on Investments and New Businesses. Neither the
--------------------------------------------
Company nor any Subsidiary thereof will make any expenditure or commitment or
incur any obligation or enter into or engage in any transaction except in the
ordinary course of business (which ordinary course of business includes the
acquisition, directly or indirectly, of oil and gas properties), engage directly
or indirectly in any business or conduct any operations except in connection
with or incidental to its present businesses and operations, make any
acquisitions of or capital contributions to or other investments in any Person,
other than Permitted Investments, or make any significant acquisitions or
investments in any properties other than oil and gas properties.
(g) Transactions With Affiliates. Neither the Company nor any of its
----------------------------
28
<PAGE>
Subsidiaries 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.
(h) Restricted Payments. The Company will not, and will not permit
-------------------
any of its Subsidiaries to, declare or make, or incur any liability to declare
or make, any Restricted Payment.
(i) Change in Nature of Business. Without the prior written consent
----------------------------
of the Purchasers, the Company will not make, or permit any Subsidiary to make,
any change in the nature of its business as carried on or proposed to be carried
on at the date hereof or to the individuals who constitute management of the
Company or any Subsidiary at the date hereof.
6.03. Reporting Requirements. The Company will furnish the following
----------------------
statements and reports to the Purchasers at the Company's expense until:
(a) As soon as available, and in any event within one hundred five
(105) days after the end of each fiscal year, complete consolidated financial
statements of the Company together with all notes thereto, prepared in
reasonable detail in accordance with U.S. GAAP, together with an unqualified
opinion, based on an audit using generally accepted auditing standards, by
independent certified public accountants selected by the Company and reasonably
acceptable to the Purchasers, 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.
(b) As soon as available, and in any event within fifty (50) days
after the end of each fiscal quarter, the Company's consolidated balance sheet
as of the end of such fiscal quarter and consolidated statements of the
Company's 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 U.S. GAAP, subject to changes resulting from
normal year-end adjustments. In addition the Company will, together with each
such set of financial statements and each set of financial statements furnished
under subsection (a) of this section, furnish a certificate in a form reasonably
acceptable to the Purchasers signed by the chief financial officer of the
Company stating that such financial statements are accurate and complete
(subject to normal year-end adjustments) 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.
(c) Promptly upon their becoming available, copies of all financial
statements, reports, notices and proxy statements sent by the Company to its
stockholders and all registration statements, periodic reports and other
statements and schedules filed by the Company with any securities exchange, the
Securities and Exchange Commission or any similar Governmental Entity.
(d) Annually within 60 days after the end of each fiscal year
beginning with the fiscal year ending April 30, 2000, a report containing (i) an
estimation of the oil and gas reserves, classified by appropriate categories, as
of the end of the preceding fiscal year attributable to the interest of the
Company therein, (ii) a projection of the rate of production of and net income
from
29
<PAGE>
such reserves with respect to each such interest, (iii) a calculation of the
present worth of such net income discounted at a rate of 10% and (iv) a schedule
or complete description of all assumptions, estimates and projections made or
used in the preparation of such report. Each such report shall be prepared in
accordance with customary and generally accepted standards and practices for
petroleum engineers, and shall be based on (1) prices determined by the holders
of at least the then outstanding shares of Preferred Shares, (2) lease operating
expenses and production taxes derived from and consistent with those actually
incurred by the Company, escalated at the same rate, if any, being applied to
prices and (3) such other assumptions as shall be designated by the holders of
at least the then outstanding shares of Preferred Shares. In addition to the
foregoing, the holders of at least the then outstanding shares of Preferred
Shares shall have the right from time to time to cause the independent petroleum
engineer referenced below to prepare an additional report of the type described
above, not to exceed one additional report in any one calendar year, in which
event all fees and expenses incurred in connection with obtaining such
additional report shall be paid by Company. Each report under this subsection
shall be prepared by an independent petroleum engineer designated by Company and
approved by the holders of at least the then outstanding shares of Preferred
Shares. Each annual report referenced above shall also include an estimate of
the Company's proved oil and gas reserves (as defined in Regulation S-X
promulgated by the Securities and Exchange Commission) and a calculation of the
"present value of estimated future net revenues" from such proved oil and gas
reserves, with such present worth calculation to be made in accordance with
Regulation S-X, as promulgated by the Securities and Exchange Commission.
(e) Promptly, such other information with respect to the business and
operations of the Company and its Subsidiaries, as the Purchasers may reasonably
request.
6.04 Notice of Material Events and Change of Address. The Company will
-----------------------------------------------
promptly notify the Purchasers in writing, stating that such notice is being
given pursuant to this Agreement, of:
(a) the occurrence of an event or circumstance that could reasonably
be expected to have a Material Adverse Effect,
(b) the occurrence of any Default,
(c) the acceleration of the maturity of any indebtedness owed by the
Company or any Subsidiary thereof or of any default or event of default by the
Company or any such Subsidiary 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, or pursuant to any arrangements
involving indebtedness for money borrowed,
(d) any claim of $100,000 or more, any notice of potential liability
under any Environmental Laws which might exceed such amount, or any other
material adverse claim asserted against the Company or any Subsidiary thereof or
with respect to the Company or any of such Subsidiary's properties, and
(e) the filing of any suit or proceeding against the Company or any
Subsidiary thereof in which an adverse decision could cause a Material Adverse
Effect.
30
<PAGE>
Upon the occurrence of any of the foregoing the Company and any Subsidiary
thereof will take all necessary or appropriate steps to remedy promptly any such
Material Adverse Effect, Default, acceleration or default, 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.
ARTICLE VII
EVENTS OF DEFAULT
7.01. Events of Default. If any of the following events ("Events of
-----------------
Default") shall occur and be continuing:
(a) The Company shall fail to pay to any Purchaser dividends on the
Preferred Shares when due as required under the terms of the Certificate of
Designation; or
(b) The Company shall fail to redeem the Preferred Shares when due as
required under the terms of the Certificate of Designation; or
(c) The Company or any Subsidiary shall fail to perform or observe any
term, covenant or agreement contained in this Agreement, or the Preferred Shares
on its part to be performed or observed and any such failure remains unremedied
for fifteen (15) days after the earlier of the day on which the Company first
obtains knowledge of such default, or the day on which written notice thereof
shall have been given by any registered holder of the Preferred Shares or the
Preferred Conversion Shares, as the case may be; or
(d) Any representation or warranty made by the Company or any
Subsidiary in this Agreement or by the Company or any Subsidiary (or any of its
officers) in any certificate, instrument or written statement contemplated by or
made or delivered pursuant to or in connection with this Agreement, shall prove
to have been incorrect when made in any material respect; or
(e) The Company or any Subsidiary fails to duly observe, perform or
comply with any term or condition of any loan document relating to the Senior
Credit Facility, the Subordinated Debt Agreement or any other agreement or
instrument with any Person, if such agreement or instrument is materially
significant to the Company or such Subsidiary, and such failure is not remedied
within the applicable period of grace (if any) provided in such agreement or
instrument; or
(f) The Company or any Subsidiary (i) suffers the entry against it of
a judgment, decree or order for relief by a tribunal of competent jurisdiction
in an involuntary proceeding commenced under any applicable bankruptcy,
insolvency or other similar Applicable Law of any jurisdiction now or hereafter
in effect, including the United States federal Bankruptcy Code or similar
foreign law, as from time to time amended, or has any such proceeding commenced
against it which remains undismissed for a period of thirty (30) days; or
31
<PAGE>
(ii) commences a voluntary case under any applicable bankruptcy,
insolvency or similar Applicable Law now or hereafter in effect, including the
United States federal Bankruptcy Code or similar foreign law, 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 Applicable 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 corporate or
other action to authorize any of the foregoing; or
(iii) suffers the appointment of or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator or similar
official of all or a substantial part of its assets in a proceeding brought
against or initiated by it, and such appointment or taking possession is neither
made ineffective nor discharged within thirty days after the making thereof, or
such appointment or taking possession is at any time consented to, requested by,
or acquiesced to by it; or
(iv) suffers the entry against it of a final judgment for the payment
of money in excess of $250,000 (not covered by insurance), 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 tribunal against all or any substantial part of its assets,
and such writ or warrant of attachment or any similar process is not stayed or
released within thirty days after the entry or levy thereof or after any stay is
vacated or set aside; or
(g) A Change of Control occurs, which Change of Control is not consented
to specifically with reference to this Section 7.01(g) in writing by the
Purchasers; or
(h) Any judgment, writ, warrant of attachment or execution or similar
process shall be issued or levied against a substantial part of the property of
the Company and the Subsidiaries as a whole and such judgment, writ, or similar
process shall not be released, vacated or fully bonded within sixty (60) days
after its issue or levy; or
(i) Any Material Adverse Effect occurs; or
(j) The Company or any Subsidiary thereof fails to pay any portion, when
such portion is due, of any of its Indebtedness in excess of $100,000 (exclusive
of the Old LaTex Payables), or breaches or defaults in the performance of any
Agreement or instrument by which any such Indebtedness is issued, evidenced,
governed, or secured, and any such failure, breach or default continues beyond
any applicable period of grace provided therefor.
32
<PAGE>
then, and in any such event listed in Section 7.01(a) through (j),
(x) the Purchasers or any other holder of the Preferred Shares
holding a majority of the Outstanding Common Stock may, by notice to the
Company, request that the Company redeem all of the Preferred Shares at a
per share purchase price of $50.00 plus all accrued and unpaid dividends
thereon; and
(y) the Purchasers or any other holder of Preferred Conversion Shares
shall have the right to vote separately as a class, as provided in the
Certificate of Designation, to elect a majority of the members of the
Company's Board of Directors; and
(z) the Purchasers or any other holder of Preferred Conversion Shares
may proceed to protect and enforce its or their rights by suit in equity
(including without limitation a suit for rescission), action at law and/or
other appropriate proceeding either for specific performance of any
covenant, provision or condition contained or incorporated by reference in
this Agreement, or in aid of the exercise of any power granted in this
Agreement.
Without in any way limiting the rights of the holders of the Preferred
Shares, the Company and the Subsidiaries hereby agree that the holders of the
Preferred Shares or the Preferred Conversion Shares would have no adequate
remedy at law, for monetary compensation or otherwise, for the damages that
would be suffered if the Company and/or the Subsidiaries were to fail to comply
with its obligations under Article VII hereof, and that the Company and the
Subsidiaries therefore agree that the holders of the Preferred Shares and the
Preferred Conversion Shares shall be entitled to obtain specific performance of
the Company's obligations under this Agreement.
7.02. Annulment of Defaults. Section 7.01 is subject to the condition
---------------------
that, if at any time after the dividend shall have become due and payable, and
before any judgment or decree for the payment of the moneys so due, or any
thereof, shall have been entered, then and in every such case the Purchasers
may, by written instrument filed with the Company, rescind and annul such
declaration and its consequences; but no such rescission or annulment shall
extend to or affect any subsequent default or Event of Default or impair any
right consequent thereon.
7.03. Expiration. The provisions of Sections 7.01 and 7.02 shall
----------
automatically expire and be of no further force or effect upon such date as all
of the Preferred Shares have been converted into Preferred Conversion Shares.
ARTICLE VIII
MISCELLANEOUS
8.01. Addresses for Notices, etc. All notices, requests, demands and
--------------------------
other communications provided for hereunder shall be in writing and mailed (by
first class registered or certified mail, postage prepaid), sent by express
overnight courier service or electronic facsimile transmission with a copy by
mail, or delivered to the applicable party at the addresses indicated below:
33
<PAGE>
If to the Company:
AROC Inc.
4200 East Skelly Drive, Suite 1000
Tulsa, Oklahoma 74135
Attention: John A. Keenan
Facsimile: 918-494-4918
With a copy (which shall not constitute notice) to:
Jenkens & Gilchrist, a professional corporation
1445 Ross Avenue, Suite 3200
Dallas, Texas 75202
Attention: W. Alan Kailer
Facsimile: 214-855-4300
If to the Bank:
Bank of America, N.A.
901 Main Street, 64/th/ Floor
Dallas, Texas 75202
Attention: Marcia Bateman
If to EnCap LP, ECIC, El Paso, EF-II, Picosa Creek or EnCap:
C/o EnCap Investments L.L.C.
1100 Louisiana, Suite 3150
Houston, Texas 77002
Attention: Douglas Swanson
Facsimile: 713-659-6130
With a copy (which shall not constitute notice) to:
Thompson & Knight L.L.P
1700 Pacific Avenue, Suite 3300
Dallas, Texas 75201
Attention: C. Neel Lemon, Esq.
Facsimile: (214) 969-1751
If to any other holder of the Preferred Shares: at such holder's address
for notice as set forth in the transfer records of the Company, or, as to each
of the foregoing, at such other address as shall be designated by such Person in
a written notice to the other party complying as to delivery with the terms of
this Section 8.01. All such notices, requests, demands and other communications
shall, when mailed or sent, respectively, be effective (i) three (3) days after
being deposited in the mails or (ii) one (1) day after being, deposited with the
express overnight courier service or sent by electronic facsimile transmission,
respectively, addressed as aforesaid.
34
<PAGE>
8.02. No Waiver; Cumulative Remedies. No failure or delay on the part of
------------------------------
the Purchasers or any other holder of the Preferred Shares or Preferred
Conversion Shares in exercising any right, power or remedy hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
such right, power or remedy preclude any other or further exercise thereof or
the exercise of any other right, power or remedy hereunder. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.
8.03. Amendments, Waivers and Consents. Any provision in this Agreement,
--------------------------------
the Preferred Shares or the other Operative Documents to the contrary
notwithstanding, changes in or additions to this Agreement may be made, and
compliance with any covenant or provision herein set forth may be omitted or
waived, if the Company (x) shall obtain consent thereto in writing from the
holder or holders of at least eighty percent (80%) of the Preferred Shares (or
eighty percent (80%) of the Preferred Conversion Shares following the conversion
of all of the Preferred Shares into the Preferred Conversion Shares) unless a
greater percentage is required with respect to any matter covered by Section 6
of the Certificate of Designation, and (y) shall deliver copies of such consent
in writing to any holders who did not execute the same; provided, that no such
--------
consent shall be effective to reduce the percentage of the Preferred Shares (or
Preferred Conversion Shares following such conversion) the consent of the
holders of which is required under this Section 8.03; and provided further, that
----------------
the provisions of Article VI and Article VII as well as Sections 8.04, 8.05,
8.06, 8.09, 8.10, 8.13, 8.14, 8.15, 8.18, 8.19, 8.20 and 8.21 may not be
amended, modified, waived or omitted, and no consent with respect thereto shall
be deemed effective, without the prior written consent of each of the
Purchasers. Any waiver or consent may be given subject to satisfaction of
conditions stated therein and any waiver or consent shall be effective only in
the specific instance and for the specific purpose for which it is given.
8.04. Indemnification. The Company agrees to indemnify and hold harmless
---------------
the Purchasers, its subsidiaries, directors, officers, partners, counsel,
employees, agents, brokers and other representatives, from and against any and
all liability (including, without limitation, legal fees incurred in defending
against any such liability) under, arising out of or relating to this Agreement,
the Operative Documents, the Preferred Shares and the Preferred Conversion
Shares, the transactions contemplated hereby or thereby or in connection
herewith or therewith, and resulting from any act or omission by the Company,
including (to the maximum extent permitted by law) any liability arising under
federal or state securities laws, except to the extent such liability shall
directly result from any act or omission on the part of the respective
Purchasers or its subsidiaries, directors, officers, partners, counsel,
employees, agents, brokers or other representatives. The obligations of the
Company under this Section 8.05 shall survive and continue to be in full force
and effect notwithstanding the termination of this Agreement.
8.05. Survival of Representations and Warranties. All representations and
------------------------------------------
warranties made in this Agreement, the Operative Documents or any other
instrument or document delivered in connection herewith or therewith shall
survive the execution and delivery hereof, regardless of any investigation made
by the Purchasers or on behalf of the Purchasers.
8.06. Prior Agreements. This Agreement constitutes the entire agreement
----------------
among the parties and supersedes any prior understandings or agreements
concerning the subject matter hereof.
35
<PAGE>
8.07. Severability. The invalidity or unenforceability of any provision
------------
hereof shall in no way affect the validity or enforceability of any other
provision.
8.08. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
-------------
IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF TEXAS.
8.09. Waiver of Right to Jury Trial. The parties hereby waive all rights
-----------------------------
to a trial by jury for all legal proceedings concerning this Agreement or the
Preferred Shares.
8.10. Headings. Article, Section and subsection headings in this
--------
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any purpose. Any reference herein to an
Article, Section or subsection is, unless otherwise indicated, a reference to
that Article, Section or subsection of this Agreement.
8.11. Specific Performance. Upon breach or default by the Company with
--------------------
respect to any obligation hereunder, the Purchasers shall be entitled to protect
and enforce their rights at law, or in equity or by other appropriate
proceedings for specific performance of such obligation, or for an injunction
against such breach or default, or in aid of the exercise of any power or remedy
granted hereby or thereby or by law.
8.12. Counterparts. This Agreement may be executed in any number of
------------
counterparts, all of which taken together shall constitute one and the same
instrument, and each of the parties hereto may execute this Agreement by signing
any such counterpart. In addition to any other lawful means of execution or
delivery, this Agreement may be executed by facsimile signatures and may be
delivered by the exchange of counterparts of signature pages by means of
telecopier transmission.
8.13. Further Assurances. From and after the date of this Agreement, upon
------------------
the request of the Purchasers, the Company shall execute and deliver such
instruments, documents and other writings as may be reasonably necessary or
desirable to confirm and carry out and to effectuate fully the intent and
purposes of this Agreement, the Operative Documents and the Preferred Shares.
8.14. Consent to Jurisdiction. The Company irrevocably submits to the
-----------------------
non-exclusive jurisdiction of any state or federal court sitting in the State of
Texas over any suit, action or proceeding arising out of or relating to this
Agreement or the Preferred Shares or Preferred Conversion Shares. To the
fullest extent it may effectively do so under applicable law, the Company
irrevocably waives and agrees not to assert, by way of motion, as a defense or
otherwise, any claim that it is not subject to the jurisdiction of any such
court, any objection that it may now or hereafter have to the laying of the
venue of any such suit, action or proceeding brought in any such court and any
claim that any such suit, action or proceeding brought in any such court has
been brought in an inconvenient forum.
8.15. Effect of Judgment. The Company agrees, to the fullest extent it
------------------
may effectively do so under applicable law, that a judgment in any suit, action
or proceeding of the nature referred to in this Agreement brought in any such
court shall, subject to such rights of appeal on issues other than jurisdiction
as may be available to the Company, be conclusive and binding upon the Company
and may be enforced in the courts of the United States of America or the State
of Texas (or any other
36
<PAGE>
courts to the jurisdiction of which the Company is or may be subject) by a suit
upon such judgment.
8.16. Service of Process. The Company consents to service of process in
------------------
any suit, action or proceeding of the nature referred to in Section 8.14 by
actual receipt of a copy thereof by registered or certified mail, postage
prepaid, return receipt requested, to the address of the Company specified in or
designated pursuant to Section 8.01. The Company agrees that such service (i)
shall be deemed in every respect effective service of process upon the Company
in any such suit, action or proceeding and (ii) shall, to the fullest extent
permitted by law, be taken and held to be valid personal service upon and
personal delivery to the Company.
8.17. No Limitation. Nothing in Section 8.09, 8.14, 8.15 or 8.16 shall
-------------
affect the right of any Purchaser to serve process in any manner permitted by
law, or limit any right that any Purchaser may have to bring proceedings against
the Company in the courts of any jurisdiction or to enforce in any lawful manner
a judgment obtained in one jurisdiction in any other jurisdiction.
8.18. Election as Director; Directors Meeting; Representation.
-------------------------------------------------------
(a) The Company shall cause to be nominated (and each Purchaser
hereby agrees to so vote all voting stock owned by it) to promptly elect one (1)
person designated by the Bank to the Company's board of directors. At any time
when the Bank has not made such designation or the designee is not an employee
of the Bank, the Company shall permit upon its approval a representative of the
Bank to attend as an observer all meetings of the Company's board of directors.
At any time when the Bank has the right to require its designee to be elected to
the board of directors of the Company pursuant to this Section 8.19, the Company
------------
will provide the Bank's designee on the board (or its representative observer if
the Bank has not designated a member of the board) (i) duplicate copies of all
reports, documents, data and other information (whether in written or electronic
format), and (ii) the same notice of meetings provided to other directors
generally; provided, that, in no event will the Company provide such designee or
--------
representative observer less than two (2) Business Days' notice of any meeting
of the board of directors (or less than one (1) Business Days' notice in the
case of any telephonic meeting of the board of directors).
(b) In the event the Company proposes to take any action by
written consent of directors in lieu of a meeting, the Company shall provide a
copy of the proposed written consent to the Bank's designee or representative
observer not less than one (1) Business Day prior to the date such consent is to
be executed. The Company will provide to the Bank's designee or representative
observer all other written information provided to directors of the Company
generally with respect to such written consent.
(c) The Company will reimburse the Bank's designee or
representative observe of all reasonable costs incurred in connection with
attending any meeting of the board of directors or otherwise incurred in
connection with fulfilling its duties as a director of the Company.
8.19. Going Private Transaction. El Paso and EnCap agree with the Bank
-------------------------
that in the event the Company is a party to any transaction (whether structured
as a merger, consolidation, sale of assets or otherwise) in which (i) EnCap, El
Paso or any of their affiliates, directly or indirectly, control the entity
which survives such transaction or which is the successor to, or assignee of,
the
37
<PAGE>
assets of the Company (the "Surviving Corporation"), and (ii) the minority
stockholders of the Company receive cash or other assets (other than securities
of the Surviving Corporation) in consideration for their shares in the Company
(hereinafter referred to as a "Going Private Transaction"), EnCap and El Paso
will cause the Surviving Corporation to grant the Bank an option to convert or
exchange the Preferred Shares, any Conversion Shares or any other common stock
equivalents then held by the Bank or its affiliates immediately prior to the
Going Private Transaction into securities of the Surviving Corporation on the
same basis as any conversion, exchange or investment by EnCap, El Paso or their
affiliates in the Surviving Corporation. EnCap and El Paso shall also enter
into, and cause their appropriate affiliates and the Surviving Corporation to
enter into certain registration rights and/or stockholders agreements pursuant
to which, among other things, the Bank will be granted: (i) demand (following
any subsequent initial public offering by the Surviving Corporation) and piggy-
back registration rights including pari passu underwriter requested cutback
provisions, (ii) pre-emptive rights, and (iii) co-sale rights effective upon a
disposition of a material ownership interest in the Surviving Corporation by the
Fund, El Paso or their affiliates.
7.20. Fees. The Company agrees to pay all of the reasonable fees and
----
expenses of the Purchasers in connection with the transactions
contemplated by this Agreement, including, without limitation,
the reasonable fees and expenses of the Purchasers' legal
counsel.
8.21. Successors and Assigns. This Agreement and the rights and
----------------------
obligations of the parties hereunder shall be binding upon each of their
respective successors and permitted assigns. The Company may not assign any of
its rights and obligations hereunder unless in connection with a transaction
that is permitted under Sections 6.02(d) or 6.02(e). Any Purchaser shall be
entitled to assign its rights and obligations hereunder to a third party
provided that such third party agrees in writing at the time any such assignment
is effected to be bound by all of the executory obligations of the assigning
Purchaser then remaining hereunder and, to the extent that such assignment is
made in connection with the disposition of all or part of the assigning
Purchaser's equity position in the Company, such assignee makes the securities
laws representations contained in Sections 4.01(b), (c), (d), (e), (f), (h) and
(i) to and for the benefit of the Company.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
38
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused Preferred Stock Purchase
Agreement to be duly executed as of the date first above written.
COMPANY:
-------
AROC INC.
By: __________________________________
Name:
Title:
Purchasers:
----------
BANK OF AMERICA, N.A.
By: __________________________________
Name:
Title:
ENCAP EQUITY 1996 LIMITED PARTNERSHIP
By: ENCAP INVESTMENTS L.C.,
Its General Partner
By: __________________________________
Name:
Title:
ENERGY CAPITAL INVESTMENT COMPANY PLC
By: _________________________________
Name:
Title:
39
<PAGE>
EL PASO CAPITAL INVESTMENTS, L.L.C.
By: __________________________________
Name:
Title:
EF-II HOLDINGS, LLC
By:
Name:
Title:
PICOSA CREEK LIMITED PARTNERSHIP
By: COBRA OIL & GAS CORPORATION
Its General Partner
By:
Name:
Title:
ENCAP INVESTMENTS L.L.C.
By:
Name:
Title:
40
<PAGE>
EXHIBIT 2.04
------------
SCHEDULE OF USE OF PROCEEDS
---------------------------
The proceeds will be used for general working capital purposes and to
reduce existing indebtedness.
<PAGE>
EXHIBIT 10.7
AROC INC.
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
This Amended and Restated Registration Rights Agreement dated as of April
30, 2000 (this "Agreement") by and among AROC Inc., a Delaware corporation
formerly known as American Rivers Oil Company (the "Company"), EnCap Equity 1996
Limited Partnership, a Texas limited partnership ("EnCap 1996 LP"), EnCap Equity
1994 Limited Partnership, a Texas limited partnership ("EnCap 1994 LP"), Energy
Capital Investment Company PLC, an English investment company ("ECIC"), EnCap
Investments L.L.C., a Texas limited liability company ("EnCap LC"), Shahara Oil,
L.L.C., a New Mexico limited liability company ("Shahara"), Picosa Creek Limited
Partnership, a Texas limited partnership ("Picosa"), EF-II Holdings, LLC, a
Texas limited liability company ("EF-II") and El Paso Capital Investments ,
L.L.C., a Delaware limited liability company ("El Paso") (with EnCap 1996 LP,
EnCap 1994 LP, ECIC, EnCap LC, Shahara, Picosa, EF-II and El Paso being herein
collectively called the "Shareholders");
Recitals:
A. The Shareholders own a total of 15,545,454 shares of common stock, par
value $0.001 per share (the "Common Stock") of the Company.
B. The Company and certain of the Shareholders or affiliates of the
Shareholders are parties to various agreements pursuant to which the Company has
agreed to issue to the Shareholders or affiliates of the Shareholders shares of
the Company's Series A Convertible Preferred Stock, par value $0.001 per share
(the "Preferred Stock") and, if the Preferred Stock is to be issued to
affiliates of the Shareholders, those affiliates have agreed to transfer the
shares of Preferred Stock to certain of the Shareholders.
C. The Company and certain of the Shareholders are parties to that
certain Registration Rights Agreement dated as of October 13, 1999, providing
for the registration of the Common Stock of the Company held by the
Shareholders.
D. As partial consideration for the benefits to be derived by the Company
from the various agreements relating to the issuance of the Preferred Stock, the
Company has agreed to provide for the registration of the Common Stock issuable
upon conversion of the Preferred Stock to be held by the Shareholders.
Agreement:
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound, hereby agree as follows:
The Company and the Shareholders covenant and agree as follows:
Section 1. Definitions And References.
(a) When used in this Agreement, the following terms shall have the
respective meanings assigned to them in this Section 1 or in the sections,
subsections or other subdivisions referred to below:
<PAGE>
"Agreement" shall mean this Agreement, as hereafter changed, modified or
amended in accordance with the terms hereof.
"Benton Agreement" shall mean that certain Registration Rights Agreement
dated as of October 13, 1999 among the Company and F. Fox Benton and certain
members of his family.
"Benton Holders" shall mean those persons identified as Selling
Shareholders in the Benton Agreement.
"Commission" shall mean the Securities and Exchange Commission (or any
successor body thereto).
"Company" shall have the meaning assigned to it in the introductory
paragraph hereof.
"Common Stock" shall have the meaning assigned to in Paragraph B of the
Recitals hereto.
"Demand Registration" shall have the meaning assigned to it in Section
2(a).
"ECIC" shall have the meaning assigned to it in the introductory paragraph
hereof.
"EF-II" shall have the meaning assigned to it in the introductory paragraph
hereof.
"El Paso" shall have the meaning assigned to it in the introductory
paragraph hereof.
"EnCap 1994 LP" shall have the meaning assigned to it in the introductory
paragraph hereof.
"EnCap 1996 LP" shall have the meaning assigned to it in the introductory
paragraph hereof.
"EnCap LC" shall have the meaning assigned to it in the introductory
paragraph hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
and all rules and regulations promulgated under such Act.
"Holder" shall mean any Person that holds Registrable Securities.
"Holder Indemnified Parties" shall have the meaning assigned to it in
Section 9(a).
"LaSalle Agreement" shall mean that certain Amended and Restated
Registration Rights Agreement dated as of April 30, 2000, among the Company and
LaSalle.
"LaSalle" shall mean, collectively, LaSalle Street Natural Resources
Corporation and Bank of America, N.A., as parties to the LaSalle Agreement.
"Person" shall mean any individual, corporation, partnership, joint
venture, limited partnership, limited liability company, trust, unincorporated
organization or government or any agency or political subdivision thereof.
"Picosa" shall have the meaning assigned to it in the introductory
paragraph hereof.
"Piggyback Registration" shall have the meaning assigned to it in Section
3.
2
<PAGE>
"Purchase Agreement" shall mean any agreements between the Company and the
Shareholders or their affiliates through which the Shareholders obtained their
shares of Common Stock or Preferred Stock from the Company or any other
agreements between the Company and the Shareholders affecting the right or power
of the Shareholders to transfer their shares of Common Stock or Preferred Stock.
"Registrable Securities" shall mean (i) any Common Stock any of the
Shareholders acquire or have the right to acquire from the Company from time to
time pursuant to any of the Purchase Agreements, upon conversion of the
Preferred Stock or otherwise, and (ii) any securities issued or issuable with
respect to the shares described in clause (i) above by way of a stock dividend
or stock split or in connection with a combination of shares, recapitalization,
merger, consolidation or other reorganization.
"Registration Expenses" shall mean all expenses incident to the Company's
performance of or compliance with the registration rights granted hereunder,
including (without limitation) all registration and filing fees, fees and
expenses of compliance with securities and blue sky laws, printing and engraving
expenses, messenger, telephone and delivery expenses, and fees and disbursements
of counsel for the Company, all independent certified public accountants and
underwriters (excluding discounts and commissions) and the reasonable fees and
expenses of one counsel to such Shareholders as a group; provided, that
Registration Expenses shall not include any Selling Expenses.
"Securities Act" shall mean the Securities Act of 1933, as amended, and all
rules and regulations under such Act.
"Selling Expenses" shall mean underwriting discounts or commissions, any
selling commissions and stock transfer taxes attributable to sales of
Registrable Securities.
"Shahara" shall have the meaning assigned to it in the introductory
paragraph hereof.
"Shareholders" shall have the meaning assigned to it in the introductory
paragraph hereof.
(b) All references in this Agreement to sections, subsections and other
subdivisions refer to corresponding sections, subsections and other subdivisions
of this Agreement unless expressly provided otherwise. Titles appearing at the
beginning of any of such subdivisions are for convenience only and shall not
constitute part of such subdivisions and shall be disregarded in construing the
language contained herein. 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. Words in the singular form shall be construed to include the plural
and vice versa, unless the context otherwise requires. Pronouns in masculine,
feminine and neuter genders shall be construed to include any other gender.
Section 2. Demand Registration Rights.
(a) At any time after the date of this Agreement, a Holder may request a
registration by the Company under the Securities Act of all or a part its
Registrable Securities (a "Demand Registration").
(b) Notwithstanding subsection (a) above or anything else herein to the
contrary, the Company shall not be obligated to effect more than two
registrations pursuant to this Section 2; provided, however, that any
registration requested pursuant to this Section 2 will not be deemed to have
been effected (i) unless it has become effective and remained effective for the
lesser of either the period necessary to complete the sale or disposition of the
Registrable Securities covered by such registration statement or
3
<PAGE>
one year, (ii) if, after it has become effective, such registration is
terminated by a stop order, injunction or other order of the Commission or other
governmental agency or court or (iii) is withdrawn at the request of the Holders
after the registration statement has been filed with the Commission.
(c) Notwithstanding subsection (a) above or anything else herein to the
contrary, it is hereby agreed that a Demand Registration must cover no less than
50% of the Registrable Securities held by the Holders then outstanding. In the
event a Demand Registration is requested pursuant to this Section 2, the Company
will (i) promptly give notice of the proposed registration to any other
Shareholder not making the request, if any, and (ii) use its reasonable best
efforts to effect the registration of the Registrable Securities specified in
the request, together with the Registrable Securities of any other Shareholder
joining in such request as are specified in a written request received by the
Company within 20 days after receipt of the notice referred to in clause (i)
above.
(d) A registration statement filed under this Section 2 pursuant to the
request of Holders of Registrable Securities may include other securities of the
Company, with respect to which "piggyback" registration rights have been
granted, and may include securities of the Company being sold for the account of
the Company; provided, however, that if the Company shall request inclusion in
any registration pursuant to this Section 2 of the securities being sold for its
own account, or if other persons shall request inclusion in any registration
pursuant to this Section 2, the Shareholders shall offer to include such
securities in the offering and may condition such offer on their acceptance of
any other reasonable conditions (including, without limitation, if such offering
is underwritten, that such requesting holders agree in writing to enter into an
underwriting agreement with usual and customary terms). Notwithstanding any
other provisions of this Section 2, if the representative of the underwriters
advises the Holders of Registrable Securities in writing that marketing factors
require a limitation on the number of shares to be underwritten, the number of
shares to be included in the underwriting or registration shall be allocated
first to the Holders of Registrable Securities, the Benton Holders and LaSalle
(pro rata, based on the number of Registrable Securities requested by each such
holder to be included therein), second to the Company and thereafter to any
other holders requesting inclusion in the registration on the basis of the
number of shares each other requesting holder requests be included bears to the
total number of shares of all other requesting holders that have been requested
be included in such registration. If a person who has requested inclusion in
such registration as provided above does not agree to the terms of any such
underwriting, such person shall be excluded therefrom by written notice from the
Company, the underwriter, or the Holders of Registrable Securities. The
securities so excluded shall also be withdrawn from registration.
Section 3. Piggyback Registration Rights.
(a) If the Company proposes to register any of its securities under the
Securities Act other than (i) under employee compensation or benefit programs,
(ii) pursuant to an exchange offer or an offering of securities solely to the
existing stockholders or employees of the Company, or (iii) securities to be
issued in connection with an acquisition or a transaction described in Rule
145(a) promulgated under the Securities Act, and the registration form to be
used may be used for the registration of Registrable Securities, the Company
will give prompt written notice (which, in any event, shall be given no less
than 15 days prior to the filing of a registration statement with respect to
such offering) to Holders of Registrable Securities of its intention to effect
such a registration and, upon the written request of a Holder of Registrable
Securities sent within 15 days after the effective date of any such notice, the
Company will use its best efforts to cause all Registrable Securities as to
which any Holder shall have so requested registration to be registered under the
Securities Act, all to the extent necessary to permit the sale in such offering
of the Registrable Securities so registered on behalf of such Holder in the same
manner as the Company (or stockholder other than such Holder, as the case may
be) proposes to offer its
4
<PAGE>
securities (a "Piggyback Registration"). The Company shall use its best efforts
to cause the managing underwriter or underwriters of a proposed underwritten
offering to permit the Registrable Securities requested by a Holder to be
included in the registration for such offering on the same terms and conditions
as any similar securities of the Company included therein; provided, however,
that (A) if, at any time after giving written notice of its intention to
register any of its securities and before the effective date of the registration
statement filed in connection with the registration, the Company determines for
any reason not to register its securities, the Company may, at its election,
give written notice of its determination to the Holders of Registrable
Securities and, thereupon, shall be relieved of its obligation to register any
Registrable Securities in connection with that registration, without prejudice,
however, to the future rights of the Holders of Registrable Securities under
this Section, (B) if the Company determines in its discretion to delay the
registration of its securities, the Company shall be permitted to delay the
registration of any Registrable Securities for the same period as the delay in
registering any other securities, and (C) the Company is not required to effect
any registration for a requesting Holder of Registrable Securities pursuant to
this Section 3 unless it receives reasonable assurances that the requesting
Holder of Registrable Securities will pay any expenses required to be paid by it
as provided in Section 5.
(b) If a Piggyback Registration is an underwritten registration and the
managing underwriter(s) for the offering advises the Company in writing that in
its opinion the number of shares of Registrable Securities requested or proposed
to be included in the registration exceeds the number that can be sold in the
offering without materially affecting the offering price of the securities
proposed to be included in the offering, then the number of securities to be
offered for the account of any participating Holder(s) shall be reduced pro rata
based upon the number of securities proposed to be sold by the Company, such
Holder(s) and other Persons to the extent necessary to reduce the total number
of securities to be included in such offering to the number of shares
recommended by such managing underwriter; provided, however, that if securities
of the Company are being offered for the account of other Persons as well as the
Company, such reduction shall first be made from the securities intended to be
offered by such Persons other than the participating Holder(s), the Benton
Holders and LaSalle.
(c) If any Piggyback Registration is an underwritten offering, the Company
will have the sole right to select the managing underwriter(s) thereof.
(d) The rights of the Holders with respect to Piggyback Registrations
shall be pari passu with the piggyback registration rights of the Benton Holders
and LaSalle.
Section 4. Registration Procedures.
(a) Whenever the Holders of Registrable Securities have requested that any
Registrable Securities be registered pursuant to Section 2 or Section 3, the
Company will as expeditiously as possible:
(i) prepare and file with the Commission a registration
statement on the appropriate form with respect to such Registrable Securities,
and use its reasonable best efforts to cause such registration statement to
become effective as soon as reasonably practicable after the filing thereof;
provided, however, that the Company may discontinue any registration of
securities that is being effected pursuant to Section 3 at any time prior to the
effective date of the registration statement relating thereto, and provided
further, that before filing a registration statement or prospectus or any
amendments or supplements thereto, including documents incorporated by reference
after the initial filing of any registration statement, as soon as practicable,
the Company will furnish to any Holder covered by such
5
<PAGE>
Registration Statement copies of all such documents proposed to be filed, which
documents will be subject to the review of such Holder;
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
a period of not less than the period set forth in such section or such shorter
period which will terminate when Registrable Securities covered by such
registration statement have been sold (but not before the expiration of the
applicable prospectus delivery period) 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 sellers thereof set forth in such registration
statement;
(iii) notify each seller of Registrable Securities requesting
registration, promptly after the Company shall receive notice thereof, of the
time when such registration statement has been filed;
(iv) furnish without charge to each seller of Registrable
Securities such number of copies of such registration statement, each amendment
and supplement thereto, including financial statements and schedules, all
documents incorporated therein by reference and all exhibits (including those
incorporated by reference); the prospectus included in such registration
statement (including, without limitation, each preliminary prospectus); and such
other documents as such seller may reasonably request in order to facilitate the
disposition of the Registrable Securities owned by such seller;
(v) use its reasonable best efforts to register or qualify such
Registrable Securities under such other securities or blue sky laws of such
jurisdictions within the United States as any seller reasonably requests; keep
each such registration or qualification effective during the period such
registration statement is required to be kept effective; and do any and all
other acts and things which may be reasonably necessary or advisable to enable
such seller to consummate the disposition in such jurisdictions of the
Registrable Securities owned by such seller (provided that the Company will not
for any such purpose be required to (1) qualify generally to do business as a
foreign corporation in any jurisdiction where it would not otherwise be required
to qualify but for the requirements of this subsection; (2) subject itself to
taxation in any such jurisdiction; (3) consent to general service of process in
any such jurisdiction; or (4) register or qualify Registrable Securities or take
any other action under the state securities or "Blue Sky" laws of any
jurisdiction if, in the reasonable good faith judgment of the Board of
Directors of the Company, the consequences of the registration, qualification or
other action would be unduly burdensome to the Company);
(vi) notify each seller of such Registrable Securities, at any
time when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event which requires the making of any
change in the prospectus included in such registration statement so that such
document 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 not misleading, and, at the request of any such seller, the
Company will prepare a supplement or amendment to such prospectus so that such
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 not misleading;
(vii) use its reasonable best efforts to cause all such
Registrable Securities to be listed on each securities exchange or exchanges,
automated quotation system or over-the-counter market upon which securities of
the Company of the same class are then listed;
6
<PAGE>
(viii) enter into such customary agreements (including, without
limitation, underwriting agreements in customary form, substance and scope) and
take all such other action as the Holders of a majority of the Registrable
Securities being sold or the underwriters, if any, reasonably request in order
to expedite or facilitate the disposition of such Registrable Securities;
(ix) otherwise use its reasonable best efforts to comply with
all applicable rules and regulations of the Commission;
(x) in the event of the issuance of any stop order suspending
the effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification of
any securities included in such registration statement for sale in any
jurisdiction, the Company will use its reasonable best efforts promptly to
obtain the withdrawal of such order;
(xi) use its reasonable best efforts to cause such Registrable
Securities covered by such registration statement to be registered with or
approved by such other foreign and domestic governmental agencies or authorities
as may be necessary to enable the sellers thereof to consummate the disposition
of such Registrable Securities;
(xii) use its reasonable best efforts to obtain a comfort letter
from the Company's public accountants in customary form and covering such
matters of the type customarily covered by comfort letters with respect to
offerings of the type being made pursuant to the registration statement as the
Holders of the Registrable Securities reasonably request; and
(xiii) cooperate with each seller of such Registrable Securities
to facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be sold and not bearing any restrictive legends.
(b) Whenever the Holders of Registrable Securities have requested that any
Registrable Securities be registered pursuant to Section 2 or Section 3, each
Holder of Registrable Securities (including Registrable Securities in any
registration statement filed pursuant to this Agreement) will be deemed to have
agreed as follows:
(i) upon receipt of any notice from the Company of the happening
of any event of the kind described in Section 4(a)(vi), the Holders of
Registrable Securities covered by such registration statement will forthwith
discontinue disposition of any such Registrable Securities until the Holders of
Registrable Securities receive copies of the supplemented or amended prospectus
contemplated by Section 4(a)(vi), or until they are advised in writing by the
Company that the use of the applicable prospectus may be resumed, and they have
received copies of any additional or supplemental filings that are incorporated
or deemed to be incorporated by reference in such prospectus (it being the
agreement of the parties hereto, however, that the obligation of the Company
with respect to maintaining the subject registration statement current and
effective shall be extended by a period of days equal to the period the Holders
of Registrable Securities are required by this Section 4(b)(i) to discontinue
disposition of such Registrable Securities); and
(ii) furnish to the Company such information regarding each
Holder, the Registrable Securities held by such Holder, the intended method of
disposition thereof and such other information as the Company shall reasonably
request and as shall be reasonably required in connection with the preparation
of the applicable registration statement and other actions taken by the Company
under this Agreement.
7
<PAGE>
(c) The Company may postpone the filing of any registration statement
required under Section 2 for a reasonable period of time, if (i) the Company has
been advised by legal counsel reasonably acceptable to the Holders of a majority
of the Registrable Securities that such filing would require the disclosure of a
material fact, and the Company determines reasonably and in good faith that such
disclosure would have a material adverse effect on the Company or (ii) (A) in
the good faith judgment of the Board of Directors of the Company, a required
registration under Section 2 would be seriously detrimental to the Company and
the Board of Directors of the Company concludes, as a result, that it is
essential to defer the filing of such registration statement at such time, and
(B) the Company shall furnish to the Holders of Registrable Securities a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company for such registration statement to be filed in the
near future and that it is, therefore, essential to defer the filing of such
registration statement; provided, however, that under no circumstances shall one
or more delays pursuant to this Section 4(c) extend beyond the earlier to occur
of (x) the expiration of a period of ninety (90) days after receipt of the
request of a Holder of Registrable Securities and (y) that point in time at
which the conditions described above no longer exist; and, provided further,
that the Company shall not defer its obligation pursuant to this Section 4(c)
more than once in any twelve-month period.
Section 5. Expenses of Registration. The Company shall pay all Registration
Expenses in connection with each registration effected pursuant to Sections 2
and 3 and, in any event, shall pay its internal expenses (including, without
limitation, all salaries and expenses of its officers and employees performing
legal and accounting duties), the expense of any annual audit and the fees and
expenses incurred in connection with the listing of the securities to be
registered on each securities exchange or market on which similar securities
issued by the Company are then listed. All Selling Expenses incurred in
connection with a registration effected pursuant to the terms hereof shall be
borne by the seller or sellers of Registrable Securities.
Section 6. Indemnification.
(a) The Company shall indemnify and hold harmless, with respect to any
registration statement filed by it, to the fullest extent permitted by law, each
Holder of Registrable Securities covered by such registration statement, and
each other Person, if any, who controls such Holder within the meaning of
Section 15 of the Securities Act (collectively, "Holder Indemnified Parties")
against all losses, claims, damages, liabilities and expenses, joint or several
to which any such Holder Indemnified Party may become subject under the
Securities Act, the Exchange Act, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or actions or proceedings,
whether commenced or threatened, in respect thereof) arise out of or are based
upon (i) any untrue statement or alleged untrue statement of a material fact
contained in any registration statement in which such Registrable Securities
were included as contemplated hereby, or any post-effective amendment thereof,
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,
(ii) any untrue statement or alleged untrue statement of a material fact
contained in any preliminary, final or summary prospectus, together with the
documents incorporated by reference therein (as amended or supplemented if the
Company shall have filed with the Commission any amendment thereof or supplement
thereto), or any omission or alleged omission to state therein a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, or (iii) any violation by the Company of any federal, state or
common law rule or regulation applicable to the Company and relating to action
of or inaction by the Company in connection with any such registration; and in
each such case, the Company shall reimburse each such Holder Indemnified Party
for any reasonable legal or other expenses incurred by any of them in connection
with investigating or defending any such loss, claim,
8
<PAGE>
damage, liability, expense, action or proceeding; provided, however, that the
Company shall not be liable to any such Holder Indemnified Party in any such
case to the extent that any such loss, claim, damage, liability or expense (or
action or proceeding, whether commenced or threatened, in respect thereof)
arises out of or is based upon any untrue statement or alleged untrue statement
or omission or alleged omission made in such registration statement or amendment
thereof or supplement thereto or in any such preliminary, final or summary
prospectus in reliance upon and in conformity with written information furnished
to the Company by or on behalf of any such Holder Indemnified Party for use in
the preparation thereof; provided further that the Company shall not be liable
to any such Holder Indemnified Party in any such case to the extent that any
such loss, claim, damage, liability or expense (or action or proceeding, whether
commenced or threatened, in respect thereof) arises out of or is based upon any
untrue statement or alleged untrue statement or omission or alleged omission
made in any preliminary prospectus if (A) such holder failed to send or deliver
a copy of the prospectus with or prior to the delivery of written confirmation
of the sale of Registrable Securities and (B) the prospectus would have
completely corrected such untrue statement or omission; provided further that
the Company shall not be liable in any such case to the extent that any such
loss, claim, damage, liability or expense arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission in
the prospectus, if such untrue statement or alleged untrue statement, omission
or alleged omission is completely corrected in an amendment or supplement to the
prospectus and if, having previously been furnished by or on behalf of the
Company with copies of the prospectus as so amended or supplemented, such holder
thereafter fails to deliver such prospectus as so amended or supplemented, prior
to or concurrently with the sale of a Registrable Security to the person
asserting such loss, claim, damage, liability or expense who purchased such
Registrable Security which is the subject thereof from such holder. Such
indemnity and reimbursement of expenses and other obligations shall remain in
full force and effect regardless of any investigation made by or on behalf of
the Holder Indemnified Parties and shall survive the transfer of such securities
by such Holder Indemnified Parties.
(b) Each Holder of Registrable Securities participating in any
registration hereunder shall severally (and not jointly or jointly and
severally) indemnify and hold harmless, to the fullest extent permitted by law,
the Company, its directors, each of its officers who has signed the registration
statement and each Person who controls the Company (within the meaning of
Section 15 of the Securities Act) (collectively, "Company Indemnified Parties")
against all losses, claims, damages, liabilities and expenses to which any
Company Indemnified Party may become subject under the Securities Act, the
Exchange Act, at common law or otherwise, and will reimburse each such Company
Indemnified Party for any reasonable legal or other expenses incurred by any of
them in connection with investigating or defending any such loss, claim, damage,
liability, expense, action or proceeding, but only insofar as such losses,
claims, damages, liabilities or expenses (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or are based upon (i)
any untrue statement or alleged untrue statement of a material fact contained in
any registration statement in which such Holder's Registrable Securities were
included or 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, (ii) any untrue statement or alleged untrue statement of a material
fact contained in any preliminary, final or summary prospectus, together with
the documents incorporated by reference therein (as amended or supplemented if
the Company shall have filed with the Commission any amendment thereof or
supplement thereto), or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, in each case to the extent (and only to the extent) that
such untrue statement or omission or alleged untrue statement or omission was
made in reliance upon and in conformity with information furnished in writing by
or on behalf of such Holder specifically for use in connection with such
registration, (iii) any violation by the Holder of any federal, state or common
law, rule or regulation applicable to the Holder and relating to action of or
inaction by the Holder in connection with any
9
<PAGE>
registration statement and (iv) with respect to any preliminary prospectus, the
fact that the Holder sold Registrable Securities to a person to whom there was
not sent or given, at or prior to the written confirmation of the sale, a copy
of the prospectus (excluding documents incorporated by reference) or of the
prospectus as then amended or supplemented (excluding documents incorporated by
reference) if (a) the Company has previously furnished copies thereof to the
Holder in compliance with Section 4 and (b) the loss, claim, damage, liability
or expense of the Company Indemnified Party results from an untrue statement or
omission of a material fact contained in the preliminary prospectus which was
corrected in the prospectus (or the prospectus as amended or supplemented). Such
indemnity obligation shall remain in full force and effect regardless of any
investigation made by or on behalf of the Company Indemnified Parties (except as
provided above) and shall survive the transfer of such securities by such
Holder.
(c) Promptly after receipt by an indemnified party under subsection (a) or
(b) of written notice of the commencement of any action, suit, proceeding,
investigation or threat thereof made in writing with respect to which a claim
for indemnification may be made pursuant to this Section 6, such indemnified
party shall, if a claim in respect thereof is to be made against an indemnifying
party, give prompt written notice to the indemnifying party of the threat or
commencement thereof; provided, however, that the failure to so promptly notify
the indemnifying party shall not relieve it from any liability which it may have
to any indemnified party except to the extent that the indemnifying party is
actually prejudiced by such failure to give prompt notice. If any such claim or
action referred to under subsection (a) or (b) is brought against any
indemnified party and it then notifies the indemnifying party of the threat or
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it wishes, jointly with any other indemnifying
party similarly notified, to assume the defense thereof with counsel reasonably
satisfactory to such indemnified party. After notice from the indemnifying
party to such indemnified party of its election so to assume the defense of any
such claim or action, the indemnifying party shall not be liable to such
indemnified party under this Section 6 for any legal expenses of counsel or any
other expenses subsequently incurred by such indemnified party in connection
with the defense thereof other than reasonable costs of investigation unless the
indemnifying party has failed to assume the defense of such claim or action or
to employ counsel reasonably satisfactory to such indemnified party. Under no
circumstances will the indemnifying party be obligated to pay the fees and
expenses of more than one law firm for all indemnified parties. The
indemnifying party shall not be required to indemnify the indemnified party with
respect to any amounts paid in settlement of any action, proceeding or
investigation entered into without the written consent of the indemnifying
party, which consent shall not be unreasonably withheld. No indemnifying party
shall consent to the entry of any judgment or enter into any settlement without
the consent of the indemnified party unless (i) such judgment or settlement does
not impose any obligation or liability upon the indemnified party other than the
execution, delivery or approval thereof, and (ii) such judgment or settlement
includes as an unconditional term thereof the giving by the claimant or
plaintiff to such indemnified party of a full release and discharge from all
liability in respect of such claim.
(d) Indemnification similar to that specified in the preceding subsections
of this Section 6 (with appropriate modifications) shall be given by the Company
and each seller of Registrable Securities with respect to any required
registration or qualification of securities under any state securities or blue
sky laws.
(e) If the indemnification provided for in this Section 6 is unavailable
to or insufficient to hold harmless an indemnified party under subsection (a) or
(b), then each indemnifying party shall contribute to the amount paid or payable
by such indemnified party as a result of the losses, claims, damages,
liabilities or expenses (or actions or proceedings in respect thereof) referred
to in subsection (a) or (b) in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and the indemnified
party on the other in connection with the statements, omissions, actions or
inactions
10
<PAGE>
which resulted in such losses, claims, damages, liabilities or expenses as well
as any other relevant equitable considerations. The relative fault of the
indemnifying party and the indemnified party 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 indemnifying party or the indemnified
party, any action or inaction by any such party, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement, omission, action or inaction. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages, liabilities or
expenses (or actions or proceedings in respect thereof) pursuant to this
subsection (e) shall be deemed to include, without limitation, any reasonable
legal or other expenses incurred by such indemnified party in connection with
investigating or defending any such action or claim (which shall be limited as
provided in subsection (c) if the indemnifying party has assumed the defense of
any such action in accordance with the provisions thereof) which is the subject
of this subsection (e). 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. Promptly after receipt by an indemnified party under this
subsection (e) of written notice of the commencement of any action, suit,
proceeding, investigation or threat thereof made in writing with respect to
which a claim for contribution may be made against an indemnifying party under
this subsection (e), such indemnified party shall, if a claim for contribution
in respect thereof is to be made against an indemnifying party, give prompt
written notice to the indemnifying party in writing of the commencement thereof
(if the notice specified in subsection (c) has not been given with respect to
such action); provided, however, that the failure to so promptly notify the
indemnifying party shall not relieve it from any obligation to provide
contribution which it may have to any indemnified party under this subsection
(e) except to the extent that the indemnifying party is actually prejudiced by
the failure to give prompt notice.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this paragraph were determined by pro rata allocation
or by any other method of allocation which does not take account the equitable
considerations referred to in the immediately preceding paragraph.
If indemnification is available under this Section 6, the indemnifying
parties shall indemnify each indemnified party to the fullest extent provided in
subsections (a) and (b), without regard to the relative fault of said
indemnifying party or any other equitable consideration provided for in this
subsection. The provisions of this subsection shall be in addition to any other
rights to indemnification or contribution which any indemnified party may have
pursuant to law or contract, shall remain in full force and effect regardless of
any investigation made by or on behalf of any indemnified party, and shall
survive the transfer of securities by any such party.
(f) In connection with any underwritten offering contemplated by this
Agreement which includes Registrable Securities, the Company and all sellers of
Registrable Securities included in any registration statement shall agree to
customary provisions for indemnification and contribution (consistent with the
other provisions of this Section 6) in respect of losses, claims, damages,
liabilities and expenses of the underwriters of such offering.
Section 7. Selection of Underwriters. If a registration effected pursuant to
Section 2 is an underwritten offering or a best efforts underwritten offering,
the investment bankers or investment bankers and manager or managers that will
administer the offering shall be selected by the Holders of a majority of the
Registrable Securities to be registered in such registration; provided, however,
that such investment bankers and managers must be reasonably satisfactory to the
Company.
11
<PAGE>
Section 8. Rule 144. The Company covenants to each Holder that, to the extent
that the Company shall be required to do so under the Exchange Act, the Company
shall (a) timely file the reports required to be filed by it under the Exchange
Act or the Securities Act (including, but not limited to, the reports under
Section 13 and 15(d) of the Exchange Act referred to in subparagraph (c) (1) of
Rule 144 adopted by the Commission under the Securities Act) and the rules and
regulations adopted by the Commission thereunder, and (b) take such further
action as any Holder may reasonably request, all to the extent required from
time to time to enable such Holder to sell Registrable Securities without
registration under the Securities Act within the limitations of the exemption
provided by Rule 144 under the Securities Act, as such Rule may be amended from
time to time, or any similar rule or regulation hereafter adopted by the
Commission. Upon the reasonable request of any Holder, the Company shall
deliver to such Holder a written statement as to whether it has complied with
such requirements.
Section 9. Participation in Underwritten Registrations. In the case of a
registration hereunder, if the Company has determined to enter into an
underwriting agreement in connection therewith, all shares of Registrable
Securities to be included in such registration shall be subject to the
underwriting agreement, which shall be in customary form and contain such terms
as are customarily contained in such agreements, and the Holders may not
participate in any such registration unless the Holder (a) agrees to sell its
securities on the basis provided in any underwriting arrangements and (b)
completes and executes all questionnaires, power of attorney, indemnities,
underwriting agreements and other documents reasonably required under the terms
of the underwriting arrangements.
Section 10. Rights to Withdraw From Registration. If, as a result of the
proration provisions of Section 3(b) a Holder is not entitled to include all
Registrable Securities in a registration that the Holder has requested to be
included, the Holder may elect to withdraw its request to include Registrable
Securities in the registration (a "Withdrawal Election"); provided, however,
that a Withdrawal Election shall be irrevocable and, after making a Withdrawal
Election, the Holder shall no longer have any right to include Registrable
Securities in the registration as to which the Withdrawal Election was made.
Section 11. Existing Registration Rights. The Company represents and warrants
to, and covenant with, the Shareholders that, as of the date hereof, the Company
has not entered into any agreement, written or oral, granting or otherwise
affording to a third party registration rights with respect to any securities
held by such third party in the Company, except for the Benton Agreement and the
LaSalle Agreement.
Section 12. Miscellaneous.
(a) From and after the date of this Agreement, the Company will not enter
into any agreement with respect to its securities which is inconsistent with or
violates the rights granted to the Holders of Registrable Securities in this
Agreement.
(b) Each Holder of Registrable Securities (including Registrable
Securities in any registration statement filed pursuant to this Agreement)
agrees as follows:
(i) if any Registrable Securities are being registered in any
registration pursuant to this Agreement, the Holder thereof will comply with all
anti-stabilization, manipulation and similar provisions of Section 10 of the
Exchange Act, as amended, and any rules promulgated thereunder by the Commission
and, at the request of the Company, will execute and deliver to the Company and
to any underwriter participating in such offering, an appropriate agreement to
such effect; and
12
<PAGE>
(ii) at the end of any period during which the Company is
obligated to keep a registration statement current and effective as described
herein, the Holders of Registrable Securities included in the registration
statement shall discontinue sales thereof pursuant to such registration
statement.
(c) In order to facilitate the possibility of future public offerings of
Common Stock, the Holders (and any subsequent Holder) agree that the Registrable
Securities will not be resold during a period commencing on the filing by the
Company of a registration statement under the Securities Act for an underwritten
public offering for cash by the Company of its Common Stock or securities
convertible into or exercisable or exchangeable for its Common Stock and
continuing until the earlier of the abandonment of the proposed public offering
or 120 days following the date of the last closing in the public offering
without the consent of the underwriters of such offering, except to the extent
such shares are included in such registration. Holders of such Registrable
Securities also agree that they will cooperate with the Company in providing
reasonable written assurances respecting the foregoing to the underwriter of any
such public offering. Holders agree that during the above restricted period
they will not directly or indirectly sell, offer to sell, contract to sell
(including without limitation any short sale), grant an option to purchase or
otherwise transfer or dispose of (other than to donees who agree to be similarly
bound) shares of Registrable Securities at any time during such period except
securities included in such registration. In order to enforce the foregoing
covenant, the Company may impose stop-order instructions with respect to such
shares of Registrable Securities held by each Holder, which shall be binding
upon any assignee or successor of such Holder (and the shares or securities of
every other person subject to the foregoing restriction), until the end of the
restricted period.
(d) All questions concerning the construction, validity and interpretation
of this Agreement shall be governed by the internal law, and not the law of
conflicts, of the State of Delaware.
(e) All covenants and agreements in this Agreement by or on behalf of any
of the parties hereto will bind and inure to the benefit of the respective
successors and assigns of the parties hereto. In addition, the rights and
obligations under this Agreement shall automatically be transferred to and
binding on any transferee or assignee of the Registrable Securities; provided,
that (i) the Company is, within a reasonable time after such transfer, furnished
with written notice of the name and address of such transferee or assignee and
the Registrable Securities with respect to which such registration rights are
being transferred or assigned, (ii) such transferee or assignee agrees in
writing to be bound by and subject to the terms and conditions of this
Agreement, (iii) the transfer and assignment of the subject Registrable
Securities is in compliance with (A) any Purchase Agreement and (B) the
Securities Act and applicable state securities laws or an exemption from the
registration requirements of the Securities Act and applicable state securities
laws, (iv) such assignment of rights and obligations under this Agreement shall
be effective only if immediately following such transfer the further disposition
of such Registrable Securities by the transferee or assignee is restricted under
the Securities Act and (v) the transferee acquires at least 10% of the
Registrable Securities originally held by the Shareholders.
(f) This Agreement is intended by the parties as a final expression of
their agreement and intended to be a complete and exclusive statement of the
agreement and understanding of the parties hereto in respect of the subject
matter herein contained. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein, with respect to
the registration rights granted by the Company to the Holders of the Registrable
Securities. This Agreement supersedes all prior agreements and understandings
between the parties with respect to such subject matter. In particular, this
Agreement supersedes the Registration Rights Agreement among the Company and
certain of the Shareholders dated as of October 13, 1999, which shall be of no
further force or effect. It is further acknowledged and agreed that (i) the
Benton Agreement supersedes the Registration Rights Agreement dated as of
October 30, 1998, among Alliance and F. Fox Benton and certain members of his
13
<PAGE>
family (the "Old Benton Agreement") and (ii) the LaSalle Agreement supersedes
the Registration Rights Agreement dated as of October 13, 1999, between LaSalle
Street Natural Resources Corporation and Alliance (the "Old LaSalle Agreement"),
and that the Old Benton Agreement and the Old LaSalle Agreement shall be of no
further force and effect. The Company represents and warrants that true and
correct copies of the Benton Agreement and the LaSalle Agreement have been
furnished to the Holders of the Registrable Securities. The Company agrees not
to amend or modify either the Benton Agreement or the LaSalle Agreement in any
material respect without having received the prior written consent of the
Holders of Registrable Securities. The Shareholders hereby consent to AROC
entering into the Amended and Restated Registration Rights Agreement dated as of
April 30, 2000, among the Company and LaSalle Street Natural Resources
Corporation and Bank of America, N.A.
(g) All notices, demands or other communications to be given or delivered
under or by reason of the provisions of this Agreement shall be in writing and
shall be deemed to have been given when delivered personally or sent by
reputable express courier service (charges prepaid), or mailed to the recipient
by certified or registered mail, return receipt requested and postage prepaid,
or sent by telefax, to the parties at the following address (or to such other
address or to the attention of such other person as the recipient party has
specified by prior like notice to the sending party):
If to the Company:
AROC Inc.
4200 East Skelly Drive, Suite 1000
Tulsa, Oklahoma 74135
Attention: John A. Keenan
Fax No.: 918-494-4918
If to any of EnCap 1994 LP, EnCap 1996 LP or ECIC:
Energy Capital Investment Company PLC
EnCap Equity 1994 Limited Partnership
EnCap Equity 1996 Limited Partnership
c/o EnCap Investments L.L.C.
1100 Louisiana, Suite 3150
Houston, Texas 77002
Attention: Robert L. Zorich
Fax No.: 713-659-6130
If to EnCap LC:
EnCap Investments L.L.C.
1100 Louisiana, Suite 3150
Houston, Texas 77002
Attention: Robert L. Zorich
Fax No.: 713-659-6130
If to Shahara:
207 West McKay
P.O.Box 3232
Carlsbad, New Mexico 88221
14
<PAGE>
Attention: Perry L. Hughes
Facsimile: (505) 885-4989
If to Picosa:
c/o Cobra Oil and Gas Corporation
2201 Kell Blvd.
Wichita Falls, Texas 76308-1009
Attention: Jeff R. Dillard
Fax: 940-716-5170
If to EF-II:
EF-II Holdings, LLC
1100 Louisiana, Suite 3150
Houston, Texas 77002
Attention: Robert L. Zorich
Fax No.: 713-659-6130
If to El Paso:
El Paso Capital Investments, L.L.C.
c/o El Paso Energy Corporation
1001 Louisiana
Houston, Texas 77002
Attention: Bob Baker
Facsimile: (713) 420-2813
(h) If any provision of this Agreement is held to be unenforceable, this
Agreement shall be considered divisible and such provision shall be deemed
inoperative to the extent it is deemed unenforceable, and in all other respects
this Agreement shall remain in full force and effect; provided, however, that if
any such provision may be made enforceable by limitation thereof, then such
provision shall be deemed to be so limited and shall be enforceable to the
maximum extent permitted by applicable law.
(i) This Agreement may be executed by the parties hereto in any number of
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same agreement. Each counterpart may consist of a number
of copies hereof each signed by less than all, but together signed by all, the
parties hereto.
(j) Each Holder of Registrable Securities, in addition to being entitled
to exercise all rights granted by law, including recovery of damages, will be
entitled to specific performance of its rights under this Agreement. Each party
agrees that monetary damages would not be adequate compensation for any loss
incurred by reason of breach by it of the provisions of this Agreement and
hereby agrees to waive (to the extent permitted by law) the defense in any
action for specific performance that a remedy of law would be adequate.
(k) In any action or proceeding brought to enforce any provision of this
Agreement, or where any provision hereof is validly asserted as a defense, the
successful party shall be entitled to recover reasonable attorneys' fees in
addition to any other available remedy.
15
<PAGE>
(l) The Company agrees to remove any legends on certificates representing
Registrable Securities describing transfer restrictions applicable to such
securities upon the sale of such securities (i) pursuant to an effective
Registration Statement under the Securities Act or (ii) in accordance with the
provisions of Rule 144 under the Securities Act.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
16
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
ENCAP EQUITY 1996 LIMITED PARTNERSHIP
By: ENCAP INVESTMENTS L.L.C., General
Partner
By:_________________________________________
Name:_______________________________________
Title: Managing Director
ENCAP EQUITY 1994 LIMITED PARTNERSHIP
By: ENCAP INVESTMENTS L.L.C., General
Partner
By:_________________________________________
Name:_______________________________________
Title: Managing Director
ENERGY CAPITAL INVESTMENT COMPANY PLC
By:_________________________________________
Name:_______________________________________
Title:______________________________________
ENCAP INVESTMENTS L.L.C.
By:_________________________________________
Name:_______________________________________
Title: Managing Director
SHAHARA OIL, L.L.C.
By:_________________________________________
Name:_______________________________________
Title:______________________________________
17
<PAGE>
PICOSA CREEK LIMITED PARTNERSHIP
By: Cobra Oil & Gas Corporation, its
general partner
By: _____________________
Name: Jeff R. Dillard
Title: President
EF-II HOLDINGS, LLC
By: ________________________________________
Name: D. Martin Phillips
Title: Co-Chief Executive Officer
EL PASO CAPITAL INVESTMENTS, L.L.C.
By:_________________________________________
Name:_______________________________________
Title:______________________________________
AROC INC.
By:_________________________________________
Name:_______________________________________
Title:______________________________________
18
<PAGE>
EXHIBIT 10.8
AROC INC.
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
This Amended and Restated Registration Rights Agreement dated as of April
30, 2000 (this "Agreement"),between AROC Inc., a Delaware corporation formerly
known as American Rivers Oil Company ("AROC"), Bank of America, N.A., a national
association (the "Bank") and LaSalle Street Natural Resources Corporation, a
Delaware corporation and indirect subsidiary of the Bank ("LaSalle")(the Bank
and LaSalle are referred to collectively as the "Investor").
A. AROC and LaSalle are parties to two separate Warrant Agreements dated
as of October 13, 1999, (as modified and supplemented and in effect from time to
time, the "Warrant Agreements"), providing for the issuance by AROC of Warrants
(as hereinafter defined) which entitle the Investor to purchase from AROC an
aggregate of 5,679,519 shares of the common stock, par value $0.001 per share
(the "Common Stock") of AROC, as provided in the Warrant Agreement and the
Warrants.
B. LaSalle also owns directly an additional 1,500,000 shares of the
Common Stock, and the Company and the Bank are parties to an agreement pursuant
to which the Company has agreed to issue to the Bank shares of Series A
Convertible Preferred Stock, par value $0.001 per share, including shares
issuable as dividends on the outstanding shares (the "Preferred Stock").
C. The Company and LaSalle are parties to that certain Registration
Rights Agreement dated as of October 13, 1999, providing for the registration of
the Common Stock of the Company held by LaSalle.
D. As partial consideration for the benefits to be derived by the Company
from the various agreements relating to the issuance of the Preferred Stock, the
Company has agreed to amend and restate the October 13, 1999 registration rights
agreement to provide for the registration of the Common Stock issuable upon
conversion of the Preferred Stock to be held by the Bank.
Accordingly, the parties hereto agree as follows:
Section 1. Definitions.
Each capitalized term used herein without definition shall have the meaning
ascribed thereto in the Warrant Agreements. As used in this Agreement the
following terms have the following meanings:
"AROC" shall have the meaning set forth in the preamble of this Agreement.
"Bank" shall have the meaning set forth in the preamble of this Agreement.
"Benton Holders" means F. Fox Benton, Jr., Lizinka M. Benton, F. Fox Benton
III, Lizinka C. Benton and Lucia T. Benton, in their capacities as "Selling
Shareholders" as that term is defined in that certain Registration Rights
Agreement, dated as of the October 13, 1999, by and among the preceding parties
and AROC.
"Commission" means the U.S. Securities and Exchange Commission (or any
successor or similar governmental agency or authority) administering the
Securities Act and/or the Exchange Act.
"Common Stock" means the common stock, par value $0.001 per share, of AROC.
<PAGE>
"Cutback Registration" means any registration in which the Managing
Underwriter advises AROC, and AROC in turn notifies the holders of Registrable
Securities requested to be included therein in accordance with Section 5.02,
that marketing factors require a limitation of the number of shares of Common
Stock to be underwritten in such registration.
"Effective Period" has the meaning set forth in Section 5.01(b).
"Electing Holders" means any Benton Holders or EnCap Holders who have
requested inclusion of shares of Common Stock held by such holder in a
registration.
"EnCap Holders" means EnCap Investments L.C., EnCap Equity 1996 Limited
Partnership, EnCap Equity 1994 Limited Partnership, Energy Capital Investment
Company PLC, Shahara Oil, L.L.C., Picosa Creek Limited Partnership, EF-II
Holdings, LLC and El Paso Capital Investments, L.L.C., in their capacities as
"Shareholders" as that term is defined in that certain Amended and Restated
Registration Rights Agreement, dated as of April 30, 2000, by and among the
preceding parties and AROC.
"Exchange Act" means the U.S. Securities Exchange Act of 1934, as amended,
or any similar Federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Indemnified Party" has the meaning set forth in Section 6.03.
"Indemnifying Party" has the meaning set forth in Section 6.03.
"Investor" shall have the meaning set forth in the preamble of this
Agreement.
"LaSalle" shall have the meaning set forth in the preamble of this
Agreement.
"Long-Form Requested Registration" shall mean any Requested Registration
that is a registration on a Form S-1 under the Securities Act or any successor
form or similar long-form registration.
"Managing Underwriter" means, with respect to any registration, the
underwriter or underwriters managing such registration.
"NASDAQ" has the meaning set forth in Section 12.
"Original Requesting Holder" has the meaning set forth in Section 3.01(a).
"Other Requesting Holder" has the meaning set forth in Section 3.01(a).
"Person" means any individual, corporation, association, joint venture,
limited liability company, partnership, trust, business or other entity or
organization, and shall include any government or political subdivision, or any
agency or instrumentality thereof.
"Piggyback Registration" means any registration which is not a Requested
Registration, other than (a) any registration on a Form S-8 under the Securities
Act (or any successor thereto); (b) any registration relating to an offering to
be made solely to employees (including management or employee incentive plans);
or (c) any registration on a Form S-4 (or any successor thereto or other
comparable form).
2
<PAGE>
"Preferred Stock" shall have the meaning set forth in the preamble of this
Agreement.
"Public Offering" means any offering of Common Stock to the public, either
on behalf of AROC or any of its Stockholders, pursuant to an effective
registration statement under the Securities Act.
"register," "registered" and "registration" refer to a registration of
Common Stock or other securities of AROC effected by preparing and filing a
registration statement in compliance with the Securities Act and the declaration
or ordering of the effectiveness of such registration statement.
"Registrable Securities" means (i) shares of Common Stock issued or
issuable upon exercise of any Warrants, including without limitation any Common
Stock into which such Common Stock may thereafter be changed or converted, (ii)
the 1,500,000 shares of Common Stock owned by the Investor at the date of this
Agreement, (iii) shares of Common Stock issued or issuable upon conversion of
any Preferred Stock, and (iv) any additional shares of Common Stock or other
securities issued or distributed by way of a dividend, stock split or other
distribution in respect of the Common Stock referred to in clauses (i), (ii) and
(iii) above, or acquired by way of any rights offering or similar offering made
in respect of the Common Stock referred to in clauses (i), (ii) and (iii) above;
provided, however, that, as to any such shares of Common Stock so issued or
issuable, such shares will cease to be Registrable Securities when such shares
have been sold to the public pursuant to a registration or pursuant to Rule 144.
"Registration Agreements" means the Agreements described in Exhibit A
hereto.
"Requested Registration" means a registration requested by holders of
Registrable Securities pursuant to Section 3.
"Requesting Holder" means any of the original Requesting Holder and the
other Requesting Holders.
"Rule 144" means Rule 144 promulgated by the Commission under the
Securities Act (or any successor or similar rule then in force).
"Rule 144A" means Rule 144A promulgated by the Commission under the
Securities Act (or any successor or similar rule then in force).
"Securities Act" means the U.S. Securities Act of 1933, as amended, or any
similar Federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Short-Form Registration" means a registration of the Common Stock of AROC
on Form S-2 or Form S-3 under the Securities Act or any successor form or
similar short-form registration.
"Warrant Agreements" has the meaning set forth in the preamble of this
Agreement.
"Warrants" has the meaning set forth in the Warrant Agreements.
"Withdrawing Holder" has the meaning set forth in Section 3.02.
3
<PAGE>
Section 2. Piggyback Registration. If at any time or from time to time after the
date hereof AROC proposes to effect a Piggyback Registration for its account or
for the account of a security holder or holders (other than holders of
Registrable Securities), then AROC shall:
(a) promptly give to each holder of Registrable Securities notice thereof
(which notice shall include a list of the jurisdictions in which AROC intends to
attempt to qualify such securities under or otherwise comply with the applicable
blue sky or other state securities laws); and
(b) include in such Piggyback Registration (and any related qualification
under or other compliance with blue sky or other state securities laws), and in
any underwriting involved therein, all the Registrable Securities specified in a
request, made within 15 days after receipt of such notice from AROC, by any
holder of Registrable Securities; provided, however, that AROC shall not be
required to include any securities of holders of Registrable Securities in such
registration unless such holders accept the terms of the underwriting as agreed
upon between AROC and the underwriters selected by it; and provided, further,
that if such Piggyback Registration is a Cutback Registration, then the number
of shares of Common Stock to be included in the underwriting or registration
shall be allocated first to AROC, the holders of Registrable Securities and the
Electing Holders (pro rata, based on the total number of shares of securities of
AROC, including Registrable Securities, requested by AROC and each such holder
to be included therein); and thereafter to any other holders requesting
inclusion in the registration on the basis of the number of shares each other
requesting holder requests be included bears to the total number of shares of
all other holders of Common Stock that have been requested be included in such
registration. If a person who has requested inclusion in such registration as
provided above does not agree to the terms of any such underwriting, such person
shall be excluded therefrom by written notice from AROC, the underwriter, or the
holders of Registrable Securities. The securities so excluded shall also be
withdrawn from registration.
(c) (i) If, at any time after giving written notice of its intention to
register any of its Common Stock and before the effective date of the
registration statement filed in connection with the registration, AROC
determines for any reason not to register its Common Stock, AROC may, at its
election, give written notice of its determination to the holders of Registrable
Securities and the Electing Holders and, thereupon, shall be relieved of its
obligation to register any Registrable Securities in connection with that
registration, without prejudice, however, to the future rights of the holders of
Registrable Securities under this Section, (ii) if AROC determines in its
discretion to delay the registration of its Common Stock, AROC shall be
permitted to delay the registration of any Registrable Securities for the same
period as the delay in registering any other Common Stock, and (iii) AROC is not
required to effect any registration for a requesting holder of Registrable
Securities pursuant to this Section 2 unless it receives reasonable assurances
that the requesting holder of Registrable Securities will pay any expenses
required to be paid by it as a provided in Section 5.
(d) The rights of holders with respect to Piggyback Registrations shall be
pari passu with the piggyback registration rights of Benton Holders and the
EnCap Holders.
Section 3. Requested Registration.
3.01. Request for Registration.
(a) If after the date AROC shall receive a request from any holder of
Registrable Securities (including Warrants) that AROC effect any registration
under the Securities Act to which such holder is entitled under this Section 3
(including without limitation any related qualification under or compliance with
blue sky or other state securities laws) with respect to all or a part of the
Registrable Securities
4
<PAGE>
owned by such holder, then AROC shall promptly give notice of such request to
each other holder of Registrable Securities, and AROC shall thereupon promptly
use its best efforts diligently to effect such Requested Registration and
related qualifications and compliances within 120 days after receiving such
request for registration (including without limitation the execution of an
undertaking to file post- effective amendments and appropriate qualifications
under or other compliance with the applicable blue sky or other state securities
laws) as may be reasonably requested by the holder of Registrable Securities who
made the original request (the "Original Requesting Holder") and by the holders
of Registrable Securities who make requests to AROC within 15 days after the
giving of the aforesaid notice by AROC (each of the foregoing an "Other
Requesting Holder") and as would permit or facilitate the sale and distribution
of all or such portion of the Registrable Securities as are specified in any
such request; provided, however, that AROC shall not be obligated to take any
action to effect a Requested Registration or any related qualification or
compliance pursuant to this Section 3:
(i) if the Requesting Holders do not request to include in such
registration Registrable Securities (issued or issuable on exercise of the
Warrants) having an aggregate Current Adjustment Price (as defined in the
Warrants), determined as of the date of the notice from the Original Requesting
Holder under Section 3.01(a) of (A) at least $750,000 for the holders' first
Requested Registration or (B) at least $250,000 for the holders' second
Requested Registration;
(ii) if AROC shall have already effected two Requested Registrations
on behalf of the holders of Registrable Securities pursuant to this Section
3.01, each of which Requested Registrations (A) has been declared or ordered
effective (including without limitation qualification under or other compliance
with state blue sky or securities laws requested) and which effectiveness has
not been suspended or stopped by any governmental or judicial authority, and (B)
remains continuously effective for a period of time not less than the Effective
Period; or
(iii) if, within 30 days after receipt of the initial request of the
Original Requesting Holder pursuant to this Section 3.01, AROC shall elect to
include in such registration Common Stock for its own account, whereupon AROC
shall notify each Requesting Holder that AROC has elected to effect a Piggyback
Registration and shall thereafter diligently proceed to do so, including therein
the Registrable Securities as to which notice was given by the Requesting
Holders pursuant to this Section 3.01, but subject to the limitations set forth
in Section 2(b)(i) (it being understood, however, that such registration shall
not be deemed to be a Requested Registration for the purposes of Sections
3.01(a)(ii) or 3.01(c)).
(iv) Notwithstanding the foregoing, (A) AROC shall not be obligated
to effect a registration pursuant to this Section 3 during the period starting
with the date 60 days prior to AROC's good faith estimated date of filing of,
and ending on a date 120 days following the effective date of, a registration
statement pertaining to an underwritten public offering of securities for the
account of AROC, provided that AROC is at all times during such period
diligently pursuing such registration, (B) AROC shall not be obligated to effect
a registration of Registrable Securities pursuant to this Section 3 pursuant to
any request of Holders of Registrable Securities if such request is received
after the receipt by AROC of a request for registration pursuant to one of the
Registration Agreements, and any such registration pursuant to this Section 3
would likely result in a registration statement being declared effective prior
to the date that is 90 days after the effective date of any such registration
effected pursuant to the Registration Agreement, and (C) AROC shall not be
obligated to effect a registration pursuant to this Section 3 and shall have the
right to defer such filing for a period of not more than 120 days after receipt
of the request of holders of Registrable Securities, if AROC shall furnish to
such holders a certificate signed by the President of AROC stating that in the
good faith judgment of the Board of Directors of AROC, it would be seriously
detrimental to AROC and its shareholders for such registration
5
<PAGE>
statement to be filed and it is therefore essential to defer the filing of such
registration statement; provided, however, that, subject to the limitation set
forth in the proviso in Section 3.01(a)(ii), if AROC shall no longer be eligible
to effect a Short-Form Requested Registration following the deferral of
registration pursuant to this paragraph, then the holders of Registrable
Securities shall, subject to Section 3.01(a)(ii), be entitled to a Long-Form
Requested Registration for each such deferral.
(v) If at any time after the holders' initial Requested Registration,
a request of the holders of Registrable Securities for a Requested Registration
shall be denied by AROC solely because the aggregate Current Adjustment Price of
such Registrable Securities sought to be included in such registration is below
the requisite dollar amount specified in Section 3.01(a)(i)(B), then at the
election of the holders of a majority of the then outstanding Registrable
Securities, and in exchange for the right of the holders to request a second
Requested Registration under this Section 3, the holders shall be entitled to
convert their Registrable Securities represented by Warrants (having an
aggregate Current Adjustment Price for all holders of not more than $250,000)
pursuant to Section 12 of the Warrant.
(b) If a Requested Registration becomes a Cutback Registration and the
number of shares of Registrable Securities actually sold in such Requested
Registration is not at least a majority of the number of shares of Registrable
Securities requested to be included in such registration, then (A) such
Requested Registration shall not be deemed to be a Requested Registration for
the purposes of Section 3.01(a)(ii); and (B) notwithstanding that such Requested
Registration is a Cutback Registration, AROC shall continue to use its best
efforts diligently to comply with all its obligations (including without
limitation payment of expenses) under this Agreement with respect to such
Requested Registration. The registration statement filed pursuant to the
request of holders of Registrable Securities may, subject to the provisions of
Section 3.01(c), include other shares of Common Stock of AROC, which are held by
persons who, by virtue of agreements with AROC, are entitled to include their
securities in any such registration, and AROC shall have the right to include
shares of Common Stock in such registration for its own account as provided
therein.
(c) If a Requested Registration becomes a Cutback Registration, the number
of Common Stock to be included in the underwriting or registration shall be
allocated first to the holders of Registrable Securities and the Electing
Holders (pro rata, based on the number of Registrable Securities requested by
each such holder to be included therein), second to AROC and thereafter to any
other holders requesting inclusion in the registration on the basis of the
number of shares each other requesting holder requests be included bears to the
total number of shares of all other holders of Common Stock that have been
requested be included in such registration. If a person who has requested
inclusion in such registration as provided above does not agree to the terms of
any such underwriting, such person shall be excluded therefrom by written notice
from AROC, the underwriter, or the holders of Registrable Securities. The
securities so excluded shall also be withdrawn from registration.
3.02. Underwriting. If Requesting Holders intend to distribute the Registrable
Securities covered by such request by means of an underwriting, the Requesting
Holders shall so advise AROC as a part of the request made pursuant to this
Section 3, and in such event, the Requesting Holders shall negotiate in good
faith with an underwriter or underwriters proposed by AROC to act as the
Managing Underwriter in connection with the underwriting of the Requested
Registration; provided, however, that if those Requesting Holders who hold at
least a majority of the Registrable Securities to be included in such Requested
Registration have not agreed with such underwriter or underwriters as to the
terms and conditions of such underwriting within 20 days following commencement
of such negotiations, then the Requesting Holders may select an underwriter or
underwriters of their choice to be the Managing Underwriter, which choice shall
be subject to the approval of the Board of Directors of AROC (such approval not
to be unreasonably withheld or delayed, taking into account AROC's agreements
with
6
<PAGE>
underwriters then in effect).AROC and the Requesting Holders shall enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting (it being understood that (i) all expenses
customarily paid for by the issuer of securities pursuant to such an
underwriting agreement shall be paid for by AROC, and (ii) all indemnification
obligations which are customarily those of the issuer of securities under such
underwriting agreement shall be the obligations of AROC).If a Requesting Holder
disapproves of the terms of an underwriting (the "Withdrawing Holder"), the
Withdrawing Holder may elect to withdraw therefrom by notice to AROC and the
Managing underwriter; and each of the remaining Requesting Holders shall be
entitled to increase the number of shares of Registrable Securities being
registered to the extent of the shares withdrawn by the Withdrawing Holder in
the proportion which the number of shares of Registrable Securities being
registered by such remaining Requesting Holder bears to the total number of
shares being registered by all such remaining Requesting Holders; provided,
however, that the requirements contained in Section 3.01(a)(i) shall then be met
and subject to Section 3.01(c).
Section 4. Expenses of Registration.
Except as otherwise provided herein, (a) in the case of Requested
Registrations pursuant to Section 3, all expenses incurred by AROC or the
Holders in connection with any registration, qualification or compliance
effected pursuant to this Agreement, including without limitation all
registration, filing and qualification fees, printing expenses, fees and
disbursements of counsel for AROC and for the holders of Registrable Securities,
and the expenses of any audits required by such registration, shall be borne by
AROC and (b) in the case of Piggyback Registrations pursuant to Section 2 (other
than a primary registration by AROC), all of the incremental expenses incurred
by AROC (and not otherwise reimbursed) shall be borne by the holders of
Registrable Securities included in any registration pursuant to the terms
hereof; provided, however, that AROC shall not be required to pay: (i) the
underwriters' fees, discounts or commissions relating to Registrable Securities;
or (ii) the fees and disbursements of more than a single law firm for all
holders of Registrable Securities to be selected by the holders of a majority of
such Registrable Securities participating in a Requested Registration pursuant
to Section 3. Notwithstanding the foregoing, AROC shall not be required to pay
for any expenses of any registration proceeding begun pursuant to Section 3 if
the request for registration is subsequently withdrawn at the request of the
holders of a majority of the Registrable Securities to be registered therein
(which holders shall bear such expenses), unless the holders of a majority of
the Registrable Securities agree that such registration shall be deemed to
constitute a Requested Registration for purposes of the limitation set forth in
the proviso of Section 3.01(a)(ii); provided, however, that if (a) between the
date such request for registration is made and the date of such withdrawal,
there has occurred a material adverse change in the condition, business or
prospects of AROC (or a material adverse change occurring prior to such request
is first publicly disclosed) and (b) such withdrawal shall have occurred prior
to the effective date of the applicable registration statement (it being
understood that the holders shall only have the right to withdraw a Requested
Registration prior to such effective date), then the holders shall not be
required to pay any of such expenses and no Requested Registration shall be
deemed to have occurred pursuant to Section 3.
Section 5. Registration Procedures.
5.01. In the case of each registration, qualification or compliance effected by
AROC pursuant to this Agreement, AROC shall, by notice to each holder of
Registrable Securities included in such registration, keep such holder advised
in writing as to the initiation, progress and effective date of each
registration, qualification and compliance, and, at the expense of AROC, AROC
will:
7
<PAGE>
(a) prepare and file with the Commission a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective as soon as reasonably practicable
thereafter; and before filing a registration statement or prospectus or any
amendments or supplements thereto, furnish to the Investor (provided Registrable
Securities held by the Investor are covered by such registration statement) and
the underwriter or underwriters, if any, copies of all such documents proposed
to be filed, including without limitation documents incorporated by reference in
the prospectus and, if requested by such holders of Registrable Securities, the
exhibits incorporated by reference, and such holders shall have the opportunity
to object to any information pertaining to such holders that is contained
therein and AROC will make the corrections reasonably requested by an
underwriter or such holders with respect to such information prior to filing any
registration statement or amendment thereto or any prospectus or any supplement
thereto;
(b) prepare and file with the Commission such amendments and supplements
to such registration statement and the prospectus used in connection therewith
as may be necessary to keep such registration statement effective for a period
(the "Effective Period") of not less than 180 days, or such shorter period as is
necessary to complete the distribution of the securities covered by such
registration statement 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 seller thereof set forth in such registration statement;
(c) furnish to each seller of Registrable Securities such number of copies
of such registration statement, each amendment and supplement thereto, the
prospectus included in such registration statement (including without limitation
each preliminary prospectus) and such other documents as such seller may
reasonably request in order to facilitate the disposition of the Registrable
Securities owned by such seller;
(d) use its best efforts to register or qualify such Registrable
Securities under such other securities or blue sky laws of such jurisdictions as
any seller reasonably requests and take such other steps which may be necessary
or advisable in the reasonable judgment of the managing underwriter (and at the
reasonable request of such managing underwriter) to enable such seller to
consummate the disposition in such jurisdictions of the Registrable Securities
owned by such seller (provided that AROC will not for any such purpose be
required to (1) qualify generally to do business as a foreign corporation in any
jurisdiction where it would not otherwise be required to qualify but for the
requirements of this subsection; (2) subject itself to taxation in any such
jurisdiction; (3) consent to general service of process in any such
jurisdiction; or (4) register or qualify Registrable Securities or take any
other action under the state securities or "Blue Sky" laws of any jurisdiction
if, in the judgment of the Board of Directors of AROC, the consequences of the
registration, qualification or other action would be unduly burdensome to AROC).
(e) notify the Investor and each seller of such Registrable Securities
when a prospectus relating thereto is required to be delivered under the
Securities Act, of the occurrence of any event as a result of which the
prospectus included in such registration statement contains an untrue statement
of a material fact or omits any fact necessary to make the statements therein
not misleading, and, at the request of any such seller, or at the request of any
seller upon the happening of any event of the kind described in Section 5.01(k),
AROC shall prepare a supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of such Registrable Securities, such
prospectus shall not contain an untrue statement of a material fact or omit to
state any fact necessary to make the statements therein not misleading or cures
the event of the kind described in Section 5.01(k);
8
<PAGE>
(f) in the case of an underwritten offering, cause to be delivered to the
sellers of Registrable Securities and the underwriters, if any, opinions of
counsel to AROC in customary form, covering such matters as are customarily
covered by opinions for an underwritten public offering as the underwriters may
reasonably request and addressed to the underwriters and such sellers;
(g) make available for inspection by any seller of Registrable Securities
that is a Significant Holder, any underwriter participating in any disposition
pursuant to such registration statement, and any attorney, accountant or other
agent retained by any seller or underwriter, all financial and other records,
pertinent corporate documents and properties of AROC, and cause AROC's officers,
directors, employees and independent accountants to supply all information
reasonably requested by any such seller, underwriter, attorney, accountant or
agent in connection with such registration statement;
(h) provide a transfer agent and registrar for all such Registrable
Securities not later than the effective date of such registration statement;
(i) cause to be delivered, immediately prior to the effectiveness of the
registration statement (and, in the case of an underwritten offering, at the
time of delivery of any Registrable Securities sold pursuant thereto), letters
from AROC's independent certified public accountants addressed to each seller
that is a Significant Holder and each underwriter, if any, stating that such
accountants are independent public accountants within the meaning of the
Securities Act and the applicable published rules and regulations thereunder,
and otherwise in customary form and covering such financial and accounting
matters as are customarily covered by letters of the independent certified
public accountants delivered in connection with primary or secondary
underwritten public offerings, as the case may be;
(j) make generally available to the holders of Registrable Securities a
consolidated earnings statement (which need not be audited) for the 12 months
beginning after the effective date of a registration statement as soon as
reasonably practicable after the end of such period, which earnings statement
shall satisfy Section 11(a) of the Securities Act and Rule 158 thereunder; and
(k) promptly notify the Investor and any Significant Holder selling
Registrable Securities in such registration and the underwriter or underwriters,
if any:
(i) when the registration statement, any preeffective amendment, the
prospectus or any prospectus supplement or post-effective amendment to the
registration statement has been filed and, with respect to the registration
statement or any post-effective amendment, when the same has become effective;
(ii) of any written request by the Commission for post-effective
amendments or supplements to the registration statement or prospectus;
(iii) of the notification to AROC by the Commission of its initiation
of any proceeding with respect to the issuance by the Commission of, or the
issuance by the Commission of, any stop order suspending the effectiveness of
the registration statement; and
(iv) of the receipt by AROC of any notification with respect to the
suspension of the qualification of any Registrable Securities for sale under the
applicable securities or blue sky laws of any jurisdiction.
5.02. As soon as possible following receipt of notice from the Managing
Underwriter that a particular registration is a Cutback Registration, AROC will
notify the Investor and each of the holders of
9
<PAGE>
Registrable Securities that is a Significant Holder requested to be included
therein that such registration is a Cutback Registration and of the effect
thereof on the ability of such holders to include their shares in such
registration.
5.03. AROC will use its best efforts to become (and thereafter to remain)
eligible to effect Short-Form Registrations.
5.04. Whenever the holders of Registrable Securities have requested that any
Registrable Securities be registered pursuant to Section 2 or Section 3, each
holder of Registrable Securities will be deemed to have agreed that, upon
receipt of any notice from AROC of the happening of any event of the kind
described in Section 5.01(e) or Section 5.01(k)(ii) or (iii), the holders of
Registrable Securities covered by such registration statement will forthwith
discontinue disposition of any such Registrable Securities until the holders of
Registrable Securities receive copies of the supplemented or amended prospectus
contemplated by Section 5.01(e), or until they are advised in writing by AROC
that the use of the applicable prospectus may be resumed, and they have received
copies of any additional or supplemental filings that are incorporated or deemed
to be incorporated by reference in such prospectus (it being the agreement of
the parties hereto, however, that the obligation of AROC with respect to
maintaining the subject registration statement current and effective shall be
extended by a period of days equal to the period the holders of Registrable
Securities are required by this Section 5.04 to discontinue disposition of such
Registrable Securities.
Section 6. Indemnification; Contribution.
6.01. With respect to any registration, qualification or compliance effected or
to be effected pursuant to this Agreement, AROC shall indemnify each holder of
Registrable Securities whose securities are included or are to be included
therein, each such holder's directors, officers, employees, stockholders,
Affiliates and agents, each underwriter (as defined in the Securities Act) of
the securities sold by such holder and each Person who controls (within the
meaning of the Securities Act) any such holder or underwriter, from and against
all claims, losses, damages and liabilities (or actions in respect thereof)
arising out of or based on:
(i) any untrue statement (or alleged untrue statement) of a material
fact contained in any prospectus, offering circular or other document (including
without limitation any related registration statement, notification or the
like), or any amendment thereof or supplement thereto, incident to any such
registration, qualification or compliance;
(ii) 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
(iii) any violation by AROC of the Securities Act, the Exchange Act or
any rule or regulation promulgated thereunder applicable to AROC, or of any blue
sky or other state securities laws or any rule or regulation promulgated
thereunder applicable to AROC,
and will reimburse each such Person entitled to indemnity under this Section
6.01 for all legal and other expenses reasonably incurred, as the same are
incurred, in connection with investigating or defending any such claim, loss,
damage, liability or action; provided, however, that the foregoing indemnity and
reimbursement obligation shall not be applicable to the extent that any such
claim, loss, damage or liability arises out of or is based on any untrue
statement (or alleged untrue statement) or omission (or alleged omission) or
violation made in reliance upon and in conformity with written information
furnished to AROC by such holder specifically for use in such prospectus,
offering circular, other
10
<PAGE>
document, amendment or supplement; and provided further that the foregoing
indemnity and reimbursement obligation shall not be applicable with respect to
any preliminary prospectus to the extent that any loss, claim, damage, liability
or expense of the indemnitee results from the fact that a holder of Registrable
Securities sold Registrable Securities to a person to whom there was not sent or
given, at or prior to the written confirmation of the sale, a copy of the
prospectus (excluding documents incorporated by reference) or of the prospectus
as then amended or supplemented (excluding documents incorporated by reference)
if AROC has previously furnished copies thereof to the holder of Registrable
Securities in compliance with Section 5 of this Agreement and the loss, claim,
damage, liability or expense of the indemnitee results from an untrue statement
or omission of a material fact contained in such preliminary prospectus which
was corrected in the prospectus (or the prospectus as amended or supplemented).
6.02. With respect to any registration, qualification or compliance effected or
to be effected pursuant to this Agreement, each holder of Registrable Securities
which are included or are to be included in such registration, qualification or
compliance shall indemnify AROC, its directors, officers, employees,
stockholders, Affiliates and agents, each underwriter (as defined in the
Securities Act) of the securities of such holder, each Person who controls
(within the meaning of the Securities Act) AROC or any such underwriter from and
against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on:
(i) any untrue statement (or alleged untrue statement) of a material fact
contained in any prospectus, offering circular or other document (including
without limitation any related registration statement, notification or the
like), or any amendment thereof or supplement thereto, incident to any such
registration, qualification or compliance;
(ii) 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;
(iii) any violation by such holder of the Securities Act, the Exchange Act
or any rule or regulation promulgated thereunder applicable to such holder, or
of any blue sky or other state securities law or any rule or regulation
promulgated thereunder applicable to such holder, and will reimburse each such
Person entitled to indemnity under this Section 6.02 for any legal and other
expenses reasonably incurred in connection with investigating or defending any
such claim, loss, damage, expense, liability or action; or
(iv) with respect to any preliminary prospectus, the fact that any holder
of Registrable Securities sold Registrable Securities to a person to whom there
was not sent or given, at or prior to the written confirmation of the sale, a
copy of the prospectus (excluding documents incorporated by reference) or of the
prospectus as then amended or supplemented (excluding documents incorporated by
reference) if (a) AROC has previously furnished copies thereof to the holder of
Registrable Securities in compliance with Section 5 of this Agreement and (b)
the loss, claim, damage, liability or expense of the indemnitee results from an
untrue statement or omission of a material fact contained in the preliminary
prospectus which was corrected in the prospectus (or the prospectus as amended
or supplemented);
but in each case of the preceding subsections (i), (ii), (iii) and (iv), only to
the extent that such untrue statement (or alleged untrue statement) or omission
(or alleged omission) or violation is made in such prospectus, offering
circular, other document, amendment or supplement in reliance upon and in
conformity with written information furnished to AROC by such holder
specifically for use in such prospectus, offering circular, other document,
amendment or supplement.
11
<PAGE>
6.03. Each Person entitled to indemnification under this Section 6 (an
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after the Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; provided, however, that:
(i) counsel for the Indemnifying Party who shall conduct the defense of
any such claim or any litigation shall be approved by the Indemnified Party
(which approval shall not be unreasonably withheld or delayed);
(ii) the Indemnified Party may participate in such defense at the
Indemnified Party's expense; provided, however, that the Indemnified Party or
Indemnified Parties shall have the right to employ a single law firm and a
single local counsel law firm to represent it or them if, in the reasonable
judgment of the Indemnified Party or Indemnified Parties, it is advisable for it
or them to be represented by separate counsel by reason of having legal defenses
which are different from or in addition to those available to the Indemnifying
Party, and in that event the reasonable fees and expenses of one such law firm
and one such local law firm shall be paid by the Indemnifying Party; and
(iii) failure of any Indemnified Party to give notice as provided herein
shall not relieve the Indemnifying Party of its obligations under this Section
6.
No Indemnifying Party, in the defense of any such claim or litigation,
shall, except with the consent of the Indemnified Party to which such claim or
litigation relates, consent to entry of any judgment or enter into any
settlement unless such settlement relieves the Indemnified Party of any and all
liability. Each Indemnified Party shall furnish such information regarding
itself for the claim in question as an Indemnifying Party may reasonably request
in writing and as shall be reasonably required in connection with defense of
such claim in litigation resulting therefrom.
6.04. If the indemnity and reimbursement obligation provided for in each of
Section 6.01 and Section 6.02 is unavailable or insufficient to hold harmless an
Indemnified Party in respect of any claims, losses, damages or liabilities (or
actions in respect thereof) referred to therein, then the Indemnifying Party
shall contribute to the amount paid or payable by the Indemnified Party as a
result of such claims, losses, damages or liabilities (or actions in respect
thereof) in such proportion as is appropriate to reflect the relative fault of
the Indemnifying Party, on the one hand, and the Indemnified Party, on the other
hand, in connection with statements or omissions which resulted in such claims,
losses, damages or liabilities, as well as any other relevant equitable
considerations. The relative fault 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 Indemnifying Party or the Indemnified Party and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such untrue statement or omission, the parties hereto agree
that it would not be just and equitable if contributions pursuant to this
Section 6.04 were to be 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 sentence of this Section 6.04. 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 Section 6.04 shall be deemed to
include any legal and other expenses reasonably incurred by such Indemnified
Party in connection with investigating or defending any claim, loss, damage,
liability or action which is the subject of this Section 6.04.
12
<PAGE>
No Indemnified Party guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from the Indemnifying Party if the Indemnifying Party was not
guilty of such fraudulent misrepresentation.
The provisions of this Section 6 shall be in addition to any other rights
to indemnification or contribution which an indemnified party may have pursuant
to law, equity, contract or otherwise and shall remain in full force and effect
regardless of any investigation made by or on behalf of an Indemnified Party and
shall survive the transfer of the shares of Common Stock or other stock or
securities which may be issued upon exercise of the Warrants.
Section 7. Information by Holders.
If Registrable Securities owned by a holder are included in any
registration, such holder shall furnish to AROC such information regarding
itself and the distribution proposed by such holder as AROC may reasonably
request and as shall otherwise be required in connection with any registration,
qualification or compliance referred to in this Agreement.
Section 8. Rule 144 Reporting; Rule 144A Sales.
With a view to making available to each holder of Registrable Securities
the benefits of certain rules and regulations of the Commission which may permit
the sale of the Registrable Securities to the public without registration, AROC
agrees that until the earlier of (a) the date on which no holder owns any
Registrable Securities or (b) the Expiration Date:
(a) AROC shall, at any time after any of AROC's securities are registered
under the Securities Act or the Exchange Act: (i) make and keep available public
information, as those terms are contemplated by Rule 144; (ii) timely file with
the Commission all reports and other documents required to be filed under the
Securities Act and the Exchange Act; (iii) furnish to each holder of Registrable
Securities forthwith upon request a written statement by AROC as to its
compliance with the reporting requirements of the Securities Act and the
Exchange Act, and a copy of the most recent annual or quarterly report of AROC;
and (iv) comply with all rules and regulations of the Commission applicable in
connection with the use of Rule 144 and take such other actions and furnish such
holder with such other public information as such holder may reasonably request
in order to assist such holder in availing itself of any rule or regulation of
the Commission allowing such holder to sell any Registrable Securities without
registration; and
(b) each holder of Registrable Securities and each prospective holder of
Registrable Securities who may consider acquiring Registrable Securities in
reliance upon Rule 144A shall have the right to request from AROC, and AROC will
provide upon request, such public information regarding AROC and its business,
assets and properties, if any, as such holder may reasonably request so as to
assist such holder in the transfer of Registrable Securities to such prospective
holder in reliance upon Rule 144A.
Section 9. Other Registration Rights.
9.01. AROC represents and warrants to the Investor that there is not in effect
on the date hereof any agreement by AROC (other than this Agreement and the
other Registration Agreements) pursuant to which any holders of securities of
AROC have a right to cause AROC to register or qualify such securities under the
Securities Act or any applicable state securities laws. The Investor hereby
consents to AROC entering into the Amended and Restated Registration Rights
Agreement by and among AROC Inc., EnCap Equity 1996 Limited Partnership, EnCap
Equity 1994 Limited Partnership, Energy Capital
13
<PAGE>
Investment Company Plc, Shahara Oil, L.L.C., Picosa Creek Limited Partnership,
EF-II Holdings, LLC and El Paso Capital Investments, L.L.C., dated as of April
30, 2000.
9.02. So long as any Registrable Securities shall be outstanding, (a) AROC
shall not amend or permit the amendment of the Registration Agreements in any
manner that is inconsistent with this Registration Rights Agreement or which
adversely affect the rights of any holder of Registrable Securities without the
prior written consent of the holders of a majority of the then outstanding
Registrable Securities and (b) AROC shall send any notice in respect of a
registration to be delivered by AROC to any holder of any rights under any of
the Registration Agreements to the Investor and any Significant Holders of
Registrable Securities.so long as any Registrable Securities shall be
outstanding, prior to the Expiration Date (as defined in the Warrant) AROC shall
not agree with the holders of any securities issued or to be issued by AROC to
register or qualify such securities under the Securities Act or any applicable
state securities laws unless such agreement (including any Registration
Agreement) specifically provides that: (a) such holder of such securities may
not participate in any Piggyback Registration except as provided in Section 2;
and (b) the holder of such securities may not participate in any Requested
Registration except as provided in Section 3.
Section 10. Holdback Agreements. In order to facilitate the possibility of
future public offerings of Common Stock, the holders of Registrable Securities
agree that the Registrable Securities will not be resold during a period
commencing on the filing by AROC of a registration statement under the
Securities Act for an underwritten public offering for cash by AROC of Common
Stock or securities convertible into or exercisable or exchangeable for its
Common Stock and continuing until the earlier of the abandonment of the proposed
public offering or 120 days following the date of the last closing in the public
offering without the consent of the underwriters of such offering, except to the
extent such shares are included in such registration. Holders of such
Registrable Securities also agree that they will cooperate with AROC in
providing reasonable written assurances respecting the foregoing to the
underwriter of any such public offering. Holders agree that during the above
restricted period they will not directly or indirectly sell, offer to sell,
contract to sell (including without limitation any short sale), grant an option
to purchase or otherwise transfer or dispose of (other than to donees who agree
to be similarly bound) shares of Registrable Securities at any time during such
period except securities included in such registration. In order to enforce the
foregoing covenant, AROC may impose stop-order instructions with respect to such
shares of Registrable Securities held by each holder, which shall be binding
upon any assignee or successor of such holder (and the shares or securities of
every other person subject to the foregoing restriction), until the end of the
restricted period.
Section 11. Miscellaneous.
11.01. Successors and Assigns. Subject to the provisions of Section 13, this
Agreement shall inure to the benefit of and shall be binding upon the parties
hereto, all the holders of Registrable Securities and their respective legal
representatives, successors and assigns.
11.02. Severability. If any term or provision of this Agreement, or the
application thereof to any Person or circumstance, shall, to any extent, be
invalid or unenforceable, the remaining terms and provisions of this Agreement
or application to Persons and circumstances shall not be invalidated thereby,
and each term and provision hereof shall be construed with all other remaining
terms and provisions hereof to effect the intent of the parties hereto to the
fullest extent permitted by law.
11.03. Notices. All notices, requests, demands and other communications provided
for hereunder shall be in writing and mailed (by first class registered or
certified mail, postage prepaid), sent by express
14
<PAGE>
overnight courier service or electronic facsimile transmission with a copy by
mail, or delivered to the applicable party at the addresses indicated below:
If to the Company:
AROC Inc.
4200 East Skelly Drive, Suite 1000
Tulsa, Oklahoma 74135
Attention: John A. Keenan
Facsimile: 918-494-4918
With a copy (which shall not constitute notice) to:
Jenkens & Gilchrist, a professional corporation
1445 Ross Avenue, Suite 3200
Dallas, Texas 75202
Attention: W. Alan Kailer
Facsimile: 214-855-4300
If to the Investor:
Bank of America, N.A.
901 Main Street, 64th Floor
Dallas, Texas 75202
Attn: Marcia Bateman
Facsimile: 214-209-9342
With a copy (which shall not constitute notice) to:
Billy Young
Vinson & Elkins LLP
3700 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 75201
Facsimile: 214-999-7994
or at such other address as shall be designated by such Person in a written
notice to the other party complying as to delivery with the terms of this
Section. All such notices, requests, demands and other communications shall,
when mailed or sent, respectively, be effective (i) three (3) days after being
deposited in the mails or (ii) one (1) day after being, deposited with the
express overnight courier service or sent by electronic facsimile transmission,
respectively, addressed as aforesaid.
11.04. Certain Terms. As used herein, the neuter gender shall also be deemed to
denote both the masculine and feminine genders. Unless the context otherwise
requires, the words "hereof", "herein", "hereto" and "hereunder", and words of
similar import, when used in this Agreement shall refer to this Agreement as a
whole and not to any particular term or provision of this Agreement. Whenever
the context requires, the singular form of any noun, pronoun or verb includes
the comparable plural form thereof, and vice versa.
15
<PAGE>
11.05. Counterparts. This Agreement may be executed with counterpart signature
pages or in several counterparts which, when executed and delivered by all
parties hereto, shall be binding on all parties hereto and shall constitute one
Agreement, notwithstanding that all parties have not signed the same signature
page or the same counterpart.
11.06. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, AND SHALL BE GOVERNED BY, THE LAWS OF THE STATE OF ILLINOIS
APPLICABLE TO CONTRACTS EXECUTED IN AND TO BE FULLY PERFORMED IN SUCH STATE.
11.07. Captions. The headings in this Agreement are for purposes of reference
only and will not be considered in construing this Agreement.
11.08. Amendments, Waivers, etc. This Agreement may be amended only by a
written instrument (which may be executed in any number of counterparts) signed
by AROC and the holders of a majority of the Registrable Securities voting as a
class; provided, however, that no such amendment, without the consent of all
holders of Registrable Securities at the time outstanding, shall amend this
Section 11.08. Subject to Section 11.09, no provision of this Agreement may be
waived except by a written instrument signed by the party hereto sought to be
bound. No failure or delay by any party hereto in exercising any right or
remedy hereunder or under applicable law will operate as a waiver thereof, and a
waiver of a particular right or remedy on one occasion will not be deemed a
waiver of any other right or remedy, or a waiver on any subsequent occasion.
11.09. Consents of Holders of Registrable Securities. Any consent of the
holders of Registrable Securities pursuant to this Agreement, and any waiver by
such holders of any provision of this Agreement, shall be in writing (which may
be executed in any number of counterparts) and may be given or taken by the
holders of a majority of the Registrable Securities voting as a class; provided,
however, that no such consent or waiver, without the consent of all holders of
Registrable Securities at the time outstanding, shall amend this Section 11.09;
and any such consent or waiver so given or taken will be binding on all the
holders of Registrable Securities.
11.10. Recapitalization, Exchanges, etc., Affecting AROC's Capital Stock. The
provisions of this Agreement shall apply, to the full extent set forth herein
with respect to any and all shares of capital stock of AROC or any successor or
assign of AROC (whether by merger, consolidation, sale of assets or otherwise)
which may be issued in respect of, in exchange for or in substitution of, the
Registrable Securities and shall be appropriately adjusted for any stock
dividends, splits, reverse splits, combinations, recapitalization and the like
occurring after the date hereof.
11.11. Delay of Registration. No holder of Registrable Securities shall have
any right to obtain or seek an injunction restraining or otherwise delaying any
such registration as the result of any controversy that might arise with respect
to the interpretation or implementation of this Agreement.
11.12. Prior Agreements. This Agreement supersedes the Registration Rights
Agreement between AROC and LaSalle dated as of October 13, 1999, which shall be
of no further force or effect.
Section 12. Listing on Securities Exchanges, etc. AROC shall, promptly after
the registration and sale thereof, use its best efforts to cause any Registrable
Securities (a) to be listed on a national securities exchange and on each
additional national securities exchange on which similar securities of AROC are
listed, if the listing is then permitted under the rules of such exchange, or
(b) to be designated as National Association of Securities Dealers Automated
Quotation System ("NASDAQ") "national market system
16
<PAGE>
securities" within the meaning of Rule llAa2-1 under the Exchange Act if similar
securities of AROC are so designated.
Section 13. Limitation on Registration Rights.
Notwithstanding anything to the contrary contained herein, (a) the rights
of a holder of Registrable Securities under Section 3 hereof shall be terminated
on the tenth anniversary of the date hereof, (b) the rights of a holder of
Registrable Securities under Section 2 hereof shall be terminated on the tenth
anniversary of the date hereof, (c) prior to such time registration rights under
Sections 2 and 3 may be transferred only to transferees that, together with
their respective Affiliates, are Significant Holders (after giving effect to all
such transfers) and (d) no transfer of registration rights under Sections 2 and
3 may be made except in accordance with the terms and conditions set forth
herein, in the Warrants, and in the Warrant Agreements.
In addition, the rights and obligations under this Agreement shall automatically
be transferred to and binding on any transferee or assignee of the Registrable
Securities, provided that, such transferee or assignee:
(i) notifies AROC in writing, within a reasonable time after such
transfer, of the name and address of such transferee or assignee and the
Registrable Securities with respect to which such registration rights are being
transferred or assigned;
(ii) agrees in writing to be bound by and subject to the terms and
conditions of this Agreement;
(iii) receives the Registrable Securities in a transaction that is in
compliance with the requirements for an exemption from the registration
requirements of the Securities Act and applicable state securities laws;
(iv) immediately following such transfer, is subject to restrictions under
the Securities Act on further disposition of such Registrable Securities; and
(v) acquires at least 33% of the total of the Registrable Securities the
Investor is entitled to acquire under the Warrant Agreements and the Registrable
Securities the Investor currently holds.
17
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Amended and
Restated Registration Rights Agreement as of the date first written above.
AROC INC.
By:_________________________________________
Name:_______________________________________
Title:______________________________________
BANK OF AMERICA, N.A.
By:_________________________________________
Name:_______________________________________
Title:______________________________________
LASALLE STREET NATURAL RESOURCES CORPORATION
By:_________________________________________
Name:_______________________________________
Title:______________________________________
18
<PAGE>
EXHIBIT A
to
Registration Rights Agreement
1. Registration Rights Agreement by and among American Rivers Oil Company, a
Delaware corporation, and F. Fox Benton, Jr., Lizinka M. Benton, F. Fox Benton
III, Lizinka C. Benton and Lucia T. Benton, dated as of October 13, 1999.
2. Amended and Restated Registration Rights Agreement by and among AROC Inc.,
EnCap Equity 1996 Limited Partnership, EnCap Equity 1994 Limited Partnership,
Energy Capital Investment Company Plc, Shahara Oil, L.L.C., Picosa Creek Limited
Partnership, EF-II Holdings, LLC and El Paso Capital Investments, L.L.C., dated
as of April 30, 2000.
19
<PAGE>
CREDIT AGREEMENT
Dated as of May 1, 2000
Among
AROC INC.,
as Borrower,
ALLIANCE RESOURCES PLC,
DIFCO LIMITED,
ALLIANCE RESOURCES GROUP, INC.,
SOURCE PETROLEUM, INC.,
AROC (TEXAS), INC.,
ALLIANCE RESOURCES (USA), INC.,
LATEX PETROLEUM CORPORATION,
GERMANY OIL COMPANY, and
ST. MARTINVILLE PARTNERS, LTD.
as Guarantors
TORONTO DOMINION (TEXAS), INC.
as Agent,
and
THE LENDERS SIGNATORY HERETO
$35,000,000 Senior Secured Revolving Credit Facility
--------------------------------------------
TD SECURITIES (USA), INC.,
as Arranger
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
Definitions and Accounting Matters
Section 1.01 Terms Defined Above........................................................ -2-
-------------------
Section 1.02 Certain Defined Terms...................................................... -2-
---------------------
Section 1.03 Accounting Terms and Determinations........................................ -17-
-----------------------------------
ARTICLE II
Commitments
Section 2.01 Loans and Letters of Credit................................................ -17-
---------------------------
Section 2.02 Borrowings, Continuations and Conversions, Letters of Credit............... -18-
------------------------------------------------------------
Section 2.03 Changes of Commitments..................................................... -20-
----------------------
Section 2.04 Fees....................................................................... -20-
----
Section 2.05 Several Obligations........................................................ -21-
-------------------
Section 2.06 Notes...................................................................... -21-
-----
Section 2.07 Prepayments................................................................ -21-
-----------
Section 2.08 Borrowing Base............................................................. -23-
--------------
Section 2.09 Assumption of Risks........................................................ -24-
-------------------
Section 2.10 Obligation to Reimburse and to Prepay...................................... -25-
-------------------------------------
Section 2.11 Lending Offices............................................................ -27-
---------------
ARTICLE III
Payments of Principal and Interest
Section 3.01 Repayment of Loans......................................................... -27-
------------------
Section 3.02 Interest................................................................... -27-
--------
ARTICLE IV
Payments; Pro Rata Treatment; Computations; Etc.
Section 4.01 Payments................................................................... -28-
--------
Section 4.02 Pro Rata Treatment......................................................... -29-
------------------
Section 4.03 Computations............................................................... -29-
------------
Section 4.04 Non-receipt of Funds by the Agent.......................................... -29-
---------------------------------
Section 4.05 Set-off, Sharing of Payments, Etc.......................................... -29-
----------------------------------
Section 4.06 Taxes...................................................................... -30-
-----
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
ARTICLE V
Capital Adequacy
Section 5.01 Additional Cost............................................................ -33-
---------------
Section 5.02 Limitation on LIBOR Loans.................................................. -35-
-------------------------
Section 5.03 Illegality................................................................. -35-
----------
Section 5.04 Base Rate Loans Pursuant to Sections 5.01, 5.02 and 5.03................... -35-
--------------------------------------------------------
Section 5.05 Compensation............................................................... -36-
------------
Section 5.06 Replacement Lenders........................................................ -36-
-------------------
ARTICLE VI
Conditions Precedent
Section 6.01 Initial Funding............................................................ -37-
---------------
Section 6.02 Initial and Subsequent Loans and Letters of Credit......................... -39-
--------------------------------------------------
Section 6.03 Conditions Precedent for the Benefit of Lenders............................ -40-
-----------------------------------------------
Section 6.04 No Waiver.................................................................. -40-
---------
ARTICLE VII
Representations and Warranties
Section 7.01 Corporate Existence........................................................ -40-
-------------------
Section 7.02 Financial Condition........................................................ -40-
-------------------
Section 7.03 Litigation................................................................. -41-
----------
Section 7.04 No Breach.................................................................. -41-
---------
Section 7.05 Authority.................................................................. -41-
---------
Section 7.06 Approvals.................................................................. -42-
---------
Section 7.07 Use of Loans............................................................... -42-
------------
Section 7.08 ERISA...................................................................... -42-
-----
Section 7.09 Taxes...................................................................... -43-
-----
Section 7.10 Titles, etc................................................................ -43-
-----------
Section 7.11 No Material Misstatements.................................................. -44-
-------------------------
Section 7.12 Investment Company Act..................................................... -44-
----------------------
Section 7.13 Public Utility Holding Company Act......................................... -44-
----------------------------------
Section 7.14 Subsidiaries............................................................... -44-
------------
Section 7.15 Location of Business and Offices........................................... -44-
--------------------------------
Section 7.16 Defaults................................................................... -44-
--------
Section 7.17 Environmental Matters...................................................... -45-
---------------------
Section 7.18 Compliance with the Law.................................................... -46-
-----------------------
Section 7.19 Insurance.................................................................. -46-
---------
Section 7.20 Hedging Agreements......................................................... -46-
------------------
Section 7.21 Restriction on Liens....................................................... -47-
--------------------
Section 7.22 Material Agreements........................................................ -47-
-------------------
Section 7.23 Gas Imbalances............................................................. -47-
--------------
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
ARTICLE VIII
Affirmative Covenants
Section 8.01 Reporting Requirements..................................................... -48-
----------------------
Section 8.02 Litigation................................................................. -49-
----------
Section 8.03 Maintenance, Etc........................................................... -50-
-----------------
Section 8.04 Environmental Matters...................................................... -51-
---------------------
Section 8.05 Further Assurances......................................................... -51-
------------------
Section 8.06 Performance of Obligations................................................. -52-
--------------------------
Section 8.07 Engineering Reports........................................................ -52-
-------------------
Section 8.08 Title Information.......................................................... -53-
-----------------
Section 8.09 Additional Collateral...................................................... -54-
---------------------
Section 8.10 ERISA Information and Compliance........................................... -54-
--------------------------------
Section 8.11 Hedging Agreements for East Irish Sea Properties........................... -55-
------------------------------------------------
Section 8.12 East Irish Sea Properties Consents......................................... -55-
----------------------------------
ARTICLE IX
Negative Covenants
Section 9.01 Debt....................................................................... -55-
----
Section 9.02 Liens...................................................................... -56-
-----
Section 9.03 Investments, Loans and Advances............................................ -56-
-------------------------------
Section 9.04 Dividends, Distributions and Redemptions................................... -57-
----------------------------------------
Section 9.05 Sales and Leasebacks....................................................... -57-
--------------------
Section 9.06 Nature of Business......................................................... -57-
------------------
Section 9.07 Limitation on Leases....................................................... -57-
--------------------
Section 9.08 Mergers, Etc............................................................... -57-
-------------
Section 9.09 Proceeds of Notes and Letters of Credit.................................... -57-
---------------------------------------
Section 9.10 ERISA Compliance........................................................... -58-
----------------
Section 9.11 Sale or Discount of Receivables............................................ -59-
-------------------------------
Section 9.12 Current Ratio.............................................................. -59-
-------------
Section 9.13 Tangible Net Worth......................................................... -59-
------------------
Section 9.14 Interest Coverage Ratio.................................................... -59-
-----------------------
Section 9.15 G & A Expenses............................................................. -60-
--------------
Section 9.16 Sale of Oil and Gas Properties............................................. -60-
------------------------------
Section 9.17 Environmental Matters...................................................... -60-
---------------------
Section 9.18 Transactions with Affiliates............................................... -60-
----------------------------
Section 9.19 Subsidiaries............................................................... -60-
------------
Section 9.20 Negative Pledge Agreements................................................. -60-
--------------------------
Section 9.21 Gas Imbalances, Take-or-Pay or Other Prepayments........................... -60-
------------------------------------------------
Section 9.22 Subordinated Debt.......................................................... -61-
-----------------
</TABLE>
ARTICLE X
-iii-
<PAGE>
<TABLE>
<S> <C>
Events of Default; Remedies
Section 10.01 Events of Default.......................................................... -61-
-----------------
Section 10.02 Remedies................................................................... -63-
--------
ARTICLE XI
The Agent
Section 11.01 Appointment, Powers and Immunities......................................... -63-
----------------------------------
Section 11.02 Reliance by Agent.......................................................... -64-
-----------------
Section 11.03 Defaults................................................................... -64-
--------
Section 11.04 Rights as a Lender......................................................... -64-
------------------
Section 11.05 INDEMNIFICATION............................................................ -65-
---------------
Section 11.06 Non-Reliance on Agent and other Lenders.................................... -65-
---------------------------------------
Section 11.07 Action by Agent............................................................ -65-
---------------
Section 11.08 Resignation or Removal of Agent............................................ -66-
-------------------------------
ARTICLE XII
Miscellaneous
Section 12.01 Waiver..................................................................... -66-
------
Section 12.02 Notices.................................................................... -66-
-------
Section 12.03 Payment of Expenses, Indemnities, etc...................................... -67-
-------------------------------------
Section 12.04 Amendments, Etc............................................................ -69-
---------------
Section 12.05 Successors and Assigns..................................................... -69-
----------------------
Section 12.06 Assignments and Participations............................................. -69-
------------------------------
Section 12.07 Invalidity................................................................. -71-
----------
Section 12.08 Counterparts............................................................... -71-
------------
Section 12.09 References; Use of Word "Including"........................................ -71-
-----------------------------------
Section 12.10 Survival................................................................... -71-
--------
Section 12.11 Captions................................................................... -72-
--------
Section 12.12 NO ORAL AGREEMENTS......................................................... -72-
------------------
Section 12.13 GOVERNING LAW; SUBMISSION TO JURISDICTION.................................. -72-
-----------------------------------------
Section 12.14 Interest................................................................... -73-
--------
Section 12.15 Confidentiality............................................................ -74-
---------------
Section 12.16 Disposition of Proceeds.................................................... -75-
-----------------------
</TABLE>
-iv-
<PAGE>
ANNEXES, EXHIBITS AND SCHEDULES
Annex I - List of Percentage Shares and Maximum Revolving Credit Amounts
Exhibit A - Form of Note
Exhibit B - Form of Borrowing, Continuation and Conversion Request
Exhibit C - Form of Compliance Certificate
Exhibit D - List of Security Instruments
Exhibit E - Form of Assignment Agreement
Exhibit F - Initial Reserve Report
Schedule 6.01(l) - Corporate and Financial Restructuring
Schedule 7.02 - Liabilities
Schedule 7.03 - Litigation
Schedule 7.09 - Taxes
Schedule 7.10 - Titles, etc.
Schedule 7.14 - Subsidiaries and Partnerships
Schedule 7.17 - Environmental Matters
Schedule 7.19 - Insurance
Schedule 7.20 - Hedging Agreements
Schedule 7.22 - Material Agreements
Schedule 7.23 - Gas Imbalances
Schedule 9.01 - Debt
Schedule 9.02 - Liens
Schedule 9.03 - Investments, Loans and Advances
-v-
<PAGE>
THIS CREDIT AGREEMENT dated as of May 1, 2000 is among AROC INC., a
corporation formed under the laws of the State of Delaware (the "Borrower");
--------
ALLIANCE RESOURCES PLC, a public limited company incorporated under the laws of
England and Wales ("Alliance PLC"), DIFCO LIMITED, a private limited company
------------
incorporated under the laws of England and Wales ("Difco"), ALLIANCE RESOURCES
-----
GROUP, INC., a Delaware corporation ("Alliance Group"), SOURCE PETROLEUM, INC.,
--------------
a Louisiana corporation ("Source"), AROC (TEXAS), INC., a Texas corporation
------
("AROC Texas"), ALLIANCE RESOURCES (USA), INC., a Delaware corporation
- ------------
("Alliance USA"), LATEX PETROLEUM CORPORATION, an Oklahoma corporation ("LPC"),
- -------------- ---
and GERMANY OIL COMPANY, a Delaware corporation ("GOC"), ST. MARTINVILLE
---
PARTNERS, LTD., a Texas limited partnership ("St. Martinville"); Alliance PLC,
---------------
Difco, Alliance Group, Source, AROC Texas, Alliance USA, LPC, and GOC
collectively, the "Guarantors"; the Borrower and the Guarantors collectively,
----------
the "Obligors") each of the lenders that is a signatory hereto or which becomes
--------
a signatory hereto as provided in Section 12.06 (individually, together with its
successors and assigns, a "Lender" and, collectively, the "Lenders"); and
------ -------
TORONTO DOMINION (TEXAS), INC., a Delaware corporation (in its individual
capacity, "TD TEXAS"), as agent for the Lenders (in such capacity, together with
--------
its successors in such capacity, the "Agent").
-----
R E C I T A L S
---------------
A. Bank of America, N.A., individually as the sole lender and as agent
("B of A"), and certain of the Guarantors executed that certain Third Amended
- --------
and Restated Credit Agreement dated as of October 26, 1998 (as amended, the
"Prior Credit Agreement"), pursuant to which B of A agreed to make loans to and
- -----------------------
extensions of credit on behalf of such Guarantors, as evidenced by a promissory
note of such Guarantors issued pursuant to the Prior Credit Agreement, which
note and other indebtedness, obligations and liabilities of such Guarantors
under the Prior Credit Agreement (the "Prior Debt") was secured by various
----------
security documents.
B. The Obligors, B of A, and the Agent have executed that certain
Assignment of Notes, Documents and Liens dated as of even date herewith
("Assignment of Notes, Documents and Liens"), pursuant to which, with the
- ------------------------------------------
consent of the Obligors, B of A assigned to the Agent all of its rights, titles
and interests in and to the Prior Credit Agreement, the promissory note executed
thereunder and such security documents and the liens and security interests
created thereby.
C. The Borrower, pursuant to that certain Assumption of Debt and Consent
Agreement dated as of even date herewith ("Assumption Agreement") agreed to
--------------------
assume, and promised to pay and discharge all indebtedness, obligations and
liabilities of the such Guarantors under the Prior Credit Agreement and the
promissory note executed thereunder.
D. The Borrower has requested that the Agent and the Lenders amend,
extend and rearrange all of the Prior Debt and provide certain loans to and
extensions of credit on behalf of the Borrower.
E. The Agent and the Lenders have agreed to amend, extend and rearrange
the Prior Debt and to make such loans and extensions of credit subject to the
terms and conditions of this Agreement.
-1-
<PAGE>
NOW, THEREFORE, in consideration of the premises, the mutual covenants and
agreements herein contained and of the loans, extensions of credit and
commitments hereinafter referred to, the parties hereto agree to amend and
restate the Prior Credit Agreement as follows:
ARTICLE I
Definitions and Accounting Matters
Section 1.01 Terms Defined Above. As used in this Agreement, the
-------------------
terms "Agent," "Alliance Group," "Alliance PLC," "Alliance USA," "AROC Texas,"
----- -------------- ------------ ------------ ----------
"Assignment of Notes, Documents and Liens,""Assumption Agreement," "BofA,"
- ----------------------------------------- -------------------- ----
"Borrower," "Difco," "GOC," "Guarantor," "Guarantors," "Lender," "Lenders,"
- --------- ----- --- --------- ---------- ------ -------
"LPC," "Obligors," "Prior Debt," "Prior Credit Agreement," "St. Martinville,"
--- -------- ---------- ---------------------- ---------------
"Source," and "TD TEXAS" shall have the meanings indicated above.
- ------- --------
Section 1.02 Certain Defined Terms. As used herein, the following
---------------------
terms shall have the following meanings (all terms defined in this Article I or
in other provisions of this Agreement in the singular to have equivalent
meanings when used in the plural and vice versa):
---- -----
"Acquisitions" means the acquisitions of certain Oil and Gas Properties or
------------
limited partnership interests by AROC Texas contemplated under certain Purchase
and Sale Agreements dated as of April 30, 2000 entered into by and between the
Borrower and the following parties: (i) Mountaineer Limited Partnership; (ii)
EnCap Equity 1994 Limited Partnership, (iii) EnCap Equity 1996 Limited
Partnership, and (iv) Energy Capital Investment Company PLC and ECIC
Corporation.
"Additional Costs" shall have the meaning assigned such term in Section
----------------
5.01(a).
"Affected Loans" shall have the meaning assigned such term in Section 5.04.
--------------
"Affiliate" of any Person shall mean (i) any Person directly or indirectly
---------
controlled by, controlling or under common control with such first Person, (ii)
any director or officer of such first Person or of any Person referred to in
clause (i) above and (iii) if any Person in clause (i) above is an individual,
any member of the immediate family (including parents, spouse and children) of
such individual and any trust whose principal beneficiary is such individual or
one or more members of such immediate family and any Person who is controlled by
any such member or trust. For purposes of this definition, any Person which owns
directly or indirectly 10% or more of the securities having ordinary voting
power for the election of directors or other governing body of a corporation or
10% or more of the partnership or other ownership interests of any other Person
(other than as a limited partner of such other Person) will be deemed to
"control" (including, with its correlative meanings, "controlled by" and "under
- -------- ------------- -----
common control with") such corporation or other Person.
- -------------------
"Agreement" shall mean this Credit Agreement, as the same may from time to
---------
time be amended or supplemented.
"Aggregate Maximum Revolving Credit Amounts" at any time shall equal the
------------------------------------------
sum of the Maximum Revolving Credit Amounts of the Lenders ($35,000,000), as the
same may be reduced pursuant to Section 2.03(b).
-2-
<PAGE>
"Aggregate Revolving Credit Commitments" at any time shall equal the amount
--------------------------------------
calculated in accordance with Section 2.03.
"Applicable Lending Office" shall mean, for each Lender and for each Type
-------------------------
of Loan, the lending office of such Lender (or an Affiliate of such Lender)
designated for such Type of Loan on the signature pages hereof or such other
offices of such Lender (or of an Affiliate of such Lender) as such Lender may
from time to time specify to the Agent and the Borrower as the office by which
its Loans of such Type are to be made and maintained.
"Applicable Margin" shall mean the applicable per annum percentage set
-----------------
forth at the appropriate intersection in the table shown below, based on the
Borrowing Base Utilization as in effect from time to time:
------------------------------------------------------------------
Borrowing Base Utilization Applicable Margin
------------------------------------------------------------------
LIBOR Loans Base Rate Loans
------------------------------------------------------------------
Less than 50% 1.75% 0.25%
------------------------------------------------------------------
Greater than or equal to 50%, 2.00% 0.50%
but less than 75%
------------------------------------------------------------------
Greater than or equal to 75%, 2.25% 0.75%
but less than 90%
------------------------------------------------------------------
Greater than or equal to 90% 2.50% 1.00%
------------------------------------------------------------------
;provided, however, at any time that the Interest Coverage Ratio is less than
-------- -------
3.00 to 1.00, "Applicable Margin" shall mean the applicable per annum percentage
set forth at the appropriate intersection in the table shown below, based on the
Borrowing Base Utilization as in effect from time to time:
------------------------------------------------------------------
Borrowing Base Utilization Applicable Margin
------------------------------------------------------------------
LIBOR Loans Base Rate Loans
Less than 50% 2.25% 0.75%
------------------------------------------------------------------
Greater than or equal to 50%, 2.50% 1.00%
but less than 75%
------------------------------------------------------------------
Greater than or equal to 75%, 2.75% 1.25%
but less than 90%
------------------------------------------------------------------
Greater than or equal to 90% 3.00% 1.50%
------------------------------------------------------------------
;and further provided, however, at any time that a Borrowing Base Deficiency
---------------- -------
exists, "Applicable Margin" shall mean 4.50% for LIBOR Loans and 3.00% for Base
Rate Loans.
-3-
<PAGE>
Each change in the Applicable Margin resulting from a change in the Borrowing
Base Utilization shall take effect on the day such change in the Borrowing Base
Utilization occurs.
"Assignment" shall have the meaning assigned such term in Section 12.06(b).
----------
"Base Rate" shall mean, with respect to any Base Rate Loan, for any day,
---------
the higher of (i) the Federal Funds Rate for any such day plus 1/2 of 1% or (ii)
the Prime Rate for such day. Each change in any interest rate provided for
herein based upon the Base Rate resulting from a change in the Base Rate shall
take effect at the time of such change in the Base Rate.
"Base Rate Loans" shall mean Loans that bear interest at rates based upon
---------------
the Base Rate.
"Borrowing Base" shall mean at any time an amount equal to the amount
--------------
determined in accordance with Section 2.08.
"Borrowing Base Deficiency" shall mean, and occur at any time when, the
-------------------------
amount by which the aggregate outstanding principal amount of the Loans plus the
LC Exposure exceeds the Borrowing Base, whether as the result of a
redetermination, a scheduled reduction, or otherwise.
"Borrowing Base Utilization" shall mean at any time, an amount equal to the
--------------------------
quotient of (i) the aggregate principal amount of Loans outstanding plus LC
Exposure, divided by (ii) the Borrowing Base.
"Business Day" shall mean any day other than a day on which commercial
------------
banks are authorized or required to close in Houston, Texas or New York, New
York and, where such term is used in the definition of "Quarterly Date" or if
such day relates to a borrowing or continuation of, a payment or prepayment of
principal of or interest on, or a conversion of or into, or the Interest Period
for, a LIBOR Loan or a notice by the Borrower with respect to any such borrowing
or continuation, payment, prepayment, conversion or Interest Period, any day
which is also a day on which dealings in Dollar deposits are carried out in the
London interbank market.
"Change of Control" means the occurrence of any of the following events:
-----------------
(a) any Person or two or more Persons, other than the Company or any affiliate
of the Company, acting as a group shall acquire beneficial ownership (within the
meaning of Rule 13d-3 of the Securities and Exchange Commission under the
Exchange Act, and including holding proxies to vote for the election of
directors other than proxies held by the Company's management or their designees
to be voted in favor of persons nominated by the Company's Board of Directors)
of 33% or more of the outstanding voting securities of the Company, measured by
voting power (including both ordinary shares and any preferred stock or other
equity securities entitling the holders thereof to vote with the holders of
common stock in elections for directors of the Company), (b) the Company shall
fail beneficially to own, directly or indirectly, 100% of the outstanding shares
of voting capital stock of Alliance PLC, Alliance Group, Difco, Source, AROC
(Texas), Alliance USA, LPC or GOC on a fully-diluted basis, (c) one-third or
more of the directors of the Company shall consist of persons not nominated by
the Company's Board of Directors (not including as Board nominees any directors
which the Board is obligated to nominate pursuant to shareholders agreements,
voting trust arrangements or similar arrangements) or (d) within three years of
the Closing Date, the employment by the Company of John Keenan or Paul Fenemore
terminates for any reason.
-4-
<PAGE>
"Closing Date" shall mean May 1, 2000.
------------
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
----
to time and any successor statute.
"Commitment" shall mean for any Lender, its Revolving Credit Commitment.
----------
"Consolidated Net Income" shall mean with respect to the Borrower and its
-----------------------
Consolidated Subsidiaries, for any period, the aggregate of the net income (or
loss) of the Borrower and its Consolidated Subsidiaries after allowances for
taxes for such period, determined on a consolidated basis in accordance with
GAAP; provided that there shall be excluded from such net income (to the extent
--------
otherwise included therein) the following: (i) the net income of any Person in
which the Borrower or any Consolidated Subsidiary has an interest (which
interest does not cause the net income of such other Person to be consolidated
with the net income of the Borrower and its Consolidated Subsidiaries 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, as the case may be; (ii) the net income (but
not loss) of any Consolidated Subsidiary 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 or Governmental Requirement
applicable to such Consolidated Subsidiary, or is otherwise restricted or
prohibited in each case determined in accordance with GAAP; (iii) the net income
(or loss) of any Person acquired in a pooling-of-interests transaction for any
period prior to the date of such transaction; (iv) any extraordinary gains or
losses, including gains or losses attributable to Property sales not in the
ordinary course of business; and (v) the cumulative effect of a change in
accounting principles and any gains or losses attributable to writeups or write
downs of assets.
"Consolidated Subsidiaries" shall mean each Subsidiary of a Person (whether
-------------------------
now existing or hereafter created or acquired) the financial statements of which
shall be (or should have been) consolidated with the financial statements of
such Person in accordance with GAAP.
"Debt" shall mean, for any Person the sum of the following (without
----
duplication): (i) all obligations of such Person for borrowed money or evidenced
by bonds, debentures, notes or other similar instruments (including principal,
interest, fees and charges); (ii) all obligations of such Person (whether
contingent or otherwise) in respect of bankers' acceptances, letters of credit,
surety or other bonds and similar instruments; (iii) all obligations of such
Person to pay the deferred purchase price of Property or services (other than
for borrowed money); (iv) all obligations under leases which shall have been, or
should have been, in accordance with GAAP, recorded as capital leases in respect
of which such Person is liable (whether contingent or otherwise); (v) all
obligations under operating leases which require such Person or its Affiliate to
make payments over the term of such lease, including payments at termination,
based on the purchase price or appraisal value of the Property subject to such
lease plus a marginal interest rate, and used primarily as a financing vehicle
for, or to monetize, such Property; (vi) all Debt (as described in the other
clauses of this definition) and other obligations of others secured by a Lien on
any asset of such Person, whether or not such Debt is assumed by such Person;
(vii) all Debt (as described in the other clauses of this definition) and other
obligations of others guaranteed by such Person or in which such Person
otherwise assures a creditor against loss of the debtor or obligations of
others; (viii) all obligations or undertakings of such Person
-5-
<PAGE>
to maintain or cause to be maintained the financial position or covenants of
others or to purchase the Debt or Property of others; (ix) obligations to
deliver goods or services including Hydrocarbons in consideration of advance
payments, except as permitted by Section 9.16 and disclosed by Section 8.07(c);
(x) obligations to pay for goods or services whether or not such goods or
services are actually received or utilized by such Person; (xi) any capital
stock of such Person in which such Person has a mandatory obligation to redeem
such stock; (xii) any Debt of a Special Entity for which such Person is liable
either by agreement or because of a Governmental Requirement; (xiii) 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 (xiv)
all obligations of such Person under Hedging Agreements.
"Default" shall mean an Event of Default or an event which with notice or
-------
lapse of time or both would become an Event of Default.
"Dollars" and "$" shall mean lawful money of the United States of America.
------- -
"East Irish Sea Properties" shall mean the Oil and Gas Properties owned by
-------------------------
Difco Limited located in the East Irish Sea.
"EBITDA" shall mean, for any period, the sum of Consolidated Net Income for
------
such period plus the following expenses or charges to the extent deducted from
Consolidated Net Income in such period: interest, taxes, depreciation, depletion
and amortization.
"Effective Date" shall have the meaning assigned such term in Section
--------------
12.16.
"Engineering Reports" shall have the meaning assigned such term in Section
-------------------
2.08.
"Environmental Laws" shall mean any and all Governmental Requirements
------------------
pertaining to health or the environment in effect in any and all jurisdictions
in which any Obligor or any Subsidiary is conducting or at any time has
conducted business, or where any Property of any Obligor or any Subsidiary is
located, including without limitation, the Oil Pollution Act of 1990 ("OPA"),
---
the Clean Air Act, as amended, the Comprehensive Environmental, Response,
Compensation, and Liability Act of 1980 ("CERCLA"), as amended, the Federal
------
Water Pollution Control Act, as amended, the Occupational Safety and Health Act
of 1970, as amended, the Resource Conservation and Recovery Act of 1976
("RCRA"), as amended, the Safe Drinking Water Act, as amended, the Toxic
----
Substances Control Act, as amended, the Superfund Amendments and Reauthorization
Act of 1986, as amended, the Hazardous Materials Transportation Act, as amended,
and other environmental conservation or protection laws. The term "oil" shall
have the meaning specified in OPA, the terms "hazardous substance" and "release"
(or "threatened release") have the meanings specified in CERCLA, and the terms
"solid waste" and "disposal" (or "disposed") have the meanings specified in
RCRA; provided, however, that (i) in the event either OPA, CERCLA or RCRA is
-------- -------
amended so as to broaden the meaning of any term defined thereby, such broader
meaning shall apply subsequent to the effective date of such amendment and (ii)
to the extent the laws of the state in which any Property of any Obligor or any
Subsidiary is located establish a meaning for "oil," "hazardous substance,"
"release," "solid waste" or "disposal" which is broader than that specified in
either OPA, CERCLA or RCRA, such broader meaning shall apply.
-6-
<PAGE>
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time and any successor statute.
"ERISA Affiliate" shall mean each trade or business (whether or not
---------------
incorporated) which together with the Borrower or any Subsidiary would be deemed
to be a "single employer" within the meaning of section 4001(b)(1) of ERISA or
subsections (b), (c), (m) or (o) of section 414 of the Code.
"ERISA Event" shall mean (i) a "Reportable Event" described in Section 4043
-----------
of ERISA and the regulations issued thereunder, (ii) the withdrawal of the
Borrower, any Subsidiary or any ERISA Affiliate from a Plan during a plan year
in which it was a "substantial employer" as defined in Section 4001(a)(2) of
ERISA, (iii) the filing of a notice of intent to terminate a Plan or the
treatment of a Plan amendment as a termination under Section 4041 of ERISA, (iv)
the institution of proceedings to terminate a Plan by the PBGC or (v) any other
event or condition which might constitute grounds under Section 4042 of ERISA
for the termination of, or the appointment of a trustee to administer, any Plan.
"Event of Default" shall have the meaning assigned such term in Section
----------------
10.01.
"Excepted Liens" shall mean: (i) Liens for taxes, assessments or other
--------------
governmental charges or levies not yet due or which are being contested in good
faith by appropriate action and for which adequate reserves have been
maintained; (ii) Liens in connection with worker's compensation, unemployment
insurance or other social security, old age pension or public liability
obligations not yet due or which are being contested in good faith by
appropriate action and for which adequate reserves have been maintained in
accordance with GAAP; (iii) operators', vendors', carriers', warehousemen's,
repairmen's, mechanics', workmen's, materialmen's, construction or other like
Liens arising by operation of law in the ordinary course of business or incident
to the exploration, development, operation and maintenance of Oil and Gas
Properties or statutory landlord's liens, each of which is in respect of
obligations that have not been outstanding more than 90 days or which are being
contested in good faith by appropriate proceedings and for which adequate
reserves have been maintained in accordance with GAAP; (iv) any Liens reserved
in leases or farmout agreements for rent or royalties and for compliance with
the terms of the farmout agreements or leases in the case of leasehold estates,
to the extent that any such Lien referred to in this clause does not materially
impair the use of the Property covered by such Lien for the purposes for which
such Property is held by any Obligor or any Subsidiary or materially impair the
value of such Property subject thereto; (v) encumbrances (other than to secure
the payment of borrowed money or the deferred purchase price of Property or
services), easements, restrictions, servitudes, permits, conditions, covenants,
exceptions or reservations in any rights of way or other Property of any Obligor
or any Subsidiary for the purpose of roads, pipelines, transmission lines,
transportation lines, distribution lines for the removal of gas, oil, coal or
other minerals or timber, and other like purposes, or for the joint or common
use of real estate, rights of way, facilities and equipment, and defects,
irregularities, zoning restrictions and deficiencies in title of any rights of
way or other Property which in the aggregate do not materially impair the use of
such rights of way or other Property for the purposes of which such rights of
way and other Property are held by any Obligor or any Subsidiary or materially
impair the value of such Property subject thereto; (vi) deposits of cash or
securities to secure the performance of bids, trade contracts, leases, statutory
obligations and other obligations of a like nature incurred in the ordinary
course of business; and (vii) Liens permitted by the Security Instruments.
-7-
<PAGE>
"Federal Funds Rate" shall mean, for any day, the rate per annum (rounded
------------------
upwards, if necessary, to the nearest 1/100 of 1%) equal to the weighted average
of the rates on overnight federal funds transactions with a member 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 (i) if the date 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 (ii) if such rate is not so
published for any day, the Federal Funds Rate for such day shall be the average
rate charged to the Agent on such day on such transactions as determined by the
Agent.
"Fee Letter" shall mean that certain letter agreement from TD Securities
----------
(USA), Inc. to the Borrower dated March 15, 2000 concerning certain fees in
connection with this Agreement and any agreements or instruments executed in
connection therewith, as the same may be amended or replaced from time to time.
"Financial Statements" shall mean the financial statement or statements of
--------------------
the Borrower and its Consolidated Subsidiaries described or referred to in
Section 7.02.
"GAAP" shall mean generally accepted accounting principles in the United
----
States of America in effect from time to time.
"Governmental Authority" shall include the country, the state, county, city
----------------------
and political subdivisions in which any Person or such Person's Property is
located or which exercises valid jurisdiction over any such Person or such
Person's Property, and any court, agency, department, commission, board, bureau
or instrumentality of any of them including monetary authorities which exercises
valid jurisdiction over any such Person or such Person's Property. Unless
otherwise specified, all references to Governmental Authority herein shall mean
a Governmental Authority having jurisdiction over, where applicable, any
Obligor, their Subsidiaries or any of their Property or the Agent, any Lender or
any Applicable Lending Office.
"Governmental Requirement" shall mean any law, statute, code, ordinance,
------------------------
order, determination, rule, regulation, judgment, decree, injunction, franchise,
permit, certificate, license, authorization or other directive or requirement
(whether or not having the force of law), including, without limitation,
Environmental Laws, energy regulations and occupational, safety and health
standards or controls, of any Governmental Authority.
"Guarantor" shall mean each of the parties named as "Guarantors" in the
---------
opening paragraph of this Agreement.
"Guaranty Agreement" shall mean an agreement executed by a Guarantor in
------------------
form and substance satisfactory to the Agent guarantying, unconditionally,
payment of the Indebtedness, as the same may be amended, modified or
supplemented from time to time.
"Hedging Agreements" shall mean any commodity, interest rate or currency
------------------
swap, cap, floor, collar, forward agreement or other exchange or protection
agreements or any option with respect to any such transaction.
-8-
<PAGE>
"Highest Lawful Rate" shall mean, with respect to each Lender, the maximum
-------------------
nonusurious interest rate, if any, that at any time or from time to time may be
contracted for, taken, reserved, charged or received on the Notes or on other
Indebtedness under laws applicable to such Lender which are presently in effect
or, to the extent allowed by law, under such applicable laws which may hereafter
be in effect and which allow a higher maximum nonusurious interest rate than
applicable laws now allow.
"Hydrocarbon Interests" shall mean all rights, titles, interests and
---------------------
estates now or hereafter acquired in and to oil and gas leases, oil, gas and
mineral leases, or other liquid or gaseous hydrocarbon leases, mineral fee
interests, overriding royalty and royalty interests, net profit interests and
production payment interests, including any reserved or residual interests of
whatever nature.
"Hydrocarbons" shall mean oil, gas, casinghead gas, drip gasoline, natural
------------
gasoline, condensate, distillate, liquid hydrocarbons, gaseous hydrocarbons and
all products refined or separated therefrom.
"Indebtedness" shall mean any and all amounts owing or to be owing by the
------------
Borrower or any Subsidiary to the Agent, the Issuing Bank and/or the Lenders in
connection with the Loan Documents, any Letter of Credit Agreements, any Hedging
Agreements now or hereafter arising between the Borrower or any Subsidiary and
any Lender or its Affiliate and permitted by the terms of this Agreement, and
all renewals, extensions and/or rearrangements of any of the foregoing.
"Indemnified Parties" shall have the meaning assigned such term in Section
-------------------
12.03(a)(ii).
"Indemnity Matters" shall mean any and all actions, suits, proceedings
-----------------
(including any investigations, litigation or inquiries), claims, demands and
causes of action made or threatened against a Person and, in connection
therewith, all losses, liabilities, damages (including, without limitation,
consequential damages) or reasonable costs and expenses of any kind or nature
whatsoever incurred by such Person whether caused by the sole or concurrent
negligence of such Person seeking indemnification.
"Initial Funding" shall mean the funding of the initial Loans or issuance
---------------
of the initial Letters of Credit upon satisfaction of the conditions set forth
in Sections 6.01 and 6.02.
"Initial Reserve Report" shall mean collectively the reports, copies of
----------------------
which have been delivered to the Agent, as described in Exhibit F.
---------
"Interest Coverage Ratio" shall mean the ratio of (i) EBITDA for the four
-----------------------
fiscal quarters ending on such date to (ii) cash interest payments made for such
four fiscal quarters of the Borrower and its Consolidated Subsidiaries.
"Interest Period" shall mean, with respect to any LIBOR Loan, the period
---------------
commencing on the date such LIBOR Loan is made and ending on the numerically
corresponding day in the first, second, third or sixth calendar month
thereafter, as the Borrower may select as provided in Section 2.02 (or such
longer period as may be requested by the Borrower and agreed to by the Majority
Lenders), except that each Interest Period which commences on the last Business
Day of a calendar month (or on any day for which there is no numerically
corresponding day in the
-9-
<PAGE>
appropriate subsequent calendar month) shall end on the last Business Day of the
appropriate subsequent calendar month.
Notwithstanding the foregoing: (i) no Interest Period may end after the
Revolving Credit Termination Date; (ii) no Interest Period for any LIBOR Loan
may end after the due date of any installment, if any, provided for in Section
3.01 to the extent that such LIBOR Loan would need to be prepaid prior to the
end of such Interest Period in order for such installment to be paid when due;
(iii) each Interest Period which would otherwise end on a day which is not a
Business Day shall end on the next succeeding Business Day (or, if such next
succeeding Business Day falls in the next succeeding calendar month, on the next
preceding Business Day); and (iv) no Interest Period shall have a duration of
less than one month and, if the Interest Period for any LIBOR Loans would
otherwise be for a shorter period, such Loans shall not be available hereunder.
"Issuing Bank" shall mean TD TEXAS or any other Lender agreed to between
------------
the Borrower and the Agent to issue Letters of Credit.
"LC Commitment" at any time shall mean $1,000,000.
-------------
"LC Exposure" at any time shall mean the difference between (i) the
-----------
aggregate face amount of all undrawn and uncancelled Letters of Credit plus the
aggregate of all amounts drawn under all Letters of Credit and not yet
reimbursed, minus (ii) the aggregate amount of all cash securing outstanding
-----
Letters of Credit pursuant to Section 2.10(b).
"Letter of Credit Agreements" shall mean the written agreements with the
---------------------------
Issuing Bank, as issuing lender for any Letter of Credit, executed in connection
with the issuance by the Issuing Bank of the Letters of Credit, such agreements
to be on the Issuing Bank's customary form for letters of credit of comparable
amount and purpose as from time to time in effect or as otherwise agreed to by
the Borrower and the Issuing Bank.
"Letters of Credit" shall mean the letters of credit issued pursuant to
-----------------
Section 2.01(b) and all reimbursement obligations pertaining to any such letters
of credit, and "Letter of Credit" shall mean any one of the Letters of Credit
and the reimbursement obligations pertaining thereto.
"LIBOR" shall mean the rate per annum (rounded upwards, if necessary, to
-----
the nearest 1/100 of 1%) of interest determined on the basis of the rate for
deposits in Dollars for a period equal to the applicable Interest Period
commencing on the first day of such Interest Period appearing on Dow Jones
Market Service Page 3750 as of 11:00 a.m. (London time) two (2) Business Days
prior to the first day of the applicable Interest Period. In the event that such
rate does not appear on Dow Jones Market Service Page 3750, "LIBOR" shall be
determined by the Agent to be the rate per annum (rounded upwards, if necessary,
to the nearest 1/100 of 1%) at which deposits in Dollars are offered by leading
reference banks in the London interbank market to TD TEXAS at approximately
11:00 a.m. (London time) two Business Days prior to the first day of the
applicable Interest Period for a period equal to such Interest Period and in an
amount substantially equal to the amount of the applicable Loan.
"LIBOR Loans" shall mean Loans the interest rates on which are determined
-----------
on the basis of rates referred to in the definition of "LIBOR Rate".
-10-
<PAGE>
"LIBOR Rate" shall mean, with respect to any LIBOR Loan, a rate per annum
----------
(rounded upwards, if necessary, to the nearest 1/100 of 1%) determined by the
Agent to be equal to the quotient of (i) LIBOR for such Loan for the Interest
Period for such Loan divided by (ii) 1 minus the Reserve Requirement for such
Loan for such Interest Period.
"Lien" shall mean any interest in Property securing an obligation owed to,
----
or a claim by, a Person other than the owner of the Property, whether such
interest is based on the common law, statute or contract, and whether such
obligation or claim is fixed or contingent, and including but not limited to (i)
the lien or security interest arising from a mortgage, encumbrance, pledge,
security agreement, conditional sale or trust receipt or a lease, consignment or
bailment for security purposes or (ii) production payments and the like payable
out of Oil and Gas Properties. The term "Lien" shall include reservations,
----
exceptions, encroachments, easements, rights of way, covenants, conditions,
restrictions, leases and other title exceptions and encumbrances affecting
Property. For the purposes of this Agreement, each Obligor or any Subsidiary
shall be deemed to be the owner of any Property which it has acquired or holds
subject to a conditional sale agreement, or leases under a financing lease or
other arrangement pursuant to which title to the Property has been retained by
or vested in some other Person in a transaction intended to create a financing.
"Loan Documents" shall mean this Agreement, the Notes, all Letters of
--------------
Credit, all Letter of Credit Agreements, the Fee Letter, the Assumption
Agreement, the Subordination Agreement, and the Security Instruments.
"Loans" shall mean the loans as provided for by Section 2.01(a).
-----
"LRI Merger" shall mean the merger of Alliance Resources (Delaware), Inc.
----------
with and into LaTex Resources, Inc., a Delaware corporation ("LRI") whereby
---
Alliance PLC became the sole shareholder of LRI.
"Majority Lenders" shall mean, at any time while no Loans are outstanding,
----------------
Lenders having at least sixty-six and two-thirds percent (66-2/3%) of the
Aggregate Revolving Credit Commitments and, at any time while Loans are
outstanding, Lenders holding at least sixty-six and two-thirds percent (66-2/3%)
of the outstanding aggregate principal amount of the Loans (without regard to
any sale by a Lender of a participation in any Loan under Section 12.06(c)).
"Material Adverse Effect" shall mean any material and adverse effect on (i)
-----------------------
the assets, liabilities, financial condition, business, operations or affairs of
the Borrower and its Subsidiaries taken as a whole different from those
reflected in the Financial Statements or from the facts represented or warranted
in any Loan Document, or (ii) the ability of the Borrower and its Subsidiaries
taken as a whole to carry out their business as at the Closing Date or as
proposed as of the Closing Date to be conducted or meet their obligations under
the Loan Documents on a timely basis, or (iii) the Agent's and the Lenders'
interests in the collateral securing the Indebtedness, taken as a whole, or the
Agents' or the Lenders' ability to enforce their rights and remedies under this
Agreement or any other Loan Document, at law or in equity.
"Maximum Revolving Credit Amount" shall mean, as to each Lender, the amount
-------------------------------
set forth opposite such Lender's name on Annex I under the caption "Maximum
-------
Revolving Credit Amounts" (as the same may be reduced pursuant to Section
2.03(b) pro rata to each Lender based on its
-11-
<PAGE>
Percentage Share), as modified from time to time to reflect any assignments
permitted by Section 12.06(b).
"Mortgaged Property" shall mean the Property owned by the Obligors and
------------------
which is subject to the Liens existing and to exist under the terms of the
Security Instruments.
"Multiemployer Plan" shall mean a Plan defined as such in Section 3(37) or
------------------
4001(a)(3) of ERISA.
"Notes" shall mean the Notes provided for by Section 2.06, together with
-----
any and all renewals, extensions for any period, increases, rearrangements,
substitutions or modifications thereof.
"Oil and Gas Properties" shall mean Hydrocarbon Interests; the Properties
----------------------
now or hereafter pooled or unitized with Hydrocarbon Interests; all presently
existing or future unitization, pooling agreements and declarations of pooled
units and the units created thereby (including without limitation all units
created under orders, regulations and rules of any Governmental Authority) which
may affect all or any portion of the Hydrocarbon Interests; all operating
agreements, contracts and other agreements which relate to any of the
Hydrocarbon Interests or the production, sale, purchase, exchange or processing
of Hydrocarbons from or attributable to such Hydrocarbon Interests; all
Hydrocarbons in and under and which may be produced and saved or attributable to
the Hydrocarbon Interests, including all oil in tanks, the lands covered thereby
and all rents, issues, profits, proceeds, products, revenues and other incomes
from or attributable to the Hydrocarbon Interests; all tenements, hereditaments,
appurtenances and Properties in any manner appertaining, belonging, affixed or
incidental to the Hydrocarbon Interests; and all Properties, rights, titles,
interests and estates described or referred to above, including any and all
Property, real or personal, now owned or hereinafter acquired and situated upon,
used, held for use or useful in connection with the operating, working or
development of any of such Hydrocarbon Interests or Property (excluding drilling
rigs, automotive equipment or other personal property which may be on such
premises for the purpose of drilling a well or for other similar temporary uses)
and including any and all oil wells, gas wells, injection wells or other wells,
buildings, structures, fuel separators, liquid extraction plants, plant
compressors, pumps, pumping units, field gathering systems, tanks and tank
batteries, fixtures, valves, fittings, machinery and parts, engines, boilers,
meters, apparatus, equipment, appliances, tools, implements, cables, wires,
towers, casing, tubing and rods, surface leases, rights-of-way, easements and
servitudes together with all additions, substitutions, replacements, accessions
and attachments to any and all of the foregoing.
"Old LaTex Payables" shall mean those current accounts payable of the
------------------
Borrower or its Consolidated Subsidiaries that meet one or more of the following
tests and have been certified to the Agent by the Borrower as being an Old LaTex
Payable:
(a) accounts payable the collection of which is barred by the
applicable statute of limitations;
(b) accounts payable the collection of which has been compromised or
forgiven in part, in either case to the extent of the amount that has been
compromised or forgiven; or
-12-
<PAGE>
(c) accounts payable in respect of which the indebtedness was
incurred prior to the LRI Merger and where each of the following is true:
(i) no payment has been made on an individual amount of indebtedness
payable since the LRI Merger, (ii) no contact has been received by the
applicable Obligor or Subsidiary from the applicable creditor since the LRI
Merger pertaining to such payable due prior to the LRI Merger, or if such
contact has been received such account is being diligently contested in
good faith, (iii) no promise to pay such account has been made by the
applicable Obligor or Subsidiary since the LRI Merger and (iv) no judgment
has been obtained by, or settlement agreement entered into with, such
creditor with respect to such indebtedness.
"Other Taxes" shall have the meaning assigned such term in Section 4.06(b).
-----------
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any entity
----
succeeding to any or all of its functions.
"Percentage Share" shall mean the percentage of the Aggregate Revolving
----------------
Credit Commitment to be provided by a Lender under this Agreement as indicated
on Annex I hereto, as modified from time to time to reflect any assignments
-------
permitted by Section 12.06(b).
"Person" shall mean any individual, corporation, company, voluntary
------
association, partnership, joint venture, trust, unincorporated organization or
government or any agency, instrumentality or political subdivision thereof, or
any other form of entity.
"Plan" shall mean any employee pension benefit plan, as defined in Section
----
3(2) of ERISA, which (i) is currently or hereafter sponsored, maintained or
contributed to by the Borrower, any Subsidiary or an ERISA Affiliate or (ii) was
at any time during the preceding six calendar years sponsored, maintained or
contributed to, by the Borrower, any Subsidiary or an ERISA Affiliate.
"Post-Default Rate" shall mean, in respect of any principal of any Loan or
-----------------
any other amount payable by the Borrower under this Agreement or any other Loan
Document , a rate per annum during the period commencing on the date of
occurrence of an Event of Default until such amount is paid in full or all
Events of Default are cured or waived equal to 4% per annum above the Base Rate
as in effect from time to time plus the Applicable Margin (if any), but in no
event to exceed the Highest Lawful Rate; provided however, for a LIBOR Loan, the
"Post-Default Rate" for such principal shall be, for the period commencing on
-----------------
the date of occurrence of an Event of Default and ending on the earlier to occur
of the last day of the Interest Period therefor or the date all Events of
Default are cured or waived, 4% per annum above the interest rate for such Loan
as provided in Section 3.02(a)(ii), but in no event to exceed the Highest Lawful
Rate.
"Preferred Stock" means the Series A Preferred Stock of Borrower issued in
---------------
connection with the transactions contemplated by (i) the Acquisitions and (ii)
the Preferred Stock Agreement.
"Preferred Stock Agreement" means that certain Preferred Stock Purchase
-------------------------
Agreement dated as of May 1, 2000 by and among Borrower, Bank of America, N.A.,
EnCap Equity 1996 Limited Partnership, Energy Capital Investment Company PLC, El
Paso Capital Investments, L.L.C., EF-II Holdings, LLC, Picosa Creek Limited
Partnership, and EnCap Investments L.L.C.
-13-
<PAGE>
"Prime Rate" shall mean the rate of interest from time to time announced
----------
publicly by the Agent at the Principal Office as its prime commercial lending
rate. Such rate is set by the Agent as a general reference rate of interest,
taking into account such factors as the Agent may deem appropriate, it being
understood that many of the Agent's commercial or other loans are priced in
relation to such rate, that it is not necessarily the lowest or best rate
actually charged to any customer and that the Agent may make various commercial
or other loans at rates of interest having no relationship to such rate.
"Principal Office" shall mean the principal office of the Agent, presently
----------------
located at 909 Fannin, Suite 1700, Houston, Texas 77010.
"Property" shall mean any interest in any kind of property or asset,
--------
whether real, personal or mixed, or tangible or intangible.
"Quarterly Dates" shall mean the last day of each April, July, October, and
---------------
January in each year, the first of which shall be July 31, 2000; provided,
--------
however, that if any such day is not a Business Day, such Quarterly Date shall
- -------
be the next succeeding Business Day.
"Redetermination Date" shall mean the date that the redetermined Borrowing
--------------------
Base becomes effective subject to the notice requirements specified in Section
2.08(e) both for scheduled redeterminations and unscheduled redeterminations.
"Regulation D" shall mean Regulation D of the Board of Governors of the
------------
Federal Reserve System (or any successor), as the same may be amended or
supplemented from time to time.
"Regulatory Change" shall mean, with respect to any Lender, any change
-----------------
after the Closing Date in any Governmental Requirement (including Regulation D)
or the adoption or making after such date of any interpretations, directives or
requests applying to a class of lenders (including such Lender or its Applicable
Lending Office) of or under any Governmental Requirement (whether or not having
the force of law) by any Governmental Authority charged with the interpretation
or administration thereof.
"Required Payment" shall have the meaning assigned such term in Section
----------------
4.04.
"Reserve Report" shall mean a report, in form and substance satisfactory to
--------------
the Agent, setting forth, as of each May 1 (or such other date in the event of
an unscheduled redetermination); (i) the oil and gas reserves attributable to
the Guarantor's Oil and Gas Properties together with a projection of the rate of
production and future net income, taxes, operating expenses and capital
expenditures with respect thereto as of such date, based upon the pricing
assumptions consistent with SEC reporting requirements at the time and (ii) such
other information as the Agent may reasonably request. The term "Reserve Report"
shall also include the information to be provided by the Borrower and the
Guarantors setting forth the foregoing information as of November 1 of each year
pursuant to Section 8.07(a).
"Reserve Requirement" shall mean, for any Interest Period for any LIBOR
-------------------
Loan, the average maximum rate at which reserves (including any marginal,
supplemental or emergency reserves) are required to be maintained during such
Interest Period under Regulation D by member banks of the
-14-
<PAGE>
Federal Reserve System in New York City with deposits exceeding one billion
Dollars against "Eurocurrency liabilities" (as such term is used in Regulation
D). Without limiting the effect of the foregoing, the Reserve Requirement shall
reflect any other reserves required to be maintained by such member banks by
reason of any Regulatory Change against (i) any category of liabilities which
includes deposits by reference to which LIBOR is to be determined as provided in
the definition of "LIBOR" or (ii) any category of extensions of credit or other
assets which include a LIBOR Loan.
"Responsible Officer" shall mean, as to any Person, the Chief Executive
-------------------
Officer, the President or any Vice President of such Person and, with respect to
financial matters, the term "Responsible Officer" shall include the Chief
Financial Officer of such Person. Unless otherwise specified, all references to
a Responsible Officer herein shall mean a Responsible Officer of the Borrower.
"Revolving Credit Commitment" shall mean, for any Lender, its obligation to
---------------------------
make Loans and participate in the issuance of Letters of Credit as provided in
Section 2.01(b) up to the lesser of (i) such Lender's Maximum Revolving Credit
Amount and (ii) such Lender's Percentage Share of the then effective Borrowing
Base.
"Revolving Credit Termination Date" shall mean the earlier to occur of (i)
---------------------------------
the third anniversary date of the Closing Date and (ii) the date that the
Commitments are sooner terminated pursuant to Sections 2.03(b) or 10.02.
"Scheduled Redetermination Date" shall have the meaning assigned such term
------------------------------
in Section 2.08(d).
"SEC" shall mean the Securities and Exchange Commission or any successor
---
Governmental Authority.
"Security Instruments" shall mean the agreements or instruments described
--------------------
or referred to in Exhibit D, and any and all other agreements or instruments now
---------
or hereafter executed and delivered by the Obligors or any other Person (other
than participation or similar agreements between any Lender and any other lender
or creditor with respect to any Indebtedness pursuant to this Agreement) in
connection with, or as security for the payment or performance of, the Notes,
this Agreement, or reimbursement obligations under the Letters of Credit, as
such agreements may be amended, supplemented or restated from time to time.
"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 the Borrower 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).
---
-15-
<PAGE>
"Subordinated Debt" shall mean the Debt owed by Borrower to EnCap Equity
-----------------
1996 Limited Partnership, Energy Capital Investment Company PLC, and El Paso
Capital Investments, LLC pursuant to the certain Purchase Agreement dated as of
May 1, 2000.
"Subordination Agreement" shall mean that certain Master Subordination
-----------------------
Agreement dated as of even date herewith among EnCap Equity 1996 Limited
Partnership, a Texas limited partnership, Energy Capital Investment Company Plc,
an English investment company, El Paso Capital Investments, LLC, a Delaware
limited liability company as, "Junior Creditor" and the Agent and the Lenders,
as "Senior Creditors", as amended, supplemented, or otherwise modified.
"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 any contingency) is at the time directly or indirectly owned or
controlled by the Borrower or one or more of its Subsidiaries or by the Borrower
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.
"Tangible Net Worth" shall mean, as at any date, the sum of the following
------------------
for the Borrower and its Consolidated Subsidiaries determined (without
duplication) in accordance with GAAP:
(i) the amount of preferred stock and common stock at par plus the
amount of surplus of the Borrower and its Consolidated Subsidiaries, plus
----
(ii) the retained earnings (or, in the case of retained earnings deficit,
minus the amount of such deficit), minus
- ----- -----
(iii) the sum of the following: cost of treasury shares and the book value
of all assets of the Borrower and its Consolidated Subsidiaries which should be
classified as intangibles (without duplication of deductions in respect of items
already deducted in arriving at surplus and retained earnings) but in any event
including as such intangibles the following: goodwill, research and development
costs, trademarks, trade names, copyrights, patents and franchises, unamortized
debt discount and expense, all reserves and any writeup in the book value of
assets resulting from a revaluation thereof or resulting from any changes in
GAAP subsequent to April 30, 1999.
"Taxes" shall have the meaning assigned such term in Section 4.06(a).
-----
"Transfer" shall mean any sale, assignment, farm-out, conveyance or other
--------
transfer of any Oil and Gas Property, or any interest in any Oil and Gas
Property (including, without limitation, any working interest, overriding
royalty interest, production payments, net profits interest, royalty interest,
or mineral fee interest) of any Guarantor, except for (i) the sale of
Hydrocarbons in the ordinary course of business, (ii) the sale or transfer of
equipment that is no longer necessary for the business of any Guarantor or is
contemporaneously replaced by equipment of at least comparable value and use,
(iii) a transfer, within 180 days after the Closing Date, to Burlington
Resources of the East Irish Sea Properties in exchange for Oil and Gas
properties with a reasonably equivalent loan value situated in the United States
of America and (iv) the sale of Oil and Gas Properties of any
-16-
<PAGE>
Obligor for which value was given in the most recent Borrowing Base
redetermination which in the aggregate have a fair market value of $500,000 or
less.
"Type" shall mean, with respect to any Loan, a Base Rate Loan or a LIBOR
----
Loan.
Section 1.03 Accounting Terms and Determinations. Unless otherwise
-----------------------------------
specified herein, all accounting terms used herein shall be interpreted, all
determinations with respect to accounting matters hereunder shall be made, and
all financial statements and certificates and reports as to financial matters
required to be furnished to the Agent or the Lenders hereunder shall be
prepared, in accordance with GAAP, applied on a basis consistent with the
audited financial statements of the Borrower referred to in Section 7.02 (except
for changes concurred with by the Borrower's independent public accountants).
ARTICLE II
Commitments
Section 2.01 Loans and Letters of Credit.
---------------------------
(a) Loans. Each Lender severally agrees, on the terms and conditions
-----
of this Agreement, to make loans to the Borrower during the period from and
including (i) the Closing Date or (ii) such later date that such Lender
becomes a party to this Agreement as provided in Section 12.06(b), to and
up to, but excluding, the Revolving Credit Termination Date in an aggregate
principal amount at any one time outstanding up to, but not exceeding, the
amount of such Lender's Revolving Credit Commitment as then in effect;
provided, however, that the aggregate principal amount of all such Loans by
-------- -------
all Lenders hereunder at any one time outstanding together with the LC
Exposure shall not exceed the Aggregate Revolving Credit Commitments.
Subject to the terms of this Agreement, during the period from the Closing
Date to and up to, but excluding, the Revolving Credit Termination Date,
the Borrower may borrow, repay and reborrow the amount described in this
Section 2.01(a).
(b) Letters of Credit. During the period from and including the
-----------------
Closing Date to, but excluding, the Revolving Credit Termination Date, the
Issuing Bank, as issuing bank for the Lenders, agrees to extend credit for
the account of the Borrower or any Guarantor at any time and from time to
time by issuing, renewing, extending or reissuing Letters of Credit;
provided however, the LC Exposure at any one time outstanding shall not
exceed the lesser of (i) the LC Commitment or (ii) the Aggregate Revolving
Credit Commitments, as then in effect, minus the aggregate principal amount
of all Loans then outstanding. The Lenders shall participate in such
Letters of Credit according to their respective Percentage Shares. Each of
the Letters of Credit shall (i) be issued by the Issuing Bank, (ii) contain
such terms and provisions as are reasonably required by the Issuing Bank,
(iii) be for the account of the Borrower or a Guarantor and (iv) expire not
later than two (2) days before the Revolving Credit Termination Date.
(c) Limitation on Types of Loans. Subject to the other terms and
----------------------------
provisions of this Agreement, at the option of the Borrower, the Loans may
be Base Rate Loans or LIBOR
-17-
<PAGE>
Loans; provided that, without the prior written consent of the Majority
Lenders, no more than five LIBOR Loans may be outstanding at any time.
Section 2.02 Borrowings, Continuations and Conversions, Letters of
-----------------------------------------------------
Credit.
- ------
(a) Borrowings. The Borrower shall give the Agent (which shall
----------
promptly notify the Lenders) advance notice as hereinafter provided of each
borrowing hereunder, which shall specify (i) the aggregate amount of such
borrowing, (ii) the Type and (iii) the date (which shall be a Business Day)
of the Loans to be borrowed, and (iv) (in the case of LIBOR Loans) the
duration of the Interest Period therefor.
(b) Minimum Amounts. If the initial borrowing consists in whole or in
---------------
part of LIBOR Loans, such LIBOR Loans shall be in amounts of at least
$500,000 or any whole multiple of $100,000 in excess thereof.
(c) Notices. All borrowings, continuations and conversions shall
-------
require advance written notice to the Agent (which shall promptly notify
the Lenders) in the form of Exhibit B (or telephonic notice promptly
---------
confirmed by such a written notice), which in each case shall be
irrevocable, from the Borrower to be received by the Agent not later than
11:00 a.m. Houston, Texas time at least one Business Day prior to the date
of each Base Rate Loan borrowing and three Business Days prior to the date
of each LIBOR Loan borrowing, continuation or conversion. Without in any
way limiting the Borrower's obligation to confirm in writing any telephonic
notice, the Agent may act without liability upon the basis of telephonic
notice believed by the Agent in good faith to be from the Borrower prior to
receipt of written confirmation. In each such case, the Borrower hereby
waives the right to dispute the Agent's record of the terms of such
telephonic notice except in the case of gross negligence or willful
misconduct by the Agent.
(d) Continuation Options. Subject to the provisions made in this
--------------------
Section 2.02(d), the Borrower may elect to continue all or any part of any
LIBOR Loan beyond the expiration of the then current Interest Period
relating thereto by giving advance notice as provided in Section 2.02(c) to
the Agent (which shall promptly notify the Lenders) of such election,
specifying the amount of such Loan to be continued and the Interest Period
therefor. In the absence of such a timely and proper election, the Borrower
shall be deemed to have elected to convert such LIBOR Loan to a Base Rate
Loan pursuant to Section 2.02(e). All or any part of any LIBOR Loan may be
continued as provided herein, provided that (i) any continuation of any
such Loan shall be (as to each Loan as continued for an applicable Interest
Period) in amounts of at least $500,000 or any whole multiple of $100,000
in excess thereof and (ii) no Default shall have occurred and be
continuing. If a Default shall have occurred and be continuing, each LIBOR
Loan shall be converted to a Base Rate Loan on the last day of the Interest
Period applicable thereto.
(e) Conversion Options. The Borrower may elect to convert all or any
------------------
part of any LIBOR Loan on the last day of the then current Interest Period
relating thereto to a Base Rate Loan by giving advance notice to the Agent
(which shall promptly notify the Lenders) of such election. Subject to the
provisions made in this Section 2.02(e), the Borrower may elect to convert
all or any part of any Base Rate Loan at any time and from time to time to
-18-
<PAGE>
a LIBOR Loan by giving advance notice as provided in Section 2.02(c) to the
Agent (which shall promptly notify the Lenders) of such election. All or
any part of any outstanding Loan may be converted as provided herein,
provided that (i) any conversion of any Base Rate Loan into a LIBOR Loan
shall be (as to each such Loan into which there is a conversion for an
applicable Interest Period) in amounts of at least $500,000 or any whole
multiple of $100,000 in excess thereof and (ii) no Default shall have
occurred and be continuing. If a Default shall have occurred and be
continuing, no Base Rate Loan may be converted into a LIBOR Loan.
(f) Advances. Not later than 11:00 a.m. Houston, Texas time on the
--------
date specified for each the borrowing hereunder, each Lender shall make
available the amount of the Loan to be made by it on such date to the
Agent, to an account which the Agent shall specify, in immediately
available funds, for the account of the Borrower. The amounts so received
by the Agent shall, subject to the terms and conditions of this Agreement,
be made available to the Borrower by depositing the same, in immediately
available funds, in an account of the Borrower, designated by the Borrower
and maintained at the Principal Office.
(g) Letters of Credit. The Borrower shall give the Issuing Bank
-----------------
(which shall promptly notify the Lenders of such request and their
Percentage Share of such Letter of Credit) advance notice to be received by
the Issuing Bank not later than 11:00 a.m. Houston, Texas time not less
than three Business Days prior thereto of each request for the issuance,
and at least ten Business Days prior to the date of the renewal or
extension, of a Letter of Credit hereunder which request shall specify (i)
the amount of such Letter of Credit, (ii) the date (which shall be a
Business Day) such Letter of Credit is to be issued, renewed or extended,
(iii) the duration thereof, (iv) the name and address of the beneficiary
thereof, (v) the type of the Letter of Credit and (vi) such other
information as the Issuing Bank may reasonably request, all of which shall
be reasonably satisfactory to the Issuing Bank. Subject to the terms and
conditions of this Agreement, on the date specified for the issuance,
renewal or extension of a Letter of Credit, the Agent shall issue, renew or
extend such Letter of Credit to the beneficiary thereof.
In conjunction with the issuance of each Letter of Credit, the
Borrower shall execute a Letter of Credit Agreement. In the event of any
conflict between any provision of a Letter of Credit Agreement and this
Agreement, the Borrower, the Issuing Bank, the Agent and the Lenders hereby
agree that the provisions of this Agreement shall govern.
The Issuing Bank will send to the Borrower and each Lender,
immediately upon issuance of any Letter of Credit, or an amendment thereto,
a true and complete copy of such Letter of Credit, or such amendment
thereto.
Section 2.03 Changes of Commitments.
----------------------
(a) The Aggregate Revolving Credit Commitments shall at all times be
equal to the lesser of (i) the Aggregate Maximum Revolving Credit Amounts
after adjustments resulting from reductions pursuant to Section 2.03(b) or
(ii) the Borrowing Base as determined from time to time.
-19-
<PAGE>
(b) The Borrower shall have the right to terminate or to reduce the
amount of the Aggregate Maximum Revolving Credit Amounts at any time, or
from time to time, upon not less than three (3) Business Days' prior notice
to the Agent (which shall promptly notify the Lenders) of each such
termination or reduction, which notice shall specify the effective date
thereof and the amount of any such reduction (which shall not be less than
$500,000 or any whole multiple of $100,000 in excess thereof) and shall be
irrevocable and effective only upon receipt by the Agent.
(c) The Aggregate Maximum Revolving Credit Amounts once terminated or
reduced may not be reinstated.
Section 2.04 Fees.
----
(a) Commitment Fee. The Borrower shall pay to the Agent for the
--------------
account of each Lender a commitment fee on the daily average unused amount
of the Aggregate Revolving Credit Commitments for the period from and
including the Closing Date up to, but excluding, the earlier of the date
the Aggregate Revolving Credit Commitments are terminated or the Revolving
Credit Termination Date at a rate per annum equal to 1/2 of 1%. Accrued
commitment fees shall be payable quarterly in arrears on each Quarterly
Date and on the earlier of the date the Aggregate Revolving Credit
Commitments are terminated or the Revolving Credit Termination Date.
(b) Engineering Fee. The Borrower agrees to pay the Agent, for the
---------------
account of each Lender, an engineering fee of $5,000 per Lender for each
unscheduled redetermination of the Borrowing Base requested by the Borrower
pursuant to Section 2.08(d), payable upon delivery of the Reserve Reports
required to be delivered pursuant to Section 8.07(b).
(c) Letter of Credit Fees.
---------------------
(i) The Borrower agrees to pay the Agent, for the account of each
Lender, commissions for issuing the Letters of Credit on the daily average
outstanding of the maximum liability of the Issuing Bank existing from time
to time under such Letter of Credit (calculated separately for each Letter
of Credit) at the rate per annum equal to the Applicable Margin in effect
from time to time for LIBOR Loans, provided that each Letter of Credit
shall bear a minimum commission of $500. Each Letter of Credit shall be
deemed to be outstanding up to the full face amount of the Letter of Credit
until the Issuing Bank has received the canceled Letter of Credit or a
written cancellation of the Letter of Credit from the beneficiary of such
Letter of Credit in form and substance acceptable to the Issuing Bank, or
for any reductions in the amount of the Letter of Credit (other than from a
drawing), written notification from the beneficiary of such Letter of
Credit. Such commissions are payable in advance at issuance of the Letter
of Credit for the first year thereof and thereafter, quarterly in arrears
on each Quarterly Date and upon cancellation or expiration of each such
Letter of Credit.
(ii) The Borrower agrees to pay the Agent, for the account of the
Issuing Bank, commissions for issuing the Letters of Credit (calculated
separately for each Letter of Credit)
-20-
<PAGE>
equal to 0.125% of the face amount of each Letter of Credit, payable upon
issuance of such Letter of Credit.
(d) Fee Letter. The Borrower shall pay to Agent for its account such
----------
other fees as are set forth in the Fee Letter on the dates specified
therein to the extent not paid prior to the Closing Date.
Section 2.05 Several Obligations. The failure of any Lender to make
-------------------
any Loan to be made by it or to provide funds for disbursements or
reimbursements under Letters of Credit on the date specified therefor shall not
relieve any other Lender of its obligation to make its Loan or provide funds on
such date, but no Lender shall be responsible for the failure of any other
Lender to make a Loan to be made by such other Lender or to provide funds to be
provided by such other Lender.
Section 2.06 Notes. The Loans made by each Lender shall be evidenced
-----
by a single promissory note of the Borrower in substantially the form of Exhibit
-------
A, dated (i) the Closing Date or (ii) the effective date of an Assignment
- -
pursuant to Section 12.06(b), payable to the order of such Lender in a principal
amount equal to its Maximum Revolving Credit Amount as originally in effect and
otherwise duly completed and such substitute Notes as required by Section
12.06(b). The date, amount, Type, interest rate and Interest Period of each
Loan made by each Lender, and all payments made on account of the principal
thereof, shall be recorded by such Lender on its books for its Note, and, prior
to any transfer may be endorsed by such Lender on the schedule attached to such
Note or any continuation thereof or on any separate record maintained by such
Lender. Failure to make any such notation or to attach a schedule shall not
affect any Lender's or the Borrower's rights or obligations in respect of such
Loans or affect the validity of such transfer by any Lender of its Note.
Section 2.07 Prepayments.
-----------
(a) Voluntary Prepayments. The Borrower may prepay the Base Rate
---------------------
Loans upon not less than one (1) Business Day's prior notice to the Agent
(which shall promptly notify the Lenders), which notice shall specify the
prepayment date (which shall be a Business Day) and the amount of the
prepayment (which shall be at least $100,000 or the remaining aggregate
principal balance outstanding on the Notes) and shall be irrevocable and
effective only upon receipt by the Agent, provided that interest on the
principal prepaid, accrued to the prepayment date, shall be paid on the
prepayment date. The Borrower may prepay LIBOR Loans on the same
conditions as for Base Rate Loans (except that prior notice to the Agent
shall be not less than three (3) Business Days for LIBOR Loans) and in
addition such prepayments of LIBOR Loans shall be subject to the terms of
Section 5.05 and shall be in an amount equal to all of the LIBOR Loans for
the Interest Period prepaid.
(b) Mandatory Prepayments.
---------------------
(i) Termination or Reduction of Aggregate Maximum Revolving
-------------------------------------------------------
Credit Amounts. If, after giving effect to any termination or reduction of
--------------
the Aggregate Maximum Revolving Credit Amounts pursuant to Section 2.03(b),
the outstanding aggregate principal amount of the Loans plus the LC
Exposure exceeds the Aggregate Maximum Revolving Credit Amounts, the
Borrower shall (i) prepay the Loans on the date of such termination or
reduction in an aggregate principal amount equal to the excess, together
with interest on the
-21-
<PAGE>
principal amount paid accrued to the date of such prepayment and (ii) if
any excess remains after prepaying all of the Loans because of LC Exposure,
pay to the Agent on behalf of the Lenders an amount equal to the excess to
be held as cash collateral as provided in Section 2.10(b) hereof.
(ii) Redetermination of Borrowing Base. Upon any
---------------------------------
redetermination of the amount of the Borrowing Base in accordance with
Section 2.08, if the redetermined Borrowing Base results in a Borrowing
Base Deficiency, then the Borrower shall prepay the Loans in four equal
monthly installments in an aggregate principal amount sufficient to
eliminate such Borrowing Base Deficiency, together with interest on the
principal amount paid accrued to the date of each such prepayment, the
first of such four equal installments to be made within 30 days after
receipt of such Borrowing Base Deficiency and the remaining three
prepayments to be made on the corresponding day in each of the next three
calendar months. If, because of LC Exposure, a Borrowing Base Deficiency
remains after prepaying all of the Loans, the Borrower shall pay to the
Agent on behalf of the Lenders an amount equal to such remaining Borrowing
Base Deficiency to be held as cash collateral as provided in Section
2.10(b).
(iii) Upon a Transfer. If, after a Transfer of any Oil and Gas
---------------
Properties of any Guarantor to the extent allowed by Section 9.16 and the
reduction in the Borrowing Base pursuant to Section 2.08(d), a Borrowing
Base Deficiency exists, then the Borrower shall, concurrently with the
receipt thereof, prepay the Loans with the net proceeds received from such
Transfer in an amount necessary to eliminate such Borrowing Base
Deficiency. If, because of LC Exposure, a Borrowing Base Deficiency
remains after prepaying all of the Loans, the Borrower shall pay to the
Agent on behalf of the Lenders an amount equal to such remaining Borrowing
Base Deficiency to be held as cash collateral as provided in Section
2.10(b). Notwithstanding anything in this Agreement to the contrary, if at
the time of any permitted Transfer a Borrowing Base Deficiency exists, then
the Borrower shall, concurrently with the receipt thereof, prepay the Loans
with 100% of the net proceeds received from such Transfer to the extent
necessary to eliminate the portion of the Borrowing Base Deficiency
resulting from such Transfer and such pre-existing Borrowing Base
Deficiency; and the Borrower shall remain obligated, pursuant to the terms
of this Agreement, to eliminate any Borrowing Base Deficiency remaining
after prepaying the Loans with 100% of the net proceeds from such Transfer.
If any Obligor Transfers any Oil and Gas Properties at such time as a
Default exists, the Borrower shall, concurrently with the receipt of
proceeds therefrom, prepay the Loans in an amount equal to the lesser of
(x) the aggregate principal amount outstanding on the Loans and (y) 100% of
the net proceeds received from such Transfer. The preceding sentence shall
not be interpreted as permitting the sale of any Oil and Gas Properties of
any Obligor at such time as a Default exists without the prior written
consent of the Lenders.
(iv) Upon Procurement of Capital. If, at any time after the
---------------------------
Closing Date, the Borrower obtains funds by the sale of capital stock or
any other equity offering or by the issuance of subordinated unsecured Debt
to the extent permitted by the terms of this Agreement, and if at such time
there exists a Borrowing Base Deficiency, the proceeds obtained by such
capital stock or other equity offering or issuance of such Debt shall first
be used to pay such Borrowing Base Deficiency.
-22-
<PAGE>
(c) Generally. Prepayments permitted or required under this Section
---------
2.07 shall be without premium or penalty, except as required under Section
5.05 for prepayment of LIBOR Loans. Any prepayments on the Loans may be
reborrowed subject to the then effective Aggregate Revolving Credit
Commitments.
Section 2.08 Borrowing Base.
--------------
(a) The Borrowing Base shall be determined in accordance with Section
2.08(b) by the Agent with the concurrence of the Lenders and is subject to
redetermination in accordance with Section 2.08(d). Upon any
redetermination of the Borrowing Base, such redetermination shall remain in
effect until the next successive Redetermination Date. So long as any of
the Commitments are in effect or any LC Exposure or Loans are outstanding
hereunder, this facility shall be governed by the then effective Borrowing
Base. During the period from and after the Closing Date until the first
redetermination pursuant to Section 2.08(d) or adjusted pursuant to Section
8.08(c), the amount of the Borrowing Base shall be $28,000,000.
(b) Upon receipt of the reports required by Section 8.07 and such
other reports, data and supplemental information as may from time to time
be reasonably requested by the Agent (the "Engineering Reports"), the Agent
-------------------
will redetermine the Borrowing Base. Such redetermination will be in
accordance with its normal and customary procedures for evaluating oil and
gas reserves and other related assets as such exist at that particular
time. The Agent, in its sole discretion, may make adjustments to the
rates, volumes and prices and other assumptions set forth therein in
accordance with its normal and customary procedures for evaluating oil and
gas reserves and other related assets as such exist at that particular
time. The Agent shall propose to the Lenders a new Borrowing Base within
14 days following receipt by the Agent and the Lenders of the Engineering
Reports in a timely and complete manner. After having received notice of
such proposal by the Agent, the Lenders shall have 14 days to agree or
disagree with such proposal. If at the end of the 14 days, the Lenders
have not communicated their approval or disapproval, such silence shall be
deemed to be an approval and the Agent's proposal shall be the new
Borrowing Base. If however, the Lenders notify Agent within 14 days of
their disapproval, the Lenders shall, within a reasonable period of time,
agree on a new Borrowing Base. The Agent and all of the Lenders must
approve a new Borrowing Base.
(c) The Agent may exclude any Oil and Gas Property or portion of
production therefrom or any income from any other Property from the
Borrowing Base, at any time, because title information is not reasonably
satisfactory, such Property is not Mortgaged Property or such Property is
not assignable.
(d) So long as any of the Commitments are in effect and until payment
in full of all Loans hereunder, on or around the first Business Day of each
February and August, commencing August 1, 2000 (each being a "Scheduled
---------
Redetermination Date"), the Lenders shall redetermine the amount of the
--------------------
Borrowing Base in accordance with Section 2.08(b). In addition, (i) the
Lenders may initiate a redetermination of the Borrowing Base at any other
time as they so elect by specifying in writing to the Borrower the date on
which the Borrower is to furnish, or cause to be furnished, a Reserve
Report in accordance with Section 8.07(b)
-23-
<PAGE>
and the date on which such redetermination is to occur; provided, however,
-------- -------
that the Lenders may initiate only one such unscheduled redetermination
during any consecutive twelve (12) month period and (ii) the Borrower may,
from time to time, initiate a redetermination of the Borrowing Base at any
other time as it so elects by specifying in writing to the Agent (who will
promptly notify the Lenders) the date on which the Borrower will furnish,
or cause to be furnished, a Reserve Report in accordance with Section
8.07(b) and the date on which such redetermination is requested to occur.
Any such unscheduled Borrowing Base redeterminations shall be made in
accordance with the procedures described in Section 2.08(b). Further, if
any Guarantor Transfers any Oil and Gas Properties to the extent allowed by
Section 9.16, the Borrowing Base shall automatically be reduced upon
execution of such Transfer by an amount equal to the Borrowing Base value
(as determined by the Agent in its reasonable discretion) of such Oil and
Gas Properties, as attributed to such Oil and Gas Properties in the
immediately preceding determination of the Borrowing Base.
(e) The Agent shall promptly notify in writing the Borrower and the
Lenders of the new Borrowing Base. Any redetermination of the Borrowing
Base shall not be in effect until written notice is received by the
Borrower.
Section 2.09 Assumption of Risks. The Borrower assumes all risks of
-------------------
the acts or omissions of any beneficiary of any Letter of Credit or any
transferee thereof with respect to its use of such Letter of Credit. Neither
the Issuing Bank (except in the case of gross negligence or willful misconduct
on the part of the Issuing Bank or any of its employees), its correspondents nor
any Lender shall be responsible for the validity, sufficiency or genuineness of
certificates or other documents or any endorsements thereon, even if such
certificates or other documents should in fact prove to be invalid,
insufficient, fraudulent or forged; for errors, omissions, interruptions or
delays in transmissions or delivery of any messages by mail, telex, or
otherwise, whether or not they be in code; for errors in translation or for
errors in interpretation of technical terms; the validity or sufficiency of any
instrument transferring or assigning or purporting to transfer or assign any
Letter of Credit or the rights or benefits thereunder or proceeds thereof, in
whole or in part, which may prove to be invalid or ineffective for any reason;
the failure of any beneficiary or any transferee of any Letter of Credit to
comply fully with conditions required in order to draw upon any Letter of
Credit; or for any other consequences arising from causes beyond the Issuing
Bank's control or the control of the Issuing Bank's correspondents. In
addition, neither the Issuing Bank, the Agent nor any Lender shall be
responsible for any error, neglect, or default of any of the Issuing Bank's
correspondents; and none of the above shall affect, impair or prevent the
vesting of any of the Issuing Bank's, the Agent's or any Lender's rights or
powers hereunder or under the Letter of Credit Agreements, all of which rights
shall be cumulative. The Issuing Bank and its correspondents may accept
certificates or other documents that appear on their face to be in order,
without responsibility for further investigation of any matter contained therein
regardless of any notice or information to the contrary. In furtherance and not
in limitation of the foregoing provisions, the Borrower agrees that any action,
inaction or omission taken or not taken by the Issuing Bank or by any
correspondent for the Issuing Bank in good faith in connection with any Letter
of Credit, or any related drafts, certificates, documents or instruments, shall
be binding on the Borrower and shall not put the Issuing Bank or its
correspondents under any resulting liability to the Borrower.
-24-
<PAGE>
Section 2.10 Obligation to Reimburse and to Prepay.
-------------------------------------
(a) If a disbursement by the Issuing Bank is made under any Letter of
Credit, the Borrower shall pay to the Agent within two (2) Business Days
after notice of any such disbursement is received by the Borrower, the
amount of each such disbursement made by the Issuing Bank under the Letter
of Credit (if such payment is not sooner effected as may be required under
this Section 2.10 or under other provisions of the Letter of Credit),
together with interest on the amount disbursed from and including the date
of disbursement until payment in full of such disbursed amount at a varying
rate per annum equal to (i) the then applicable interest rate for Base Rate
Loans through the second Business Day after notice of such disbursement is
received by the Borrower and (ii) thereafter, the Post-Default Rate for
Base Rate Loans (but in no event to exceed the Highest Lawful Rate) for the
period from and including the third Business Day following the date of such
disbursement to and including the date of repayment in full of such
disbursed amount. The obligations of the Borrower under this Agreement
with respect to each Letter of Credit shall be absolute, unconditional and
irrevocable and shall be paid or performed strictly in accordance with the
terms of this Agreement under all circumstances whatsoever, including,
without limitation, but only to the fullest extent permitted by applicable
law, the following circumstances: (i) any lack of validity or
enforceability of this Agreement, any Letter of Credit or any of the
Security Instruments; (ii) any amendment or waiver of (including any
default), or any consent to departure from this Agreement (except to the
extent permitted by any amendment or waiver), any Letter of Credit or any
of the Security Instruments; (iii) the existence of any claim, set-off,
defense or other rights which the Borrower may have at any time against the
beneficiary of any Letter of Credit or any transferee of any Letter of
Credit (or any Persons for whom any such beneficiary or any such transferee
may be acting), the Issuing Bank, the Agent, any Lender or any other
Person, whether in connection with this Agreement, any Letter of Credit,
the Security Instruments, the transactions contemplated hereby or any
unrelated transaction; (iv) any statement, certificate, draft, notice or
any other document presented under any Letter of Credit proves to have been
forged, fraudulent, insufficient or invalid in any respect or any statement
therein proves to have been untrue or inaccurate in any respect whatsoever;
(v) payment by the Issuing Bank under any Letter of Credit against
presentation of a draft or certificate which appears on its face to comply,
but does not comply, with the terms of such Letter of Credit; and (vi) any
other circumstance or happening whatsoever, whether or not similar to any
of the foregoing.
Notwithstanding anything in this Agreement to the contrary, the Borrower
will not be liable for payment or performance that results from the gross
negligence or willful misconduct of the Issuing Bank, except (i) where the
Borrower or any Subsidiary actually recovers the proceeds for itself or the
Issuing Bank of any payment made by the Issuing Bank in connection with
such gross negligence or willful misconduct or (ii) in cases where the
Agent makes payment to the named beneficiary of a Letter of Credit.
(b) In the event of the occurrence of any Event of Default, a payment
or prepayment pursuant to Section 2.07(b) or the maturity of the Notes,
whether by acceleration or otherwise, an amount equal to the LC Exposure
(or the excess in the case of Section 2.07(b)) shall be deemed to be
forthwith due and owing by the Borrower to the Issuing Bank, the Agent and
the Lenders as of the date of any such occurrence; and the
-25-
<PAGE>
Borrower's obligation to pay such amount shall be absolute and
unconditional, without regard to whether any beneficiary of any such Letter
of Credit has attempted to draw down all or a portion of such amount under
the terms of a Letter of Credit, and, to the fullest extent permitted by
applicable law, shall not be subject to any defense or be affected by a
right of set-off, counterclaim or recoupment which the Borrower may now or
hereafter have against any such beneficiary, the Issuing Bank, the Agent,
the Lenders or any other Person for any reason whatsoever. Such payments
shall be held by the Issuing Bank on behalf of the Lenders as cash
collateral securing the LC Exposure in an account or accounts at the
Principal Office; and the Borrower hereby grants to and by its deposit with
the Agent grants to the Agent a security interest in such cash collateral.
In the event of any such payment by the Borrower of amounts contingently
owing under outstanding Letters of Credit and in the event that thereafter
drafts or other demands for payment complying with the terms of such
Letters of Credit are not made prior to the respective expiration dates
thereof, the Agent agrees, if no Event of Default has occurred and is
continuing or if no other amounts are outstanding under this Agreement, the
Notes or the Security Instruments, to remit to the Borrower amounts for
which the contingent obligations evidenced by the Letters of Credit have
ceased.
(c) Each Lender severally and unconditionally agrees that it shall
promptly reimburse the Issuing Bank an amount equal to such Lender's
Percentage Share of any disbursement made by the Issuing Bank under any
Letter of Credit that is not reimbursed according to this Section 2.10.
(d) Notwithstanding anything to the contrary contained herein, if no
Default exists and subject to availability under the Aggregate Revolving
Credit Commitments (after reduction for LC Exposure), to the extent the
Borrower has not reimbursed the Issuing Bank for any drawn upon Letter of
Credit within one (1) Business Days after notice of such disbursement has
been received by the Borrower, the amount of such Letter of Credit
reimbursement obligation shall automatically be funded by the Lenders as a
Loan hereunder and used by the Lenders to pay such Letter of Credit
reimbursement obligation. If an Event of Default has occurred and is
continuing, or if the funding of such Letter of Credit reimbursement
obligation as a Loan would cause the aggregate amount of all Loans
outstanding to exceed the Aggregate Revolving Credit Commitments (after
reduction for LC Exposure), such Letter of Credit reimbursement obligation
shall not be funded as a Loan, but instead shall accrue interest as
provided in Section 2.10(a).
Section 2.11 Lending Offices. The Loans of each Type made by each Lender
---------------
shall be made and maintained at such Lender's Applicable Lending Office for
Loans of such Type.
ARTICLE III
Payments of Principal and Interest
Section 3.01 Repayment of Loans.
------------------
(a) Loans. On the Revolving Credit Termination Date the Borrower shall
-----
repay the outstanding aggregate principal of the Notes.
-26-
<PAGE>
(b) Generally. The Borrower will pay to the Agent, for the account of
---------
each Lender, the principal payments required by this Section 3.01.
Section 3.02 Interest.
--------
(a) Interest Rates. The Borrower will pay to the Agent, for the
--------------
account of each Lender, interest on the unpaid principal amount of each
Loan made by such Lender for the period commencing on the date such Loan is
made to, but excluding, the date such Loan shall be paid in full, at the
following rates per annum:
(i) if such a Loan is a Base Rate Loan, the Base Rate (as in
effect from time to time) plus the Applicable Margin, but in no event to
exceed the Highest Lawful Rate; and
(ii) if such a Loan is a LIBOR Loan, for each Interest Period
relating thereto, the LIBOR Rate for such Loan plus the Applicable Margin
(as in effect from time to time), but in no event to exceed the Highest
Lawful Rate.
(b) Post-Default Rate. Notwithstanding the foregoing, the Borrower
-----------------
will pay to the Agent, for the account of each Lender interest at the
applicable Post-Default Rate on any principal of any Loan made by such
Lender, and (to the fullest extent permitted by law) on any other amount
payable by the Borrower hereunder, under any Loan Document or under any
Note held by such Lender to or for account of such Lender, for the period
commencing on the date of an Event of Default until the same is paid in
full or all Events of Default are cured or waived.
(c) Due Dates. Accrued interest on Base Rate Loans shall be payable
---------
on each Quarterly Date commencing on July 31, 2000, and accrued interest on
each LIBOR Loan shall be payable on the last day of the Interest Period
therefor and, if such Interest Period is longer than three months at three-
month intervals following the first day of such Interest Period, except
that interest payable at the Post-Default Rate shall be payable from time
to time on demand and interest on any LIBOR Loan that is converted into a
Base Rate Loan (pursuant to Section 5.04) shall be payable on the date of
conversion (but only to the extent so converted). Any accrued and unpaid
interest on the Loans on the Revolving Credit Termination Date shall be
paid on such date.
(d) Determination of Rates. Promptly after the determination of any
----------------------
interest rate provided for herein or any change therein, the Agent shall
notify the Lenders to which such interest is payable and the Borrower
thereof. Each determination by the Agent of an interest rate or fee
hereunder shall, except in cases of manifest error, be final, conclusive
and binding on the parties.
-27-
<PAGE>
ARTICLE IV
Payments; Pro Rata Treatment; Computations; Etc.
Section 4.01 Payments. Except to the extent otherwise provided
--------
herein, all payments of principal, interest and other amounts to be made by the
Borrower under this Agreement, the Notes and the Letter of Credit Agreements
shall be made in Dollars, in immediately available funds, to the Agent at such
account as the Agent shall specify by notice to the Borrower from time to time,
not later than 11:00 a.m. Houston, Texas time on the date on which such payments
shall become due (each such payment made after such time on such due date to be
deemed to have been made on the next succeeding Business Day). Such payments
shall be made without (to the fullest extent permitted by applicable law)
defense, set-off or counterclaim. Each payment received by the Agent under this
Agreement or any Note for account of a Lender shall be paid promptly to such
Lender in immediately available funds. Except as otherwise provided in the
definition of "Interest Period", if the due date of any payment under this
Agreement or any Note would otherwise fall on a day which is not a Business Day
such date shall be extended to the next succeeding Business Day and interest
shall be payable for any principal so extended for the period of such extension.
At the time of each payment to the Agent of any principal of or interest on any
borrowing, the Borrower shall notify the Agent of the Loans to which such
payment shall apply. In the absence of such notice the Agent may specify the
Loans to which such payment shall apply, but to the extent possible such payment
or prepayment will be applied first to the Loans comprised of Base Rate Loans.
Section 4.02 Pro Rata Treatment. Except to the extent otherwise
------------------
provided herein each Lender agrees that: (i) each borrowing from the Lenders
under Section 2.01 and each continuation and conversion under Section 2.02 shall
be made from the Lenders pro rata in accordance with their Percentage Share,
each payment of fees under Sections 2.04(a), 2.04(b), and 2.04(c)(i) shall be
made for account of the Lenders pro rata in accordance with their Percentage
Share, and each termination or reduction of the amount of the Aggregate Maximum
Revolving Credit Amounts under Section 2.03(b) shall be applied to the
Commitment of each Lender, pro rata according to the amounts of its respective
Commitment; (ii) each payment of principal of Loans by the Borrower shall be
made for account of the Lenders pro rata in accordance with the respective
unpaid principal amount of the Loans held by the Lenders; and (iii) each payment
of interest on Loans by the Borrower shall be made for account of the Lenders
pro rata in accordance with the amounts of interest due and payable to the
respective Lenders; and (iv) each reimbursement by the Borrower of disbursements
under Letters of Credit shall be made for account of the Issuing Bank or, if
funded by the Lenders, pro rata for the account of the Lenders, in accordance
with the amounts of reimbursement obligations due and payable to each respective
Lender.
Section 4.03 Computations. Interest on LIBOR Loans and fees shall be
------------
computed on the basis of a year of 360 days and actual days elapsed (including
the first day but excluding the last day) occurring in the period for which such
interest is payable, unless such calculation would exceed the Highest Lawful
Rate, in which case interest shall be calculated on the per annum basis of a
year of 365 or 366 days, as the case may be. Interest on Base Rate Loans shall
be computed on the basis of a year of 365 or 366 days, as the case may be, and
actual days elapsed (including the first day but excluding the last day)
occurring in the period for which such interest is payable.
-28-
<PAGE>
Section 4.04 Non-receipt of Funds by the Agent. Unless the Agent
---------------------------------
shall have been notified by a Lender or the Borrower prior to the date on which
such notifying party is scheduled to make payment to the Agent (in the case of a
Lender) of the proceeds of a Loan or a payment under a Letter of Credit to be
made by it hereunder or (in the case of the Borrower) a payment to the Agent for
account of one or more of the Lenders hereunder (such payment being herein
called the "Required Payment"), which notice shall be effective upon receipt,
----------------
that it does not intend to make the Required Payment to the Agent, the Agent may
assume that the Required Payment has been made and may, in reliance upon such
assumption (but shall not be required to), make the amount thereof available to
the intended recipient(s) on such date and, if such Lender or the Borrower (as
the case may be) has not in fact made the Required Payment to the Agent, the
recipient(s) of such payment shall, on demand, repay to the Agent the amount so
made available together with interest thereon in respect of each day during the
period commencing on the date such amount was so made available by the Agent
until, but excluding, the date the Agent recovers such amount at a rate per
annum which, for any Lender as recipient, will be equal to the Federal Funds
Rate, and for the Borrower as recipient, will be equal to the Base Rate plus the
Applicable Margin.
Section 4.05 Set-off, Sharing of Payments, Etc.
----------------------------------
(a) The Borrower agrees that, in addition to (and without limitation
of) any right of set-off, bankers' lien or counterclaim a Lender may
otherwise have, each Lender shall have the right and be entitled (after
consultation with the Agent), at its option, to offset balances held by it
or by any of its Affiliates for account of the Borrower or any Subsidiary
at any of its offices, in Dollars or in any other currency, against any
principal of or interest on any of such Lender's Loans, or any other amount
payable to such Lender hereunder, which is not paid when due (regardless of
whether such balances are then due to the Borrower), in which case it shall
promptly notify the Borrower and the Agent thereof, provided that such
Lender's failure to give such notice shall not affect the validity thereof.
(b) If any Lender shall obtain payment of any principal of or interest
on any Loan made by it to the Borrower under this Agreement (or
reimbursement as to any Letter of Credit) through the exercise of any right
of set-off, banker's lien or counterclaim or similar right or otherwise,
and, as a result of such payment, such Lender shall have received a greater
percentage of the principal or interest (or reimbursement) then due
hereunder by the Borrower to such Lender than the percentage received by
any other Lenders, it shall promptly (i) notify the Agent and each other
Lender thereof and (ii) purchase from such other Lenders participations in
(or, if and to the extent specified by such Lender, direct interests in)
the Loans (or participations in Letters of Credit) made by such other
Lenders (or in interest due thereon, as the case may be) in such amounts,
and make such other adjustments from time to time as shall be equitable, to
the end that all the Lenders shall share the benefit of such excess payment
(net of any expenses which may be incurred by such Lender in obtaining or
preserving such excess payment) pro rata in accordance with the unpaid
principal and/or interest on the Loans held by each of the Lenders (or
reimbursements of Letters of Credit). To such end all the Lenders shall
make appropriate adjustments among themselves (by the resale of
participations sold or otherwise) if such payment is rescinded or must
otherwise be restored. The Borrower agrees that any Lender so purchasing a
participation (or direct interest) in the Loans made by other Lenders (or
in interest due thereon, as the case may be) may exercise all rights of
set-off, banker's lien, counterclaim or similar rights with respect to
-29-
<PAGE>
such participation as fully as if such Lender were a direct holder of Loans
(or Letters of Credit) in the amount of such participation. Nothing
contained herein shall require any Lender to exercise any such right or
shall affect the right of any Lender to exercise, and retain the benefits
of exercising, any such right with respect to any other indebtedness or
obligation of the Borrower. If under any applicable bankruptcy, insolvency
or other similar law, any Lender receives a secured claim in lieu of a set-
off to which this Section 4.05 applies, such Lender shall, to the extent
practicable, exercise its rights in respect of such secured claim in a
manner consistent with the rights of the Lenders entitled under this
Section 4.05 to share the benefits of any recovery on such secured claim.
Section 4.06 Taxes.
-----
(a) Payments Free and Clear. Any and all payments by the Borrower
-----------------------
hereunder shall be made, in accordance with Section 4.01, free and clear of
and without deduction for any and all present or future taxes, levies,
imposts, deductions, charges or withholdings, and all liabilities with
respect thereto, excluding, in the case of each Lender, the Issuing Bank
---------
and the Agent, taxes imposed on its income, and franchise or similar taxes
imposed on it, by (i) any jurisdiction (or political subdivision thereof)
of which the Agent, the Issuing Bank or such Lender, as the case may be, is
a citizen or resident or in which such Lender has an Applicable Lending
Office, (ii) the jurisdiction (or any political subdivision thereof) in
which the Agent, the Issuing Bank or such Lender is organized, or (iii) any
jurisdiction (or political subdivision thereof) in which such Lender, the
Issuing Bank or the Agent is presently doing business which taxes are
imposed solely as a result of doing business in such jurisdiction (all such
non-excluded taxes, levies, imposts, deductions, charges, withholdings and
liabilities being hereinafter referred to as "Taxes"). If the Borrower
-----
shall be required by law to deduct any Taxes from or in respect of any sum
payable hereunder to the Lenders, the Issuing Bank or the Agent (i) the sum
payable shall be increased by the amount necessary so that after making all
required deductions (including deductions applicable to additional sums
payable under this Section 4.06) such Lender, the Issuing Bank or the Agent
(as the case may be) shall receive 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 taxing authority or other Governmental Authority in
accordance with applicable law.
(b) Other Taxes. In addition, to the fullest extent permitted by
-----------
applicable law, the Borrower agrees to pay any present or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies that arise from any payment made hereunder or from the execution,
delivery or registration of, or otherwise with respect to, this Agreement,
any Assignment or any Security Instrument (hereinafter referred to as
"Other Taxes").
-----------
(c) INDEMNIFICATION. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE
---------------
LAW, THE BORROWER WILL INDEMNIFY EACH LENDER AND THE ISSUING BANK AND THE
AGENT FOR THE FULL AMOUNT OF TAXES AND OTHER TAXES (INCLUDING, BUT NOT
LIMITED TO, ANY TAXES OR OTHER TAXES IMPOSED BY ANY GOVERNMENTAL AUTHORITY
ON AMOUNTS PAYABLE UNDER THIS SECTION 4.06) PAID BY SUCH LENDER, THE
ISSUING BANK OR THE AGENT (ON THEIR BEHALF OR ON BEHALF OF ANY LENDER), AS
THE CASE MAY BE, AND ANY LIABILITY (INCLUDING PENALTIES, INTEREST AND
-30-
<PAGE>
EXPENSES) ARISING THEREFROM OR WITH RESPECT THERETO, WHETHER OR NOT SUCH
TAXES OR OTHER TAXES WERE CORRECTLY OR LEGALLY ASSERTED UNLESS THE PAYMENT
OF SUCH TAXES WAS NOT CORRECTLY OR LEGALLY ASSERTED AND SUCH LENDER'S
PAYMENT OF SUCH TAXES OR OTHER TAXES WAS THE RESULT OF ITS GROSS NEGLIGENCE
OR WILLFUL MISCONDUCT. ANY PAYMENT PURSUANT TO SUCH INDEMNIFICATION SHALL
BE MADE WITHIN THIRTY (30) DAYS AFTER THE DATE ANY LENDER, THE ISSUING BANK
OR THE AGENT, AS THE CASE MAY BE, MAKES WRITTEN DEMAND THEREFOR. IF ANY
LENDER, ISSUING BANK OR THE AGENT RECEIVES A REFUND OR CREDIT IN RESPECT OF
ANY TAXES OR OTHER TAXES FOR WHICH SUCH LENDER, ISSUING BANK OR THE AGENT
HAS RECEIVED PAYMENT FROM THE BORROWER IT SHALL PROMPTLY NOTIFY THE
BORROWER OF SUCH REFUND OR CREDIT AND SHALL, IF NO DEFAULT HAS OCCURRED AND
IS CONTINUING, WITHIN THIRTY (30) DAYS AFTER RECEIPT OF A REQUEST BY THE
BORROWER (OR PROMPTLY UPON RECEIPT, IF THE BORROWER HAS REQUESTED
APPLICATION FOR SUCH REFUND OR CREDIT PURSUANT HERETO), PAY AN AMOUNT EQUAL
TO SUCH REFUND OR CREDIT TO THE BORROWER WITHOUT INTEREST (BUT WITH ANY
INTEREST SO REFUNDED OR CREDITED), PROVIDED THAT THE BORROWER, UPON THE
REQUEST OF SUCH LENDER, THE ISSUING BANK OR THE AGENT, AGREES TO RETURN
SUCH REFUND OR CREDIT (PLUS PENALTIES, INTEREST OR OTHER CHARGES) TO SUCH
LENDER OR THE AGENT IN THE EVENT SUCH LENDER OR THE AGENT IS REQUIRED TO
REPAY SUCH REFUND OR CREDIT.
(d) Lender Representations.
----------------------
(i) Each Lender represents that it is either (1) a banking
association or corporation organized under the laws of the United
States of America or any state thereof or (2) it is entitled to
complete exemption from United States withholding tax imposed on or
with respect to any payments, including fees, to be made to it
pursuant to this Agreement (A) under an applicable provision of a tax
convention to which the United States of America is a party or (B)
because it is acting through a branch, agency or office in the United
States of America and any payment to be received by it hereunder is
effectively connected with a trade or business in the United States of
America. Each Lender that is not a banking association or corporation
organized under the laws of the United States of America or any state
thereof agrees to provide to the Borrower and the Agent on the Closing
Date, or on the date of its delivery of the Assignment pursuant to
which it becomes a Lender, and at such other times as required by
United States law or as the Borrower or the Agent shall reasonably
request, two accurate and complete original signed copies of either
(A) Internal Revenue Service Form 4224 (or successor form) certifying
that all payments to be made to it hereunder will be effectively
connected to a United States trade or business (the "Form 4224
---------
Certification") or (B) Internal Revenue Service Form 1001 (or
-------------
successor form) certifying that it is entitled to the benefit of a
provision of a tax convention to which the United States of America is
a party which completely exempts from United States withholding tax
all payments to be made to it hereunder (the "Form 1001
---------
Certification"). In addition, each Lender agrees that if it
previously filed a Form 4224 Certification, it will deliver to the
Borrower and the Agent a new Form 4224 Certification prior to the
first payment date occurring in each of its subsequent taxable
years; and if it previously filed a Form 1001 Certification, it will
deliver
-31-
<PAGE>
to the Borrower and the Agent a new certification prior to the first
payment date falling in the third year following the previous filing
of such certification. Each Lender also agrees to deliver to the
Borrower and the Agent such other or supplemental forms as may at any
time be required as a result of changes in applicable law or
regulation in order to confirm or maintain in effect its entitlement
to exemption from United States withholding tax on any payments
hereunder, provided that the circumstances of such Lender at the
--------
relevant time and applicable laws permit it to do so. If a Lender
determines, as a result of any change in either (i) a Governmental
Requirement or (ii) its circumstances, that it is unable to submit any
form or certificate that it is obligated to submit pursuant to this
Section 4.06, or that it is required to withdraw or cancel any such
form or certificate previously submitted, it shall promptly notify the
Borrower and the Agent of such fact. If a Lender is organized under
the laws of a jurisdiction outside the United States of America,
unless the Borrower and the Agent have received a Form 1001
Certification or Form 4224 Certification satisfactory to them
indicating that all payments to be made to such Lender hereunder are
not subject to United States withholding tax, the Borrower shall
withhold taxes from such payments at the applicable statutory rate.
Each Lender agrees to indemnify and hold harmless the Borrower or
Agent, as applicable, from any United States taxes, penalties,
interest and other expenses, costs and losses incurred or payable by
(i) the Agent as a result of such Lender's failure to submit any form
or certificate that it is required to provide pursuant to this Section
4.06 or (ii) the Borrower or the Agent as a result of their reliance
on any such form or certificate which such Lender has provided to them
pursuant to this Section 4.06.
(ii) For any period with respect to which a Lender has failed to
provide the Borrower with the form required pursuant to this Section
4.06, if any (other than if such failure is due to a change in a
Governmental Requirement occurring subsequent to the date on which a
form originally was required to be provided), such Lender shall not be
entitled to indemnification under Section 4.06 with respect to taxes
imposed by the United States which taxes would not have been imposed
but for such failure to provide such forms; provided, however, that
-------- -------
if a Lender, which is otherwise exempt from or subject to a reduced
rate of withholding tax, becomes subject to taxes because of its
failure to deliver a form required hereunder, the Borrower shall take
such steps as such Lender shall reasonably request to assist such
Lender to recover such taxes.
(iii) Any Lender claiming any additional amounts payable pursuant
to this Section 4.06 shall use reasonable efforts (consistent with
legal and regulatory restrictions) to file any certificate or document
requested by the Borrower or the Agent or to change the jurisdiction
of its Applicable Lending Office or to contest any tax imposed if the
making of such a filing or change or contesting such tax would avoid
the need for or reduce the amount of any such additional amounts that
may thereafter accrue and would not, in the sole determination of such
Lender, be otherwise disadvantageous to such Lender.
-32-
<PAGE>
ARTICLE V
Capital Adequacy
Section 5.01 Additional Costs.
----------------
(a) LIBOR Regulations, etc. The Borrower shall pay directly to each
-----------------------
Lender from time to time such amounts as such Lender may determine to be
necessary to compensate such Lender for any costs which it determines are
attributable to its making or maintaining of any LIBOR Loans or issuing or
participating in Letters of Credit hereunder or its obligation to make any
LIBOR Loans or issue or participate in any Letters of Credit hereunder, or
any reduction in any amount receivable by such Lender hereunder in respect
of any of such LIBOR Loans, Letters of Credit or such obligation (such
increases in costs and reductions in amounts receivable being herein called
"Additional Costs"), resulting from any Regulatory Change which: (i)
----------------
changes the basis of taxation of any amounts payable to such Lender under
this Agreement or any Note in respect of any of such LIBOR Loans or Letters
of Credit (other than taxes imposed on the overall net income of such
Lender or of its Applicable Lending Office for any of such LIBOR Loans by
the jurisdiction in which such Lender has its principal office or
Applicable Lending Office); or (ii) imposes or modifies any reserve,
special deposit, minimum capital, capital ratio or similar requirements
relating to any extensions of credit or other assets of, or any deposits
with or other liabilities of such Lender, or the Commitment or Loans of
such Lender or the London interbank market; or (iii) imposes any other
condition affecting this Agreement or any Note (or any of such extensions
of credit or liabilities) or such Lender's Commitment or Loans. Each
Lender will notify the Agent and the Borrower of any event occurring after
the Closing Date which will entitle such Lender to compensation pursuant to
this Section 5.01(a) as promptly as practicable after it obtains knowledge
thereof and determines to request such compensation, and will designate a
different Applicable Lending Office for the Loans of such Lender affected
by such event if such designation will avoid the need for, or reduce the
amount of, such compensation and will not, in the sole opinion of such
Lender, be disadvantageous to such Lender, provided that such Lender shall
have no obligation to so designate an Applicable Lending Office located in
the United States. If any Lender requests compensation from the Borrower
under this Section 5.01(a), the Borrower may, by notice to such Lender,
suspend the obligation of such Lender to make additional Loans of the Type
with respect to which such compensation is requested until the Regulatory
Change giving rise to such request ceases to be in effect (in which case
the provisions of Section 5.04 shall be applicable).
(b) Regulatory Change. Without limiting the effect of the provisions
-----------------
of Section 5.01(a), in the event that at any time (by reason of any
Regulatory Change or any other circumstances arising after the Closing Date
affecting (A) any Lender, (B) the London interbank market or (C) such
Lender's position in such market), the LIBOR Rate, as determined in good
faith by such Lender, will not adequately and fairly reflect the cost to
such Lender of funding its LIBOR Loans, then, if such Lender so elects, by
notice to the Borrower and the Agent, the obligation of such Lender to make
additional LIBOR Loans shall be suspended until such Regulatory Change or
other circumstances ceases to be in effect (in which case the provisions of
Section 5.04 shall be applicable).
-33-
<PAGE>
(c) Capital Adequacy. Without limiting the effect of the foregoing
----------------
provisions of this Section 5.01 (but without duplication), the Borrower
shall pay directly to any Lender from time to time on request such amounts
as such Lender may reasonably determine to be necessary to compensate such
Lender or its parent or holding company for any costs which it determines
are attributable to the maintenance by such Lender or its parent or holding
company (or any Applicable Lending Office), pursuant to any Governmental
Requirement following any Regulatory Change, of capital in respect of its
Commitment, its Note, or its Loans or any interest held by it in any Letter
of Credit, such compensation to include, without limitation, an amount
equal to any reduction of the rate of return on assets or equity of such
Lender or its parent or holding company (or any Applicable Lending Office)
to a level below that which such Lender or its parent or holding company
(or any Applicable Lending Office) could have achieved but for such
Governmental Requirement. Such Lender will notify the Borrower that it is
entitled to compensation pursuant to this Section 5.01(c) as promptly as
practicable after it determines to request such compensation.
(d) Compensation Procedure. Any Lender notifying the Borrower of the
----------------------
incurrence of Additional Costs under this Section 5.01 shall in such notice
to the Borrower and the Agent set forth in reasonable detail the basis and
amount of its request for compensation. Determinations and allocations by
each Lender for purposes of this Section 5.01 of the effect of any
Regulatory Change pursuant to Section 5.01(a) or (b), or of the effect of
capital maintained pursuant to Section 5.01(c), on its costs or rate of
return of maintaining Loans or its obligation to make Loans or issue
Letters of Credit, or on amounts receivable by it in respect of Loans or
Letters of Credit, and of the amounts required to compensate such Lender
under this Section 5.01, shall be conclusive and binding for all purposes,
provided that such determinations and allocations are made on a reasonable
basis. Any request for additional compensation under this Section 5.01
shall be paid by the Borrower within thirty (30) days of the receipt by the
Borrower of the notice described in this Section 5.01(d).
Section 5.02 Limitation on LIBOR Loans. Anything herein to the
-------------------------
contrary notwithstanding, if, on or prior to the determination of any LIBOR Rate
for any Interest Period:
(i) the Agent determines (which determination shall be conclusive,
absent manifest error) that quotations of interest rates for the relevant
deposits referred to in the definition of "LIBOR Rate" in Section 1.02 are
not being provided in the relevant amounts or for the relevant maturities
for purposes of determining rates of interest for LIBOR Loans as provided
herein; or
(ii) the Agent determines (which determination shall be conclusive,
absent manifest error) that the relevant rates of interest referred to in
the definition of "LIBOR Rate" in Section 1.02 upon the basis of which the
rate of interest for LIBOR Loans for such Interest Period is to be
determined are not sufficient to adequately cover the cost to the Lenders
of making or maintaining LIBOR Loans;
then the Agent shall give the Borrower prompt notice thereof, and so long as
such condition remains in effect, the Lenders shall be under no obligation to
make additional LIBOR Loans.
-34-
<PAGE>
Section 5.03 Illegality. Notwithstanding any other provision of this
----------
Agreement, in the event that it becomes unlawful for any Lender or its
Applicable Lending Office to honor its obligation to make or maintain LIBOR
Loans hereunder, then such Lender shall promptly notify the Borrower thereof and
such Lender's obligation to make LIBOR Loans shall be suspended until such time
as such Lender may again make and maintain LIBOR Loans (in which case the
provisions of Section 5.04 shall be applicable).
Section 5.04 Base Rate Loans Pursuant to Sections 5.01, 5.02 and
---------------------------------------------------
5.03. If the obligation of any Lender to make LIBOR Loans shall be suspended
- ----
pursuant to Sections 5.01, 5.02 or 5.03 ("Affected Loans"), all Affected Loans
--------------
which would otherwise be made by such Lender shall be made instead as Base Rate
Loans (and, if an event referred to in Section 5.01(b) or Section 5.03 has
occurred and such Lender so requests by notice to the Borrower, all Affected
Loans of such Lender then outstanding shall be automatically converted into Base
Rate Loans on the date specified by such Lender in such notice) and, to the
extent that Affected Loans are so made as (or converted into) Base Rate Loans,
all payments of principal which would otherwise be applied to such Lender's
Affected Loans shall be applied instead to its Base Rate Loans.
Section 5.05 Compensation. The Borrower shall pay to each Lender
------------
within thirty (30) days of receipt of written request of such Lender (which
request shall set forth, in reasonable detail, the basis for requesting such
amounts and which shall be conclusive and binding for all purposes provided that
such determinations are made on a reasonable basis), such amount or amounts as
shall compensate it for any loss, cost, expense or liability which such Lender
determines are attributable to:
(i) any payment, prepayment or conversion of a LIBOR Loan properly
made by such Lender or the Borrower for any reason (including, without
limitation, the acceleration of the Loans pursuant to Section 10.01) on a
date other than the last day of the Interest Period for such Loan; or
(ii) any failure by the Borrower for any reason (including but not
limited to, the failure of any of the conditions precedent specified in
Article VI to be satisfied) to borrow, continue or convert a LIBOR Loan
from such Lender on the date for such borrowing, continuation or conversion
specified in the relevant notice given pursuant to Section 2.02(c).
Without limiting the effect of the preceding sentence, such compensation shall
include an amount equal to the excess, if any, of (i) the amount of interest
which would have accrued on the principal amount so paid, prepaid or converted
or not borrowed for the period from the date of such payment, prepayment or
conversion or failure to borrow to the last day of the Interest Period for such
Loan (or, in the case of a failure to borrow, the Interest Period for such Loan
which would have commenced on the date specified for such borrowing) at the
applicable rate of interest for such Loan provided for herein over (ii) the
interest component of the amount such Lender would have bid in the London
interbank market for Dollar deposits of leading banks in amounts comparable to
such principal amount and with maturities comparable to such period (as
reasonably determined by such Lender).
-35-
<PAGE>
Section 5.06 Replacement Lenders.
-------------------
(a) If any Lender has notified the Borrower and the Agent of its
incurring Additional Costs under Section 5.01 or has required the Borrower
to make payments for Taxes under Section 4.06, then the Borrower may,
unless such Lender has notified the Borrower and the Agent that the
circumstances giving rise to such notice no longer apply, terminate, in
whole but not in part, the Commitment of any Lender (other than the Agent)
(the "Terminated Lender") at any time upon five (5) Business Days' prior
-----------------
written notice to the Terminated Lender and the Agent (such notice referred
to herein as a "Notice of Termination").
---------------------
(b) In order to effect the termination of the Commitment of the
Terminated Lender, the Borrower shall: (i) obtain an agreement with one or
more Lenders to increase their Commitment or Commitments and/or (ii)
request any one or more other banking institutions to become parties to
this Agreement in place and instead of such Terminated Lender and agree to
accept a Commitment or Commitments; provided, however, that such one or
-----------------
more other banking institutions are reasonably acceptable to the Agent and
become parties by executing an Assignment (the Lenders or other banking
institutions that agree to accept in whole or in part the Commitment of the
Terminated Lender being referred to herein as the "Replacement Lenders"),
-------------------
such that the aggregate increased and/or accepted Commitments of the
Replacement Lenders under clauses (i) and (ii) above equal the Commitment
of the Terminated Lender.
(c) The Notice of Termination shall include the name of the Terminated
Lender, the date the termination will occur (the "Lender Termination
------------------
Date"), and the Replacement Lender or Replacement Lenders to which the
----
Terminated Lender will assign its Commitment and, if there will be more
than one Replacement Lender, the portion of the Terminated Lender's
Commitment to be assigned to each Replacement Lender.
(d) On the Lender Termination Date, (i) the Terminated Lender shall by
execution and delivery of an Assignment assign its Commitment to the
Replacement Lender or Replacement Lenders (pro rata, if there is more than
one Replacement Lender, in proportion to the portion of the Terminated
Lender's Commitment to be assigned to each Replacement Lender) indicated in
the Notice of Termination and shall assign to the Replacement Lender or
Replacement Lenders each of its Loans (if any) then outstanding and
participation interests in Letters of Credit (if any) then outstanding pro
rata as aforesaid), (ii) the Terminated Lender shall endorse its Note,
payable without recourse, representation or warranty to the order of the
Replacement Lender or Replacement Lenders (pro rata as aforesaid), (iii)
the Replacement Lender or Replacement Lenders shall purchase the Note held
by the Terminated Lender (pro rata as aforesaid) at a price equal to the
unpaid principal amount thereof plus interest and facility and other fees
accrued and unpaid to the Lender Termination Date, and (iv) the Replacement
Lender or Replacement Lenders will thereupon (pro rata as aforesaid)
succeed to and be substituted in all respects for the Terminated Lender
with like effect as if becoming a Lender pursuant to the terms of Section
12.06(b), and the Terminated Lender will have the rights and benefits of an
assignor under Section 12.06(b). To the extent not in conflict, the terms
of Section 12.06(b) shall supplement the provisions of this Section
5.06(d). For each assignment made under this Section 5.06, the Replacement
Lender shall pay to the Agent the
-36-
<PAGE>
processing fee provided for in Section 12.06(b). The Borrower will be
responsible for the payment of any breakage costs associated with
termination and Replacement Lenders, as set forth in Section 5.05.
ARTICLE VI
Conditions Precedent
Section 6.01 Initial Funding.
---------------
The obligation of the Lenders to make the Initial Funding is subject
to the receipt by the Agent and the Lenders of all fees payable pursuant to
Section 2.04 on or before the Closing Date and the receipt by the Agent of the
following documents and satisfaction of the other conditions provided in this
Section 6.01, each of which shall be satisfactory to the Agent in form and
substance:
(a) A certificate of the Secretary or an Assistant Secretary of the
Borrower setting forth (i) resolutions of its board of directors with
respect to the authorization of the Borrower to execute and deliver the
Loan Documents to which it is a party and to enter into the transactions
contemplated in those documents, (ii) the officers of the Borrower (y) who
are authorized to sign the Loan Documents to which Borrower is a party and
(z) who will, until replaced by another officer or officers duly authorized
for that purpose, act as its representative for the purposes of signing
documents and giving notices and other communications in connection with
this Agreement and the transactions contemplated hereby, (iii) specimen
signatures of the authorized officers, and (iv) the articles or certificate
of incorporation and bylaws of the Borrower, certified as being true and
complete. The Agent and the Lenders may conclusively rely on such
certificate until the Agent receives notice in writing from the Borrower to
the contrary.
(b) A certificate of the Secretary or an Assistant Secretary of each
Guarantor setting forth (i) resolutions of its board of directors with
respect to the authorization of such Guarantor to execute and deliver the
Loan Documents to which it is a party and to enter into the transactions
contemplated in those documents, (ii) the officers of such Guarantor (y)
who are authorized to sign the Loan Documents to which such Guarantor is a
party and (z) who will, until replaced by another officer or officers duly
authorized for that purpose, act as its representative for the purposes of
signing documents and giving notices and other communications in connection
with this Agreement and the transactions contemplated hereby, (iii)
specimen signatures of the authorized officers, and (iv) the articles or
certificate of incorporation and bylaws of such Guarantor, certified as
being true and complete. The Agent and the Lenders may conclusively rely
on such certificates until they receive notice in writing from any
Guarantor to the contrary.
(c) Certificates of the appropriate state agencies with respect to the
existence, qualification and good standing of the Obligors.
-37-
<PAGE>
(d) A compliance certificate which shall be substantially in the form
of Exhibit C, duly and properly executed by a Responsible Officer and dated
---------
as of the date of the Initial Funding.
(e) The Notes, duly completed and executed.
(f) The Security Instruments, including those described on Exhibit D,
---------
duly completed and executed in sufficient number of counterparts for
recording, if necessary.
(g) An opinion of Jenkens & Gilchrist, a professional corporation,
counsel to the Obligors and from other counsel acceptable to the Agent with
respect to Security Instrument matters, each in form and substance
satisfactory to the Agent, as to such matters incident to the transactions
herein contemplated as the Agent may reasonably request.
(h) A certificate of insurance coverage of the Borrower and each
Guarantor evidencing that the Borrower and each Guarantor are carrying
insurance in accordance with Section 7.19.
(i) Title information as the Agent may require setting forth the
status of title acceptable to the Agent to at least 80% of the value of the
Oil and Gas Properties of the Guarantors included in the Initial Reserve
Report.
(j) The Agent shall have been furnished with appropriate UCC search
certificates and other evidence satisfactory to the Agent with respect the
Guarantor's Oil and Gas Properties and the to East Irish Sea Properties
reflecting no prior Liens which have not been assigned to the Agent.
(k) Confirmation acceptable to the Agent that Difco has entered into,
or is subject to, a long-term transportation and processing contract with
Hydrocarbon Resources Limited or other pipeline company reasonably
acceptable to the Agent relating to Difco's "sweet" gas produced from its
East Irish Sea Properties and providing for at least ten million cubic feet
per day of pipeline and related facility capacity availability.
(l) The Borrower and its Subsidiaries shall have completed or complete
contemporaneously with the Initial Funding the entity and financial
restructuring described on Schedule 6.01(l).
----------------
(m) Contemporaneous closing of the Acquisitions.
(n) Environmental assessment reports relating to all of the Mortgaged
Properties as may be requested by the Agent, which may include, without
limitation, environmental audits, phase I reports or other environmental
reports of any nature whatsoever (whether prepared internally or by third
party consultants) currently existing or requested by the Agent; and the
Agent must be satisfied with the results of the review and environmental
condition of the Mortgaged Properties.
-38-
<PAGE>
(o) Pro forma financial statements of the Borrower and its
Consolidated Subsidiaries as of the Closing Date.
(p) Difco shall have entered into Hedging Agreements, in form and
substance reasonably satisfactory to the Agent, pursuant to which at least
50% of the "sweet" gas production from the East Irish Sea Properties is
hedged for a period of at least five months after the Closing Date for a
net realized price of not less than 10.5 pence per therm.
(q) Such other documents as the Agent or any Lender or special counsel
to the Agent may reasonably request.
Section 6.02 Initial and Subsequent Loans and Letters of Credit. The
--------------------------------------------------
obligation of the Lenders to make Loans to the Borrower upon the occasion of
each borrowing hereunder and to issue, renew, extend or reissue Letters of
Credit for the account of the Borrower (including the Initial Funding) is
subject to the further conditions precedent that, as of the date of such Loans
and after giving effect thereto:
(a) no Default shall have occurred and be continuing;
(b) no Material Adverse Effect shall have occurred; and
(c) the representations and warranties made by the Borrower in Article VII
and in the Security Instruments shall be true on and as of the date of the
making of such Loans or issuance, renewal, extension or reissuance of a Letter
of Credit with the same force and effect as if made on and as of such date and
following such new borrowing, except to the extent such representations and
warranties are expressly limited to an earlier date or the Majority Lenders may
expressly consent in writing to the contrary.
Each request for a borrowing or issuance, renewal, extension or reissuance
of a Letter of Credit by the Borrower hereunder shall constitute a certification
by the Borrower to the effect set forth in Section 6.02(c) (both as of the date
of such notice and, unless the Borrower otherwise notifies the Agent prior to
the date of and immediately following such borrowing or issuance, renewal,
extension or reissuance of a Letter of Credit as of the date thereof).
Section 6.03 Conditions Precedent for the Benefit of Lenders. All
-----------------------------------------------
conditions precedent to the obligations of the Lenders to make any Loan are
imposed hereby solely for the benefit of the Lenders, and no other Person may
require satisfaction of any such condition precedent or be entitled to assume
that the Lenders will refuse to make any Loan in the absence of strict
compliance with such conditions precedent.
Section 6.04 No Waiver. No waiver of any condition precedent shall
---------
preclude the Agent or the Lenders from requiring such condition to be met prior
to making any subsequent Loan or preclude the Lenders from thereafter declaring
that the failure of the Borrower to satisfy such condition precedent constitutes
a Default.
-39-
<PAGE>
ARTICLE VII
Representations and Warranties
Each of the Obligors represents and warrants to the Agent and the Lenders
that (each representation and warranty herein is given as of the Closing Date
and shall be deemed repeated and reaffirmed on the dates of each borrowing and
issuance, renewal, extension or reissuance of a Letter of Credit as provided in
Section 6.02):
Section 7.01 Corporate Existence. Each of the Obligors: (i) is a
-------------------
corporation duly organized, legally existing and in good standing under the laws
of the jurisdiction of its incorporation; (ii) has all requisite corporate
power, and has all material governmental licenses, authorizations, consents and
approvals necessary to own its assets and carry on its business as now being or
as proposed to be conducted; and (iii) is qualified to do business in all
jurisdictions in which the nature of the business conducted by it makes such
qualification necessary and where failure so to qualify would have a Material
Adverse Effect.
Section 7.02 Financial Condition. The audited consolidated balance
-------------------
sheet of the Borrower and its Consolidated Subsidiaries as at April 30, 1999 and
the related consolidated statement of income, stockholders' equity and cash flow
of the Borrower and its Consolidated Subsidiaries for the fiscal year ended on
said date, with the opinion thereon of KPMG Audit plc heretofore furnished to
each of the Lenders and the unaudited consolidated balance sheet of the Borrower
and its Consolidated Subsidiaries as at January 31, 2000 and their related
consolidated statements of income, stockholders' equity and cash flow of the
Borrower and its Consolidated Subsidiaries for the nine month period ended on
such date heretofore furnished to the Agent, are complete and correct and fairly
present the consolidated financial condition of the Borrower and its
Consolidated Subsidiaries as at said dates and the results of its operations for
the fiscal year and the nine month period on said dates, all in accordance with
GAAP, as applied on a consistent basis (subject, in the case of the interim
financial statements, to normal year-end adjustments). Neither the Borrower nor
any Subsidiary has on the Closing Date any material Debt, contingent
liabilities, liabilities for taxes, unusual forward or long-term commitments or
unrealized or anticipated losses from any unfavorable commitments, except as
referred to or reflected or provided for in the Financial Statements or in
Schedule 7.02. Since January 31, 2000, there has been no change or event having
- -------------
a Material Adverse Effect. Since the date of the Financial Statements, neither
the business nor the Properties of the Borrower or any Subsidiary have been
materially and adversely affected as a result of any fire, explosion,
earthquake, flood, drought, windstorm, accident, strike or other labor
disturbance, embargo, requisition or taking of Property or cancellation of
contracts, permits or concessions by any Governmental Authority, riot,
activities of armed forces or acts of God or of any public enemy.
Section 7.03 Litigation. Except as disclosed to the Lenders in
----------
Schedule 7.03 hereto, at the Closing Date there is no litigation, legal,
- --------------
administrative or arbitral proceeding, investigation or other action of any
nature pending or, to the knowledge of the Obligors threatened against or
affecting the Obligors or any Subsidiary which involves the possibility of any
judgment or liability against any Obligor or any Subsidiary not fully covered by
insurance (except for normal deductibles), and which would have a Material
Adverse Effect.
-40-
<PAGE>
Section 7.04 No Breach. Neither the execution and delivery of the
---------
Loan Documents, nor compliance with the terms and provisions hereof will
conflict with or result in a breach of, or require any consent which has not
been obtained as of the Closing Date under, the respective charter or by-laws of
the Obligors or any Subsidiary, or any Governmental Requirement or any agreement
or instrument to which any Obligor or any Subsidiary is a party or by which it
is bound or to which it or its Properties are subject, or constitute a default
under any such agreement or instrument, or result in the creation or imposition
of any Lien upon any of the revenues or assets of the Obligor or any Subsidiary
pursuant to the terms of any such agreement or instrument other than the Liens
created by the Loan Documents.
Section 7.05 Authority. Each Obligor and each Subsidiary has all
---------
necessary corporate power and authority to execute, deliver and perform its
obligations under the Loan Documents to which it is a party; and the execution,
delivery and performance by each Obligor and each Subsidiary of the Loan
Documents to which it is a party, have been duly authorized by all necessary
corporate action on its part; and the Loan Documents constitute the legal, valid
and binding obligations of each Obligor, enforceable in accordance with their
terms.
Section 7.06 Approvals. No authorizations, approvals or consents of,
---------
and no filings or registrations with, any Governmental Authority or any other
Person are necessary for the execution, delivery or performance by any Obligor
of the Loan Documents to which it is a party or for the validity or
enforceability thereof, except for the recording and filing of the Security
Instruments as required by this Agreement.
Section 7.07 Use of Loans. The proceeds of the Loans shall be used
------------
(i) to refinance the Prior Debt and (ii) for working capital and capital
expenditures for the development of Oil and Gas Properties and the acquisition
of Oil and Gas Properties and related assets. The Borrower is not engaged
principally, or as one of its important activities, in the business of extending
credit for the purpose, whether immediate, incidental or ultimate, of buying or
carrying margin stock (within the meaning of Regulation T, U or X of the Board
of Governors of the Federal Reserve System) and no part of the proceeds of any
Loan hereunder will be used to buy or carry any margin stock.
Section 7.08 ERISA.
-----
(a) Each Obligor, each Subsidiary and each ERISA Affiliate have
complied in all material respects with ERISA and, where applicable, the
Code regarding each Plan.
(b) Each Plan is, and has been, maintained in substantial compliance
with ERISA and, where applicable, the Code.
(c) No act, omission or transaction has occurred which could result in
imposition on any Obligor, any Subsidiary or any ERISA Affiliate (whether
directly or indirectly) of (i) either a civil penalty assessed pursuant to
section 502(c), (i) or (l) of ERISA or a tax imposed pursuant to Chapter 43
of Subtitle D of the Code or (ii) breach of fiduciary duty liability
damages under section 409 of ERISA.
(d) No Plan (other than a defined contribution plan) or any trust
created under any such Plan has been terminated since September 2, 1974.
No liability to the PBGC (other than
-41-
<PAGE>
for the payment of current premiums which are not past due) by any Obligor,
any Subsidiary or any ERISA Affiliate has been or is expected by any
Obligor, any Subsidiary or any ERISA Affiliate to be incurred with respect
to any Plan. No ERISA Event with respect to any Plan has occurred.
(e) Full payment when due has been made of all amounts which any
Obligor, any Subsidiary or any ERISA Affiliate is required under the terms
of each Plan or applicable law to have paid as contributions to such Plan,
and no accumulated funding deficiency (as defined in section 302 of ERISA
and section 412 of the Code), whether or not waived, exists with respect to
any Plan.
(f) The actuarial present value of the benefit liabilities under each
Plan which is subject to Title IV of ERISA does not, as of the end of each
Obligor's most recently ended fiscal year, exceed the current value of the
assets (computed on a plan termination basis in accordance with Title IV of
ERISA) of such Plan allocable to such benefit liabilities. The term
"actuarial present value of the benefit liabilities" shall have the meaning
specified in section 4041 of ERISA.
(g) None of the Obligors, any Subsidiary or any ERISA Affiliate
sponsors, maintains, or contributes to an employee welfare benefit plan, as
defined in section 3(1) of ERISA, including, without limitation, any such
plan maintained to provide benefits to former employees of such entities,
that may not be terminated by an Obligor, a Subsidiary or any ERISA
Affiliate in its sole discretion at any time without any material
liability.
(h) None of the Obligors, any Subsidiary or any ERISA Affiliate
sponsors, maintains or contributes to, or has at any time in the preceding
six calendar years, sponsored, maintained or contributed to, any
Multiemployer Plan.
(i) None of the Obligors, any Subsidiary or any ERISA Affiliate is
required to provide security under section 401(a)(29) of the Code due to a
Plan amendment that results in an increase in current liability for the
Plan.
Section 7.09 Taxes. Except as set out in Schedule 7.09, each Obligor
----- -------------
and its Subsidiaries has filed all United States Federal income tax returns and
all other tax returns which are required to be filed by them and have paid all
material taxes due pursuant to such returns or pursuant to any assessment
received by any Obligor or any Subsidiary. The charges, accruals and reserves
on the books of each Obligor and its Subsidiaries in respect of taxes and other
governmental charges are, in the opinion of the Borrower, adequate. No tax lien
has been filed and, to the knowledge of the Obligors, no claim is being asserted
with respect to any such tax, fee or other charge.
Section 7.10 Titles, etc.
-----------
(a) Except as set out in Schedule 7.10, each of the Obligors and its
-------------
Subsidiaries has good and defensible title to its material (individually or
in the aggregate) Properties, free and clear of all Liens, except Liens
permitted by Section 9.02. Except as set forth in Schedule 7.10, after
-------------
giving full effect to the Excepted Liens, each Obligor owns the net
interests in production attributable to its Hydrocarbon Interests reflected
in the most recently
-42-
<PAGE>
delivered Reserve Report and the ownership of such Properties shall not in
any material respect obligate such Obligor to bear the costs and expenses
relating to the maintenance, development and operations of each such
Property in an amount in excess of the working interest of each Property
set forth in the most recently delivered Reserve Report. All information
contained in the most recently delivered Reserve Report is true and correct
in all material respects as of the date thereof.
(b) All leases and agreements necessary for the conduct of the
business of each Obligor and its Subsidiaries are valid and subsisting, in
full force and effect and there exists no default or event or circumstance
which with the giving of notice or the passage of time or both would give
rise to a default under any such lease or leases, which would affect in any
material respect the conduct of the business of any Obligor and its
Subsidiaries.
(c) The rights, Properties and other assets presently owned, leased or
licensed by each Obligor and its Subsidiaries including, without
limitation, all easements and rights of way, include all rights, Properties
and other assets necessary to permit each Obligor and its Subsidiaries to
conduct its business in all material respects in the same manner as its
business has been conducted prior to the Closing Date.
(d) All of the assets and Properties of each Obligor and its
Subsidiaries which are reasonably necessary for the operation of its
business are in good working condition and are maintained in accordance
with prudent business standards.
Section 7.11 No Material Misstatements. No written information,
-------------------------
statement, exhibit, certificate, document or report furnished to the Agent and
the Lenders (or any of them) by any Obligor or any Subsidiary in connection with
the negotiation of this Agreement contained any material misstatement of fact or
omitted to state a material fact or any fact necessary to make the statement
contained therein not materially misleading in the light of the circumstances in
which made and with respect to the Obligors and their Subsidiaries taken as a
whole. There is no fact peculiar to any Obligor or any Subsidiary which has a
Material Adverse Effect or in the future is reasonably likely to have (so far as
the Obligors can now foresee) a Material Adverse Effect and which has not been
set forth in this Agreement or the other documents, certificates and statements
furnished to the Agent by or on behalf of the Obligors or any Subsidiary prior
to, or on, the Closing Date in connection with the transactions contemplated
hereby.
Section 7.12 Investment Company Act. None of the Obligors nor any
----------------------
Subsidiary is an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.
Section 7.13 Public Utility Holding Company Act. None of the
----------------------------------
Obligors nor any Subsidiary is a "holding company," or a "subsidiary company" of
a "holding company," or an "affiliate" of a "holding company" or of a
"subsidiary company" of a "holding company," or a "public utility" within the
meaning of the Public Utility Holding Company Act of 1935, as amended.
Section 7.14 Subsidiaries. Except as set forth on Schedule 7.14,
------------ -------------
the Obligors have no Subsidiaries.
-43-
<PAGE>
Section 7.15 Location of Business and Offices. Each Obligor's
--------------------------------
principal place of business and chief executive offices are located at the
address stated on the signature page of this Agreement. The principal place of
business and chief executive office of each Subsidiary are located at the
addresses stated on Schedule 7.14.
-------------
Section 7.16 Defaults. None of the Obligors nor any Subsidiary is in
--------
default nor has any event or circumstance occurred which, but for the expiration
of any applicable grace period or the giving of notice, or both, would
constitute a default under any material agreement or instrument to which any
Obligor or any Subsidiary is a party or by which any Obligor or any Subsidiary
is bound which default would have a Material Adverse Effect. No Default
hereunder has occurred and is continuing.
Section 7.17 Environmental Matters. Except (i) as provided in
---------------------
Schedule 7.17 or (ii) as would not have a Material Adverse Effect (or with
- -------------
respect to (c), (d) and (e) below, where the failure to take such actions would
not have a Material Adverse Effect):
(a) Neither any Property of any Obligor or any Subsidiary nor the
operations conducted thereon violate any order or requirement of any court
or Governmental Authority or any Environmental Laws;
(b) Without limitation of clause (a) above, no Property of any Obligor
or any Subsidiary nor the operations currently conducted thereon or, to the
best knowledge of the Obligors, by any prior owner or operator of such
Property or operation, are in violation of or subject to any existing,
pending or threatened action, suit, investigation, inquiry or proceeding by
or before any court or Governmental Authority or to any remedial
obligations under Environmental Laws;
(c) All notices, permits, licenses or similar authorizations, if any,
required to be obtained or filed in connection with the operation or use of
any and all Property of the Obligors and each Subsidiary, including without
limitation past or present treatment, storage, disposal or release of a
hazardous substance or solid waste into the environment, have been duly
obtained or filed, and the Obligors and each Subsidiary are in compliance
with the terms and conditions of all such notices, permits, licenses and
similar authorizations;
(d) All hazardous substances, solid waste, and oil and gas exploration
and production wastes, if any, generated at any and all Property of any
Obligor 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 the Obligors, 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 threatened action,
investigation or inquiry by any Governmental Authority in connection with
any Environmental Laws;
(e) The Obligors have taken all steps reasonably necessary to
determine and have determined that no hazardous substances, solid waste, or
oil and gas exploration and
-44-
<PAGE>
production wastes, have been disposed of or otherwise released and there
has been no threatened release of any hazardous substances on or to any
Property of any Obligor or any Subsidiary except in compliance with
Environmental Laws and so as not to pose an imminent and substantial
endangerment to public health or welfare or the environment;
(f) To the extent applicable, all Property of the Obligors and each
Subsidiary currently satisfies all design, operation, and equipment
requirements imposed by the OPA or scheduled as of the Closing Date to be
imposed by OPA during the term of this Agreement, and the Obligors do not
have any reason to believe that such Property, to the extent subject to
OPA, will not be able to maintain compliance with the OPA requirements
during the term of this Agreement; and
(g) None of the Obligors nor any Subsidiary has any known contingent
liability in connection with any release or threatened release of any oil,
hazardous substance or solid waste into the environment.
Section 7.18 Compliance with the Law. None of the Obligors nor any
-----------------------
Subsidiary has violated any Governmental Requirement or failed to obtain any
license, permit, franchise or other governmental authorization necessary for the
ownership of any of its Properties or the conduct of its business, which
violation or failure would have (in the event such violation or failure were
asserted by any Person through appropriate action) a Material Adverse Effect.
Except for such acts or failures to act as would not have a Material Adverse
Effect, the Oil and Gas Properties of the Obligors (and properties unitized
therewith) have been maintained, operated and developed in a good and
workmanlike manner and in conformity with all applicable laws and all rules,
regulations and orders of all duly constituted authorities having jurisdiction
and in conformity with the provisions of all leases, subleases or other
contracts comprising a part of the Hydrocarbon Interests and other contracts and
agreements forming a part of such Oil and Gas Properties; specifically in this
connection, (i) after the Closing Date, no Oil and Gas Property of any Obligor
is subject to having allowable production reduced below the full and regular
allowable (including the maximum permissible tolerance) because of any
overproduction (whether or not the same was permissible at the time) prior to
the Closing Date and (ii) none of the wells comprising a part of the Oil and Gas
Properties of any Obligor (or properties unitized therewith) are deviated from
the vertical more than the maximum permitted by applicable laws, regulations,
rules and orders, and such wells are, in fact, bottomed under and are producing
from, and the well bores are wholly within, such Oil and Gas Properties (or in
the case of wells located on properties unitized therewith, such unitized
properties).
Section 7.19 Insurance. Schedule 7.19 attached hereto contains an
--------- -------------
accurate and complete description of all material policies of fire, liability,
workers' compensation and other forms of insurance owned or held by the Obligors
and each Subsidiary. All such policies are in full force and effect, all
premiums with respect thereto covering all periods up to and including the date
of the closing have been paid, and no notice of cancellation or termination has
been received with respect to any such policy. Such policies are sufficient for
compliance with all requirements of law and of all agreements to which any
Obligor or any Subsidiary is a party; are valid, outstanding and enforceable
policies; provide adequate insurance coverage in at least such amounts and
against at least such risks (but including in any event public liability) as are
usually insured against in the same general area by companies engaged in the
same or a similar business for the assets and operations of the Obligors and
each Subsidiary; will remain in full force and effect through the respective
dates set
-45-
<PAGE>
forth in Schedule 7.19 without the payment of additional premiums; and will not
-------------
in any way be affected by, or terminate or lapse by reason of, the transactions
contemplated by this Agreement. Schedule 7.19 identifies all material risks, if
-------------
any, which each Obligor and its Subsidiaries and their respective Board of
Directors or officers have designated as being self insured. None of the
Obligors nor any Subsidiary has been refused any insurance with respect to its
assets or operations, nor has its coverage been limited below usual and
customary policy limits, by an insurance carrier to which it has applied for any
such insurance or with which it has carried insurance during the last three
years.
Section 7.20 Hedging Agreements. Schedule 7.20 sets forth, as of the
------------------ --------------
Closing Date, a true and complete list of all Hedging Agreements (including
commodity price swap agreements, forward agreements or contracts of sale which
provide for prepayment for deferred shipment or delivery of oil, gas or other
commodities) of the Obligors and each Subsidiary, the material terms thereof
(including the type, term, effective date, termination date and notional amounts
or volumes), the net mark to market value thereof, all credit support agreements
relating thereto (including any margin required or supplied), and the counter
party to each such agreement.
Section 7.21 Restriction on Liens. None of the Obligors nor any of
--------------------
their Subsidiaries is a party to any agreement or arrangement (other than this
Agreement and the Security Instruments), or subject to any order, judgment, writ
or decree, which either restricts or purports to restrict its ability to grant
Liens to other Persons on or in respect of their respective assets or
Properties.
Section 7.22 Material Agreements. Set forth on Schedule 7.22 hereto
------------------- -------------
is a complete and correct list of all material agreements, leases, indentures,
purchase agreements, obligations in respect of letters of credit, guarantees,
joint venture agreements, and other instruments in effect or to be in effect as
of the Closing Date (other than Hedging Agreements) providing for, evidencing,
securing or otherwise relating to any Debt of any Obligor or any of its
Subsidiaries, and all obligations of any Obligor or any Subsidiaries to issuers
of surety or appeal bonds issued for account of any Obligor or any such
Subsidiary, and such list correctly sets forth the names of the debtor or lessee
and creditor or lessor with respect to the Debt or lease obligations outstanding
or to be outstanding and the Property subject to any Lien securing such Debt or
lease obligation. Also set forth on Schedule 7.22 hereto is a complete and
-------------
correct list of all material agreements and other instruments (excluding any
such agreements and other instruments that are cancellable upon 60 or less days
notice) of each Obligor and its Subsidiaries relating to the purchase,
transportation by pipeline, gas processing, marketing, sale and supply of
natural gas and other Hydrocarbons, but in any event, any such agreement or
other instrument that will account for more than 10% of the sales of the
Obligors' and their Subsidiaries during the Borrower's current fiscal year. The
Borrower has heretofore delivered, or caused to be delivered, to the Agent and
the Lenders a complete and correct copy of all such material credit agreements,
indentures, purchase agreements, contracts, letters of credit, guarantees, joint
venture agreements, or other instruments, including any modifications or
supplements thereto, as in effect on the Closing Date.
Section 7.23 Gas Imbalances. As of the Closing Date, except as set
--------------
forth on Schedule 7.23 or on the most recent certificate delivered pursuant to
-------------
Section 8.07(c), on a net basis there are no gas imbalances, take or pay or
other prepayments with respect to the Obligors' Oil and Gas Properties which
would require the Obligors to deliver, in the aggregate, five percent (5%) or
more of the monthly production from Hydrocarbons produced from their Oil and Gas
Properties at some future time without then or thereafter receiving full payment
therefor.
-46-
<PAGE>
ARTICLE VIII
Affirmative Covenants
Each of the Obligors covenants and agrees that, so long as any of the
Commitments are in effect and until payment in full of all Loans hereunder, all
interest thereon and all other amounts payable by the Obligors hereunder:
Section 8.01 Reporting Requirements. The Obligors shall deliver, or
----------------------
shall cause to be delivered, to the Agent with sufficient copies of each for the
Lenders:
(a) Annual Financial Statements. As soon as available and in any
---------------------------
event within 105 days after the end of each fiscal year of the Borrower,
the audited consolidated and unaudited consolidating statements of income,
stockholders' equity, changes in financial position and cash flow of the
Borrower and its Consolidated Subsidiaries for such fiscal year, and the
related consolidated and consolidating balance sheets of the Borrower and
its Consolidated Subsidiaries as at the end of such fiscal year, and
setting forth in each case in comparative form the corresponding figures
for the preceding fiscal year, and accompanied by the related opinion of
independent public accountants of recognized national standing acceptable
to the Agent which opinion shall state that said financial statements
fairly present the consolidated and consolidating financial condition and
results of operations of the Borrower and its Consolidated Subsidiaries as
at the end of, and for, such fiscal year and that such financial statements
have been prepared in accordance with GAAP, except for such changes in such
principles with which the independent public accountants shall have
concurred and such opinion shall not contain a "going concern" or like
qualification or exception, and a certificate of such accountants stating
that, in making the examination necessary for their opinion, they obtained
no knowledge, except as specifically stated, of any Default.
(b) Quarterly Financial Statements. As soon as available and in any
------------------------------
event within 50 days after the end of each of the first three fiscal
quarterly periods of each fiscal year of the Borrower, consolidated and
consolidating statements of income, stockholders' equity, changes in
financial position and cash flow of the Borrower and its Consolidated
Subsidiaries for such period and for the period from the beginning of the
respective fiscal year to the end of such period, and the related
consolidated and consolidating balance sheets as at the end of such period,
and setting forth in each case in comparative form the corresponding
figures for the corresponding period in the preceding fiscal year,
accompanied by the certificate of a Responsible Officer, which certificate
shall state that said financial statements fairly present the consolidated
and consolidating financial condition and results of operations of the
Borrower and its Consolidated Subsidiaries in accordance with GAAP, as at
the end of, and for, such period (subject to normal year-end audit
adjustments).
(c) Notice of Default, Etc. Promptly after any Obligor knows that any
-----------------------
Default or any Material Adverse Effect has occurred, a notice of such
Default or Material Adverse Effect, describing the same in reasonable
detail and the action the Borrower or any Guarantor proposes to take with
respect thereto.
-47-
<PAGE>
(d) Other Accounting Reports. Promptly upon receipt thereof, a copy
------------------------
of each other report or letter submitted to the Borrower or any Subsidiary
by independent accountants in connection with any annual, interim or
special audit made by them of the books of the Borrower and its
Subsidiaries, and a copy of any response by the Borrower or any Subsidiary
of the Borrower, or the Board of Directors of the Borrower or any
Subsidiary of the Borrower, to such letter or report.
(e) SEC Filings, Etc. Promptly upon its becoming available, each
-----------------
financial statement, report, notice or proxy statement sent by the Borrower
to stockholders generally and each regular or periodic report and any
registration statement, prospectus or written communication (other than
transmittal letters) in respect thereof filed by the Borrower with or
received by the Borrower in connection therewith from any securities
exchange or the SEC or any successor agency.
(f) Notices Under Other Loan Agreements. Promptly after the
-----------------------------------
furnishing thereof, copies of any statement, report or notice furnished to
any Person pursuant to the terms of any indenture, loan or credit or other
similar agreement, other than this Agreement and not otherwise required to
be furnished to the Lenders pursuant to any other provision of this Section
8.01.
(g) Other Matters. From time to time such other information regarding
-------------
the business, affairs or financial condition of any Obligor or any
Subsidiary (including, without limitation, any Plan or Multiemployer Plan
and any reports or other information required to be filed under ERISA) as
any Lender or the Agent may reasonably request.
(h) Hedging Agreements. As soon as available and in any event within
------------------
fifteen Business Days after the last day of each fiscal quarter, a report,
in form and substance satisfactory to the Agent, setting forth as of the
last Business Day of such fiscal quarter a true and complete list of all
Hedging Agreements (including commodity price swap agreements, forward
agreements or contracts of sale which provide for prepayment for deferred
shipment or delivery of oil, gas or other commodities) of the Obligors and
each Subsidiary, the material terms thereof (including the type, term,
effective date, termination date and notional amounts or volumes), the net
mark to market value therefor, any new credit support agreements relating
thereto not listed on Schedule 7.20, any margin required or supplied under
-------------
any credit support document, and the counter party to each such agreement.
The Borrower will furnish to the Agent, at the time it furnishes each set of
financial statements pursuant to paragraph (a) or (b) above, a certificate
substantially in the form of Exhibit C executed by a Responsible Officer (i)
---------
certifying as to the matters set forth therein and stating that no Default has
occurred and is continuing (or, if any Default has occurred and is continuing,
describing the same in reasonable detail), and (ii) setting forth in reasonable
detail the computations necessary to determine whether the Borrower is in
compliance with Sections 9.12, 9.13, 9.14, and 9.15 as of the end of the
respective fiscal quarter or fiscal year.
Section 8.02 Litigation. The Obligors shall promptly give to the
----------
Agent notice of: (i) all legal or arbitral proceedings, and of all proceedings
before any Governmental Authority affecting any Obligor or any Subsidiary,
except proceedings which, if adversely determined, would not
-48-
<PAGE>
reasonably be expected to have a Material Adverse Effect, and (ii) any
litigation or proceeding against or adversely affecting any Obligor or any
Subsidiary in which the amount claimed exceeds $500,000 and is not covered in
full by insurance (subject to normal and customary deductibles and for which the
insurer has not assumed the defense), or in which injunctive or similar relief
is sought. Each Obligor will, and will cause each of its Subsidiaries to,
promptly notify the Agent and each of the Lenders of any claim, judgment, Lien
or other encumbrance affecting any Property of such Obligor or any Subsidiary if
the value of the claim, judgment, Lien, or other encumbrance affecting such
Property shall exceed $500,000.
Section 8.03 Maintenance, Etc.
-----------------
(a) Generally. Each Obligor shall and shall cause each of its
---------
Subsidiaries to: preserve and maintain its corporate existence and all of
its material rights, privileges and franchises; keep books of record and
account in which full, true and correct entries will be made of all
dealings or transactions in relation to its business and activities; comply
with all Governmental Requirements if failure to comply with such
requirements will have a Material Adverse Effect; pay and discharge all
taxes, assessments and governmental charges or levies imposed on it or on
its income or profits or on any of its Property prior to the date on which
penalties attach thereto, except for any such tax, assessment, charge or
levy the payment of which is being contested in good faith and by proper
proceedings and against which adequate reserves are being maintained; upon
reasonable notice, permit representatives of the Agent or any Lender,
during normal business hours, to examine, copy and make extracts from its
books and records, to inspect its Properties, and to discuss its business
and affairs with its officers, all to the extent reasonably requested by
such Lender or the Agent (as the case may be); and keep, or cause to be
kept, insured by financially sound and reputable insurers all Property of a
character usually insured by Persons engaged in the same or similar
business similarly situated against loss or damage of the kinds and in the
amounts customarily insured against by such Persons and carry such other
insurance as is usually carried by such Persons including, without
limitation, environmental risk insurance to the extent reasonably
available.
(b) Proof of Insurance. Contemporaneously with the delivery of the
------------------
financial statements required by Section 8.01(a) to be delivered for each
year, the Borrower will furnish or cause to be furnished to the Agent and
the Lenders a certificate of insurance coverage from the insurer in form
and substance satisfactory to the Agent and, if requested, will furnish the
Agent and the Lenders copies of the applicable policies.
(c) Oil and Gas Properties. Each Obligor will and will cause each of
----------------------
its Subsidiaries to, at its own expense, do or cause to be done all things
reasonably necessary to preserve and keep in good repair, working order and
efficiency all of its Oil and Gas Properties and other material Properties
including, without limitation, all equipment, machinery and facilities, and
from time to time will make all the reasonably necessary repairs, renewals
and replacements so that at all times the state and condition of its Oil
and Gas Properties and other material Properties will be fully preserved
and maintained, except to the extent a portion of such Properties is no
longer capable of producing Hydrocarbons in economically reasonable
amounts. Each Obligor will and will cause each of its Subsidiaries to
promptly: (i) pay and discharge, or make reasonable and customary efforts
to cause to be paid and discharged, all delay rentals, royalties, expenses
and indebtedness accruing under the
-49-
<PAGE>
leases or other agreements affecting or pertaining to its Oil and Gas
Properties (other than Old LaTex Payables), (ii) perform or make reasonable
and customary efforts to cause to be performed, in accordance with industry
standards, the obligations required by each and all of the assignments,
deeds, leases, sub-leases, contracts and agreements affecting its interests
in its Oil and Gas Properties and other material Properties, (iii) will and
will cause each Subsidiary to do all other things necessary to keep
unimpaired, except for Liens described in Section 9.02, its rights with
respect to its Oil and Gas Properties and other material Properties and
prevent any forfeiture thereof or a default thereunder, except to the
extent a portion of such Properties is no longer capable of producing
Hydrocarbons in economically reasonable amounts and except for Transfers
permitted by Section 9.16. Each Obligor will and will cause each of its
Subsidiaries to operate its Oil and Gas Properties and other material
Properties or cause or make reasonable and customary efforts to cause such
Oil and Gas Properties and other material Properties to be operated in a
careful and efficient manner in accordance with the practices of the
industry and in compliance with all applicable contracts and agreements and
in compliance in all material respects with all Governmental Requirements.
Section 8.04 Environmental Matters.
---------------------
(a) Establishment of Procedures. The Obligors will and will cause
---------------------------
each of their Subsidiaries to establish and implement such procedures as
may be reasonably necessary to continuously determine and assure that any
failure of the following does not have a Material Adverse Effect: (i) all
Property of the Obligors and their Subsidiaries and the operations
conducted thereon and other activities of the Obligors and their
Subsidiaries are in compliance with and do not violate the requirements of
any Environmental Laws, (ii) no oil, hazardous substances or solid wastes
are disposed of or otherwise released on or to any Property owned by any
such party except in compliance with Environmental Laws, (iii) no hazardous
substance will be released on or to any such Property in a quantity equal
to or exceeding that quantity which requires reporting pursuant to Section
103 of CERCLA, and (iv) no oil, oil and gas exploration and production
wastes or hazardous substance is released on or to any such Property so as
to pose an imminent and substantial endangerment to public health or
welfare or the environment.
(b) Notice of Action. The Obligors will promptly notify the Agent and
----------------
the Lenders in writing of any threatened action, investigation or inquiry
by any Governmental Authority of which any Obligor has knowledge in
connection with any Environmental Laws, excluding routine testing and
corrective action.
(c) Future Acquisitions. The Obligors will and will cause each of
-------------------
their Subsidiaries to provide environmental audits and tests in accordance
with American Society for Testing and Materials standards as reasonably
requested by the Agent and the Lenders (or as otherwise required to be
obtained by the Agent or the Lenders by any Governmental Authority) in
connection with any future acquisitions of Oil and Gas Properties or other
material Properties.
Section 8.05 Further Assurances. The Obligors will and will cause
------------------
each of their Subsidiaries to cure promptly any defects in the creation and
issuance of the Notes and the execution
-50-
<PAGE>
and delivery of the Security Instruments and this Agreement. The Obligors at
their expense will and will cause each Subsidiary to promptly execute and
deliver to the Agent upon request all such other documents, agreements and
instruments to comply with or accomplish the covenants and agreements of the
Obligors or any Subsidiary, as the case may be, in any Loan Document, or to
further evidence and more fully describe the collateral intended as security for
the Notes, or to correct any omissions in any Loan Document, or to state more
fully the security obligations set out herein or in any Loan Document, or to
perfect, protect or preserve any Liens created pursuant to any of the Security
Instruments, or to make any recordings, to file any notices or obtain any
consents, all as may be necessary or appropriate in connection therewith.
Section 8.06 Performance of Obligations. The Borrower will pay the
--------------------------
Notes according to the reading, tenor and effect thereof; and the Obligors will
and will cause each of their Subsidiaries to do and perform every act and
discharge all of the obligations to be performed and discharged by them under
this Agreement and any other Loan Document, at the time or times and in the
manner specified.
Section 8.07 Engineering Reports.
-------------------
(a) Not less than 30 days prior to each Scheduled Redetermination
Date, commencing with the Scheduled Redetermination Date to occur on or
around August 1, 2000, the Borrower and/or the Guarantors shall furnish to
the Agent and the Lenders a Reserve Report. The May 1 Reserve Report of
each year shall be prepared by certified independent petroleum engineers or
other independent petroleum consultant(s) acceptable to the Agent and the
November 1 Reserve Report of each year shall be prepared by or under the
supervision of the chief engineer of the Obligors and for which a
Responsible Officer shall certify such Reserve Report to be true and
accurate and to have been prepared in accordance with the procedures used
in the immediately proceeding May 1 Reserve Report.
(b) In the event of an unscheduled redetermination, the Borrower
and/or the Guarantors shall furnish to the Agent and the Lenders a Reserve
Report prepared by or under the supervision of the chief engineer of the
Obligors together with the certificate of a Responsible Officer who shall
certify such Reserve Report to be true and accurate and to have been
prepared in accordance with the procedures used in the immediately
preceding Reserve Report. For any unscheduled redetermination requested by
the Lenders or the Borrower pursuant to Section 2.08(d)), the Borrower
and/or the Guarantors shall provide such Reserve Report with an "as of"
date as required by the Lenders as soon as possible, but in any event no
later than 30 days following the receipt of the request by the Agent.
(c) With the delivery of each Reserve Report, the Borrower shall
provide, or cause to be provided, to the Agent and the Lenders, a
certificate from a Responsible Officer certifying that, to the best of his
knowledge and in all material respects: (i) the information contained in
the Reserve Report and any other information delivered in connection
therewith is true and correct, (ii) the Guarantors own good and defensible
title to the Oil and Gas Properties evaluated in such Reserve Report and
such Properties are free of all Liens except for Liens permitted by Section
9.02, (iii) except as set forth on an exhibit to the certificate, on a net
basis there are no gas imbalances, take or pay or other prepayments with
respect to its Oil and Gas Properties evaluated in such Reserve Report
which would require any Obligor
-51-
<PAGE>
to deliver Hydrocarbons produced from such Oil and Gas Properties at some
future time without then or thereafter receiving full payment therefor,
(iv) none of its Oil and Gas Properties have been sold since the date of
the last Borrowing Base determination except as set forth on an exhibit to
the certificate, which certificate shall list all of its Oil and Gas
Properties sold and in such detail as reasonably required by the Majority
Lenders, (v) attached to the certificate is a list of its Oil and Gas
Properties added to and deleted from the immediately prior Reserve Report
and a list showing any change in working interest or net revenue interest
in its Oil and Gas Properties occurring and the reason for such change,
(vi) attached to the certificate is a list of all Persons disbursing
proceeds to the Guarantors from their Oil and Gas Properties and (vii)
except as set forth on a schedule attached to the certificate all of the
Oil and Gas Properties evaluated by such Reserve Report are Mortgaged
Property.
Section 8.08 Title Information.
-----------------
(a) Delivery. On or before the delivery to the Agent and the Lenders
--------
of each Reserve Report required by Section 8.07(a), the Obligors will
deliver, or cause to be delivered, title information in form and substance
acceptable to the Agent covering enough of the Oil and Gas Properties
evaluated by such Reserve Report that were not included in the immediately
preceding Reserve Report, so that the Agent shall have received together
with title information previously delivered to the Agent, satisfactory
title information on at least 80% of the value of the Oil and Gas
Properties evaluated by such Reserve Report.
(b) Cure of Title Defects. The Obligors shall cure, or cause to be
---------------------
cured, any title defects or exceptions which are not Excepted Liens raised
by such information, or substitute acceptable Mortgaged Properties with no
title defects or exceptions except for Excepted Liens covering Mortgaged
Properties of an equivalent value, within 90 days after a request by the
Agent or the Lenders to cure such defects or exceptions.
(c) Failure to Cure Title Defects. If the Obligors are unable to cure
-----------------------------
any title defect requested by the Agent or the Lenders to be cured within
the 90-day period or the Obligors do not comply with the requirements to
provide acceptable title information covering 80% of the value of the Oil
and Gas Properties evaluated in the most recent Reserve Report, such
default shall not be a Default or an Event of Default, but instead the
Agent and the Lenders shall have the right to exercise the following remedy
in their sole discretion from time to time, and any failure to so exercise
this remedy at any time shall not be a waiver as to future exercise of the
remedy by the Agent or the Lenders. To the extent that the Agent or the
Lenders are not satisfied with title to any Mortgaged Property after the
time period in Section 8.08(b) has elapsed, such unacceptable Mortgaged
Property shall not count towards the 80% requirement, and the Agent may
send a notice to the Borrower and the Lenders that the then outstanding
Borrowing Base shall be reduced by an amount as determined by all of the
Lenders to cause the Obligors to be in compliance with the requirement to
provide acceptable title information on 80% of the value of the Oil and Gas
Properties. This new Borrowing Base shall become effective immediately
after receipt of such notice.
-52-
<PAGE>
Section 8.09 Additional Collateral.
---------------------
(a) Lien in Acquired Oil and Gas Properties. Should any Obligor
---------------------------------------
acquire any additional Oil and Gas Properties, such Obligor will grant to
the Agent as security for the Indebtedness a first-priority Lien interest
(subject only to Excepted Liens) on such Obligor's interest in any Oil and
Gas Properties not already subject to a Lien of the Security Instruments,
which Lien will be created and perfected by and in accordance with the
provisions of mortgages, deeds of trust, security agreements and financing
statements, or other Security Instruments, all in form and substance
satisfactory to the Agent in its sole discretion and in sufficient executed
(and acknowledged where necessary or appropriate) counterparts for
recording purposes.
(b) Title Information. Concurrently with the granting of the Lien or
-----------------
other action referred to in Section 8.07(a) above, the Borrower or such
Obligor will provide to the Agent title information in form and substance
satisfactory to the Agent in its sole discretion with respect to such
Obligor's interests in such Oil and Gas Properties.
(c) Legal Opinions. Also, promptly after the filing of any new
--------------
Security Instrument in any state, upon the reasonable request of the Agent,
the Obligors will provide, or cause to be provided, to the Agent an opinion
addressed to the Agent for the benefit of the Lenders in form and substance
satisfactory to the Agent in its sole discretion from counsel acceptable to
Agent, stating that the Security Instrument is valid, binding and
enforceable in accordance with its terms and in legally sufficient form for
such jurisdiction.
Section 8.10 ERISA Information and Compliance. The Obligors will
--------------------------------
promptly furnish and will cause the Subsidiaries and any ERISA Affiliate to
promptly furnish to the Agent with sufficient copies to the Lenders (i) promptly
after the filing thereof with the United States Secretary of Labor, the Internal
Revenue Service or the PBGC, copies of each annual and other report with respect
to each Plan or any trust created thereunder, (ii) immediately upon becoming
aware of the occurrence of any ERISA Event or of any "prohibited transaction,"
as described in section 406 of ERISA or in section 4975 of the Code, in
connection with any Plan or any trust created thereunder, a written notice
signed by a Responsible Officer specifying the nature thereof, what action the
Obligors, the Subsidiary or the ERISA Affiliate is taking or proposes to take
with respect thereto, and, when known, any action taken or proposed by the
Internal Revenue Service, the Department of Labor or the PBGC with respect
thereto, and (iii) immediately upon receipt thereof, copies of any notice of the
PBGC's intention to terminate or to have a trustee appointed to administer any
Plan. With respect to each Plan (other than a Multiemployer Plan), the Obligors
will, and will cause each Subsidiary and ERISA Affiliate to, (i) satisfy in full
and in a timely manner, without incurring any late payment or underpayment
charge or penalty and without giving rise to any lien, all of the contribution
and funding requirements of section 412 of the Code (determined without regard
to subsections (d), (e), (f) and (k) thereof) and of section 302 of ERISA
(determined without regard to sections 303, 304 and 306 of ERISA), and (ii) pay,
or cause to be paid, to the PBGC in a timely manner, without incurring any late
payment or underpayment charge or penalty, all premiums required pursuant to
sections 4006 and 4007 of ERISA.
Section 8.11 Hedging Agreements for East Irish Sea Properties. Difco
------------------------------------------------
shall maintain Hedging Agreements, in form and substance reasonably satisfactory
to the Agent, pursuant to which
-53-
<PAGE>
at least 50% of the "sweet" gas production from the East Irish Sea Properties is
hedged for a period of at least five months after the Closing Date for a net
realized price of not less than 10.5 pence per therm.
Section 8.12 East Irish Sea Properties Consents. The Borrower shall
----------------------------------
obtain or shall cause to be obtained, to the satisfaction of the Agent, within
45 days after the Closing Date, all consents required for the charge by Difco in
favor of the Agent of the East Irish Sea Properties pursuant to the Restatement
and Amendment of Charge dated as of even date herewith between the Agent and
Difco.
ARTICLE IX
Negative Covenants
The Obligors covenant and agree that, so long as any of the Commitments are
in effect and until payment in full of Loans hereunder, all interest thereon and
all other amounts payable by the Obligors hereunder, without the prior written
consent of the Majority Lenders:
Section 9.01 Debt. None of the Obligors nor any Subsidiary will
----
incur, create, assume or permit to exist any Debt, except:
(a) the Notes or other Indebtedness or any guaranty of or suretyship
arrangement for the Notes or other Indebtedness;
(b) Debt of the Borrower disclosed in Schedule 9.01, and any renewals
-------------
or extensions (but not increases) thereof;
(c) accounts payable (for the deferred purchase price of Property or
services) from time to time incurred in the ordinary course of business
which, if greater than 90 days past the invoice or billing date, are being
contested in good faith by appropriate proceedings if reserves adequate
under GAAP shall have been established therefor;
(d) Debt under capital leases (as required to be reported on the
financial statements of the Borrower pursuant to GAAP) not to exceed
$500,000;
(e) Debt associated with bonds or surety obligations required by
Governmental Requirements in connection with the operation of any Obligor's
Oil and Gas Properties;
(f) Debt of the Obligors and their Subsidiaries under Hedging
Agreements covering oil and gas production of the Obligors or their
Subsidiaries; provided, however, that such Hedging Agreements shall not in
-------- -------
the aggregate cover more than seventy percent (70%) of projected proved
developed producing reserves of the Obligors for each individual period
covered by such Hedging Agreements and no such Hedging Agreement shall
exceed a term of 24 months;
(g) Subordinated Debt; and
-54-
<PAGE>
(h) Old LaTex Payables
Section 9.02 Liens. None of the Obligors nor any Subsidiary will
-----
create, incur, assume or permit to exist any Lien on any of its Properties (now
owned or hereafter acquired), except:
(a) Liens securing the payment of any Indebtedness;
(b) Excepted Liens;
(c) Liens securing leases allowed under Section 9.01(d), but only on
the Property under lease;
(d) Liens disclosed on Schedule 9.02; and
-------------
(e) Liens on cash or securities of the Borrower securing the Debt
described in Section 9.01(e).
Section 9.03 Investments, Loans and Advances. None of the Obligors
-------------------------------
nor any Subsidiary will make or permit to remain outstanding any loans or
advances to or investments in any Person, except that the foregoing restriction
shall not apply to:
(a) investments, loans or advances reflected in the Financial
Statements or which are disclosed to the Lenders in Schedule 9.03;
-------------
(b) accounts receivable arising in the ordinary course of business;
(c) direct obligations of the United States or any agency thereof, or
obligations guaranteed by the United States or any agency thereof, in each
case maturing within one year from the date of creation thereof;
(d) commercial paper maturing within one year from the date of
creation thereof rated in the highest grade by Standard & Poor's
Corporation or Moody's Investors Service, Inc.;
(e) deposits maturing within one year from the date of creation
thereof with, including certificates of deposit issued by, any Lender or
any office located in the United States of any other bank or trust company
which is organized under the laws of the United States or any state
thereof, has capital, surplus and undivided profits aggregating at least
$100,000,000.00 (as of the date of such Lender's or bank or trust company's
most recent financial reports) and has a short term deposit rating of no
lower than A2 or P2, as such rating is set forth from time to time, by
Standard & Poor's Corporation or Moody's Investors Service, Inc.,
respectively;
(f) deposits in money market funds investing exclusively in
investments described in Section 9.03(c), 9.03(d) or 9.03(e);
-55-
<PAGE>
(g) investments, loans or advances in or to any Guarantor; and
(h) investments by the Borrower or any Guarantor in direct ownership
interests in additional Oil and Gas Properties and gas gathering systems
related thereto.
Section 9.04 Dividends, Distributions and Redemptions. The Borrower
----------------------------------------
will not declare or pay any dividend, purchase, redeem or otherwise acquire for
value any of its stock now or hereafter outstanding, return any capital to its
stockholders or make any distribution of its assets to its stockholders;
provided, however; the Borrower may pay (i) stock dividends payable on the
- -------- -------
Preferred Stock, and (ii) at any time after the second anniversary date of the
Closing Date, and if no Default exists or would result therefrom, cash dividends
payable on the Preferred Stock.
Section 9.05 Sales and Leasebacks. None of the Obligors nor any
--------------------
Subsidiary will enter into any arrangement, directly or indirectly, with any
Person whereby any Obligor or any Subsidiary shall sell or transfer any of its
Property, whether now owned or hereafter acquired, and whereby such Obligor or
Subsidiary shall then or thereafter rent or lease as lessee such Property or any
part thereof or other Property which such Obligor or Subsidiary intends to use
for substantially the same purpose or purposes as the Property sold or
transferred.
Section 9.06 Nature of Business. None of the Obligors nor any
------------------
Subsidiary will allow any material change to be made in the character of its
business as an independent oil and gas exploration and production company.
Section 9.07 Limitation on Leases. None of the Obligors nor any
--------------------
Subsidiary will create, incur, assume or permit to exist any obligation for the
payment of rent or hire of Property of any kind whatsoever (real or personal
including capital leases, but excluding leases of Hydrocarbon Interests), under
leases or lease agreements which would cause the aggregate amount of all
payments made by the Obligors and their Subsidiaries pursuant to all such leases
or lease agreements to exceed $500,000 in any period of twelve consecutive
calendar months during the life of such leases.
Section 9.08 Mergers, Etc. Neither the Borrower nor any Subsidiary
-------------
will merge into or with or consolidate with any other Person, or sell, lease or
otherwise dispose of (whether in one transaction or in a series of transactions)
all or substantially all of its Property or assets to any other Person, except
that Germany Operating Company may merge into Germany Oil Company provided that
Germany Oil Company is the survivor and does not assume any material
liabilities, contingent or otherwise, as a result.
Section 9.09 Proceeds of Notes and Letters of Credit. The Borrower
---------------------------------------
will not permit the proceeds of the Notes or Letters of Credit to be used for
any purpose other than those permitted by Section 7.07. Neither the Borrower
nor any Person acting on behalf of the Borrower has taken or will take any
action which might cause any of the Loan Documents to violate Regulation T, U or
X or any other regulation of the Board of Governors of the Federal Reserve
System or to violate Section 7 of the Securities Exchange Act of 1934 or any
rule or regulation thereunder, in each case as now in effect or as the same may
hereinafter be in effect.
-56-
<PAGE>
Section 9.10 ERISA Compliance. The Obligors will not at any time:
----------------
(a) Engage in, or permit any Subsidiary or ERISA Affiliate to engage
in, any transaction in connection with which any Obligor, any Subsidiary or
any ERISA Affiliate could be subjected to either a civil penalty assessed
pursuant to section 502(c), (i) or (l) of ERISA or a tax imposed by Chapter
43 of Subtitle D of the Code;
(b) Terminate, or permit any Subsidiary or ERISA Affiliate to
terminate, any Plan in a manner, or take any other action with respect to
any Plan, which could result in any liability to any Obligor, any
Subsidiary or any ERISA Affiliate to the PBGC;
(c) Fail to make, or permit any Subsidiary or ERISA Affiliate to fail
to make, full payment when due of all amounts which, under the provisions
of any Plan, agreement relating thereto or applicable law, any Obligor, a
Subsidiary or any ERISA Affiliate is required to pay as contributions
thereto;
(d) Permit to exist, or allow any Subsidiary or ERISA Affiliate to
permit to exist, any accumulated funding deficiency within the meaning of
Section 302 of ERISA or section 412 of the Code, whether or not waived,
with respect to any Plan;
(e) Permit, or allow any Subsidiary or ERISA Affiliate to permit, the
actuarial present value of the benefit liabilities under any Plan
maintained by any Obligor, any Subsidiary or any ERISA Affiliate which is
regulated under Title IV of ERISA to exceed the current value of the assets
(computed on a plan termination basis in accordance with Title IV of ERISA)
of such Plan allocable to such benefit liabilities. The term "actuarial
present value of the benefit liabilities" shall have the meaning specified
in section 4041 of ERISA;
(f) Contribute to or assume an obligation to contribute to, or permit
any Subsidiary or ERISA Affiliate to contribute to or assume an obligation
to contribute to, any Multiemployer Plan;
(g) Acquire, or permit any Subsidiary or ERISA Affiliate to acquire,
an interest in any Person that causes such Person to become an ERISA
Affiliate with respect to any Obligor, any Subsidiary or any ERISA
Affiliate if such Person sponsors, maintains or con tributes to, or at any
time in the six-year period preceding such acquisition has sponsored,
maintained, or contributed to, (1) any Multiemployer Plan, or (2) any other
Plan that is subject to Title IV of ERISA under which the actuarial present
value of the benefit liabilities under such Plan exceeds the current value
of the assets (computed on a plan termination basis in accordance with
Title IV of ERISA) of such Plan allocable to such benefit liabilities;
(h) Incur, or permit any Subsidiary or ERISA Affiliate to incur, a
liability to or on account of a Plan under sections 515, 4062, 4063, 4064,
4201 or 4204 of ERISA;
(i) Contribute to or assume an obligation to contribute to, or permit
any Subsidiary or ERISA Affiliate to contribute to or assume an obligation
to contribute to, any employee welfare benefit plan, as defined in section
3(1) of ERISA, including, without limitation, any such plan maintained to
provide benefits to former employees of such entities,
-57-
<PAGE>
that may not be terminated by such entities in their sole discretion at any
time without any material liability; or
(j) Amend or permit any Subsidiary or ERISA Affiliate to amend, a
Plan resulting in an increase in current liability such that any Obligor,
any Subsidiary or any ERISA Affiliate is required to provide security to
such Plan under section 401(a)(29) of the Code.
Section 9.11 Sale or Discount of Receivables. None of the Obligors
-------------------------------
nor any Subsidiary will discount or sell (with or without recourse) any of its
notes receivable or accounts receivable.
Section 9.12 Current Ratio. The Borrower will not permit its ratio
-------------
of (i) consolidated current assets (including any unused amount under the
Borrowing Base) to (ii) consolidated current liabilities (excluding current
maturities of the Notes and Old LaTex Payables) to be less than 1.0 to 1.0 at
any time.
Section 9.13 Tangible Net Worth. The Borrower will not permit its
------------------
Tangible Net Worth at any time to be less than $50,000,000, plus 50% of positive
Consolidated Net Income realized after April 30, 2000, plus 75% of net proceeds
realized from any non-redeemable preferred or common stock offerings.
Section 9.14 Interest Coverage Ratio. The Borrower will not permit
-----------------------
its Interest Coverage Ratio as of the end of any fiscal quarter of the Borrower
(calculated quarterly at the end of each fiscal quarter) to be less than the
ratio corresponding to the relevant period set forth below:
-------------------------------------------
Interest
For the Period Ending Coverage Ratio
--------------------- --------------
-------------------------------------------
July 31, 2000 1.50 to 1.00
-------------------------------------------
October 31, 2000 1.75 to 1.00
-------------------------------------------
January 31, 2001 2.00 to 1.00
-------------------------------------------
April 30, 2001 2.50 to 1.00
-------------------------------------------
July 31, 2001 3.00 to 1.00
-------------------------------------------
October 31, 2001 3.25 to 1.00
-------------------------------------------
For purposes of the calculations in this Section 9.14 to be made prior to the
first fiscal quarter of 2001, EBITDA and cash interest payments shall be
determined by multiplying the sum of each such component for each of the fiscal
quarters actually elapsed from and including the second fiscal quarter of 2000
through and including the forth fiscal quarter of 2000 by a fraction, the
numerator of which is 4 and the denominator of which is the number of such
actually elapsed fiscal quarters.
Section 9.15 G & A Expenses. The Borrower will not permit the
--------------
general and administrative expenses for the Borrower and its Consolidated
Subsidiaries as of the end of any
-58-
<PAGE>
calendar month to exceed (i) $1,000,000 for the immediately preceding three
calendar months or (ii) $3,000,000 for the immediately preceding 12 calendar
months.
Section 9.16 Sale of Oil and Gas Properties. The Obligors will not,
------------------------------
and will not permit any Subsidiary to Transfer any Oil and Gas Property or any
interest in any Oil and Gas Property for which value was given in the most
recent Borrowing Base redetermination in excess of $500,000 in the aggregate,
unless, to the extent necessary, the net proceeds received by any Obligor from
any such Transfer are sufficient to and used to eliminate any Borrowing Base
Deficiency pursuant to Section 2.07(b) (iii) and no Default exists or would
result therefrom.
Section 9.17 Environmental Matters. None of the Obligors nor any
---------------------
Subsidiary will cause or permit any of its Property to be in violation of, or do
anything or permit anything to be done which will subject any such Property to
any remedial obligations under any Environmental Laws, assuming disclosure to
the applicable Governmental Authority of all relevant facts, conditions and
circumstances, if any, pertaining to such Property where such violations or
remedial obligations would have a Material Adverse Effect.
Section 9.18 Transactions with Affiliates. None of the Obligors nor
----------------------------
any Subsidiary will enter into any transaction, including, without limitation,
any purchase, sale, lease or exchange of Property or the rendering of any
service, with any Affiliate unless such transactions are otherwise permitted
under this Agreement, are in the ordinary course of its business and are upon
fair and reasonable terms no less favorable to it than it would obtain in a
comparable arm's length transaction with a Person not an Affiliate.
Section 9.19 Subsidiaries. The Borrower shall not, and shall not
------------
permit any Subsidiary to, create any additional Subsidiaries. The Borrower
shall not and shall not permit any Subsidiary to sell or to issue any stock or
ownership interest of a Subsidiary, except to the Borrower or any Guarantor and
except in compliance with Section 9.03.
Section 9.20 Negative Pledge Agreements. None of the Obligors nor
--------------------------
any of their Subsidiaries will create, incur, assume or permit to exist any
contract, agreement or understanding (other than this Agreement and the Security
Instruments) which in any way prohibits or restricts the granting, conveying,
creation or imposition of any Lien on any of its Property or restricts any
Subsidiary from paying dividends to the Borrower, or which requires the consent
of or notice to other Persons in connection therewith.
Section 9.21 Gas Imbalances, Take-or-Pay or Other Prepayments. The
------------------------------------------------
Obligors will not allow gas imbalances, take-or-pay or other prepayments with
respect to the Oil and Gas Properties of the Obligors which would require the
Obligors to deliver in the aggregate five percent (5%) or more of their
Hydrocarbons produced on a monthly basis from such Oil and Gas Properties at
some future time without then or thereafter receiving full payment therefor.
Section 9.22 Subordinated Debt. No cash payments shall be made in
-----------------
respect of the Subordinated Debt prior to the second anniversary of the Closing
Date or otherwise in contravention of the terms and conditions of the
Subordination Agreement.
-59-
<PAGE>
ARTICLE X
Events of Default; Remedies
Section 10.01 Events of Default. One or more of the following
-----------------
events shall constitute an "Event of Default":
----------------
(a) the Borrower shall default in the payment or prepayment when due
of any principal of or interest on any Loan, or any reimbursement
obligation for a disbursement made under any Letter of Credit, or any fees
or other amount payable by it hereunder or under any Security Instrument;
or
(b) any Obligor or any Subsidiary shall default in the payment when
due of any principal of or interest on any of its other Debt aggregating
$100,000 or more (excluding Old LaTex Payables), or any event specified in
any note, agreement, indenture or other document evidencing or relating to
any such Debt shall occur if the effect of such event is to cause, or (with
the giving of any notice or the lapse of time or both) to permit the holder
or holders of such Debt (or a trustee or agent on behalf of such holder or
holders) to cause, such Debt to become due prior to its stated maturity; or
(c) any representation, warranty or certification made or deemed made
herein or in any Security Instrument by any Obligor or any Subsidiary, or
any certificate furnished to any Lender or the Agent pursuant to the
provisions hereof or any Security Instrument, shall prove to have been
false or misleading as of the time made or furnished in any material
respect; or
(d) any Obligor shall default in the performance of any of its
obligations under Article IX or any other Article of this Agreement other
than under Article VIII; or any Obligor shall default in the performance of
any of its obligations under Article VIII or under any Security Instrument
to which it is a party (other than the payment of amounts due which shall
be governed by Section 10.01(a)) and such default shall continue unremedied
for a period of thirty (30) days after the earlier to occur of (i) notice
thereof to the Borrower by the Agent or any Lender (through the Agent), or
(ii) the Borrower otherwise becoming aware of such default; or
(e) the Borrower shall admit in writing its inability to, or be
generally unable to, pay its debts as such debts become due; or
(f) the Borrower shall (i) apply for or consent to the appointment
of, or the taking of possession by, a receiver, custodian, trustee or
liquidator of itself or of all or a substantial part of its property, (ii)
make a general assignment for the benefit of its creditors, (iii) commence
a voluntary case under the Federal Bankruptcy Code (as now or hereafter in
effect), (iv) file a petition seeking to take advantage of any other law
relating to bankruptcy, insolvency, reorganization, winding-up, liquidation
or composition or readjustment of debts, (v) fail to controvert in a timely
and appropriate manner, or acquiesce in writing to, any petition filed
against it in an involuntary case under the Federal Bankruptcy Code, or
(vi) take any corporate action for the purpose of effecting any of the
foregoing; or
-60-
<PAGE>
(g) a proceeding or case shall be commenced, without the application
or consent of the Borrower, in any court of competent jurisdiction,
seeking (i) its liquidation, reorganization, dissolution or winding-up, or
the composition or readjustment of its debts, (ii) the appointment of a
trustee, receiver, custodian, liquidator or the like of the Borrower of
all or any substantial part of its assets, or (iii) similar relief in
respect of the Borrower under any law relating to bankruptcy, insolvency,
reorganization, winding-up, or composi tion or adjustment of debts, and
such proceeding or case shall continue undismissed, or an order, judgment
or decree approving or ordering any of the foregoing shall be entered and
continue unstayed and in effect, for a period of 60 days; or (iv) an order
for relief against the Borrower shall be entered in an involuntary case
under the Federal Bankruptcy Code; or
(h) a judgment or judgments for the payment of money in excess of
$500,000 in the aggregate shall be rendered by a court against the Borrower
or any Subsidiary and the same shall not be discharged (or provision shall
not be made for such discharge), or a stay of execution thereof shall not
be procured, within thirty (30) days from the date of entry thereof and the
Borrower or such Subsidiary shall not, within said period of 30 days, or
such longer period during which execution of the same shall have been
stayed, appeal therefrom and cause the execution thereof to be stayed
during such appeal; or
(i) the Security Instruments after delivery thereof shall for any
reason, except to the extent permitted by the terms thereof, cease to be in
full force and effect and valid, binding and enforceable in accordance with
their terms, or cease to create a valid and perfected Lien of the priority
required thereby on any of the collateral purported to be covered thereby,
except to the extent permitted by the terms of this Agreement, or any
Obligor shall so state in writing; or
(j) an event having a Material Adverse Effect shall occur; or
(k) a Change of Control occurs; or
(l) an "Event of Default" as defined thereunder shall occur under any
of the documents creating, evidencing or otherwise executed in connection
with the Subordinated Debt.
(m) any Guarantor takes, suffers or permits to exist any of the
events or conditions referred to in paragraphs (e), (f), (g) or (h) or if
any provision of any guaranty agreement related thereto shall for any
reason cease to be valid and binding on Guarantor or if Guarantor shall so
state in writing.
Section 10.02 Remedies.
--------
(a) In the case of an Event of Default other than one referred to in
clauses (e), (f) or (g) of Section 10.01 or in clause (l) to the extent it
relates to clauses (e), (f) or (g), the Agent, upon request of the Majority
Lenders, shall, by notice to the Borrower, cancel the Commitments (in whole
or part) and/or declare the principal amount then outstanding of, and the
accrued interest on, the Loans and all other amounts payable by the
Borrower hereunder and under the Notes (including without limitation the
payment of cash collateral to secure the
-61-
<PAGE>
LC Exposure as provided in Section 2.10(b)) to be forthwith due and
payable, whereupon such amounts shall be immediately due and payable
without presentment, demand, protest, notice of intent to accelerate,
notice of acceleration or other formalities of any kind, all of which are
hereby expressly waived by the Borrower.
(b) In the case of the occurrence of an Event of Default referred to
in clauses (e), (f) or (g) of Section 10.01 or in clause (l) to the extent
it relates to clauses (e), (f) or (g), the Commitments shall be
automatically canceled and the principal amount then outstanding of, and
the accrued interest on, the Loans and all other amounts payable by the
Borrower hereunder and under the Notes (including without limitation the
payment of cash collateral to secure the LC Exposure as provided in Section
2.10(b)) shall become automatically immediately due and payable without
presentment, demand, protest, notice of intent to accel erate, notice of
acceleration or other formalities of any kind, all of which are hereby
expressly waived by the Borrower.
(c) All proceeds received after maturity of the Notes, whether by
acceleration or otherwise shall be applied first to reimbursement of
expenses and indemnities provided for in this Agreement and the Security
Instruments; second to accrued interest on the Notes; third to fees; fourth
pro rata to principal outstanding on the Notes and other Indebtedness;
fifth to serve as cash collateral to be held by the Agent to secure the LC
Exposure; and any excess shall be paid to the Borrower or as otherwise
required by any Governmental Requirement.
ARTICLE XI
The Agent
Section 11.01 Appointment, Powers and Immunities. Each Lender hereby
----------------------------------
irrevocably appoints and authorizes the Agent to act as its agent hereunder and
under the Security Instruments with such powers as are specifically delegated to
the Agent by the terms of this Agreement and the Security Instruments, together
with such other powers as are reasonably incidental thereto. The Agent (which
term as used in this sentence and in Section 11.05 and the first sentence of
Section 11.06 shall include reference to its Affiliates and its and its
Affiliates' officers, directors, employees, attorneys, accountants, experts and
agents): (i) shall have no duties or responsibilities except those expressly
set forth in the Loan Documents, and shall not by reason of the Loan Documents
be a trustee or fiduciary for any Lender; (ii) makes no representation or
warranty to any Lender and shall not be responsible to the Lenders for any
recitals, statements, representations or warranties contained in this Agreement,
or in any certificate or other document referred to or provided for in, or
received by any of them under, this Agreement, or for the value, validity,
effectiveness, genuineness, execution, effectiveness, legality, enforceability
or sufficiency of this Agreement, any Note or any other document referred to or
provided for herein or for any failure by any of the Obligors or any other
Person (other than the Agent) to perform any of its obligations hereunder or
thereunder or for the existence, value, perfection or priority of any collateral
security or the financial or other condition of the Borrower, its Subsidiaries
or any other obligor or guarantor; (iii) except pursuant to Section 11.07 shall
not be required to initiate or conduct any litigation or collection proceedings
hereunder; and (iv) shall not be responsible for any action taken or omitted to
be taken by it hereunder or under any other document or instrument referred to
or provided for
-62-
<PAGE>
herein or in connection herewith including its own ordinary negligence, except
for its own gross negligence or willful misconduct. The Agent may employ agents,
accountants, attorneys and experts and shall not be responsible for the
negligence or misconduct of any such agents, accountants, attorneys or experts
selected by it in good faith or any action taken or omitted to be taken in good
faith by it in accordance with the advice of such agents, accountants, attorneys
or experts. The Agent may deem and treat the payee of any Note as the holder
thereof for all purposes hereof unless and until a written notice of the
assignment or transfer thereof permitted hereunder shall have been filed with
the Agent. The Agent is authorized to release any collateral that is permitted
to be sold or released pursuant to the terms of the Loan Documents.
Section 11.02 Reliance by Agent. The Agent shall be entitled to rely
-----------------
upon any certification, notice or other communication (including any thereof by
telephone, telex, telecopier, telegram or cable) believed by it to be genuine
and correct and to have been signed or sent by or on behalf of the proper Person
or Persons, and upon advice and statements of legal counsel, independent
accountants and other experts selected by the Agent.
Section 11.03 Defaults. The Agent shall not be deemed to have
--------
knowledge of the occurrence of a Default (other than the non-payment of
principal of or interest on Loans or of fees or failure to reimburse for Letter
of Credit drawings) unless the Agent has received notice from a Lender or the
Borrower specifying such Default and stating that such notice is a "Notice of
Default." In the event that the Agent receives such a notice of the occurrence
of a Default, the Agent shall give prompt notice thereof to the Lenders. In the
event of a payment Default, the Agent shall give each Lender prompt notice of
each such payment Default.
Section 11.04 Rights as a Lender. With respect to its Commitments
------------------
and the Loans made by it and its participation in the issuance of Letters of
Credit, TD TEXAS (and any successor acting as Agent) in its capacity as a Lender
hereunder shall have the same rights and powers hereunder as any other Lender
and may exercise the same as though it were not acting as the Agent, and the
term "Lender" or "Lenders" shall, unless the context otherwise indicates,
include the Agent in its individual capacity. TD TEXAS (and any successor
acting as Agent) and its Affiliates may (without having to account therefor to
any Lender) accept deposits from, lend money to and generally engage in any kind
of banking, trust or other business with the Obligors (and any of their
Affiliates) as if it were not acting as the Agent, and TD TEXAS and its
Affiliates may accept fees and other consideration from the Obligors for
services in connection with this Agreement or otherwise without having to
account for the same to the Lenders.
Section 11.05 Indemnification. The Lenders agree to indemnify the
---------------
Agent and the Issuing Bank ratably in accordance with their Percentage Shares
for the Indemnity Matters as described in section 12.03 to the extent not
indemnified or reimbursed by the Borrower under section 12.03, but without
limiting the obligations of the Borrower under said section 12.03 and for any
and all other liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind and nature
whatsoever which may be imposed on, incurred by or asserted against the Agent or
the Issuing Bank in any way relating to or arising out of: (i) this Agreement,
the Security Instruments or any other documents contemplated by or referred to
herein or the transactions contemplated hereby, but excluding, unless a Default
has occurred
-63-
<PAGE>
and is continuing, normal administrative costs and expenses incident to the
performance of its agency duties hereunder or (ii) the enforcement of any of the
terms of this Agreement, any Security Instrument or of any such other documents;
whether or not any of the foregoing specified in this section 11.05 arises from
the sole or concurrent negligence of the Agent or the Issuing Bank, provided
that no Lender shall be liable for any of the foregoing to the extent they arise
from the gross negligence or willful misconduct of the Agent.
Section 11.06 Non-Reliance on Agent and other Lenders. Each Lender
---------------------------------------
acknowledges and agrees that it has, independently and without reliance on the
Agent or any other Lender, and based on such documents and information as it has
deemed appropriate, made its own credit analysis of the Borrower and its
decision to enter into this Agreement, and that it will, independently and
without reliance upon the Agent or any other Lender, and based on such documents
and information as it shall deem appropriate at the time, continue to make its
own analysis and decisions in taking or not taking action under this Agreement.
The Agent shall not be required to keep itself informed as to the performance or
observance by the Obligors of this Agreement, the Notes, the Security
Instruments or any other document referred to or provided for herein or to
inspect the properties or books of the Obligors. Except for notices, reports
and other documents and information expressly required to be furnished to the
Lenders by the Agent hereunder, the Agent shall not have any duty or
responsibility to provide any Lender with any credit or other information
concerning the affairs, financial condition or business of the Obligors (or any
of their Affiliates) which may come into the possession of the Agent or any of
its Affiliates. In this regard, each Lender acknowledges that Winstead Sechrest
& Minick P.C. is acting in this transaction as special counsel to the Agent
only, except to the extent otherwise expressly stated in any legal opinion or
any Loan Document. Each Lender will consult with its own legal counsel to the
extent that it deems necessary in connection with the Loan Documents and the
matters contemplated therein.
Section 11.07 Action by Agent. Except for action or other matters
---------------
expressly required of the Agent hereunder, the Agent shall in all cases be fully
justified in failing or refusing to act hereunder unless it shall (i) receive
written instructions from the Majority Lenders (or all of the Lenders as
expressly required by Section 12.04) specifying the action to be taken, and (ii)
be indemnified to its satisfaction by the Lenders against any and all liability
and expenses which may be incurred by it by reason of taking or continuing to
take any such action. The instructions of the Majority Lenders (or all of the
Lenders as expressly required by Section 12.04) and any action taken or failure
to act pursuant thereto by the Agent shall be binding on all of the Lenders. If
a Default has occurred and is continuing, the Agent shall take such action with
respect to such Default as shall be directed by the Majority Lenders (or all of
the Lenders as required by Section 12.04) in the written instructions (with
indemnities) described in this Section 11.07, provided that, unless and until
the Agent shall have received such directions, the Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with respect
to such Default as it shall deem advisable in the best interests of the Lenders.
In no event, however, shall the Agent be required to take any action which
exposes the Agent to personal liability or which is contrary to this Agreement
and the Security Instruments or applicable law.
Section 11.08 Resignation or Removal of Agent. Subject to the
-------------------------------
appointment and acceptance of a successor Agent as provided below, the Agent may
resign at any time by giving notice thereof to the Lenders and the Borrower, and
the Agent may be removed at any time with or
-64-
<PAGE>
without cause by the Majority Lenders. Upon any such resignation or removal, the
Majority Lenders shall have the right to appoint a successor Agent. If no
successor Agent shall have been so appointed by the Majority Lenders and shall
have accepted such appointment within thirty (30) days after the retiring
Agent's giving of notice of resignation or the Majority Lenders' removal of the
retiring Agent, then the retiring Agent may, on behalf of the Lenders, appoint a
successor Agent. Upon the acceptance of such appointment hereunder by a
successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring Agent,
and the retiring Agent shall be discharged from its duties and obligations
hereunder. After any retiring Agent's resignation or removal hereunder as Agent,
the provisions of this Article XI and Section 12.03 shall continue in effect for
its benefit in respect of any actions taken or omitted to be taken by it while
it was acting as the Agent.
ARTICLE XII
Miscellaneous
Section 12.01 Waiver. No failure on the part of the Agent or any
------
Lender to exercise and no delay in exercising, and no course of dealing with
respect to, any right, power or privilege under any of the Loan Documents shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, power or privilege under any of the Loan Documents preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
The remedies provided herein are cumulative and not exclusive of any remedies
provided by law.
Section 12.02 Notices. All notices and other communications provided
-------
for herein and in the other Loan Documents (including, without limitation, any
modifications of, or waivers or consents under, this Agreement or the other Loan
Documents) shall be given or made by telex, telecopy, courier or U.S. Mail or in
writing and telexed, telecopied, mailed or delivered to the intended recipient
at the "Address for Notices" specified below its name on the signature pages
hereof or in the Loan Documents or, as to any party, at such other address as
shall be designated by such party in a notice to each other party. Except as
otherwise provided in this Agreement or in the other Loan Documents, all such
communications shall be deemed to have been duly given when transmitted, if
transmitted before 1:00 p.m. local time on a Business Day (otherwise on the next
succeeding Business Day) by telex or telecopier and evidence or confirmation of
receipt is obtained, or personally delivered or, in the case of a mailed notice,
three (3) Business Days after the date deposited in the mails, postage prepaid,
in each case given or addressed as aforesaid.
Section 12.03 Payment of Expenses, Indemnities, etc.
-------------------------------------
(a) The Obligors agree:
(i) whether or not the transactions hereby contemplated are
consummated, to pay all reasonable expenses of the Agent in the
administration (both before and after the execution hereof and including
advice of counsel as to the rights and duties of the 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
-65-
<PAGE>
Documents and any amendment, waiver or consent relating thereto (including,
without limitation, travel, photocopy, mailing, courier, telephone and
other similar expenses of the Agent, the cost of environmental audits,
surveys and appraisals at reasonable intervals, the reasonable fees and
disbursements of counsel and other outside consultants for the Agent and,
in the case of enforcement, the reasonable fees and disbursements of
counsel for the Agent and any of the Lenders); and promptly reimburse the
Agent for all amounts expended, advanced or incurred by the Agent or the
Lenders to satisfy any obligation of the Obligors under this Agreement or
any Security Instrument, including without limitation, all costs and
expenses of foreclosure;
(ii) to indemnify the 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 or any
Guarantor 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 Obligors and their Subsidiaries, (iv) the
failure of the Obligors or any Subsidiary to comply with the terms of any
Loan Document, or with any Governmental Requirement, (v) any inaccuracy of
any representation or any breach of any warranty of the Obligors 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, or
(vii) the payment of a drawing under any Letter of Credit notwithstanding
the non-compliance, non-delivery or other improper presentation of the
manually executed draft(s) and certification(s), (viii) any assertion that
the Lenders were not entitled to receive the proceeds received pursuant to
the Security Instruments, or (ix) any other aspect of the Loan Documents,
including, without limitation, the reasonable fees and disbursements of
counsel and all other 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 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 the
Indemnified Party; and
(iii) to indemnify and hold harmless from time to time the
Indemnified Parties 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 the Obligors or any Subsidiary or any of
-66-
<PAGE>
their 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 Obligor or any Subsidiary with any
Environmental Law applicable to any Obligor or any Subsidiary, (iii) due to
past ownership by any Obligor or any Subsidiary of any of their Properties
or past activity on any of their Properties which, though lawful and fully
permissible at the time, could result 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 Obligor
or any Subsidiary, 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 12.03(a)(iii) 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 shall have obtained possession of such Property
(whether by foreclosure or deed in lieu of foreclosure, as mortgagee-in-
possession or otherwise).
(b) 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 the maximum
potential claims against the Indemnified Party to be indemnified pursuant
to this Section 12.03.
(c) In the case of any indemnification hereunder, the Agent or
Lender, as appropriate shall give notice to the Obligors of any such claim
or demand being made against the Indemnified Party and the Obligors shall
have the non-exclusive right to join in the defense against any such claim
or demand provided that if any Obligor provides a defense, the Indemnified
Party shall bear its own cost of defense unless there is a conflict between
the Obligors and such Indemnified Party.
(d) The foregoing indemnities shall extend to the Indemnified Parties
notwithstanding the sole or concurrent negligence of every 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 the Indemnified Party.
(e) The Obligors' obligations under this Section 12.03 shall survive
any termination of this Agreement and the payment of the Notes and shall
continue thereafter in full force and effect.
-67-
<PAGE>
(f) The Obligors shall pay any amounts due under this Section 12.03
within thirty (30) days of the receipt by the Obligors of notice of the
amount due.
Section 12.04 Amendments, Etc. Any provision of this Agreement or
---------------
any other Loan Document may be amended, modified or waived with the Obligors'
and the Majority Lenders' prior written consent; provided that (i) no amendment,
modification or waiver which extends the final maturity of the Loans, increases
the Aggregate Maximum Revolving Credit Amounts, modifies the Borrowing Base,
forgives the principal amount of any Indebtedness outstanding under this
Agreement, releases any guarantor of the Indebtedness or releases all or
substantially all of the collateral, reduces the interest rate applicable to the
Loans or the fees payable to the Lenders generally, affects Section 2.03(a),
this Section 12.04 or Section 12.06(a) or modifies the definition of "Majority
Lenders" shall be effective without consent of all Lenders; (ii) no amendment,
modification or waiver which increases the Maximum Revolving Credit Amount of
any Lender shall be effective without the consent of such Lender; and (iii) no
amendment, modification or waiver which modifies the rights, duties or
obligations of the Agent shall be effective without the consent of the Agent.
Section 12.05 Successors and Assigns. This Agreement shall be
----------------------
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
Section 12.06 Assignments and Participations.
------------------------------
(a) The Borrower may not assign its rights or obligations hereunder
or under the Notes or any Letters of Credit without the prior consent of
all of the Lenders and the Agent.
(b) Any Lender may, upon the written consent of the Agent and, if no
Default exists, the Borrower (which consent will not be unreasonably
withheld or delayed), assign to one or more assignees all or a portion of
its rights and obligations under this Agreement pursuant to an Assignment
Agreement substantially in the form of Exhibit E (an "Assignment");
--------- ----------
provided, however, that (i) any such assignment shall be in the amount of
-------- -------
at least $5,000,000 or such lesser amount to which the Borrower has
consented and (ii) the assignee or assignor shall pay to the Agent a
processing and recordation fee of $3,500 for each assignment. Any such
assignment will become effective upon the execution and delivery to the
Agent of the Assignment and the consent of the Agent. Promptly after
receipt of an executed Assignment, the Agent shall send to the Borrower a
copy of such executed Assignment. Upon receipt of such executed
Assignment, the Borrower, will, at its own expense, execute and deliver new
Notes to the assignor and/or assignee, as appropriate, in accordance with
their respective interests as they appear. Upon the effectiveness of any
assignment pursuant to this Section 12.06(b), the assignee will become a
"Lender," if not already a "Lender," for all purposes of this Agreement and
the Security Instruments. The assignor shall be relieved of its
obligations hereunder to the extent of such assignment (and if the
assigning Lender no longer holds any rights or obligations under this
Agreement, such assigning Lender shall cease to be a "Lender" hereunder
except that its rights under Sections 4.06, 5.01, 5.05 and 12.03 shall not
be affected). The Agent will prepare on the last Business Day of each
month during which an assignment has become effective pursuant to this
Section 12.06(b), a new Annex I giving effect to all such assignments
-------
effected during
-68-
<PAGE>
such month, and will promptly provide the same to the Borrower and each of
the Lenders.
(c) Each Lender may transfer, grant or assign participations in all
or any part of such Lender's interests hereunder pursuant to this Section
12.06(c) to any Person, provided that: (i) such Lender shall remain a
--------
"Lender" for all purposes of this Agreement and the transferee of such
participation shall not constitute a "Lender" hereunder; and (ii) no
participant under any such participation shall have rights to approve any
amendment to or waiver of any of the Loan Documents except to the extent
such amendment or waiver would (x) forgive any principal owing on any
Indebtedness or extend the final maturity of the Loans, (y) reduce the
interest rate (other than as a result of waiving the applicability of any
post-default increases in interest rates) or fees applicable to any of the
Commitments or Loans or Letters of Credit in which such participant is
participating, or postpone the payment of any thereof, or (z) release any
guarantor of the Indebtedness or release all or substantially all of the
collateral (except as provided in the Loan Documents) supporting any of the
Commitments or Loans or Letters of Credit in which such participant is
participating. In the case of any such participation, the participant
shall not have any rights under this Agreement or any of the Security
Instruments (the participant's rights against the granting Lender in
respect of such participation to be those set forth in the agreement with
such Lender creating such participation), and all amounts payable by the
Borrower hereunder shall be determined as if such Lender had not sold such
participation, provided that such participant shall be entitled to receive
--------
additional amounts under Article V on the same basis as if it were a Lender
and be indemnified under Section 12.03 as if it were a Lender. In
addition, each agreement creating any participation must include an
agreement by the participant to be bound by the provisions of Section
12.15.
(d) The Lenders may furnish any information concerning the Borrower
in the possession of the Lenders from time to time to assignees and
participants (including prospective assignees and participants); provided
that, such Persons agree to be bound by the provisions of Section 12.15.
(e) Notwithstanding anything in this Section 12.06 to the contrary,
any Lender may assign and pledge its Note to any Federal Reserve Bank. No
such assignment and/or pledge shall release the assigning and/or pledging
Lender from its obligations hereunder.
(f) Notwithstanding any other provisions of this Section 12.06, 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 SEC or to qualify the Loans under the "Blue Sky" laws of
any state.
Section 12.07 Invalidity. In the event that any one or more of the
----------
provisions contained in any of the Loan Documents shall, for any reason, be held
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision of the Notes, this
Agreement or any other Loan Document.
-69-
<PAGE>
Section 12.08 Counterparts. This Agreement may be executed in any
------------
number of counterparts, all of which taken together shall constitute one and the
same instrument and any of the parties hereto may execute this Agreement by
signing any such counterpart.
Section 12.09 References; Use of Word "Including". The words
-----------------------------------
"herein," "hereof," "hereunder" and other words of similar import when used in
this Agreement refer to this Agreement as a whole, and not to any particular
article, section or subsection. Any reference herein to a Section or Article
shall be deemed to refer to the applicable Section or Article of this Agreement
unless otherwise stated herein. Any reference herein to an exhibit, schedule,
or other attachment shall be deemed to refer to the applicable exhibit,
schedule, or other attachment attached hereto unless otherwise stated herein.
The word "including", "includes" and words of similar import means "including,
without limitation".
Section 12.10 Survival. The obligations of the parties under Section
--------
4.06, Article V, and Sections 11.05 and 12.03 shall survive the repayment of the
Loans and the termination of the Commitments. To the extent that any payments
on the Indebtedness or proceeds of any collateral are subsequently invalidated,
declared to be fraudulent or preferential, set aside or required to be repaid to
a trustee, debtor in possession, receiver or other Person under any bankruptcy
law, common law or equitable cause, then to such extent, the Indebtedness so
satisfied shall be revived and continue as if such payment or proceeds had not
been received and the Agent's and the Lenders' Liens, security interests,
rights, powers and remedies under this Agreement and each Security Instrument
shall continue in full force and effect. In such event, each Security
Instrument shall be automatically reinstated and the Obligors shall take such
action as may be reasonably requested by the Agent and the Lenders to effect
such reinstatement.
Section 12.11 Captions. Captions and section headings appearing
--------
herein are included solely for convenience of reference and are not intended to
affect the interpretation of any provision of this Agreement.
Section 12.12 No Oral Agreements. The Loan Documents embody the
--------------------------------------------------
entire agreement and understanding between the parties and supersede all other
- ------------------------------------------------------------------------------
agreements and understandings between such parties relating to the subject
- --------------------------------------------------------------------------
matter hereof and thereof. The 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.
- ----------------------------------------------
Section 12.13 Governing Law; Submission to Jurisdiction.
-----------------------------------------
(a) This Agreement and the Notes shall be governed by, and construed
in accordance with, the laws of the State of Texas except to the extent
that United States federal law permits any Lender to charge interest at the
rate allowed by the laws of the state where such Lender is located. Ch. 346
of the Texas Finance Code (which regulates certain revolving credit loan
accounts and revolving tri-party accounts) shall not apply to this
Agreement or the Notes.
-70-
<PAGE>
(b) Any legal action or proceeding with respect to the Loan Documents
shall be brought in the courts of the State of Texas or of the United
States of America for the Southern District of Texas, and, by execution and
delivery of this Agreement, the Borrower and each Guarantor hereby accepts
for itself and (to the extent permitted by law) in respect of its Property,
generally and unconditionally, the jurisdiction of the aforesaid courts.
The Borrower and each Guarantor hereby irrevocably waives any objection,
including, without limitation, any objection to the laying of venue or
based on the grounds of forum non conveniens, which it may now or hereafter
have to the bringing of any such action or proceeding in such respective
jurisdictions. this submission to jurisdiction is non-exclusive and does
not preclude the Agent or any Lender from obtaining jurisdiction over the
Borrower or any Guarantor in any court otherwise having jurisdiction.
(c) The Borrower and each Guarantor hereby irrevocably designates CT
Corporation System located at 350 North St. Paul Street, Dallas, Texas
75201, as the designee, appointee and agent of the Borrower and each
Guarantor to receive, for and on behalf of the Borrower and each
Guarantor, 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 the Borrower and the relevant Guarantor at their
addresses set forth under its signature below, but the failure of the
Borrower or such Guarantor to receive such copy shall not affect in any way
the service of such process. The Borrower and each Guarantor further
irrevocably consents to the service of process of any of the aforementioned
courts in any such action or proceeding by the mailing of copies thereof by
registered or certified mail, postage prepaid, to the Borrower and any
Guarantor at its said address, such service to become effective thirty (30)
days after such mailing.
(d) Nothing herein shall affect the right of the Agent or any Lender
or any holder of a Note to serve process in any other manner permitted by
law or to commence legal proceedings or otherwise proceed against the
Borrower or any Guarantor in any other jurisdiction.
(e) The Borrower, each Guarantor and each Lender hereby (i)
irrevocably and unconditionally waive, to the fullest extent permitted by
law, trial by jury in any legal action or proceeding relating to this
Agreement or any Security Instrument and for any counterclaim therein; (ii)
irrevocably waive, to the maximum extent not prohibited by law, 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; (iii) certify that no party hereto nor any
representative of agent or counsel for any party hereto has represented,
expressly or otherwise, or implied that such party would not, in the event
-71-
<PAGE>
of litigation, seek to enforce the foregoing waivers, and (iv) acknowledge
that it has been induced to enter into this Agreement, the Security
Instruments and the transactions contemplated hereby and thereby by, among
other things, the mutual waivers and certifications contained in this
section 12.13.
Section 12.14 Interest. It is the intention of the parties hereto
--------
that each Lender shall conform strictly to usury laws applicable to it.
Accordingly, if the transactions contemplated hereby would be usurious as to any
Lender under laws applicable to it (including the laws of the United States of
America and the State of New York or any other jurisdiction whose laws may be
mandatorily applicable to such Lender notwithstanding the other provisions of
this Agreement), then, in that event, notwithstanding anything to the contrary
in any of the Loan Documents or any agreement entered into in connection with or
as security for the Notes, it is agreed as follows: (i) the aggregate of all
consideration which constitutes interest under law applicable to any Lender that
is contracted for, taken, reserved, charged or received by such Lender under any
of the Loan Documents or agreements or otherwise in connection with the Notes
shall under no circumstances exceed the maximum amount allowed by such
applicable law, and any excess shall be canceled automatically and if
theretofore paid shall be credited by such Lender on the principal amount of the
Indebtedness (or, to the extent that the principal amount of the Indebtedness
shall have been or would thereby be paid in full, refunded by such Lender to the
Borrower); and (ii) in the event that the maturity of the Notes is accelerated
by reason of an election of the holder thereof resulting from any Event of
Default under this Agreement or otherwise, or in the event of any required or
permitted prepayment, then such consideration that constitutes interest under
law applicable to any Lender may never include more than the maximum amount
allowed by such applicable law, and excess interest, if any, provided for in
this Agreement or otherwise shall be canceled automatically by such Lender as of
the date of such acceleration or prepayment and, if theretofore paid, shall be
credited by such Lender on the principal amount of the Indebtedness (or, to the
extent that the principal amount of the Indebtedness shall have been or would
thereby be paid in full, refunded by such Lender to the Borrower). All sums
paid or agreed to be paid to any Lender for the use, forbearance or detention of
sums due hereunder shall, to the extent permitted by law applicable to such
Lender, be amortized, prorated, allocated and spread throughout the full term of
the Loans evidenced by the Notes until payment in full so that the rate or
amount of interest on account of any Loans hereunder does not exceed the maximum
amount allowed by such applicable law. If at any time and from time to time (i)
the amount of interest payable to any Lender on any date shall be computed at
the Highest Lawful Rate applicable to such Lender pursuant to this Section 12.14
and (ii) in respect of any subsequent interest computation period the amount of
interest otherwise payable to such Lender would be less than the amount of
interest payable to such Lender computed at the Highest Lawful Rate applicable
to such Lender, then the amount of interest payable to such Lender in respect of
such subsequent interest computation period shall continue to be computed at the
Highest Lawful Rate applicable to such Lender until the total amount of interest
payable to such Lender shall equal the total amount of interest which would have
been payable to such Lender if the total amount of interest had been computed
without giving effect to this Section 12.14.
Section 12.15 Confidentiality. In the event that the Borrower
---------------
provides to the Agent or the Lenders written confidential information belonging
to the Borrower, if the Borrower shall denominate such information in writing as
"confidential", the Agent and the Lenders shall thereafter maintain such
information in confidence in accordance with the standards of care and diligence
that
-72-
<PAGE>
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 Agent or the Lenders breaching their obligation of confidence to the
Borrower, (iii) are previously known by the Agent or the Lenders from some
source other than the Borrower, (iv) are hereafter developed by the Agent or the
Lenders without using the Borrower's information, (v) are hereafter obtained by
or available to the Agent or the Lenders from a third party who owes no
obligation of confidence to the Borrower with respect to such information or
through any other means other than through disclosure by the Borrower, (vi) are
disclosed with the Borrower's consent, (vii) must be disclosed either pursuant
to any Governmental Requirement or to Persons regulating the activities of the
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 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 Security Instrument, including
without limitation, the enforcement or exercise of all rights and remedies
thereunder, or any assignee or participant (including prospective assignees and
participants) in the Loans; provided, however, that the Agent or the Lenders
-------- -------
shall receive a confidentiality agreement 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 Agent or
the Lenders hereunder. Notwithstanding anything to the contrary provided
herein, this obligation of confidence shall cease three (3) years from 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 Borrower waives any and all other rights it may have to confidentiality as
against the Agent and the Lenders arising by contract, agreement, statute or law
except as expressly stated in this Section 12.15.
Section 12.16 Disposition of Proceeds. Certain of the Security
-----------------------
Instruments contain an assignment by the Obligors unto and in favor of the Agent
for the benefit of the Lenders of all production and all proceeds attributable
thereto which may be produced from or allocated to the Mortgaged Property, and
such Security Instruments further provide in general for the application of such
proceeds to the satisfaction of the Indebtedness and other obligations described
therein and secured thereby. Notwithstanding the assignment contained in such
Security Instruments, so long as no Default exists, the Lenders agree that they
will neither notify the purchaser or purchasers of such production nor take any
other action to cause such proceeds to be remitted to the Lenders, but the
Lenders will instead permit such proceeds to be paid to the Obligors.
[SIGNATURES BEGIN ON NEXT PAGE]
-73-
<PAGE>
The parties hereto have caused this Agreement to be duly executed as of the
day and year first above written.
BORROWER: AROC INC.
By: _____________________________
Francis M. Munchinski
Vice President
Address for Notices:
4200 E. Skelly Dr., Suite 1000
Tulsa, OK 74135
Telecopier No.: (918) 494-4918
Telephone No.: (918) 491-1100
Attention: Francis M. Munchinski
GUARANTORS: ALLIANCE RESOURCES GROUP, INC.
SOURCE PETROLEUM, INC.
AROC (TEXAS), INC.
ALLIANCE RESOURCES (USA), INC.
LATEX PETROLEUM CORPORATION
GERMANY OIL COMPANY
By: _____________________________
Francis M. Munchinski
Vice President
ST. MARTINVILLE PARTNERS, LTD.
By: Source Petroleum, Inc.,
its General Partner
By: _____________________________
Francis M. Munchinski
Vice President
ALLIANCE RESOURCES PLC
DIFCO LIMITED
By: _____________________________
Francis M. Munchinski
Authorized Signatory
Address for Notices:
c/o AROC Inc.
4200 E. Skelly Dr., Suite 1000
Tulsa, OK 74135
Telecopier No.: (918) 494-4918
Telephone No.: (918) 491-1100
Attention: Francis M. Munchinski
S-1
<PAGE>
LENDER AND AGENT: TORONTO DOMINION (TEXAS), INC.,
Individually and as Agent
By: _____________________________
Name: Giovanny Pieternelle
Title: Vice President
Lending Office for Base Rate Loans and
LIBOR Loans:
Toronto Dominion Bank
909 Fannin, Suite 1700
Houston, Texas 77010
Address for Notices:
Toronto Dominion Bank
909 Fannin, Suite 1700
Houston, Texas 77010
Telecopier No.: 713-951-9921
Telephone No.: 713-653-8235
Attention: Giovanny Pieternelle
With a copy to:
TD Securities (USA) Inc.
909 Fannin, Suite 1700
Houston, Texas 77010
Telecopier No.: (713) 652-2647
Telephone No.: (713) 652-2644
Attention: Martin T. Snyder
S-2
<PAGE>
ANNEX I
LIST OF PERCENTAGE SHARES, MAXIMUM REVOLVING CREDIT AMOUNTS
-----------------------------------------------------------
-------------------------------------------------------------------------
NAME OF LENDER PERCENTAGE MAXIMUM REVOLVING
-------------- ---------- -----------------
SHARE CREDIT AMOUNT
----- -------------
-------------------------------------------------------------------------
Toronto Dominion 100% $35,000,000.00
(Texas), Inc.
-------------------------------------------------------------------------
TOTAL 100% $35,000,000.00
-------------------------------------------------------------------------
S-3
<PAGE>
EXHIBIT A
FORM OF NOTE
------------
$ ____________________________ _____________________, 200__
FOR VALUE RECEIVED, AROC INC., a Delaware corporation (the "Borrower")
--------
hereby promises to pay to the order of ________________ (the "Lender"), at the
------
principal office of Toronto Dominion (Texas), Inc., a Delaware corporation (the
"Agent"), at ________________________, the principal sum of _____________
-----
Dollars ($____________) (or such lesser amount as shall equal the aggregate
unpaid principal amount of the Loans made by the Lender to the Borrower under
the Credit Agreement, as hereinafter defined), in lawful money of the United
States of America and in immediately available funds, on the dates and in the
principal amounts provided in the Credit Agreement, and to pay interest on the
unpaid principal amount of each such Loan, at such office, in like money and
funds, for the period commencing on the date of such Loan until such Loan shall
be paid in full, at the rates per annum and on the dates provided in the Credit
Agreement.
The date, amount, Type, interest rate, Interest Period and maturity of each
Loan made by the Lender to the Borrower, and each payment made on account of the
principal thereof, shall be recorded by the Lender on its books and, prior to
any transfer of this Note, endorsed by the Lender on the schedules attached
hereto or any continuation thereof.
This Note is one of the Notes referred to in the Credit Agreement dated as
of May 1, 2000 among the Borrower, the Lenders which are or become parties
thereto (including the Lender) and the Agent (as the same may be amended or
supplemented from time to time, the "Credit Agreement"), and evidences Loans
----------------
made by the Lender thereunder. Capitalized terms used in this Note have the
respective meanings assigned to them in the Credit Agreement.
This Note is issued pursuant to the Credit Agreement and is entitled to the
benefits provided for in the Credit Agreement and the Security Instruments. The
Credit Agreement provides for the acceleration of the maturity of this Note upon
the occurrence of certain events, for prepayments of Loans upon the terms and
conditions specified therein and other provisions relevant to this Note.
Exhibit A-1
<PAGE>
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS
OF THE STATE OF TEXAS.
AROC INC.
By: _______________________________
Name: _____________________________
Title: ____________________________
Exhibit A-2
<PAGE>
EXHIBIT B
FORM OF BORROWING, CONTINUATION AND CONVERSION REQUEST
------------------------------------------------------
_____________________, 200__
AROC Inc., a Delaware corporation (the "Borrower"), pursuant to the Credit
--------
Agreement dated as of May 1, 2000 among the Borrower, certain subsidiaries of
the Borrower, Toronto Dominion (Texas), Inc., as Agent for the lenders (the
"Lenders") which are or become parties thereto, and such Lenders (together with
-------
all amendments or supplements thereto, the "Credit Agreement"), hereby makes the
----------------
requests indicated below (unless otherwise defined herein, capitalized terms are
defined in the Credit Agreement):
[_] 1. Loans:
(a) Aggregate amount of new Loans to be $______________________;
(b) Requested funding date is _________________, 200__;
(c) $_____________________ of such borrowings are to be LIBOR Loans;
$_____________________ of such borrowings are to be Base Rate Loans;
and
(d) Length of Interest Period for LIBOR Loans is:
_________________________.
[_] 2. LIBOR Loan Continuation for LIBOR Loans maturing on _________________:
(a) Aggregate amount to be continued as LIBOR Loans is
$__________________;
(b) Aggregate amount to be converted to Base Rate Loans is
$________________;
(c) Length of Interest Period for continued LIBOR Loans is
________________.
[_] 3. Conversion of Outstanding Base Rate Loans to LIBOR Loans:
Convert $__________________ of the outstanding Base Rate Loans to
Libor Loans on ____________________ with an Interest Period of
______________________.
[_] 4. Conversion of outstanding LIBOR Loans to Base Rate Loans:
Exhibit B-1
<PAGE>
Convert $__________________ of the outstanding LIBOR Loans with
Interest Period maturing on ______________________, 200__, to Base
Rate Loans.
The undersigned certifies that he is the _____________________ of the
Borrower, and that as such he is authorized to execute this certificate on
behalf of the Borrower. The undersigned further certifies, represents and
warrants on behalf of the Borrower that the Borrower is entitled to receive the
requested borrowing, continuation or conversion under the terms and conditions
of the Credit Agreement.
AROC INC.
By: _________________________________
Name: _______________________________
Title: ______________________________
Exhibit B-2
<PAGE>
EXHIBIT C
FORM OF COMPLIANCE CERTIFICATE
------------------------------
The undersigned hereby certifies that he is the ________________ of AROC
Inc., a Delaware corporation (the "Borrower") and that as such he is authorized
--------
to execute this certificate on behalf of the Borrower. With reference to the
Credit Agreement dated as of May 1, 2000 among the Borrower, [expand for
"Obligors"] Toronto Dominion (Texas), Inc., as Agent for the lenders (the
"Lenders") which are or become a party thereto, and such Lenders (together with
--------
all amendments or supplements thereto being the "Credit Agreement"), the
----------------
undersigned represents and warrants as follows (each capitalized term used
herein having the same meaning given to it in the Credit Agreement unless
otherwise specified):
(a) The representations and warranties of the Obligors contained in
Article VII of the Credit Agreement and in the Security Instruments and
otherwise made in writing by or on behalf of the Obligors pursuant to the
Credit Agreement and the Security Instruments were true and correct when
made, and are repeated at and as of the time of delivery hereof and are
true and correct at and as of the time of delivery hereof, except as such
representations and warranties are modified to give effect to the
transactions expressly permitted by the Credit Agreement.
(b) The Obligors have performed and complied with all agreements and
conditions contained in the Credit Agreement and in the Security
Instruments required to be performed or complied with by it prior to or at
the time of delivery hereof.
(c) None of the Obligors nor any Subsidiary has incurred any material
liabilities, direct or contingent, since _________________, except those
set forth in Schedule 9.01 to the Credit Agreement and except those allowed
by the terms of the Credit Agreement or consented to by the Lenders in
writing.
(d) Since __________________, no change has occurred, either in any
case or in the aggregate, in the condition, financial or otherwise, of the
Obligors or any Subsidiary which would have a Material Adverse Effect.
(e) There exists, and, after giving effect to the loan or loans with
respect to which this certificate is being delivered, will exist, no
Default under the Credit Agreement or any event or circumstance which
constitutes, or with notice or lapse of time (or both) would constitute, an
event of default under any loan or credit agreement, indenture, deed of
trust, security agreement or other agreement or instrument evidencing or
pertaining to any Debt of the Obligors or any Subsidiary, or under any
material agreement or instrument to which any Obligor or any Subsidiary is
a party or by which any Obligor or any Subsidiary is bound.
(f) The financial statements furnished to the Agent with this
certificate fairly present the consolidated financial condition and results
of operations of the Borrower and its Consolidated Subsidiaries as at the
end of, and for, the [fiscal
Exhibit C-1
<PAGE>
quarter] [fiscal year] ending _________________________ and such financial
statements have been approved in accordance with the accounting procedures
specified in the Credit Agreement.
(g) Attached hereto are the detailed computations necessary to
determine whether the Borrower and its Consolidated Subsidiaries are in
compliance with Sections 9.12, 9.13, 9.14 and 9.15 of the Credit Agreement
as of the end of the [fiscal quarter] [fiscal year] ending
_________________________.
EXECUTED AND DELIVERED this ____ day of 200__.
AROC INC.
By:_________________________________
Name:_______________________________
Title:________________________________
[Other Obligor Signature Blocks]
Exhibit C-2
<PAGE>
EXHIBIT D
SECURITY INSTRUMENTS
--------------------
1. Assignment of Notes, Documents and Liens.
2. Revolving Credit Notes executed by the Borrower payable to the order of the
Lenders in the aggregate principal face amount of $35,000,000.00.
3. Security Agreements executed by the Obligors.
4. Financing Statements (UCC-1) relating to item 2 above.
5. Amended and Restated Mortgage, Deed of Trust, Security Agreement, Fixture
Filing and Financing Statement executed by each of the Guarantors covering
the Oil and Gas Properties of the Guarantors.
6. Financing Statements (UCC-1) relating to item 4 above.
7. Guaranty Agreement executed by the Guarantors.
8. Parent Pledge Agreement (Pledge of Stock) executed by Borrower.
9. Financing Statement (UCC-1) relating to item 7 above.
10. Pledge Agreement (Pledge of Limited Partnership Interests) executed by AROC
Texas
11. Financing Statement (UCC-1) relating to item 9 above.
12. Transfer of Security
13. Amendment and Restatement of Debenture Creating Fixed and Floating Charges
(Alliance Resources plc)
14. Restatement and Amendment of Debenture and Charge (Difco Limited)
Exhibit D-1
<PAGE>
EXHIBIT E
FORM OF ASSIGNMENT AGREEMENT
----------------------------
ASSIGNMENT AGREEMENT ("Agreement") dated as of ________________, 200__
---------
between: ____________________________ (the "Assignor") and
--------
__________________________ (the "Assignee").
--------
RECITALS
--------
A. The Assignor is a party to the Credit Agreement dated as of May 1,
2000 (as amended and supplemented and in effect from time to time, the "Credit
------
Agreement") among AROC Inc., a Delaware corporation (the "Borrower"), each of
- --------- --------
the lenders that is or becomes a party thereto as provided in Section 12.06 of
the Credit Agreement (individually, together with its successors and assigns, a
"Lender", and collectively, together with their successors and assigns, the
------
"Lenders"), and Toronto Dominion (Texas), Inc., in its individual capacity, and
-------
as agent for the Lenders (in such capacity, together with its successors in such
capacity, the "Agent").
-----
B. The Assignor proposes to sell, assign and transfer to the Assignee,
and the Assignee proposes to purchase and assume from the Assignor, [all][a
portion] of the Assignor's Maximum Revolving Credit Amount, outstanding Loans
and its Percentage Share of the outstanding LC Exposure, all on the terms and
=======================================================
conditions of this Agreement.
C. In consideration of the foregoing and the mutual agreements contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
Definitions.
-----------
Section 1.01 Definitions. All capitalized terms used but not defined
-----------
herein have the respective meanings given to such terms in the Credit Agreement.
Section 1.02 Other Definitions. As used herein, the following terms have
-----------------
the following respective meanings:
"Assigned Interest" shall mean all of Assignor's (in its capacity as a
-----------------
"Lender") rights and obligations (i) under the Credit Agreement and the
other Security Instruments in respect of the Maximum Revolving Credit
Amount of the Assignor in the principal amount equal to
$____________________, including, without limitation, any obligation to
================================================
participate pro rata in any LC Exposure, and (ii) to make Loans under the
========================================
Maximum Revolving Credit Amount and any right to receive payments for the
Loans outstanding under the Maximum Revolving Credit Amount assigned hereby
of [the following amounts:
Loans Amount
----- ------
Exhibit E-1
<PAGE>
Revolving Credit $__________________
(the "Loan Balance"), plus the interest and fees which will accrue from and
------------
after the Assignment Date.
"Assignment Date" shall mean _____________________, 200__.
---------------
ARTICLE II
Sale and Assignment.
-------------------
Section 2.01 Sale and Assignment. On the terms and conditions set forth
-------------------
herein, effective on and as of the Assignment Date, the Assignor hereby sells,
assigns and transfers to the Assignee, and the Assignee hereby purchases and
assumes from the Assignor, all of the right, title and interest of the Assignor
in and to, and all of the obligations of the Assignor in respect of, the
Assigned Interest. Such sale, assignment and transfer is without recourse and,
except as expressly provided in this Agreement, without representation or
warranty.
Section 2.02 Assumption of Obligations. The Assignee agrees with the
-------------------------
Assignor (for the express benefit of the Assignor and the Borrower) that the
Assignee will, from and after the Assignment Date, perform all of the
obligations of the Assignor in respect of the Assigned Interest. From and after
the Assignment Date: (a) the Assignor shall be released from the Assignor's
obligations in respect of the Assigned Interest, and (b) the Assignee shall be
entitled to all of the Assignor's rights, powers and privileges under the Credit
Agreement and the other Security Instruments in respect of the Assigned
Interest.
Section 2.03 Consent by Agent. By executing this Agreement as provided
----------------
below, in accordance with Section 12.06(b) of the Credit Agreement, the Agent
hereby acknowledges notice of the transactions contemplated by this Agreement
and consents to such transactions.
ARTICLE III
Payments.
--------
Section 3.01 Payments. As consideration for the sale, assignment and
--------
transfer contemplated by Section 2.01 hereof, the Assignee shall, on the
Assignment Date, assume Assignor's obligations in respect of the Assigned
Interest and pay to the Assignor an amount equal to the Loan Balance, if any. An
amount equal to all accrued and unpaid interest and fees shall be paid to the
Assignor as provided in Section 3.02 (iii) below. Except as otherwise provided
in this Agreement, all payments hereunder shall be made in Dollars and in
immediately available funds, without setoff, deduction or counterclaim.
Section 3.02 Allocation of Payments. The Assignor and the Assignee agree
----------------------
that (i) the Assignor shall be entitled to any payments of principal with
respect to the Assigned Interest made prior to the Assignment Date, together
with any interest and fees with respect to the Assigned
Exhibit E-2
<PAGE>
Interest accrued prior to the Assignment Date, (ii) the Assignee shall be
entitled to any payments of principal with respect to the Assigned Interest made
from and after the Assignment Date, together with any and all interest and fees
with respect to the Assigned Interest accruing from and after the Assignment
Date, and (iii) the Agent is authorized and instructed to allocate payments
received by it for account of the Assignor and the Assignee as provided in the
foregoing clauses. Each party hereto agrees that it will hold any interest, fees
or other amounts that it may receive to which the other party hereto shall be
entitled pursuant to the preceding sentence for account of such other party and
pay, in like money and funds, any such amounts that it may receive to such other
party promptly upon receipt.
Section 3.03 Delivery of Notes. Promptly following the receipt by the
-----------------
Assignor of the consideration required to be paid under Section 3.01 hereof, the
Assignor shall, in the manner contemplated by Section 12.06(b) of the Credit
Agreement, (i) deliver to the Agent (or its counsel) the Note[s] held by the
Assignor and (ii) notify the Agent to request that the Borrower execute and
deliver new Notes to the Assignor, if Assignor continues to be a Lender, and the
Assignee, dated the date of this Agreement in respective principal amounts equal
to the respective Maximum Revolving Credit Amounts of the Assignor (if
appropriate) and the Assignee after giving effect to the sale, assignment and
transfer contemplated hereby.
Section 3.04 Further Assurances. The Assignor and the Assignee hereby
------------------
agree to execute and deliver such other instruments, and take such other
actions, as either party may reasonably request in connection with the
transactions contemplated by this Agreement.
ARTICLE IV
Conditions Precedent.
--------------------
Section 4.01 Conditions Precedent. The effectiveness of the sale,
--------------------
assignment and transfer contemplated hereby is subject to the satisfaction of
each of the following conditions precedent:
(a) the execution and delivery of this Agreement by the Assignor and
the Assignee;
(b) the receipt by the Assignor of the payment required to be made by
the Assignee under Section 3.01 hereof; and
(c) the acknowledgment and consent by the Agent contemplated by
Section 2.03 hereof.
ARTICLE V
Representations and Warranties.
------------------------------
Section 5.01 Representations and Warranties of the Assignor. The
----------------------------------------------
Assignor represents and warrants to the Assignee as follows:
Exhibit E-3
<PAGE>
(a) it has all requisite power and authority, and has taken all
action necessary to execute and deliver this Agreement and to fulfill its
obligations under, and consummate the transactions contemplated by, this
Agreement;
(b) the execution, delivery and compliance with the terms hereof by
Assignor and the delivery of all instruments required to be delivered by it
hereunder do not and will not violate any Governmental Requirement
applicable to it;
(c) this Agreement has been duly executed and delivered by it and
constitutes the legal, valid and binding obligation of the Assignor,
enforceable against it in accordance with its terms;
(d) all approvals and authorizations of, all filings with and all
actions by any Governmental Authority necessary for the validity or
enforceability of its obligations under this Agreement have been obtained;
(e) the Assignor has good title to, and is the sole legal and
beneficial owner of, the Assigned Interest, free and clear of all Liens,
claims, participations or other charges of any nature whatsoever; and
(f) the transactions contemplated by this Agreement are commercial
banking transactions entered into in the ordinary course of the banking
business of the Assignor.
Section 5.02 Disclaimer. Except as expressly provided in Section 5.01
----------
hereof, the Assignor does not make any representation or warranty, nor shall it
have any responsibility to the Assignee, with respect to the accuracy of any
recitals, statements, representations or warranties contained in the Credit
Agreement or in any certificate or other document referred to or provided for
in, or received by any Lender under, the Credit Agreement, or for the value,
validity, effectiveness, genuineness, execution, effectiveness, legality,
enforceability or sufficiency of the Credit Agreement, the Notes or any other
document referred to or provided for therein or for any failure by the Borrower
or any other Person (other than Assignor) to perform any of its obligations
thereunder prior or for the existence, value, perfection or priority of any
collateral security or the financial or other condition of the Borrower or the
Subsidiaries [or any other obligor or guarantor], or any other matter relating
to the Credit Agreement or any other Security Instrument or any extension of
credit thereunder.
Section 5.03 Representations and Warranties of the Assignee. The
----------------------------------------------
Assignee represents and warrants to the Assignor as follows:
(a) it has all requisite power and authority, and has taken all
action necessary to execute and deliver this Agreement and to fulfill its
obligations under, and consummate the transactions contemplated by, this
Agreement;
(b) the execution, delivery and compliance with the terms hereof by
Assignee and the delivery of all instruments required to be delivered by it
hereunder do not and will not violate any Governmental Requirement
applicable to it;
Exhibit E-4
<PAGE>
(c) this Agreement has been duly executed and delivered by it and
constitutes the legal, valid and binding obligation of the Assignee,
enforceable against it in accordance with its terms;
(d) all approvals and authorizations of, all filings with and all
actions by any Governmental Authority necessary for the validity or
enforceability of its obligations under this Agreement have been obtained;
(e) the Assignee has fully reviewed the terms of the Credit Agreement
and the other Security Instruments and has independently and without
reliance upon the Assignor, and based on such information as the Assignee
has deemed appropriate, made its own credit analysis and decision to enter
into this Agreement;
(f) the Assignee hereby affirms that the representations contained in
Section 4.06(d)[(i)][ii)] of the Credit Agreement are true and accurate as
to it [IF (ii) IS SELECTED ADD: and, the Assignee has contemporaneously
herewith delivered to the Agent and the Borrower such certifications as are
required thereby to avoid the withholding taxes referred to in Section
4.06]; and
(g) the transactions contemplated by this Agreement are commercial
banking transactions entered into in the ordinary course of the banking
business of the Assignee.
ARTICLE VI
Miscellaneous.
-------------
Section 6.01 Notices. All notices and other communications provided for
-------
herein (including, without limitation, any modifications of, or waivers,
requests or consents under, this Agreement) shall be given or made in writing
(including, without limitation, by telex or telecopy) to the intended recipient
at its "Address for Notices" specified below its name on the signature pages
hereof or, as to either party, at such other address as shall be designated by
such party in a notice to the other party.
Section 6.02 Amendment, Modification or Waiver. No provision of this
---------------------------------
Agreement may be amended, modified or waived except by an instrument in writing
signed by the Assignor and the Assignee, and consented to by the Agent.
Section 6.03 Successors and Assigns. This Agreement shall be binding
----------------------
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns. The representations and warranties made herein
by the Assignee are also made for the benefit of the Agent and the Borrower, and
the Assignee agrees that the Agent and the Borrower are entitled to rely upon
such representations and warranties.
Section 6.04 Assignments. Neither party hereto may assign any of its
-----------
rights or obligations hereunder except in accordance with the terms of the
Credit Agreement.
Exhibit E-5
<PAGE>
Section 6.05 Captions. The captions and section headings appearing
--------
herein are included solely for convenience of reference and are not intended to
affect the interpretation of any provision of this Agreement.
Section 6.06 Counterparts. This Agreement may be executed in any number
------------
of counterparts, each of which shall be identical and all of which, taken
together, shall constitute one and the same instrument, and each of the parties
hereto may execute this Agreement by signing any such counterpart.
Section 6.07 Governing Law. This Agreement shall be governed by, and
-------------
construed in accordance with, the law of the State of Texas.
Section 6.08 Expenses. To the extent not paid by the Borrower pursuant
--------
to the terms of the Credit Agreement, each party hereto shall bear its own
expenses in connection with the execution, delivery and performance of this
Agreement.
Section 6.09 Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY
--------------------
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO
TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
IN WITNESS WHEREOF, the parties hereto have caused this Assignment
Agreement to be executed and delivered as of the date first above written.
ASSIGNOR:
--------
_____________________________________
By:__________________________________
Name: _______________________________
Title: ______________________________
Address for Notices:
_____________________________________
_____________________________________
_____________________________________
Telecopier No.: _____________________
Telephone No.: ______________________
Attention: ________________________
Exhibit E-6
<PAGE>
ASSIGNEE:
--------
_____________________________________
By:__________________________________
Name: _______________________________
Title: ______________________________
Address for Notices:
_____________________________________
_____________________________________
_____________________________________
Telecopier No.: _____________________
Telephone No.: ______________________
Attention: ________________________
ACKNOWLEDGED AND CONSENTED TO:
_____________________________,
as Agent
By:__________________________
Name: ________________
Title: ______________________
Exhibit E-7
<PAGE>
EXHIBIT F
INITIAL RESERVE REPORT
----------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
ACQUISITION PROPERTIES
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Effective Engineering
Partnership/Company Properties State County Date Company
- --------------------------------------------------------------------------------------------------------------
Loco Hills New Eddy & Cawley, Gillespie
Mountaineer Partnership Maljamar Mexico Lea Jan 1, 2000 & Associates, Inc.
- --------------------------------------------------------------------------------------------------------------
Various - West Cawley, Gillespie
Famcor Partnership Texas Texas Various Jan 1, 2000 & Associates, Inc.
- --------------------------------------------------------------------------------------------------------------
Clay,
Moore, Wheeler, Ector,
Harrison-Allen, Gaines & Cawley, Gillespie
Wheel-Moore Partnership Tetens 'A' Texas Howard Dec 31, 2000 & Associates, Inc.
- --------------------------------------------------------------------------------------------------------------
T.J. Smith & Co.,
Bargo Energy Co. St. Martinville Louisiana St. Martin Dec 31, 2000 Inc.
Partnership
- --------------------------------------------------------------------------------------------------------------
Netherland Sewell
Bargo Energy Co. Pledger Texas Brazoria Jan 1, 2000 & Associates
Partnership
- --------------------------------------------------------------------------------------------------------------
Sage Spring
Creek,
Soda Wells,
Garner Lake Campbell, Ryder Scott
RM Acquisitions Partnership North Wyoming Natrona Jan 1, 2000 Company
- --------------------------------------------------------------------------------------------------------------
Ryder Scott
SE Share Partnership S.E. Share Texas Ochiltree Dec 31, 2000 Company
- --------------------------------------------------------------------------------------------------------------
Andrews, Netherland Sewell
Tanqueray Partnership MAK Texas Martin Jan 1, 2000 & Associates
- --------------------------------------------------------------------------------------------------------------
EXISTING OBLIGOR PROPERTIES
- --------------------------------------------------------------------------------------------------------------
Effective Engineering
Partnership/Company Properties State County Date Company
- --------------------------------------------------------------------------------------------------------------
US Oil & Gas Lee Keeling &
Various Obligors Properties Various Various Jan 1, 2000 Associates
- --------------------------------------------------------------------------------------------------------------
Setex
Non-operated
Interests in
operated
Famcor Cawley, Gillespie
Various Obligors Properties Various Various Jan 1, 2000 & Associates, Inc
- --------------------------------------------------------------------------------------------------------------
UK East Irish Lee Keeling &
Difco Sea UK Offshore Jan 1, 2000 Associates
Properties
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Exhibit F-1
<PAGE>
SCHEDULE 6.01(l)
CORPORATE AND FINANCIAL RESTRUCTURING
Corporate Restructuring
- -----------------------
1. Merger of Alliance Resources (Delaware), Inc. and LaTex Resources, Inc.
into Alliance Resources Group, Inc.
2. Transfer Alliance Resources Group, Inc. stock
from Difco Limited to AROC Inc.
3. Transfer AROC (Texas), Inc. stock
from AROC Inc. to Alliance Resources Group, Inc.
4. Transfer stock of the following entities:
(a) from Alliance Resources Group, Inc. to AROC Acquisition, Inc.:
ARCOL, Inc.
ARNO, Inc.
(b) from LaTex Resources, Inc. to AROC Acquisition, Inc.:
LaTex/GOC Acquisition, Inc.
Enpro, Inc.
Financial Restructuring
- -----------------------
1. BofA to exchange at least $10,000,000 of debt under Prior Credit Agreement
for preferred stock of the Borrower.
2. El Paso Capital Investments LLC ("El Paso") to exchange all of its
-------
participation and commitment interests ($10,000,000) under the Prior Credit
Agreement for preferred stock of the Borrower.
3. EnCap Equity 1996 Limited Partnership and Energy Capital Investment Company
PLC (collectively, "EnCap") to exchange all of subordinated debt owing from
-----
various Subsidiaries of the Borrower (after the corporate restructure) in
the approximate amount of $18,045,389.30 to preferred stock of the
Borrower.
4. BofA to exchange 100% of its overriding royalty interest in the East Irish
Sea Properties for preferred stock in the Borrower.
5. Consummation of new subordinated debt from EnCap and El Paso by the
Borrower of at least $17,000,000.
6. The remaining balance of obligations of the various Subsidiaries of the
Borrower under the Prior Credit Agreement after the conversion events
described above to be refinanced in full
Schedule 6.01(1) - 1
<PAGE>
with the proceeds of the subdebt described in the preceding paragraph and
with Loan under the Credit Agreement.
ALL OF THE ABOVE EVENTS AND TRANSACTIONS SHALL BE UPON TERMS AND CONDITIONS, AND
PURSUANT TO DOCUMENTATION, IN FORM AND SUBSTANCE REASONABLY ACCEPTABLE TO THE
AGENT.
Schedule 6.01(1) - 2
<PAGE>
SCHEDULE 7.02
LIABILITIES
Subordinated Debt and Guarantees delivered in connection therewith.
See Schedule 7.20 and Schedule 7.23
------------- -------------
Schedule 7.02 - 1
<PAGE>
SCHEDULE 7.03
LITIGATION
NONE
Schedule 7.03 - 1
<PAGE>
SCHEDULE 7.09
TAXES
NONE
Schedule 7.09 - 1
<PAGE>
SCHEDULE 7.10
TITLES, ETC.
The working and net revenue interests described in the Exhibits to the various
Security Documents do not in all cases correspond to the interests reflected in
the most recently delivered Reserve Report.
Schedule 7.10 - 1
<PAGE>
Schedule 7.14 - Subsidiary Companies of AROC Inc. as of April 30, 2000
----------------------------------------------------------------------
SCHEDULE 7.14
SUBSIDIARIES AND PARTNERSHIPS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Owner
Authorized Issued of Registered Primary
Name of Company Share Share Issued Agent Business Directors &
Capital Capital Share Address Address Officers
Capital
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
UK SUBSIDIARIES
- --------------------------------------------------------------------------------------------------------------------------------
415,001,376 47,487,142 AROC Inc. 12 St. James's 12 St. James's Directors:
ordinary shares ordinary Square Square John A. Keeenan
Alliance Resources PLC, a of 1p. each shares of 1p. London SW1Y 4RB London SW1Y 4RB Paul R. Fenemore
public limited company each
incorporated under the 10,000,000 10,000,000 Secretary:
laws of England and Wales convertible convertible Francis M.
shares of 1p. shares of 1p. Munchinski
each each
- --------------------------------------------------------------------------------------------------------------------------------
100,000 shares of 100 shares of Alliance 12 St. James's 12 St. James's Directors:
Difco Limited, a private (Pounds)1 each (Pounds)1 each Resources Square Square John A. Keenan
limited company PLC London SW1Y 4RB London SW1Y 4RB Paul R. Fenemore
incorporated under the
laws of England and Wales Secretary:
Francis M.
Munchinski
- --------------------------------------------------------------------------------------------------------------------------------
3,828,060 2,585,700 Alliance 12 St. James's 12 St. James's Directors:
Manx Petroleum PLC, a ordinary shares ordinary shares Resources Square Square John A. Keenan
private limited of 5p. each of 5p. each. PLC London SW1Y 4RB London Sw1Y 4RB Paul R. Fenemore
company incorporated
under the laws of 2,000,000 1,300,000 Secretary:
England and Wales deferred shares deferred shares Francis M.
of 95p. each of 95p. each Munchinski
- --------------------------------------------------------------------------------------------------------------------------------
Celtic Basin Oil 1,000,000 621,110 ordinary Manx 12 St. James's 12 St. James's Director:
Exploration Ltd., a ordinary shares shares of Petroleum Square Square Jak Keenan
private limited company of (Pounds)1 each (Pounds)1 each PLC London SW1Y 4RB London SW1Y 4RB
incorporated under the Secretary:
laws of England and Wales Francis M.
Munchinski
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Schedule 7.14 - 1
<PAGE>
Schedule 7.14 - Subsidiary Companies of AROC Inc. as of April 30, 2000
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
US SUBSIDIARIES
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1,000 shares, 1,000 shares, Alliance 350 N. St Paul St. 4200 E. Directors:
par value $0.01 par value Resources Skelly Dr. Jak Keenan
per share $0.01 per Group, Dallas, TX 75201 Suite 1000 Paul Fenemore
share Inc. Tulsa, OK Robert Schulte
74135
AROC (Texas), Officers:
Inc., a Jak Keenan (President)
Texas corporation Paul Fenemore
(Executive Vice President
Federal Tax Id#: Robert Schulte (Vice
73-1577173 President/Assistant
Secretary)
Francis Munchinski
(Vice President/Secretary)
- ------------------------------------------------------------------------------------------------------------------------------------
1,000 shares of 100 shares AROC Inc. 1209 Orange St. 4200 E. Directors:
Alliance common stock, no of common New Castle Skelly Dr. Jak Keenan
Resources Group, par value stock, no County Suite 1000 Paul Fenemore
Inc., a Delaware par value Wilmington Tulsa, OK Robert Schulte
corporation Delaware 19801 74135
USA
Federal Tax Id#: Officers:
72-1286788 Jak Keenan (President)
Paul Fenemore (Executive Vice
President)
Robert Schulte (Vice
President/Assistant Secretary)
Francis Munchinski (Vice
President/Secretary)
- ------------------------------------------------------------------------------------------------------------------------------------
Alliance 1,000 shares of 1,000 shares Alliance 1209 Orange St. 4200 E. Directors:
Resources (USA), common stock, of common Resources New Castle Skelly Dr. Jak Keenan
Inc., a par value $0.01 stock, par Group, County Suite 1000 Paul Fenemore
Delaware per share value $0.01 Inc. Wilmington Tulsa, OK Robert Schulte
Corporation per share Delaware 19801 74135
USA Officers:
Federal Tax Id#: Jak Keenan (President)
72-1184114 Paul Fenemore (Executive
Vice President)
Robert Schulte (Vice
President/Assistant
Secretary)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Schedule 7.14 - 2
<PAGE>
Schedule 7.14 - Subsidiary Companies of AROC Inc. as of April 30, 2000
----------------------------------------------------------------------
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
Francis Munchinski
(Vice President/Secretary)
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Source Petroleum, 1,000 shares of 100 shares of Alliance PO Box 53432 4200 E. Directors:
Inc., a common stock, no common stock, Resources Lafayette Skelly Dr. Jak Keenan
Louisiana par value no par value Group, Inc. LA 70505 Suite 1000 Paul Fenemore
Corporation USA Tulsa, OK Robert Schulte
74135
Federal Tax Id#: Officers:
72-0888085 Jak Keenan (President)
Paul Fenemore (Executive
Vice President)
Robert Schulte (Vice
President/Assistant
Secretary)
Francis Munchinski (Vice
President/Secretary)
- ------------------------------------------------------------------------------------------------------------------------------------
1,000 shares of 100 shares of AROC 1209 Orange St. 4200 E. Directors:
common stock, common stock, Acquisition, New Castle Skelly Dr. Jak Keenan
no par value no par value Inc. County Suite 1000 Paul Fenemore
Wilmington Tulsa, OK Robert Schulte
Delaware 19801 74135
USA
ARCOL, Inc., a Officers:
Delaware Jak Keenan (President)
corporation Paul Fenemore (Executive
Vice President)
Federal Tax Id#: Robert Schulte (Vice
72-1295635 President/Assistant
Secretary)
Francis Munchinski (Vice
President/Secretary
- ------------------------------------------------------------------------------------------------------------------------------------
1,000 shares of 100 shares of AROC 1209 Orange 4200 E. Directors:
common stock, common stock, Acquisition, St. New Castle Skelly Dr. Jak Keenan
no par value no par value Inc. County Suite 1000 Paul Fenemore
Wilmington Tulsa, OK Robert schulte
Delaware 19801 74135
ARNO, Inc., a USA
Delaware Officers:
corporation Jak Keenan (President)
Paul Fenemore (Executive
Federal Tax Id#: Vice President)
72-1295633 Robert schulte (Vice
President/Assistant
Secretary)
Francis Munchinski (Vice
President/Secretary)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Schedule 7.14 - 3
<PAGE>
Schedule 7.14 - Subsidiary Companies of AROC Inc. as of April 30, 2000
----------------------------------------------------------------------
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Germany Oil Company, a 1,000 shares 1,000 shares Alliance 1209 Orange St. 4200 E. Skelly Dr. Directors:
Delaware corporation of common of common Resources New Castle County Suite 1000 Jak Keenan
stock, par stock, par Group, Inc. Wilmington Tulsa, OK 74135 Paul Fenemore
value $0.01 value $0.01 Delaware 19801 Robert Schulte
per share per share USA
Federal Tax ID#: Officers:
73-1469674 Jak Keenan (President)
Paul Fenemore
(Executive Vice
President)
Robert Schulte (Vice
President/Assistant
Secretary)
Francis Munchinski
(Vice President/
Secretary)
- ------------------------------------------------------------------------------------------------------------------------------------
1,000 shares 100 shares of Germany 1209 Orange 4200 E. Skelly Dr. Directors:
of common common Oil St. New Castle Suite 1000 Jak Keenan
stock, par stock, par Company County Wilmington Tulsa, OK 74135 Paul Fenemore
value $0.01 value $0.01 Delaware 19801 Robert Schulte
Germany Operating per share per share USA
Company, a Delaware
corporation Officers:
Jak Keenan (President)
Federal Tax ID#: Paul Fenemore
51-0333098 (Executive Vice
President)
Robert Schulte (Vice
President/Assistant
Secretary)
Francis Munchinski
(Vice President/
Secretary)
- ------------------------------------------------------------------------------------------------------------------------------------
50,000 shares 666 shares of Alliance 735 1st National 4200 E. Skelly Dr. Directors:
of common common Resources Building Suite 1000 Jak Keenan
stock, par stock, par Group, Inc. Oklahoma City Tulsa, OK 74135 Paul Fenemore
value $1 per value $1 per OK 73102 Robert Schulte
LaTex Petroleum share share USA
Corporation, an
Oklahoma corporation
Officers:
Federal Tax ID#: Jak Keenan (President)
73-1299457 Paul Fenemore
(Executive Vice
President)
Robert Schulte (Vice
President/Assistant
Secretary)
Francis Munchinski
(Vice President/
Secretary)
- ------------------------------------------------------------------------------------------------------------------------------------
50,000,000 100,000 AROC 1209 Orange St. 4200 E. Skelly Dr. Directors:
shares of shares of Acquisition, New Castle County Suite 1000 Jak Keenan
common common Inc. Wilmington Tulsa, OK 74135 Paul Fenemore
LaTex/GOC Acquisition, stock, par stock, par Delaware 19801 Robert Schulte
Inc., a value $0.01 value $0.01 USA
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Schedule 7.14-4
<PAGE>
Schedule 7.14 - Subsidiary Companies of ARCO Inc. as of April 30, 2000
----------------------------------------------------------------------
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Delaware corporation per share per share Officers:
Jak Keenan (President)
Federal Tax ID #: Paul Fenemore
73-1463315 (Executive Vice
President)
Robert Schulte (Vice
President/Assistant
Secretary)
Francis Munchinski
(Vice President/
Secretary)
- ------------------------------------------------------------------------------------------------------------------------------------
100 shares of 100 shares of AROC 350N St. Paul 4200 E. Skelly Dr. Directors:
common common Acquisition, Street Suite 1000 Jak Keenan
stock, par stock, par INC. Dallas Tulsa, OK 74135 Paul Fenemore
Enpro, Inc., a value $10 per value $10 per TX 75201 Robert Schulte
Texas Corporation share share USA
Officers:
Federal Tax ID#: Jak Keenan (President)
75-2354211 Paul Fenemore
(Executive Vice
President)
Robert Schulte (Vice
President/Assistant
Secretary)
Francis Munchinski
(Vice President/
Secretary)
- ------------------------------------------------------------------------------------------------------------------------------------
Charter American 100,000,000 100,000,000 AROC 716 College View 4200 E. Skelly Dr. Directors:
Corporation, a shares of shares of Acquisition, Drive, Riverton, Suite 1000 Jak Keenan
Wyoming corporation common common Inc. Wyoming 82501 Tulsa, OK 74135 Paul Fenemore
stock, par stock, par USA Robert Schulte
value $0.0001 value $0.0001
per share per share
Officers:
Federal Tax ID#: Jak Keenan (President)
84-0974582 Paul Fenemore
(Executive Vice
President)
Robert Schulte (Vice
President/Assistant
Secretary)
Francis Munchinski
(Vice President/
Secretary)
- ------------------------------------------------------------------------------------------------------------------------------------
100 shares of 100 shares of AROC Inc. 1209 Orange St. 4200 E. Skelly Dr. Directors:
common common New Castle County suite 1000 Jak Keenan
stock, par stock, par Wilmington Tulsa, OK 74135 Paul Fenemore
Aroc Acquisition, Inc., value $0.001 value $0.001 Delaware 19801 Robert Schulte
a Delaware Corporation per share per share USA
Officers:
Jak Keenan (President)
Paul Fenemore
Federal Tax ID#: (Executive Vice
84-1519808 President)
Robert Schulte (Vice
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Schedule 7.14 - 5
<PAGE>
Schedule 7.14 - Subsidiary Companies of ARCO Inc. as of April 30, 2000
----------------------------------------------------------------------
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
President/Assistant
Secretary)
Francis Munchinski
(Vice President/
Secretary)
- ------------------------------------------------------------------------------------------------------------------------------------
100,000,000 100,000,000 AROC 303 E 17/th/ Avenue 4200 E. Skelly Dr. directors:
shares of shares of Acquisition, Suite 1100 Suite 1100 Jak Keenan
common common Inc. Denver Colorado Tulsa, OK 74135 Paul Fenemore
stock, par stock, par 80203 USA Robert Schulte
MCC Cablevision, Inc., value value $0.001
a Colorado Corporation $0.001 per share
per share
Officers:
Jak Keenan (President)
Paul Fenemore
Federal Tax ID#: (Executive Vice
83-0282044 President)
Robert Schulte (Vice
President/Assistant
Secretary)
Francis Munchinski
(Vice President/
Secretary)
- ------------------------------------------------------------------------------------------------------------------------------------
100,000,000 100,000,000 AROC 303 E 17/th/ Avenue 4200 E. Skelly Dr. Directors:
shares of shares of Acquisition, Suite 1100 Suite 1000 Jak Keenan
common common Inc. Denver Colorado Tulsa, OK 74135 Paul Fenemore
stock, par stock, par 80203 USA Robert Schulte
Metro Minerals value of value of
Corporation, a $0.001 per $0.001 per
Colorado corporation share share Officers:
Jak Keenan (President)
Federal Tax ID#: 10,000,000 10,000,000 Paul Fenemore
83-0286582 shares of shares of (Executive Vice
preferred preferred President)
stock, par stock, par Robert Schulte (Vice
value $0.001 value $0.001 President/Assistant
per share per share Secretary)
Francis Munchinski
(Vice President/
Secretary)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Schedule 7.14 - 6
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Owner and % General Partner General Partner
US PARTNERSHIPS of LP Interest Address
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
RM Acquisition I Limited Partnership, a AROC FBO Partners LLC Trinity Place,
Texas Limited Partnership (Texas), Inc. - Suite 750
1801 Broadway
100% Denver, CO
80202-3835
- --------------------------------------------------------------------------------------------------------
SE Share, L.P., a AROC
Texas Limited Partnership (Texas), Inc. - Strand SE Share
Partners, Ltd.;
100% Texas American
Resources see below
Holdings, L.L.C..;
Alexander Energy
- --------------------------------------------------------------------------------------------------------
St. Martinville Partners, Ltd., a AROC Bargo Energy 700 Louisiana,
Texas Limited Partnership (Texas), Inc. - Partners, Ltd. Suite 4650
Houston, TX
100% 77002
- --------------------------------------------------------------------------------------------------------
</TABLE>
Strand SE Share Partners, Ltd.: 910 Travis, Suite 1820 Houston, TX 77002
- -----------------------------
Texas American Resources Holdings, L.L.C.: First City Tower, Suite 750
- ----------------------------------------
Houston, TX 77002
Alexander Energy: c/o Texas American Resources Holdings, L.L.C., First City
- ----------------
Tower, Suite 750 Houston, TX 77002
Schedule 7.14-7
<PAGE>
SCHEDULE 7.17
ENVIRONMENTAL MATTERS
NONE
Schedule 7.17-1
<PAGE>
SCHEDULE 7.19
INSURANCE
See attached Addendum A and Certificates of Insurance.
Schedule 7.19-1
<PAGE>
SCHEDULE 7.20
HEDGING AGREEMENTS
<TABLE>
<CAPTION>
Type Term Start Date Term. Date Volumes Price Mark-to-Market
- ---- ---- ---------- ---------- ------- ----- --------------
<S> <C> <C> <C> <C> <C> <C>
Oil
Call 3 mo. 04/01/00 06/30/00 7,500 bbl/mo. $24.00/bbl Est. ($25,000)
Put 3 mo. 04/01/00 06/30/00 7,500 bbl/mo. $19.00/bbl Est. $0
Call 3 mo. 07/01/00 09/30/00 10,000 bbl/mo. $26.50/bbl Est. $0
Put 3 mo. 07/01/00 09/30/00 10,000 bbl/mo. $19.00/bbl Est. $0
Call 3 mo. 10/01/00 12/31/00 10,000 bbl/mo. $26.50/bbl Est. $0
Put 3 mo. 10/01/00 12/31/00 10,000 bbl/mo. $19.00/bbl Est. $0
Gas-U.S.
Call 1 yr. 11/01/99 10/31/00 75,000 mmbtu/mo. $ 3.00/mmbtu Est. $0
Put 1 yr. 11/01/99 10/31/00 75,000 mmbtu/mo. $ 2.40/mmbtu Est. $0
Gas-U.K.
Call 1 mo. 05/01/00 05/31/00 1.1 mm therms 12.55 p/t Est. ($60,000)
Put 1 mo. 05/01/00 05/31/00 1.1 mm therms 10.5 p/t Est. $0
Call 1 mo. 06/01/00 06/30/00 1.1 mm therms 12.55 p/t Est. ($40,000)
Put 1 mo. 06/01/00 06/30/00 1.1 mm therms 10.5 p/t Est. $0
Call 1 mo. 07/01/00 07/31/00 1.0 mm therms 12.55 p/t Est. ($12,000)
Put 1 mo. 07/01/00 07/31/00 1.0 mm therms 10.5 p/t Est. $0
Call 1 mo. 08/01/00 08/31/00 1.0 mm therms 12.55 p/t Est. ($20,000)
Put 1 mo. 08/01/00 08/31/00 1.0 mm therms 10.5 p/t Est. $0
Call 1 mo. 09/01/00 09/30/00 .3 mm therms 12.55 p/t Est. ($9,000)
Put 1 mo. 09/01/00 09/30/00 .3 mm therms 10.5 p/t Est. $0
</TABLE>
Schedule 7.20-1
<PAGE>
SCHEDULE 7.22
MATERIAL AGREEMENTS
A. Subordinated Debt and guarantees delivered in connection therewith.
B. Executive Employment Agreements dated and effective as of December 8, 1999
between (1) AROC Inc. and John A. Keenan; and (2) AROC Inc. and Francis M.
Munchinski; and (3) AROC Inc. and Robert E. Schulte.
C. Executive Service Agreement between Alliance Resource PLC and Paul R.
Fenemore dated as of September 20, 1996 as amended by Supplemental
agreement dated as of April 16, 1998 and Second Supplemental Agreement
dated as of December 1, 1998.
D. Employment Agreement dated as of May 1, 1999 between Alliance Resources
(USA), Inc. and Timothy D. Merrifield.
E. Engagement letter dated as of February 25, 2000 between AROC Inc. and
Johnson Rice & Company, L.L.C.
F. Agreement of Limited Partnership of RM Acquisition-I Limited Partnership
dated as of December 29, 1995.
G. Agreement of Limited Partnership of SE Share, L.P. dated as of March 7,
1996 and amended as of July 31, 1998.
H. Agreement of Limited Partnership of St. Martinville Partners, Ltd. dated as
of February 11, 1997.
I. Purchase and sale agreements included in the definition of "Acquisitions."
J. Agreement Regarding Dissolution and Liquidation in respect to Pledger
Partners, Ltd. dated as of April 15, 2000 among EnCap equity 1996 Limited
Partnership, Energy Capital Investment Company PLC and BEC Partnership.
K. Agreement Regarding Dissolution and Liquidation in respect to Tanqueray
Limited Partnership dated as of april 15, 2000 among encap Equity 1994
Limited Partnership, Energy Capital Investment Company PLC and Riverhill
Energy Corporation.
Schedule 7.22-1
<PAGE>
L. Agreement Regarding Dissolution and Liquidation in respect to Wheel-Moore,
Ltd. dated as of April 15, 2000 among EnCap Equity 1996 Limited
Partnership, Energy Capital Investment Company PLC and Lynx Production
company, Inc.
M. Commercial Real Estate Lease dated as of June 1, 1998 between Case &
Associates (Landlord) and Alliance Resources (USA), Inc (Tenant).
N. See attached table of oil and gas contracts.
Schedule 7.22-2
<PAGE>
AROC INC.
OIL AND GAS CONTRACT INFORMATION
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Contract
County/ Contract Effective Cancellation
Lease Field Parish St. Company Purchaser Dates Product Requirements
----- ----- ------ --- ------- --------- ----- ------- ------------
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Various South Carlton Baldwin/Clarke AL LaTex EOTT ENERGY 04/01/00 - Oil
01/01/02
- ------------------------------------------------------------------------------------------------------------------------------------
PHILLIPS EDWARDS #1 Edwards West Ector TX Germany PHILLIPS 66 Call on Oil
oil for
life of
well
- ------------------------------------------------------------------------------------------------------------------------------------
Ernest Roberts GU #1 Bolton Hinds MS LaTex Mississippi 11/01/96 - Gas Requires 60
11/01/01 days written
notice after
term.
- ------------------------------------------------------------------------------------------------------------------------------------
Millie 2-20 Dewey OK Germany GPM 02/01/99 - Gas Requires 10
02/01/02 days written
notice after
term.
- ------------------------------------------------------------------------------------------------------------------------------------
Chittim Ranch 128-1 Chittim East Maverick TX Cobra WTG 01/01/00 - Gas Requires 10
12/31/00 days written
notice after
term.
- ------------------------------------------------------------------------------------------------------------------------------------
Chittim Ranch 129-1 Chittim East Maverick TX Cobra WTG 01/01/00 - Gas Requires 10
12/31/00 days written
notice after
term.
- ------------------------------------------------------------------------------------------------------------------------------------
Chittim Ranch 129-2 Chittim East Maverick TX Cobra WTG 01/01/00 - Gas Requires 10
12/31/00 days written
notice after
term.
- ------------------------------------------------------------------------------------------------------------------------------------
Chittim Ranch 143-1 Chittim East Maverick TX Cobra WTG 01/01/00 - Gas Requires 10
12/31/00 days written
notice after
term.
- ------------------------------------------------------------------------------------------------------------------------------------
Chittim Ranch 158-2 Chittim East Maverick TX Cobra WTG 01/01/00 - Gas Requires 10
12/31/00 days written
notice after
term.
- ------------------------------------------------------------------------------------------------------------------------------------
Jigger-Y/Penn/Cons Jigger-Y Penn Upton TX Famcor GPM Exp Gas
04/01/03
- ------------------------------------------------------------------------------------------------------------------------------------
State of Texas Embar (5600) Andrews TX Famcor GPM Exp Gas
04/01/03
- ------------------------------------------------------------------------------------------------------------------------------------
Blackstone Minerals Fee Village Mills Hardin TX Setex Houston 02/01/98 - Gas Requires 30
Pipeline 07/31/00 days written
Company notice after
term.
- ------------------------------------------------------------------------------------------------------------------------------------
Blackstone Minerals Fee Village Mills Hardin TX Setex Houston 02/01/98 - Gas Requires 30
et al #1u Pipeline 07/31/00 days written
Company notice after
term.
- ------------------------------------------------------------------------------------------------------------------------------------
Vastar Resources Inc. Fee Village Mills Hardin TX Setex Houston 02/01/98 - Gas Requires 30
Pipeline 07/31/00 days written
Company notice after
term.
- ------------------------------------------------------------------------------------------------------------------------------------
Sharhara State Unit Sharhara NM Sharhara PHILLIPS 66 Call on Oil
oil for
life of
well
- ------------------------------------------------------------------------------------------------------------------------------------
Rogers 'D' & 'E' SE Share TX GPM Year to Gas Requires 60
Year days written
evergreen notice after
term.
- ------------------------------------------------------------------------------------------------------------------------------------
Carles Morton Share Lease SE Share TX PHILLIPS 66 Gas Requires 60
days written
notice after
term.
- ------------------------------------------------------------------------------------------------------------------------------------
Various Sharhara Lea & Eddy NM Sharhara GPM 11/03/97 - Gas Requires 60
11/03/02 days written
notice after
term.
- ------------------------------------------------------------------------------------------------------------------------------------
University 'DD' & Martin & Eddy TX Tanqueray Exxon-Mobil 09/21/90 - Oil
University 'DF' 09/20/11
- ------------------------------------------------------------------------------------------------------------------------------------
Various - See Attached Gaines/Howard/ TX Lynx Highland 12/01/99 - Oil Requires 45
Clay Energy 11/30/00 days written
notice after
term.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Schedule 7.22 - 3
<PAGE>
SCHEDULE 7.23
GAS IMBALANCES
GAS BALANCING STATUS AS OF FEBRUARY 29, 2000
FOR OPERATING SUBSIDIARIES OF AROC INC.
(operated and non-operated properties)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
Lease Name Operator Cumulative
Over / (Under)
- -----------------------------------------------------------------------
<S> <C> <C>
Hodo 31-15 Bristol (24,937)
- -----------------------------------------------------------------------
Grace Anders 13-15 IL Browning & Welch (461)
- -----------------------------------------------------------------------
Jerry 1-5 Chesapeake 2
- -----------------------------------------------------------------------
Dubach Plant Dubach Gas Co. (2,188)
- -----------------------------------------------------------------------
Smith 28-9 Hughes Eastern (48)
- -----------------------------------------------------------------------
Kopf 1-11 Marathon 2,829
- -----------------------------------------------------------------------
Boucher 1-5 Mid-Continent 10,903
- -----------------------------------------------------------------------
McCranie Phillips Petroleum 647
- -----------------------------------------------------------------------
Meyer 18-A Ricks Expl 18,740
- -----------------------------------------------------------------------
Meyer 18-B Ricks Expl (2,924)
- -----------------------------------------------------------------------
Alexander Samson 14,356
- -----------------------------------------------------------------------
Bradford E L 19-15 1 Samson (8,138)
- -----------------------------------------------------------------------
Burns-Estes 1-1 Samson 1,159
- -----------------------------------------------------------------------
Bush David 14-14 1 Samson (2,527)
- -----------------------------------------------------------------------
Mayers F 29-5 Samson 352
- -----------------------------------------------------------------------
University 09 - 18 #B1 Texaco Exploration 4
- -----------------------------------------------------------------------
University 09 - 18 #B3 Texaco Exploration (1)
- -----------------------------------------------------------------------
University 09 - 18 A #1 Texaco Exploration (2)
- -----------------------------------------------------------------------
University 10 - 18 #1U Texaco Exploration (12,538)
- -----------------------------------------------------------------------
University 10 - 18 A #2 Texaco Exploration (363)
- -----------------------------------------------------------------------
University 10 - 18 A #4 Texaco Exploration 4
- -----------------------------------------------------------------------
University 10 - 18 A #6H Texaco Exploration 102
- -----------------------------------------------------------------------
University 10 - 18 B #2 Texaco Exploration (1)
- -----------------------------------------------------------------------
University 10 - 18 B #3 Texaco Exploration (12)
- -----------------------------------------------------------------------
University 10 - 18 B #6 Texaco Exploration (573)
- -----------------------------------------------------------------------
University 11 - 18 A #1 Texaco Exploration 1
- -----------------------------------------------------------------------
University 11 - 18 A #2 Texaco Exploration (2)
- -----------------------------------------------------------------------
University 11 - 18 B #1A Texaco Exploration 4
- -----------------------------------------------------------------------
University 11 - 18 B #2A Texaco Exploration (210)
- -----------------------------------------------------------------------
University 22 - 18 A #1 Texaco Exploration 1
- -----------------------------------------------------------------------
University 22 - 18 A #2 Texaco Exploration 3
- -----------------------------------------------------------------------
University 22 - 18 B #1 Texaco Exploration 2
- -----------------------------------------------------------------------
University 23 - 18 A #1 Texaco Exploration (5)
- -----------------------------------------------------------------------
University 23 - 18 A #2 Texaco Exploration 15
- -----------------------------------------------------------------------
Pierce VI 10-1 Union Pacific O & G (1,288)
- -----------------------------------------------------------------------
Pierce VI 2-1 Union Pacific O & G (5,024)
- -----------------------------------------------------------------------
Pierce VI 10-2 Union Pacific O & G 1,958
- -----------------------------------------------------------------------
Pierce VI 10-3 Union Pacific O & G (23,555)
- -----------------------------------------------------------------------
Pierce VI 10-5 Union Pacific O & G (9,390)
- -----------------------------------------------------------------------
</TABLE>
Schedule 7.23 - 1
<PAGE>
- -----------------------------------------------------------------------
Cumulative
Lease Name Operator Over / (Under)
- -----------------------------------------------------------------------
Pierce VI 2-2 Union Pacific O & G (8,769)
- -----------------------------------------------------------------------
Pierce VI 3-9 Union Pacific O & G (19,906)
- -----------------------------------------------------------------------
Pierce VI 5-2 Union Pacific O & G (28,155)
- -----------------------------------------------------------------------
Pierce VI 6-2 Union Pacific O & G (33,140)
- -----------------------------------------------------------------------
Pierce VI 9-1 Union Pacific O & G (7,749)
- -----------------------------------------------------------------------
Pierce-Henderson 7-1 Union Pacific O & G 23,445
- -----------------------------------------------------------------------
Pierce-Henderson 7-2 Union Pacific O & G (833)
- -----------------------------------------------------------------------
Pierce-Henderson 7A 1 Union Pacific O & G (111)
- -----------------------------------------------------------------------
Pierce-Henderson 8-1 Union Pacific O & G (3,415)
- -----------------------------------------------------------------------
AMC 14-15 Germany Operating Co. 7,925
- -----------------------------------------------------------------------
Baines M E 1 Germany Operating Co. 1,282
- -----------------------------------------------------------------------
Barnes Estate Germany Operating Co. 5,896
- -----------------------------------------------------------------------
Bozeman 27-15 Germany Operating Co. (7,440)
- -----------------------------------------------------------------------
Brown, N P Germany Operating Co. (2,626)
- -----------------------------------------------------------------------
Bush 14-15 1 Germany Operating Co. (776)
- -----------------------------------------------------------------------
Butts J T 1 Germany Operating Co. 2,024
- -----------------------------------------------------------------------
Chadley 27-9 Germany Operating Co. 2,688
- -----------------------------------------------------------------------
Cunningham 16-7 Germany Operating Co. 8,274
- -----------------------------------------------------------------------
Gilmer 25-15 1 Germany Operating Co. 5,581
- -----------------------------------------------------------------------
Gravlee 13-12 Germany Operating Co. 5,757
- -----------------------------------------------------------------------
Grimsley A M 1 Germany Operating Co. 1,446
- -----------------------------------------------------------------------
Grimsley A M 2 Germany Operating Co. (4,457)
- -----------------------------------------------------------------------
Higgins Jimmy Germany Operating Co. 20,415
- -----------------------------------------------------------------------
Kelly 15-16 1 Germany Operating Co. 6,999
- -----------------------------------------------------------------------
McCaleb 26-9 Germany Operating Co. 36,660
- -----------------------------------------------------------------------
McDonald 36-1 C Germany Operating Co. 15,354
- -----------------------------------------------------------------------
McEvers 19-9 Germany Operating Co. 6,303
- -----------------------------------------------------------------------
Morrison 35-1 Germany Operating Co. (29,224)
- -----------------------------------------------------------------------
Morrison 36 4-1 Germany Operating Co. 13,108
- -----------------------------------------------------------------------
Murphy Randolph Germany Operating Co. 12,462
- -----------------------------------------------------------------------
Newman-Crowley 24-5 Germany Operating Co. (3,272)
- -----------------------------------------------------------------------
Norris N G 21-13 1 Germany Operating Co. (2,464)
- -----------------------------------------------------------------------
Smith L R 1 Germany Operating Co. 12,375
- -----------------------------------------------------------------------
Steiner-Schwab 17-5 Germany Operating Co. 15,691
- -----------------------------------------------------------------------
Steiner-Schwab 26-5 1 Germany Operating Co. 5,380
- -----------------------------------------------------------------------
Whitaker 25-15 Germany Operating Co. 1,866
- -----------------------------------------------------------------------
Whitley 5-12 Germany Operating Co. 16,460
- -----------------------------------------------------------------------
Neufeld 1-33 Germany Operating Co. (6,403)
- -----------------------------------------------------------------------
Ripple 1-12 Germany Operating Co. 36,666
- -----------------------------------------------------------------------
Cumulative Gas Status 62,212
======
- -----------------------------------------------------------------------
Schedule 7.23 - 2
<PAGE>
SCHEDULE 9.01
DEBT
See Schedule 7.22 and Schedule 7.23
------------- -------------
Schedule 9.01-1
<PAGE>
SCHEDULE 9.02
LIENS
NONE
Schedule 9.02 - 1
<PAGE>
SCHEDULE 9.03
INVESTMENTS, LOANS AND ADVANCES
NONE
Schedule 9.03 - 1
