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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) November 21, 1995
REUNION RESOURCES COMPANY
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(Exact name of registrant as specified in its charter)
DELAWARE
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(State or other jurisdiction of incorporation)
1-7726 76-0404108
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(Commission File Number) (IRS Employer Identification No.)
2801 Post Oak Boulevard, Suite 400, Houston, Texas 77056
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (713) 627-9277
Not Applicable
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(Former name of former address, if changed since last report)
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ITEM 5. OTHER EVENTS
On November 21, 1995, Reunion Resources Company ("Reunion") entered into a
Stock Purchase Agreement (the "Purchase Agreement") with Bargo Energy Company
("Bargo"), a Texas general partnership, pursuant to which Reunion agreed to sell
to Bargo 1,000 shares (the "Shares") of common stock, par value $1.00 per share,
of Reunion Energy Company ("REC"), a Delaware corporation and wholly-owned
subsidiary of Reunion, which Shares constitute all of the issued and outstanding
capital stock of REC, for consideration consisting of $15,100,000 in immediately
available funds. The purchase price is subject to reduction (if the amount of
the Effective Date Working Capital Balance (as defined) is negative) or increase
(if the amount of the Effective Date Working Capital Balance is positive) by the
amount of the Effective Date Working Capital Balance. If the parties are
unable to agree on the amount of the Effective Date Working Capital Balance, the
Purchase Agreement sets forth a mechanism imposing binding arbitration in
respect of this matter.
The closing of the transactions contemplated by the Purchase Agreement (the
"Closing"), which is subject to customary conditions (including, without
limitation, that the parties shall not disagree by more than $300,000 as to the
amount of the Effective Date Working Capital Balance), is scheduled for January
15, 1996. Substantially all of Reunion's oil and gas assets were owned through
REC, and upon the Closing, Reunion will have completed the transition to a
manufacturer of precision plastic products and provider of engineered plastics
services.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Acquired. Not applicable.
(b) Pro Forma Financial Information. Not applicable.
(c) Exhibits.
99 Stock Purchase Agreement by and between Reunion Resources Company and
Bargo Energy Company dated November 21, 1995.
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.
REUNION RESOURCES COMPANY
BY: /s/ RICHARD L. EVANS
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Richard L. Evans, Chief Financial Officer
and Executive Vice President
Date: November 29, 1995
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EXHIBIT INDEX
EXHIBIT 99- Stock Purchase Agreement by and between Reunion Resources
Company and Bargo Energy Company dated November 21, 1995*.
* [Schedules and Exhibits have been omitted in accordance with
Item 601(b)(2) of Regulation S-K. Reunion hereby agrees to
furnish supplementally to the Commission a copy of any omitted
schedule upon the Commission's request].
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STOCK PURCHASE AGREEMENT
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STOCK PURCHASE AGREEMENT, dated as of November 21, 1995 ("Agreement"), by
and between Bargo Energy Company, a Texas general partnership (the "Purchaser"),
and Reunion Resources Company, a Delaware corporation (the "Shareholder").
W I T N E S S E T H:
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WHEREAS, the Shareholder is the owner of 1,000 shares of the common stock,
par value $1 per share (the "Shares"), of Reunion Energy Company, a Delaware
corporation ("REC"), which represent all of the outstanding shares of capital
stock of all classes of REC; and
WHEREAS, the Purchaser desires to purchase the Shares from the Shareholder,
and the Shareholder desires to sell the Shares to the Purchaser, upon the terms
and conditions set forth herein; and
WHEREAS, REC is a corporation duly organized and validly existing under the
laws of the State of Delaware, with its registered office at 1209 Orange Street,
Wilmington, Delaware 19801, and with its principal executive offices at 2801
Post Oak Boulevard, Suite 400, Houston, Texas 77056; and
WHEREAS, Shareholder is a corporation duly organized and validly existing
under the laws of the State of Delaware, with its registered office at 1209
Orange Street, Wilmington, Delaware 19801, and with its principal executive
offices at 2801 Post Oak Boulevard, Suite 400, Houston, Texas 77056; and
WHEREAS, the Purchaser is a general partnership duly organized and validly
existing under the laws of the State of Texas, with its principal executive
offices at 700 Louisiana, Suite 4650, Houston, Texas 77002; and
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements, and subject to the terms and conditions, herein
contained, the parties hereto hereby agree as follows:
Article I
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Purchase and Sale of Shares
1.1. Sale and Purchase. the Shareholder hereby agrees to sell to the
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Purchaser on the Closing Date (as defined in Section 1.4 hereof) all of the
Shares and the Purchaser hereby agrees to purchase from the Shareholder and pay
for all of the Shares on the Closing Date.
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1.2. Delivery and Payment. On the Closing Date the Shareholder shall
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deliver to the Purchaser one or more certificates in good delivery form and duly
endorsed for transfer or accompanied by duly executed stock powers, evidencing
all of the Shares. In exchange, the Purchaser shall deliver to the Shareholder
the consideration set forth in Section 1.3 hereof (the "Purchase Price") in the
manner provided in Section 1.3; provided, however, that the Purchase Price shall
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be subject to adjustment as provided for in Section 6.1 hereof.
1.3. Consideration. On the Closing Date the Purchaser shall deliver
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consideration to the Shareholder in the form of $15,100,000 (less a down payment
of $500,000, for which separate provision is made in the Escrow Agreement of
even date herewith between and among Purchaser. Shareholder and Porter & Hedges
L.L.P., a copy of which is attached hereto as Exhibit A), as adjusted by the
Effective Date Working Capital Balance (defined in Section 2.2.7) in accordance
with Section 6.1.1 (the "Cash Consideration") by bank wire transfer in
immediately available funds upon the Shareholder's instructions, to a bank and
to an account thereat which the Shareholder shall have specified by written
notice to the Purchaser at least three business days prior to the Closing Date.
Notwithstanding the foregoing, the Purchase Price shall be subject to adjustment
as provided for in Section 6.1 hereof.
1.4. Closing Date. Consummation of the transactions contemplated by this
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Agreement shall take place on January 15, 1996 or on the earliest date
thereafter which is the third business day following the concurrence by both the
Purchaser and the Shareholder (which concurrence shall not be unreasonably
withheld by either party) that all of the conditions to closing, other than
delivery of the Shares and payment of the Purchase Price, have been satisfied or
waived (the "Closing Date"). The consummation shall be effected at the offices
of Porter & Hedges, L.L.P., NationsBank Center, 700 Louisiana, 35th Floor,
Houston, Texas 77002, or such other place as the parties hereto shall mutually
agree.
1.5. Effective Date. The effective date of the transactions contemplated
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by this Agreement shall be October 1, 1995 (the "Effective Date"), and for
federal income tax purposes the effective date (the "Tax Effective Date") shall
be the Closing Date.
ARTICLE II
Representations and Warranties of the
Purchaser and Shareholder
2.1. Representations and Warranties of the Purchaser. The Purchaser
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hereby represents and warrants as follows:
2.1.1. Organization and Standing. The Purchaser is a general
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partnership duly organized, validly existing and in good standing under the
laws of the State of Texas, has full requisite power and authority to carry
on its business as it is now being conducted and to own and operate the
properties now owned and operated by it, and is duly qualified or licensed
to do business and is in good standing and authorized to
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do business in all jurisdictions in which the character of the properties
owned or the nature of the business conducted by it make such qualification
or licensing necessary, except in such jurisdictions where the failure to
be so qualified or in good standing would not have a material adverse
effect on the business or financial condition of the Purchaser and its
subsidiaries, taken as a whole.
2.1.2. Agreement Authorized and Enforceable. The execution and delivery
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of this Agreement and all other agreements which are exhibits to this
Agreement (the "Related Agreements") have been authorized by the partners
of the Purchaser; the consummation of the transactions contemplated hereby
and thereby have been duly and validly authorized by all necessary
partnership action on the part of the Purchaser; and this Agreement and the
Related Agreements are valid and binding obligations of the Purchaser
enforceable (subject to normal equitable principles) against the Purchaser
in accordance with their terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, debtor relief, or similar laws
affecting the rights of creditors generally.
2.1.3. No Defaults. There is not existing any default, nor is there
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existing any event or circumstance which with notice or lapse of time would
give rise to a default on the Purchaser's part or on the part of the
Purchaser's subsidiaries under any obligation, lease, contract, plan, or
other arrangement, which default or defaults (in the aggregate) would have
a material adverse effect upon the business or financial condition of the
Purchaser and its subsidiaries considered as a whole.
2.1.4. Non-Interference. The execution, delivery and performance of
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this Agreement and the transactions contemplated hereby will not conflict
with or result in a violation or breach of any term or provision of, nor
constitute a default under (i) the partnership agreement of the Purchaser,
or (ii) except as disclosed on Schedule 2.1.4, any indenture, mortgage,
deed of trust, credit agreement or other contract or agreement of any
nature whatsoever to which the Purchaser is a party or by which it or its
properties are bound, other than such violations, breaches and defaults as
would not (x) result in any material adverse change in the financial
condition, properties or businesses of the Purchaser and its subsidiaries
taken as a whole or (y) materially interfere with the ability of the
parties to consummate the transactions contemplated hereby.
2.1.5. Investigations; Litigation. Except as disclosed on Schedule
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2.1.5. or as required pursuant to the Hart-Scott-Rodino Antitrust
Improvements Act of 1978 and the rules and regulations promulgated
thereunder (collectively, "HSR"), (i) no investigation or review by any
governmental entity with respect to the Purchaser of any of its
subsidiaries or any of the transactions contemplated by this Agreement is
pending or, to the best of the Purchaser's knowledge, threatened, nor has
any governmental entity indicated to the Purchaser or any of its
subsidiaries an intention to conduct the same, and (ii) there is no action,
suit or proceeding pending
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or, to the best of the Purchaser's knowledge, threatened against or
affecting the Purchaser or its subsidiaries at law or in equity, or before
any federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality, which, in the case of each of (i)
and (ii) above, either individually or in the aggregate, does or is likely
to result in any material adverse change in the financial condition,
properties or businesses of the Purchaser and its subsidiaries taken as a
whole.
2.1.6. Finder's and Similar Fees. All negotiations relative to this
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Agreement and the transactions contemplated hereby have been carried on by
the Purchaser or its counsel, directly with the Shareholder, REC or their
counsel, without the intervention of any other person as the result of any
act of the Purchaser and, so far as is known to the Purchaser, without the
intervention of any other person in such manner as to give rise to any
valid claim against any of the parties hereto for a brokerage commission,
finder's or financial advisory fee, or any similar payment except for
financial advisory fees to be paid to Petrie Parkman & Co. by the
Shareholder.
2.1.7. Investment Suitability and Investment Representations. The
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Purchaser acknowledges and agrees that (i) it is knowledgeable in
operations of the type conducted by REC, (ii) Shareholder has made
available to it extensive legal, financial, accounting and other business
records of REC for examination by it, (iii) Shareholder has made REC's
principal executive and operating personnel available for consultation with
the Purchaser's designated representatives, (iv) through its counsel, the
employees of the Purchaser, and other duly authorized representatives, it
has made an extensive investigation of REC's consolidated assets and
liabilities, business and financial affairs, and operations, (v) it is
aware of the risks associated with ownership of equity securities of REC,
(vi) it is capable of bearing the financial risks associated with such
ownership (vii) while recognizing that it cannot efficaciously waive the
protections afforded to it under the Securities Act of 1933 ("33 Act") and
the Securities Exchange Act of 1934 ("34 Act") (collectively, the
"Securities Acts"), it regards itself as an entity of such financial
capacity, sophistication and prudence that it does not require the
protections afforded to it by the Securities Acts and is relying solely
upon its own investigation of REC in making its decision to purchase the
Shares, and (viii) the Shares are being acquired by the Purchaser for the
account of the Purchaser for investment and not with a view to the
distribution thereof within the meaning of the 33 Act.
2.2. Representations and Warranties of the Shareholder. The Shareholder
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represents, warrants, and agrees as follows:
2.2.1. Title to the Shares. The Shareholder has valid and marketable
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title to the Shares, free and clear of any security interest, mortgage,
pledge, claim, lien, charge, option, defect, encumbrance or other right or
interest of any other person
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(collectively, an "Encumbrance"), and has the absolute and unrestricted
right, power, authority and capacity to sell and transfer the Shares to the
Purchaser in the manner provided herein, free and clear of any Encumbrance.
2.2.2. Voting Arrangements. None of the Shares is subject to any voting
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trust, voting agreement or other agreement or understanding with respect to
the voting thereof, nor is any proxy in existence with respect to any of
the Shares.
2.2.3. Organization and Standing. REC is a corporation duly organized,
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validly existing, and in good standing under the laws of the State of
Delaware, has full requisite corporate power and authority to carry on its
business as it is now being conducted and to own and operate the properties
now owned and operated by it, and is duly qualified or licensed to do
business and is in good standing as a foreign corporation authorized to do
business in all jurisdictions in which the character of the properties
owned or the nature of the business conducted by it makes such
qualification or licensing necessary, except in such jurisdictions where
the failure to be so qualified or in good standing would not have a
material adverse effect on the business or financial condition of REC and
Subsidiary (as hereinafter defined), taken as a whole.
2.2.4. Capitalization. The authorized capital stock of REC consists of
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1,000 shares of Common Stock, par value $1 per share, all of which are
issued and outstanding and held by the Shareholder. REC does not have
outstanding any subscription, option, warrant, call or similar commitment
(to purchase, issue or sell) any shares of its capital stock, and there is
not outstanding any agreement of REC to issue or sell any shares of its
capital stock or any securities or obligations convertible into its capital
stock. The Shares have been duly authorized and validly issued and are
fully paid and nonassessable and were not issued in violation of the
preemptive rights of any person.
2.2.5. Subsidiaries. Schedule 2.2.5 identifies REC's sole subsidiary
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corporation (the "Subsidiary") showing the percentage of the total
outstanding stock thereof which is directly or indirectly owned by REC.
All outstanding shares of stock of the Subsidiary owned by REC are duly
authorized, validly issued, fully paid and nonassessable, were not issued
in violation of the preemptive rights of any person, and REC has valid and
marketable title thereto free and clear of any Encumbrance. The Subsidiary
is a corporation duly organized, validly existing, and in good standing
under the laws of Delaware and has full requisite corporate power and
authority to own its property and carry on its business as it is now being
conducted and is duly qualified or licensed to do business and is in good
standing as a foreign corporation authorized to do business in all
jurisdictions in which the character of the properties owned or the nature
of the business conducted by it makes such qualification or licensing
necessary, except in such jurisdictions where the failure to be so
qualified or in good standing would not have a material adverse effect on
the business or financial
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condition of REC and Subsidiary, taken as a whole. There exist no
outstanding options, subscriptions, warrants, calls, or similar commitments
(to purchase, issue or sell) or to convert any securities or obligations
into, any of the authorized or issued stock of Subsidiary or any securities
or obligations convertible into such capital stock.
2.2.6. Assets and Title to Assets. The Purchaser and the Shareholder
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acknowledge that the Purchaser is purchasing the Shares for the purpose,
among other things, of indirectly acquiring as of the Effective Date the
following assets of REC and Subsidiary:
2.2.6.1. Properties. All those oil, gas and mineral properties
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described on Schedule 2.2.6.1 (the "Properties"), each of which
Properties is listed with its Allocated Value (as hereinafter
defined).
2.2.6.2. Investments. (i) 100% of the outstanding capital stock of
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the Subsidiary.
2.2.6.3. Other Assets. (i) The prospect inventory described on
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Schedule 2.2.6.3(A); (ii) the financial assets, subject to the
financial liabilities, each as referred to in Section 2.2.7; and (iii)
all other assets of REC owned on the date hereof, except for (a) the
outstanding capital stock of Reunion Transition Corp., a Delaware
corporation ("RTC"), and (b) any assets listed on Schedule 2.2.6.3(B)
("Excluded Assets") transferred to RTC after the Effective Date.
2.2.6.4. Definition of Marketable Title. The Shareholder
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represents and warrants that each of REC and Subsidiary (each of which
is referred to for purposes of Section 2.2.6 only as an "Owner") has,
or will have at the Closing Date, "Marketable Title" to the
Properties. The term "Marketable Title" shall mean, as to each
Property, such title that:
(i) is deducible of record (either from the records of the
applicable county and/or, in the case of federal leases, from
the records of the applicable office of the Bureau of Land
Management, in the case of Indian leases, from the applicable
office of the Bureau of Indian Affairs, and in the case of
state leases from the records of the applicable state land
office) and free from reasonable doubt to the end that a
prudent person engaged in the business of the ownership,
development and
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operation of producing oil and gas properties with knowledge
of all of the facts and their legal bearing would be willing
to accept the same; and
(ii) entitles Owner to receive not less than the interest
set forth in Schedule 2.2.6.1 under the caption "Net Revenue
Interest" or "NRI" (hereinafter called the "Net Revenue
Interest") with respect to such Property; and
(iii) obligates Owner to pay costs and expenses relating to
such Property in an amount not greater than the interest set
forth under the caption "Working Interest" or "WI" in Schedule
2.2.6.1 (hereinafter called the "Working Interest") with
respect to such Property; and
(iv) except for Permitted Encumbrances (as hereinafter
defined), is free and clear of all Encumbrances.
2.2.6.5. Representations Regarding Properties. Subject to
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Permitted Encumbrances, the Shareholder represents and warrants to the
Purchaser, its successors and assigns, that Owner's Working Interest
and Net Revenue Interest in each Property as set forth in Schedule
2.2.6.1, directly or indirectly through the Subsidiary, shall be at
the Closing Date free of any Encumbrances (except Permitted
Encumbrances) and all Title Defects (as hereinafter defined) caused or
arising by, through or under Owner, but not otherwise. The term
"Permitted Encumbrances" shall mean:
(i) lessors' royalties, overriding royalties, reversionary
interests and similar burdens if the net cumulative effect of
such burden does not reduce the net revenue interest of Owner
below the Net Revenue Interest for such Property (or any well
located thereon) as set forth in Schedule 2.2.6.1;
(ii) division orders and sales contracts terminable without
penalty upon no
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more than 90 days' notice, any division orders and sales
contracts of longer duration which are not material in
relation to the Properties, and division orders and sales
contracts of longer duration which are identified in Schedule
2.2.6.5;
(iii) preferential rights to purchase and required third
party consents to assignments and similar agreement with
respect to which waivers or consents in connection with the
transactions contemplated by this Agreement are required and
obtained from the appropriate parties or the appropriate time
period for asserting such rights has expired without an
exercise of the rights;
(iv) liens for taxes or assessments not yet delinquent or,
if delinquent, that are being contested in good faith in the
normal course of business;
(v) mechanic's, materialman's, repairman's, employee's,
contractor's, operator's, and other similar liens or charges
arising in the ordinary course of business (a) if they have
not been perfected pursuant to law, (b) if perfected, they
have not yet become due and payable or payment is being
withheld as provided by law, or (c) if their validity is being
contested in good faith by appropriate action;
(vi) all rights to consent by, required notices to, filings
with, or other actions by governmental entities in connection
with the sale or conveyance of oil and gas leases or interests
if they are customarily obtained subsequent to the sale or
conveyance;
(vii) conventional rights of reassignment requiring notice
to the holders of such rights;
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(viii) easements, rights-of-way, servitudes, permits,
surface lease and other rights relating to surface operations
which do not have a material adverse effect on the operations
of any of the Properties;
(ix) all other liens, charges, encumbrances, operating
agreements, unitization agreements, pooling agreements,
declarations of pooling or unitization, farmout agreements,
assignments, gas sales contracts, gas purchasing contracts and
other contracts, agreements, instruments, obligations, defects
and irregularities affecting any of the Properties which
individually or in the aggregate (a) are not such as to
interfere materially with the operation, value or use of any
of the Properties; (b) do not prevent Owner from receiving the
proceeds of production from any property comprising any of the
Properties; (c) do not reduce the interest of Owner with
respect to all oil and gas produced from any of the Properties
(or a well located thereon) below the Net Revenue Interest,
and (d) do not increase the share of expense for any of the
Properties (or a well located thereon) that Owner is obligated
to pay above the Working Interest set forth in Schedule
2.2.6.1 for such Property;
(x) all rights reserved to or vested in any governmental,
statutory or public authority to control or regulate any of
such properties in any manner, and all applicable laws, rules
and orders of governmental authority;
(xi) any Title Defects that the Purchaser may have expressly
waived in writing or which are disclosed on Schedule 2.2.6.1;
and
(xii) the production imbalances and gas sales contracts
listed in Schedule 2.2.6.5.
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As used herein, the term "Title Defect" means any matter arising
out of any action, occurrence, event or omission and which would cause
title to any Property (or any portion thereof) not to be Marketable
Title.
2.2.6.6. Representations Respecting Investments. The Shareholder
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represents and warrants that REC owns or will own on the Closing Date
all the outstanding capital stock of the Subsidiary free and clear of
any Encumbrance except as disclosed on Schedule 2.2.6.6.
2.2.6.7. Representations Respecting Other Assets. The Owners
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have satisfactory title to the assets referred to in Section 2.2.6.3
(collectively, the "Other Assets"), to the extent necessary to carry
on their businesses, free and clear of any Encumbrances except such as
do not (i) interfere with the use made and proposed to be made of the
Other Assets by the Owners and (ii) materially affect the value of the
assets of the Owners considered as a whole, and, with minor exception,
all production equipment and fixtures included in the Other Assets are
in good operating condition, normal wear and tear excepted. Except as
set forth in this Section 2.2.6.7, the Shareholder makes no
representations or warranties respecting title to or the condition of
the Other Assets.
2.2.7. Effective Date Working Capital Balance. As used herein, the term
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"Effective Date Working Capital Balance" shall mean the balance derived by
subtracting from (x) the aggregate book carrying value of all consolidated
current assets of REC and Subsidiary at September 30, 1995, (y) the sum of
all consolidated current liabilities of REC and Subsidiary at the same
date, each as set forth on the Effective Date Balance Sheet (as defined in
Section 6.1.1.1), subject only to the following modifications:
(i) current liabilities shall include the unpaid principal amount of all
consolidated long-term debt of REC and Subsidiary outstanding at September
30, 1995 and thereafter incurred to refinance such indebtedness; and
(ii) current liabilities shall be reduced by the amount of cash
contributed by the Shareholder to REC's capital between the Effective Date
and the Closing Date; such cash would be contributed for the liquidation of
REC liabilities.
The Shareholder represents that the Effective Date Working Capital Balance
at September 30, 1995 calculated as set forth above is or will be as set
forth in the
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Effective Date Balance Statement and the Effective Date Balance Sheet is
accurate in all material respects.
2.2.8. Liabilities. All liabilities of REC and Subsidiary which existed
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on September 30, 1995 and which under generally accepted accounting
principles would be required to appear on the consolidated balance sheet of
REC and its subsidiaries have been properly accrued and (except for
deferred lease obligations and "Excluded Liabilities" reflected on Schedule
2.2.8, for which appropriate adjustment has been made in determining the
Purchase Price) are reflected in the computation of the Effective Date
Working Capital Balance calculated in accordance with Section 2.2.7.
2.2.9. Investigations; Litigation. Except as disclosed in Schedule 2.2.9
--------------------------
or pursuant to HSR, (i) no investigation or review by any governmental
entity with respect to REC or Subsidiary or any of the transactions
contemplated by this Agreement is pending or, to the best of REC's
knowledge, threatened, nor has any governmental entity indicated to REC or
Subsidiary an intention to conduct the same, and (ii) there is no action,
suit or proceeding pending or, to the best of Shareholder's knowledge,
threatened against or affecting REC or Subsidiary at law or in equity, or
before any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, which, in the case of
each of (i) and (ii) above, either individually or in the aggregate, does
or is likely to result in any material adverse change in the financial
condition, properties or businesses of REC and Subsidiary taken as a whole.
2.2.10. Guarantees and Contingent Obligations. Except as disclosed on
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Schedule 2.2.10, each of REC and Subsidiary will not be on the Closing Date
a guarantor, surety, co-maker or other obligor on the debt or liabilities
of any person.
2.2.11. No Defaults. There is not existing any default, nor is there
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existing any event or circumstance which with notice or lapse of time would
give rise to a default on REC's part or on the part of Subsidiary under any
obligation, lease, contract, plan, or other arrangement, which default or
defaults (in the aggregate) would have a material adverse effect upon the
business or financial condition of REC and Subsidiary considered as a
whole.
2.2.12. Absence of Certain Changes and Events. Other than as a result
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of (i) the transfer by REC of the outstanding capital stock of RTC to the
Shareholder, and the transfers of assets between REC and RTC, each only to
the extent consistent with the representations and warranties in Sections
2.2.6.4 through 2.2.6.7 (collectively, the "Recapitalization"), (ii) events
or conditions which are of a general or industry-wide nature, or (iii)
events or conditions pertaining to REC and Subsidiary which have been
disclosed prior to the Closing Date in writing by the Shareholder to, and
waived in writing by, the Purchaser, since September 30, 1995 there has not
been:
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2.2.12.1. Property Damage. Any damage, destruction, or loss to
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the business or properties of REC or Subsidiary (whether or not
covered by insurance) materially and adversely affecting the business
or properties of REC and Subsidiary taken as a whole;
2.2.12.2. Dividends. Any declaration, setting aside, or payment
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of any dividend or other distribution in respect to the capital stock
of REC or Subsidiary, or any direct or indirect redemption, repurchase
or any other acquisition of any such stock by REC or the Subsidiary;
2.2.12.3. Capitalization Change. Any change in the number of
---------------------
shares or classes of the capital stock of REC or Subsidiary or in the
number of shares of the capital stock reserved for issuance; or
2.2.12.4. Other Material Changes. Any other event or condition
----------------------
known to the Shareholder particularly pertaining to and materially and
adversely affecting the financial condition, operations, assets, or
business of REC and Subsidiary considered as a whole.
2.2.13. No Affiliate Farmouts. Neither REC nor Subsidiary is a party to
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any farmout, farmin or similar agreement with Shareholder or any of its
other affiliates (except for any such agreements entered into on or before
September 30, 1995 and previously disclosed in writing to Purchaser), nor
does REC or Subsidiary have any understandings or arrangements to similar
effect.
2.2.14. Compliance With Law.
-------------------
2.2.14.1. Hazardous Wastes and Substances. Except as set forth in
-------------------------------
Schedule 2.2.14.1 and except for violations, defaults or delinquencies
which in the aggregate do not and are not reasonably expected to
result in costs or expenses to REC and Subsidiary in excess of the
liability accrued therefor on the Effective Date Balance Sheet (as
defined in Section 6.1.1.1), plus $150,000, (i) REC's and Subsidiary's
operations and use of the Properties do not violate any applicable
federal, state or local law, statute, ordinance, rule, regulation,
order or notice requirement pertaining to the storage, treatment,
discharge, release or disposal of hazardous wastes or hazardous
substances, including without limitation (a) the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 (42
U.S.C. (S)(S)9601 et seq.) as amended from time to time ("CERCLA")
(including, without limitation, as amended pursuant to the Superfund
Amendments and Reauthorization Act of 1986 and
12
<PAGE>
otherwise), and such regulations promulgated under CERCLA as amended
from time to time, (b) the Resource Conservation and Recovery Act of
1976 (42 U.S.C. (S)(S)6901 et seq.), as amended from time to time
("RCRA"), and such regulations promulgated under RCRA as amended from
time to time, (c) the Federal Water Pollution Control Act (33 U.S.C.A.
(S)(S)1251 et seq.), as amended and such regulations promulgated under
its authority and (d) any applicable state laws or regulations
relating to the environment (such federal, state and local laws,
statutes, ordinances, rules, regulations, orders and notice
requirements are hereinafter collectively referred to as the
"Applicable Environmental Laws"); (ii) neither REC nor Subsidiary have
conducted their respective operations or used their respective assets
in such a manner as to constitute a violation of any of the Applicable
Environmental Laws; and (iii) no notice has been served on REC or
Subsidiary from any entity, governmental agency or individual
regarding any existing, pending or threatened investigation or inquiry
related to violations under any Applicable Environmental Laws or
regarding any claims for remedial obligations or contribution for
removal costs or damages under any Applicable Environmental Laws.
Except as set forth in Schedule 2.2.14.1, Shareholder does not know of
any reason REC or Subsidiary would be required to obtain permits,
licenses or similar authorization pursuant to any Applicable
Environmental Laws in effect as of the date of this Agreement in order
to operate and use any of their respective assets for their current
purposes and uses.
2.2.14.2. Other Laws. Except as set forth in Schedule 2.2.14.2,
----------
neither REC nor Subsidiary is in violation of or default with respect
to, nor has any of them been notified of any alleged violation of or
alleged default with respect to, any applicable federal, state, local,
or foreign statutes, rules, regulations, orders, ordinances, codes,
licenses, franchises, permits, authorizations and concessions, or any
writ or decree of any court or any governmental commission, board,
bureau, agency, or instrumentality nor is REC or Subsidiary delinquent
with respect to any report required to be filed with any governmental
commission, board, bureau, agency, or instrumentality, except for any
violations, defaults or delinquencies which in the aggregate do not
and are not reasonably expected to have a material adverse effect upon
the financial condition, properties or businesses of REC and
Subsidiary taken as a whole. Each of REC and Subsidiary has all
material licenses, franchises, permits, authorizations and concessions
legally required to enable it to carry on its business as currently
carried on. Such licenses, franchises, permits, authorizations and
concessions are all in full force and effect.
13
<PAGE>
2.2.15. Agreement Authorized and Enforceable. The execution and delivery
------------------------------------
of this Agreement and the Related Agreements have been authorized by the
board of directors of the Shareholder and the requisite majority of its
stockholders; the consummation of the transactions contemplated hereby and
thereby have been duly and validly authorized by all necessary corporate
action on the part of the Shareholder; and this Agreement and the Related
Agreements are valid and binding obligations of the Shareholder enforceable
(subject to normal equitable principles) against the Shareholder in
accordance with their terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, debtor relief, or similar laws
affecting the rights of creditors generally.
2.2.16. Finder's and Similar Fees. All negotiations relative to this
-------------------------
Agreement and the transactions contemplated hereby have been carried on by
REC, the Shareholder or their counsel, directly with the Purchaser or its
counsel, without the intervention of any other person as the result of any
act of REC or the Shareholder in such manner as to give rise to any valid
claim against any of the parties hereto for a brokerage commission,
finder's or financial advisory fee, or any similar payment, except for
financial advisory fees to be paid to Petrie Parkman & Co. by the
Shareholder.
2.2.17. Reorganization Proceedings. The execution, delivery and
--------------------------
performance of this Agreement and the transactions contemplated hereby will
not conflict with the confirmed plan of reorganization approved by the
court in the Chapter 11 proceedings styled In Re: Buttes Gas & Oil Co., et
-------------------------------
al, Debtors, pending in the United States Bankruptcy Court for the Southern
-----------
District of Texas, Houston Division, jointly administered under Case No.
85-07494-H3-11 (the "Proceeding"), and no consent, order or approval of the
court in such Proceeding is required in connection with the execution,
delivery or performance of this Agreement or any transactions contemplated
hereby.
2.2.18. Non-Interference. The execution, delivery and performance of
----------------
this Agreement and the transactions contemplated hereby will not conflict
with or result in a violation or breach of any term or provision of, nor
constitute a default under (i) the certificate of incorporation or bylaws
of the Shareholder or REC, or (ii) except as disclosed on Schedule 2.2.18,
any indenture, mortgage, deed of trust, credit agreement or other contract
or agreement of any nature whatsoever to which the Shareholder or REC or
Subsidiary is a party or by which either of them or their properties are
bound other than such violations, breaches and defaults as would not (x)
result in any material adverse change in the financial condition,
properties or businesses of REC and Subsidiary taken as a whole or (y)
materially interfere with the ability of the parties to consummate the
transactions contemplated hereby.
2.2.19. Insurance. REC and Subsidiary have in effect insurance coverage
---------
with reputable insurers, which in respect of amounts, types and risks
insured, is that
14
<PAGE>
which is usual and customary in the oil and gas industry for prudent owners
and operators of properties similar to the Properties.
2.2.20. Investment Company Act. REC 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.
2.2.21. Public Utility Holding Company Act. REC is not a "holding
----------------------------------
company," or a "subsidiary company" of a "holding company," or an
"affiliate" of a "holding company" or a "subsidiary company" of a "holding
company," as such terms are defined in the Public Utility Holding Company
Act of 1935, as amended.
2.2.22. Compliance with ERISA.
---------------------
2.2.22.1. Prohibited Transactions. REC has not engaged in a
-----------------------
transaction in connection with which REC could be subject to (either
directly or indirectly) a material liability for either a civil
penalty assessed pursuant to Section 502(i) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA") or a tax imposed by
Section 4975 of the Internal Revenue Code of 1986, as amended (the
"Code").
2.2.22.2. Plan Termination; Material Liabilities. There has been
--------------------------------------
no termination of an "employee benefit plan" as defined in ERISA
("Plan") or trust created under any Plan that would give rise to a
material liability to the Pension Benefit Guaranty Corporation
("PBGC") on the part of REC or Subsidiary. No material liability to
the PBGC has been or is expected to be incurred with respect to any
Plan. The PBGC has not instituted proceedings to terminate any Plan.
There exists no condition or set of circumstances which presents a
material risk of termination or partial termination of any Plan by the
PBGC.
2.2.22.3. Accumulated Funding Deficiency. Full payment has been
------------------------------
made of all amounts which are required under the terms of each Plan to
have been paid as contributions to such Plan as of September 30, 1995,
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.
2.2.22.4. Relationship of Benefits to Pension Plan Assets. The
-----------------------------------------------
current value of all accrued benefits under all Plans does not exceed
the current value of the assets of such Plans allocable to such
accrued benefits. For purposes of the representation in this Section
15
<PAGE>
2.2.22.4, the term "current value" has the meaning specified in
Section 4052(b)(1)(A) of ERISA and the term "accrued benefit" has the
meaning specified in Section 3 of ERISA.
2.2.22.5. Execution of Agreements. The execution and delivery of
-----------------------
this Agreement and the consummation of the transactions contemplated
by this Agreement will not involve any transaction which is subject to
the prohibitions of Section 406 of ERISA or in connection with which a
tax could be imposed pursuant to Section 4975 of the Code.
2.2.22.6. Multiemployer Plans. Neither REC nor Subsidiary
-------------------
contributes to nor has an obligation to contribute to a Multiemployer
Plan, as such term is defined in ERISA.
2.2.22.7. Fiduciary Liability. There have been no acts, failures
-------------------
to act, omissions or transactions involving a Plan or the assets
thereof which could result in imposition on REC or Subsidiary (whether
direct or indirect) of damages or liability in actions brought under
Section 502 of ERISA.
2.2.23. Oil and Gas Reserves. The Shareholder and/or REC has
--------------------
furnished the Purchaser estimates of REC's proved oil and gas reserves as
of October 1, 1995 in reports as described in Schedule 2.2.23
(collectively, "Reserve Reports"). In the opinion of management of the
Shareholder and REC, the information contained in the Reserve Reports
regarding the Properties was reasonable at such date and did not contain
untrue statements of fact or omit to state facts which if completely and
accurately stated would have had a net effect upon the estimated net
recoverable quantities of oil and gas reflected in the Reserve Reports
sufficient to materially and adversely affect the assets of REC and
Subsidiary taken as a whole as of that date.
2.2.24. Contracts. Except for matters disclosed in Schedule 2.2.24 and
---------
matters expressly permitted by this Agreement, neither REC nor Subsidiary
is a party to or bound by any (i) employment contract (including without
limitation any collective bargaining contract or union agreement); (ii)
bonus, stock option, deferred compensation or profit-sharing, pension or
retirement incentive, royalty override plan or similar arrangements which
cannot be terminated as of the Effective Date, without further liability on
the part of REC or Subsidiary; (iii) material leases (other than the lease
for office space at 14367 Pass Road, Live Oak, California 95953) or license
with respect to any property, real or personal, whether as landlord,
tenant, licensor or licensee other than leases with respect to the
Properties; (iv) (other than as permitted by Section 3.1.4(ix) hereof)
contract or commitment at the date of this Agreement for capital
expenditures in excess of $50,000 for any one project; (v) material
contract or commitment made in the ordinary course of business for the
purchase of materials or
16
<PAGE>
supplies or for the performance of services over a period of more than 60
days from the date of this Agreement; (vi) contract or option to purchase
or sell any real or personal property otherwise than in the ordinary course
of business; (vii) indenture, mortgage, note, debenture, guaranty, security
agreement or other debt instrument or agreement under which REC or
Subsidiary has a liability in excess of $50,000 except for such as are
satisfied and discharged in their entirety on or before the Closing Date;
(viii) consulting or other similar contracts other than in the ordinary
course of business; (ix) contract, agreement, or commitment with any
affiliate of REC, other than those entered into for fair value and being
performed in the ordinary course of business and containing terms and
conditions as might reasonably be expected to be contained therein had the
parties thereto negotiated at arm's length; (x) contracts, agreements or
commitments relating to ownership and operation of the Properties; or (xi)
material contract, other than the foregoing, not made in the ordinary
course of business. Complete and correct copies of all contracts,
commitments, leases, agreements and other documents described in Schedule
2.2.24 have been delivered to or made available to the Purchaser.
2.2.25. Representations, Warranties and Covenants Regarding Taxes. The
---------------------------------------------------------
Shareholder represents, warrants, and covenants as follows:
(i) Shareholder is the common parent (the "Common Parent") (as that
term is used in Section 1504(a) of the Code) of an "affiliated group"
of corporations (as defined in Section 1504(a) of the Code), which
includes REC and the Shareholder. Such "affiliated group" of
corporations is referred to herein as the "Reunion Group." The Reunion
Group without REC and Subsidiary is sometimes referred to herein as
the "Reunion Selling Group."
(ii) All required United States federal, state, county, municipal,
foreign and other tax returns, reports and estimates have been filed
with the appropriate governmental agencies by REC, Subsidiary or any
affiliated group of which REC or Subsidiary was a member, for each
period for which any such returns, reports of estimates were due. All
taxes shown by such returns to be payable have been paid, including
all tax assessments and/or levies imposed upon REC or Subsidiary or
their property. No waivers of any statute of limitations have been
given with respect to REC or Subsidiary with respect to any federal or
state income or other taxes for any period. Except as disclosed on
Schedule 2.2.25, no audit of any federal, state, county, municipal,
foreign or other return of REC, Subsidiary or any affiliated group of
which REC or Subsidiary was a member, is presently in process nor has
an appointment for or notice of any such audit been requested or given
by any taxing authority. No issue or issues, singly or collectively,
have been raised (and are currently
17
<PAGE>
pending or unsettled) by any taxing authority in connection with any
returns and reports referred to in this Section 2.2.25 which might, if
determined adversely to REC or Subsidiary, have a material adverse
effect on the business, condition (financial or otherwise),
properties, assets or results of operations of REC or Subsidiary.
There are (a) no notices of deficiency as provide for in Section 6212
of the Code or 30-day letters as that term is generally used by the
Internal Revenue Service which have been received by the Shareholder,
REC or Subsidiary, which notices or letters contain issues involving
the operations or activities of REC or Subsidiary which have not been
resolved, and (b) no matters which have arisen during the course of
any examination or audit by the Internal Revenue Service which would
lead the Shareholder to believe that REC or Subsidiary may be the
subject of any such notice of deficiency or 30-day letter. Except as
disclosed on Schedule 2.2.25, the Shareholder (x) has not received
from any foreign, state or local taxing jurisdiction any notice
substantially similar in function to those described in clause (a) of
the preceding sentence and (y) has no knowledge of any matter or issue
substantially similar to that described in clause (b) of the preceding
sentence with respect to any foreign, state or local tax matter. The
Shareholder will thereafter give notice to the Purchaser promptly
after receipt of any of the foregoing subsequent to the Tax Effective
Date. Proper and accurate amounts have been withheld by REC from its
employees and paid over to appropriate governmental authorities for
all periods in full and complete compliance with the tax withholding
provisions of applicable federal and state laws; proper and accurate
federal and state returns have been filed by REC for all periods for
which returns were due with respect to income tax withholding, social
security, unemployment and any other trust fund or employer taxes, and
the amounts shown on such returns to be due and payable have been paid
in full or adequate provision therefor has been made.
2.2.26. Acquisition Proposals. None of Shareholder, REC or Subsidiary
---------------------
(nor any of their respective officers, directors, affiliates,
representatives or agents) will directly or indirectly, (i) solicit,
initiate or encourage any inquiries or Acquisition Proposals at any time
prior to termination of this Agreement pursuant to Article V hereof from
any person or (ii) participate in any discussions or negotiations
regarding, furnish to any person other than the Purchaser or its
representatives any information with respect to or otherwise assist,
facilitate or encourage any Acquisition Proposal by any other person. As
used herein "Acquisition Proposal" means any proposal for a merger,
consolidation or other business combination involving REC or Subsidiary or
for the acquisition or purchase of any equity interest in, or a material
portion of the assets of REC or Subsidiary, other than the transactions
with the Purchaser contemplated by this Agreement. Shareholder shall
promptly communicate to the
18
<PAGE>
Purchaser the terms of any written Acquisition Proposal which it may
receive or any written inquiries made with respect to REC, Subsidiary or
their respective assets.
ARTICLE III
-----------
Obligations of the Purchaser and the
Shareholder Pending Closing Date
3.1. Agreements of the Shareholder. The Shareholder agrees that from the
-----------------------------
Effective Date to the Closing Date:
3.1.1. Ownership of REC's Stock. The Shareholder will remain the record
------------------------
and beneficial owner of the Shares; the Shareholder will not suffer any
Encumbrance to be created or exist upon, any of the Shares.
3.1.2. Voting Arrangements. The Shareholder will not subject any of the
-------------------
Shares to, or suffer to be created or exist with respect to the Shares, any
voting trust, proxy, voting agreement or other understanding or arrangement
with respect to the voting thereof.
3.1.3. Notice of Adverse Change. The Shareholder will promptly advise
------------------------
the Purchaser in writing of any event, happening, occurrence or change
affecting REC, Subsidiary or the Shares that would or might reasonably be
expected to adversely affect the consummation of the transactions
contemplated by this Agreement.
3.1.4. Agreements of Shareholder Respecting REC Pending Closing Date.
-------------------------------------------------------------
Except as affected by the Recapitalization, the Shareholder agrees that
from the date hereof to the Closing Date, it will cause REC and the
Subsidiary to do the following:
(i) Maintenance of Present Business. Other than as contemplated by
-------------------------------
this Agreement, REC and Subsidiary shall operate their respective
businesses in substantially the manner heretofore conducted so as to
maintain the goodwill they now enjoy and, to the extent consistent with
such operation, use all reasonable efforts to preserve intact their present
business organization, and preserve their relationships with customers and
others having business dealings with them.
(ii) Maintenance of Properties. REC and Subsidiary shall maintain
-------------------------
all of their respective properties and other assets in customary repair,
order and condition, normal wear and tear excepted.
19
<PAGE>
(iii) Maintenance of Books and Records. REC and Subsidiary shall
--------------------------------
maintain their respective books of account and records in the usual,
regular and ordinary manner in accordance with generally accepted
accounting principles applied on a consistent basis.
(iv) Compliance With Law. REC and Subsidiary shall duly comply in all
-------------------
material respects with all laws applicable to them and to the conduct of
their businesses.
(v) Disposal of Assets. Neither REC nor Subsidiary shall sell, exchange,
------------------
dispose of, or encumber, any property or assets, except (a) in the usual
and ordinary course of business; or (b) as may be approved in writing by
the Purchaser.
(vi) Inspection of REC by the Purchaser. Shareholder shall grant to the
----------------------------------
Purchaser, and its officers and authorized representatives, the continuing
right, during normal business hours, to inspect REC's records (including,
without limitation, all records relating to the condition of title to the
Properties and any obligations and commitments with respect thereto, which
Purchaser may copy at its expense for further examination of the condition
of title) and properties and to consult with REC's officers, employees,
attorneys and agents in order that the Purchaser may have full opportunity
to make such reasonable investigation as it shall desire of the affairs of
REC and Subsidiary and for the purpose of determining the accuracy of the
representations and warranties hereinabove made and the compliance with
covenants contained in this Agreement; and REC's officers, employees,
attorneys and agents will furnish the Purchaser with such additional
financial and operating data and other information as to the business and
properties of REC and Subsidiary as the Purchaser shall from time to time
reasonably request.
(vii) Prohibition of Certain Employment Contracts. Except in
-------------------------------------------
accordance with Section 3.1.6, neither REC nor Subsidiary shall enter into
any contracts of employment which cannot be terminated on notice of 30 days
or less or which provide for any severance payments or benefits which
exceed $5,000 in aggregate value or which cover a period beyond the Closing
Date.
(viii) Prohibition of Certain Loans. Neither REC nor Subsidiary shall
----------------------------
borrow or create any indebtedness for any purpose without the Purchaser's
prior written consent (unless such indebtedness shall be paid in full on or
before the Closing Date) except (a) the prepayment by customers or working
interest owners of amounts due or to become due for goods to be delivered
or services to be rendered in the future, (b) trade payables incurred in
the ordinary course of business, (c) indebtedness incurred to refinance
20
<PAGE>
indebtedness existing at September 30, 1995, (d) indebtedness to
Shareholder incurred prior to the date hereof, or thereafter in compliance
with Section 3.1.4(ix), for the purpose of conducting drilling operations
on Properties, and (e) as is otherwise consented to in writing by the
Purchaser.
(ix) Prohibition of Certain Commitments. Neither REC nor the Subsidiary
----------------------------------
shall enter into commitments of a capital expenditure nature for amounts
over $25,000, except (i) as set forth in Schedule 3.1.4 or (ii) as approved
in writing by the Purchaser (which written approval shall be deemed to have
been obtained as to any requested authorization for expenditure which is
not rejected in writing by the Purchaser within three business days of
actual receipt by the Purchaser).
(x) Maintenance of Insurance. REC and Subsidiary shall maintain all
------------------------
insurance policies presently carried by them, which insurance may be added
to from time to time in REC's reasonable discretion.
(xi) No Amendment to Certificate of Incorporation. Except as previously
--------------------------------------------
approved in writing by the Purchaser, neither REC nor Subsidiary shall
amend its certificate of incorporation or bylaws or merge or consolidate
with or into any other corporation or change in any manner the rights of
its capital stock or the character of its business.
(xii) Prohibition on Issuance, Sale or Purchase of Securities. Neither
-------------------------------------------------------
REC nor Subsidiary shall issue or sell, or issue options or rights to
subscribe to, or enter into any contract or commitment to issue or sell
(upon conversion or otherwise), any shares of its capital stock, or
subdivide or in any way reclassify any shares of its capital stock, or
acquire, or agree to acquire, any shares of its capital stock.
(xiii) Prohibition on Certain Payments. Neither REC nor Subsidiary
-------------------------------
shall declare or pay any dividend on shares of its capital stock or
distribution of assets to the holders thereof, or (except for the transfer
of Excluded Assets) make any other payments to such holders.
(xiv) Notice of Adverse Change. REC shall promptly notify the
------------------------
Purchaser in writing of any material adverse change in, or any changes
which, in the aggregate, would or might reasonably be expected to
materially and adversely affect the financial condition, business or
affairs of REC and Subsidiary considered as a whole whether or not
occurring in the ordinary course of business.
21
<PAGE>
3.1.5. Hart-Scott-Rodino. The Shareholder shall make the filings
-----------------
required to be made by the Shareholder, and shall cooperate with the
Purchaser in connection with the filings required to be made by the
Purchaser, pursuant to HSR.
3.1.6. No Prohibited Contracts. REC shall not enter into (i) any
-----------------------
farmout, farmin or agreement of similar effect with any affiliates of the
Shareholder or (ii) any contract, commitment or agreement described in
Section 2.2.24 hereof unless consented to in writing by the Purchaser or
otherwise permitted pursuant to any provision of this Agreement.
3.1.7. Title Defects on Properties. The Shareholder will use good
---------------------------
faith, reasonable commercial efforts to cause any and all Title Defects
asserted by the Purchaser with respect to any Property to be cured prior to
the Closing Date, at the expense of the Shareholder, except in each
instance where the Shareholder shall have notified the Purchaser in
writing, within three days following the assertion of the Title Defect,
that the Shareholder will exercise its election under Section 6.1.2(iii) to
cause such property to be transferred to the Shareholder or its designee.
3.2. Agreements of the Purchaser. The Purchaser agrees that from the
---------------------------
date hereof to the Closing Date:
3.2.1. Hart-Scott-Rodino. The Purchaser shall make all filings required
-----------------
to be made by the Purchaser, and shall cooperate with the Shareholder in
connection with the filings required to be made by the Shareholder,
pursuant to HSR.
3.2.2. Maintenance of Business. Except as previously approved by the
-----------------------
Shareholder, and except as permitted or contemplated by this Agreement, the
Purchaser will not merge or consolidate with or into any other corporation
or change the character of its business.
3.2.3. Notice of Adverse Change. The Purchaser will promptly notify the
------------------------
Shareholder in writing of any material adverse change in, or any changes
which in the aggregate would materially and adversely affect, the financial
condition, business, or affairs of the Purchaser, whether or not occurring
in the ordinary course of business.
3.2.4. Notice of Title Defects. On or before January 8, 1996, the
-----------------------
Purchaser will use its good faith, best commercial efforts to notify the
Shareholder in writing of any Title Defects of which the Purchaser becomes
aware with respect to any Property; provided, however, that the failure to
-------- -------
so notify the Shareholder shall not affect any rights or remedies the
Purchaser shall have under this Agreement or otherwise.
3.2.5. Notice of Environmental Nonconformities. On or before January 8,
---------------------------------------
1996, the Purchaser will use its good faith, best commercial efforts to
notify the
22
<PAGE>
Shareholder in writing of any environmental nonconformities with respect to
the Properties which have been disclosed by Purchaser's Phase I
environmental site assessments, which nonconformities (if unremediated)
would constitute a presumptive breach of Section 2.2.14.1 ("Environmental
Defects"); provided, however, that (i) the failure to so notify the
Shareholder shall not affect the rights or remedies the Purchaser shall
have under this Agreement or otherwise and (ii) any such nonconformity with
respect to the Properties which are the subject to the Drew Estate
litigation shall not constitute an Environmental Defect.
ARTICLE IV
----------
Conditions Precedent to Obligations of the
Purchaser and the Shareholder
4.1. Conditions Precedent to Obligations of the Purchaser. The
----------------------------------------------------
obligations of the Purchaser to consummate the transactions contemplated by this
Agreement shall be subject to the following conditions:
4.1.1. Representations and Warranties of the Shareholder True at Closing
-----------------------------------------------------------------
Date. The representations and warranties of the Shareholder herein
----
contained shall be true and correct in all material respects as of and at
the Closing Date with the same effect as though made at such date, except
as affected by transactions permitted or contemplated by this Agreement;
the Shareholder shall have performed and complied in all material respects
with all covenants required by this Agreement to be performed or complied
with by it prior to the Closing Date; and the Shareholder shall have
delivered to the Purchaser a certificate, dated the Closing Date and signed
by its chief executive and financial officers to both such effects.
4.1.2. No Material Litigation. No suit, action or other proceeding
----------------------
shall be threatened or pending before any court or governmental agency in
which it will be, or it is, sought to restrain or prohibit or to obtain
damages or other relief in connection with, this Agreement or the
consummation of the transactions contemplated hereby, or which might
reasonably be expected to materially and adversely affect the value of the
assets and business of REC and the Subsidiary taken as a whole.
4.1.3. Opinion of Counsel for the Shareholder. The Purchaser shall have
--------------------------------------
received an opinion, dated the Closing Date from Porter & Hedges, L.L.P.,
counsel to the Shareholder, in form and substance satisfactory to the
Purchaser, to the effect that (i) each of REC, the Shareholder and Reunion
Operating Company ("ROC") has been duly organized and is validly existing
as a corporation in good standing under the laws of the State of Delaware;
(ii) the authorized capital stock of REC consists of 1,000 shares of common
stock, par value $1 per share, of which on the Closing Date 1,000 shares
were validly issued and outstanding; (iii) all outstanding shares of the
capital stock of REC and ROC have been validly issued and are fully paid
and nonassessable and were not issued in violation of the preemptive rights
of any person;
23
<PAGE>
(iv) there are no outstanding subscriptions, options, warrants or other
agreements or commitments obligating REC or ROC to issue any shares of its
capital stock including any obligation to convert any securities or
obligations into shares of its capital stock; (v) to the knowledge of such
counsel after due inquiry, except as specified in Schedule 2.2.9 hereto or
in a schedule to such opinion, there is no litigation, proceeding or
governmental investigation, pending or threatened against or relating to
REC or Subsidiary or their respective properties or businesses; (vi) the
Shares are owned by the Shareholder free and clear of any Encumbrance, and
the Shareholder has full capacity to sell and transfer the Shares in
accordance with this Agreement and upon such sale and transfer, the
Purchaser will acquire from the Shareholder all rights of the Shareholder
with respect to the Shares; (vii) to the knowledge of such counsel after
due inquiry there is no litigation, proceeding or claim pending or
threatened against the Shareholder with respect to or in any manner
affecting the ownership by the Shareholder of the Shares; (viii) all
corporate proceedings required to be taken by or on the part of the
Shareholder to authorize the execution, delivery and performance of this
Agreement and the Related Agreements and the implementation of the
transactions contemplated by this Agreement and the Related Agreements have
been duly and properly taken; (ix) each of this Agreement and the Related
Agreements has been duly executed and delivered by, and is the legal, valid
and binding obligations of the Shareholder and is enforceable against the
Shareholder in accordance with its terms, except as such enforceability may
be limited by (a) equitable principles of general applicability or (b)
bankruptcy, insolvency, reorganization, fraudulent conveyance or similar
laws affecting the rights of creditors generally; (x) to the knowledge of
such counsel, REC has no default, and no event or circumstance has occurred
which with notice or lapse of time would give rise to a default, on its
part under any obligation, lease, contract, plan, or other arrangement,
which default or defaults (in the aggregate) would have a material adverse
effect upon the business or financial condition of REC and Subsidiary
considered as a whole; (xi) REC 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; and (xii) REC is not a "holding
company," or a "subsidiary company" of 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," as
such terms are defined in the Public Utility Holding Company Act of 1935,
as amended.
In rendering such opinion such counsel may rely, to the extent
reasonable, upon certificates of public officials and of officers of
Shareholder and/or REC as to matters of fact, and as to any matter
contained in such opinion which involves other than federal or Texas law or
Delaware corporate law, such counsel may rely upon the opinion of local
counsel (jointly addressed and delivered to the parties hereto and their
counsel, all of whom may rely upon the same) of established reputation
acceptable to Purchaser, whether or not employed by Shareholder.
24
<PAGE>
4.1.4. Resignations. The Shareholder shall have delivered to the
------------
Purchaser on the Closing Date written resignations of all directors and
officers of REC and Subsidiary.
4.1.5. Tender of the Shares. The Shareholder shall have delivered to
--------------------
the Purchaser certificates representing the Shares, duly endorsed for
transfer or accompanied by duly executed stock powers, free and clear of
any Encumbrance.
4.1.6. Release of Liens. Except as permitted in Section 6.1.3, REC
----------------
shall have obtained a release on or before the Closing Date of any
Encumbrance on the Properties, except for Permitted Encumbrances.
4.1.7. Hart-Scott-Rodino. Any filings required to HSR shall have been
-----------------
made and all waiting periods required by HSR shall have expired with
respect to the transactions contemplated by this Agreement, or early
termination with respect thereto shall have been obtained.
4.1.8. Capital Contribution. Shareholder shall have contributed to the
--------------------
capital of REC an amount sufficient to make the Effective Date Working
Capital Balance of REC and Subsidiary equal to "zero" at September 30,
1995.
4.1.9. Assumption of 401(k) Plan. The Shareholder shall have assumed
-------------------------
sponsorship of REC's profit sharing plan (the "401(k) Plan") for all
purposes and REC and Subsidiary shall have withdrawn as sponsors of the
401(k) Plan in accordance with the requirements of ERISA and other
applicable law.
4.1.10. Disputed Effective Date Working Capital Balance. The Shareholder
-----------------------------------------------
and the Purchaser shall not have a good faith Disputed Difference (as
defined in Section 6.1.1.2) greater than $300,000.
4.1.11. Assumption of Excluded Liabilities. Shareholder shall have
----------------------------------
effectively assumed the Excluded Liabilities (and entered into legally
effective agreements to hold Purchaser harmless with respect thereto).
4.2. Conditions Precedent to Obligations of the Shareholder. The
------------------------------------------------------
obligations of the Shareholder to consummate the transactions contemplated by
this Agreement shall be subject to the following conditions:
4.2.1. Representations and Warranties of the Purchaser True at Closing
---------------------------------------------------------------
Date. The representations and warranties of the Purchaser herein contained
----
shall be true and correct in all material respects as of and at the Closing
Date with the same effect as though made at such date, except as affected
by transactions permitted or contemplated by this Agreement; the Purchaser
shall have performed and complied in all material respects with all
covenants required by this Agreement to be performed
25
<PAGE>
or complied with by it prior to the Closing Date; and the Purchaser shall
have delivered to the Shareholder a certificate, dated the Closing Date and
signed by its chief executive and financial officers to both such effects.
4.2.2. No Material Litigation. No suit, action or other proceeding
----------------------
shall be threatened or pending before any court or governmental agency in
which it will be, or it is, sought to restrain or prohibit, or to obtain
damages or other relief in connection with, this Agreement or the
consummation of the transactions contemplated hereby.
4.2.3. Opinion of Counsel for the Purchaser. The Shareholder shall have
------------------------------------
received an opinion, dated the Closing Date, from Lowrey & Millikin,
L.L.P., counsel to Purchaser, in form and substance satisfactory to the
Shareholder, to the effect that (i) the Purchaser has been duly organized
and is validly existing as a partnership in good standing under the laws of
the State of Texas; (ii) all partnership proceedings required to be taken
by or on the part of the Purchaser to authorize the execution of this
Agreement and the Related Agreements and the implementation of the
transactions contemplated by this Agreement and the Related Agreements have
been duly and properly taken; (iii) to the knowledge of such counsel after
due inquiry, except as specified in a schedule to such opinion there is no
litigation, proceeding or governmental investigation, pending or
threatened, against or relating to the Purchaser, any of its subsidiaries,
or their respective properties or businesses, which would have a material
adverse effect upon the business or financial condition of the Purchaser
and its subsidiaries considered as a whole; (iv) each of this Agreement and
the Related Agreements is a legal, valid, and binding obligation of the
Purchaser and is enforceable against the Purchaser in accordance with its
terms, except as such enforceability may be limited by (a) equitable
principles of general applicability or (b) bankruptcy, insolvency,
reorganization, fraudulent conveyance, or similar laws affecting the rights
of creditors generally; (v) to the knowledge of such counsel, the Purchaser
has no default, and no event or circumstance has occurred which with notice
or lapse of time would give rise to a default, on its part under any
obligation, lease, contract, plan, or other arrangement, which default or
defaults (in the aggregate) would have a material adverse effect upon the
business or financial condition of the Purchaser and its subsidiaries
considered as a whole; (vi) Purchaser 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; and (vii) Purchaser is not 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," as such terms are defined in the Public Utility Holding
Company of 1935, as amended.
In rendering such opinion such counsel may rely, to the extent
reasonable, upon certificates of public officials and of officers of the
Purchaser as to matters of fact, and as to any matter contained in such
opinion which involves other than federal
26
<PAGE>
or Texas law, such counsel may rely upon the opinion of local counsel
(jointly addressed and delivered to the parties hereto and their counsel,
all of whom may rely upon the same) of established reputation acceptable to
Shareholder, whether or not employed by the Purchaser.
4.2.4. Tender of Purchase Price. On the Closing Date the Purchaser
------------------------
shall have tendered to the Shareholder the Cash Consideration; provided
that the amount of the Cash Consideration may be adjusted pursuant to
Section 6.1 without affecting the obligation of the Shareholder to
consummate the transactions contemplated by this Agreement and if so
adjusted the covenant of Shareholder contained in Section 4.1.8 shall be
deemed to have been waived by Purchaser.
4.2.5. Transition Agreement. The Purchaser and the Shareholder shall
--------------------
have entered into a Transition Agreement in substantially the form attached
hereto as Exhibit B, with such changes as are mutually acceptable to the
Purchaser and the Shareholder.
4.2.6. Hart-Scott-Rodino. Any filings required by HSR shall have been
-----------------
made and all waiting periods required by HSR shall have expired with
respect to the transactions contemplated by this Agreement, or early
termination with respect thereto shall have been obtained.
4.2.7. Repayment of Intercompany Indebtedness. REC (or Purchaser on
--------------------------------------
behalf of REC) shall have reimbursed Shareholder for all amounts advanced
by Shareholder on or after the date of this Agreement in compliance with
Section 3.1.4(viii) for the conduct of drilling operations on Properties.
4.2.8. Disputed Effective Date Working Capital Balance. The Shareholder
-----------------------------------------------
and the Purchaser shall not have a good faith Disputed Difference greater
than $300,000.
ARTICLE V
---------
Termination and Abandonment
5.1. Termination. Anything else in this Agreement to the contrary
-----------
notwithstanding, this Agreement may be terminated and the transactions
contemplated herein abandoned at any time prior to the Closing Date:
5.1.1. By Mutual Consent. By mutual consent of the Purchaser and the
-----------------
Shareholder.
5.1.2. By the Purchaser Because of Conditions Precedent. By the
------------------------------------------------
Purchaser, if any condition set forth in Section 4.1 (other than Title
Defects and
27
<PAGE>
Environmental Defects addressed separately in Section 5.1.6) hereof has not
been met by the Closing Date and has not been waived by the Purchaser.
5.1.3. By the Shareholder Because of Conditions Precedent. By the
--------------------------------------------------
Shareholder, if any condition set forth in Section 4.2 hereof has not been
met by the Closing Date and has not been waived by the Shareholder.
5.1.4. By the Purchaser or the Shareholder Because of Legal Proceedings.
-----------------------------------------------------------------
By the Purchaser or the Shareholder if any suit, action or other proceeding
not brought by any of such parties hereto shall be pending or threatened by
the federal or a state government before any court or governmental agency,
in which it is sought to restrain, prohibit or otherwise affect the
consummation of the transactions contemplated hereby.
5.1.5. By the Purchaser or the Shareholder if Transactions Not
-------------------------------------------------------
Consummated. By either the Purchaser or the Shareholder, if the
-----------
transactions contemplated by this Agreement shall not have been consummated
on or before January 31, 1996.
5.1.6. By the Purchaser or the Shareholder for Defects. By either the
-----------------------------------------------
Purchaser or the Shareholder if (i) the aggregate Allocated Value (as
hereinafter defined) of Properties with respect to which Marketable Title
shall not exist at the Closing Date, shall exceed $750,000 or (ii) the
aggregate remediation cost or other potential liability with respect to
Environmental Defects shall exceed the liability accrued therefor on the
Effective Date Balance Sheet (as defined in Section 6.1.1.1), plus
$150,000, regardless of whether such defects are disclosed on Schedule
2.2.9.
5.2. Accomplishment of Termination. An election by the Purchaser to
-----------------------------
terminate this Agreement and abandon the transactions contemplated hereby as
provided in Section 5.1 shall be exercised on behalf of the Purchaser by
delivery to the Shareholder of a written instrument to that effect signed by the
Manager of the Purchaser. An election by the Shareholder to terminate this
Agreement and abandon the transactions contemplated hereby as provided in
Section 5.1 shall be exercised by delivery to the Purchaser of a written
instrument to that effect signed by the President or a Vice President of the
Shareholder.
5.3. Effect of Termination. In the event of the termination and
---------------------
abandonment of this Agreement pursuant to and in accordance with the provisions
of Section 5.1 hereof, this Agreement shall become void and have no effect,
without any liability on the part of any party hereto (or its stockholders or
controlling persons or directors or officers).
5.4. Expense on Termination. If the transaction contemplated hereby is
----------------------
abandoned pursuant to and in accordance with the provisions of Section 5.1
hereof, all expenses of each party will be paid by the party incurring them.
28
<PAGE>
5.5. Waiver of Conditions. Any of the terms or conditions of this
--------------------
Agreement may be waived at any time in writing by the party which is entitled to
the benefit thereof.
ARTICLE VI
----------
Additional Agreements of
the Purchaser and the Shareholder
6.1. Adjustments to Purchase Price. The following adjustments to the
-----------------------------
Purchase Price shall be made on or after the Closing Date, as indicated:
6.1.1. Effective Date Working Capital Balance Adjustment. On the
-------------------------------------------------
Closing Date the amount of the Cash Consideration shall be (i) reduced by
the Effective Date Working Capital Balance, if negative, or (ii) increased
by the Effective Date Working Capital Balance, if positive, determined
pursuant to the Effective Date Balance Sheet.
6.1.1.1. Determination of Effective Date Working Capital Balance.
-------------------------------------------------------
The Shareholder shall cause a pro forma balance sheet (which excludes
Excluded Assets and Excluded Liabilities) of REC and Subsidiary as at
September 30, 1995 (the "Effective Date Balance Sheet") and a
statement of the Effective Date Working Capital Balance ("Balance
Statement") to be delivered to the Purchaser on or before November 28,
1995 (such date of delivery being hereinafter called the "Balance
Delivery Date"). The Shareholder shall cause REC to (a) grant to the
Purchaser, and its officers and authorized representatives, the
continuing right, during normal business hours, to inspect REC's
records and to consult with REC's officers, employees, attorneys and
agents and (b) furnish the Purchaser with such additional financial
and operating data as the Purchaser shall from time to time reasonably
request, for the purpose of determining the accuracy of the Effective
Date Balance Sheet and the Balance Statement. The Purchaser must
raise any objections, and the Shareholder must propose any
adjustments, to the amount of the Effective Date Working Capital
Balance set forth in the Effective Date Balance Statement within 30
days of the Balance Delivery Date by notice in writing to the other
party setting forth the basis for such objection or adjustment. If
the Purchaser and the Shareholder reach an agreement with respect to
the amount of the Effective Date Working Capital Balance, the payment
of the Purchase Price adjustments pursuant to Section 6.1.1 shall be
made in accordance with Section 6.1.1.3.
29
<PAGE>
6.1.1.2. Arbitration. In the event the Purchaser and the
-----------
Shareholder do not mutually agree upon the amount of the Effective
Date Working Capital Balance on or before the Closing Date, if the
difference (the "Disputed Difference") between the amount which the
Purchaser asserts is the Effective Date Working Capital Balance (the
"Purchaser Balance") and the amount which the Shareholder asserts is
the Effective Date Working Capital Balance (the "Shareholder Balance")
is not greater than $300,000, the Effective Date Working Capital
Balance shall be deemed to be the median between the Purchaser Balance
and the Shareholder Balance (the "Deemed Working Capital Balance") for
the purpose of consummating the transactions contemplated by this
Agreement on the Balance Delivery Date. If the Shareholder and the
Purchaser cannot then agree upon the actual Effective Date Working
Capital Balance within 90 days after the Closing Date, the
determination of the amount of the Effective Date Working Capital
Balance shall be submitted to an independent certified public
accountant mutually agreed upon by the Purchaser and the Shareholder
and selected from among one of the six largest public accounting firms
in the United States (the "Arbitration Accountant"). If the Purchaser
and the Shareholder are unable to agree upon the selection of the
Arbitration Accountant, each such party shall select a person who
would qualify as the Arbitration Accountant; and those two persons
shall determine the Arbitration Accountant. The determination by the
Arbitration Accountant of the Effective Date Working Capital Balance
shall be conclusive and binding on the parties hereto and shall be
enforceable against any party hereto in any court of competent
jurisdiction. Any costs and expenses incurred by the Arbitration
Accountant pursuant to this Section 6.1 shall be borne by the
Shareholder and the Purchaser equally.
6.1.1.3. Payment of Adjustment. If any dispute regarding, or
---------------------
objection or proposed adjustment to, the Effective Date Working
Capital Balance (a "Balance Dispute") is resolved by agreement of the
parties on or before the Closing Date, appropriate adjustments to the
Purchase Price shall be made on the Closing Date in accordance with
Section 6.1.1. If a Balance Dispute is resolved after the Closing
Date, whether by mutual agreement or by the Arbitration Accountant, a
post-closing Purchase Price adjustment shall be made, and pursuant
thereto, the party owing payment to the other shall make such payment
within 15 days after an agreement is reached or the Arbitration
Accountant notifies the parties of its determination of the Effective
Date Working Capital Balance.
30
<PAGE>
6.1.1.4. Sole Remedy. The Purchase Price adjustment pursuant to
-----------
this Section 6.1.1 shall be the sole remedy for any breach of the
Shareholder's representations and warranties contained in Section
2.2.7.
6.1.2. Title Defect Adjustment. The Purchase Price has also been
-----------------------
computed on the assumption that REC's title to the Properties is Marketable
Title. In the event that the Purchaser asserts a Title Defect with respect
to a Property (or any portion thereof or interest therein) prior to the
Closing Date and requests that such Title Defect be cured, the Shareholder
shall have the option to either (i) assert its right to consummate the
transactions contemplated by this Agreement pursuant to Section 6.1.3, (ii)
cause such Title Defect to be cured by the Shareholder to the satisfaction
of the Purchaser prior to the Closing Date, with the Shareholder bearing
the cost thereof, or (iii) cause the affected property (or any portion
thereof or interest therein) to be transferred to the Shareholder or its
designee effective as of the Effective Date, in which latter event the
Purchase Price shall be reduced by the value allocated to such Property as
agreed by the Shareholder and the Purchaser and set forth on Schedule
2.2.6.1 (the "Allocated Value"); provided that if only a portion of a
Property or an interest therein is affected by the Title Defect, the
reduction shall be computed by multiplying the Allocated Value of the
Property by a fraction, the numerator of which is the Net Revenue Interest
so affected and the denominator of which is the Net Revenue Interest of the
Property (the "Adjustment Fraction").
6.1.3. Deemed Temporary Waiver of Property Title Defects and Subsequent
----------------------------------------------------------------
Cure or Price Adjustment or Retransfer. If, prior to the Closing Date,
--------------------------------------
Purchaser asserts Title Defects affecting Properties (or any portion
thereof or interest therein) having aggregate Allocated Values of less than
$750,000 and, notwithstanding the Shareholder's compliance with Section
3.1.7, the Title Defect cannot be cured to the satisfaction of Purchaser
prior to the Closing Date, then Purchaser shall be deemed, solely for the
purpose of this Section 6.1.3, to have temporarily waived Marketable Title
to such Property(s), and no adjustment shall be made to the Purchase Price
at or prior to the Closing Date; provided, however, that if with respect to
-------- -------
any such property Shareholder has not established at its own expense
Marketable Title within 90 days following the Closing Date (the "Final
Title Curative Date"), then Shareholder shall pay to Purchaser on the first
business day following the Final Title Curative Date the Allocated Values
of all such Properties as to which Marketable Title has not been
established; and thereupon Purchaser shall concurrently with such payment
cause REC to transfer such property(s) to the Shareholder or its designee
effective as of the Effective Date. The transfer document shall convey to
the Shareholder all of the interests of REC in such Property(s) as they
existed on the Effective Date, but otherwise without warranty, together
with full rights of subrogation. If, however, only a portion of a Property
or an interest therein is affected by the Title Defect, the amount to be
paid by the Shareholder to the Purchaser shall be calculated by multiplying
the Allocated Value of the Property by
31
<PAGE>
the Adjustment Fraction and the Purchaser shall reconvey to the
Shareholder, on the terms set forth above, the portion of the Property
affected by the Title Defect.
6.1.4. Form of Adjustment. The full amount of any adjustment to the
------------------
Purchase Price pursuant to Section 6.1 shall be applied to the Cash
Consideration.
6.1.5. NRI Underage Netted Against NRI Overage. In the event that
---------------------------------------
before the Closing Date it is discovered that (i) Marketable Title with
respect to a Property is less than the respective Net Revenue Interest of
REC set forth on Schedule 2.2.6.1 (the "Overstated Property"), and (ii)
Marketable Title with respect to a Property (the "Understated Property") is
greater than the respective Net Revenue Interest of REC set forth on
Schedule 2.2.6.1 (the "Stated NRI"), then any Purchase Price adjustment or
other payment to the Purchaser as the result of Title Defects on any
Overstated Properties shall be net of an amount determined by multiplying
the respective Allocated Value of the Understated Property by a fraction,
the numerator of which is the net amount by which the actual Net Revenue
Interest to such property exceeds the Stated NRI of such property and the
denominator of which is the Stated NRI of such property. If either party
makes a discovery of the type described in this Section such party shall
promptly notify the other party of such discovery.
6.2. Post-Closing Payments. Effective as of September 30, 1995, any
---------------------
inter-company debt between the Shareholder and each subsidiary of Shareholder
(other than REC and the Subsidiary) on one hand (the "Reunion Group"), and REC
and the Subsidiary on the other hand (the "REC Group"), was eliminated. The
parties to this Agreement recognize that the ongoing oil and gas operations of
the REC Group may result in the creation of accounts payable and accounts
receivable (apart from those associated with the capital costs of REC drilling
operations on Properties, which are separately provided for in Sections
3.1.4(viii) and 4.2.8) between the Reunion Group and the REC Group until the
Closing Date. The Shareholder and the Purchaser shall determine the net amount
of any such payables (net of any receivables) between the Reunion Group and the
REC Group as of the Closing Date (the "Inter-Company Payables") within 30 days
after the Closing Date. If the amount of the Inter-Company Payables have not
been determined to the mutual satisfaction of the Purchaser and the Shareholder
within such 30-day period, the Purchaser and the Shareholder shall each endeavor
in good faith to agree upon the amount of the Inter-Company Payables. If such
parties fail to reach mutual agreement within ten days after the 30-day period,
a determination of the amount of the Inter-Company Payables shall be made by an
Arbitration Accountant selected in the manner provided by the provisions of
Section 6.1.1.2. The determination by the Arbitration Accountant of the Inter-
Company Payables shall be conclusive and binding on the parties hereto and shall
be enforceable against any party hereto in any court of competent jurisdiction.
Any costs and expenses incurred by the Arbitration Accountant pursuant to this
Section 6.2 shall be borne by the Shareholder and the Purchaser equally. Within
15 days after the amount of the Inter-Company Payables is determined, whether by
mutual agreement or by the Arbitration Accountant, payment of the Inter-Company
Payables shall be made as follows: if the Inter-Company Payable is owed by the
Reunion Group to the REC Group, the Shareholder shall be obligated to make a
payment in the amount of the Inter-Company Payable to the Purchaser, and if the
Inter-Company Payable is owed by REC Group to the
32
<PAGE>
Reunion Group, the Purchaser shall be obligated to make a payment in the amount
of the Inter-Company Payable to the Shareholder.
6.3. Survival of Representations and Warranties. All of the
-------------------------------------------
representations and warranties made (other than those contained in Section
2.2.7) in this Agreement shall be continuing (but only as of the dates made or
deemed made) and shall survive the Closing Date and the transactions
contemplated hereby, notwithstanding any investigation at any time made by or on
behalf of any party hereto, provided that any claim must be asserted by delivery
of notice in writing (a "Claim Notice") (i) in respect of any representation or
warranty contained in Sections 2.2.6.4 and 2.2.6.5 [Title], within 120 days from
the Closing Date (ii) in respect of any representation or warranty contained in
Section 2.2.14.1 [Environmental], within 60 days from the Closing Date, (iii) in
respect of any other representation or warranty contained in Section 2.2, within
one year from the Closing Date. The Claim Notice shall contain reasonable
detail concerning the claim, together will all information related to such claim
and the property, if any, affected thereby. A Claim Notice, if timely made,
shall preserve the Purchaser's rights to indemnification under Section 6.4.1
hereof with respect to such claim until same is settled or satisfied or the
relevant statute of limitations expires, notwithstanding the expiration of the
Survival Period with respect thereto. The respective period during which any
alleged breach of representation or warranty must be asserted pursuant to the
foregoing provisions is hereinafter called the "Survival Period."
Notwithstanding anything to the contrary above or below, (x) the
representations, warranties, covenants and indemnifications made herein with
respect to U.S. federal income tax matters (including liabilities for taxes,
penalties and interest) shall survive the Closing Date and shall terminate if,
and only to the extent of, the expiration of the statute of limitations
applicable to the taxable year of the Group including the Tax Effective Date
(the "Tax Survival Period"), and (y) the other covenants contained in Section
6.6 hereof shall survive the Closing Date. Except as set forth above, the
representations and warranties contained in this Agreement or made pursuant
hereto shall not survive the Closing Date.
6.4. Limited Indemnification.
-----------------------
6.4.1. By the Shareholder. The Shareholder shall indemnify and hold
------------------
harmless the Purchaser for the full amount of all losses, claims, expenses
or liabilities (including reasonable attorneys' fees in respect of all
third party claims and any disputed direct claims as to which litigation
ensues and the party claiming the right to indemnification prevails
therein) (collectively, "Losses"), (a) arising from a claim asserted during
the appropriate Survival Period by the Purchaser and relating to a breach
of any of the representations, warranties or covenants made by the
Shareholder in this Agreement or (b) solely attributable to Excluded Assets
or Excluded Liabilities. Notwithstanding the foregoing, the Shareholder
shall be liable under this Section 6.4.1 only if, and then only to the
extent that (i) the aggregate amount of any Losses asserted by the
Purchaser during the Survival Period(s) for which the Purchaser is entitled
to indemnification pursuant to this Section 6.4.1 exceeds $200,000, and
(ii) anything else in this Agreement to the contrary notwithstanding,
Shareholder shall have no liability whatsoever to Purchaser with respect to
any Environmental Defect (x) with respect to the Properties which are the
subject of the Drew Estate litigation,
33
<PAGE>
as to which special provision has been made in the computation of the
Effective Date Working Capital Balance or (y) with respect to any other
Property in an amount in excess of the Allocated Value of the Property on
or from which such defect originated. The indemnification of this Section
6.4.1 shall apply notwithstanding the Purchaser's own negligence or fault,
other than gross negligence or willful misconduct, including instances in
which the Purchaser's negligence, fault or misconduct is the sole or
concurrent proximate cause of the indemnified liability.
6.4.2. Cooperation with Respect to Third Party Claims. The Purchaser
----------------------------------------------
and the Shareholder agree to cooperate with each other in the defense of
any third party claim pursuant to which indemnification is sought under
this Section 6.4.
6.5. Change of Name. The Purchaser agrees that, as soon as practicable
--------------
after the Closing Date, and in any event within 90 days after the Closing Date,
the Purchaser will cause a Certificate of Amendment to the Certificate of
Incorporation of REC and Subsidiary to be filed with the Secretary of State of
Delaware (and such other governmental offices as are necessary), to effect a
change in the name of REC and Subsidiary to a name not including the words
"Reunion" or "Buttes." The Purchaser shall cause to be removed the names and
marks used by REC and Subsidiary containing the words "Reunion" and/or "Buttes"
and all variations and derivatives thereof and logos relating thereto from the
assets of REC and Subsidiary and will not thereafter make any use nor permit
others to make any use whatsoever of such names, marks or logos.
6.6. Deconsolidation.
---------------
6.6.1. Purchaser Indemnification. The Purchaser shall indemnify and
-------------------------
hold harmless each member of the Reunion Selling Group against any federal
income tax liability realized (including without limitation, deficiencies,
interest and penalties) relating to REC or any consolidated group of which
REC is a member, for any taxable period commencing after the Tax Effective
Date. Notwithstanding Section 6.3 hereof, if any member of the Reunion
Selling Group is entitled to indemnification pursuant to this Section 6.6.1
and if such indemnified person shall realize a tax benefit related to a
prior indemnification (whether by way of deduction, credit or otherwise)
which reduces its federal income tax liability or increases a federal
income tax refund for a given period (a "Tax Benefit") relating to a tax
period subject to the indemnification in this Section 6.6.2, Shareholder
shall pay to Purchaser promptly after recognition of such Tax Benefit an
amount equal to such Tax Benefit up to the amount of indemnification
received; provided, however, that if such Tax Benefit is subsequently
-------- -------
disallowed, Purchaser shall repay to Shareholder the amount by which such
Tax Benefit is reduced.
6.6.2. Shareholder Indemnification. The Shareholder shall be liable for
---------------------------
and shall indemnify and hold harmless the Purchaser and its consolidated
subsidiaries (including REC and Subsidiary) from and against all amounts of
any realized liabilities for federal income taxes (including, without
limitation, deficiencies, interest and
34
<PAGE>
penalties) of REC and the Subsidiary for any taxable period ending before
or including the Tax Effective Date (including any liability that arises
because any such corporation ceases on the Tax Effective Date to be a
member of the Reunion Group) and any such taxes of the Reunion Selling
Group for any taxable year or period ending prior to, on or subsequent to
the Tax Effective Date. Notwithstanding Section 6.3 hereof, if Purchaser,
REC or Subsidiary is entitled to indemnification pursuant to this Section
6.6.2 and if such indemnified person shall realize a Tax Benefit relating
to a tax period subject to the indemnification in this Section 6.6.2,
Purchaser shall pay to Shareholder promptly after recognition of such Tax
Benefit an amount equal to such Tax Benefit up to the amount of
indemnification received; provided, however, that if such Tax Benefit is
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subsequently disallowed, Shareholder shall repay to Purchaser the amount by
which such Tax Benefit is reduced.
6.6.3. Income Tax Returns. Shareholder represents, warrants and
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covenants that:
(i) The Common Parent shall prepare and file, in a timely fashion,
all appropriate and necessary federal, state and other income tax
returns, reports and estimates, the filing of which is required for
the lawful conduct of business ("Income Tax Returns") which include,
on a consolidated or any other reporting basis, the results of
operations of REC and Subsidiary for all periods ending prior to or on
the Tax Effective Date ("Operations"). Common Parent shall pay or
discharge any and all federal, state or local income taxes,
assessments, interest, penalties or deficiencies, including the tax
liability of any member or former member of the Reunion Group, however
measured, for which REC Subsidiary may be held liable as a result of
Income Tax Returns required to be filed by or on behalf of REC and
Subsidiary with respect to any taxable periods or years ending prior
to or on the Tax Effective Date ("Income Taxes"). Without limitation,
Income Taxes shall include taxes incurred by REC or Subsidiary as a
result of the Recapitalization.
(ii) Any and all consolidated federal income tax agreements and any
and all other agreements with respect to any taxes imposed by any
taxing jurisdiction executed between or agreed to by REC and
Subsidiary and the Common Parent or any subsidiary of the Common
Parent which relate to a payment by or to REC or Subsidiary with
respect to its Income Taxes, and which is continuing in effect will be
terminated without liability to either party and shall be void,
effective as of the Closing Date.
(iii) The Common Parent will make all computations, allocations,
determinations and elections affecting the Reunion Group
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in accordance with the provisions of the Treasury regulations
promulgated under Section 1502 of the Code, in particular, Treas. Reg.
1502-76(b)(4)(i); provided, however, that no such action which would
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have any impact on REC or Subsidiary (including, but not limited to,
the allocation of tax attributes among the members of the Reunion
Group) shall be taken without Purchaser's prior written consent. The
permanent books and records of REC and Subsidiary shall be maintained
in such a way that Operations shall be reflected in such books and
records.
6.6.4. Tax Audits. The Common Parent shall be responsible for any audit
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or other proceeding involving a taxable period ending on or prior to the
Tax Effective Date which involves a federal income tax liability of REC or
the Subsidiary. The Purchaser, REC and the Common Parent shall cooperate
with each other in the conduct of any audit or other proceedings.
6.6.5. Cooperation. The Purchaser agrees to give to the Common Parent
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prompt written notice of any claim, demand, action, suit, proceeding, audit
or assessment raised, brought, threatened, made or commenced against any
REC or Subsidiary that relates to any matter to which the foregoing
indemnification provisions shall apply and agrees further, except as
provided below, not to make any admission or effect any settlement with
respect to any such claim without the consent of the Common Parent.
6.6.6. Defense by the Common Parent. If any claim shall be made or any
----------------------------
action or proceeding shall be commenced against Purchaser, REC or
Subsidiary in respect of any liability, obligation, or claim to which the
foregoing indemnity relates, the Common Parent shall have the right, at its
own expense, to undertake the defense of any such claim, action, or
proceeding by written notice given to the Purchaser at any time before the
final determination thereof, and the Common Parent shall further have the
right in its sole discretion to settle any such claim, action or proceeding
by payment to the complainant; provided, however, that the Common Parent
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shall not be entitled to assume the contest of such claim if Purchaser
shall waive its right to indemnification hereunder with respect to such
claim.
6.6.7. Assumption of Defense. If the Common Parent shall, within a
---------------------
reasonable time after receipt of notice by the Purchaser, fail to defend a
claim subject to this indemnification, the Purchaser shall have the right,
but not the obligation, to undertake the defense of, and to compromise or
settle (exercising reasonable business judgment) the claim or other matter
on behalf, for the account, and at the risk, of the Common Parent.
6.6.8. Other Tax Matters. Shareholder and Purchaser hereby covenant and
-----------------
agree that:
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(i) Except as otherwise provided above, the Purchaser or REC shall
timely prepare and file, or cause to be timely prepared and filed, all
applicable state and local tax returns or other similar reports for
all taxes of REC and the Subsidiary which relate to taxable periods
ending subsequent to the Tax Effective Date and are due subsequent to
the Tax Effective Date, but which relate to periods or transactions
which elapsed or occurred on or prior to the Tax Effective Date. REC
shall pay or cause to be paid any and all taxes due as a result of the
tax returns or reports required to be filed pursuant to the preceding
sentence. The Shareholder shall reimburse REC for any taxes paid in
connection with returns filed pursuant to this Section 6.6.8(i)
attributable to state and local taxes for (x) operations of the
Reunion Selling Group prior to or including the Tax Effective Date,
(y) the deemed sale of the assets of REC and Subsidiary on the Tax
Effective Date (including any liability that arises because any such
corporation ceases on the Tax Effective Date to be a member of the
Reunion Group), and (z) the period from the Effective Date to the Tax
Effective Date, if any.
(ii) Except as provided in Section 6.6.8(i) above, all liabilities
for taxes other than federal income taxes relating to periods ending
prior to or on the Tax Effective Date shall be deemed Losses subject
to the provisions of Section 6.4.1.
6.7 HSR Filing. Each of the Shareholder and the Purchaser shall cause
----------
their respective filings, if any, required pursuant to HSR to be made no later
than November 30, 1995 with respect to the transactions contemplated by this
Agreement.
6.8 (S) 338(h)(10) Election. At Purchaser's option exercised by
--------------------
delivering written notice thereof before the Closing Date, Shareholder and
Purchaser shall timely make a joint election pursuant to Section 338(h)(10) of
the Internal Revenue Code of 1986, as amended (the "Code"), and Treas. Reg. (S)
1.33(h)(10)-1T(d)(1) for federal, state and local income tax purposes with
respect to Purchaser's purchase from Shareholder of the Shares such that (i)
REC will be treated as having sold all of its assets in a single transaction
immediately prior to the purchase and sale of the Shares on the Closing Date and
while a member of the group of persons included in Shareholder's tax reports,
statements and returns ("Shareholder Group"), with Shareholder recognizing all
gain or loss with respect thereto, and (ii) Shareholder will recognize no gain
or loss with respect to its sale of the Shares to Purchaser. The election will
include the execution and filing of Internal Revenue Service Form 8023-A
pursuant to the requirements thereof. If Purchaser determines that such
election is to be made, Purchaser shall, within 60 days after the Closing Date,
provided to Shareholder an allocation of the deemed purchase price among REC's
assets in compliance with Temp. Treas. Reg. (S) 1.338(b)-2T(b), which shall be
binding upon Purchaser and Shareholder unless Shareholder delivers to Purchaser
a written objection to such allocation within 80 days after the Closing Date.
If Purchaser and Shareholder are unable to agree on such allocation within 90
days after the Closing Date, then
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Price Waterhouse, Houston, Texas, shall make a binding determination with
respect to such allocation, the fees and expenses of which shall be paid equally
by Shareholder and Purchaser.
6.9 Books and Records. Immediately after the Closing Date, Shareholder
-----------------
will deliver to Purchaser all books, papers, files and records (including the
corporate minute books and corporate seals, personnel records, financial
statements and related work papers) that relate to REC and the Subsidiary that
are in the possession of Shareholder or any agent thereof and not in the
possession of REC or the Subsidiary.
6.10 Books and Records; Access. Unless otherwise consented to in writing
-------------------------
by Shareholder, for a period of seven years after the Closing Date, Purchaser
shall not destroy or otherwise dispose of any original books or records of REC
or the Subsidiary relating to the business of REC or the Subsidiary for any
accounting period ended on or before the Closing Date without first offering to
surrender such books and records to Shareholder, and shall maintain such books
and records in good condition in a reasonably accessible location. Upon
reasonable prior notice, the Purchaser shall afford Shareholder reasonable
access during normal business hours to examine and copy such books and records
for any commercially reasonable purpose.
ARTICLE VII
Miscellaneous
-------------
7.1 Entirety. This Agreement embodies the entire agreement between the
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parties and there have been and are no agreements, representations, or
warranties between the parties other than those set forth herein or those
provided for herein.
7.2 Counterparts. Any number of counterparts thereof may be executed
------------
and each such counterpart shall be deemed to be an original instrument, but all
such counterparts together shall constitute but one instrument.
7.3 Notices and Waivers. Any notice or waiver to be given to any party
-------------------
hereto shall be in writing and shall be deemed to have been duly given if
delivered by courier, or sent by prepaid full rate telegram or facsimile
transmission: (i) if to Purchaser, addressed to Bargo Energy Company at 700
Louisiana Street, Suite 4650, Houston, Texas 77002 (or at 713-236-9799 if by
FAX), attention: Tim J. Goff, with a copy to Lowrey & Millikin, L.L.P., 1127
Judson Road, Suite 141, Longview, Texas 75601 (or at 903-236-3050 if by FAX),
attention: J. Richard Millikin, Jr., or (ii) if to Shareholder, addressed to
Reunion Resources Company at 2801 Post Oak Boulevard, Suite 400, Houston, Texas
77056 (or at 713-627-2069 if by FAX), attention: Thomas N. Amonett, with a copy
to Porter & Hedges, L.L.P., 700 Louisiana Street, 35th Floor, Houston, Texas
77002 (or at 713-228-1331 if by FAX), attention: T. William Porter.
7.4. Captions. The table of contents and captions contained in this
--------
Agreement are solely for convenient reference and shall not be deemed to affect
the meaning or interpretation of any Article, Section, Paragraph or Clause
hereof.
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<PAGE>
7.5 Successors and Assigns. This Agreement shall be binding upon and
----------------------
shall inure to the benefit of and be enforceable by the successors and assigns
of the parties hereto.
7.6 Severability. If any term, provision, covenant, or restriction of
------------
this Agreement is held by the final, nonappealable order of a court of competent
jurisdiction to be invalid, void, or unenforceable, the remainder of the terms,
provisions, covenants, and restrictions shall remain in full force and effect
and shall in no way be affected, impaired, or invalidated. It is hereby
stipulated and declared to be the intention of the parties that they would have
executed the remaining terms, provisions, covenants, and restrictions without
including any of such which may be hereafter declared invalid, void, or
unenforceable.
7.7 Applicable Law. This Agreement shall be governed and enforced in
--------------
accordance with the internal law, and not the law of conflicts of the State of
Texas.
7.8 Fees and Expenses. Purchaser shall bear all of its legal and
-----------------
accounting fees, engineering fees and expenses, travel expenses and other costs
and expenses incurred by it in connection with the negotiation of this Agreement
and the transactions contemplated hereby; and Shareholder shall bear all of the
legal expenses and other costs and expenses incurred by Shareholder, REC,
Subsidiary or any of their respective affiliates in connection with the
negotiation of this Agreement and the transactions contemplated hereby.
7.9. Further Assurances. After the Closing Date, the Purchaser shall and
------------------
shall cause REC to, and the Shareholder shall execute, acknowledge and deliver
all such instruments, certificates, deeds and other documents as may be
necessary or appropriate to further effect, formalize or finalize the
transactions contemplated by this Agreement or which were effected or instituted
prior to this Agreement; provided that such transactions do not result in a
breach of any of the representations or warranties herein contained.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed in their respective names by their respective duly authorized
representatives as of the day and year first above written.
SIGNATURES ARE ON THE FOLLOWING PAGE.
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REUNION RESOURCES COMPANY
("Shareholder")
By: /s/ Richard L. Evans
--------------------------
Richard L. Evans,
Executive Vice President
BARGO ENERGY COMPANY
("Purchaser")
By: /s/ Tim J. Goff
--------------------------
Tim J. Goff, Manager
40
