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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) April 2, 1996
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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.)
One Stamford Landing, 62 Southfield Avenue. Stamford, CT 06902
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (203) 324-8858
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Not Applicable
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(Former name or former address, if changed since last report)
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ITEM 5. OTHER EVENTS
On April 2, 1996, Reunion Resources Company ("Reunion") and Tribo Petroleum
Corporation ("Tribo") entered into a Stock Purchase Agreement (the "Agreement")
pursuant to which Tribo has agreed to purchase from Reunion all of the issued
and outstanding capital stock of Reunion Energy Company, Reunion's wholly-owned
subsidiary engaged in oil and gas operations. The purchase price is $11,375,000,
subject to possible adjustments, of which $9,675,000 will be payable in cash
upon closing and $1,700,000 will be payable pursuant to a promissory note due
six months after closing. The transaction is scheduled to close on May 1, 1996,
subject to satisfaction of customary closing conditions, including Tribo's
obtaining of financing.
Reunion's April 4, 1996 press release concerning this matter is attached
hereto as an exhibit and incorporated herein by reference. The description
herein (including in such press release) of the transactions covered by the
Agreement is qualified in its entirety by reference thereto which also is
attached as an exhibit to this Form 8-K.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Businesses Acquired. Not applicable.
(b) Pro Forma Financial Information. Not applicable.
(c) Exhibits.
2.1 Stock Purchase Agreement, dated April 2, 1996, between Tribo
Petroleum Corporation and Reunion Resources Company (filed
herewith without exhibits or schedules which will be
furnished supplementally to the Commission upon its
request).
99 Press Release of Reunion Resources Company dated April 4,
1996 (filed herewith).
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
April 9, 1996 REUNION RESOURCES COMPANY
By: /s/ Richard L. Evans
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Richard L. Evans,
Executive Vice President
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EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
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STOCK PURCHASE AGREEMENT, dated as of April 2, 1996 ("Agreement"), by and
between Tribo Petroleum Corporation, a Texas corporation (the "Purchaser"), or
its wholly owned subsidiary as permitted by Section 7.5 hereof (the "Permitted
Sub") and Reunion Resources Company, a Delaware corporation (the "Shareholder").
W I T N E 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 principal executive offices at 2801 Post
Oak Boulevard, Suite 400, Houston, Texas 77056; and
WHEREAS, the Shareholder is a corporation duly organized and validly
existing under the laws of the State of Delaware, with its principal executive
offices at One Stamford Landing, 62 Southfield Ave., Stamford, Connecticut
06902: and
WHEREAS, the Purchaser is a corporation duly organized and validly existing
under the laws of the State of Texas, with its principal executive offices at
1100 Louisiana, Suite 2880, 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. Subject to the terms and conditions of this
Agreement, the Shareholder hereby agrees to sell to the 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
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 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 be subject to
adjustment as provided for in Section 6.1 hereof.
1.3 Consideration. On the Closing Date, the Purchaser shall deliver to
the Shareholder aggregate consideration in the amount of $11,375,000, as
adjusted by the Effective Date Working Capital Balance (defined in Section
2.2.8) in accordance with Section 6.1.1 and any additional adjustments pursuant
to Section 6.1 and any other applicable terms hereof. The Purchase Price shall
be payable (i) except as noted below, by execution and delivery by the Purchaser
of a promissory note payable to the Shareholder in the original principal amount
of $1,700,000, substantially in the form of Exhibit "A" hereto (the "Note"); and
the balance of the Purchase Price, as adjusted, 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.
Except as noted below, the Note will be secured by a pledge by the Purchaser of
the Shares acquired hereunder as evidenced by a Pledge Agreement substantially
in the form of Exhibit "B" hereto. If the Purchaser elects to assign its
rights, and delegate its duties and obligations hereunder to the Permitted Sub
(the "Permitted Assignment"), each of the Note and Pledge Agreement shall be
executed and delivered by the Permitted Sub and the Purchaser will execute and
deliver to the Shareholder a guaranty agreement substantially in the form of
Exhibit "C" hereto (the "Guaranty").
1.4 Closing Date. Consummation of the transactions contemplated by this
Agreement (the "Closing") shall take place on or before May 1, 1996 or on such
later date as may be agreed to in writing by both the Purchaser and the
Shareholder (the "Closing Date"). The consummation shall be effected at the
offices of Merrill Corporation, 1001 Fannin, Suite 1300, 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
by this Agreement shall be January 1, 1996 (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 the Shareholder
2.1 Representations and Warranties of the Purchaser. The Purchaser
hereby represents and warrants as follows:
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2.1.1 Organization and Standing. The Purchaser is a corporation
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 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 of this Agreement and all other agreements which are exhibits to
this Agreement (the "Related Agreements") have been authorized by the board
of directors of the Purchaser; 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 Purchaser; and this
Agreement and the Related Agreements are or will be when executed 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
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
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 articles of incorporation or bylaws of
the Purchaser, or (ii) except as disclosed on Schedule 2.1.4 for which
consents or waivers have been or by the Closing Date, will be obtained, 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
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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
2.1.5, (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
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
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 the
financial advisory fees to be paid to The GulfStar Group, Inc. by the
Purchaser and financial advisory fees to be paid to Petrie Parkman & Co. by
the Shareholder.
2.1.7 Investment Suitability and Investment Representations. The
Purchaser acknowledges and agrees that (i) it is knowledgeable in
operations of the type conducted by REC, (ii) the Shareholder has made
available to it extensive legal, financial, accounting and other business
records of REC for examination by it, (iii) the 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) the Shares are being acquired by the Purchaser for the
account of the Purchaser for investment
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and not with a view to the distribution thereof within the meaning of the
Securities Act of 1933, as amended.
2.2 Representations and Warranties of the Shareholder. The Shareholder
represents, warrants, and agrees as follows:
2.2.1 Organization and Standing. The Shareholder is a corporation
duly organized, 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 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
Shareholder and its subsidiaries, taken as a whole.
2.2.2 Title to the Shares. The Shareholder has valid and marketable
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 (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.
2.2.3 Voting Arrangements. None of the Shares is subject to any
voting 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.
2.2.4 Organization and Standing of REC. REC is a corporation duly
organized, 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.
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2.2.5 Capitalization. The authorized capital stock of REC consists
of 1,000 shares of common stock, par value $1.00 per share, all of which
are issued and outstanding and held beneficially and of record by the
Shareholder. REC does not have outstanding any convertible securities,
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.
2.2.6 Subsidiaries. As of the Closing Date, Reunion Operating
Company, a Delaware corporation ("Subsidiary"), is REC's sole subsidiary
corporation. The authorized capital stock of Subsidiary consists of 1,000
shares of common stock, par value $1.00 per share, of which 1,000 shares
are issued and outstanding. All outstanding shares of stock of the
Subsidiary are owned beneficially and of record by REC and 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 condition of REC and Subsidiary, taken as a
whole. Subsidiary does not have any outstanding convertible securities,
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.
2.2.7 Assets and Title to Assets. The Purchaser and the Shareholder
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:
2.2.7.1 Properties. All those oil, gas and mineral
properties described on Schedule 2.2.7.1 (the "Properties"), each of
which Properties is listed with its Allocated Value (as hereinafter
defined).
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2.2.7.2 Investments. (i) 100% of the outstanding capital
stock of the Subsidiary.
2.2.7.3 Other Assets. (i) The prospect inventory described
on Schedule 2.2.7.3(A); (ii) the financial assets, subject to the
financial liabilities, each as disclosed in Section 6.1.1.1; and
(iii) all other assets of REC and Subsidiary owned on the date
hereof, except for any assets listed on Schedule 2.2.7.3(B)
("Excluded Assets") transferred to the Shareholder, or any other
direct or indirect subsidiary of the Shareholder other than REC or
Subsidiary after the Effective Date (the "Recapitalization").
2.2.7.4 Definition of Marketable Title. The Shareholder
represents and warrants that each of REC and Subsidiary (each of
which is referred to for purposes of Section 2.2.7 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
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 each Owner to receive not less than the interest
set forth in Schedule 2.2.7.1 under the caption "Net Revenue
Interest" or "NRI" (hereinafter called the "Net Revenue
Interest") with respect to such Property, without suspense or
indemnity not ordinarily contained in division orders, except as
otherwise disclosed in Schedule 2.2.7.1; and
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(iii) obligates either 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 2.2.7.1 (hereinafter called the "Working Interest")
with respect to such Property unless such increased Working
Interest share is accompanied by a corresponding increase in Net
Revenue Interest for the affected Property over the Net Revenue
Interest shown on Schedule 2.2.7.1.; and
(iv) except for Permitted Encumbrances (as hereinafter
defined), is free and clear of all Encumbrances.
2.2.7.5 Representations Regarding Properties. Subject to
Permitted Encumbrances, the Shareholder represents and warrants to
the Purchaser, its successors and assigns, that each Owner's Working
Interest and Net Revenue Interest in each Property as set forth in
Schedule 2.2.7.1, 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 such 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 either
Owner below the Net Revenue Interest for such Property (or any
well located thereon) as set forth in Schedule 2.2.7.1;
(ii) division orders and sales contracts terminable without
penalty upon no 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
2.2.7.5;
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(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 filed or perfected pursuant to law, (b) if filed or
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;
(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,
value or use of any of the Properties;
(ix) all other liens, charges, encumbrances, operating
agreements, unitization agreements, pooling agreements,
declarations of pooling or unitization, farmout agreements,
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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 either Owner from receiving the
proceeds of production from any property comprising any of the
Properties; (c) do not reduce the interest of such 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 either Owner is
obligated to pay above the Working Interest set forth in Schedule
2.2.7.1 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 any governmental authority with regard to which neither
Owner has received any notice of any adjustment to Net Revenue
Interest or Working Interest as a result of any applicable
governmental action;
(xi) any Title Defects that the Purchaser may have expressly
waived in writing or which are disclosed on Schedule 2.2.7.1; and
(xii) the production imbalances and gas sales
contracts listed in Schedule 2.2.7.5.
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.
2.2.7.6 Leases and Wells. With respect to the Properties of
each Owner, to the Shareholder's knowledge
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and except as disclosed in Schedule 2.2.7.6, (i) all royalties due
and payable with respect to each Owner's interest in the Properties
(except for royalties suspended in the ordinary course of business)
have been properly paid and in the case of shut-in royalties timely
and properly paid; (ii) all of the wells included in the oil and gas
leases comprising the Properties which are operated by each Owner
have been drilled within the boundaries of the Properties or within
the limits otherwise permitted by contract, pooling or unit
agreement; and (iii) none of the Properties is subject to any area of
mutual interest agreement, or any farmout or farmin agreement
pursuant to which, as of the date hereof, either Owner has any
remaining material obligations.
2.2.7.7 Marketing. With respect to the Properties of each
Owner, to the Shareholder's knowledge and except as disclosed on
Schedule 2.2.7.7, (i) none of the oil and gas production from the
Properties is subject to a sales contract (except for contracts
terminable without penalty by Owner on not more than 90 days notice),
(ii) proceeds from the sale of oil and gas from each Owner's interest
in the Properties are being received by such Owner in a timely manner
and are not being held in suspense, (iii) neither Owner is obligated
by virtue of any prepayment made under any production sales contract
or any other contract containing a "take or pay" clause, or under any
gas balancing, deferred production or similar arrangement to deliver
oil or gas from either Owner's interest in the Properties at some
future time without receiving full payment therefor at the time of
delivery, and (iv) there are no gas imbalances as between either
Owner and any third party with respect to production from the
Properties.
2.2.7.8 Operating Agreements. With respect to the joint,
unit or other operating agreements burdening either Owner's interest
in the Properties, to the Shareholder's knowledge and except as
disclosed on Schedule 2.2.7.8, (i) there are no outstanding calls or
prepayments due from either Owner to any Operator under authorities
for expenditures ("AFE's"); and (ii) there are no operations under
the operating agreements with respect to which either Owner has
become a non-consenting party.
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2.2.7.9 Filings. To the Shareholder's knowledge, neither REC
nor Subsidiary has violated, and neither REC nor Subsidiary will as
of the Closing Date be in violation of, any provisions of any federal
or state law or any of the regulations thereunder (including those of
the respective conservation commissions and land offices of the
various jurisdictions having authority over the Properties) with
respect to the Properties except for such violations which would not
have a material adverse effect on REC and Subsidiary, taken as a
whole, and REC and Subsidiary have or will as of the Closing Date
have made all necessary rate filings, certificate applications, well
category filings, interim collection filings and notices, and any
other regulatory filings or certifications and has or will as of the
Closing Date have received all necessary regulatory authorizations
(including, without limitation, necessary authorizations, if any,
with respect to the processing arrangements conducted by REC or
Subsidiary respecting the Properties) required under said laws and
regulations with respect to all of the Properties and production
therefrom to the extent that the failure to do so would have a
material adverse effect on REC and Subsidiary, taken as a whole. To
the Shareholder's knowledge, said material rate filings, certificate
applications, well category filings, interim collection filings and
notices and other filings and certifications contain no untrue
statements of material facts nor do they omit any statements of
material facts necessary to make the statements made therein not
misleading.
2.2.7.10 Representations Respecting Investments. The
Shareholder 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.
2.2.7.11 Representations Respecting Other Assets. Each Owner
has good title to its assets referred to in Section 2.2.7.3(iii)
(collectively, the "Other Assets"), to the extent necessary to carry
on its businesses, free and clear of any Encumbrances except
Permitted Encumbrances and except such as do not (i) interfere with
the use made and proposed to be made of the Other Assets by the Owner
thereof and (ii) materially affect the value of the Other Assets of
each Owner considered as a whole, and, with minor exception, all
production equipment and fixtures
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included in the Other Assets are in good operating condition, normal
wear and tear excepted. Except as set forth in this Section 2.2.7.11,
the Shareholder makes no representations or warranties respecting
title to or the condition of the Other Assets.
2.2.8 Effective Date Working Capital Balance. As used herein, the
term "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 December 31, 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
December 31, 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 December 31, 1995 calculated as set forth above is set forth in the
Effective Date Balance Sheet. The Effective Date Balance Sheet has been
prepared based upon the December 31, 1995 combined statement of assets and
liabilities attributable to oil and gas operations included in the
Financial Statements (as defined in Section 2.2.28 below) and, except for
adjustments contemplated by this Agreement which are accurately reflected
therein, such Effective Date Balance Sheet was prepared in accordance with
generally accepted accounting principles and fairly presents the
consolidated financial position and results of operations of REC as of
December 31, 1995.
2.2.9 Liabilities. All debts, liabilities and obligations of any
nature, whether accrued, absolute, contingent or otherwise of REC and
Subsidiary which existed on the respective dates of the Financial
Statements (as defined in 2.2.28 below) and which under generally accepted
accounting principles would be required to appear on such Financial
Statements have been properly accrued and (except for deferred lease
obligations and "Excluded Liabilities" each of which are reflected on
Schedule 2.2.9, for which appropriate adjustment has been made in
determining the Purchase Price) are reflected on such Financial Statements
and in the computation of the
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Effective Date Working Capital Balance calculated in accordance with
Section 2.2.8. All debts, liabilities and obligations incurred after the
date of such Financial Statements were incurred (i) in the ordinary course
of business, and are usual and normal in amount both individually and in
the aggregate; or (ii) as otherwise contemplated by this Agreement.
2.2.10 Investigations; Litigation. Except as disclosed in
Schedule 2.2.10, (i) no investigation or review by any governmental entity
with respect to the Shareholder, REC or Subsidiary or any of the
transactions contemplated by this Agreement is pending or, to the best of
the Shareholder's knowledge, threatened, nor has any governmental entity
indicated to the Shareholder, REC or Subsidiary an intention to conduct the
same, and (ii) there is no action, suit or proceeding pending or, to the
best of the Shareholder's knowledge, threatened against or affecting the
Shareholder, 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.
2.2.11 Guarantees and Contingent Obligations. Except as
disclosed on Schedule 2.2.11, 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.
2.2.12 No Defaults. There is not existing any default, nor is
there existing any event or circumstance which with notice or lapse of time
(or both) 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.
2.2.13 Absence of Certain Changes and Events. Other than as a
result of (i) 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 December 31, 1995 there has not been:
2.2.13.1 Property Damage. Any damage, destruction, or loss
to the business or properties of REC or Subsidiary (whether or not
covered by insurance) materially
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and adversely affecting the business or properties of REC and
Subsidiary taken as a whole;
2.2.13.2 Dividends. Any declaration, setting aside, or
payment 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;
2.2.13.3 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
2.2.13.4 Other Material Changes. Any other fact,
circumstance, 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;
2.2.13.5 Labor. Any labor trouble or other event or
condition of any character materially and adversely affecting REC and
the Subsidiary, taken as a whole;
2.2.13.6 Accounting Change. Any change in accounting methods
or practices (including, without limitation, any change in depletion,
depreciation or amortization policies or rates) by REC or the
Subsidiary;
2.2.13.7 Re-valuation of Assets. Any re-valuation by REC or
the Subsidiary of any of its Properties or assets except any re-
valuation (i) resulting from entry into this Agreement by the
Shareholder ; or (ii) which would not have a material adverse effect
on REC and Subsidiary, taken as a whole;
2.2.13.8 Compensation Increases. Any increase in the salary
or other compensation payable or to become payable by REC or the
Subsidiary to any of its officers, directors or employees, or the
declaration, payment or commitment or obligation of any kind for the
payment by REC or the Subsidiary of a bonus or other additional
salary or compensation to any such person, except as otherwise
contemplated by the Transition Agreement;
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2.2.13.9 Sale of Property. Any sale or transfer of any
Property or material Other Asset of REC or the Subsidiary, except in
the ordinary course of business;
2.2.13.10 Amendment of Contracts. Any amendment or
termination by REC or Subsidiary of any material contract to which
REC or the Subsidiary is a party, except in the ordinary course of
business or by operation of the terms thereof;
2.2.13.11 Loans and Intercompany Advances. Any (i) loans or
intercompany advances by REC or the Subsidiary to any person other
than to the Shareholder or its subsidiaries, which loans or
intercompany advances will not, without the express written consent
of the Purchaser, exceed $1,350,000 in the aggregate and to the
extent such permitted loans or intercompany advances are outstanding
on the Closing Date, will be repaid by reducing the Purchase Price
pursuant to Section 6.1; or (ii) guaranty by REC or Subsidiary of any
loan;
2.2.13.12 Mortgage or Pledge. Any mortgage, pledge or other
encumbrance of any Property or material Other Asset of REC or the
Subsidiary except Permitted Encumbrances and as to the Other Assets,
those contemplated by Section 2.2.7.11;
2.2.13.13 Waivers. Any waiver or release of any material
right or claim of REC or the Subsidiary, except to the extent that
such right or claim is an Excluded Asset; or
2.2.13.14 Other Agreements. Any agreement by REC or the
Subsidiary to do any of the things described above.
2.2.14 No Affiliate Farmouts. Neither REC nor Subsidiary is a
party to any farmout, farmin or similar agreement with the Shareholder or
any of its other affiliates (except for any such agreements entered into on
or before December 31, 1995 and previously disclosed in writing to the
Purchaser), nor does REC or Subsidiary have any understandings or
arrangements to similar effect.
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2.2.15 Compliance With Law.
2.2.15.1 Hazardous Wastes and Substances. Except as set
forth in Schedule 2.2.15.1 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 $40,000, (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 (collectively,
"Environmental Defects"), 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 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.
(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 2.2.15.1, the Shareholder
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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.
2.2.15.2 Other Laws. Except as set forth in Schedule
2.2.15.2, 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. This section 2.2.15.2
does not cover Applicable Environmental Laws or Environmental
Defects.
2.2.16 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; 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 or will be
when executed the legal, 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.
2.2.17 Finder's and Similar Fees. All negotiations relative to
this Agreement and the transactions contemplated hereby have been carried
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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 and the financial advisory fees to be paid to The GulfStar
Group, Inc. by the Purchaser.
2.2.18 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.
2.2.19 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 2.2.19 for which consents or waivers have been or by
the Closing Date, will be obtained, 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.
2.2.20 Insurance. A description of all insurance policies held
by REC or the Subsidiary concerning their respective business and
properties are set forth on Schedule 2.2.20 hereto. All of these policies
are in the respective principal amounts set forth in such Schedule. REC
and Subsidiary have in effect insurance coverage with reputable insurers,
which in respect of amounts, types and risks insured, is that which is
usual and customary in the oil and gas industry for prudent owners and
operators of properties similar to the Properties.
2.2.21 Investment Company Act. Each of REC and Subsidiary is
not an "investment company," or a company "controlled" by an "investment
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company," within the meaning of the Investment Company Act of 1940, as
amended.
2.2.22 Public Utility Holding Company Act. Each of REC and
Subsidiary 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.
2.2.23 Compliance with ERISA.
2.2.23.1 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").
2.2.23.2 Plan Termination: Material Liabilities. There has
been no termination of an "employee benefit plan" as defined in ERISA
("Plans") 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.
2.2.23.3 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 December
31, 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.
2.2.23.4 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
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of the representation in this Section 2.2.23.4, 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.
2.2.23.5 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.
2.2.23.6 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.
2.2.23.7 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.
2.2.24 Oil and Gas Reserves. The Shareholder and/or REC has
furnished the Purchaser estimates of REC's proved oil and gas reserves as
of January 1, 1996 in reports as described in Schedule 2.2.24
(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.
2.2.25 Contracts. Except for matters disclosed in Schedule
2.2.25 and matters expressly permitted by this Agreement or the Transition
Agreement, (a) to the Shareholder's knowledge, all material contracts to
which REC and Subsidiary are parties are valid and subsisting and are in
full force and effect; and (b) 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
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Effective Date, without further liability on the part of REC, Subsidiary or
the Purchaser; (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 $25,000 for
any one project; (v) material contract or commitment made in the ordinary
course of business for the purchase of materials or 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 $25,000 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) material 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 2.2.25 have been delivered to or made
available to the Purchaser.
2.2.26 Representations, Warranties and Covenants Regarding
Taxes. The Shareholder represents, warrants, and covenants as follows:
(i) The 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
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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 2.2.26, 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 pending or
unsettled) by any taxing authority in connection with any returns and
reports referred to in this Section 2.2.26 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 2.2.26, 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
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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. As of
December 31, 1995, the consolidated net operating loss carry forward
of REC and Subsidiary is approximately $22,700,000 (the "NOL"). The
Shareholder makes no other representation or warranty concerning the
NOL, including, without limitation, the extent to which the NOL may
or may not benefit or detriment the Purchaser, REC or Subsidiary.
2.2.27 Acquisition Proposals. Since February 19, 1996, none of
the Shareholder, REC or Subsidiary (nor any of their respective officers,
directors, affiliates, representatives or agents) has directly or
indirectly, (i) solicited, initiated or encouraged any inquiries or
Acquisition Proposals (as defined below) from any person other than the
Purchaser or its representatives, or (ii) participated in any discussions
or negotiations regarding, furnished to any person other than the Purchaser
or its representatives any information with respect to or otherwise
assisted, facilitated or encouraged 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.
2.2.28 Financial Statements. Attached hereto as Schedule 2.2.28
is a true, correct and complete copy of the audited combined statement of
assets and liabilities attributable to oil and gas operations of REC as of
December 31, 1995 and the related combined statement of revenues and
expenses attributable to oil and gas operations and combined statement of
cash flow attributable to oil and gas operations for the one-year period
ending on such date (along with the notes thereto and the management letter
delivered in connection therewith, if any) accompanied by the opinion of
Arthur Andersen, L.L.P. Also attached hereto as Schedule 2.2.28 is the
unaudited combined statement of assets and liabilities attributable to oil
and gas operations of REC as of January 31, 1996 together with the related,
unaudited combined statement of revenues and expenses attributable to oil
and gas operations and combined statement of cash flow attributable to oil
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and gas operations for the one-month period ending on such date, certified
by the Chief Financial Officer of REC. All the foregoing are collectively
the "Financial Statements." The Financial Statements have been prepared in
accordance with generally accepted accounting principles, consistently
followed by REC throughout the periods and operations indicated and fairly
present the consolidated financial position and results of operations of
REC as of the respective dates and for the respective periods and
operations indicated.
2.2.29 Full Disclosure. The representations and warranties made
by the Shareholder in this Agreement and in any certificate, document or
instrument which this Agreement requires the Shareholder to deliver to the
Purchaser do not contain any statement of material fact which the
Shareholder knows is untrue or omit to state any material fact known to
the Shareholder and necessary in order to make such representations and
warranties not collectively materially misleading.
ARTICLE III
Obligations of the Purchaser and the
Shareholder Pending Closing Date
3.1 Agreements of the Shareholder. The Shareholder agrees that from the
date hereof 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 the Shareholder, REC, Subsidiary or the Shares that would
or might reasonably be expected to adversely affect REC, Subsidiary or the
consummation of the transactions contemplated by this Agreement.
3.1.4 Agreements of the 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.
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(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 good
repair, order and condition, normal wear and tear excepted,
consistent with past practices.
(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. The 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 the 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
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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. Neither
REC nor Subsidiary shall enter into any contracts of employment which
cannot be terminated on notice of 30 days or, less or except as
contemplated by the Transition Agreement, 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 provided, however, if
such borrowings are approved by the Purchaser and are from the
Shareholder or its subsidiaries, a dollar-for-dollar adjustment in
the Purchase Price shall be made on the Closing Date pursuant to
Section 6.1 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, and (c) 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 individually over $25,000 or in the aggregate over
$250,000, 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 or equivalent
replacement policies, which
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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.
3.1.5 No Prohibited Contracts. Neither REC nor the Subsidiary shall
enter into (i) any farmout, farmin or agreement of similar effect with the
Shareholder or any affiliates of the Shareholder or (ii) any contract,
commitment or agreement described in Section 2.2.25(b) hereof unless
consented to in writing by the Purchaser.
3.1.6 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
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will exercise its election under Section 6.1.2(iii) to cause such property
to be transferred to the Shareholder or its designee.
3.1.7 Acquisition Proposals. Except as permitted below, at any time
prior to the termination of this Agreement pursuant to Article V hereof,
none of the 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 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. The Shareholder shall promptly communicate to the 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. Notwithstanding the foregoing and subject to the last sentence of
this Section 3.1.7, the solicitation of an Acquisition Proposal by the
Shareholder, REC or Subsidiary (or any of their respective officers,
directors, affiliates, representatives or agents) may occur if (i) a lender
providing purchase money financing to the Purchaser for the acquisition of
the Shares has not commenced such lender's approval process for such
financing by April 10, 1996, such approval process being based upon a
minimum loan amount of $9,300,000; or (ii) a lender has not delivered its
formal letter of commitment or other written assurances to the Purchaser to
provide purchase money financing for the Shares by April 19, 1996 which
commitment or other assurances shall be for at least $9,300,000; or (iii)
such lender has at any time notified the Purchaser or the Shareholder
believes, and the Purchaser in good faith confirms, that such lender will
not approve or make such financing. In the event of any of the foregoing,
the Shareholder may not terminate this Agreement pursuant to Article V
hereof before May 1, 1996 solely by reason of (i), (ii) or (iii) above.
Any permitted Acquisition Proposals hereunder shall be subject to the
rights of the Purchaser herein and will only become effective upon
termination of this Agreement in accordance with Article V hereof.
3.2 Agreements of the Purchaser. The Purchaser agrees that from the date
hereof to the Closing Date:
3.2.1 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.
3.2.2 Notice of Adverse Change. The Purchaser will promptly notify
the Shareholder in writing of any material adverse change in, or any
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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.
3.2.3 Notice of Title Defects. On or before the Closing Date, 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.
3.2.4 Notice of Environmental Nonconformities. On or before the
Closing Date, the Purchaser will use its good faith, best commercial
efforts to notify the Shareholder in writing of any environmental
nonconformities with respect to the Properties which have been disclosed by
the Purchaser's Phase I environmental site assessments, which
nonconformities (if unremediated) would constitute a presumptive breach of
Section 2.2.15.1; provided, however, that the failure to so notify the
Shareholder shall not affect the rights or remedies the Purchaser shall
have under this Agreement or otherwise.
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
(i) which contain no materiality qualification shall be true and correct in
all material respects as of and at the Closing Date with the same effect as
those made at such date unless expressly made as of a specific date; and
(ii) which contain a materiality qualification shall be true and correct as
of and at the Closing Date with the same effect as though made at such date
unless expressly made as of a specific date, except, in the case of (i) and
(ii), as affected by transactions permitted or contemplated by this
Agreement ; and 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.
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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
Properties, Other Assets or 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 reasonably
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 and is qualified to transact business as a foreign
corporation in the State of Texas; (ii) the authorized capital stock of REC
consists of 1,000 shares of common stock, par value $1.00 per share, of
which on the Closing Date 1,000 shares were validly issued and outstanding
and the authorized capital stock of ROC consists of 1,000 shares of common
stock, par value $1.00 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, 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) except as specified in
Schedule 2.2.10 hereto or in a schedule to such opinion, to the knowledge
of such counsel, there is no litigation, proceeding or governmental
investigations 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, 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
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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 neither REC nor Subsidiary has any
default, and no event or circumstance has occurred which with notice or
lapse of time (or both) 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) neither REC nor Subsidiary is an "investment company," or a
company "controlled" by an "investment company," within the meaning of the
Investment Company Act of 1940, as amended; and (xii) neither REC nor
Subsidiary is 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 addition to the foregoing, if the Shareholder consummates the
proposed merger (the "Merger") contemplated by that certain Merger
Agreement dated as of November 14, 1995 between the Shareholder and Reunion
Industries, Inc., a Delaware corporation and a wholly owned subsidiary of
the Shareholder, the Purchaser shall have received an opinion, dated the
Closing Date from Porter & Hedges, L.L.P. in form and substance reasonably
satisfactory to the Purchaser, to the effect that Reunion Industries, Inc.
is the successor by merger to Reunion Resources Company.
Such opinion will be governed by and interpreted in accordance with
the Legal Opinion Accord of the ABA Section of Business Law (1991) and will
be subject to the General Qualifications (as defined therein). In
rendering such opinion such counsel may rely, to the extent reasonable,
upon certificates of public officials and of officers of the 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
the Purchaser, whether or not employed by the Shareholder.
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.
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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 otherwise provided 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 [Intentionally Left Blank]
4.1.8 Assumption of 401(k) Plan. REC and Subsidiary shall have
discontinued their participation in the Reunion Resources Company and
Subsidiary's 401(k) Savings Plan and Trust as amended ("401(k) Plan"), in
accordance with the requirements of the 401(k) Plan, ERISA and other
applicable law.
4.1.9 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 $240,000.
4.1.10 Assumption of Excluded Liabilities. The Shareholder
shall have assumed the Excluded Liabilities covered by 6.4.1 by execution
of documents the form of which are reasonably acceptable to the Purchaser
and its counsel.
4.1.11 Closing Certificate. The Purchaser shall have received
on the Closing Date a certificate or certificates, in form and substance
reasonably satisfactory to the Purchaser and its counsel, from appropriate
officers of the Shareholder certifying (i) the accuracy of the matters set
forth in Section 4.1.1 and 4.1.2 hereof; (ii) attached to such certificate
or certificates are true and correct copies of the Certificate of
Incorporation and Bylaws of the Shareholder, REC and the Subsidiary and
resolutions duly adopted by the Board of Directors of the Shareholder
authorizing the execution, delivery and performance of this Agreement and
the Related Agreements; and (iii) the incumbency of each officer executing
this Agreement and all documents and instruments executed in connection
herewith.
4.1.12 Consents. The Shareholder shall have obtained and
delivered to the Purchaser any agreements, consents and approvals of third
persons required to consummate the transactions contemplated by this
Agreement to the extent that the failure to obtain such agreements,
consents
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<PAGE>
and approvals would render such consummation unlawful or constitute a
material breach of the Shareholder's representations, warranties or
covenants contained in this Agreement.
4.1.13 Approval of Documents. The form of all certificates,
instruments, opinions and other documents delivered to the Purchaser under
this Agreement shall be satisfactory in all reasonable respects to the
Purchaser and its counsel.
4.1.14 Satisfactory Financing. The Purchaser shall have, after
using its best commercial efforts obtained purchase money financing of the
Purchase Price for the Shares on terms satisfactory to the Purchaser in its
sole discretion.
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
(i) which contain no materiality qualification 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 unless expressly made as of a specific date; and
(ii) which contain a materiality qualification shall be true and correct as
of and at the Closing Date with the same effect as though made at such date
unless expressly made as of a specific 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 or complied with by it
prior to the Closing Date.
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 Keck, Mahin & Cate,
counsel to the Purchaser, in form and substance reasonably satisfactory to
the Shareholder, to the effect that (i) the Purchaser has been duly
organized and is validly existing as a corporation in good standing under
the laws of the State of Texas; (ii) all corporate proceedings required to
be taken by or on the part of the Purchaser to authorize the execution of
this
34
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Agreement and the Related Agreements including, without limitation,
the Note and the Pledge Agreement or, if the Permitted Assignment is
consummated, the Guaranty and the implementation of the transactions
contemplated by this Agreement and the Related Agreements have been duly
and properly taken; (iii) except as specified in a schedule to such
opinion, to the knowledge of such counsel, 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, except as set forth below including, without limitation, the
Note and the Pledge Agreement or, if the Permitted Assignment is
consummated, the Guaranty has been duly executed and delivered by the
Purchaser and 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.
In addition to the foregoing, if Purchaser elects to assign its
rights, duties and obligations hereunder to the Permitted Sub, the
Shareholder shall have received an opinion, dated the Closing Date from
Keck, Mahin & Cate, in form and substance reasonably acceptable to the
Shareholder, to the effect that (i) the Permitted Sub has been duly
organized and is validly existing as a corporation in good standing under
the laws of the State of Texas; (ii) all corporate proceedings required to
be taken by or on the part of the Purchaser to assign its rights, duties
and obligations under this Agreement and by Permitted Sub to assume such
rights, duties and obligations have been duly and properly taken; (iii)
Purchaser's right and obligations under this Agreement have been assumed by
Permitted Sub; (iv) the Note and Pledge Agreement have been duly executed
and delivered by the Permitted Sub; and (v) this Agreement, the Note and
Pledge Agreement are the legal, valid and binding obligations of Permitted
Sub and an enforceable against Permitted Sub in accordance with their
respective 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.
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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 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 the 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 Purchase Price including, but
not limited to, the execution and delivery of the Note and Pledge
Agreement; provided that the amount of the Purchase Price may be adjusted
pursuant to Section 6.1 without affecting the obligation of the Shareholder
to consummate the transactions contemplated by this Agreement.
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 D, with such changes as are mutually acceptable to the
Purchaser and the Shareholder.
4.2.6 [Intentionally Left Blank]
4.2.7 Disputed Effective Date Working Capital Balance. The
Shareholder and the Purchaser shall not have a good faith Disputed
Difference greater than $240,000.
4.2.8 Closing Certificate. The Shareholder shall have received on
the Closing Date a certificate or certificates, in form and substance
reasonably satisfactory to the Shareholder and its counsel, from
appropriate officers of the Purchaser certifying (i) the accuracy of the
matters set forth in Section 4.2.1 and 4.2.2 hereof; (ii) attached to such
certificate or certificates are true and correct copies of the Articles of
Incorporation and Bylaws of the Purchaser, and resolutions duly adopted by
the Board of Directors of the Purchaser authorizing the execution, delivery
and performance of this Agreement and the Related Agreements; and (iii) the
incumbency of each officer executing this Agreement and all documents and
instruments executed in connection herewith.
4.2.9 Consents. The Purchaser shall have obtained and delivered to
the Shareholder any agreements, consents and approvals of third persons
required to consummate the transactions contemplated by this Agreement to
the extent that the failure to obtain such agreements, consents and
approvals would render such consummation unlawful or constitute a
36
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material breach of the Purchaser's representations, warranties or covenants
contained in this Agreement.
4.2.10 Approval of Documents. The form of all certificates,
instruments, opinions and other documents delivered to the Purchaser under
this Agreement shall be satisfactory in all reasonable respects to the
Shareholder and its counsel.
4.2.11 Permitted Assignment. If the Permitted Assignment is
consummated, the Purchaser shall have delivered documents to the
Shareholder which are reasonably satisfactory to the Shareholder evidencing
the assignment to and assumption by the Permitted Sub of the Purchaser's
rights and duties under this Agreement (except for the obligation of the
Purchaser to deliver the Guaranty).
ARTICLE V
---------
Termination and Abandonment
5.1 Termination. 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 Environmental Defects addressed separately in Section 5.1.6)
hereof has not been met by the Closing Date and has not been waived in
writing by the Purchaser and the party seeking to so terminate this
Agreement is otherwise in compliance with its obligations under this
Agreement.
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 in writing by the
Shareholder and the party seeking to so terminate this Agreement is
otherwise in compliance with its obligations under this Agreement.
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
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affect the consummation of the transactions contemplated hereby
and the party seeking to so terminate this Agreement is otherwise in
compliance with its obligations under this Agreement.
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 May 1, 1996 and the party seeking to so terminate this
Agreement is otherwise in compliance with its obligations under this
Agreement.
5.1.6 By the Purchaser or the Shareholder for Defects. By either
the Purchaser or the Shareholder if (1)(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 $480,000 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 $40,000,
unless such Environmental Defects are Excluded Liabilities assumed by the
Shareholder pursuant to Section 4.1.10; provided that the Purchaser shall
have no right of termination under clause (ii) of this Section 5.1.6 if the
Purchaser shall not have objected to the amount of liability accrued in the
Effective Date Balance Sheet with respect to Environmental Defects as
provided in Section 6.1.1.1 hereof and the (2) party seeking to so
terminate this Agreement is otherwise in compliance with its obligations
under this Agreement.
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
President or a Vice President 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. If this Agreement is terminated pursuant to,
and in accordance with the provisions of Section 5.1.1 or 5.1.5 hereof, then
neither party hereto shall be under any liability to the other party pursuant to
this Agreement. If this Agreement is terminated pursuant to any other provision
of Section 5.1 hereof, then (i) the party so terminating this Agreement shall
not have or be under any liability to the other party hereto, provided such
terminating party has not breached any representation or warranty or failed to
comply with any other agreement or covenant of such terminating party in this
Agreement and (ii) such termination shall not in any way limit or restrict the
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rights and remedies of any party hereto against any other party hereto who has
breached any of the agreements or other provisions of this Agreement prior to
the termination hereof.
5.4 Expense on Termination. If the transaction contemplated hereby is
abandoned pursuant to and in accordance with the provisions of this Article V,
all expenses of each party will be paid by the party incurring them.
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 Purchase Price 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. Attached hereto as Schedule 6.1.1.1 is a pro forma balance
sheet (which excludes Excluded Assets and Excluded Liabilities) of
REC and Subsidiary as at December 31, 1995 (the "Effective Date
Balance Sheet") and a statement (which excludes Excluded Assets and
Excluded Liabilities) of the Effective Date Working Capital Balance
("Balance Statement"). 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
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of the Effective Date Working Capital Balance set forth in the
Balance Statement on or before the Closing 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.
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 $240,000, 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 Closing 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
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Arbitration Accountant pursuant to this Section 6.1 shall be
borne 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
cash portion of 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.
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
2.2.8.
6.1.2.1 Title Defect Adjustment. The Purchase Price has also
been computed on the assumption that REC's and the Subsidiary'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 2.2.7.1 (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 as set forth in Schedule 2.2.7.1 (the
"Adjustment Fraction").
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6.1.2.2 Deemed Temporary Waiver of Property Title Defects and
Subsequent Cure or Price Adjustment or Retransfer. If, prior to the
Closing Date, the Purchaser asserts Title Defects affecting Properties (or
any portion thereof or interest therein) having aggregate Allocated Values
of less than $480,000 and, notwithstanding the Shareholder's compliance
with Section 3.1.6, the Title Defect cannot be cured to the satisfaction of
the Purchaser prior to the Closing Date, then the 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 the Shareholder has not
established at its own expense Marketable Title within 90 days following
the Closing Date (the "Final Title Curative Date"), then the Shareholder
shall pay to the 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 the 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
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.
6.1.2.3 Form of Adjustment. The full amount of any adjustment
pursuant to Section 6.1.2 shall be applied to the Purchase Price.
6.1.2.4 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 or Subsidiary as applicable set forth on Schedule 2.2.7.1 (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 or Subsidiary as applicable set forth on Schedule
2.2.7.1 (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
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in this Section such party shall promptly notify the other party of such
discovery.
6.1.3 Adjustment for Intercompany Indebtedness. To the extent that
any indebtedness of the Shareholder to REC or Subsidiary remains unpaid as
of the Closing Date as permitted by this Agreement, before Closing, at the
Shareholder's option, either the Shareholder shall cause the full amount
thereof to be repaid before Closing, or a dollar-for-dollar reduction in
the Purchase Price shall be made at Closing in the amount and in full
payment of all such indebtedness. To the extent that any indebtedness of
REC or Subsidiary to the Shareholder remains unpaid as of the Closing Date
which indebtedness shall have previously been approved by the Purchaser in
writing, before Closing, at the Purchaser's option, either REC shall cause
the full amount thereof to be repaid before Closing, or a dollar-for-dollar
increase in the Purchase Price shall be made at Closing in the amount and
in full payment of all such indebtedness. For purposes of Sections
2.2.13.11 and 3.1.4(viii) and this Section 6.1.3, "Shareholder" shall
include its subsidiaries other than REC and Subsidiary.
6.1.4 Adjustment for Certain Costs. Beginning on the Effective Date
and thereafter, the Shareholder (or its subsidiaries other than REC and
Subsidiary) shall bear all costs and expenses in respect of (i) the
principal offices occupied by the Shareholder and certain of its
subsidiaries (including REC and Subsidiary) located at 2401 Post Oak
Boulevard, Suite 400, Houston, Texas 77056 (the "Premises") pursuant to
that certain Lease Agreement, dated April 7, 1993, as amended, between
Westlake Post Oak Center, Ltd., as lessor, and the Shareholder, as lessee,
(ii) all utilities, maintenance, communications and reproduction provided
to, or conducted at, the Premises, (iii) the Excluded Assets, and (iv) the
Excluded Liabilities. Accordingly, to the extent that REC or Subsidiary
pays any such costs and expenses before Closing ("Reimbursable Amounts"),
the cash portion of the Purchase Price shall be reduced at Closing on a
dollar-for-dollar basis for the aggregate Reimbursable Amounts. If (i) at
Closing, the Shareholder and the Purchaser cannot agree on the amount of
the Reimbursable Amounts, or (ii) after Closing, the Purchaser discovers
Reimbursable Amounts for which no Purchase Price adjustment was so made,
then such Reimbursable Amounts shall be treated as Inter-Company Payables
pursuant to Section 6.2 of this Agreement and settlement thereof governed
thereby.
6.2 Post-Closing Payments. As used herein, the term "Reunion Group"
means the Shareholder and each subsidiary of the Shareholder (other than REC and
the Subsidiary), and the term "REC Group" means REC and the Subsidiary. 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 between the Reunion Group
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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 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. Except as noted below,
all of the representations and warranties made (other than those contained in
Section 2.2.8) 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 2.2.7.4 and 2.2.7.5 [Title] within 240 days from
the Closing Date; (ii) in respect of any representation of a warranty contained
in Section 2.2.15.1 [Environmental], within 180 days from the Closing Date; and
(iii) with respect to 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 any other provision of this Agreement, any Purchase
Price adjustment made or liability included in determining the Effective Date
Working Capital Balance (as may be adjusted pursuant to Section 6.1.1.1) in
respect of any breach or inaccuracy of any representation or warranty contained
in this Agreement shall constitute full and final satisfaction of all claims in
respect of such breach
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or inaccuracy. 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 REC 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, its directors, officers and shareholders, to the
extent such indemnified persons are not responsible for Losses (defined
below) indemnified against pursuant hereto, 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 claims
(collectively, "Losses"), arising from or having some reasonable relation
to (a) a claim asserted during the appropriate Survival Period by or
against REC, the Subsidiary or the Purchaser and relating to a breach of
any of the representations, warranties or covenants made by the Shareholder
in this Agreement or in any of the Related Agreements, (b) the Excluded
Assets or Excluded Liabilities; (c) the lawsuit styled Reunion Resource
Company v. Bargo Energy Company, et al., Cause No. 96-001866 in the 334th
Judicial District Court of Harris County, Texas.
6.4.2 Indemnification Procedure. Promptly upon the discovery of
facts giving rise to a claim for indemnity under Section 6.4.1 or the
receipt of notice of any claim, judicial or otherwise, with respect to any
matter as to which indemnification may be claimed under Section 6.4.1, the
indemnified party shall give written notice thereof to the indemnifying
party together with such information respecting such matter as the
indemnified party shall then have; provided, however, that the failure of
the indemnified party to give notice as provided herein shall not relieve
the indemnifying party of any obligations, to the extent the indemnifying
party is not materially prejudiced thereby. If indemnification is sought
with respect to a third-party (i.e., one who is not a party to this
Agreement) claim asserted or brought against an indemnified party, the
indemnifying party shall be entitled to participate in and to assume the
defense thereof, to the extent that it may wish, with counsel reasonably
satisfactory to such indemnified party. After such notice from the
indemnifying party to such indemnified party of its election to so assume
the defense of such a third-party claim, the indemnifying party shall not
be liable to such indemnified party for any legal or other expenses
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subsequently incurred by the latter in connection with the defense thereof,
other than reasonable and necessary costs of investigation, unless the
indemnifying party has failed to assume and diligently prosecute the
defense of such third-party claim and to employ counsel reasonably
satisfactory to such indemnified person. An indemnifying party who elects
not to assume the defense of a third-party claim shall not be liable for
the fees and expenses of more than one counsel in any single jurisdiction
for all parties indemnified by such indemnifying party with respect to such
claim or with respect to claims separate but similar or related in the same
jurisdiction arising out of the same general allegations. Notwithstanding
any of the foregoing to the contrary, the indemnified party will be
entitled to select its own counsel and assume the defense of any action
brought against it if the indemnifying party fails to select counsel
reasonably satisfactory to the indemnified party or if counsel fails to
diligently prosecute, the expenses of such defense to be paid by the
indemnifying party. No indemnifying party shall consent to entry of any
judgment or enter into any settlement with respect to a claim without the
consent of the indemnified party, which consent shall not be unreasonably
withheld. No indemnified party shall consent to entry of any judgment or
enter into any settlement of any such action the defense of which has been
assumed by an indemnifying party without the consent of such indemnifying
party, which consent shall not be unreasonably withheld.
6.4.3 Thresholds. Except as set forth below, no claim for Losses
shall be made by the Purchaser until such time as the aggregate amount of
all claims for Losses of the Purchaser exceeds $160,000 provided, however,
if such threshold is met, the Purchaser shall be entitled to
indemnification for the total amount of all such claims for Losses pursuant
and subject to Section 6.3 and this Section 6.4. Notwithstanding the
foregoing, this Section 6.4.3 shall not apply to the obligations of the
Shareholder (i) arising out of or related to a willful or intentional
misrepresentation or breach by the Shareholder; or (ii) pursuant to
Sections 6.4.1(b) or 6.4.1(c) above and, in the case of (i) and (ii), the
Purchaser shall be entitled to reimbursement for all Losses associated
therewith without any requirement to meet the threshold described in this
section and in the case of (ii), such reimbursement shall not count against
the threshold. Notwithstanding any other provision of this Agreement,
except for indemnifiable Losses under Section 6.4.1(b) (Excluded Assets and
Excluded Liabilities) and 6.4.1(c) (Bargo litigation), the Shareholder's
liability in respect of any breach by the Shareholder of this Agreement,
including any misrepresentation by the Shareholder hereunder, shall not
exceed the Purchase Price, as adjusted pursuant to this Agreement, and the
Shareholder shall have no liability whatsoever to the Purchaser or any
other persons which Shareholder has agreed to indemnify hereunder for any
claims in respect of Losses which individually or in the aggregate exceed
such amount.
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Indemnification under this Section 6.4 and Section 6.6 shall be the
exclusive remedy of the Purchaser and such other indemnified persons for
any breach by the Shareholder of this Agreement, including any
misrepresentation by the Shareholder hereunder.
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, the
Shareholder shall pay to the 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, the Purchaser shall repay to the 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 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
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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 the 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, the Purchaser shall pay to the
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 subsequently disallowed, the
Shareholder shall repay to the Purchaser the amount by which such Tax
Benefit is reduced.
6.6.3 Income Tax Returns. The Shareholder represents, warrants and
covenants that:
(i) The Common Parent shall prepare and file, in a timely
fashion, all appropriate and necessary federal, state and other
income or franchise 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 or franchise 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.
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(iii) The Common Parent will make all computations,
allocations, determinations and elections affecting the Reunion Group
in accordance with the provisions of the Treasury regulations
promulgated under Section 1502 of the Code, in particular, Treas.
Reg. 1 502-76; provided, however, that no such action which would
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 the Purchaser's prior written consent.
The permanent books and records of REC and Subsidiary shall he
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 or other proceeding involving a taxable period ending on or prior to
the Tax Effective Date which involves a federal or state 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 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 mater 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 the 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
shall not be entitled to assume the contest of such claim if the 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
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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. The Shareholder and the Purchaser hereby
covenant and agree that:
(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 (S)338(h)(10) Election. At the Purchaser's option exercised by
delivering written notice thereof before the Closing Date, the Shareholder and
the 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 the Purchaser's purchase from the Shareholder of the Shares such that
(i) REC and Subsidiary 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 the
Shareholder's tax reports, statements and returns ("Shareholder Group"), with
the
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Shareholder recognizing all gain or loss with respect thereto, and (ii) the
Shareholder will recognize no gain or loss with respect to its sale of the
Shares to the Purchaser. The election will include the execution and filing of
Internal Revenue Service Form 8023-A pursuant to the requirements thereof. If
the Purchaser determines that such election is to be made, the Purchaser shall,
within 60 days after the Closing Date, provided to the Shareholder an allocation
of the deemed purchase price among REC's and Subsidiary's assets in compliance
with Temp. Treas. Reg. (S) 1.338(b)-2T(b), which shall be binding upon the
Purchaser and the Shareholder unless the Shareholder delivers to the Purchaser a
written objection to such allocation within 80 days after the Closing Date. If
the Purchaser and the Shareholder are unable to agree on such allocation within
90 days after the Closing Date, then Coopers & Lybrand, L.L.P., Houston, Texas,
shall make a binding determination with respect to such allocation, the fees and
expenses of which shall be paid equally by the Shareholder and the Purchaser.
6.8 Books and Records. Immediately after the Closing Date, the
Shareholder will deliver to the 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 the Shareholder or any agent thereof
and not in the possession of REC or the Subsidiary.
6.9 Books and Records: Access. Unless otherwise consented to in writing
by Shareholder, for a period of seven years after the Closing Date, the
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 the Shareholder, and shall
maintain such books and records in good condition in a reasonably accessible
location. Upon reasonable prior notice, the Purchaser shall afford the
Shareholder reasonable access during normal business hours to examine and copy
such books and records for any commercially reasonable purpose.
6.10 Taking of Necessary Actions. Subject to the terms and conditions of
this Agreement, each of the parties hereto agrees, subject to applicable laws,
to use all reasonable efforts promptly to take or cause to be taken all action
and to promptly do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the transactions contemplated by this Agreement. Without limiting the
foregoing, through the occurrence of the Closing Date or a termination of this
Agreement pursuant to and in accordance with the requirements of Section 5.1 and
5.2 hereof, the parties shall use their reasonable best efforts to obtain and
make all consents, approvals, assurances and filings of or with third parties
and governmental entities necessary or advisable for the consummation of the
transactions contemplated by this Agreement. Each party shall cooperate with
the other in good faith to help the other satisfy its obligations hereunder.
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ARTICLE VII
Miscellaneous
-------------
7.1 Entirety. This Agreement embodies the entire agreement between the
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 the Purchaser, addressed to Tribo Petroleum Corporation,
1100 Louisiana, Suite 2880, Houston, Texas 77002 (or at 713-659-5436 if by fax),
attention: Richard Bowman, with a copy to Keck, Mahin & Cate, 1001 Fannin,
Suite 1200, Houston, Texas 77002 (or at 713-650-1700 if by fax), attention:
Barry Davis; or (ii) if to the Shareholder, addressed to Reunion Resources
Company at One Stamford Landing, 62 Southfield Ave., Stamford, Connecticut 06902
(or at 203-967-3923 if by fax), attention: Richard L. Evans, 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.
7.5 Successors and Assigns. Except as prohibited below, 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. The rights, duties and
obligations of the Shareholder hereunder shall bind, inure to the benefit of,
and be enforceable by Reunion Industries, Inc., upon consummation of the Merger
and the Shareholder shall not be deemed to have breached any provision of this
Agreement as a result of the consummation of such Merger. Before Closing, the
Purchaser may assign its rights and delegate its duties hereunder to the
Permitted Sub, which shall be a corporation which is incorporated under the laws
of any state of the United States of America and which is and remains a wholly-
owned subsidiary of the Purchaser until the Note is paid in full, and the
Purchaser shall not be deemed to have breached any provision of this Agreement
as a result of the assignment to, and the assumption by, the Permitted Sub.
Except as permitted above, before Closing for so long thereafter as any amount
owed under the Note remains unpaid, neither the Purchaser's nor the
Shareholder's rights and duties under this Agreement are assignable or delegable
to any person or entity without the other parties' prior written consent.
52
<PAGE>
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. The 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 the Shareholder shall bear all of
the legal expenses and other costs and expenses incurred by the 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. If after
the Closing Date, the Shareholder or any of its subsidiaries other than REC or
Subsidiary receives any third-party payment which should have been directed to
REC or Subsidiary, the Shareholder shall promptly, without offset, cause each
such payment to be transferred to the party who is entitled to receive the same
in care of the Purchaser. If after the Closing Date, the Purchaser, REC or
Subsidiary receives any third-party payment which should have been directed to
the Shareholder or any of its subsidiaries other than REC or Subsidiary, the
Purchaser shall promptly, without offset, cause each such payment to be
transferred to the party who is entitled to receive the same in care of the
Shareholder.
53
<PAGE>
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.
REUNION RESOURCES COMPANY
("Shareholder")
By: /s/ Richard L. Evans
---------------------------------------
Richard L. Evans,
Executive Vice President
TRIBO PETROLEUM CORPORATION
("Purchaser")
By: /s/ Richard Bowman
---------------------------------------
Richard Bowman, President
54
<PAGE>
List of Exhibits and Schedules to
Stock Purchase Agreement, dated April 2, 1996,
between Tribo Petroleum Corporation and Reunion Resources Company
EXHIBITS
--------
Exhibit A Form of Subordinated Promissory Note Due 1996, in original principal
amount of $1,700,000, by Tribo Petroleum Corporation to Reunion
Resources Company
Exhibit B Form of Pledge Agreement between Tribo Petroleum Corporation, as
pledgor, and Reunion Resources Company
Exhibit C Form of Guaranty by Tribo Petroleum Corporation for the benefit of
Reunion Resources Company
Exhibit D Form of Transition Agreement between Tribo Petroleum Corporation and
Reunion Resources Company
SCHEDULES
---------
Schedule 2.1.4 Conflicting Agreements of Purchaser
Schedule 2.1.5 Litigation and Investigations of Purchaser
Schedule 2.2.7.1 Oil, gas and mineral properties of REC and Subsidiary and
Purchaser's Allocated Value; and Title Defects Waived by
Purchaser (includes production imbalances and gas sales
contracts)
Schedule 2.2.7.3(A) Prospect Inventory of REC Subsidiary
Schedule 2.2.7.3(B) Excluded Assets of REC
Schedule 2.2.7.5 Sales Contracts of REC and Subsidiary not terminable within
90 days
Schedule 2.2.7.6 Exceptions (RE: Leases and Wells)
Schedule 2.2.7.7 Encumbrances on Sales or Receipt of Revenue
Schedule 2.2.7.8 Joint Operations and Expenses
<PAGE>
Schedule 2.2.9 Deferred lease obligations of REC and Subsidiary and
Excluded Liabilities
Schedule 2.2.10 Litigation and Investigation - REC and Subsidiary
Schedule 2.2.11 Guaranties and Contingent Obligations of REC and Subsidiary
Schedule 2.2.15.1 Violations by REC or Subsidiary of certain environmental
laws
Schedule 2.2.15.2 Violations by REC or Subsidiary of other laws
Schedule 2.2.19 Conflicting Agreements of Shareholder, REC and Subsidiary
Schedule 2.2.20 Insurance Policies and Principal Amounts
Schedule 2.2.24 Reserve Reports
Schedule 2.2.25 Material contracts of REC and Subsidiary
Schedule 2.2.26 Tax Audits of REC, Subsidiary or affiliated groups
Schedule 2.2.28 Financial Statements
Schedule 3.1.4 Permitted capital expenditures and commitments of REC and
Subsidiary
Schedule 6.1.1.1 Effective Date Balance Sheet and Balance Statement
2
<PAGE>
EXHIBIT 99
PRESS RELEASE
Houston, Texas, April 4, 1996 -- Reunion Resources Company ("Reunion")
announced today that it has entered into a definitive agreement to sell
substantially all of its oil and gas assets to Houston-based Tribo Petroleum
Corporation. The purchase price is $11,375,000, subject to possible
adjustments, of which $9,675,000 will be payable in cash upon closing and
$1,700,000 will be payable pursuant to a promissory note due six months after
closing. The transaction is scheduled to close on May 1, 1996, subject to
satisfaction of customary closing conditions, including Tribo's obtaining of
financing.
"Consummation of this transaction will substantially complete Reunion's
transition to a manufacturer of precision plastic products and provider of
engineered plastics services," explained Richard L. Evans, Executive Vice
President of Reunion.
Reunion's common stock is traded on the NASDAQ SmallCap Market (RUNR) and
Pacific Stock Exchange (RUN).
For additional information, please contact Richard L. Evans at
203/324-8858.
###
