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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[Mark One]
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-10526
ALEXANDER ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
OKLAHOMA 73-1088777
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
701 CEDAR LAKE BOULEVARD 73114-7800
OKLAHOMA CITY, OKLAHOMA (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code:(405) 478-8686
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: NONE Name of each exchange on
which registered: N/A
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.03 PAR VALUE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K.
[ ]
THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES OF THE
REGISTRANT, COMPUTED BY USING THE AVERAGE OF CLOSING BID AND ASKED PRICES OF
REGISTRANT'S COMMON STOCK AS OF MARCH 24, 1995, WAS $56,335,953.
The number of shares outstanding of each of the registrant's classes of common
stock, as of March 24, 1995, was:
12,273,183 SHARES OF COMMON STOCK, PAR VALUE $.03.
The information required by Part III of this Annual Report on Form 10-K is
incorporated by reference from Registrant's definitive proxy statement to be
filed pursuant to Regulation 14A for the Registrant's 1995 Annual Meeting of
Stockholders.
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TABLE OF CONTENTS
PART I
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Item Page
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1. BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1A. EXECUTIVE OFFICERS OF THE REGISTRANT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2. PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . . . . . . . . . . . . . . . . . . . 16
PART II
5. MARKETS FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6. SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . . . . . . . . . . . . . . . . . . . . . 24
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
PART III
10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT . . . . . . . . . . . . . . . . . . . . . . . 24
11. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . 24
PART IV
14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . 24
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
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PART I
ITEM 1. BUSINESS
THE COMPANY
The Company was formed in 1980 by a group of executive, professional and
technical personnel who had previously been employees of Reserve Oil and Gas
Company. In 1981, the Company raised approximately $7.4 million in its initial
public stock offering. These proceeds were used to acquire leasehold acreage
and engage in exploration for, and development, production and marketing of,
oil and gas and other hydrocarbons. From 1985 through 1990, much of the
Company's progress was aided by its institutional partner associations with
John Hancock Mutual Life Insurance Company ("Hancock") and Midwest Capital
Group, Inc., a wholly owned diversified business subsidiary of an Iowa-based
public utility holding company ("Midwest"). Hancock and Midwest both
participated through limited partnerships with the Company in its drilling
activities, as well as equity investments. The Company raised $9.24 million in
its secondary public offering in March 1993 (the "Offering"). Proceeds of the
Offering were used to repay a portion of bank borrowings to permit greater
utilization of the Company's cash flow and revolving credit facility to finance
drilling and exploitation activities and potential acquisitions. During its
fifteen-year history, the Company has consistently increased its reserve base
through a strategic combination of cost effective acquisitions, timely
exploitation of those acquisitions, and low-risk development drilling.
References to the "Company" and the description of the Company's business
herein includes the business of Alexander Energy Corporation and its
subsidiaries unless the context otherwise indicates.
The Company's business activities include property acquisition and
exploitation; geological and geophysical evaluation of prospective acreage;
selection, negotiation and purchase of oil and gas prospects; participation in
drilling exploratory and development wells; and operation of producing oil and
gas prospects. The Company diversifies its exploration efforts between oil and
gas with particular emphasis in the Mid-Continent region of the United States.
The Company's net proved reserves estimated as of December 31, 1994
consisted of approximately 145 billion cubic feet ("Bcf") of gas and 3.9
million barrels ("MMBbls") of oil with an aggregate present value of estimated
future net revenues of approximately $108 million based on average prices of
$1.62 per thousand cubic feet ("Mcf") and $16.25 per barrel ("Bbl"). Net daily
production averaged 22,057 Mcf and 614 Bbls, or a total of 25,741 equivalent
thousand cubic feet ("Mcfe") in 1994, up 17% from 1993. The Company's strategy
is to increase reserves and enhance production and cash flow by (i) acquisition
of properties, (ii) exploitation of acquired properties to increase reserves
and production, (iii) controlling and obtaining reimbursement for general and
administrative expenses and (iv) exploration and development. Each year since
inception in 1980, the Company has added at least the amount of reserves it
produced. For 1994, the Company's reserve addition cost through drilling and
development activities, including estimated future development costs, was $.64
per Mcfe.
POOLING OF INTERESTS
On July 19, 1994, the Company acquired through merger American Natural
Energy Corporation ("ANEC"), an Oklahoma corporation, formerly headquartered in
Tulsa, Oklahoma. The merger is being accounted for under the pooling of
interests method of accounting. See 1994 ACQUISITION ACTIVITIES ---
Acquisition of American Natural Energy Corporation. Accordingly, the merger
has been given retroactive effect on all information reported herein, including
the Company's financial statements. The combined financial statements,
reserves and information concerning the operations of the two separate entities
for periods prior to the merger have been pooled and restated, with adjustments
conforming ANEC's accounting policies to those used by the Company.
PUBLIC OFFERING OF ANEC SHARES
On September 28, 1993, ANEC sold 1.l million shares of its common stock in
a public offering at $4.75 per share and received $4 million after underwriters
commission and costs of the offering. Net proceeds of the offering were used
to repay indebtedness (i) in the principal amount of $2.6 million by retiring
ANEC's convertible subordinated notes and (ii) by applying $400,000 to retire
ANEC's Series B preferred stock. The remaining amount of the proceeds were
used for working capital and general corporate purposes.
ACQUISITIONS
Since 1984, the Company has continually evaluated potential acquisitions
of producing and nonproducing properties, with an emphasis on producing
properties. Potential acquisitions are evaluated to analyze existing reserve
estimates, whether the Company believes it can reduce expenses associated with
the properties and whether there are
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new drilling and enhancement prospects associated with the properties. In
the past ten years the Company has made acquisitions directly or
indirectly through limited partnership formed with institutional partners.
The following table summarizes certain estimated proved reserve data with
respect to material acquisitions:
SUMMARY OF RESERVE ENHANCEMENT
ON ACQUISITIONS
PROVED RESERVES MMCFE (1)
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Estimated
Estimated Proved Estimated Estimated
Approximate Proved Reserves Reserves Proved Reserves Net Added
Cost (in Identified at Produced Remaining as of Proved
Acquisition Date millions) Acquisition (2)(3) or Sold Dec 31, 1994 (3)(4)(5) Reserves (6)
----------- ---- --------- ------------------ ------- ---------------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Brooks Hall . . . . . . . . . . 6/84 $ 18.6 13,625 15,873 11,910 14,158
Zilkha (9) . . . . . . . . . . 4/89 3.1 9,711 4,249 14,490 9,028
MFS Properties (10) . . . . . . 6/90 3.0 5,304 2,236 6,416 3,348
Bradmar . . . . . . . . . . . . 3/92 8.3(11) 17,968 11,414 30,981 24,427
ANEC . . . . . . . . . . . . . 7/94 40.3(7) 65,683(8) 4,065 63,558 1,940
JMC Properties . . . . . . . . 11/94 18.2 23,031 360 25,747 3,076
------ ------- ------ ------- ------
$ 91.5 135,322 38,197 153,102 55,977
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(1) Million cubic feet of gas equivalents acquired by the Company or
affiliated entity using a conversion factor of 6 Mcf of gas per Bbl of
oil.
(2) Proved reserves based on reserve reports existing at the time of
acquisition. The estimates of proved reserves identified at time of
acquisition for Brooks Hall Energy Corporation ("BHEC") and Bradmar
Petroleum Corporation ("Bradmar") were prepared by independent petroleum
engineers. The remaining estimates of proved reserves identified at time
of acquisition were prepared by the Company's engineers.
(3) Estimated quantities of proved reserves as of a particular date are
affected by, among other things, further drilling and development,
prevailing oil and gas prices and future development expenditures. Proved
producing reserves are based on reserve reports by independent petroleum
engineers and proved undeveloped reserves based on reports prepared by
Company engineers.
(4) Based upon the Company's reserve reports as of December 31, 1994. See
Note 15 of Notes to Consolidated Financial Statements.
(5) Includes reserve losses due to the impact of low 1994 year-end prices on
well economic limits.
(6) Determined by adding reserves produced or sold to remaining reserves at
December 31, 1994, less reserves identified at acquisition.
(7) Excludes the value of approximately 405,000 shares reserved for
underwriters warrants and stock options held by former ANEC employees and
directors at December 31, 1994.
(8) Data is stated as of January 1, 1994 to reflect pooling of interest.
(9) Reflects the limited partner's interest rather than the Company's net
interest.
(10) MFS Properties were sold effective September 1, 1994 to Hugoton Energy
Corporation for $3.5 million. Reserves are as of that date.
(11) Consists of the $17.7 million cost of oil and gas properties acquired
together with other assets, exclusive of liabilities assumed. See Note 2
of Notes to Consolidated Financial Statements of the Company.
The Company primarily attributes the increase in estimated proved reserves
for the acquisitions reflected in the table above to the Company's evaluation
and analysis of potential acquisitions and its exploitation program. The
exploitation program includes identifying development prospects, drilling
increased density locations, performing
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workovers, initiating water floods, performing "catch-up" maintenance on
acquired properties that had not been fully maintained, adding production
equipment and renegotiating gas contracts.
When evaluating possible acquisitions, the Company's geologists and
engineers analyze various means by which production may be increased or related
operating expenses may be decreased. In addition, the Company's personnel will
attempt to identify the existence of any previously unreported proved
undeveloped reserves. For example, Bradmar did not report proved undeveloped
reserves with respect to its properties primarily because of its lack of
sufficient capital to identify and develop these reserves; accordingly, proved
undeveloped reserves were not included in the estimated proved reserves
identified at the time of execution of the Bradmar acquisition agreement.
However, the Company's familiarity with the areas in which Bradmar operated
allowed the Company to assume in its acquisition analysis that an unspecified
quantity of proved undeveloped reserves existed. Of the estimated 31.0 billion
cubic feet of natural gas equivalents ("Bcfe") of proved reserves remaining on
December 31, 1994 reflected in the table for Bradmar, approximately 7.2 Bcfe
are classified as proved undeveloped reserves.
1994 ACQUISITION ACTIVITIES
Acquisition of American Natural Energy Corporation. At special meetings
held on July 19, 1994, the stockholders of the Company and ANEC approved the
acquisition by the Company of all the common shares of ANEC in a transaction
that has been accounted for as a pooling of interests. Pursuant to an
Agreement and Plan of Merger dated as of April 21, 1994, and as amended on June
10, 1994 (the "Merger Agreement"), the Company acquired ANEC in a merger. ANEC
became a wholly owned subsidiary of the Company and each issued and outstanding
share of ANEC's common stock was converted into the right to receive 1.62
shares of the Company's common stock ("Common Stock"). In addition, the
Company agreed to assume all outstanding options granted under the stock option
plans maintained by ANEC. As a result of the transaction, the Company issued
approximately 5.8 million shares of Common Stock and reserved approximately
250,000 shares of Common Stock for issuance upon exercise of ANEC's options.
The Company also reserved approximately 158,000 shares of its Common Stock for
issuance pursuant to a warrant held by the underwriters of ANEC's public stock
offering held in September 1993.
The ANEC merger added approximately 400 gross wells, 200 of which are now
operated by the Company, and nearly doubled the Company's reserve base. The
majority of the properties are concentrated in the same areas as the Company's
operations, particularly in the Anadarko Area of Central Oklahoma. Many of
ANEC's proved reserves, however, are located in the Cotton Valley Trend of East
Texas where ANEC has enjoyed excellent success drilling infill wells since
1985. Subsequent to the merger, the Company conducted workovers on the Cotton
Valley Trend properties.
JMC Properties Acquisition. Effective October 1, 1994, the Company
acquired 78 natural gas properties located in the Arkoma Basin in Oklahoma and
Arkansas from JMC Exploration, Inc. of Fort Smith, Arkansas, ("JMC Properties")
for total consideration of $18.2 million. The 78 properties, one-half of which
will be operated by the Company, contributed 25.7 Bcfe of estimated natural gas
to the Company's reserve base as of December 31, 1994, and are expected to add
approximately $3.0 million in cash flow. The JMC Properties reestablished the
Company in the Arkoma Basin in Oklahoma and Arkansas, a significant area of
development for the Company in its early years, with a strong position of
proved reserves, one-third of which remain to be developed. Planned
exploitation efforts and expected development of proved developed reserves are
expected to add substantially to the ultimate value of the acquisition.
The JMC acquisition greatly increased the Company's proved reserves,
production and cash flow. As a result of the JMC Properties acquisition, the
Company's proved reserve base has increased 16% from 146 Bcfe to 169 Bcfe. The
natural gas component of the Company's reserve base increased from 84% at 1993
year end to 86% at December 31, 1994. In addition, approximately 53% of the
Company's reserve base is undeveloped (or behind pipe), providing the Company
with an excellent inventory of low risk development drilling opportunities.
This transaction increased the Company's production from 22.0 MMcfe per day in
1993 to 25.7 MMcfe per day in 1994.
OTHER SIGNIFICANT ACQUISITIONS
Acquisition of Bradmar Petroleum Corporation. On March 19, 1992, Bradmar
became a wholly owned subsidiary of the Company. Each outstanding share of
Bradmar common stock (1,890,064 shares) was exchanged for $2.57 in cash and .48
shares of the Company's Common Stock for an aggregate direct purchase price of
approximately $8.3 million. The Bradmar acquisition resulted in the
combination of oil and gas operations in many of the same fields and formations
as the Company's, elimination of duplicate facilities, reduction in aggregate
personnel and reduction in professional fees and expenses. See Note 2 of Notes
to Consolidated Financial Statements of the Company.
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At the time of acquisition, the Bradmar properties increased the proved
reserves of the Company by approximately 72%. Based upon a reserve report
prepared by Edinger Engineering Incorporated ("Edinger") dated as of January 1,
1993 and proved undeveloped reserve estimates developed by the Company's
engineers, the Company's estimated proved reserves were increased from 24.5 Bcf
of gas and 2.6 MMBbls of oil at the time of acquisition to 49.8 Bcf of gas and
3.16 MMBbls of oil at December 31, 1992, approximately nine months after the
effective date of the merger. This acquisition also increased the Company's
net acres of undeveloped leaseholds from 2,979 to 4,479 at the time of
acquisition. Since the acquisition, the Company has reviewed the Bradmar
properties, identified those marginal properties with no apparent enhancement
prospects and sold them. During 1992, the Company sold interests in
approximately 247 wells accounting for proved developed and proved undeveloped
reserves of 4.8 MMcf of gas and 151 MBbls (as of December 31, 1991), for net
cash proceeds of approximately $2.1 million and reductions of net gas balancing
liabilities of approximately $0.4 million.
During 1994, the Company added significant reserves as a result of
exploitation of the Bradmar properties. Bradmar reserves on December 31, 1993
totaled 25.7 Bcf of gas and 624,000 Bbls of oil [29.5 Bcfe]. At December 31,
1994, the Bradmar properties had reserves totaling 26.2 Bcf of gas and 803,000
Bbls of oil (31.0 Bcfe). This increase in the reserves attributable to the
Bradmar properties reflected an increase of 9.9 Bcfe, when adjusted for
reserves produced in 1994.
MFS Properties. In June 1990, the Company purchased a working net profits
interest in approximately 230 producing oil and gas properties located
primarily in Oklahoma (the "MFS Properties") for a net purchase price of
approximately $3.0 million from MFS Production Co., Inc., an affiliate of
Mellon Bank, N.A. The purchase was financed, in part, by certain bank
borrowings and the Company's sale to MWR of approximately 89,209 shares of
Common Stock for $250,000 and 100,000 shares of Series A Preferred Stock for
$1.0 million. The Company also issued to MWR the option to purchase 100,000
shares of Common Stock at an exercise price of $3.00 per share (the "Investor
Option"). In 1993, MWR exercised in full its Investor Option to purchase
100,000 shares, and the 100,000 shares were sold by MWR in the Offering. The
Series A Preferred Stock was converted to 333,333 shares of Common Stock and
sold to the underwriters as part of the over-allotment option. See "---
Secondary Public Offering."
In September 1994, the Company sold all of its interest in the MFS
Properties to Hugoton Energy Corporation, with offices in Wichita, Kansas, for
a purchase price of $3.5 million. This transaction was a part of the
settlement of certain litigation between the Company and Bill J. Barbee, S.
Keith Tuthill, and Tuthill & Barbee which affected the MFS Properties.
Zilkha Properties. In April 1989, the Company and Hancock formed AEJH
1989 Limited Partnership ("AEJH 1989") to acquire and exploit leasehold
interests in a group of 48 producing oil and gas properties located in Oklahoma
and Texas from Zilkha Energy Corporation ("Zilkha"). AEJH 1989 financed the
$3.1 million purchase price for these properties by issuing to Hancock a 10.5%
senior secured note of AEJH 1989 due December 31, 1999, with a principal amount
of approximately $2.2 million, which is non-recourse to the Company, and by a
$468,000 capital contribution received from each of the Company and Hancock.
All costs and revenues from the Zilkha properties (other than principal
and interest payments made pursuant to the 10.5% senior secured note and
related agreements) are allocated 52.5% to Hancock and 47.5% to the Company.
All costs of acquiring and drilling additional properties, reworking or
plugging any of the Zilkha properties and payments of principal and interest on
the 10.5% senior secured note are allocated 50% to the Company and 50% to
Hancock. The Company receives a management fee from AEJH 1989 of a maximum of
$10,000 per month. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Results of Operations -- Operator and
Management Fees."
The net proceeds of AEJH 1989 (consisting of oil and gas revenues less
lease operating costs, capital expenditures, out-of-pocket expenses, interest
payments and the management fee) are disbursed monthly after funding optional
operations not covered by capital contributions by Hancock and the Company.
AEJH 1989 distributes (I) 80.75% from each month's remaining net revenues to
Hancock as a principal payment on the 10.5% senior secured note until it is
paid in full, and (ii) the 19.25% balance to Hancock and the Company on a
63%/37% respective basis. As of December 31, 1994, the outstanding principal
balance on the AEJH 1989 10.5% senior secured note was $1.85 million ($925,452
net to the Company's interest). AEJH 1989 may be required to prepay a portion
of the 10.5% senior secured note or pledge additional property as collateral if
it is determined that the note is undercollateralized. Hancock may recover the
outstanding balance on the 10.5% senior secured note only from net proceeds of
AEJH 1989 even if future net proceeds are insufficient to repay the note.
Brooks Hall Properties. In June 1984, the Company acquired certain oil
and gas properties from BHEC and related entities for approximately $18.6
million of total consideration. The acquired properties included 421 producing
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oil and gas wells located in Alabama, Arkansas, Colorado, Kansas, Louisiana,
New Mexico, Oklahoma and Texas; interests in three natural gas processing
plants in Oklahoma; and 2,122 undeveloped net acres in Oklahoma. Independent
reserve estimates indicated that the properties had proved developed producing
reserves of 13,625 MMcfe. The Company assumed operations for 54 of the
acquired producing wells.
Financing of the acquisition was comprised of a $1,000,000 90-day note, a
$6,314,000 five-year note, a $1,804,000 two-year note, a $7,500,000 7%
convertible seven-year debenture and shares of Common Stock valued at
$2,000,000. The Company repurchased the convertible debentures and Common
Stock in 1988 with the proceeds of the Company's 10% senior unsecured notes
issued in the aggregate principal amount of $5.0 million. As part of this
transaction, the Company issued the Stock Purchase Warrant to Hancock. See
ITEM 3. LEGAL PROCEEDINGS and Notes 4 and 13 of Notes to Consolidated Financial
Statements of the Company.
The BHEC acquisition exemplifies the results of the Company's exploitation
program. The Company has identified significant recompletion opportunities,
including proved behind pipe reserves exceeding 83 MBbls of oil and 2.3 Bcf of
natural gas, and future drilling prospects with proved undeveloped reserves of
more than 110 MBbls of oil and 1.7 Bcf of natural gas at December 31, 1994. In
addition to these proved reserves, AEJH 1985 and AEER 1985 Limited Partnerships
have drilled a substantial number of wells on the BHEC acreage. See "---
Drilling Programs." Workovers and gas contract renegotiations that increased
prices on several wells have also generated significant increases in both
reserves and values by enhancing the economic life of the subject wells.
DRILLING PROGRAMS
The Company generates its own in-house prospects and rarely participates
in an outside drilling prospect presented by a third party. The majority of
generated prospects are located in the Oklahoma Anadarko Shelf and Anadarko
Basin areas. The Company believes it is able to achieve better results by
concentrating in these areas with which the Company's geological, engineering
and land staffs are more familiar.
The Company currently has a large drilling location inventory, of which
145 locations are included in the reserve report as proved undeveloped.
Although the Company also drills a number of exploration wells each year, its
drilling activity has been, and is expected to continue to be, concentrated in
the development of established production. This low-risk strategy has helped
the Company achieve reserve addition costs below the industry averages. The
Company's ability to drill all of these locations will depend on its cash flow
and the availability of acceptable financing. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
The Partnerships. In August 1985, the Company and Hancock formed the AEJH
1985 Limited Partnership ("AEJH 1985") to acquire, drill and develop interests
in 125 (subsequently increased to 176) oil and gas wells. The Company, as sole
general partner of AEJH 1985, agreed to contribute up to $6.3 million, and
Hancock, as sole limited partner of AEJH 1985, agreed to contribute up to $16.5
million. Funding of these commitments occurs as the wells are proposed. At
December 31, 1994, Hancock and the Company had funded 100% of their respective
commitments. The Company funds 25% of the drilling and completion costs in
initial wells (127 of which have been drilled or proposed to date) and 36% of
the drilling and completion costs of secondary wells (49 of which have been
drilled or proposed to date). The Company has a 36% net revenue interest in
all of the wells.
In connection with the formation of AEJH 1985, Hancock purchased from the
Company 104,911 shares of Common Stock and was granted certain registration
rights with respect to such shares. The Company has a right of first refusal
to purchase these shares if offered for sale by Hancock.
In December 1985, the Company and Energy Reserves, Inc., a wholly
subsidiary of Midwest ("Energy") formed AEER 1985 Limited Partnership ("AEER
1985") to acquire, drill and develop interests in 107 (subsequently increased
to 128) oil and gas wells. The Company, as the sole general partner of AEER
1985, agreed to contribute $2.6 million, and Energy, as the sole limited
partner of AEER 1985, agreed to contribute $7.4 million. Certain development
offset locations have been drilled since the formation of AEER 1985. The
Company funded 25% of the drilling and completion costs in 107 initial wells
and 36% of the drilling and completion costs of the 21 secondary wells. The
Company had a 36% net revenue interest in all of the wells. The Company and
Energy funded $3.7 million and $9.5 million, respectively, in AEER 1985,
representing 100% of their respective commitments. On June 18, 1993, the
Company acquired all of Energy's interest in AEER 1985 for an adjusted purchase
price of approximately $1.0 million. Reserves attributable to Energy's
interest at the time of acquisition was approximately 2 Bcf of gas and 300,000
barrels of oil, with historical cash flow in excess of $500,000 per year. The
Company terminated AEER 1985 on September 8, 1993.
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In 1987, the Company and Hancock formed two limited partnerships to
acquire oil and gas properties from two companies which had defaulted on loans
to Hancock. The assets of one of the partnerships were divested and the
partnership was terminated during December 1994. The Company continues to
serves as general partner and receives a management fee from the remaining 1987
drilling program.
MARKETS AND CUSTOMERS
The Company operates exclusively in the oil and gas industry. Its
revenues are derived from its proportionate interest in domestic oil and gas
producing properties. The Company does not consider its business seasonal;
however, market demand (and the resulting prices received for crude oil and
natural gas) can be affected by weather conditions, economic conditions, import
quotas, the availability and cost of alternative fuels, the proximity to, and
capacity of, natural gas pipelines and other systems of transportation, the
effect of state regulation of production, and federal regulation of oil and gas
sold in intrastate and interstate commerce. All of these factors are beyond
the control of the Company.
The Company sells its crude oil at posted field prices in effect in the
producing fields within which its operations are conducted. During the years
ended December 31, 1993 and 1994, the price for the Company's oil ranged from
$19.44 per Bbl to $10.75 per Bbl and from $20.59 per Bbl to $10.65 per Bbl,
respectively. Because of restrictions on flaring natural gas, wells which
produce both oil and gas may be shut-in when there is not a market for the gas,
even though a market is otherwise available for the oil.
Natural gas production of the Company is sold under long-term and spot
market contracts to intrastate and interstate pipeline companies and natural
gas marketing companies. Prices received by the Company for gas production
during the years ended December 31, 1993 and 1994 varied from $.29 per Mcf to
$4.71 per Mcf and from $.65 per Mcf to $4.90 per Mcf, respectively.
Approximately 42% of the Company's natural gas is sold on the spot market
or under short-term contracts (one year or less) providing for variable or
"market-sensitive" prices. Approximately 58% of the Company's natural gas is
marketed under various long-term contracts which dedicate the natural gas to a
purchaser for an extended period of time, but which still involve variable or
market-sensitive pricing of the Company's natural gas.
The Company's gas production is sold under contracts with various
purchasers. Gas sales to each of GPM Gas Corporation and Cowboy Pipeline
Service Company individually approximated 11%, 12% and 13% of total revenues
for the years ended December 31, 1992, 1993 and 1994, respectively.
During each of the three years in the period ended December 31, 1994, the
Company sold approximately 28%, 20% and 24%, respectively, of its oil
production through an entity ("IEM") in which the Company owned a limited
partner interest recorded on the equity method. Net distributable income of
IEM was allocated 60% to the limited partners and 40% to the general partner.
For the two years ended December 31, 1993 and the eight months ended August 31,
1994, the Company received 100% of the amount allocable to the limited partners
based on the percentage of volumes the Company sold to IEM of the total by all
limited partners. Effective August 31, 1994, the Company terminated its
marketing arrangement with IEM and thus, withdrew as a limited partner. As a
result, the indirect marketing fees and the Company's equity interest in IEM's
operating profit or loss ceased as of August 31, 1994. The Company received
the highest posted price for all such production, an indirect marketing fee
from the ultimate purchaser and a percentage of operating profit of IEM, if
any. In 1992, 1993 and the eight months ended August 31, 1994, the Company
recorded pass-through marketing fees of $80,000, $96,000 and $96,000,
respectively, and operating profits (losses) of $46,000, $1,500 and $(9,700),
respectively. The partnership was mutually terminated in August 1994.
The Company does not believe that the loss of any of its customers would
have a material adverse effect on the results of operations of the Company.
REGULATION
General. The oil and gas industry is extensively regulated by federal,
state and local authorities. Legislation affecting the oil and gas industry is
under constant review for amendment or expansion. In October 1992, President
Bush signed into law, comprehensive national energy legislation was enacted
which focuses on electric power, renewable energy sources and conservation.
The legislation, among other things, guarantees equal treatment of domestic and
imported natural gas supplies, mandates expanded use of natural gas and other
alternative fuel vehicles, funds natural gas research and development, permits
continued offshore drilling and use of natural gas for electric generation and
adopts various conservation measures designed to reduce consumption of imported
oil.
6
<PAGE> 9
Numerous governmental departments and agencies, both federal and state,
have issued rules and regulations binding on the oil and gas industry and its
individual members, some of which carry substantial penalties for the failure
to comply. The regulatory burden on the oil and gas industry increases its
cost of doing business and, consequently, affects its profitability. Inasmuch
as such laws and regulations are frequently amended or reinterpreted, the
Company is unable to predict the future cost or impact of complying with such
regulations.
Exploration and Production. The Company's exploration and development
operations are subject to various types of regulation at the federal, state and
local levels. Such regulation includes requiring permits for the drilling of
wells; maintaining bonding requirements in order to drill or operate wells; and
regulating the location of wells, the method of drilling and casing wells, the
surface use and restoration of properties upon which wells are drilled and the
plugging and abandoning of wells. The Company's operations are also subject to
various conservation matters and rules to protect the correlative rights of
subsurface owners. These include the regulation of the size of drilling and
spacing units or proration units and the density of wells which may be drilled
and the unitization or pooling of oil and gas properties. In this regard, some
states allow the forced pooling or integration of tracts to facilitate
exploration while other states rely on voluntary pooling of land and leases.
In addition, state conservation laws establish maximum rates of production from
oil and gas wells, generally prohibit the venting or flaring of gas and impose
certain requirements regarding the ratability of production. The effect of
these regulations is to limit the amounts of oil and gas the Company can
produce from its wells and to limit the number of wells or the locations at
which the Company can drill. Recently enacted legislation in Oklahoma and
regulatory action in Texas modifies the methodology by which the regulatory
agencies establish permissible monthly production allowables. Such action has
generated substantial controversy, especially at the federal level, and has
been labeled as being intended to reduce the total production of natural gas in
order to increase gas prices. A recent attempt to enact a federal prohibition
of these recent state proration rule initiatives was defeated, but various
members of Congress and some federal regulators have declared an intent to
monitor the states' actions very carefully. The Company cannot predict what
effect these new prorationing regulations will have on its production and sales
of gas.
Certain of the Company's oil and gas leases are granted by the federal
government and administered by various federal agencies. Such leases require
compliance with detailed federal regulations and orders which regulate, among
other matters, drilling and operations on these leases and calculation and
disbursement of royalty payments to the federal government. The Mineral Lands
Leasing Act of 1920 (the "MLLA") places limitations on the number of acres
under federal leases that may be owned in any one state. Additionally, the
MLLA and related regulations also may restrict a corporation from holding
federal onshore oil and gas leases if stock of such corporation is owned by
citizens of foreign countries which are not deemed reciprocal under the MLLA.
Reciprocity depends, in large part, on whether the laws of the foreign
jurisdiction discriminate against a United States citizen's ownership of rights
to minerals in such jurisdiction. The purchase of shares in the Company by
citizens of foreign countries with laws which are not deemed to be reciprocal
under the MLLA could have an impact on the Company's ownership of federal
leases.
Environmental and Occupational Regulations. The Company has an engineer
who also serves as an environmental compliance officer with the responsibility
to implement an environmental compliance program and to monitor environmental
compliance and potential environmental liabilities of the Company. Operations
of the Company are subject to numerous laws and regulations governing the
discharge of materials into the environment or otherwise relating to
environmental protection. These laws and regulations may require the
acquisition of a permit before drilling commences, limit or prohibit drilling
activities on certain lands lying within wilderness or wetlands and other
protected areas and impose substantial liabilities for pollution resulting from
drilling operations. Such laws and regulations may also restrict air or other
pollution resulting from the Company's operations. Moreover, many commentators
believe that the state and federal environmental laws and regulations will
become more stringent in the future. For instance, legislation has been
proposed in Congress in connection with the pending reauthorization of the
federal Resource Conservation and Recovery Act ("RCRA"), which would amend RCRA
to reclassify oil and gas production wastes as "hazardous waste." If such
legislation were to be enacted, it could have a significant impact on the
operating costs of the Company, as well as the oil and gas industry in general.
State initiatives to further regulate the disposal of oil and gas wastes are
also pending in certain states and these various initiatives could have a
similar impact on the Company. Management believes that compliance with
current applicable environmental laws and regulations will not have a material
adverse impact on the Company. However, many of these laws and regulations
increase the Company's overall operating expenses, and future changes to
environmental laws and regulations could have a material adverse impact on the
Company.
The Company is also subject to laws and regulations concerning
occupational safety and health. While it is not anticipated that the Company
will be required in the near future to expend amounts that are material in the
aggregate to the Company's overall operations by reason of occupational safety
and health laws and regulations, the Company is unable to predict the ultimate
cost of compliance.
7
<PAGE> 10
Marketing and Transportation. Historically, the transportation and sale
for resale of natural gas in interstate commerce have been regulated pursuant
to the Natural Gas Act of 1938, the Natural Gas Policy Act of 1978 (the
"NGPA"), and the regulations promulgated thereunder by the Federal Energy
Regulatory Commission (the "FERC"). From 1978 until January 1, 1993, maximum
selling prices of certain categories of natural gas sold in "first sales,"
whether sold in interstate or intrastate commerce, were regulated pursuant to
the NGPA. The NGPA established various categories of natural gas and provided
for graduated deregulation of price controls of several categories of natural
gas and the deregulation of sales of certain categories of natural gas.
Several major regulatory changes have been implemented by the FERC from
1985 to the present that affect the economics of natural gas production,
transportation and sales. In addition, the FERC continues to promulgate
revisions to various aspects of the rules and regulations affecting those
segments of the natural gas industry, most notably interstate natural gas
transmission companies, which remain subject to the FERC's jurisdiction. These
initiatives may also affect the intrastate transportation of gas under certain
circumstances. The stated purposes of many of these regulatory changes is to
promote competition among the various sectors of the gas industry. The
ultimate impact of these complex and overlapping rules and regulations, many of
which are repeatedly subjected to judicial challenge and interpretation, cannot
be predicted.
Various rules, regulations and orders, as well as statutory provisions,
may affect the price of natural gas production and the transportation and
marketing of natural gas.
No Price Controls on Liquid Hydrocarbons. Sales of crude oil, condensate
and natural gas liquids can be made at uncontrolled prices. Although in the
past there have been regulations of the sales price of liquid hydrocarbons,
there are currently no price controls on crude oil, condensate or natural gas
liquids.
OPERATIONAL HAZARDS AND INSURANCE
The Company's operations are subject to the usual hazards incident to the
exploration for and production of oil and gas, such as blowouts, cratering,
abnormally pressured formations, explosions, uncontrollable flows of oil, gas
or well fluids into the environment, fires, pollution, releases of toxic gas
and other environmental hazards and risks. These hazards can result in
substantial losses to the Company due to personal injury and loss of life,
severe damage to and destruction of property and equipment, pollution or
environmental damage or suspension of operations.
The Company maintains insurance of various types to cover its operations.
The Company has $1.0 million of general liability insurance and an additional
$7.0 million of excess liability insurance. In addition, the Company maintains
operator's extra expense coverage which applies to care, custody and control of
drilling wells and to completed wells within city limits. The Company's
insurance does not cover every potential risk associated with the drilling and
production of oil and gas. In particular, coverage is not obtainable for
certain types of environmental hazards. The occurrence of a significant
adverse event, the risks of which are not fully covered by insurance, could
have a material adverse effect on the Company's financial condition and results
of operations. Moreover, no assurance can be given that the Company will be
able to maintain adequate insurance in the future at rates it considers
reasonable.
The Company maintains levels of insurance customary in the industry to
limit its financial exposure in the event of a substantial environmental claim
resulting from sudden and accidental discharges; however, 100% coverage is not
maintained. Unreimbursed expenditures in 1992, 1993 and 1994 were immaterial.
COMPETITION
The Company operates in a highly competitive environment, particularly
with respect to the acquisition of producing properties and proved undeveloped
acreage, contracting for drilling equipment and securing trained personnel.
Major integrated and independent oil and gas companies actively bid for
desirable oil and gas properties, as well as for the equipment and labor
required to operate and develop such properties. The Company believes that the
locations of its leasehold acreage, its exploration, drilling, exploitation and
production capabilities and the experience of its management generally enable
it to compete effectively in its principal producing areas. A number of the
Company's competitors, however, have financial resources and exploration and
development budgets that substantially exceed those of the Company, and may be
able to pay more for desirable leases and to evaluate, bid for and purchase a
greater number of properties or prospects than the financial or personnel
resources of the Company permit. The ability of the Company to increase
reserves in the future will be dependent on its ability to select and acquire
suitable producing properties and prospects for future exploration and
development. In addition, intense competition occurs with respect to
marketing, particularly of natural gas, primarily due to the oversupply of gas
available for sale.
8
<PAGE> 11
EMPLOYEES
As of March 24, 1995, the Company employed 50 full-time employees, none of
which was subject to a collective bargaining agreement. The Company's
professional staff includes three landmen, four geologists, five engineers,
five accountants, three division order analysts and a marketing specialist.
The Company considers relations with its employees to be good.
ITEM 1A. EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are identified below. The officers
serve at the pleasure of the Board of Directors. Roger G. Alexander is the son
of Bob G. Alexander. No other officer is related to any other officer or to
any director of the Company.
<TABLE>
<CAPTION>
Officer
Name Age Position Since
---- --- -------- -----
<S> <C> <C> <C>
Bob G. Alexander 61 President and Chief March 1980
Executive Officer
David E. Grose 42 Vice President, Treasurer October 1983
and Chief Financial Officer
Jim L. David 55 Executive Vice President March 1980
Roger G. Alexander 40 Vice President (Land) February 1987
James S. Wilson 43 Vice President (Operations) June 1987
Larry L. Terry 49 Vice President (Corporate Development) July 1994
Sue Barnard 50 Secretary July 1982
</TABLE>
BOB G. ALEXANDER, a founder of the Company, has been a director and the
President and Chief Executive Officer of the Company since inception in 1980.
From 1976 to 1980, Mr. Alexander was Vice President and General Manager of the
Northern Division of Reserve Oil, Inc. and President of Basin Drilling Corp.
(subsidiaries of Reserve Oil and Gas Company). Mr. Alexander attended the
University of Oklahoma and graduated in 1959 with a bachelor of science degree
in geological engineering. He has extensive experience in exploration,
drilling and production in the Mid-Continent, West Texas and Gulf Coast regions
and Utah for major and independent oil and gas companies. Professional
memberships include the Independent Petroleum Association of America ("IPAA"),
of which he currently serves as a member of the Executive and Economic
Committees, and the Oklahoma Independent Petroleum Association, of which he
serves as a director. He is currently Vice Chairman of the Natural Gas Task
Force of Oklahoma and former chairman and current member of The Commission on
Natural Gas Policy. Mr. Alexander was appointed by the Oklahoma Governor to
serve as a member of the Independent Energy Resources Board for the State of
Oklahoma, the Governor's Council on Energy and to the Gas Research Institute, a
joint effort of the State of Oklahoma and the IPAA.
DAVID E. GROSE joined the Company at its inception in March 1980 as a
financial accountant and served as Assistant Treasurer from October 1983 until
his election in February 1987 as Vice President, Treasurer and Chief Financial
Officer. From 1977 to 1980 he held a position in the corporate accounting
department of Reserve Oil, Inc. and was rig accountant for Basin Drilling
Corporation. Mr. Grose received a bachelor of arts degree in political science
from Oklahoma State University in 1974 and a masters degree in business
administration from Central State University in 1977. Professional memberships
include the Petroleum Accountants Society of Oklahoma City and the IPAA. Mr.
Grose formerly served on the Tax Committee of the IPAA.
JIM L. DAVID, a founder of the Company, has served as Vice President since
its inception in March 1980. Mr. David began his career in oil and gas
exploration with Mobil Oil Corporation as an exploration and development
geologist. He worked in this capacity in Shreveport, Louisiana; Corpus
Christi, Texas; New Orleans, Louisiana;
9
<PAGE> 12
Denver, Colorado; and Anchorage, Alaska. From October 1973 to October 1976,
Mr. David served as Alaska chief geologist and senior staff geologist for Texas
International in Oklahoma City. Thereafter, he was employed as exploration
manager for Reserve Oil, Inc., Northern Division, in Oklahoma City from January
1977 until formation of the Company. Mr. David graduated with a bachelor of
arts degree in geology from Louisiana Tech University in 1962 and obtained a
master of arts in geology from the University of Missouri in 1964. Professional
memberships include the American Association of Petroleum Geologists and the
Oklahoma City Geological Society. Mr. David is a certified petroleum
geologist.
ROGER G. ALEXANDER, a certified professional landman, has served as Vice
President (Land) and director of the Company since February 1987. Mr.
Alexander joined the Company as a landman in August 1983 and became senior
landman in August 1984. In July 1985, he was named Land Manager. He was
employed as a landman by Texas Oil & Gas Corporation in its West Texas
District, Midland, Texas, from June 1981 to August 1983. Mr. Alexander
graduated with a bachelor of business administration degree, with a major in
petroleum land management, from the University of Oklahoma in 1981.
Professional memberships include the American Association of Petroleum Landmen
and the Oklahoma City Association of Petroleum Landmen.
JAMES S. WILSON has served as Vice President (Operations) since June 1987.
Prior to joining the Company in 1987, he served as President of Primary
Petroleum Development, Inc., Oklahoma City, Oklahoma, a petroleum operating and
consulting firm. Mr. Wilson holds a petroleum engineering degree from the
University of Oklahoma, and was named one of the top ten senior men in 1974.
He held several engineering and management positions with Amoco Production from
1974 to 1981. From 1981 to 1985, Mr. Wilson held positions as Vice President
of Operations for Coloma Petroleum, Inc. and HG&G, Inc. in Denver and Oklahoma
City, respectively. He was named to the American Petroleum Institute Committee
on Reserves in 1977 and has served in numerous committee and officer capacities
for The Society of Petroleum Engineers. Mr. Wilson has taught as an adjunct
professor for The University of Oklahoma Graduate School of Business since
1983.
LARRY L. TERRY joined the Company as Vice President (Corporate
Development) after the merger with ANEC in July 1994. Mr. Terry served as
ANEC's Chief Financial Officer from March 1993 to July 1994. Mr. Terry was a
consultant with the consulting firm of Woodrum, Shoulders & Kemendo of Tulsa,
Oklahoma from 1990 to 1993. He began his career on the audit staff of Ernst &
Young, a national accounting firm, (formerly Arthur Young & Company)
concentrating primarily on oil and natural gas clients. He served for ten
years as Chief Financial Officer for Andover Oil Company, a large independent
oil and gas exploration and production company. Mr. Terry received a degree in
business administration with a major in accounting from Oklahoma State
University and is a certified public accountant.
SUE BARNARD has served as Corporate Secretary since July 1985 and director
of investor relations since June 1988. Additionally, since 1986 she has served
the Company in the capacities of Risk Manager and Manager of Human Resources.
Ms. Barnard joined the Company in June 1982 as assistant to the Vice President
- Administration and as Assistant Corporate Secretary. Professional
memberships include the American Society of Corporate Secretaries.
ITEM 2. PROPERTIES
Real Estate. The Company owns a 19,000 square foot office building
located at 701 Cedar Lake Boulevard, Oklahoma City, Oklahoma where it maintains
its corporate headquarters. In August 1994, the Company purchased
approximately 1.5 acres adjacent to its corporate headquarters. The purchase
price of the land was $216,000.
OIL AND GAS PROPERTIES
As of December 31, 1994, the Company owned working interests in
approximately 814 gross wells, 447 of which it operates. The Company also
owned interests in 86 wells in which the Company has a revenue interest other
than as a working interest owner. The majority of these interests are located
in Oklahoma, Texas and Arkansas. See "-- Productive Wells and Acreage."
As of December 31, 1994, the Company owned working interests in 307 gross
(120.6 net) producing oil wells and 450 gross (120.8 net) producing gas wells,
as well as 27 gross (15.5 net) oil and 30 gross (10.8 net) gas wells that were
shut-in. A well is categorized under state reporting regulations as an oil
well or a gas well based upon the ratio of gas to oil produced when it first
commenced production, and such designation may not be indicative of current
production.
10
<PAGE> 13
The Company's activities in Oklahoma are generally located in the Anadarko
Shelf and the Anadarko Basin, as well as the central and southern portions of
the state. At December 31, 1994, the Company had working interests in
approximately 689 gross (226.7 net) wells located in Oklahoma, of which 386 are
operated by the Company.
The majority of the Company's interests in Texas are located in Harrison,
Rusk, Fayette, Jones, Burleson, Coke and Lee Counties which are primarily in
the central and west central portions of the state. At December 31, 1994, the
Company's holdings in Texas consisted of working interests in approximately 53
gross (22.8 net) wells, 35 of which are operated by the Company.
The JMC Properties acquisition in November 1994 significantly increased
the Company's holding in the Arkoma Basin in Arkansas. See 1994 ACQUISITION
ACTIVITIES --- JMC Properties Acquisition. As of December 31, 1994, the
Company's position in Arkansas consisted of working interests in 44 gross (13.4
net) producing gas wells, as well as 2 gross (1.7 net) gas wells that were
shut-in. The Company serves as operator of 16 of the wells.
The remainder of the Company's holdings and operations are located in
Colorado (3), Kansas (6), Nebraska (1) and Wyoming (7).
The following table sets forth estimated proved reserves, the estimated
future net revenues therefrom and the present value thereof as of December 31,
1994 for the Company based upon the Summary Reserve and Appraisal Report of
Edinger. In the preparation of such report, Edinger estimated the Company's
proved developed producing reserves as of December 31, 1994. The proved
undeveloped reserves as of December 31, 1994 were estimated by the Company and
reviewed by Edinger as specified in their letter dated March 29, 1995. This
review should not be construed to be an audit as defined by the Society of
Petroleum Engineers' audit guidelines. The calculations used in preparation of
such reports were prepared using standard geological and engineering methods
generally accepted by the petroleum industry and in accordance with SEC
guidelines (as described in the notes below). These correspond with the method
used in presenting the supplemental information on oil and gas operations in
the Notes to the Consolidated Financial Statements of the Company, except that
income taxes otherwise attributable to such future net revenues have been
disregarded in the presentation below. For supplemental disclosure of the
estimated net quantities of oil and natural gas reserves, see Note 15 of Notes
to Consolidated Financial Statements of the Company.
<TABLE>
<CAPTION>
Gas Pretax Pretax
Gas Oil Equivalent Future Net Present
(Mcf) (Bbls) (Mcfe) (1) Revenue (2) Value (3)
----------- --------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Proved Reserves . . . . . . . . . 145,202,568 3,931,981 168,794,454 $189,046,796 $108,188,622
Proved Developed Reserves . . . . 86,085,662 1,754,820 96,614,582 113,947,788 72,117,336
----------------
</TABLE>
(1) Oil production is converted to Mcfe at the rate of six Mcf per Bbl of oil,
based upon the approximate relative energy content of natural gas and oil,
which rate is not necessarily indicative of the relationship of oil and
gas prices. The respective prices of oil and gas are affected by market
and other factors in addition to relative energy content.
(2) Estimated future net revenue represents estimated future gross revenues to
be generated from the production of proved reserves, net of estimated
production and future development costs, using costs and prices in effect
as of December 31, 1994. In certain circumstances, the actual gas price
received was less than the December 31, 1994 contract price, in which case
the lower actual price was used. These prices were not changed except
where different prices were fixed and determinable from applicable
contracts. These assumptions yield average prices of $1.62 per Mcf of
natural gas and $16.25 per Bbl of oil over the life of the properties.
The amounts shown do not give effect to non-property related expenses such
as general and administrative expenses, debt service and future income tax
expense or to depreciation, depletion and amortization.
(3) Present value is calculated by discounting estimated future net revenue by
10% per annum.
No estimates of the Company's proved reserves have been included in
reports to any federal agency other than the SEC.
The prices used in calculating the estimated future net revenues
attributable to proved reserves do not necessarily reflect market prices for
oil and gas production subsequent to December 31, 1994. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Results of Operations -- Oil and Gas Prices." There can be no assurance that
all of the proved reserves will be produced and sold within the periods
indicated, that the assumed prices will be realized or that existing contracts
will be honored or judicially enforced.
11
<PAGE> 14
The process of estimating oil and gas reserves contains numerous inherent
uncertainties and requires significant subjective decisions in the evaluation
of available geological, engineering and economic data for each reservoir. The
data for a given reservoir may change substantially over time as a result of,
among other things, additional development activity, production history and
viability of production under varying economic conditions. Consequently,
reserve estimates are often materially different from the quantities of oil and
gas that are ultimately recovered, and material revisions to existing reserve
estimates may occur in the future.
PRODUCTION AND PRICE HISTORY
The following tables set forth certain historical information concerning
the Company's oil and natural gas production and prices, net of all royalties,
overriding royalties, and other third party interests.
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------------
1992 1993 1994
------- ------ ------
<S> <C> <C> <C>
Average net daily production:
Gas (Mcf per day) . . . . . . . . . . . . . . . . . . . 14,403 17,348 22,057
Oil (Bbls per day) . . . . . . . . . . . . . . . . . . 589 776 614
Mcfe (per day) (1) . . . . . . . . . . . . . . . . . . 17,937 22,004 25,741
Average sales price:
Gas (Per Mcf) . . . . . . . . . . . . . . . . . . . . . $ 1.73 $ 2.04 $ 1.73
Oil (Per Bbl) . . . . . . . . . . . . . . . . . . . . . 18.70 16.99 15.44
Per Mcfe(1) . . . . . . . . . . . . . . . . . . . . . . 2.00 2.20 1.85
Average net production cost
per Mcfe(1)(2) . . . . . . . . . . . . . . . . . . . . $ .71 $ .66 $ .65
----------------
</TABLE>
(1) Oil production is converted to Mcfe at the rate of six Mcf per Bbl of oil,
based upon the approximate relative energy content of natural gas and oil,
which rate is not necessarily indicative of the relationship of oil and
gas prices. The respective prices of oil and gas are affected by market
and other factors in addition to relative energy content.
(2) Production cost consists of lease operating expenses and production taxes.
12
<PAGE> 15
DRILLING ACTIVITIES
In each of the years ended December 31, 1992, 1993 and 1994, the Company
incurred net exploration and development costs of $2.1 million, $11.3 million
and $12.3 million, respectively. The decrease in net exploration and
development costs for 1992 is attributable to the Company allocating its
resources to review, evaluate and consummate the Bradmar acquisition while the
increase in 1993 is largely due to the availability of funds resulting from the
Offering. The following table sets forth the Company's historical drilling
activities for each of the years ended December 31, 1992, 1993 and 1994:
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------
1992 (1) 1993 1994
------------- ------------ ------------
Gross Net Gross Net Gross Net
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Development:
Oil . . . . . . . . . . . . . . . . . . . . . . . . 3 .857 12 3.431 7 .998
Gas . . . . . . . . . . . . . . . . . . . . . . . . 1 .590 17 5.967 22 7.320
Non-productive . . . . . . . . . . . . . . . . . . 4 .381 1 1.000 4 2.155
-- ----- -- ------ -- ------
Total . . . . . . . . . . . . . . . . . . . . . . 8 1.828 30 10.398 33 10.473
Exploratory:
Oil . . . . . . . . . . . . . . . . . . . . . . . . 1 .250 1 .247 0 .000
Gas . . . . . . . . . . . . . . . . . . . . . . . . 0 .000 0 .000 0 .000
Non-productive . . . . . . . . . . . . . . . . . . 1 .125 0 .000 2 1.495
-- ----- -- ----- -- ------
Total . . . . . . . . . . . . . . . . . . . . . . 2 .375 1 .247 2 1.495
---------------------
</TABLE>
(1) The decrease in drilling activity during this period was due to the
Company allocating its resources to review, evaluate and consummate the
Bradmar acquisition.
The table above only reflects those interests attributable to the Company
either through direct working interests or through the Company's proportionate
share of its partnership's participation; i.e., the interests shown do not
include overriding royalty interests, carried working interests, reversionary
interests or partners' proportionate share of participation.
PRESENT ACTIVITIES
As of December 31, 1994, the Company held working interests in 5 gross
(2.077 net) wells which were in the process of being drilled at such date. The
Company also held interests in a total of 2 gross (1.125 net) wells on which
operations had been temporarily suspended.
FUTURE DRILLING ACTIVITIES
The Company currently has plans to drill during 1995 approximately 34
gross wells in which the Company would have an average working interest of 45%.
The Company anticipates that approximately 32 of these wells will be proved
undeveloped locations and 2 will be exploratory locations. Estimated completed
well cost to the Company's current interest in such wells is $12.2 million, of
which approximately 93% would be expended on proved undeveloped locations and
7% on exploratory drilling. The future net revenues for the proved undeveloped
locations estimated by the Company as of December 31, 1994 aggregate
approximately $75 million after recovering associated capital costs of
approximately $37 million. The capital costs associated with the 145 planned
development wells are approximately $37 million. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
13
<PAGE> 16
PRODUCTIVE WELLS AND ACREAGE
The following table reflects the wells and acreage in which the Company
owned a working interest, directly or indirectly, as of December 31, 1994. The
table shows producing oil (including casinghead gas) and natural gas wells,
including shut-in oil and gas wells capable of producing gas which are (I)
awaiting the construction or completion of gas plants or gathering facilities,
(ii) shut-in until sufficient reserves of gas are established to justify
construction of such facilities or (iii) shut-in due to the absence of a
market. The table does not include 86 gross wells in which the Company has a
revenue interest other than as a working interest owner. The Company
additionally owns overriding royalty interests or other revenue interests in
approximately 225 of the gross wells reflected below.
<TABLE>
<CAPTION>
Producing Wells Shut-In Wells
-------------------------------------- ---------------------------------------
Oil Gas Oil Gas
--------------- --------------- --------------- ----------------
State Gross Net Gross Net Gross Net Gross Net
----- ----- --- ----- --- ----- --- ----- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Arkansas 6 .6362 1 .0002
Colorado 8 .0094 6 .7909 1 .0031 1 .1902
Kansas 31 6.7771 1 .1575 2 .2188
Nebraska 3 .0116
New Mexico 6 .0322
Oklahoma 191 71.8487 253 46.5350 8 3.4729 19 2.7960
Texas 120 14.7788 22 2.2941 8 .0995 2 .0024
Wyoming 3 .0105 5 .0004
--- ------- --- ------- -- ------ -- ------
Totals 356 93.4361 299 50.4463 19 3.7943 23 2.9888
</TABLE>
<TABLE>
<CAPTION>
Developed Acreage Undeveloped Acreage
------------------------ -------------------
State Gross Net Gross Net
----- ------- ------ ------ -----
<S> <C> <C> <C> <C>
Arkansas 19,711 6,402 185 10
Colorado 440 1
Kansas 798 223
Nebraska 360 1
Oklahoma 146,833 48,526 9,351 4,590
Texas 14,356 6,068 1,842 1,017
Wyoming 440 1
------- ------ ------ -----
Totals 182,938 61,222 11,378 5,617
</TABLE>
Undeveloped acres are those on which wells have not been drilled or
completed to a point that would permit the production of commercial quantities
of oil and gas, regardless of whether or not such acreage contains proved
reserves. The amount of acreage held by the Company increases or decreases in
the normal course of business as interests in new acreage are acquired
(including acreage by pooling), as interests are sold or contributed to others,
as wells are drilled, as properties are abandoned (if determined not to warrant
exploration or development) or as leases expire. It is the Company's policy to
formulate drilling plans for the orderly development of undeveloped acreage
within the primary terms of the leases involved.
CHEMICAL SUPPLY COMPANY
In May 1991, the Company became a limited partner of Energy and
Environmental Services Limited Partnership ("EES"), of which Energy and
Environmental Services, Inc. ("EES, Inc.") serves as general partner. EES was
organized for the primary purpose of providing the oil and gas industry with
chemicals, drilling mud, additives, well stimulation fluids and other oil field
services. The Company acquired 90% of the limited partner interests at a cost
of $900. Additionally, the EES partnership agreement required that the limited
partners loan EES $200,000 ($150,000 by the Company) with interest currently
payable at the rate of 7.5% per annum. The loans are guaranteed by the general
partner and its officers and are due upon demand. Additionally, in connection
with its investment in EES, the Company guaranteed the remaining indebtedness
of EES, Inc., which was paid off during 1994. During 1992 and 1993, $60,000
and $30,000 of repayments were funded by the Company, respectively, which
payments have been added to the note receivable, the aggregate balance of which
was $200,000 at December 31, 1994. Terms of this related party's debt require
monthly payments of $10,000 plus accrued interest. See Note 3 of Notes to
Consolidated Financial Statements of the Company.
14
<PAGE> 17
TITLE TO PROPERTIES
Substantially all of the Company's property interests are held pursuant to
leases from third parties. Title to properties is subject to royalty,
overriding royalty, carried, net profits, working and other similar interests
and contractual arrangements customary in the oil and gas industry, liens
incident to operating agreements, liens relating to amounts owed to the
operator, liens for current taxes not yet due and other encumbrances. The
Company believes that such burdens neither materially detract from the value of
such properties nor from the respective interests therein, or materially
interfere with their use in the operation of the business. Substantially all
of the Company's oil and gas properties and proceeds therefrom and partnership
distributions are and will continue to be mortgaged to secure borrowings under
the Company's bank credit facility.
As is customary in the industry in the case of undeveloped properties,
little investigation of record title is made at the time of acquisition (other
than a preliminary review of local records). Investigations, including a title
opinion of local counsel, are generally made prior to the consummation of an
acquisition of a producing property and before commencement of drilling
operations.
ITEM 3. LEGAL PROCEEDINGS
In 1988, in connection with the issuance of certain unsecured notes
payable to Hancock, the Company entered into a related investment agreement
which provided Hancock with warrants ("the Stock Purchase Warrants") to
purchase 223,333 shares of the Company's common stock at $3.00 per share. Any
of the shares of the Company's stock acquired pursuant to an exercise of the
warrants, could have been "put" back to the Company, at Hancock's discretion,
at any time from December 31, 1992, through December 31, 1993, at $12.99 per
share or the unexercised option could have been "put" to the Company at $9.99
per share upon 60 days prior written notice and surrender of the warrants. See
Notes 7 and 13 of Notes to Consolidated Financial Statements of the Company.
The Stock Purchase Warrants expired by their terms on December 31, 1993.
Hancock failed to exercise the Stock Purchase Warrants, and, the Company
contends, failed to properly exercise its warrant put option. On February 3,
1994, the Company filed a Complaint for Declaratory Judgment in the United
States District Court for the Western District of Oklahoma requesting that the
Court declare that the Warrants expired at December 31, 1993 and have no
continued legal effect thereafter and that Hancock has no rights thereunder.
It is the Company's opinion that Hancock failed to properly exercise the Stock
Purchase Warrants or the warrant put option. Hancock filed an Answer and
Counterclaim to the Complaint for Declaratory Judgment asserting breach of
contract and misrepresentation and seeks the Court to order a judgment against
the Company to pay Hancock $2,231,100. The Company reclassified the amount
accrued through December 31, 1993 on the consolidated balance sheets pending
the ultimate resolution of this contingency. During the fourth quarter of
1994, the Company settled this contingency with Hancock for $1.1 million.
In July 1991, ANEC participated as a 25% working interest owner in a
re-entry and completion project of an existing wellbore designated as the
Douglas 13-1 Gas Well located in the Arkoma Basin Geological Region in
Pittsburgh County, Oklahoma. In May 1992, Unit Drilling Company ("Unit"), et
al (which includes Midwest Energy Corporation ("MEC") creditors), the drilling
contractor, and other service contractors on the Douglas 13-1 filed an action
against MEC, operator of the well, for unpaid drilling costs. In its action,
Unit sought to foreclose a lien on the entire well, which included ANEC's 25%
working interest in the well. In September and October 1994, the Company
acquired MEC's creditors outstanding judgements against the well for cash
consideration of approximately $409,000 in an effort to protect its interest in
the well.
In June 1992, ANEC filed an action in the District Court of Tulsa County,
State of Oklahoma against MEC for an accounting of expenditures on the Douglas
13-1. The action was amended to include a claim for actual and punitive
damages against MEC for misrepresentation of the prospect as well as improper
conduct as operator of such well. In that action, MEC filed a counterclaim
against ANEC for $344,000 in drilling, completion and operating costs on the
well. In its counterclaim, MEC also named Endowment Energy Partners, L.P.
("EEP") as a defendant claiming damages for business interference and sought
consequential damages. On November 9, 1992, the District Court of Tulsa County
allowed an Answer to Amended Petition, Counterclaim and Third-Party Claim to be
filed pursuant to which Martin A. Vaughan and Nancy S. Vaughan, husband and
wife, individually, and Nancy S. Vaughan and J. Steven Swab as Co-Trustees of
the John T. Swab Revocable Inter Vivos Trust B (hereinafter collectively
referred to as the "Vaughans") were permitted to become additional Third-Party
Plaintiffs. The Vaughans, who were the stockholders of MEC at the time of the
events in question, filed a claim against ANEC for breach of an alleged merger
agreement wherein they sought to recover $3.3 million in damages.
In December 1994, ANEC, MEC, the Vaughans, and EEP entered into a
settlement agreement in which ANEC agreed to pay MEC the sum of $625,000,
release the judgments which it acquired from the MEC creditors, cross-
15
<PAGE> 18
assign interests in certain properties valued at less than $60,000, and dismiss
all of the claims against each other. The aggregate effect of this negotiated
settlement resulted in a charge to 1994 operations, including legal fees, of
approximately $734,000.
The Company and its subsidiaries are named defendants in lawsuits and are
involved from time to time in governmental proceedings, all arising in the
ordinary course of business. Although the outcome of these lawsuits and
proceedings cannot be predicted with certainty, management does not expect
these matters will have a material adverse effect on the financial position of
the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is traded on the NASDAQ National Market System
under the symbol "AEOK". The following table sets forth the high and low
closing sales price for each of the periods indicated as quoted by NASDAQ.
<TABLE>
<CAPTION>
QUARTER ENDED HIGH LOW
------------- ------ -----
<S> <C> <C>
1993
March 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 3/8 3 7/8
June 30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 7/8 5 3/8
September 30 . . . . . . . . . . . . . . . . . . . . . . . . . 8 1/4 5 3/8
December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . 7 1/2 4 1/8
1994
March 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 7/8 4 7/8
June 30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1/4 4 3/8
September 30 . . . . . . . . . . . . . . . . . . . . . . . . . 5 1/2 4 1.2
December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . 6 7/8 4 1/2
1995
March 31 (through March 24, 1995) . . . . . . . . . . . . . . . 6 3/4 4 3/8
</TABLE>
As of March 24, 1995, there were 2,094 stockholders of record.
DIVIDENDS
The Company has never paid cash dividends on its Common Stock and does not
expect to pay any cash dividends in the foreseeable future. It intends to
retain its earnings to provide funds for operations and expansion of its
business. Moreover, pursuant to the terms of certain of the Company's debt
agreements, the Company is prohibited from declaring or paying any cash
dividends on its Common Stock. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and Note 4 of Notes to Consolidated Financial Statements of the
Company.
16
<PAGE> 19
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected historical financial data with
respect to the Company as of and for each of the five years in the period ended
December 31, 1994, as restated to give effect to the 1994 pooling of interests
between the Company and ANEC as described in Note 2 of Notes to Consolidated
Financial Statements. The financial data was derived from the consolidated
financial statements of the Company. This information is not necessarily
indicative of the Company's future performance. The Company has never declared
or paid dividends on its Common Stock. The financial data set forth below
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements and the notes thereto of the Company. The information reflects the
accounts of the Company, its wholly-owned subsidiaries, American Natural Energy
Corporation, Bradmar Petroleum Corporation, Edwards & Leach Oil Company and
Boomer Marketing Corporation, and their proportionate share of the assets,
liabilities, revenues and costs and expenses of oil and gas limited
partnerships in which they act as general partner.
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------------------------------
1990 1991 1992(1) 1993 1994(2)
------- ------- -------- ------- ----------
(in thousands, except per share data)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Oil and gas sales . . . . . . . . . . . . . $ 8,730 $ 8,942 $13,107 $17,708 $17,390
Well operator and management fees . . . . . 1,263 2,116 2,663 2,668 2,615
Marketing fees, interest and other . . . . 343 554 247 1,533 678
Total revenue . . . . . . . . . . . . . . . 10,336 11,612 16,017 21,909 20,683
Costs and expenses:
Oil and gas operating expenses . . . . . . 2,408 3,493 4,617 5,299 6,135
Amortization and depreciation . . . . . . . 3,153 3,557 4,583 5,762 7,246
General and administrative expenses . . . . 2,077 2,779 3,241 3,879 4,034
Interest expense . . . . . . . . . . . . . 1,903 2,388 3,029 2,063 2,396
Nonrecurring merger expense and litigation
settlement (3) . . . . . . . . . . . . . --- --- --- --- 3,166
Income (loss) before discontinued operations,
extraordinary items and cumulative effect of
change in accounting for income taxes . . . 760 (880) 542 2,575 (2,294)
Net income (loss) (4) . . . . . . . . . . . . 760 (880) (139) 2,490 (1,242)
Net income (loss) applicable to
common stock . . . . . . . . . . . . . . . 755 (1,006) (300) 2,453 (1,242)
Income (loss) before discontinued operations,
extraordinary items and cumulative effect of
change in accounting for income taxes per
common and common equivalent share . . . . .18 (.22) .07 .25 (.19)
Net income (loss) per common and
common equivalent share . . . . . . . . . . .18 (.22) (.06) .24 (.10)
December 31,
-------------------------------------------------------------
1990 1991 1992 1993 1994
--------- ------- ------- ------- ------
(in thousands)
BALANCE SHEET DATA:
Net properties and equipment . . . . . . . . . $39,201 $43,639 $56,332 $66,504 $91,545
Total assets . . . . . . . . . . . . . . . . . 48,630 52,024 65,832 75,769 99,814
Current portion of long-term debt . . . . . . . 1,922 1,607 3,654 1,037 1,016
Long-term debt, net of current portion (5) . . 21,493 23,034 24,194 16,764 46,514
Total stockholders' equity . . . . . . . . . . 13,307 14,397 17,644 34,351 34,225
----------------
</TABLE>
(1) Includes the Bradmar acquisition, which was consummated March 18, 1992.
See Note 2 of Notes to Consolidated Financial Statements.
(2) Includes the JMC acquisition, which was consummated November 14, 1994.
See Note 2 of Notes to Consolidated Financial Statements.
(3) Includes $2.4 million of costs related to the merger with ANEC as
discussed in Note 2 of Notes to Consolidated Financial Statements.
(4) Includes a loss from discontinued operations of $681,142 ($.13 per share)
in 1992. Includes a loss from an extraordinary item of $510,000, net of
taxes,($.05 per share) associated with the early extinguishment of debt in
1993 and a gain from an extrordinary item of $1,051,760 ($.09 per share)
associated with the extinguishment of a long-term obligation in 1994.
Also includes the cumulative effect of adopting SFAS 109, "Accounting For
Income Taxes," the effect of which was to increase net income by $425,000
($.04 per share) in 1993. See Notes 1, 12 and 13 of Notes to Consolidated
Financial Statements.
(5) Includes non-recourse debt and the Stock Warrant Purchase Obligation,
including $2.2 million in 1993 which was reclassified to contingencies.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations --- Liquidity and Capital Resources" and Notes 4 and
5 of Notes to Consolidated Financial Statements of the Company.
17
<PAGE> 20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
On July 19, 1994, Alexander Energy Corporation completed the Merger with
American Natural Energy Corporation ("ANEC"). The Merger was accounted for
under the pooling of interests method of accounting. Accordingly, the Merger
has been given retroactive effect and the Company's financial statements for
periods prior to the merger represent the combined financial statements of the
previously separate entities adjusted to conform ANEC's accounting policies to
those used by the Company. The recurring adjustments affecting 1992, 1993 and
1994 consisted principally of conforming ANEC's revenue recognition policy
related to gas balancing and overhead reimbursements on Company operated
properties and amortization of oil and gas properties and equipment.
RESULTS OF OPERATIONS
Total Revenues; Oil and Gas Sales. Total revenues decreased for 1994
compared to 1993. The decrease in total revenues consisted of decreased oil and
natural gas sales and a nonrecurring item in other revenues in 1993 of
approximately $1.25 million from the proceeds of settlement of a lawsuit. The
decreased oil and natural gas sales are attributable to higher production
volumes for natural gas as a result of the wells drilled during 1994, offset by
lower product prices for both oil and natural gas.
Oil revenues decreased by 28% due to a 21% decrease in production
quantities and an 9% decrease in the average price per Bbl of production for
the year ended December 31, 1994 as compared to 1993. Natural gas revenues
increased by 8% due to a 27% increase in production quantities, offset by a 15%
decrease in the average price per Mcf of natural gas produced for the year
ended December 31, 1994 as compared to 1993.
Total revenues increased for 1993 compared to 1992. The increase in total
revenues consisted of increased oil and natural gas sales and a nonrecurring
item in other revenues of approximately $1.25 million from the settlement of a
lawsuit. The increased oil and natural gas sales are attributable to higher
production volumes for oil and natural gas as a result of the Bradmar
acquisition and new wells drilled in 1993. Oil revenues increased by 20% due to
a 32% increase in production quantities and a 9% decrease in the average price
per Bbl of production for the year ended December 31, 1993 as compared to 1992.
Natural gas revenues increased by 42% due to a 20% increase in production
quantities and a 18% increase in the average price per Mcf of natural gas
produced for the year ended December 31, 1993 as compared to 1992.
During the first and second quarters of 1992, the Company entered into
futures contracts to hedge the market risk caused by fluctuations in the price
of crude oil and natural gas. Approximately 23% of the Company's monthly
natural gas production and approximately 53% of the Company's monthly oil
production were subject to these hedges. The effect of these hedges for the
year ended December 31, 1992 was to reduce oil and natural gas sales by
approximately $147,000 and $238,000, respectively, representing a reduction to
the average price per Bbl and Mcf of $.69 and $.04, respectively. As of
December 31, 1992, all future contracts had been settled.
Well Operator and Management Fees. Well operator and management fees
remained fairly constant for the year ended December 31, 1994 compared to the
same period in 1993. Included in the management fees were reimbursements of
overhead expense of $10,000 per month from each of the AEJH 1987 and AEJH 1989
Limited Partnerships and an average of $4,750 per month for six months from the
AEJH 1987-A Limited Partnership, which ceased operations during mid 1994.
Well operator and management fees remained fairly constant for the year
ended December 31, 1993 compared to the same period in 1992. Included in the
management fees were reimbursements of overhead expense of $10,000 per month
from each of the AEJH 1987 and AEJH 1989 Limited Partnerships and an average of
$6,000 per month from the AEJH 1987-A Limited Partnership.
Interest and Other Revenues. The increase in interest and other revenue
(excluding the settlement of a lawsuit of approximately $1.25 million in 1993)
during the year December 31, 1994 compared to 1993 resulted from gains on the
sale of real estate and the settlement of a take-or-pay contract recorded as
deferred revenue in 1993.
The increase in interest and other revenue during the year December 31,
1993 compared to 1992 resulted from the Company's settlement of a lawsuit over
the prices received by Bradmar under certain gas contracts for which the
Company received net proceeds of approximately $1.25 million.
18
<PAGE> 21
Oil and Gas Prices. Oil prices received by the Company decreased 9%
during 1994, resulting in an average price of $15.44 per Bbl compared to the
average price per Bbl of $16.99 for 1993. Revenues and operating results for
future periods will continue to be impacted by price fluctuations which are
largely influenced by market conditions and the quantity of the oil sold by
OPEC.
During 1994, the Company experienced a decrease in natural gas prices. In
recent years, the Company has sold a substantial portion of its natural gas
under short-term (typically month-to-month) contracts. Natural gas prices
received by the Company decreased 15% during 1994, resulting in an average
price of $1.73 per Mcf compared to an average price per Mcf of $2.04 for 1993.
During the first quarter of 1995, the Company received a lower average price
for natural gas produced than that received in the corresponding period in
1994. While the Company anticipates a slight increase in price for April 1995
contracts from that received in the first quarter of 1995, there can be no
assurances that this will occur. Future sales prices will be dependent upon
the future supply and demand of natural gas in the market and the quantities of
gas sold under short-term contracts as opposed to quantities sold under
long-term contracts, which currently command higher prices.
Oil prices received by the Company decreased 9% during 1993, resulting in
an average price of $16.99 per Bbl compared to the average price per Bbl of
$18.70 for 1992. Average gas price received by the Company during 1993 was
$2.04 per Mcf, up 18% compared to an average gas price received in 1992 of
$1.73 per Mcf.
Oil and Gas Production. Production and average prices received per Bbl
and Mcf for each of the last three years are as follows:
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------------
1992 1993 1994
-------------- ----------- ---------
<S> <C> <C> <C>
Crude Oil:
Production (Bbls) . . . . . . . . . . . . . . . . . . . . . . . 214,915 283,190 224,230
Average price per Bbl . . . . . . . . . . . . . . . . . . . . . $18.70 $16.99 $15.44
Natural Gas:
Production (Mcf) . . . . . . . . . . . . . . . . . . . . . . . 5,257,126 6,332,015 8,050,688
Average price per Mcf . . . . . . . . . . . . . . . . . . . . . $ 1.73 $ 2.04 $ 1.73
</TABLE>
Oil and natural gas production volumes for 1994 on an Mcf equivalent
(Mcfe) basis exceeded such volumes for 1993 by 17% and oil and natural gas
production volumes for 1993 on an Mcfe equivalent basis exceeded such volumes
for 1992 by 23%. These increases in production were from participation in new
wells drilled in 1994 and 1993 through the Company and the AEJH 1985 and AEJH
1989 Limited Partnerships and from recompletions in the Cotton Valley
properties in 1994 by the Company. Additionally, the merger between Bradmar and
the Company during March 1992 increased the production volumes for each of the
three years in the period ended December 31, 1994. The JMC Acquisition also
increased production volumes after closing in mid-November 1994. Although the
Company experienced some curtailments of gas production, these curtailments
have not been material. The curtailments were primarily attributable to excess
supply and price competitiveness with oil. There can be no assurance that the
Company will not experience future curtailments.
Oil and natural gas production volumes for the year ended December 31,
1995 are expected to be higher than those for 1994. This expected increase in
production is forecast from new wells to be drilled in 1995 through the Company
and the AEJH 1985 and AEJH 1989 Limited Partnerships, from additional
production attributable to properties in the JMC Acquisition completed in mid
November 1994 and from additional production attributable to well recompletions
performed during 1994 on the Cotton Valley properties.
Total Expenses; Oil and Gas Operating Expenses. Total costs and
expenses increased for 1994 compared to 1993 due in part to nonrecurring costs
of $2.4 million for expenses associated with the ANEC merger and $734,000
related to costs of settlement of the ANEC lawsuit. Oil and gas operating
expenses increased for 1994 compared to 1993, due to additional operating
expenses attributable to a greater number of producing wells, which were
drilled and completed during 1994 and the latter part of 1993 and due to
workover costs performed on certain properties in 1994. Oil and gas operating
expenses continue to decrease on an Mcfe basis to $.65 for 1994, compared to
$.66 per Mcfe for 1993 and $.71 per Mcfe for 1992.
Oil and gas operating expenses increased for 1993 compared to 1992,
due to additional operating expenses and increased gross production tax
attributable to a greater number of producing wells resulting from the Bradmar
acquisition and increased gross production taxes resulting from higher gas
prices.
19
<PAGE> 22
Amortization and Depreciation. The oil and gas property amortization
and depreciation rate per dollar of oil and gas sales for 1994 increased to
$.41 compared to $.32 for 1993. The increased rate for 1994 was due to the
decreased estimated future gross revenues resulting from lower product prices
in 1994. The amortization and depreciation rates for future periods will
increase or decrease corresponding with the fluctuations in oil and gas prices,
reserve volumes and production.
The oil and gas property amortization and depreciation rate per dollar
of oil and gas sales for 1993 decreased to $.32 compared to $.33 for 1992. The
decreased rate for 1993 was due to the increased estimated future gross
revenues resulting from an increase in product price for natural gas, from the
Bradmar acquisition, relative to the acquisition cost, and the net extensions,
discoveries and other reserve additions during 1993.
General and Administrative Expenses. General and administrative
expenses increased for 1994 compared to 1993. This increase was primarily
related to management bonuses and increased personnel costs associated with the
Company's growth. Well operator and management fees offset 65% of net general
and administrative expenses during 1994 compared to 69% during 1993.
General and administrative expenses increased for 1993 compared to
1992. This increase related to increased personnel costs from the Bradmar
acquisition and staff and management bonuses. Well operator and management fees
offset 69% of net general and administrative expenses during 1993 compared to
82% during 1992. This decrease was due in part to the acquisition of the
limited partner's interest in the AEER 1985 Limited Partnership in June 1993
and the related reduction of well operator fees collected from this third
party.
Interest Expense. Interest expense increased for 1994 compared to
1993 due to an increase in the outstanding borrowings associated with property
development and the JMC Acquisition. The Company completed the negotiation of a
new credit facility during the fourth quarter which provides for a revolving
line of credit with a borrowing base of $52 million. At December 31, 1994, all
outstanding borrowings under this facility were based on the LIBOR rate and the
applicable margin, an aggregate rate of 7.625%.
Interest expense decreased for 1993 compared to 1992 due to the
reduction of outstanding borrowings following the application of proceeds from
the Secondary Public Offering in March 1993.
Nonrecurring Merger Expenses. In connection with the Merger between
the Company and ANEC, the Company incurred nonrecurring charges to operations
in 1994 of $2.4 million. These costs include legal, accounting, investment
banking, printing and other costs.
Litigation Settlement. In the fourth quarter of 1994, in an effort to
resolve ANEC's litigation with various parties which had been ongoing since
1992, the Company acquired certain creditor claims against the operator of a
well in which ANEC had an interest and agreed to mediation with the primary
plaintiffs of the outstanding litigation. Although management believed its
actions against the well operator were meritorious and believed the
counterclaims of this party were without merit, after having mediated this
matter in December 1994, management of the Company believe it was in the
Company's best interest to resolve such litigation and terminate the costs
associated therewith. Accordingly, in late December 1994, the Company agreed
to a negotiated settlement, the effect of which resulted in a charge to 1994
operations, including legal fees, of approximately $734,000.
Taxes. As a result of the Company's and ANEC's secondary public
offerings in 1993, both entities had an ownership change pursuant to Section
382 of the Internal Revenue Code. Accordingly, in 1994, the Company is
providing income taxes at near statutory rates after considering permanent
differences related primarily to nondeductible merger costs and the
extraordinary gain on extinguishment of a long-term obligation.
In 1993, the Company sustained a nonrecurring non-cash charge to
operations of $1.2 million due to an increase in the valuation allowance
associated with the change in ownership in the first quarter of 1993 discussed
above. The Company also recorded a deferred tax provision of approximately
$1.1 million on pre-tax income of $4.9 million, representing an effective rate
of 23%. The lower tax rate for 1993 was primarily attributable to the
reduction of a valuation allowance previously established on pre-acquisition
net operating loss carryforwards of ANEC.
In February 1992, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 109, "Accounting for Income
Taxes" ("SFAS 109"). The Company adopted SFAS 109 on January 1, 1993. Among
other changes, SFAS 109 relaxed the recognition and measurement criteria for
deferred tax assets and alternative minimum tax from that provided for under
its previous method of accounting for income taxes under Statement of Financial
Accounting Standards No. 96 ("SFAS 96"). Adoption of this standard resulted in
the elimination of deferred income taxes payable of $425,000, related entirely
to alternative minimum tax, which is reflected in the 1993 statement of
operations as the cumulative effect of a change in accounting principle.
20
<PAGE> 23
The Company's provision for taxes in 1992 represents state income
taxes for which net operating losses were not available to eliminate the need
for a provision.
LIQUIDITY AND CAPITAL RESOURCES
General. The Company's capital requirements relate primarily to
exploitation, development, exploration and acquisition activities. In general,
because the Company's oil and gas reserves are depleted by production, the
success of its business strategy is dependent upon a continuous exploitation,
development, exploration and acquisition program.
Historically, the Company has funded its capital requirements through
cash flow from operations, bank borrowings, various carried interest
arrangements (whereby other parties paid a portion of the Company's share of
costs) and equity sales. The Company and ANEC used the net proceeds from the
Secondary Public Offerings in 1993 to repay existing indebtedness and the
Series B preferred stock. During 1994, the Company entered into a new credit
facility with a bank to provide additional borrowing capacity under a revolving
line of credit. See LIQUIDITY AND CAPITAL RESOURCES -- Long-Term Debt.
The Company's capital resources consist primarily of cash flow from
operations and available borrowing capacity under the New Credit Facility.
Although it has no specific plans to do so, the Company may supplement its
working capital through the establishment of new financing arrangements or the
sale of certain properties.
Cash Flows. In 1994, the Company's cash provided by operating
activities was $1.5 million compared to $12.1 million for the year ended
December 31, 1993. This decrease was primarily attributable to $3.2 million of
nonrecurring expenses associated with the ANEC merger and the settlement of
ANEC litigation, the nonrecurence of the 1993 $1.25 million gas contract
settlement proceeds and the net change in assets and liabilities resulting from
operating activities of $4.8 million. The $4.8 million net change in assets and
liabilities resulting from operating activities in 1994 is the result of
reduced drilling activities, the availability of additional borrowing capacity
associated with the new credit facility and the nonrecurrence of a natural gas
prepayment agreement at December 31, 1994, compared with December 31, 1993,
all of which caused a reduction in accounts payable, oil and gas proceeds due
others and other liabilities at December 31, 1994 compared with the related
balances at December 31, 1993. At December 31, 1994, the Company has a $3.5
million gas balancing liability attributable to 2.5 Bcf of natural gas
production in excess of the Company's entitled natural gas volumes. The
majority of these excess sales are from properties that have gas balancing
agreements which provide for recoupments by the underproduced owners from 25%
of volumes attributable to the Company's interest. At December 31, 1994,
approximately $912,000 was included in current liabilities associated with such
excess sales liability.
The Company's cash flow provided by operating activities in 1993 was
$12.1 million compared to $4.7 million in 1992. This increase was primarily
attributable to the $1.25 million nonrecurring gas contract settlement in 1993
and the change in assets and liabilities resulting from operating activities of
$1.9 million.
Net cash used by investing activities in 1994 increased approximately
$15.3 million to $32.3 million from $17.0 million in 1993. Additions to oil and
gas properties increased by approximately $18.1 million to $36.0 million due to
the JMC acquisition of $18.2 million and the continued redirection of
activities toward exploration and development of reserves after completing the
Secondary Public Offerings in 1993. The acquisition added 25 billion cubic
feet of natural gas reserves to the Company's asset base. The properties
acquired are located in the Arkoma Basin in Oklahoma and Arkansas. During
1994, the Company also sold its interest in the MFS Properties for
approximately $3.2 million which were acquired in 1990 for $3.0 million.
Net cash used by investing activities in 1993 increased by $11.5
million to $17.0 million in 1993 compared to $5.5 million in 1992, primarily
attributable to the increase in additions to oil and gas properties of $14.5
million to $17.9 million.
Net cash provided by financing activities was $30.3 million for 1994
compared to $5.3 million for 1993. Net cash provided in 1994 resulted primarily
from borrowings on long-term debt of $31.0 million and the exercise of stock
options which aggregated $1.0 million, partially offset by payments on
long-term debt to a stockholder and others of $1.3 million.
Net cash provided by financing activities in 1993 was $5.3 million
compared to $25,007 used in 1992. The cash provided in 1993 resulted primarily
from borrowings on long-term debt of $18.5 million and proceeds from the sale
of common stock of $13.7 million partially offset by payments on long-term debt
of $26.3 million.
21
<PAGE> 24
At December 31, 1994, the Company had a working capital deficit of
$5.6 million and had approximately $10 million available under its revolving
line of credit.
Long Term Debt. The Company negotiated a new credit facility (the
"Credit Agreement") with a bank in the fourth quarter of 1994 which provides
for a revolving line of credit. The borrowing base on the revolving line of
credit was $52 million at December 31, 1994. The borrowing base, which
principally relates to the Company's oil and gas reserve base, is subject to a
semi-annual redetermination each April and October until January 1, 1997, at
which time the borrowing base is reduced quarterly by 1/16th through December
31, 2000. In addition to the foregoing semi-annual redeterminations, the
lender has the right, at its discretion, to redetermine the borrowing base,
subject to certain limitations, at any time until the stated maturity of
December 31, 2000.
Under the terms of the Credit Agreement, outstanding borrowings bear
interest based upon three variable indices plus applicable margins. The
Company has the ability to choose the index the rate will be based on and can
fix the rate for a period of up to six months. At December 31, 1994, all
outstanding borrowings under the line bear interest based upon the London
Interbank Offering Rate plus the applicable margin (aggregate rate of 7.625%)
and is fixed until April 21, 1995. The Credit Agreement requires the Company
to pay a commitment fee of .25% per annum on the average daily balance of
unused borrowings.
Borrowings under the Credit Agreement are unsecured with a negative
pledge, as specified in the Credit Agreement, on all oil and gas properties.
Terms of the Credit Agreement include, among other things, requirements to
maintain minimum amounts of tangible net worth (as defined) and a minimum ratio
of current assets to current liabilities; and limitations on investments,
indebtedness, capital expenditures, sales of oil and gas properties and
equipment, liquidations, mergers, consolidations, acquisitions, gas balancing
and gas prepayment liabilities and the payment of dividends on common stock.
Future Events. On March 14, 1995, the Company announced that its
Board of Directors approved an agreement to enter into negotiations with
Abraxas Petroleum Corporation ("Abraxas") with respect to the combination of
the two companies. Under the terms of the agreement, the Company and Abraxas
would have 45 days to complete their due diligence investigations and attempt
to reach a definitive agreement on the terms of a transaction. The Company
will incur fees for legal, accounting, investment banking and other costs
related to the due diligence process. In the event a merger is accomplished,
costs as mentioned above will be substantially increased.
Since the Company is pursuing due diligence and has experienced a
lower product price for natural gas in the past several months, the Company has
focused its current efforts on the due diligence process. The Company has
budgeted approximately $11 million for development of proved undeveloped
locations in 1995. While these projects may be temporarily delayed due to the
above mentioned factors, the Company can easily accomplish this development
program in the last half of 1995 after a determination is made whether or not
to pursue the combination.
22
<PAGE> 25
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
<TABLE>
<CAPTION>
Page
----
<S> <C>
ALEXANDER ENERGY CORPORATION
REPORTS OF INDEPENDENT AUDITORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F- 1
CONSOLIDATED BALANCE SHEETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F- 3
CONSOLIDATED STATEMENTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F- 4
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . . F- 5
CONSOLIDATED STATEMENTS OF CASH FLOWS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F- 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F- 8
</TABLE>
23
<PAGE> 26
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Alexander Energy Corporation
We have audited the accompanying consolidated balance sheet of Alexander Energy
Corporation as of December 31, 1994, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the year then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the 1994 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Alexander
Energy Corporation at December 31, 1994 and the consolidated results of its
operations and its cash flows for the year then ended, in conformity with
generally accepted accounting principles.
We previously audited and reported on the consolidated balance sheet as of
December 31, 1993 and the related consolidated statements of operations,
stockholders' equity, and cash flows of Alexander Energy Corporation for the
years ended December 31, 1992 and 1993, prior to their restatement for the 1994
pooling of interests as described in Note 2. The contribution of Alexander
Energy Corporation to total assets, revenues, and net income or loss
represented 77%, 65% and $394,212 of net income of the respective 1992 restated
totals and 71%, 65% and 50% of the respective 1993 restated totals. Financial
statements of the other pooled company included in the 1992 and 1993 restated
consolidated statements were audited and reported on separately by other
auditors. We also have audited, as to combination only, the accompanying
consolidated balance sheet as of December 31, 1993 and the related consolidated
statements of operations, stockholders' equity and cash flows for the years
ended December 31, 1992 and 1993, after restatement for the 1994 pooling of
interests; in our opinion, such consolidated financial statements have been
properly combined on the basis described in Note 2 to the consolidated
financial statements.
As discussed in Note 1 to the consolidated financial statements, in 1993 the
Company changed its method of accounting for income taxes.
ERNST & YOUNG LLP
Oklahoma City, Oklahoma
March 24, 1995
F-1
<PAGE> 27
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
American Natural Energy Corporation
We have audited the consolidated balance sheets of American Natural Energy
Corporation and Subsidiaries as of December 31, 1993 and 1992 and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the years ended December 31, 1993 and 1992. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
American Natural Energy Corporation and Subsidiaries as of December 31, 1993
and 1992 and the consolidated results of their operations and their cash flows
for the years ended December 31, 1993 and 1992, in conformity with generally
accepted accounting principles.
As discussed in Notes 2 and 4, the Company changed its method of accounting for
its oil and gas properties and income taxes.
COOPERS & LYBRAND
Tulsa, Oklahoma
February 22, 1994
F-2
<PAGE> 28
ALEXANDER ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1993 AND 1994
(NOTES 1 AND 2)
<TABLE>
<CAPTION>
ASSETS
1993 1994
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . $ 1,294,597 $ 792,752
Accounts receivable:
Joint interest operations and other:
Limited partnerships and other related parties (Note 3) . . . . . . . 1,178,919 271,617
Stock subscriptions (Note 8) . . . . . . . . . . . . . . . . . . . . 645,000 ---
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 676,680 1,877,781
Oil and gas sales . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,353,403 3,252,954
Supply inventories, at lower of cost or market . . . . . . . . . . . . . 440,580 306,653
Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . . . . 514,727 145,102
----------- ------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . 8,103,906 6,646,859
Properties and equipment, at cost (Notes 4 and 11):
Oil and gas properties, based on full cost accounting:
Properties subject to amortization . . . . . . . . . . . . . . . . . 94,599,583 126,490,676
Unproved properties not being amortized . . . . . . . . . . . . . . . 615,007 991,652
----------- ------------
95,214,590 127,482,328
Natural gas processing plant equipment . . . . . . . . . . . . . . . . . 139,595 91,353
Other properties and equipment . . . . . . . . . . . . . . . . . . . . . 2,516,382 2,301,633
----------- ------------
97,870,567 129,875,314
Less accumulated amortization and depreciation . . . . . . . . . . . 31,366,170 38,330,143
----------- ------------
Net properties and equipment . . . . . . . . . . . . . . . . . . 66,504,397 91,545,171
Notes receivable from related parties, gas balancing receivables,
deferred charges and other assets, at cost (Note 3) . . . . . . . . . . . 1,160,651 1,622,105
----------- ------------
$75,768,954 $ 99,814,135
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable:
Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,064,601 $ 6,589,976
Limited partnerships and other related parties (Note 3) . . . . . . . . 637,298 181,492
Gas balancing, deferred revenue and oil and gas proceeds:
Limited partnerships (Note 3) . . . . . . . . . . . . . . . . . . . . . 1,205,145 765,150
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,259,870 3,675,130
Long-term debt due within one year (Note 4) . . . . . . . . . . . . . . . 1,037,396 1,016,253
----------- ------------
Total current liabilities . . . . . . . . . . . . . . . . . . . . 15,204,310 12,228,001
Long-term debt due after one year (Note 4):
Stockholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,000,000 3,000,000
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,809,880 42,588,280
Non-recourse debt (Note 5) . . . . . . . . . . . . . . . . . . . . . . . . 954,390 925,452
Gas balancing and other noncurrent liabilities (Note 3) . . . . . . . . . . 4,418,008 4,047,859
Deferred income taxes (Note 6) . . . . . . . . . . . . . . . . . . . . . . 2,800,000 2,800,000
Commitments and contingencies (Note 7 and 13) . . . . . . . . . . . . . . . 2,231,100 ---
Stockholders' equity (Notes 2, 3, 4 and 8):
Preferred stock - $.01 par value; 2,000,000 shares authorized;
none issued and outstanding . . . . . . . . . . . . . . . . . . . . . . --- ---
Common stock - $.03 par value; 20,000,000 shares authorized;
issued -- 11,715,504 in 1993 and 12,271,563 in 1994 . . . . . . . . . . 351,465 368,147
Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,306,326 39,405,383
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,306,525) (5,548,987)
----------- ------------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . 34,351,266 34,224,543
----------- ------------
$75,768,954 $ 99,814,135
=========== ============
</TABLE>
See accompanying notes.
F-3
<PAGE> 29
ALEXANDER ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(NOTES 1 AND 2)
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------------------------
1992 1993 1994
--------------- --------------- -------------
<S> <C> <C> <C>
Revenues:
Oil and gas sales (Note 9) . . . . . . . . . . . . . . . . $13,106,426 $17,707,809 $17,389,814
Well operator and management fees:
Related parties (Note 3) . . . . . . . . . . . . . . . . 544,269 532,816 361,488
Others . . . . . . . . . . . . . . . . . . . . . . . . . 2,119,024 2,135,315 2,253,853
Marketing fees, interest and other (Notes 3 and 10) . . . . 247,045 1,532,800 677,401
----------- ----------- -----------
Total revenues . . . . . . . . . . . . . . . . . . 16,016,764 21,908,740 20,682,556
Costs and expenses:
Direct lifting costs (Note 3) . . . . . . . . . . . . . . . 3,609,503 4,129,383 4,959,323
Gross production and severence tax . . . . . . . . . . . . 1,007,644 1,170,109 1,175,680
Amortization and depreciation (Note 11) . . . . . . . . . . 4,583,130 5,762,107 7,246,329
General and administrative expenses (Note 3) . . . . . . . 3,240,629 3,878,892 4,033,984
Interest expense:
Stockholder . . . . . . . . . . . . . . . . . . . . . . . 830,117 713,852 550,211
Others . . . . . . . . . . . . . . . . . . . . . . . . . 2,198,734 1,348,809 1,845,285
Nonrecurring merger expense (Note 2) . . . . . . . . . . . --- --- 2,432,002
Litigation settlement (Note 10) . . . . . . . . . . . . . . --- --- 733,964
----------- ----------- -------------
Total costs and expenses . . . . . . . . . . . . . 15,469,757 17,003,152 22,976,778
----------- ----------- -------------
Income (loss) before provision for income taxes, discontinued
operations, extraordinary items and cumulative
effect of change in accounting for income taxes . . . . . . 547,007 4,905,588 (2,294,222)
Provision for deferred income taxes (Note 6):
Deferred tax expense . . . . . . . . . . . . . . . . . . . 4,753 1,131,000 ---
Nonrecurring change in ownership . . . . . . . . . . . . . --- 1,200,000 ---
---------- ---------- ------------
4,753 2,331,000 ---
---------- ---------- ------------
Income (loss) before discontinued operations, extraordinary
items and cumulative effect of change in accounting
for income taxes . . . . . . . . . . . . . . . . . . . . . 542,254 2,574,588 (2,294,222)
Loss from discontinued operations (Note 12) . . . . . . . . . (681,142) --- ---
---------- ---------- ------------
Income (loss) before extraordinary items and cumulative
effect of change in accounting for income taxes . . . . . . (138,888) 2,574,588 (2,294,222)
Extraordinary items (Note 13):
Gain on extinguishment of long-term obligation . . . . . . --- --- 1,051,760
Loss on early extinguishment of debt, net of income
tax benefit of $298,000 . . . . . . . . . . . . . . . . --- (510,000) ---
---------- ---------- ------------
Income (loss) before cumulative effect of change in
accounting for income taxes . . . . . . . . . . . . . . . . (138,888) 2,064,588 (1,242,462)
Cumulative effect of change in accounting for
income taxes (Note 1) . . . . . . . . . . . . . . . . . . . --- 425,000 ---
---------- ---------- ------------
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . $ (138,888) $2,489,588 $(1,242,462)
========== ========== ===========
Net income (loss) applicable to common stock . . . . . . . . $ (300,019) $2,452,931 $(1,242,462)
========== ========== ===========
Weighted average common and common
equivalent shares outstanding . . . . . . . . . . . . . . . 5,433,772 10,148,552 12,168,172
========== ========== ==========
Net income (loss) per common and common equivalent share:
Income (loss) before discontinued operations, extraordinary
items and cumulative effect of change in accounting for
income taxes . . . . . . . . . . . . . . . . . . . . . . $ .07 $ .25 $(.19)
Loss from discontinued operations . . . . . . . . . . . . . (.13) --- ---
Extraordinary items . . . . . . . . . . . . . . . . . . . . --- (.05) .09
Cumulative effect of change in accounting for
income taxes . . . . . . . . . . . . . . . . . . . . . . --- .04 ---
------ ------ ------
Net income (loss) . . . . . . . . . . . . . . . . . . . . . $ (.06) $ .24 $ (.10)
====== ====== ======
</TABLE>
See accompanying notes.
F-4
<PAGE> 30
ALEXANDER ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
(NOTES 1, 2 AND 8)
<TABLE>
<CAPTION>
Preferred Common Paid-in Accumulated Treasury
Stock stock capital deficit stock Total
------------ ---------- ---------------- --------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1991,
as previously reported . . . . $ 1,000 $ 82,974 $15,076,099 $(2,986,923) $(459,962) $11,713,188
Adjustment for pooling of
interests with American
Natural Energy
Corporation . . . . . . . . . . 1,375,000 64,469 4,654,751 (3,410,014) --- 2,684,206
---------- -------- ----------- ----------- --------- -----------
Balance at December 31, 1991,
as restated . . . . . . . . . . 1,376,000 147,443 19,730,850 (6,396,937) (459,962) 14,397,394
Common stock issued in
connection with Bradmar
acquisition, net of
issuance costs
of $246,576 . . . . . . . . . --- 27,193 3,125,380 --- --- 3,152,573
Conversion of Series A
preferred stock to
common stock . . . . . . . . (1,375,000) 22,275 1,352,725 --- --- ---
Issuance of common stock . . . --- 1,458 38,807 --- --- 40,265
Issuance of Series B
preferred stock . . . . . . . 359,735 --- --- --- --- 359,735
Common stock received in
connection with the
disposition oil field
operations . . . . . . . . . --- (3,694) (179,306) --- --- (183,000)
Issuance of common stock in
exchange for cancellation
of capital lease . . . . . . --- 3,694 179,306 --- --- 183,000
Exercise of employee stock
options . . . . . . . . . . . --- 87 6,209 --- --- 6,296
Purchase of treasury stock . . --- --- --- --- (154) (154)
Net loss . . . . . . . . . . . --- --- --- (138,888) --- (138,888)
Dividends . . . . . . . . . . . --- --- --- (173,632) --- (173,632)
---------- -------- ----------- ----------- --------- -----------
Balance at December 31, 1992 . . 360,735 198,456 24,253,971 (6,709,457) (460,116) 17,643,589
Common stock issued and
conversion of preferred
stock, net of
issuance costs . . . . . . . (1,000) 134,575 13,167,456 --- 460,116 13,761,147
Issuance of common stock
for royalty interest . . . . --- 6,755 187,843 --- --- 194,598
Retirement of Series B
preferred stock . . . . . . . (359,735) --- (40,265) --- --- (400,000)
Issuance of warrants . . . . . --- --- 65,099 --- --- 65,099
Issuance of common stock in
connection with exercise
of warrants . . . . . . . . . --- 10,935 624,065 --- --- 635,000
Exercise of employee stock
options and issuance of
stock awards, net of
unearned compensation . . . . --- 744 48,157 --- --- 48,901
Net income . . . . . . . . . --- --- --- 2,489,588 --- 2,489,588
Dividends . . . . . . . . . . . --- --- --- (86,656) --- (86,656)
---------- -------- ----------- ----------- --------- -----------
Balance at December 31, 1993 . . --- 351,465 38,306,326 (4,306,525) --- 34,351,266
Exercise of stock options
and issuance of stock
awards, net of unearned
compensation . . . . . . . . --- 16,682 1,099,057 --- --- 1,115,739
Net loss . . . . . . . . . . . . --- --- --- (1,242,462) --- (1,242,462)
---------- -------- ----------- ----------- --------- -----------
Balance at December 31, 1994 . $ --- $368,147 $39,405,383 $(5,548,987) $ --- $34,224,543
========== ======== =========== =========== ========= ===========
</TABLE>
See accompanying notes.
F-5
<PAGE> 31
ALEXANDER ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(NOTES 1 AND 2)
(CONTINUED ON NEXT PAGE)
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------------------
1992 1993 1994
--------------- -------------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) . . . . . . . . . . . . . . . . . . . . . $ (138,888) $ 2,489,588 $(1,242,462)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Discontinued operations, net . . . . . . . . . . . . . . 681,142 --- ---
Extraordinary loss (gain) before tax and after cash
payment . . . . . . . . . . . . . . . . . . . . . . . . --- 707,600 (1,131,100)
Cumulative effect of change in accounting
for income taxes . . . . . . . . . . . . . . . . . . . --- (425,000) ---
Amortization and depreciation . . . . . . . . . . . . . . 4,583,130 5,762,107 7,246,329
Common stock bonus . . . . . . . . . . . . . . . . . . . --- --- 68,615
Amortization of loan discount . . . . . . . . . . . . . . --- 65,000 ---
Loss on disposal of other equipment . . . . . . . . . . . --- 8,705 ---
Accretion of imputed interest . . . . . . . . . . . . . . 444,389 361,534 220,500
Deferred income tax provision . . . . . . . . . . . . . . --- 2,033,000 ---
Change in assets and liabilities as a result of operating
activities, net of amounts related to Bradmar acquisition:
Decrease (increase) in accounts receivable . . . . . . (842,138) 395,167 (654,804)
Decrease (increase) in supply inventories,
prepaid expenses and other . . . . . . . . . . . . . (330,922) (251,243) 503,552
Increase (decrease) in accounts payable . . . . . . . . 1,158,562 1,478,546 (1,930,431)
Decrease in gas balancing, natural gas prepayments,
oil and gas proceeds due others and other
noncurrent liabilities . . . . . . . . . . . . . . . (837,955) (560,211) (1,615,384)
------------- ----------- -----------
Net cash provided by operating activities . . . . . 4,717,320 12,064,793 1,464,815
Cash flows from investing activities:
Additions to oil and gas properties . . . . . . . . . . . . (3,461,697) (17,940,203) (36,009,580)
Acquisition of Bradmar, net of cash acquired . . . . . . . (5,134,932) --- ---
Additions to gas plant equipment and other
properties and equipment . . . . . . . . . . . . . . . . (238,092) (351,001) (440,742)
Change in deferred charges and other assets,
net of amounts related to Bradmar acquisition:
Increase . . . . . . . . . . . . . . . . . . . . . . . (605,495) (329,507) ---
Decrease . . . . . . . . . . . . . . . . . . . . . . . 533,182 925,005 ---
Proceeds from the sale of assets:
Related parties . . . . . . . . . . . . . . . . . . . . . 623,928 --- ---
Others . . . . . . . . . . . . . . . . . . . . . . 2,761,591 694,007 4,163,219
------------- ----------- -----------
Net cash used by investing activities (5,521,515) (17,001,699) (32,287,103)
</TABLE>
F-6
<PAGE> 32
ALEXANDER ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------------------
1992 1993 1994
------------- ------------- -----------
<S> <C> <C> <C>
Cash flows from financing activities:
Proceeds from long-term debt . . . . . . . . . . . . . . . $6,940,303 $18,488,572 $ 30,986,958
Payments on long-term debt . . . . . . . . . . . . . . . . (7,247,820) (26,342,193) (1,258,639)
Payments on short-term borrowings . . . . . . . . . . . . . (211,390) (75,000) ---
Proceeds from maturity of short-term investment . . . . . . 211,390 --- ---
Collection of stock subscription receivable . . . . . . . . --- --- 645,000
Proceeds from sale of common, preferred stock and
treasury stock, net of offering costs . . . . . . . . . . 400,000 13,761,246 ---
Exercise of employee stock options and issuance
of stock awards . . . . . . . . . . . . . . . . . . . . . 6,296 48,901 1,047,124
Payment for extinguishment of long-term obligation . . . . --- --- (1,100,000)
Payments to retire preferred stock . . . . . . . . . . . . --- (400,000) ---
Payment for treasury stock . . . . . . . . . . . . . . . . (154) --- ---
Payment of preferred stock dividend . . . . . . . . . . . . (123,632) (136,656) ---
---------- ----------- ------------
Net cash provided (used) by financing activities . (25,007) 5,344,870 30,320,443
Net cash used in discontinued operations . . . . . . . . . . (153,583) --- ---
Net increase (decrease) in cash and cash equivalents
during the period . . . . . . . . . . . . . . . . . . . . . (982,785) 407,964 (501,845)
Cash and cash equivalents at beginning of year . . . . . . . 1,869,418 886,633 1,294,597
---------- ----------- ------------
Cash and cash equivalents at end of year . . . . . . . . . . $ 886,633 $ 1,294,597 $ 792,752
========== =========== ============
</TABLE>
SUPPLEMENTAL INFORMATION:
Interest paid amounted to $2,584,462, $1,701,127 and $2,174,996 for the
years ended December 31, 1992, 1993 and 1994, respectively.
In connection with certain sales of property and equipment, the Company
eliminated gas balancing receivables and payables of $312,362 and
$889,674, respectively in 1992. In 1993, the Company reclassified to oil
and gas properties, $1,680,000 of gas balancing payables recognized in the
preliminary Bradmar purchase price allocation.
In 1992, ANEC issued common stock in exchange for cancellation of $183,000
indebtedness and received $183,000 of common stock in connection with the
disposition of certain assets. ANEC also converted $1,375,000 of
preferred stock to common stock and exchanged oil and gas properties for
the discharge of $250,760 of accounts payable.
In December 1993, ANEC also recognized a stock subscription receivable of
$645,000 in connection with the issuance of common stock paid for in cash
in January 1994.
During 1992, the Company declared a preferred stock dividend of $50,000
included in current liabilities at December 31, 1992.
In 1992, in connection with the Bradmar acquisition, the Company assumed
liabilities and issued common stock aggregating $11 million and $3.4
million, respectively.
See accompanying notes.
F-7
<PAGE> 33
ALEXANDER ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation - The consolidated financial statements
include the accounts of Alexander Energy Corporation (the "Company"), its
wholly-owned subsidiaries, American Natural Energy Corporation ("ANEC") (Note
2), Edwards & Leach Oil Company ("ELOC"), Boomer Marketing Corporation and
Bradmar Petroleum Corporation ("Bradmar") and their proportionate share of the
assets, liabilities, revenues and costs and expenses of oil and gas limited
partnerships in which they act as general partner (Note 3). Amounts for
periods prior to 1994 have been restated to give effect for the 1994 pooling of
interests between the Company and ANEC as described in Note 2.
Oil and gas properties - The Company follows the full cost method of
accounting for oil and gas properties prescribed by the Securities and Exchange
Commission ("SEC"). Under the full cost method, all acquisition, exploration
and development costs are capitalized. The Company capitalizes internal costs
including: salaries and related fringe benefits of employees directly engaged
in the acquisition, exploration and development of oil and gas properties, as
well as other directly identifiable general and administrative costs associated
with such activities. Such capitalized internal costs were approximately
$650,000, $885,000, and $1,232,000, respectively, in each of the three years in
the period ended December 31, 1994.
The costs of unproved properties are excluded from costs to be amortized
pending a determination of the existence of proved reserves. Such unproved
properties are assessed periodically for impairment. The amount of impairment
is included in the costs to be amortized.
Amortization and depreciation - Amortization of oil and gas properties is
computed using a unit of revenue method based on current gross revenues from
production in relation to estimated future gross revenues from production of
proved oil and gas reserves (Note 11).
Depreciation of other properties and equipment is computed on the
straight-line method over estimated useful lives of 3 to 40 years.
Capitalization of interest - Interest costs related to significant
exploratory oil and gas wells and unproved oil and gas leases not being
amortized are capitalized until such time as the properties are evaluated and
transferred to the full cost amortization base. For the years ended December
31, 1992, 1993 and 1994, total interest costs amounted to $3,042,249,
$2,077,890 and $2,423,496 with $13,398, $15,229 and $28,000 being capitalized,
respectively.
Income taxes - In February 1992, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standard No. 109, "Accounting for
Income Taxes" ("SFAS 109"). The Company adopted SFAS 109 on January 1, 1993.
Among other changes, SFAS 109 relaxed the recognition and measurement criteria
for deferred tax assets and alternative minimum tax from that provided for
under its previous method of accounting for income taxes under Statement of
Financial Accounting Standards No. 96 ("SFAS 96"). Adoption of this standard
resulted in the elimination of deferred income taxes payable of $425,000,
related entirely to alternative minimum tax, which is reflected in the 1993
statement of operations as the cumulative effect of a change in accounting
principle.
Under SFAS 96 and SFAS 109, deferred income taxes are provided on the tax
effect of presently existing temporary differences, net of operating loss
carryforwards and statutory depletion carryforwards. The tax effect is
measured using the enacted marginal tax rates and laws that will be in effect
when the differences and carryforwards are expected to reverse or be utilized.
Net income (loss) per common and common equivalent share - Net income
(loss) per common and common equivalent share is computed on the basis of
weighted average shares of common stock, stock options and warrants outstanding
during each period, as applicable. As discussed in Note 8, in 1992 ANEC
converted 1,375 shares of Series A Preferred Stock into 458,333 shares of
ANEC's common stock (742,499 shares of the Company's common stock). Assuming
conversion had occurred at January 1, 1992, the Company's income before
discontinued operations and net loss would have been $.08 and $(.03) per common
and common equivalent share, respectively, for the year ended December 31,
1992.
Gas balancing and natural gas prepayments - The Company records gas sales
on the entitlement method, recognizing only its net share of all production
as revenues. Any amount received in excess of the Company's revenue interest
is recorded as a gas balancing liability. The Company has also received
non-interest bearing prepayments on future natural gas production which provide
for recoupment, most of which are refundable upon the
F-8
<PAGE> 34
ALEXANDER ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
earlier of the end of the productive life of each well or expiration of the gas
purchase contract. The natural gas prepayments will be recognized as revenue
when, and if, the gas is delivered. In allocating the purchase price of
Bradmar in 1992, the gas balancing and gas prepayments were discounted at 8% to
an estimated fair value. At December 31, 1993 and 1994, these liabilities have
been presented in the accompanying consolidated balance sheet net of discount
aggregating $726,000 and $530,000, respectively. The portion of the gas
balancing and natural gas prepayment liabilities that may be contractually
recouped during the next fiscal year is recorded as due within one year in the
accompanying balance sheets. As of December 31, 1993 and 1994 the Company has
gas balancing and natural gas prepayment liabilities aggregating $4,652,000 and
$4,736,000, respectively, of which $638,000 and $1,035,000 are classified as
due within one year.
Futures contracts - In 1992, the Company entered into futures contracts to
hedge the market risk caused by fluctuations in the price of crude oil and
natural gas. These contracts involved the cash settlement of the differentials
between fixed and floating crude oil and natural gas prices. The differentials
to be paid or received were accrued and recognized as current-period
adjustments to crude oil and natural gas sales.
The effect of these hedges for 1992 was to reduce oil and natural gas
sales as received at the wellhead by approximately $147,000 and $238,000,
respectively, representing a reduction to the average price per barrel and Mcf
of $.69 and $.04, respectively from the price received at the wellhead. As of
December 31, 1993 and 1994, the Company had no outstanding commitments with
regard to futures contracts.
Cash equivalents - Temporary investments with a maturity at the date of
acquisition of 90 days or less are considered to be cash equivalents.
Credit and market risk - The Company conducts the majority of its
operations in the states of Oklahoma, Texas and Arkansas and operates
exclusively in the oil and natural gas industry. The Company's joint interest
and oil and gas sales receivables are generally unsecured; however, the Company
has not experienced any significant losses in prior years and is not aware of
any significant uncollectible accounts at December 31, 1994.
2. BUSINESS COMBINATIONS
On March 19, 1992, the Company merged with Bradmar whereby each
outstanding share of Bradmar common stock (approximately 1,890,000 shares) was
exchanged for $2.57 in cash (an aggregate of $4.9 million) and .48 share of the
Company's common stock (906,440 shares) for an aggregate purchase price of
approximately $8.3 million, excluding associated fees and expenses. This
transaction has been accounted for under the purchase method of accounting.
In July 1994, the Company acquired ANEC, an Oklahoma corporation based in
Tulsa, Oklahoma, in a merger (the "Merger") accounted for as a pooling of
interests. Accordingly, the Merger has been given retroactive effect and the
Company's financial statements for periods prior to the Merger represent the
combined financial statements of the previously separate entities adjusted to
conform ANEC's accounting policies to those used by the Company. ANEC became a
wholly owned subsidiary of the Company and each issued and outstanding share of
ANEC's common stock was converted into the right to receive 1.62 shares of the
Company's common stock ("Common Stock"). In addition, the Company agreed to
assume all outstanding options granted under the stock option plans maintained
by ANEC. As a result of the transaction, the Company issued approximately 5.8
million shares of Company common stock and reserved approximately 250,000
shares of common stock for issuance upon exercise of ANEC's options. The
Company also reserved approximately 158,000 shares of its common stock for
issuance pursuant to a warrant held by the underwriters of ANEC's September
1993 public stock offering.
F-9
<PAGE> 35
ALEXANDER ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Separate and combined results of Alexander Energy Corporation and ANEC
prior to the Merger are as follows (in thousands):
<TABLE>
<CAPTION>
Company ANEC Adjustments Combined
----------- --------- ----------- ---------
(in thousands)
<S> <C> <C> <C> <C>
Six months ended June 30, 1994 (unaudited)
Revenue . . . . . . . . . . . . . . . . . $ 5,938 $ 4,636 $ (44) $10,530
Net income . . . . . . . . . . . . . . . . 318 1,014 104 1,436
Year ended December 31, 1993
Revenue . . . . . . . . . . . . . . . . . 14,207 8,425 (723) 21,909
Income before extraordinary item and
cumulative effect of a change in
accounting principle . . . . . . . . . . 820 1,214 540 2,574
Net income . . . . . . . . . . . . . . . . 1,245 704 540 2,489
Year ended December 31, 1992
Revenue . . . . . . . . . . . . . . . . . 10,436 6,241 (660) 16,017
Income before discontinued operations . . 394 155 (7) 542
Net income (loss) . . . . . . . . . . . . 394 (526) (7) (139)
</TABLE>
The adjustments consist principally of conforming ANEC's policies to
the policies used by the Company. The conformed policies include revenue
recognition related to gas balancing, amortization of oil and gas properties
and equipment, income taxes and overhead reimbursements on Company operated
properties. The Company also reversed the quasi-reorganization effected by
ANEC in 1992 to comply with the pooling of interests method of accounting. The
cumulative effect of these conforming adjustments increased consolidated
accumulated deficit at December 31, 1991 by approximately $950,000.
In connection with the Merger, the Company incurred nonrecurring
charges to operations in 1994 of $2.4 million related to the combination of the
Company and ANEC. These costs include legal, accounting, investment banking,
printing and other costs.
In November 1994, the Company acquired certain producing gas
properties, located principally in Oklahoma and Arkansas, from JMC Exploration,
Inc. (the "JMC Acquisition") for a net purchase price of approximately $18.2
million, including the assumption of a net gas balancing liability of $320,000.
The operations of the JMC Acquisition have been included in the accompanying
statements of operations and cash flows beginning November 15, 1994.
The following unaudited pro forma combined data gives effect to the
JMC Acquisition as if such transactions had been consummated as of January 1,
1993 and 1994. The pro forma information is based on the historical financial
statements of the Company and the JMC Acquisition, giving effect to the
transaction under the purchase method of accounting. The unaudited pro forma
combined data are presented for illustrative purposes and are not necessarily
indicative of the actual results that would have occurred had the acquisition
been consummated as of January 1, 1993 or 1994, respectively, or of future
results of the combined operations. The data reflect adjustments for (1)
amortization and depreciation of the JMC Acquisition's oil and gas properties,
(2) incremental general and administrative expenses of the JMC Acquisition, (3)
incremental interest expense resulting from the borrowings on the new credit
facility used to fund the cash requirements of the acquisition, and (4) certain
other pro forma adjustments.
F-10
<PAGE> 36
ALEXANDER ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------
1993 1994
---------------------------------
(in thousands, except per share data)
<S> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $30,046 $25,295
Income (loss) before discontinued operations, extraordinary item and
cumulative effect of change in accounting . . . . . . . . . . . . . . 4,170 (1,741)
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,085 (689)
Net income (loss) per common share and common equivalent share . . . . $ .40 $ (.06)
</TABLE>
3. TRANSACTIONS WITH RELATED PARTIES
In June 1988, the Chief Executive Officer purchased 200,000 shares of the
Company's treasury stock for a sum aggregating $322,500. In connection with
this transaction, the Company advanced the Chief Executive Officer $77,500
bearing interest at 10% repayable in 10 annual installments. The remaining
balance of this advance aggregated $52,801 at December 31, 1993. In November
1994, the Board of Directors approved a resolution to forgive the outstanding
receivable from the Chief Executive Officer and also refund the principle and
interest previously paid to the Company, resulting in an aggregate charge to
1994 operations of approximately $190,000.
Prior to the Merger with the Company, ANEC made certain unsecured and
non-interest bearing advances to its President. The outstanding balance at
December 31, 1993 was $50,000. Subsequent to the Merger, ANEC's President
resigned and repaid the outstanding balance due to the Company.
The Company and ELOC have interests in three limited partnerships engaged
in oil and gas activities. The Company or ELOC acts as general partner of
these partnerships and arranges for the exploration, development and subsequent
operations of the partnerships' properties. In return, the Company and ELOC
are entitled to receive management fees, reimbursement for administrative
overhead and share in the partnerships' revenues and costs and expenses
according to the respective partnership agreements.
During June 1993, the Company acquired the limited partner's interest in
an oil and gas partnership for which the Company served as the general partner.
The purchase price of this acquisition was $1,350,000 and was accounted for
under the purchase method of accounting. The results of the acquisition is
included in the results of operations of the Company since the date of the
acquisition.
During each of the three years in the period ended December 31, 1994, the
Company sold approximately 28%, 20% and 24%, respectively, of its oil
production through an entity (IEM, Ltd.) in which the Company owned a limited
partner interest recorded on the equity method (Note 9). Net distributable
income of IEM, Ltd. was allocated 60% to the limited partners and 40% to the
general partner. For the two years ended December 31, 1993 and the eight
months ended August 31, 1994, the Company received 100% of the amount allocable
to the limited partners. Effective August 31, 1994, the Company terminated its
marketing arrangement with IEM and thus, withdrew as a limited partner. As a
result, the indirect marketing fees and the Company's equity interests in IEM's
operating profit or loss ceased as of August 31, 1994. The Company received
the highest posted price for all such production, an indirect marketing fee
from the ultimate purchaser and a percentage of operating profit of IEM, if
any. In 1992, 1993 and the eight-month period ended August 31, 1994, the
Company recorded pass-through marketing fees of $80,000, $96,000 and $96,000,
respectively, and operating profits (losses) of $46,000, $1,500 and $(9,700),
respectively. At December 31, 1993 and 1994 the Company had an undistributed
net operating profit receivable associated with this interest of approximately
$84,000, and a marketing fee receivable of $96,000 at December 31, 1993 (none
at December 31, 1994).
The Company also purchases certain well operating chemicals and stimulants
from another entity in which the Company owns a limited partner interest. In
1992, 1993 and 1994, oil and gas operating expenses and property development
costs include approximately $100,000, $521,000 and $726,000, respectively,
related to purchases from this related party. At December 31, 1994 the Company
has a 7.5% note receivable from this related party of approximately $200,000
($240,000 in 1993) and has an account payable to this related party of
approximately $92,419 ($199,452 in 1993).
F-11
<PAGE> 37
ALEXANDER ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As a requirement of the acquisition of Bradmar, the Company entered into
consulting/non-compete agreements with two former officers and directors of
Bradmar, one of which presently serves on the board of directors of the
Company. The agreements require total payments of a minimum $1,320,000 (for
which the Company has recorded a liability at the discounted present value) to
be paid in monthly payments of $36,667 over a thirty-six month period from the
date of the acquisition. During 1992, 1993 and 1994, the Company paid
$348,376, $440,000 and $440,000, respectively, related to these agreements and
at December 31, 1993 and 1994 has included $440,000 and $91,624 in current
liabilities due to such related parties.
4. LONG-TERM DEBT
Long-term debt consists of:
<TABLE>
<CAPTION>
December 31,
---------------------------
1993 1994
----------- -----------
<S> <C> <C>
Unsecured revolving credit facility (A) . . . . . . . . . . . . . . . . . $ --- $42,000,000
Secured revolving credit facility (B) . . . . . . . . . . . . . . . . . . 11,013,042 ---
10% unsecured notes to stockholder (C) . . . . . . . . . . . . . . . . . . 5,000,000 4,000,000
Note payable, interest at 10.5%; principal and interest
due in monthly installments of $5,382, with the balance
due in December 1999; secured by real estate with a net
book value of $670,571 at December 31, 1994 . . . . . . . . . . . . . . 552,241 546,545
Adjustable rate mortgage note secured by real estate . . . . . . . . . . . 198,366 ---
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83,627 57,988
----------- -----------
16,847,276 46,604,533
Less amounts due within one year . . . . . . . . . . . . . . . . . . . . . 1,037,396 1,016,253
----------- -----------
Long-term debt due after one year . . . . . . . . . . . . . . . . . . . . $15,809,880 $45,588,280
=========== ===========
</TABLE>
--------------------
(A) The Company negotiated a new credit facility (the "Credit Agreement") with
a bank in the fourth quarter of 1994 which provides for a revolving line
of credit. The borrowing base on the revolving line of credit was $52
million at December 31, 1994. The borrowing base, which principally
relates to the Company's oil and gas reserve base, is subject to a
semi-annual redetermination each April and October until January 1, 1997,
at which time the borrowing base is reduced quarterly by 1/16th through
December 31, 2000. In addition to the foregoing semi-annual
redeterminations, the lender has the right, at its discretion, to
redetermine the borrowing base, subject to certain limitations, at any
time until the stated maturity of December 31, 2000.
Under the terms of the Credit Agreement, outstanding borrowings bear
interest based upon three variable indices plus applicable margins. The
Company has the ability to choose the index the rate will be based on and
can fix the rate for a period of up to six months. At December 31, 1994,
all outstanding borrowings under the line bear interest based upon the
one-month London Interbank Offering Rate plus the applicable margin
(aggregate rate of 7.625%) and is fixed until April 21, 1995. The
Credit Agreement requires the Company to pay a commitment fee of .25% per
annum on the average daily balance of unused borrowings.
Borrowings under the Credit Agreement are unsecured with a negative
pledge, as specified in the Credit Agreement, on all oil and gas
properties. Terms of the Credit Agreement include, among other things,
requirements to maintain minimum amounts of tangible net worth (as
defined) and a minimum ratio of current assets to current liabilities; and
limitations on investments, indebtedness, capital expenditures, sales of
oil and gas properties and equipment, liquidations, mergers,
consolidations, acquisitions, gas balancing and gas prepayment liabilities
and the payment of dividends on common stock.
(B) The Company and ANEC each had outstanding borrowings under secured
revolving credit facilities (replaced by the unsecured credit facility
discussed in (A) above).
(C) In June 1988, the Company entered into an agreement with a stockholder
whereby the Company issued 10% unsecured notes in the amount of
$5,000,000. This note agreement requires semi-annual interest payments,
with annual principal payments of $1,000,000 beginning in June 1994 and
continuing through 1998. This note agreement requires principal
prepayments if less than 50% of the Company's consolidated cash flow is
not
F-12
<PAGE> 38
ALEXANDER ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
expended on indebtedness, as defined, and capital expenditures. It also
limits the sale or disposition of subsidiaries, partnerships or joint
ventures, the sale of Company assets, the incurrence of additional
indebtedness, declarations of dividends and requires the Company to
maintain cash flow each fiscal year equal to the greater of a) 200% of the
aggregate consolidated principal payments during such fiscal year, b) 200%
of the aggregate consolidated principal payments during the next
succeeding fiscal year, or c) discounted future net revenues equal to 225%
of the aggregate consolidated debt (as defined).
As of December 31, 1994, long-term debt, which excludes the non-recourse
debt maturities discussed in Note 5, maturing during the subsequent five years
and thereafter is as follows (based on the Company's borrowing base and
outstanding borrowings at December 31, 1994): 1995 - $1,016,253; 1996 -
$1,031,348: 1997 - $4,016,750; 1998 - $14,012,140; 1999 and thereafter -
$26,528,042.
5. NON-RECOURSE DEBT
In 1989, AEJH 1989 Limited Partnership ("AEJH 1989"), for which the
Company serves as general partner, entered into an agreement with a stockholder
of the Company (and limited partner of AEJH 1989), whereby AEJH 1989 issued
secured 10 1/2% notes payable in the amount of $2,185,276 ($1,092,638 net to
the Company's interest at the date of issuance) to acquire leasehold interests
in a group of producing oil and gas properties. These notes require monthly
principal and interest payments equal to 80.75% of net proceeds, as defined,
from the producing oil and gas properties. The lender may recover the
outstanding balance on the notes only from proceeds from the oil and gas
properties of AEJH 1989.
Inasmuch as the future payments on these notes will be paid only from net
proceeds from these producing oil and gas properties, no amounts are included
in current portion of long-term debt in the accompanying balance sheets.
6. INCOME TAXES
A reconciliation of the Company's income tax provision from continuing
operations and the amount computed by applying the statutory federal income tax
rate of 35% (34% for 1992) to income (loss) before income taxes, discontinued
operations, extraordinary items and cumulative effect of change in accounting
is as follows:
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------------
1992 (2) 1993 (1) 1994 (1)
---------- ---------- -----------
<S> <C> <C> <C>
Statutory rate applied to income (loss) before income
taxes, discontinued operations, extraordinary items
and cumulative effect of change in accounting . . . . . $ 186,000 $1,717,000 $ (803,000)
Increase (decrease) relating to:
Permanent differences, primarily related to nondeductible
merger costs . . . . . . . . . . . . . . . . . . . . . --- --- 852,000
Statutory depletion . . . . . . . . . . . . . . . . . . --- (79,000) (106,000)
State income taxes, net of federal benefit . . . . . . . 4,753 112,000 ---
Utilization of net operating loss carryforwards . . . . (186,000) --- ---
Change in the valuation allowance on deferred tax
assets (3) . . . . . . . . . . . . . . . . . . . . . . --- 641,000 57,000
Other . . . . . . . . . . . . . . . . . . . . . . . . . --- (60,000) ---
---------- ---------- ----------
Provision for deferred income taxes from continuing
operations . . . . . . . . . . . . . . . . . . . . . . . $ 4,753 $2,331,000 $ ---
========== ========== ==========
</TABLE>
(1) Provision for deferred income taxes computed under SFAS 109. Includes
$2,121,000 and $210,000 in 1993 for federal and state income taxes,
respectively.
(2) Provision for deferred income taxes computed under SFAS 96 in 1992.
(3) The 1993 change relates primarily to the nonrecurring change in ownership.
F-13
<PAGE> 39
ALEXANDER ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred tax assets and liabilities under SFAS 109 consist of the
following at December 31:
<TABLE>
<CAPTION>
1993 1994
----------- -----------
<S> <C> <C>
Deferred tax liabilities:
Depreciation and intangible drilling costs deducted
for tax in excess of financial . . . . . . . . . . . . . . . . . . . $11,984,000 $12,564,000
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,000 ---
----------- -----------
12,000,000 12,564,000
Deferred tax assets:
Oil and gas revenues recognized for tax
before financial . . . . . . . . . . . . . . . . . . . . 728,000 723,000
Net operating loss carryforwards . . . . . . . . . . . . 10,344,000 10,859,000
Statutory depletion carryforwards . . . . . . . . . . . . 1,242,000 1,354,000
Investment tax credit carryforwards . . . . . . . . . . . 204,000 201,000
Provision for uncollectible receivables and other . . . . 43,000 45,000
----------- -----------
12,561,000 13,182,000
Valuation allowances . . . . . . . . . . . . . . . . . . . (3,361,000) (3,418,000)
----------- -----------
Net deferred tax assets . . . . . . . . . . . . . . . . . 9,200,000 9,764,000
----------- -----------
Net deferred tax liabilities . . . . . . . . . . . . . . . $ 2,800,000 $ 2,800,000
=========== ===========
</TABLE>
In connection with the Offering in March 1993 (Note 8), the Company had an
ownership change pursuant to Section 382 of the Internal Revenue Code. The
Company sustained a nonrecurring non-cash charge to operations of approximately
$1.2 million during the three months ended March 31, 1993 due to an increase in
the valuation allowance. The increase in the valuation allowance represents
the effects of the annual limitations on the utilization of net operating loss
carryforwards resulting from the change in ownership. In addition, ANEC had an
ownership change in September 1993 as a result of its 1993 offering (Note 2),
which resulted in a limitation on the utilization of its net operating loss
carryforwards.
At December 31, 1994, the Company has federal income tax net operating
loss ("NOL") carryforwards of approximately $29,400,000 which begin to expire
in 1996. For federal income tax purposes, the Company also has investment tax
credit (after 35% reduction required under the Tax Reform Act of 1986) and
statutory depletion carryforwards of approximately $201,000 and $3,630,000,
respectively. At December 31, 1994, the federal income tax NOL includes
pre-acquisition NOL carryforwards of ELOC, Bradmar and ANEC of approximately
$3,000,000, $1,500,000 and $4,750,000, which begin to expire in 1996, 2005 and
2002, respectively.
7. COMMITMENTS AND CONTINGENCIES
In December 1994, the Company executed employment agreements, special
severance agreements and implemented a corporate separation policy for its
management, technical support staff and other employees, respectively, which
become effective upon a change in control of ownership, as defined. As of
December 31, 1994, severance benefits under such agreements, assuming a change
in control, would aggregate approximately $4.7 million. A provision for these
benefits will not be made until a change in control is probable. See Note 14.
The Company is involved in various legal actions arising in the normal
course of business. In the opinion of management, the Company's liability, if
any, in these pending actions would not have a material effect on the Company's
financial position or the results of operations.
8. PREFERRED AND COMMON STOCK
In April 1990, stockholders authorized the Board of Directors of the
Company to issue up to 2,000,000 shares of $.01 par value preferred stock with
preferences, qualifications, limitations and designations as deemed
appropriate.
On May 30, 1990 the Company issued 100,000 shares of 5% Series A
cumulative convertible preferred stock, $.01 par value, to MWR Investments,
Inc., a wholly owned subsidiary of Midwest Capital Group, Inc., ("MWR") for
$1,000,000. The preferred stock was converted into common stock of the Company
in March 1993 at a conversion rate of 1 share of preferred for 3.33 shares of
common.
F-14
<PAGE> 40
ALEXANDER ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In 1992, dividends of $.50 per share ($50,000 which was in arrears at
December 31, 1991) and $90.00 per share ($123,632) were paid on the Company's
and ANEC's Series A preferred stock, respectively. In 1993, dividends of $.50
per share ($60,273, $50,000 of which was in arrears at December 31, 1992) and
$.20 per share ($26,383) were paid on the Company's Series A preferred stock
and ANEC's Series B preferred stock, respectively.
In December 1994, the Board of Directors authorized the Company to reserve
300,000 shares of Series A Junior Participating Preferred Stock in connection
with establishing a rights plan providing shareholders one right for each share
of common stock held. Each right entitles its holder to purchase 1/100 of a
share of Series A Junior Participating Preferred Stock for $25.00, subject to
adjustment. The rights become exercisable and separately transferable ten
business days after a) an announcement that a person has acquired or obtained
the right to acquire 20% or more of the common stock or b) commencement of a
tender offer that could result in a person owning 20% or more of the common
stock.
If any person becomes the beneficial owner of 20% or more of the Company's
common stock, each right not beneficially owned by that person entitles its
holder to purchase, in lieu of Series A Junior Participating Preferred Stock,
Company common stock with a value equal to twice the exercise price of the
right, subject to adjustment to prevent dilution. In the event of certain
merger or asset sale transactions with another party or transactions which
would increase the equity ownership of a shareholder who then owned 20% or more
of the Company, each right will entitle its holder to purchase a similar value
of the merging or acquiring party's common stock. The rights, which have no
voting power, expire on December 15, 2004. The rights may be redeemed for $.01
per right until ten business days after a person has acquired 20% or more of
the common stock.
On December 31, 1992, ANEC entered into an agreement with the Series A
preferred shareholders of ANEC under which such stock was converted into
458,333 shares of ANEC's common stock (742,499 shares of the Company's common
stock).
On December 31, 1992, ANEC issued 133,333 shares of Series B preferred
stock and 30,000 shares of ANEC's common stock (48,600 shares of the Company's
common stock) for $400,000. In September 1993, ANEC redeemed such preferred
stock for $400,000 out of the proceeds of a secondary public offering of equity
securities.
In March 1993, the Company registered 2,990,000 shares of the Company's
common stock (the "Offering"), of which the Company and a stockholder sold
2,556,667 and 433,333 shares, respectively. In conjunction with the Offering,
the Company issued to the underwriters warrants to purchase 75,000 shares of
common stock. The warrants are exercisable beginning March 1994 at an exercise
price of $5.10 per share and expire in March 1998. The exercise price and the
number of shares of common stock for which the warrants are exercisable are
subject to adjustment upon the occurrence of certain dilutive events.
In September 1993, ANEC sold 1,100,000 shares of ANEC's common stock
(1,782,000 shares of the Company's common stock) and received $4 million, net
of underwriters commissions and costs of the offering (the "ANEC Offering").
In connection with this offering, ANEC issued purchase warrants to purchase
97,500 shares of ANEC's common stock (157,950 shares of the Company's common
stock) at $5.70 per share ($3.52 for the Company's common stock), expiring in
September 1998.
In April 1993, ANEC issued 139,000 shares of ANEC's common stock (225,180
shares of the Company's common stock) in connection with the acquisition of a
7.5% overriding royalty interest in ANEC's oil and gas properties in connection
with the early termination of a credit agreement.
Also in April 1993, ANEC issued warrants to purchase 260,000 shares of
ANEC's common stock (421,200 shares of the Company's common stock) at $3.00 per
share ($1.85 for the Company's common stock), expiring in April 1996, in
connection with the issuance of subordinated notes, retired in September 1993
with proceeds from the ANEC Offering. In December 1993, ANEC issued 225,000
shares of common stock (364,500 shares of the Company's common stock) upon the
exercise of a like number of warrants in exchange for a stock subscription
receivable of $645,000 which was collected in January 1994. The remaining
35,000 warrants at December 31, 1993 were exercised during 1994 for 56,700
shares of the Company's common stock.
The Company initially reserved 66,666 shares of its common stock for
issuance to directors and key employees under a nonqualified stock option plan
(which terminated in 1991, except for outstanding options at the date of
termination). The plan is administered by the Compensation Committee (the
"Committee") of the Board of Directors.
F-15
<PAGE> 41
ALEXANDER ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The exercise period of the options was determined by the Committee at the date
of grant, provided the exercise period is between one and ten years from the
date of grant. These options provide for accelerated vesting schedules upon a
change in control, as defined (Note 14).
Information regarding the Company's nonqualified stock option plan is
summarized as follows:
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------
1992 1993 1994
------ ------ ------
<S> <C> <C> <C>
Options outstanding at beginning of period . . . . . . . . . . 14,826 14,660 9,245
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . (166) (250) ---
Surrendered or forfeited . . . . . . . . . . . . . . . . . . . --- (5,165) (1,832)
------ ------ ------
Options outstanding at end of period ($1.50 to $9.18 per
share at December 31, 1994) . . . . . . . . . . . . . . . . 14,660 9,245 7,413
====== ====== ======
</TABLE>
The Company also has reserved 133,333 shares (10,022 available for future
grants at December 31, 1994) of its common stock for issuance to directors and
key employees under an incentive stock option plan (the "Plan"). The Plan is
administered by the Committee and, with the exception of a time period under
which options can be issued, contains similar provisions to the nonqualified
stock option plan.
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------
1992 1993 1994
------- ------- -------
<S> <C> <C> <C>
Options outstanding at beginning of period . . . . . . . . . 108,143 120,393 103,348
Granted (1992 - $3.75 to $4.125 per share;
1993 and 1994 - none granted) . . . . . . . . . . . . . . 15,000 --- ---
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . (2,750) (17,045) (7,333)
Surrendered or forfeited . . . . . . . . . . . . . . . . . . --- --- (9,999)
------- ------- -------
Options outstanding at end of period
($1.50 to $4.125 per share at December 31, 1994) . . . . . 120,393 103,348 86,016
======= ======= =======
</TABLE>
The Company also has reserved 250,000 (130,024 available for future grants
at December 31, 1994) shares of its common stock for issuance to directors and
key employees under a stock option plan approved at the 1993 annual
stockholders' meeting authorizing grants of both nonqualified and incentive
stock options (the "1993 Plan"). The 1993 Plan is administered by the
Committee and, with the exception of a time period under which options can be
issued, contains similar provisions to the nonqualified and incentive stock
option plans discussed above. During 1993, ANEC granted options for 51,000
shares (exercise price of $3.25 per share) of its common stock under a plan
similar to the Company's 1993 Plan. As a result of the Merger, those options
were converted to options to acquire shares of the Company's common stock,
under the 1993 Plan.
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------
1993 1994
------- -------
<S> <C> <C>
Options outstanding at beginning of period . . . . . . . . . . . . . . . . --- 121,920
Granted (1993 - $2.01 to $5.00 per share; 1994 - $4.625 per share) . . . . 121,920 35,000
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . --- (3,316)
Surrendered or forfeited . . . . . . . . . . . . . . . . . . . . . . . . . --- (36,944)
------- -------
Options outstanding at end of period
($2.01 to $5.00 per share at December 31, 1994) . . . . . . . . . . . . 121,920 116,660
======= =======
</TABLE>
The Company also has reserved 500,000 shares of its common stock for
awards to directors and key employees under a restricted stock award plan
approved at the 1993 annual stockholders' meeting (the "Award Plan"). The
Award Plan is administered by the Committee. Stock is awarded, issued and held
by an escrow agent until such time as a vesting period, which period is
determined by the Committee, has been satisfied. Voting rights commence at the
time of award. In the fourth quarter of 1993 and 1994, the Company granted
7,500 and 100,000 shares, respectively, under the Award Plan. The market
value, at the award date, was $38,000 and $603,000, respectively, for the 1993
F-16
<PAGE> 42
ALEXANDER ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
and 1994 awards. Unearned compensation ($572,000 at December 31, 1994) is
being amortized over the three year vesting period and amounted to $2,200 and
$69,000 in 1993 and 1994, respectively. These awards provide for accelerated
vesting schedules upon a change in control, as defined (Note 14).
At December 31, 1994, options granted under ANEC's directors stock option
plan were outstanding. Such options are for 36,774 shares of the Company's
common stock at prices ranging from $1.35 to $4.09 per share, and expire during
1995.
In 1993, ANEC issued options to purchase 51,000 shares of ANEC common
stock (82,620 shares of the Company's common stock) to three business advisors
at $3.00 per share; all of which were exercised during 1994.
In 1993, ANEC granted options to certain members of management to purchase
287,500 shares of ANEC's common stock (465,750 shares of the Company's common
stock), at prices ranging from $3.25 to $5.00 per share ($2.01 to $3.09 for the
Company's shares). These options provided for accelerated vesting schedules
upon change in control. At December 31, 1994 options for 162,000 shares of the
Company's common stock are outstanding and are exercisable at a price of $2.01
(81,000 shares) and $3.09 (81,000 shares). In 1994, immediately prior to and
in connection with the Merger, options were exercised for 187,500 shares of
ANEC common stock (303,750 of the Company's common stock) at prices of $5.00
and $3.25 ($2.01 and $3.09 for the Company's common stock).
9. MAJOR PURCHASERS
The Company's oil and gas production is sold under contracts with various
purchasers (Note 3). Gas sales to two purchasers individually approximated
11%, 12% and 13% of total revenues, excluding well operator and management
fees, for the years ended December 31,1992, 1993 and 1994, respectively.
10. OTHER REVENUES AND LITIGATION SETTLEMENT
In May 1993, the Company settled a lawsuit over the prices received by
Bradmar under certain gas contracts. The Company included approximately $1.25
million of proceeds from the settlement in 1993 revenues.
In the fourth quarter of 1994, in an effort to resolve ANEC's litigation
with Unit Drilling Company ("Unit") and Midwest Energy Corporation ("MEC"), the
Company acquired Unit's claim against MEC and in late December, agreed to
mediation with MEC. On December 22, 1994, the Company agreed to a negotiated
settlement with MEC, the effect of which was a release of the Company's claim
against MEC, the exchange of certain interests in oil and gas properties and a
net payment to MEC of $625,000. The aggregate effect of this negotiated
settlement resulted in a charge to 1994 operations, including legal fees, of
approximately $734,000.
11. AMORTIZATION
Oil and gas properties amortization expense per dollar of oil and gas
revenue for the years ended December 31, 1992, 1993 and 1994 were $.33, $.32
and $.41, respectively. Accumulated amortization relating to oil and gas
producing activities at December 31, 1993 and 1994 amounted to $30,290,574 and
$37,374,264, respectively.
In the fourth quarter of 1994, the Company recorded approximately $1.1
million of incremental amortization on oil and gas properties over that
recorded in each of the previous three quarters of 1994. Approximately
$320,000 of this increase is attributable to the JMC Acquisition discussed in
Note 2, while the majority of the remainder is attributable to the downward
revisions in oil and gas reserve estimates and reduced natural gas prices at
December 31, 1994.
12. DISCONTINUED OPERATIONS
During the third quarter of 1992, ANEC sold the assets of its saltwater
disposal facilities and a subsidiary to the entities which had previously sold
these assets to ANEC. ANEC received cash of $492,000, shares of ANEC's common
stock valued at $183,000, the forgiveness of a promissory note and related
accrued interest aggregating $188,000 and the assumption of liabilities by the
purchaser, aggregating $95,000. The common stock and note payable had
previously been issued to the sellers of the assets. The shares of ANEC's
common stock received from the purchaser of these operations were issued as
partial payment of the capital lease relating to the assets sold.
F-17
<PAGE> 43
ALEXANDER ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Revenues, loss from operations (net of income taxes of $5,000), loss on
disposition and total loss from discontinued operations related to these
discontinued operations aggregated $1,820,000, $276,000, $405,000 and $681,000,
respectively, during 1992.
13. EXTRAORDINARY ITEMS
On December 31, 1992, ANEC and its lender, Endowment Energy Partners, L.
P. ("EEP"), a related party, entered into an agreement for the early repayment
of its indebtedness. During April 1993, ANEC terminated its credit agreements
with EEP and repaid the indebtedness under the agreement. The early
extinguishment of the debt resulted in an extraordinary loss of $510,000, net
of applicable income taxes.
In November 1994, the Company settled a dispute with a stockholder to whom
the Company had issued unsecured notes payable and warrants (the "Stock
Purchase Warrants") to purchase 223,333 shares of the Company's common stock,
resulting in a gain of approximately $1.1 million. In anticipation of the
lender exercising the Stock Purchase Warrants and a related warrant put option,
the Company had accrued $2,231,100 as of December 31, 1993; however, the
Company alleged that the lender failed to exercise the Stock Purchase Warrants,
and failed to property exercise its warrant put option. After litigating this
matter, through the Federal Court, the Company settled this dispute, resulting
in a $1.1 million reduction of the $2.2 million liability previously recorded
and cancellation of the Stock Purchase Warrants.
14. SUBSEQUENT EVENT
On March 14, 1995, the Company announced that its Board of Directors
approved an agreement to enter into negotiations with Abraxas Petroleum
Corporation ("Abraxas") with respect to the combination of the two companies.
Under the terms of the agreement, the Company and Abraxas would have 45 days to
complete their due diligence investigations and attempt to reach a definitive
agreement on the terms of a transaction. Abraxas is an oil and gas company
with 1994 revenues of approximately $11.3 million.
15. SUPPLEMENTARY OIL AND GAS INFORMATION
FINANCIAL DATA
All of the oil and gas producing activities of the Company are located in
the United States and represent substantially all of the business activities of
the Company. The following costs include all such costs incurred during each
period, except for depreciation and amortization of costs capitalized:
COSTS INCURRED IN OIL AND GAS EXPLORATION AND PRODUCTION ACTIVITIES:
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------------
1992 1993 1994
----------- ----------- -----------
<S> <C> <C> <C>
Acquisition of properties:
Proved (2) . . . . . . . . . . . . . . . . . . . . . . . . . $15,991,537 $ 3,971,549 $19,303,678
Unproved (1) . . . . . . . . . . . . . . . . . . . . . . . . (155,770) 493,886 647,269
----------- ----------- -----------
15,835,767 4,465,435 19,950,947
Exploration costs . . . . . . . . . . . . . . . . . . . . . . 42,818 20,977 302,098
Development costs (2) . . . . . . . . . . . . . . . . . . . . 2,073,358 11,244,307 12,014,693
----------- ----------- -----------
Total costs incurred . . . . . . . . . . . . . . . . . . . . . $17,951,943 $15,730,719 $32,267,738
=========== =========== ===========
</TABLE>
--------------------
(1) Net of reimbursed costs and the excess of sales proceeds over cost of
properties transferred to the limited partnerships.
(2) Net of reimbursed costs, sales proceeds from properties sold and 1993
purchase price reclassification.
F-18
<PAGE> 44
ALEXANDER ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAPITALIZED COSTS:
<TABLE>
<CAPTION>
December 31,
---------------------------------------
1992 1993 1994
----------- ----------- ------------
<S> <C> <C> <C>
Proved and unproved properties being amortized . . . . . . . $79,849,738 $94,599,583 $126,490,676
Unproved properties not being amortized . . . . . . . . . . 324,067 615,007 991,652
Less accumulated amortization . . . . . . . . . . . . . . . (24,688,425) (30,291,574) (37,374,264)
----------- ----------- ------------
Net capitalized costs . . . . . . . . . . . . . . . . . . . . . . $55,485,380 $64,923,016 $ 90,108,064
=========== =========== ============
</TABLE>
UNPROVED PROPERTIES NOT BEING AMORTIZED:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1992 1993 1994
-------- -------- --------
<S> <C> <C> <C>
Property acquisition costs . . . . . . . . . . . . . . . . . $257,962 $533,673 $882,318
Capitalized interest . . . . . . . . . . . . . . . . . . . . 66,105 81,334 109,334
-------- -------- --------
$324,067 $615,007 $991,652
======== ======== ========
</TABLE>
The costs of unproved properties not being amortized are related to
properties which are not individually significant and on which the evaluation
process has not been completed. When evaluated these costs will be transferred
to properties being amortized.
OIL AND GAS RESERVE DATA (UNAUDITED)
ESTIMATED QUANTITIES OF PROVED OIL AND GAS RESERVES:
The estimates of proved producing reserves of the Company were estimated
by independent petroleum engineers, Edinger Engineering Inc., except as noted
below for ANEC. Proved nonproducing and proved undeveloped reserves were
estimated by Company petroleum engineers, except as noted below for ANEC and
the 1994 reserves were reviewed by Edinger Engineering Inc., as specified in
their letter dated March 29, 1995. This review should not be construed to be
an audit as defined by the Society of Petroleum Engineers' audit guidelines.
The estimated proved reserves of ANEC were determined by ANEC petroleum
engineers for 1992 and 1993. The estimates of proved reserves for ANEC for
1992 and 1993 are combined with the Company below. Proved reserves cannot be
measured exactly because the estimation of reserves involves numerous
judgmental and arbitrary determinations. Accordingly, reserve estimates must
be continually revised as a result of new information obtained from drilling
and production history or as a result of changes in economic conditions. The
majority of the Company's reserves are located in Arkansas, Oklahoma and
onshore Texas.
<TABLE>
<CAPTION>
Crude oil, condensate and
natural gas liquids (barrels) Natural gas (Mcf)
----------------------------------- ---------------------------------------
Years ended December 31, Years ended December 31,
----------------------------------- ---------------------------------------
1992 1993 1994 1992 1993 1994
--------- --------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Proved developed and
undeveloped reserves:
Beginning of period 3,389,709 3,967,994 3,939,915 71,167,919 101,510,640 121,920,500
Purchases of minerals-in-
place 825,725 371,201 43,344 27,598,005 4,142,156 28,610,484
Sales of
minerals-in-place (216,314) (47,759) (107,935) (5,549,489) (686,463) (6,293,000)
Revisions of previous
estimates (A) . . . . . . (322,249) (262,482) (247,542) 9,089,683 (539,002) (13,971,181)
Extensions, discoveries and
other additions . . . . . 506,038 194,151 528,429 4,461,648 23,825,184 22,986,453
Production . . . . . . . . (214,915) (283,190) (224,230) (5,257,126) (6,332,015) (8,050,688)
--------- --------- --------- ----------- ----------- -----------
End of period . . . . . . .3,967,994 3,939,915 3,931,981 101,510,640 121,920,500 145,202,568
========= ========= ========= =========== =========== ===========
</TABLE>
F-19
<PAGE> 45
ALEXANDER ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(A) In 1994, the Company's oil and gas reserves were revised downwards as a
result of declines in product prices which shortened the economic lives
of the properties. Additionally, gas reserves associated with one field
were revised downward by approximately 13 Bcf based upon the performance
history of the field (which had previously been estimated using the
volumetric method and the limited production data available at that time.)
Revisions to this field were somewhat offset by other upward revisions
made to certain producing Oklahoma properties based on the performance
history of those properties. In 1992, the Company revised the oil
reserves downward 240,794 barrels associated with one field to reflect a
higher degree of risk of recovering such reserves; gas reserves
associated with one field were revised upward by 1,453,520 Mcf based on
the performance history of the offset wells. Additionally, other upward
revisions were made as a result of increased product prices and the
performance history of certain properties purchased in 1991.
<TABLE>
<CAPTION>
Crude oil, condensate and
natural gas liquids (barrels) Natural gas (Mcf)
---------------------------------- -------------------------------------
Years ended December 31, Years ended December 31,
---------------------------------- -------------------------------------
1992 1993 1994 1992 1993 1994
--------- --------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Proved developed reserves:
Beginning of period . . . . . 1,594,120 1,819,924 1,797,023 33,593,224 47,289,039 65,068,990
========= ========= ========= ========== ========== ==========
End of period . . . . . . . . 1,819,924 1,797,023 1,754,820 47,289,039 65,068,990 86,085,662
========= ========= ========= ========== ========== ==========
</TABLE>
Reserves of wells which have performance history were estimated through
analysis of production trends and other appropriate performance relationships.
Where production and reservoir data was limited, the volumetric method was used
and it is more susceptible to subsequent revisions.
OIL AND GAS RESERVE DATA (UNAUDITED)
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS:
Future net cash inflows are based on the future production of proved
reserves of crude oil, condensate, natural gas and natural gas liquids as
estimated by petroleum engineers by applying current prices of oil and gas
(with consideration of price changes only to the extent fixed and determinable
and with consideration of the timing of gas sales under existing contracts or
spot market sales) to estimated future production of proved reserves. Prices
used in determining future cash inflows for oil and natural gas for the periods
ended December 31, 1992, 1993 and 1994 were as follows: 1992 - $18.13, $1.98;
1993 - $12.75, $2.20; and 1994 - $16.25, $1.62, respectively. Future net cash
flows are then calculated by reducing such estimated cash inflows by the
estimated future expenditures (based on current costs) to be incurred in
developing and producing the proved reserves and by the estimated future income
taxes. Estimated future income taxes are computed by applying the appropriate
year-end tax rate to the future pretax net cash flows relating to the Company's
estimated proved oil and gas reserves. The estimated future income taxes give
effect to permanent differences and tax credits and allowances.
The standardized measure of discounted future net cash flows is based on
criteria established by Financial Accounting Standards Statement No. 69,
"Accounting for Oil and Gas Producing Activities" and is not intended to be a
"best estimate" of the fair value of the Company's oil and gas properties. For
this to be the case, forecasts of future economic conditions, varying price and
cost estimates, varying discount rates and consideration of other than proved
reserves (i.e., probable reserves) would have to be incorporated into the
valuations.
F-20
<PAGE> 46
ALEXANDER ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table sets forth the Company's estimated standardized
measure of discounted future net cash flows (in thousands):
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------
1992 1993 1994
-------- ------- -------
<S> <C> <C> <C>
Future cash inflows . . . . . . . . . . . . . . . . . . . $270,779 $318,762 $298,771
Future development costs . . . . . . . . . . . . . . . . . (26,599) (35,797) (38,731)
Future production costs . . . . . . . . . . . . . . . . . (72,431) (78,793) (70,993)
Future income taxes . . . . . . . . . . . . . . . . . . . (41,550) (55,291) (38,127)
-------- -------- --------
Future net cash flows . . . . . . . . . . . . . . . . . . 130,199 148,881 150,920
10% annual discount . . . . . . . . . . . . . . . . . . . (45,320) (54,216) (52,027)
-------- -------- --------
Standardized measure of discounted future net
cash flows . . . . . . . . . . . . . . . . . . . . . . . $ 84,879 $ 94,665 $ 98,893
======== ======== ========
</TABLE>
OIL AND GAS RESERVE DATA (UNAUDITED)
The following table sets forth changes in the standardized measure of
discounted future net cash flows as follows (in thousands):
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------------
1992 1993 1994
------- ------- -------
<S> <C> <C> <C>
Standardized measure of discounted future cash flows -
beginning of period . . . . . . . . . . . . . . . . . . $54,091 $84,879 $94,665
Net changes in sales prices and production costs . . . . . 12,151 557 (21,775)
Sales of oil and gas produced, net of operating
expenses . . . . . . . . . . . . . . . . . . . . . . . . (8,313) (12,358) (11,255)
Purchases of minerals-in-place (A) . . . . . . . . . . . . 24,008 5,445 20,414
Sales of minerals-in-place . . . . . . . . . . . . . . . . (4,746) (523) (7,233)
Revisions of previous quantity estimates . . . . . . . . . 3,576 (675) (11,558)
Extensions, discoveries and improved recovery, less
related costs . . . . . . . . . . . . . . . . . . . . . 8,268 20,169 15,119
Previously estimated development costs incurred during
the year and change in future development costs . . . . 1,505 4,195 9,347
Accretion of discount . . . . . . . . . . . . . . . . . . 6,661 6,207 7,715
Net change in income taxes . . . . . . . . . . . . . . . . (8,693) (8,987) 12,931
Other (B) . . . . . . . . . . . . . . . . . . . . . . . . (3,629) (4,244) (9,477)
------- ------- -------
Standardized measure of discounted future cash flows -
end of period . . . . . . . . . . . . . . . . . . . . . $84,879 $94,665 $98,893
======= ======= =======
</TABLE>
--------------------
(A) The increase in purchases in 1992 and 1994 consists primarily of the
merger with Bradmar and the JMC Acquisition, respectively, which
includes proved developed and undeveloped reserves.
(B) The change included in the caption "Other" results principally from
net changes in the timing of production of oil and gas reserves and
the change in timing related to the development of proved undeveloped
reserves.
F-21
<PAGE> 47
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information relating to the identification, business experience and
directorships of each director and nominee for director of the Company required
by Item 401 of Regulation S-K and presented in the section entitled "Election
of Directors" of the Company's Proxy Statement for the annual meeting of
stockholders on May 9, 1995, is hereby incorporated by reference. See Part I,
Item 1A, "Executive Officers of the Registrant", for information relating to
the identification and business experience of the Company's executive officers.
ITEM 11. EXECUTIVE COMPENSATION
The information relating to the remuneration of directors and officers
required by Item 402 of Regulation S-K and presented in the section
"Compensation" of the Company's Proxy Statement for the annual meeting of
stockholders on May 9, 1995, is hereby incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information relating to security ownership required by Item 403 of
Regulation S-K and presented in the section "Voting Securities Outstanding,
Security Ownership of Management and Principal Stockholders" of the Company's
Proxy Statement for the annual meeting of stockholders on May 9, 1995, is
hereby incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information relating to transactions with management and business
relationships required by Item 404 of Regulation S-K and presented in the
section entitled "Certain Transactions" of the Company's Proxy Statement for
the annual meeting of stockholders on May 9, 1995, is hereby incorporated by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Annual Report on
Form 10-K.
1. Financial Statements. See Financial Statements and
Supplementary Data under Item 8 for a list of all financial
statements filed as a part of this report.
All schedules have been omitted since the schedules are either not
required or the required information is not present or is not present
in amounts sufficient to require submission of the schedule, or
because the information required is included in the consolidated
financial statements and notes thereto.
24
<PAGE> 48
3. Exhibits.
Exhibit
Number Description
------- -----------
3(a) Certificate of Incorporation of the Registrant, and amendments
thereto, has been previously filed as Exhibit 3(a) to Form 10-K for
the fiscal year ended December 31, 1991, and such certificate is
incorporated herein by reference.
3(b) Certificate of Amendment of Certificate of Incorporation of the
Registrant as filed with the Oklahoma Secretary of State on May 18,
1993, has been previously filed as Exhibit 3(b) to Form 10-K for the
fiscal year ended December 31, 1993, and such certificate is
incorporated herein by reference.
3(c) Certificate of Designation of Series A Junior Participating Preferred
Stock of the Registrant as filed with the Oklahoma Secretary of State
on December 15, 1994, has been previously filed as Exhibit 4.1 to
Form 8-K dated December 15, 1994, and such certificate is
incorporated herein by reference.
3(d) Restated Bylaws of the Registrant, effective November 1, 1987.
4(a) Share Rights Agreement by and between the Registrant and Liberty Bank
and Trust Company of Oklahoma City, N.A. dated December 15, 1994,
has been previously filed as Exhibit 4.2 to Form 8-K dated December
15, 1994, and such agreement is incorporated herein by reference.
4(b) Note Agreement between the Registrant and John Hancock Mutual Life
Insurance Company dated June 1, 1988.
4(c) Note Agreement dated as of April 25, 1989, by and among AEJH 1989
Limited Partnership, the Registrant and John Hancock Mutual Life
Insurance (10 1/2% Senior Secured Notes).
10(a) Agreement and Plan of Merger by and among the Registrant, Alexander
Acquisition Company and American Natural Energy Corporation ("ANEC")
dated April 21, 1994, has previously been filed as Item 2 to
Registration Statement No. 33-78450 dated May 4, 1994, and such
agreement is incorporated herein by reference.
10(b) Amendment to Agreement and Plan of Merger by and among the
Registrant, Alexander Acquisition Company and ANEC dated June 10,
1994, has previously been filed as Item 2.1 to Registration Statement
No. 33-78450 dated June 14, 1994, and such amendment is incorporated
herein by reference.
10(c) Credit Agreement dated November 14, 1994 among the Registrant,
certain commercial lending institutions and Canadian Imperial Bank of
Commerce, as Agent, has previously been filed as Exhibit 10.1 to Form
8-K dated November 14, 1994, and such agreement is incorporated
herein by reference.
10(d) Sale and Purchase Agreement dated September 26, 1994 by and among JMC
Exploration, Inc., Ted Bowman, Chris Webb and John Abrahamson and the
Registrant has previously been filed as Exhibit 2.1 to Form 8-K dated
November 14, 1994, and such agreement is incorporated herein by
reference.
10(e) First Amendment to Sale and Purchase Agreement dated October 26, 1994
by and among JMC Exploration, Inc., Ted Bowman, Chris Webb and John
Abrahamson and the Registrant has previously been filed as Exhibit
2.2 to Form 8-K dated November 14, 1994, and such amendment is
incorporated herein by reference.
10(f) Alexander Energy Corporation 1986 Incentive Stock Option Plan, as
amended, has previously been filed as Exhibit 4.2 to Registration
Statement No. 33-20425 dated March 22, 1988, and such plan is
incorporated herein by reference.
10(g) Alexander Energy Corporation 1993 Stock Option Plan has previously
been filed as Exhibit A to the Registrant's Proxy Statement for the
1993 Annual Meeting of Stockholders, and such plan is incorporated
herein by reference.
10(h) 1993 Restricted Stock Award Plan for Alexander Energy Corporation and
It's Subsidiaries has previously been filed as Exhibit B to the
Registrant's Proxy Statement for the 1993 Annual Meeting of
Stockholders, and such plan is incorporated herein by reference.
25
<PAGE> 49
10(i) Agreement of Limited Partnership of AEJH 1985 Limited Partnership by
and between the Registrant and John Hancock Mutual Life Insurance
Company, together with all amendments thereto, has previously been
filed as Exhibit 10(e) to Form 10-K for the fiscal year ended
December 31, 1991, and such agreement is incorporated herein by
reference.
10(j) Agreement of Limited Partnership of AEJH 1987 Limited Partnership by
and between the Registrant and John Hancock Mutual Life Insurance
Company, together with all amendments thereto, has previously been
filed as Exhibit 10(g) to Form 10-K for the fiscal year ended
December 31, 1991, and such agreement is incorporated herein by
reference.
10(k) Agreement of Limited Partnership of AEJH 1987-A Limited Partnership
by and between the Registrant and John Hancock Mutual Life Insurance
Company dated December 28, 1987.
10(l) Agreement of Limited Partnership of AEJH 1989 Limited Partnership by
and between the Registrant and John Hancock Mutual Life Insurance
Company dated April 25, 1989.
10(m) Limited Partnership Agreement of Independent Energy Marketing, Ltd.
dated January 1, 1990 by and between Independent Energy Marketing,
Inc. ("IEM"), general partner, and Boomer Marketing Corporation
("Boomer"), Verado Energy, Inc. and Anchorage Oil & Gas, Inc.,
limited partners, ("IEM Partnership") has previously been filed as
Exhibit 10(k) to Form 10-K dated December 31, 1991, and such
agreement is incorporated herein by reference.
10(n) Letter Agreement dated August 22, 1994 by and between IEM and Boomer,
a wholly-owned subsidiary of the Registrant, terminating IEM
Partnership.
10(o) Limited Partnership Agreement of Energy and Environmental Services
Limited Partnership dated May 15, 1991 by and between Energy and
Environmental Services, Inc., as general partner, and Alexander
Energy Corporation and REP, Inc., as limited partners, has previously
been filed as Exhibit 10(l) to Form 10-K for the fiscal year ended
December 31, 1991, and such agreement is incorporated herein by
reference.
10(p) Promissory Note dated June 15, 1988 in the principal amount of
$77,500 from Bob G. Alexander to the Registrant has previously been
filed as Exhibit 10(u) to Registration Statement No.33-45182 dated
January 24, 1992, and such note is incorporated herein by reference.
10(q) Purchase Agreement between the Registrant and Alexander Resources, a
limited partnership, dated August 13, 1990 has previously been filed
as Exhibit 10(v) to Registration Statement No. 33-45182 dated January
24, 1992, and such agreement is incorporated herein by reference.
10(r) Alexander Energy Corporation 1981 Non-Qualified Stock Option Plan has
previously been filed as Exhibit 10(w) to Registration Statement No.
33-45182 dated January 24, 1992, and such plan is incorporated herein
by reference.
10(s) Consulting Agreement dated March 19, 1992 between the Registrant and
Petroleum Investment Securities Corp. has previously been filed as
Exhibit 10(t) to Form 10-K for the fiscal year ended December 31,
1993, and such agreement is incorporated herein by reference.
10(t) Warrant Purchase Agreement among the Registrant, Hanifen, Imhoff Inc.
and The Principal/Eppler, Guerin & Turner, Inc. has previously been
filed as Exhibit 10(u) to Amendment No. 1 to Registration Statement
No. 33- 57142 dated February 26, 1993, and such agreement is
incorporated herein by reference.
10(u) Purchase Option agreement (warrants) between ANEC and Gaines,
Berland, Inc. dated September 14, 1993.
10(v) Alexander Energy Corporation Management Incentive Plan effective
January 1, 1991 has previously been filed as Exhibit 10(v) to
Registration Statement No. 33-57142 dated January 19, 1993, and such
agreement is incorporated herein by reference.
10(w) Underwriting Agreement by and among the Registrant, Hanifen, Imhoff
Inc. and The Principal/Eppler, Guerin & Turner, Inc. dated March 3,
1993, has previously been filed as Exhibit 10(w) to Form 10-K for the
fiscal year ended December 31, 1993, and such agreement is
incorporated herein by reference.
26
<PAGE> 50
10(x) Stock Option Agreements between ANEC and Larry L. Terry dated April
19, 1993 and November 29, 1993.
10(y) ALN Resources Corporation (former corporate name for ANEC) ("ALN")
1992 Directors Stock Option Plan.
10(z) Employment and Option Agreement between ALN and Michael Paulk dated
July 1, 1990, as amended May 1, 1993.
10(aa) Cancellation and Severance Agreement between ANEC and Michael Paulk
dated September 19, 1994.
10(bb) Employment and Option Agreement between ALN and Robert C. Johnson
dated July 1, 1990, as amended May 1, 1993.
10(cc) Cancellation and Severance Agreement between ANEC and Robert C.
Johnson dated September 19, 1994.
10(dd) Form of Employment Agreement between the Registrant and the executive
officers of the Registrant.
10(ee) Form of Special Severance Agreement between the Registrant and the
technical support staff of the Registrant.
10(ff) Separation Policy of the Registrant dated December 8, 1994.
11 Computation of Earnings (Loss) per share.
21 Subsidiaries of the Registrant
23(a) Consent of Ernst & Young LLP, Independent Auditors
23(b) Consent of Coopers & Lybrand L.L.P., Independent Accountants
27 Financial Data Schedules
(b)(i) Report on Form 8-K dated November 14, 1994, as amended by
Form 8-K/A filed January 27, 1995, disclosing the
acquisition of properties from JMC Exploration, Inc. and
execution of a $52 million credit facility with Canadian
Imperial Bank of Commence.
(b)(ii) Report on Form 8-K dated December 15, 1994 reporting the
adoption of a Rights Agreement and the declaration of a
dividend distribution of preferred share purchase rights.
27
<PAGE> 51
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on behalf of the undersigned, thereunto duly authorized.
ALEXANDER ENERGY CORPORATION
By /s/ BOB G. ALEXANDER
March __, 1995 Bob G. Alexander
President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ BOB G. ALEXANDER Chief Executive Officer and
----------------------------------------- Director
Bob G. Alexander
/s/ DAVID E. GROSE Chief Financial Officer,
----------------------------------------- Controller and Director
David E. Grose
/s/ JIM L. DAVID Officer and Director
-----------------------------------------
Jim L. David
/s/ ROGER G. ALEXANDER Officer and Director March __, 1995
-----------------------------------------
Roger G. Alexander
/s/ LARRY L. TERRY Officer and Director
-----------------------------------------
Larry L. Terry
/s/ BRIAN F. EGOLF Director
-----------------------------------------
Brian F. Egolf
/s/ ROBERT A. WEST Director
-----------------------------------------
Robert A. West
</TABLE>
28
<PAGE> 52
Index to Exhibits
to Form 10-K
Exhibit
Number Description
------- -----------
3(a) Certificate of Incorporation of the Registrant, and amendments
thereto, has been previously filed as Exhibit 3(a) to Form 10-K for
the fiscal year ended December 31, 1991, and such certificate is
incorporated herein by reference.
3(b) Certificate of Amendment of Certificate of Incorporation of the
Registrant as filed with the Oklahoma Secretary of State on May 18,
1993, has been previously filed as Exhibit 3(b) to Form 10-K for the
fiscal year ended December 31, 1993, and such certificate is
incorporated herein by reference.
3(c) Certificate of Designation of Series A Junior Participating Preferred
Stock of the Registrant as filed with the Oklahoma Secretary of State
on December 15, 1994, has been previously filed as Exhibit 4.1 to
Form 8-K dated December 15, 1994, and such certificate is
incorporated herein by reference.
3(d) Restated Bylaws of the Registrant, effective November 1, 1987.
4(a) Share Rights Agreement by and between the Registrant and Liberty Bank
and Trust Company of Oklahoma City, N.A. dated December 15, 1994,
has been previously filed as Exhibit 4.2 to Form 8-K dated December
15, 1994, and such agreement is incorporated herein by reference.
4(b) Note Agreement between the Registrant and John Hancock Mutual Life
Insurance Company dated June 1, 1988.
4(c) Note Agreement dated as of April 25, 1989, by and among AEJH 1989
Limited Partnership, the Registrant and John Hancock Mutual Life
Insurance (10 1/2% Senior Secured Notes).
10(a) Agreement and Plan of Merger by and among the Registrant, Alexander
Acquisition Company and American Natural Energy Corporation ("ANEC")
dated April 21, 1994, has previously been filed as Item 2 to
Registration Statement No. 33-78450 dated May 4, 1994, and such
agreement is incorporated herein by reference.
10(b) Amendment to Agreement and Plan of Merger by and among the
Registrant, Alexander Acquisition Company and ANEC dated June 10,
1994, has previously been filed as Item 2.1 to Registration Statement
No. 33-78450 dated June 14, 1994, and such amendment is incorporated
herein by reference.
10(c) Credit Agreement dated November 14, 1994 among the Registrant,
certain commercial lending institutions and Canadian Imperial Bank of
Commerce, as Agent, has previously been filed as Exhibit 10.1 to Form
8-K dated November 14, 1994, and such agreement is incorporated
herein by reference.
10(d) Sale and Purchase Agreement dated September 26, 1994 by and among JMC
Exploration, Inc., Ted Bowman, Chris Webb and John Abrahamson and the
Registrant has previously been filed as Exhibit 2.1 to Form 8-K dated
November 14, 1994, and such agreement is incorporated herein by
reference.
10(e) First Amendment to Sale and Purchase Agreement dated October 26, 1994
by and among JMC Exploration, Inc., Ted Bowman, Chris Webb and John
Abrahamson and the Registrant has previously been filed as Exhibit
2.2 to Form 8-K dated November 14, 1994, and such amendment is
incorporated herein by reference.
10(f) Alexander Energy Corporation 1986 Incentive Stock Option Plan, as
amended, has previously been filed as Exhibit 4.2 to Registration
Statement No. 33-20425 dated March 22, 1988, and such plan is
incorporated herein by reference.
10(g) Alexander Energy Corporation 1993 Stock Option Plan has previously
been filed as Exhibit A to the Registrant's Proxy Statement for the
1993 Annual Meeting of Stockholders, and such plan is incorporated
herein by reference.
10(h) 1993 Restricted Stock Award Plan for Alexander Energy Corporation and
It's Subsidiaries has previously been filed as Exhibit B to the
Registrant's Proxy Statement for the 1993 Annual Meeting of
Stockholders, and such plan is incorporated herein by reference.
1
<PAGE> 53
10(i) Agreement of Limited Partnership of AEJH 1985 Limited Partnership by
and between the Registrant and John Hancock Mutual Life Insurance
Company, together with all amendments thereto, has previously been
filed as Exhibit 10(e) to Form 10-K for the fiscal year ended
December 31, 1991, and such agreement is incorporated herein by
reference.
10(j) Agreement of Limited Partnership of AEJH 1987 Limited Partnership by
and between the Registrant and John Hancock Mutual Life Insurance
Company, together with all amendments thereto, has previously been
filed as Exhibit 10(g) to Form 10-K for the fiscal year ended
December 31, 1991, and such agreement is incorporated herein by
reference.
10(k) Agreement of Limited Partnership of AEJH 1987-A Limited Partnership
by and between the Registrant and John Hancock Mutual Life Insurance
Company dated December 28, 1987.
10(l) Agreement of Limited Partnership of AEJH 1989 Limited Partnership by
and between the Registrant and John Hancock Mutual Life Insurance
Company dated April 25, 1989.
10(m) Limited Partnership Agreement of Independent Energy Marketing, Ltd.
dated January 1, 1990 by and between Independent Energy Marketing,
Inc. ("IEM"), general partner, and Boomer Marketing Corporation
("Boomer"), Verado Energy, Inc. and Anchorage Oil & Gas, Inc.,
limited partners, ("IEM Partnership") has previously been filed as
Exhibit 10(k) to Form 10-K dated December 31, 1991, and such
agreement is incorporated herein by reference.
10(n) Letter Agreement dated August 22, 1994 by and between IEM and Boomer,
a wholly-owned subsidiary of the Registrant, terminating IEM
Partnership.
10(o) Limited Partnership Agreement of Energy and Environmental Services
Limited Partnership dated May 15, 1991 by and between Energy and
Environmental Services, Inc., as general partner, and Alexander
Energy Corporation and REP, Inc., as limited partners, has previously
been filed as Exhibit 10(l) to Form 10-K for the fiscal year ended
December 31, 1991, and such agreement is incorporated herein by
reference.
10(p) Promissory Note dated June 15, 1988 in the principal amount of
$77,500 from Bob G. Alexander to the Registrant has previously been
filed as Exhibit 10(u) to Registration Statement No.33-45182 dated
January 24, 1992, and such note is incorporated herein by reference.
10(q) Purchase Agreement between the Registrant and Alexander Resources, a
limited partnership, dated August 13, 1990 has previously been filed
as Exhibit 10(v) to Registration Statement No. 33-45182 dated January
24, 1992, and such agreement is incorporated herein by reference.
10(r) Alexander Energy Corporation 1981 Non-Qualified Stock Option Plan has
previously been filed as Exhibit 10(w) to Registration Statement No.
33-45182 dated January 24, 1992, and such plan is incorporated herein
by reference.
10(s) Consulting Agreement dated March 19, 1992 between the Registrant and
Petroleum Investment Securities Corp. has previously been filed as
Exhibit 10(t) to Form 10-K for the fiscal year ended December 31,
1993, and such agreement is incorporated herein by reference.
10(t) Warrant Purchase Agreement among the Registrant, Hanifen, Imhoff Inc.
and The Principal/Eppler, Guerin & Turner, Inc. has previously been
filed as Exhibit 10(u) to Amendment No. 1 to Registration Statement
No. 33- 57142 dated February 26, 1993, and such agreement is
incorporated herein by reference.
10(u) Purchase Option agreement (warrants) between ANEC and Gaines,
Berland, Inc. dated September 14, 1993.
10(v) Alexander Energy Corporation Management Incentive Plan effective
January 1, 1991 has previously been filed as Exhibit 10(v) to
Registration Statement No. 33-57142 dated January 19, 1993, and such
agreement is incorporated herein by reference.
10(w) Underwriting Agreement by and among the Registrant, Hanifen, Imhoff
Inc. and The Principal/Eppler, Guerin & Turner, Inc. dated March 3,
1993, has previously been filed as Exhibit 10(w) to Form 10-K for the
fiscal year ended December 31, 1993, and such agreement is
incorporated herein by reference.
2
<PAGE> 54
10(x) Stock Option Agreements between ANEC and Larry L. Terry dated April
19, 1993 and November 29, 1993.
10(y) ALN Resources Corporation (former corporate name for ANEC) ("ALN")
1992 Directors Stock Option Plan.
10(z) Employment and Option Agreement between ALN and Michael Paulk dated
July 1, 1990, as amended May 1, 1993.
10(aa) Cancellation and Severance Agreement between ANEC and Michael Paulk
dated September 19, 1994.
10(bb) Employment and Option Agreement between ALN and Robert C. Johnson
dated July 1, 1990, as amended May 1, 1993.
10(cc) Cancellation and Severance Agreement between ANEC and Robert C.
Johnson dated September 19, 1994.
10(dd) Form of Employment Agreement between the Registrant and the executive
officers of the Registrant.
10(ee) Form of Special Severance Agreement between the Registrant and the
technical support staff of the Registrant.
10(ff) Separation Policy of the Registrant dated December 8, 1994.
11 Computation of Earnings (Loss) per share.
21 Subsidiaries of the Registrant
23(a) Consent of Ernst & Young LLP, Independent Auditors
23(b) Consent of Coopers & Lybrand L.L.P., Independent Accountants
27 Financial Data Schedules
(b)(i) Report on Form 8-K dated November 14, 1994, as amended by
Form 8-K/A filed January 27, 1995, disclosing the
acquisition of properties from JMC Exploration, Inc. and
execution of a $52 million credit facility with Canadian
Imperial Bank of Commence.
(b)(ii) Report on Form 8-K dated December 15, 1994 reporting the
adoption of a Rights Agreement and the declaration of a
dividend distribution of preferred share purchase rights.
3
<PAGE> 1
Exhibit 3(d)
BY-LAWS
OF
ALEXANDER ENERGY CORPORATION
November 1, 1987
ARTICLE I
Offices
Section 1.1. Principal Office. The principal office of Alexander Energy
Corporation (the "Corporation") shall be located at 501 Northwest Expressway,
Oklahoma City, Oklahoma.
Section 1.2. Other Offices. The Corporation may also have offices at such
other places both within or without the State of Oklahoma as the Board of
Directors may from time to time determine.
ARTICLE II
Meetings of Shareholders
Section 2.1. Annual Meeting. The annual meeting of the shareholders shall be
held on a date designated by the Board of Directors, which shall be within six
months next following the end of the fiscal year of the Corporation, for the
purpose of electing directors and for the transaction of such other business as
may come before the meeting.
Section 2.2. Special Meetings. Except as otherwise prescribed by statute,
special meetings of the shareholders for any purpose, may be called by the
President and shall be called by the Secretary at the request in writing of a
majority of the Board of Directors. Business transacted at any special meeting
shall be limited to the general objects stated in the call.
Section 2.3. Place of Meeting. Each annual meeting of the shareholders for the
election of directors shall be held at the principal office of the Corporation
in Oklahoma City, Oklahoma unless the Board of Directors shall by resolution,
adopted at least 60 days prior to the date of such meeting, designate any other
place, within or without the State of Oklahoma, as the place of such meeting.
Meetings of shareholders for any other purpose may be held at such place, within
or without the State of Oklahoma, and at such time as shall be determined by the
Board of
<PAGE> 2
Directors or the Chairman, such time to be stated in the notice of the meeting
or in a duly executed waiver of notice thereof.
Section 2.4. Notice of Meeting. Written or printed notice stating the place
and time of each annual or special meeting of the shareholders entitled to vote
and, in the case of a special meeting, the purpose or purposes for which the
meeting is called, shall be given not less than ten (10) days nor more than
sixty (60) days before the date of the meeting. (See also Article IV).
Section 2.5. Shareholder List. A share ledger in which the names of the
shareholders are arranged alphabetically by classes of shares, if any, shall be
maintained and open for inspection of any shareholder, for any purpose germane
to the meeting, at the place of the shareholders' meeting during business hours
at least ten (10) full day immediately preceding the meeting and for inspection
by any shareholder who is present during the whole time of the meeting.
Section 2.6. Quorum. The holders of voting stock of the Corporation having a
majority of the voting power thereat, present in person or represented by
proxy, shall be requisite for, and shall constitute, a quorum at all meetings of
the shareholders of the Corporation for the transaction of business, except as
otherwise provided by statute or these by-laws.
Section 2.7. Proxies. At every meeting of the shareholders, each shareholder
having the right to vote thereat shall be entitled to vote in person or by
proxy. Such proxy shall be appointed by an instrument in writing subscribed by
such shareholder and bearing a date not more than three (3) years prior to such
meeting, unless such proxy provides for a longer period; and it shall be filed
with the Secretary of the Corporation before, or at the time of, the meeting.
Section 2.8. Voting. At every meeting of shareholders, except as otherwise
provided by law, each shareholder shall be entitled to one (1) vote for each
share of stock of the Corporation entitled to vote thereat and registered in the
name of such shareholder on the books of the Corporation on the pertinent record
date. When a quorum is present at any meeting of the shareholders, the vote of
the holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which, due to a provision of the statutes or
these by-laws, a different vote is required, in which case such provision shall
govern and control the decision of such question.
2
<PAGE> 3
ARTICLE III
Directors
Section 3.1. Number, Election and Term. The property and business of the
Corporation shall be managed by its Board of Directors. The number of directors
which shall constitute the whole Board shall be not more than ten (10) and not
less than three (3). The Board of Directors shall from time to time by a vote of
a majority of the directors then in office fix within the maximum and minimum
the number of directors to constitute the Board. Except as provided in Section
3.2 of these by-laws, the directors shall be elected at the annual meeting of
shareholders, or at any adjournment thereof, and each director shall be elected
and shall hold office for a term of one (1) year. Directors need not be
shareholders of the Corporation.
Section 3.2. Resignations and Vacancies. Any director may resign at any time
by giving written notice to the Chairman or Secretary of the Corporation. Any
such resignation shall take effect at the date of the receipt of such notice or
at any later time specific therein; and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective. If,
at any time other than the annual meeting of shareholders, any vacancy occurs in
the Board of Directors caused by resignation, death, retirement,
disqualification or removal from office of any director or otherwise, or any new
directorship is created by an increase in the number of directors pursuant to
Section 3.1 of the by-laws, a majority of the directors then in office, though
less than a quorum, may choose a successor, or fill the newly created
directorship, and the director so chosen shall hold office until the next annual
meeting of shareholders and until his successor shall be duly elected and
qualified, unless sooner displaced.
Section 3.3. Place of Meetings. Meetings of the Board of Directors may be held
at such place or places, within or without the State of Oklahoma, as may be
designated by the person or persons calling such meetings.
Section 3.4. Annual Meeting. A meeting of the Board of Directors, to be known
as the Annual Meeting, shall be held following and on the same day as
the meeting of shareholders at which such Board of Directors is elected. This
meeting shall be held for the purpose of electing the officers of the
Corporation and of transacting any other business that may properly come before
the meeting. No notice of this Annual Meeting other than these by-laws shall be
necessary in order to legally constitute the meeting, provided a quorum shall be
present.
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Section 3.5. Regular Meetings. Regular meetings of the Board of Directors
shall be held at such times as the Chairman or the Board of Directors may from
time to time determine.
Section 3.6. Special Meetings. Special meetings of the Board of Directors may
be called by the Chairman and shall be called by the Secretary at the request of
any two directors, to be held at such time and place, either within or without
the State of Oklahoma, as shall be designated by the call and specified in the
notice of such meeting; and notice thereof shall be given as provided in Section
3.7 of these by-laws.
Section 3.7. Notice. Except as otherwise prescribed by statute, written notice
of the time and place of each regular or special meeting of the Board of
Directors shall be given at least two (2) days prior to the time of holding the
meeting. Any director may waive notice of any meeting. The attendance of a
director at any meeting shall constitute a waiver of notice of such meeting,
except where a director expressly objects to the transaction of any business
because the meeting is not lawfully called or convened and such objection is
made prior to the transaction of such business. Neither the business to be
transacted at, nor the purpose of, any special meeting of the Board of Directors
need be specified in any notice, or waiver of notice, of such special meeting
except that notice shall be given of any proposed amendment of these by-laws or
with respect to any other matter where notice is required by statute. (See also
Article IV).
Section 3.8. Quorum. At each meeting of the Board of Directors, the presence
of not less than a majority of the whole board shall be necessary and sufficient
to constitute a quorum for the transaction of business, and the act of a
majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute or these by-laws. If a quorum shall not be
present at any meeting of directors, the directors present thereat may adjourn
the meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
Section 3.9. Committees of Directors. The Board of Directors may, by
resolution passed by a majority of the whole board, designate one or more
committees, each committee to consist of one or more directors of the
Corporation, which, to the extent provided in the resolution, shall have and may
exercise the powers of the Board of Directors in the management of the business
or affairs of the Corporation and may authorize the seal of the Corporation to
be affixed to all papers which may require it. Such committee or committees
shall have such name or names as may be determined from time to time by
resolution adopted by the Board of Directors. The Board of Directors may
designate one or
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<PAGE> 5
more directors as alternate members of any such committee, who may replace any
absent or disqualified member thereof. Each committee shall keep regular
minutes of its meetings and report the same to the Board of Directors when
required by the Board.
Section 3.10. Fees and Compensation of Directors. Directors may receive stated
salary for their services as such; or, by resolution of the Board of Directors,
a fixed fee, with or without expenses of attendance, may be allowed for
attendance at each regular or special meeting of the Board. Members of the
board shall be allowed their reasonable traveling expenses when actually engaged
in the business of the Corporation, to be audited and allowed as in other cases
of demands against the Corporation. Members of standing or special committees
may be allowed like fees and expenses for attending committee meetings. Nothing
herein contained shall be construed to preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor.
Section 3.11. Action Without a Meeting. Any action which might be taken at a
meeting of the Board of Directors may be taken without a meeting if a record or
memorandum thereof be made in writing and signed by all the members of the
Board, and such writing is filed with the minutes of the proceedings of the
Board.
ARTICLE IV
Notices
Section 4.1. Manner of Notice. Whenever under the provisions of the statutes
or these by-laws notice is required to be given to any director, member of any
committee designated by the Board of Directors pursuant to authority conferred
by Section 3.9 of these by-laws or shareholder, it shall be given in writing by
depositing it, in a sealed envelope, in the mails, postage prepaid, addressed
(or by delivering it to a telegraph company, charges prepaid, for transmission)
to such director, member or shareholder either at the address of such director,
member or shareholder as it appears on the books of the Corporation or, in the
case of such a director or member, at his business address; and such notice
shall be deemed to be given at the time when it is thus deposited in the mails
(or delivered to the telegraph company).
Section 4.2. Waiver of Notice. Whenever any notice is required to be given
under the provisions of the statutes, the Articles, or these by-laws, a waiver
thereof in writing signed by the person or persons entitled to said notice,
whether before or after the time stated therein, shall be deemed equivalent
thereto.
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Any shareholder or director who attends any meeting, annual, regular or special,
shall be conclusively presumed to have waived notice thereof, except where such
shareholder or director expressly objects to the transaction of any business
because the meeting is not lawfully called or convened and such objection is
made prior to the transaction of such business.
ARTICLE V
Officers
Section 5.1. Officers and Official Positions. The Board of Directors may elect
a Chairman of the Board. The office of Chairman of the Board may be named
Chairman if so designated by the Board of Directors. The Board may elect a
President, one or more Vice Presidents, a Secretary, a Treasurer, a Controller,
such Assistant Secretaries, Assistant Treasurers, and Assistant Controllers and
such other officers as the Board of Directors shall determine. Any two or more
offices may be held by the same person, except that one person may not hold the
offices of President and Secretary simultaneously. Except for the Chairman, if
there is one, and the President, none of the officers need be a director, and
none of the officers need be a shareholder of the Corporation or a resident of
the State of Oklahoma.
Section 5.2. Election and Term of Office. The officers of the Corporation
shall be elected annually by the Board of Directors at the annual meeting of the
Board. The Chairman and President shall be elected from the members of the
Board. If the election of officers shall not be held at such meeting of the
board, such election shall be held at a regular or special meeting of the Board
of Directors as soon thereafter as may be convenient. Each officer shall hold
office until their successors are chosen and qualified or until his death, or
until he shall resign, or shall have been removed in the manner hereinafter
provided.
Section 5.3. Removal and Resignation. Any officer may be removed, either with
or without cause, by a majority of the directors at the time in office at any
regular or special meeting of the Board; but such removal shall be without
prejudice to the contract rights, if any, of such person so removed. Any
officer may resign at any time by giving written notice to the Chairman or
Secretary of the Corporation. Any such resignation shall take effect at the
date of the receipt of such notice or at any later time specified therein; and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
Section 5.4. Vacancies. A vacancy in any office because of death, resignation,
removal, or any other cause may be filled for the unexpired portion of the term
by the Board of Directors at any regular or special meeting of the Board.
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Section 5.5. Chief Executive Officer. If the Board of Directors has elected a
Chairman, it may designate the Chairman as the Chief Executive Officer of the
Corporation. If no Chairman has been elected, or in his absence or inability
to act or if no such designation has been made by the Board of Directors, the
President or such other designee as the Board of Directors shall determine
shall act as the Chief Executive Officer of the Corporation. The Chief
Executive Officer shall (i) have the overall supervision of the business of the
Corporation and shall direct the affairs and policies of the Corporation,
subject to any directions which may be given by the Board of Directors,
(ii) shall have authority to delegate special powers and duties to specified
officers, so long as such designations shall not be inconsistent with the
statutes, these by-laws or action of the Board of Directors and (iii) shall in
general have all other powers and shall perform all other duties incident to
the chief executive officer of a corporation and such other powers and duties
as may be prescribed by the Board of Directors from to time.
The Chairman, if one has been elected, shall preside at all meetings of the
shareholders, and of the Board of Directors. The Chairman may sign with the
Secretary of an Assistant Secretary or the Treasurer or an Assistant Treasurer,
certificates for shares of stock of the corporation the issuance of which shall
have been duly authorized by the Board of Directors.
Section 5.6. President. (a) If the Board of Directors has elected a Chairman
and designated such officer as the Chief Executive Officer of the Corporation,
the President shall be subject to the control of the Board of Directors and the
Chairman. He shall have such powers and perform such duties as from time to
time may be assigned to him by the Board of Directors or the Chairman.
(b) If the Board of Directors has not elected a Chairman,
or, if one has been elected and has not been designated the Chief Executive
Officer of the Corporation, then the president or such other person as may be
designated by the Board of Directors shall be the Chief Executive Officer of the
Corporation with the powers and duties provided in Section 5.5 of these by-laws.
(c) In any event, the President shall have power to
execute, and shall execute, deeds, mortgages, bonds, contracts or other
instruments of the corporation except where required or permitted by law to be
otherwise signed and executed and except where the signing and execution thereof
shall be expressly delegated by the Board of Directors to some other officer or
agent
<PAGE> 8
of the Corporation. The President may sign with the Secretary or an Assistant
Secretary, or the Treasurer or an Assistant Treasurer, certificates for shares
of stock of the Corporation the issuance of which shall have been duly
authorized by the Board of Directors, and shall vote, or give a proxy to any
other person to vote, all shares of the stock of any other corporation standing
in the name of the Corporation.
Section 5.7. Vice Presidents. In the absence of the President, or in the event
of his inability or refusal to act, the Vice President designated by the Board
of Directors or the Chief Executive Officer, shall perform all duties of the
President and, when so acting, shall have all the powers of, and be subject to
all the restrictions upon, the President. The Vice Presidents shall have such
other powers and perform such other duties, not inconsistent with the statutes,
these by-laws, or action of the Board of Directors, as from time to time may be
prescribed for them, respectively, by the Chief Executive Officer. The Board of
Directors may, from time to time, designate certain of the Vice Presidents as
Executive Vice Presidents, Senior Vice Presidents, Vice Presidents, Assistant
Vice Presidents or such other designation as the Board of Directors deems
appropriate. The duties and areas of responsibility of the various Vice
Presidents shall be determined by the Chairman and the Board of Directors, to
the extent not inconsistent with applicable statutes or these by-laws.
Section 5.8. Secretary. The Secretary shall: (a) keep the minutes of the
meetings of the shareholders, the Board of Directors and committees of
directors, in one or more books provided for that purpose; (b) see that all
notices are duly given in accordance with the provisions of these by-laws or as
required by law; (c) have charge of the corporate records and of the seal of the
Corporation; (d) affix the seal of the Corporation or a facsimile thereof, or
cause it to be affixed, to all certificates for shares prior to the issuance
thereof and to all documents the execution of which on behalf of the Corporation
under its seal is duly authorized by the Board of Directors or otherwise in
accordance with the provisions of these by-laws; (e) keep a register of the post
office address of each shareholder, director and committee member, which shall
from time to time be furnished to the Secretary by such shareholder, director or
member; (f) sign with the President or a Vice President or the Chairman or a
Vice Chairman certificates for shares of stock of the Corporation, the issuance
of which shall have been duly authorized by resolution of the Board of
Directors; (g) have general charge of the stock transfer books of the
Corporation; and (h) in general, perform all duties incident to the office of
secretary and such other
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duties as from time to time may be assigned to him by the Chairman, the
President or by the Board of Directors. He may delegate such details of the
performance of duties of his office as may be appropriate in the exercise of
reasonable care to one or more persons in his stead, but shall not thereby be
relieved of responsibility for the performance of such duties.
Section 5.9. Chief Financial Officer. The Chief Financial Officer shall be a
Vice President, elected and designated as Chief Financial Officer, who shall:
(a) be responsible to the Board of Directors for the receipt, custody and
disbursement of all funds and securities of the Corporation; (b) receive and
give receipts for moneys due and payable to the Corporation from any source
whatsoever and deposit all such moneys in the name of the Corporation in such
banks, trust companies or other depositories as shall from time to time be
selected in accordance with the provisions of Section 6.4 of these by-laws;
(c) disburse the funds of the Corporation as ordered by the Board of Directors
or the Chief Executive Officer or as required in the ordinary conduct of the
business of the Corporation; (d) render to the Chief Executive Officer or the
Board of Directors, upon request, an account of all his transactions as Chief
Financial Officer and on the financial condition of the Corporation; and (e) in
general, perform all the duties incident to the office of Chief Financial
Officer and such other duties as from time to time may be assigned to him by
the Chairman, the President, the Board of Directors or these by-laws. In the
event there be no Chief Financial Officer, the Board of Directors may designate
any officer to perform the duties of the Chief Financial Officer.
Section 5.10 Treasurer. The Treasurer shall have such duties and
responsibilities as may, from time to time, be designated by the Board of
Directors, the Chairman and the Chief Financial Officer. The Treasurer may sign
with the President or a Vice President or the Chairman or a Vice Chairman,
certificates for shares of stock of the corporation the issuance of which shall
have been duly authorized by the Board of Directors.
Section 5.11 Controller. The Controller shall be the chief accounting officer
of the Corporation, and shall be responsible to the Board of Directors and the
Chief Financial Officer for internal accounting and control of the books and
records of the Corporation. Such responsibility includes preparation of all
financial reports, tax returns and such other duties as may be assigned to him
by the Board of Directors or the Chief Financial Officer.
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ARTICLE VI
Contracts, Borrowings, Checks and Deposits
Section 6.1. Contracts and Other Instruments. The Board of Directors may
authorize any officer or officers, agent or agents, to enter into any contract
or execute and deliver any instrument in the name of and on behalf of the
Corporation, and such authority may be general or confined to specific
instances.
Section 6.2. Borrowings. No borrowings shall be contracted on behalf of the
Corporation, or any division thereof, and no evidence of indebtedness shall be
issued in the name of the Corporation, unless authorized by a resolution of the
Board of Directors. Such authority may be general or confined to specific
instances.
Section 6.3. Checks, Drafts, etc. All checks, demands, drafts or other orders
for the payment of money, notes or other evidences of indebtedness issued in the
name of the Corporation, shall be signed by such officer or officers, agent or
agents of the Corporation, and in such manner, as shall from time to time be
determined by the Board of Directors.
Section 6.4. Deposits. All funds of the Corporation, not otherwise employed
shall be deposited from time to time to the credit of the Corporation in such
banks, trust companies or other depositories as the Chief Financial Officer or
Treasurer may select.
Section 6.5. Investments. The Board of Directors may authorize any officer or
officers, agent or agents of the Corporation, to invest the funds of the
Corporation in obligations of the Federal government or any agency thereof or of
any state government or any agency thereof, commercial paper, real estate,
equity securities or debt obligations of any other corporation and such other
investments as the Board of Directors may approve, and such authority may be
general or confined to specific instances.
ARTICLE VII
Certificates of Stock and Their Transfer
Section 7.1. Certificates of Stock. The certificates of stock of the
Corporation shall be in such form as may be determined by the Board of
Directors, shall be numbered and shall be entered in the books of the
Corporation as they are issued. They shall exhibit the name of the Corporation,
the state of incorporation, the name of the registered holder, the number of
shares and the
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par value thereof and shall be signed by the President or a Vice President or
the Chairman or a Vice Chairman and by the Secretary or an Assistant Secretary
or the Treasurer or an Assistant Treasurer. The signature of any such officer
may be facsimile. In case any such officer who shall have signed or whose
facsimile signature has thus been used on any such certificate shall cease to be
such officer, whether because of death, resignation or otherwise, before such
certificate has been delivered by the Corporation, such certificate may
nevertheless be delivered by the Corporation, as though the person whose
facsimile signature has been used thereon had not ceased to be such officer. All
certificates properly surrendered to the Corporation for transfer shall be
cancelled and no new certificate shall be issued to evidence transferred shares
until the former certificate for at least a like number of shares shall have
been surrendered and cancelled and the Corporation reimbursed for any applicable
taxes on the transfer, except that in the case of a lost, destroyed or mutilated
certificate a new one may be issued therefor upon such terms, and with such
indemnity (if any) to the Corporation, as the Board of Directors may prescribe
specifically or in general terms or by delegation to a transfer agent for the
Corporation. (See Section 7.2.)
Section 7.2. Lost or Destroyed Certificates. The Board of Directors in
individual cases, or by general resolution or by delegation to the Transfer
Agent, may direct a new certificate or certificates to be issued in place of any
certificate or certificates theretofore issued by the Corporation alleged to
have been lost or destroyed, upon the making of an affidavit of that fact by the
person claiming the certificate of stock to be lost or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost or destroyed certificates, or his legal
representative, to advertise the same in such manner as it shall require and/or
give the Corporation a bond in such sum as it may direct as indemnity against
any claim that may be made against the Corporation with respect to the
certificate alleged to have been lost or destroyed.
Section 7.3. Transfers of Stock. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, and upon payment of applicable taxes with respect to such transfer, it
shall be the duty of the Corporation, subject to such rules and regulations as
the Board of Directors may from time to time deem advisable concerning the
transfer and registration of certificates for shares of stock of the
Corporation, to issue a new certifi-
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cate to the person entitled thereto, cancel the old certificate and record the
transaction upon its books. Transfers of shares shall be made only on the books
of the Corporation on behalf of the registered holder thereof or by his attorney
or successor duly authorized as evidenced by documents filed with the Secretary
or transfer agent of the Corporation.
Section 7.4. Fixing Record Date. The Board of Directors may fix in advance a
date, not exceeding sixty (60) days, nor less than ten (10) days, preceding the
date of any meeting of shareholders, or the date for the payment of any
dividend, or the date for the allotment of rights, or the date when any change
or conversion or exchange of capital stock shall go into effect, or a date in
connection with obtaining such consent, as a record date for the determination
of the shareholders entitled to notice of, and to vote at, any such meeting, and
adjournment thereof, or entitled to receive payment of any such dividend, or to
any such allotment of rights, or to exercise the rights in respect of any such
change, conversion or exchange of capital stock, or to give such consent, and in
such case such shareholders and only such shareholders as shall be shareholders
of record on the date so fixed shall be entitled to such notice of, and to vote
at, such meeting and any adjournment thereof, or to receive payment of such
dividend, or to receive such allotment as the case may be, notwithstanding any
transfer of any stock on the books of the Corporation after any such record date
fixed as aforesaid.
Section 7.5. Stockholders of Record. The Corporation shall be entitled to
treat the holder of record of any share or shares of stock as the holder in fact
thereof and accordingly, shall not be bound to recognize any equitable or other
claim to or interest in such share or shares notwithstanding any express or
other notice thereof, except as otherwise provided by the laws of Oklahoma.
ARTICLE VIII
General Provisions
Section 8.1. Fiscal Year. The fiscal year of the Corporation shall be
determined by the Board of Directors.
Section 8.2. Seal. The corporate seal shall have inscribed thereon the name of
the Corporation, and the words "Corporate Seal" and "Oklahoma" or an
abbreviation thereof; and it shall otherwise be in the form approved by the
Board of Directors. Such seal may be used by causing it, or a facsimile
thereof, to be impressed or affixed or otherwise reproduced.
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Section 8.3. Indemnification of Officers, Directors, Employee and Agents.
(a) The corporation shall indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture or other enterprise against expenses (including attorney's fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding, if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interest of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe that his conduct was unlawful.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its equivalent shall
not of itself create a presumption that the person did not act in good faith and
in a manner which he reasonably believed to be in or not opposed to the best
interest of the corporation and with respect to any criminal action or
proceeding had reasonable cause to believe that his conduct was unlawful.
(b) The corporation shall indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the corporation or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorney's fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit, if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interest of the corporation; except that no indemnification shall be made
in respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
court in which such action or suit was brought shall determine, upon
application, that despite the adjudication of liability, but in the view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the court shall deem proper.
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(c) Expenses incurred in defending a civil or criminal
action, suit or proceeding may be paid by the corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of the director, officer, employee or agent to repay
such amount if it shall ultimately be determined that he is not entitled to be
indemnified by the corporation as authorized herein.
(d) The corporation may purchase (upon resolution duly
adopted by the board of directors) and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability.
(e) To the extent that a director, officer, employee or
agent of the corporation has been successful on the merits or otherwise in
defense of any action, suit, or proceeding referred to herein or in defense of
any claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
(f) Every such person shall be entitled, without demand by
him upon the corporation or any action by the corporation, to enforce his right
to such indemnity in an action at law against the corporation. The right of
indemnification and any advancement of expenses as hereinabove provided shall
not be deemed exclusive of any rights to which any such person may now or
hereafter be otherwise entitled and specifically, without limiting the
generality of the foregoing, shall not be deemed exclusive of any rights
pursuant to statute or otherwise, of any such person in any such action, suit or
proceeding to have assessed or allowed In his favor against the corporation or
otherwise, his costs and expenses incurred therein or in connection therewith or
any part thereof.
ARTICLE IX
Amendments
Section 9.1. In General. Any provision of these by-laws may be altered,
amended or repealed from time to time by the affirmative
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vote of a majority of the stock having voting power present in person or by
proxy at any annual or special meeting of shareholders at which a quorum is
present, if notice of the proposed alteration, amendment or repeal is contained
in the notice of such meeting, or by the affirmative vote of a majority of the
directors then qualified and acting at any meeting of the Board at which a
quorum is present, if notice of the proposed alteration, amendment or repeal has
been given to each director.
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EXHIBIT 4(b)
NOTE AGREEMENT
Dated as of June 1, 1988
By and Between
ALEXANDER ENERGY CORPORATION
And
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
SECTION 1. PURCHASE AND SALE OF NOTES WITH WARRANT
1.1 Issue of Notes............................................. 1
1.2 The Closing................................................ 3
1.3 Purchase for Investment.................................... 3
1.4 Failure to Deliver......................................... 4
1.5 Expenses................................................... 4
SECTION 2. WARRANTIES AND REPRESENTATIONS
2.1 Corporate Organization and Authority....................... 5
2.2 Business................................................... 7
2.3 Financial Statements....................................... 7
2.4 Full Disclosure............................................ 8
2.5 Pending Litigation......................................... 9
2.6 Title to Properties........................................ 10
2.7 Compliance with Law and Other Instruments.................. 10
2.8 No Defaults................................................ 11
2.9 Governmental Consents; Offering of Notes................... 11
2.10 Taxes...................................................... 12
2.11 Use of Proceeds............................................ 12
2.12 Insurance Coverage......................................... 13
2.13 Brokers and Finders........................................ 13
2.14 Restrictions on Company and Affiliates..................... 14
2.15 ERISA...................................................... 14
2.16 Receivables................................................ 15
2.17 Trading With the Enemy Act, Etc.; Holding Company;
Investment Company....................................... 15
2.18 Trademarks, Patents, Etc. ................................. 16
2.19 Stock Repurchase Obligation ............................... 16
2.20 Local Qualification and Taxes.............................. 16
SECTION 3. CLOSING CONDITIONS
3.1 Your Conditions............................................ 17
3.2 Company's Condition........................................ 18
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
SECTION 4. PURCHASER'S SPECIAL RIGHTS
4.1 Direct Payment............................................... 18
4.2 Delivery Expenses............................................ 19
4.3 Issue Taxes.................................................. 19
SECTION 5. REGISTRATION; SUBSTITUTION OF NOTES; INTEREST
5.1 Registration of Notes........................................ 20
5.2 Exchange of Notes............................................ 20
5.3 Replacement of Notes......................................... 20
5.4 Interest..................................................... 21
SECTION 6. COMPANY BUSINESS COVENANTS
6.1 Payment of Taxes and Claims................................. 21
6.2 Maintenance of Properties and Corporate Existence........... 22
6.3 Payment of Notes and Maintenance of Office.................. 23
6.4 Acquisition and Disposal of Equity Interests................ 24
6.5 Sale of Assets or Merger.................................... 25
6.6 Leases...................................................... 26
6.7 Liens and Encumbrances...................................... 27
6.8 Consolidated Debt........................................... 29
6.9 Distributions and Investments............................... 30
6.10 Guaranties.................................................. 31
6.11 ERISA Compliance............................................ 32
6.12 Transactions with Affiliates................................ 32
6.13 Sale or Discount of Receivables............................. 33
6.14 Business.................................................... 33
6.15 Acquisition of Notes........................................ 33
6.16 Receivables................................................. 33
6.17 Certain Registrations or Approvals.......................... 34
6.18 Coverage.................................................... 34
SECTION 7. INFORMATION AS TO COMPANY
7.1 Financial and Business Information.......................... 35
7.2 Officers' Certificates...................................... 38
7.3 Accountants' Certificate.................................... 38
7.4 Inspection.................................................. 38
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
SECTION 8. PREPAYMENT OF NOTES
8.1 Required Prepayments......................................... 39
8.2 No Prepayment or Call........................................ 40
SECTION 9. EVENTS OF DEFAULT
9.1 Nature of Events............................................. 40
9.2 Default Remedies............................................. 42
9.3 Annulment of Acceleration of Notes........................... 44
SECTION 10. INTERPRETATION OF THIS AGREEMENT
10.1 Terms Defined................................................ 44
10.2 Accounting Principles........................................ 52
10.3 Directly or Indirectly....................................... 53
10.4 Governing Law................................................ 53
10.5 References................................................... 53
SECTION 11. MISCELLANEOUS
11.1 Notices...................................................... 53
11.2 Survival..................................................... 54
11.3 Successors and Assigns....................................... 54
11.4 Amendment and Waiver......................................... 55
11.5 Knowledge.................................................... 56
11.6 Multiple Counterparts........................................ 56
</TABLE>
<PAGE> 5
EXHIBITS
<TABLE>
<S> <C>
Exhibit A - Form of Note
Exhibit B - Form of Warrant
Exhibit C - Form of Investment Agreement
Exhibit D - Ownership of the Company
Exhibit E - Subsidiaries, Partnerships, and Joint Ventures
Exhibit F - Litigation
Exhibit G - Certain Loans and Liens
Exhibit H - Insurance
Exhibit I - Certain Agreements
Exhibit J - Agreements to Repurchase Stock
Exhibit K - Opinion of McAfee & Taft
Exhibit L - Notices & Payments
</TABLE>
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<PAGE> 6
ALEXANDER ENERGY CORPORATION
-----------------------
$5,000,000
-----------------------
10% Senior Notes due June 30, 1998
With Warrant to Purchase 670,000 Shares of
Common Stock at $1.00 Per Share Through
December 31, 1993
Dated as of June 1, 1988
John Hancock Mutual Life
Insurance Company
Bond and Corporate Finance
Department, T-57
John Hancock Place
200 Clarendon Street
Boston, Massachusetts 02117
Attention: William A. Kinsley
Dear Sirs:
Alexander Energy Corporation (the "Company"), an Oklahoma corporation,
hereby agrees with you as follows (this letter agreement being entitled the
"Note Agreement" and sometimes referred to herein as this "Agreement" and
certain terms being defined in Section 10.1 or elsewhere herein):
SECTION 1. PURCHASE AND SALE OF NOTES WITH WARRANT
1.1 Issue of Notes. The Company will duly authorize the issue of
$5,000,000 in aggregate principal amount of its 10% Senior Notes due June 30,
1998 (the "Notes"), and Warrant (herein so called) for the purchase by you of
670,000 shares of the Company's Common Stock pursuant to and in accordance with
the terms of the form of Stock Purchase Warrant attached hereto as Exhibit B
(the "Warrant"). Each Note will be in the amount of at least $1,000,000; will
bear
<PAGE> 7
interest on the unpaid principal balance thereof from the date of the Note at
the lesser of the rate of 10% per annum or the maximum rate of interest that
may be lawfully contracted for, charged, taken, reserved, or received by you
from the Company in connection with this Agreement under applicable law (the
"Maximum Lawful Rate"), payable semi-annually on June 30 and December 30 in each
year, commencing with December 31, 1988, until the principal amount thereof
shall be paid, and will bear interest on any overdue principal (including any
overdue prepayment of principal) and (to the extent permitted by applicable
law) on any overdue installment of interest, at the lesser of (a) the greater
(determined on a daily basis) of (i) the rate of 12% per annum and (ii) the
rate per annum that The Chase Manhattan Bank, N.A. announces publicly from time
to time as its "prime" rate of interest or successor rate, and (b) the Maximum
Lawful Rate; will be subject to certain required prepayments of principal, but
will not otherwise be prepayable; and will mature on June 30, 1998. The Notes
will be in the form set out in Exhibit A (herein sometimes called the
"Registered Notes") to this Agreement. It is expressly stipulated and agreed
to be the intention of the Company and you to comply at all times with
applicable laws governing the maximum rate or amount of interest payable on or
in connection with the Notes. Accordingly, if any of the transactions
contemplated hereby would be usurious under applicable law now or hereafter
governing the interest payable hereunder (including applicable United States
federal law or applicable state law, to the extent not preempted by United
States federal law), then, in that event, notwithstanding anything to the
contrary in this Note Agreement or any other agreement entered into in
connection with or as security for any Note, it is agreed as follows: (x) the
aggregate of all consideration that constitutes interest under applicable law
that is contracted for, charged, taken, reserved, or received under such Note
or under any of the other aforesaid agreements or otherwise in connection with
such Note under no circumstances shall exceed the maximum amount of interest
allowed by applicable law, and any excess shall be credited on such Note by the
holder thereof (or if such Note shall have been paid in full, refunded to the
Company); and (y) in the event that maturity of such Note is accelerated by
reason of an election by the holder thereof resulting from any default
hereunder or
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<PAGE> 8
otherwise, or in the event of any required or permitted prepayment or
conversion, then such consideration that constitutes interest may never include
more than the maximum amount allowed by applicable law, and excess interest, if
any, provided for in such Note or otherwise shall be cancelled automatically as
of the date of such acceleration or prepayment and, if theretofore prepaid,
shall be credited on such Note (or if such Note shall have been paid in full,
refunded to the Company), and the provisions of such Note, such Note Agreement
and any other agreements entered into in connection with or as security for
such Note shall immediately be deemed reformed and the amounts thereafter
collectible hereunder and thereunder reduced accordingly, without the necessity
of the execution of any new document, so as to comply with the then applicable
law. Determination of the rate of interest for purposes of determining whether
this transaction is usurious under any applicable laws, to the full extent
permitted by applicable law, shall be made by amortizing, prorating,
allocating, and spreading throughout the full stated term hereof until payments
in full, all sums at any time contracted for, charged, taken, reserved, or
received from the Company for the use, forbearance, or detention of money in
connection herewith.
1.2 The Closing. Subject to the terms and conditions hereof and
on the basis of the representations and warranties hereinafter set forth, the
Company hereby agrees to issue and sell to you, and you hereby agree to
purchase from the Company, in accordance with the provisions of this Agreement,
the aggregate principal amount of the Notes, together with the Warrant, at a
price of 100% of the principal amount of the Notes. The closing of your
purchase (the "Closing") shall be held at 10:00 a.m. Oklahoma City time on June
1, 1988 ("Closing Date") at the offices of McAfee & Taft in Oklahoma City,
Oklahoma. At the Closing the Company will duly execute and deliver to you the
Warrant, an Investment Agreement substantially in the form attached hereto as
Exhibit C (the "Investment Agreement"), and a single Note in the principal
amount of your purchase, dated the Closing Date and payable to you, against
payment by check payable in, or a bank wire transfer in, federal funds.
1.3 Purchase for Investment. (a) You represent to the Company
that you are acquiring the Notes for your own
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<PAGE> 9
account for the purpose of investment and not with a view to the resale or
distribution thereof; provided, however, that the disposition of your property
shall at all times be within your control. It is understood that, in making
the representations set out in Sections 2.7 and 2.9, the Company is relying, to
the extent applicable, upon your representation in this Agreement.
(b) You agree that you will not sell or otherwise dispose of any
Note in the absence of (i) registration under the Securities Act of 1933, as
amended (the "1933 Act") or and applicable state securities laws, or (ii) an
opinion acceptable in form to the Company from counsel reasonably satisfactory
to the Company (it being understood that counsel on your in-house legal staff
is satisfactory counsel), or an opinion of counsel to the Company, to the
effect that no registration is required for such disposition, or (iii) as to
the 1933 Act, a "no-action" letter from the staff of the Securities and
Exchange Commission to the effect that such staff will not recommend any action
to such commission if such a disposition takes place without registration.
1.4 Failure to Deliver. If at the Closing the Company fails to
tender to you the Notes to be purchased by you or if the conditions specified
in Section 3.1 have not been fulfilled, you thereupon may elect to be relieved
of all further obligations under this Agreement. Nothing in this Section shall
operate to relieve the Company from any of its obligations hereunder or to
waive any of your rights against the Company.
1.5 Expenses. Regardless of whether the Notes are sold and the
Warrant is issued, except as otherwise specifically provided in this Agreement
or the documents delivered at the Closing, the Company will pay all expenses
relating to this Agreement and the Investment Agreement, including, without
limitation, the following:
(a) the cost of reproducing this Agreement, the Notes,
the Warrant, and the Investment Agreement;
(b) the reasonable fees and disbursements of your special
counsel;
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<PAGE> 10
(c) your reasonable out-of-pocket expenses;
(d) all expenses relating to any amendments, waivers or
consents pursuant to the provisions of this Agreement, the Notes, the
Warrant, the Investment Agreement, and the other documents
contemplated thereby; and;
(e) all expenses relating to the enforcement of your
rights under this Agreement, the Notes, the Warrant, the Investment
Agreement, and the transactions contemplated thereby.
The obligations of the Company under this Section 1.5 shall survive the payment
or prepayment, if any, of the Notes, the issuance of stock pursuant to the
Warrant, and the termination of this Agreement and the Investment Agreement.
SECTION 2. WARRANTIES AND REPRESENTATIONS
The Company warrants and represents to you that:
2.1 Corporate Organization and Authority. (a) The Company is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of Oklahoma and has all requisite power and authority and all
necessary licenses and other governmental authorizations to own and operate its
Properties and to conduct its business as such business is now and has
heretofore been conducted and as presently proposed to be conducted. The
Company is duly qualified, authorized to do business, and in good standing as a
foreign corporation in each jurisdiction where the character of its Properties
or the nature of its activities makes such qualification necessary, including,
without limitation, the States of Arkansas, California, Colorado, Kansas,
Louisiana, Montana, Nebraska, New Mexico, Texas, and Wyoming. The authorized
number of shares of common stock of the Company is 20,000,000, par value $0.01
per share, and the Company is not authorized to issue any other form of stock
or equity security. As of the date hereof, 7,304,366 shares of such common
stock are issued and outstanding. All of the outstanding shares of capital
stock of the Company are validly issued, fully paid, and nonassessable, were
issued in compliance with applicable securities laws, and are owned
-5-
<PAGE> 11
beneficially and of record as shown on Exhibit D. The Company heretofore has
delivered to you true and complete copies of the Company's articles of
incorporation and bylaws, including, without limitation, all amendments
thereto. The common stock of the Company presently is quoted on the National
Association of Securities Dealers Automated Quotation System, and the Company
is in good standing under all rules and regulations of that system.
(b) Exhibit E correctly lists all Subsidiaries of the Company as
of the date of this Agreement and, as to each such Subsidiary, (i) its name,
(ii) the jurisdiction of its incorporation, and (iii) the percentage of its
issued and outstanding shares owned by the Company or another Subsidiary
(specifying such other Subsidiary). Each Subsidiary is a corporation duly
organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation and has all requisite power and authority and
all necessary licenses and other governmental authorizations to own and operate
its Properties and to conduct its business as such business is now and has
heretofore been conducted and as presently proposed to be conducted, and is
duly qualified, authorized to do business, and in good standing as a foreign
corporation in each jurisdiction where the character of its Properties or where
the nature of its activities makes such qualification necessary. All of the
outstanding shares of capital stock of each Subsidiary are validly issued,
fully paid, and nonassessable, all such shares indicated in Exhibit E as being
owned by the Company or by any other Subsidiary are so owned beneficially by
the Company or such other Subsidiary free and clear of any Lien except as shown
on Exhibit E, and are held of record by the Company or its nominees as
specified on Exhibit E or by such other Subsidiary or its nominees as specified
on Exhibit E, and there is no outstanding right, regardless of whether
currently exercisable, to acquire any capital stock of any Subsidiary the Net
Worth of which (i) exceeds 2% of Consolidated Net Worth, or (ii) when
aggregated with the Net Worth of all other Subsidiaries as to which there are
such outstanding rights, exceeds 5% of Consolidated Net Worth. Except as
specified on Exhibit E, no Subsidiary accounts for 25% or more of Consolidated
Net Worth, Consolidated Net Income, or Consolidated Cash Flow of the company as
reflected in the financial statements described in Section 2.3.
-6-
<PAGE> 12
(c) The Company has all necessary corporate power and authority to
enter into this Agreement and the Investment Agreement, to issue and sell the
Notes and the Warrant, and to perform all of the obligations to be performed by
it hereunder and thereunder. The execution, delivery, and performance of this
Agreement, the Notes, the Investment Agreement, and the Warrant have been duly
authorized by all requisite action on the part of the officers, directors, and
security holders of the Company, and this Agreement constitutes, and each of
the Notes, the Investment Agreement, the Warrant, and the stock to be issued
pursuant thereto, when executed, delivered, and (if applicable) paid for in
accordance with the terms of this Agreement and the Warrant, will constitute, a
valid and binding obligation of the Company, enforceable in accordance with its
terms.
2.2 Business. (a) The Company was organized in 1980 and is
engaged exclusively in the exploration for, development of, and production of
oil and gas and related hydrocarbons, the acquisition, disposition, and
operation of real and personal property in connection therewith, and the
providing of services in conjunction with and attendant to such activities
(whether for its own account or for others), and from time to time also may
engage in any or all other activities necessary or desirable and relating to
such business including, without limitation, the treatment, transportation, and
marketing of oil and gas and related hydrocarbons or products derived
therefrom.
(b) The Company or a Subsidiary is a partner (and if such
Partnership is a limited partnership, is a general partner) in the Partnerships
and is a party to the Joint Ventures described on Exhibit E. None of the
Company, the Subsidiaries, the Partnerships, and the Joint Ventures has any
equity interest in any Person other than the Subsidiaries and the Company's
and the Subsidiaries' interests in the Partnerships and the Joint Ventures
described in Exhibit E.
2.3 Financial Statements. The Company heretofore has delivered to
you the following financial statements: (a) the audited consolidated balance
sheets of the Company, the Partnerships as applicable, and the Subsidiaries as
of
-7-
<PAGE> 13
March 31, 1985, 1986, and 1987, and the related consolidated statements of
operations, changes in shareholders' equity, and changes in financial position
for the years ended March 31, 1985, 1986, and 1987, together with the notes
thereto, as certified by Arthur Young & Co., certified public accountants, and
(b) the unaudited consolidated balance sheet of the Company and the
Subsidiaries as of December 31, 1987, and the related consolidated statements
of operations, changes in shareholders' equity, and changes in financial
position for the nine-month period ended December 31, 1987. Such financial
statements include the accounts of the Company and the Subsidiaries and their
share of the assets, liabilities, and operations of the Partnerships and Joint
Ventures. All such financial statements are true and complete in all material
respects and together fairly and accurately present, in accordance with
generally accepted accounting principles (applied on a consistent basis except
as disclosed in the notes thereto), the consolidated financial position and the
consolidated results of operations of the Company and the Subsidiaries as of
the dates and for the periods therein set forth. As of the date of the balance
sheet included in the most recent unaudited consolidated financial statements
of the Company delivered to you, which is dated December 31, 1987, none of the
Company, the Subsidiaries, the Partnerships, and the Joint Ventures had any
debts, liabilities or obligations, whether absolute, accrued, contingent, or
otherwise, that are not fully reflected in such balance sheet or the notes
thereto other than those that, in any one case or in the aggregate, would not
have a material and adverse effect on the business, assets, liabilities,
condition (financial or otherwise), affairs, operations, or prospects of the
Company or such Subsidiary, Partnership, or Joint Venture as of such date.
Since December 31, 1987, there has not been any material and adverse change in
the financial condition, results of operations, business or prospects of the
Company or any Subsidiary, Partnership, or Joint Venture, and there has been no
occurrence or other event or condition that might reasonably be expected to
result in such material and adverse change after the date hereof.
2.4 Full Disclosure. None of the financial statements referred to
in Section 2.3, and neither this Agreement nor any writing furnished by or on
behalf of the Company to you
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<PAGE> 14
pursuant to or in connection with this Agreement or the negotiation of the
issuance contains any untrue statement of a material fact or omits a material
fact necessary to make the statements contained therein or herein not
misleading in light of the circumstances under which they are made; provided,
however, that in the case of projections (if any) prepared jointly by the
Company and you, the Company represents and warrants only the factual
information serving as a basis for such projections and not the assumptions
therein. To the knowledge of the Company and the Subsidiaries, there is no
fact or circumstance that the Company has not disclosed to you in writing and
that, in its judgment, materially and adversely affects, or threatens in the
future materially and adversely to affect, the business, Properties,
liabilities, condition (financial or otherwise), affairs, operations, or
prospects of the Company or any Subsidiary, Partnership, or Joint Venture, or
the ability of the Company to perform its obligations under this Agreement, the
Notes, the Investment Agreement, or the Warrant, other than economic trends or
proposed legislation affecting the oil and gas industry generally.
2.5 Pending Litigation. Except as set forth in Exhibit F, there
is no action, suit, proceeding, arbitration, or investigation pending or, to
the best knowledge of the Company, the Subsidiaries, the Partnership, and the
Joint Ventures, threatened against the Company or any Subsidiary, Partnership,
or Joint Venture, or involving any of their assets, or against any employee,
officer, director, stockholder, or partner thereof in his capacity as such or
relating to his activities with the Company or any Subsidiary, Partnership, or
Joint Venture, that might result in any material and adverse change in the
Properties, business, prospects, profits, or condition (financial or otherwise)
of the Company or any Subsidiary, Partnership, or Joint Venture, or the ability
of the Company to perform its obligations under this Agreement, the Notes, the
Investment Agreement, or the Warrant, or the ability of the Company or any
Subsidiary, Partnership, Joint Venture to perform any agreement entered into in
connection herewith, and based upon the knowledge of the officers and directors
of the Company and the Subsidiaries after due investigation, none of the
Company, the Subsidiaries, the Partnerships, and the Joint Ventures is aware of
any fact that might result in or form
-9-
<PAGE> 15
the basis for any such action, suit, proceeding, arbitration, or investigation.
None of the Company, the Subsidiaries, the Partnerships, and the Joint Ventures
is in default with respect to any order of any court, governmental authority,
or arbitration board or tribunal.
2.6 Title to Properties. Each of the Company, the Subsidiaries,
the Partnerships, and the Joint Ventures has good and defensible title to all
assets and Properties used or held for use in its respective business (other
than to nonproducing oil and gas properties, with respect to which the
Companies, the Subsidiaries, the Partnerships, and the Joint Ventures have made
such examinations of title, and are satisfied they have such title, as conforms
to best industry practice for such types of properties), including, without
limitation, all assets and Properties reflected in the consolidated balance
sheet of the Company and the Subsidiaries at December 31, 1987, described in
Section 2.3(b) or acquired subsequent thereto (except to the extent that such
properties and assets have been disposed of for fair value in the ordinary
course of business since the date of such consolidated balance sheet), subject
to no Liens, except (a) as noted in such consolidated balance sheet or notes
thereto, (b) as set forth in Exhibit G, and (c) as permitted by Section 6.7.
2.7 Compliance with Law and Other Instruments. The business and
operations of each of the Company, the Subsidiaries, the Partnerships, and the
Joint Ventures have been and are being conducted in accordance with all laws,
rules, regulations, judgments, and decrees to which it is subject, and none of
the Company, the Subsidiaries, the Partnerships, or the Joint Ventures has
failed to obtain any licenses, permits, franchises, or other governmental
authorizations, the failure to comply with or obtain which, either singly or in
the aggregate, would have a material and adverse effect upon the Properties
business, prospects, profits, or condition (financial or otherwise) of the
Company, the Subsidiaries, the Partnerships, and the Joint Ventures taken as a
whole or of any Subsidiary, Partnership, or Joint Venture that accounts for 25%
or more of Consolidated Net Worth, Consolidated Net Income, or Consolidated
Cash Flow as reflected in the financial statements described in Section 2.3.
The execution,
-10-
<PAGE> 16
delivery, and performance by the Company of any of the provisions of this
Agreement, the Notes, the Investment Agreement, or the Warrant, with or without
the giving of notice or the passage of time or both, will not violate any
provision of law or any regulation or award, judgment, order, injunction, or
decree of any arbitrator or court or other governmental body to which the
Company or any Subsidiary, Partnership, or Joint Venture is subject, or any
provision of the Company's or any Subsidiary's articles of incorporation or
bylaws or the organizational documents of any Partnership or Joint Venture, or
result in the breach of or constitute a default under any indenture, contract,
or other agreement, document, or instrument to which the Company or any
Subsidiary, Partnership, or Joint Venture is a party or by which it or any of
its Properties are bound or affected, or result in the creation or imposition
of any Lien of any nature whatsoever upon the Properties of the Company or any
Subsidiary, Partnership, or Joint Venture or, to the best knowledge of the
Company and the Subsidiaries after due investigation, will cause the Company or
any Subsidiary, Partnership, or Joint Venture to lose the benefit of any
material right or privilege it presently enjoys or any Person who normally does
a material amount of business with the Company or any Subsidiary, Partnership,
or Joint Venture to discontinue to do so on the same basis.
2.8 No Defaults. No event has occurred and no condition exists
that, upon the issuance of the Notes or the Warrant, would constitute a Default
or an Event of Default. Each of the Company, the Subsidiaries, the
Partnerships, and Joint Ventures in all material respects has performed all
obligations required to be performed by each of them to date and is not in
violation of its articles of incorporation, bylaws, or other organizational
documents, or in default under any loan agreement, promissory note, mortgage,
lease, contract, commitment, or agreement to which any of them is a party or by
which any of them may be bound, and no event or condition has occurred that,
with the giving of notice or passage of time, or both, would constitute a
default under any such agreement.
2.9 Governmental Consents; Offering of Notes. No consent,
authorization, approval, permit, or order of, or declaration to or filing with,
any governmental or regulatory
-11-
<PAGE> 17
authority is required in connection with the execution, delivery, and
performance of this Agreement by the Company or the offer, issuance, sale, or
delivery of the Notes and the Warrant. Neither the Company nor any agent
acting on its behalf has, directly or indirectly, sold or offered for sale, or
solicited any offers to buy, any securities, or otherwise approached or
negotiated with any person or persons, so as to subject the offer or sale of
the Notes, the Warrant, or the stock issuable pursuant thereto to the
provisions of section 5 of the 1933 Act, or to comparable provisions of any
applicable state securities laws, and, except as expressly provided to the
contrary in this Agreement, the Warrant, or the Investment Agreement, the
Company agrees that neither it nor any agent acting on its behalf will take any
action that would subject the offer or sale of the Notes, the Warrant, or the
stock issuable pursuant thereto to those provisions or that is intended by the
Company to have the effect of preventing or otherwise hindering the sale by you
of the Notes, the Warrant, or the stock issuable pursuant thereto.
2.10 Taxes. Each of the Company, the Subsidiaries, Partnerships,
and the Joint Ventures has accurately prepared and duly and timely filed with
the appropriate governmental agencies all federal, state, and local income,
franchise, real and personal property, excise, severance, and other tax returns
and reports required to be filed and have paid all taxes shown or claimed to be
due thereon. There are included in the audited consolidated balance sheet of
the Company and the Subsidiaries as of March 31, 1987, described in Section
2.3(a) adequate reserves for the payment of all federal, state, and local taxes
of the Company, the Subsidiaries, the Partnerships, and the Joint Ventures,
including interest and penalties, for the fiscal year ended March 31, 1987, and
for all fiscal years prior thereto. Neither the Company nor any Subsidiary,
Partnership, or Joint Venture has executed or filed with the Internal Revenue
Service any agreement extending the period for assessment and collection of any
federal tax, nor is any of them a party to any action or proceeding by any
governmental authority for assessment and collection of taxes, and no claim for
assessment and collection of taxes which has been asserted against the Company
or any Subsidiary, Partnership, or Joint Venture remains unpaid.
-12-
<PAGE> 18
2.11 Use of Proceeds. The Company will use the proceeds of the
sale of the Notes and the Warrant to you to retire in full that certain
Convertible Note dated June 6, 1984, issued by the Company and held by The
Liberty National Bank and Trust Company of Oklahoma City (the "Bank"), in the
original principal amount of $7,500,000, and to purchase from the Bank all
shares of, and all options or warrants to acquire shares of, the Company's
capital stock for an aggregate payment in immediately available funds of
$5,000,000. None of the transactions contemplated in this Agreement
(including, without limitation, the use of the proceeds from the sale of the
Notes) will violate or result in a violation by the Company or any of its
Affiliates of section 7 of the Securities Exchange Act of 1934, as amended, or
any regulations issued pursuant thereto, including, without limitation,
Regulations G (12 C.F.R. 207, as amended), T (12 C.F.R. 220, as amended), U (12
C.F.R. 221, as amended), and X (12 C.F.R. 224, as amended) of the Board of
Governors of the Federal Reserve System. Neither the Company nor any Affiliate
owns or intends to carry or purchase any "margin security" within the meaning
of said Regulation G or U or X, including, without limitation, margin
securities originally issued by it.
2.12 Insurance Coverage. Exhibit H contains an accurate list of
the insurance coverage maintained by the Company, the Subsidiaries, the
Partnerships, and the Joint Ventures. Such coverage, in the Company's
judgment, is adequate for the business being conducted, and Properties owned or
leased, by the Company, the Subsidiaries, Partnerships, and the Joint Ventures,
as applicable.
2.13 Brokers and Finders. Except with respect to the Company's
agreement to pay a finder's fee to Newbury, Piret & Company, Inc., no Person
has or will have any right, interest, or valid claim against you, the Company,
or any Subsidiary, Partnership, or Joint Venture, because of any agreement or
undertaking by the Company or any Subsidiary, Partnership, Joint Venture, or
other person acting on behalf of the Company or any of the foregoing, for any
commission, fee, or other compensation as a result of this transaction as a
finder or broker or in any similar capacity as a result of any act or omission
by the Company or any Subsidiary,
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<PAGE> 19
Partnership, Joint Venture, or other Person acting on behalf of the Company or
any of the foregoing. The Company hereby agrees to indemnify you and hold you
harmless from and against any and all such commissions, fees, or other
compensation (including, without limitation, that payable to Newbury, Piret &
Company, Inc. as described above) together with any and all claims disputes or
other losses or costs (including, without limitation, reasonable attorneys'
fees) arising from agreements or undertakings of the Company or any Subsidiary,
Partnership, Joint Venture, or other person acting on behalf of the Company or
any of the foregoing.
2.14 Restrictions on Company and Affiliates. Neither the Company
nor any Subsidiary, Partnership, or Joint Venture is a party to any contract or
agreement, or subject to any corporate, partnership, or other restriction, that
materially and adversely affects the business of the Company or any Subsidiary,
Partnership, or Joint Venture. Except as described on Exhibit I, neither the
Company nor any Subsidiary, Partnership, or Joint Venture is a party to any
contract or agreement that restricts the right or ability of such entity to
incur Consolidated Debt, other than this Agreement. Neither the Company nor
any Subsidiary, Partnership, or Joint Venture has agreed or consented to cause
or permit in the future (upon the happening of a contingency or otherwise) the
Property of any such Person, whether now owned or hereafter acquired, to be
subject to a Lien not permitted by Section 6.7.
2.15 ERISA. (a) Except for a defined contribution plan, neither
the Company nor any ERISA Affiliate (as such term is herein defined) thereof
sponsors, maintains, or contributes to, or has at any time in the six-year
period preceding Closing sponsored, maintained, or contributed to, any
"employee pension benefit plan," as such term is defined in section 3(2) of
ERISA, that is intended to be qualified under sections 401 and 501 of the Code.
Without limiting the scope of the foregoing, neither the Company nor any ERISA
Affiliate thereof sponsors, maintains, or contributes to, or has at any time in
the six-year period preceding Closing sponsored, maintained, or contributed to,
(i) any employee pension benefit plan that is subject to title IV of ERISA or
(ii) any "multiemployer pension plan," as such term is defined in section 3(37)
or 4001(a)(3) of ERISA. For
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purposes of this Section 2.15, the term "ERISA Affiliate" refers to any entity
described in section 4001(b)(1) of ERISA with respect to the Company.
(b) No act or transaction has occurred that could result in
imposition on the Company or any Subsidiary, Partnership, or Joint Venture
(either directly or indirectly by reason of any indemnification or
hold-harmless agreement) of a tax or penalty imposed pursuant to section 4975
of the Code or section 502 of ERISA.
(c) Neither the Company nor any Subsidiary, Partnership or Joint
Venture sponsors, maintains, or contributes to an "employee welfare benefit
plan" within the meaning of section 3(1) of ERISA, including, without
limitation, any plan to provide benefits to former employees of such entities,
that may not be terminated by the Company or any Subsidiary, Partnership, or
Joint Venture in its sole discretion at any time without any material liability
to any Person.
2.16 Receivables. Neither the Company nor any Subsidiary,
Partnership, or Joint Venture presently has any ownership or security interest
in any accounts receivable, promissory notes receivable, installment notes
receivable, lease receivables, equipment rental receivables, or other
receivables (hereinafter collectively called "Receivables") acquired from
another Person for value or as security for an obligation owed to the Company
or such Subsidiary, Partnership, or Joint Venture.
2.17 Trading With the Enemy Act, Etc.; Holding Company; Investment
Company. Neither this Agreement nor any of the transactions contemplated
hereby is or would be in violation of the Trading With the Enemy Act, as
amended, the International Emergency Economic Powers Act or the Executive
Orders of the President of the United States issued pursuant to such Act, or
any regulations issued under such Acts or Executive Orders, including, without
limitation, the following regulations of the United States Treasury Department
(31 C.F.R. subtitle B, chapter V, as amended): the Foreign Assets Control
Regulations, the Transactions Control Regulations, the Cuban Assets Control
Regulations, the Foreign Funds Control Regulations, the Iranian Assets
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Control Regulations, the Libyan Sanctions Regulations, the Nicaraguan Trade
Control Regulations, and the South African Transactions Regulations; nor will
the proceeds of the sale of the Notes or the Warrant be used by the Company in
a manner that would violate any such Acts, Executive Orders, or regulations.
Neither the Company nor any Subsidiary, Partnership, or Joint Venture is a
"utility company" or a "holding company" or a "subsidiary company" or an
"affiliate" of the foregoing, as such terms are defined in the Public Utility
Holding Company Act of 1935, as amended. No determination has been made by the
Securities and Exchange Commission that the Company is subject to a controlling
influence by any such holding company. Neither the Company nor any Subsidiary,
Partnership, or Joint Venture is an "investment company" or a company
"controlled" by an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
2.18 Trademarks, Patents, Etc. Each of the Company, the
Subsidiaries, the Partnerships, and the Joint Ventures possesses such
trademarks, tradenames, copyrights, patents, licenses, or rights in any
thereof, as are adequate for the conduct of its respective business, without
known conflict with the rights of others.
2.19 Stock Repurchase Obligation. Except as provided in the
agreements described on Exhibit J, neither the Company nor any Subsidiary,
Partnership, or Joint Venture is obligated to purchase any stock, warrants, or
other equity interests in any of them or any debt or other security convertible
into any of the foregoing.
2.20 Local Qualification and Taxes. You shall not be required,
solely on account of the transactions contemplated by this Agreement, the
Notes, the Warrant, and the Investment Agreement, to do any of the following:
(a) qualify as a foreign corporation or file a
designation for service of process or file any reports to any
governmental agency of the State of Oklahoma or any other jurisdiction
in which the Company or any Subsidiary, Partnership or Joint Venture
owns Properties or transacts business;
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(b) pay any taxes, fees, charges, or other levies under
the laws of any such jurisdiction; or
(c) file any returns in respect of any taxes or other
matters described in Section 2.20(b).
SECTION 3. CLOSING CONDITIONS
3.1 Your Conditions. Your obligation to purchase and pay for the
Notes and the Warrant to be delivered to you at the Closing shall be subject to
the following conditions precedent:
(a) Opinions of Counsel. You shall have received from
McAfee & Taft, counsel for the Company, the closing opinion described
in Exhibit K and from Vinson & Elkins, your special counsel, an
opinion in form and substance satisfactory to you.
(b) Warranties and Representations True as of Closing
Date. The warranties and representations contained herein or in any
exhibit, certificate, or document delivered pursuant hereto shall be
true and complete in all respects on the Closing Date with the same
effect as though made on and as of the closing, subject to any change
hereafter because of any action required by this Agreement and subject
to any waiver by you in writing of any such representation or
warranty.
(c) Compliance with Business Covenants. The Company
shall be taking no action and permitting no condition to exist that
would be prohibited by Section 6.
(d) Compliance with this Agreement. The Company shall
have performed and complied with all agreements and conditions on its
part required to be performed or complied with by the Company pursuant
to this Agreement before or at the closing.
(e) No Material Adverse Changes. No event shall have
occurred and no condition shall exist that has or might result in a
material and adverse change in the Properties, business, prospects,
profits, or condition
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(financial or otherwise) of the Company or any Subsidiary,
Partnership, or Joint Venture, or the ability of the Company to
perform its obligations under this Agreement, or the ability of any
Subsidiary, Partnership, or Joint Venture to perform any agreement
entered into in connection herewith.
(f) Officers' Certificate. You shall have received an
Officers' Certificate dated the Closing Date certifying that the
conditions specified in Section 3.1(b) through (f) have been
fulfilled.
(g) Legality. The Notes and the Warrant on the Closing
Date shall qualify as a legal investment for insurance companies under
chapter 175, section 63 of the Massachusetts General Laws, and you
shall have received such evidence as you may reasonably request to
establish compliance with this condition.
(h) Proceedings Satisfactory. All proceedings taken in
connection with the issuance and sale of the Notes and the issuance of
the Warrant and all documents and papers relating thereto shall be
satisfactory to you and your special counsel. You and your special
counsel shall have received copies of such closing documents as you or
they may reasonably request in connection therewith, all in form and
substance satisfactory to you and your special counsel.
3.2 Company's Condition. The Company's obligation to issue and
deliver to you the Notes and the Warrant at the Closing shall be subject to the
condition precedent that you shall have performed and complied with all
agreements and conditions on your part required to be performed or complied
with by you pursuant to this Agreement before or at the Closing.
SECTION 4. PURCHASER'S SPECIAL RIGHTS
4.1 Direct Payment. Notwithstanding anything to the contrary in
this Agreement or the Notes, the Company shall pay all amounts payable with
respect to any Notes held by each holder of Registered Notes (without any
presentment of such Notes and without any notation of such payment being
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made thereon) by crediting before 12:00 noon, Boston time, by federal funds
bank wire transfer to the account and in the manner described in Exhibit L, or
in such other manner or to such other address in the continental United States
as may be designated in writing to the Company by such holder at least ten days
prior to the date fixed for such payment, each such payment being accompanied
by sufficient information to identify the source and application thereof. The
holder of any Notes to which this Section 4.1 applies agrees that in the event
it shall sell or transfer any such Notes (a) prior to the delivery of such
Notes, it shall make a notation thereon of all principal, if any, prepaid on
such Notes and will also note thereon the date to which interest has been paid
on such Notes, and (b) it promptly shall notify the Company of the name and
address of the transferee of any Notes so transferred; provided, however, that
failure to comply with the preceding provisions of this sentence shall not
relieve the Company of its obligations to make payments under the Notes as and
when the same become due.
4.2 Delivery Expenses. If you surrender any Note to the Company
pursuant to this Agreement, the Company shall pay the cost of delivering to or
from your home office from or to the Company, insured to your satisfaction, the
surrendered Note and any Note issued in substitution or replacement for the
surrendered Note.
4.3 Issue Taxes. The Company shall pay all taxes in connection
with the issuance and sale of the Notes, the Warrant, and the stock issuable
pursuant thereto and in connection with any modification of the Notes and the
Warrant and shall save you harmless without limitation as to time against any
and all liabilities with respect to all such taxes. The obligations of the
Company under this Section 4.3 shall survive the payment or prepayment, if any,
of the Notes, the issuance of stock pursuant to the Warrant, and the
termination of this Agreement and the Investment Agreement.
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SECTION 5. REGISTRATION; SUBSTITUTION OF NOTES; INTEREST
5.1 Registration of Notes. As provided in Section 1.1, the Notes
issuable under this Agreement shall be in the form of Registered Notes. The
Company shall cause to be kept at its office maintained pursuant to Section 6.3
or at its office in Oklahoma City, Oklahoma, a register for the registration
and transfer of Registered Notes. The names and addresses of the holders of
Registered Notes shall be registered in the register. The Person in whose name
any Registered Note shall be registered shall be deemed and treated as the
owner and holder thereof for all purposes of this Agreement, and the Company
shall not be affected by any notice or knowledge to the contrary, provided that
the Company at all times shall use its best efforts promptly and properly to
record the names and addresses of all holders of Notes whose ownership and
identity is disclosed to the Company in accordance with the provisions of this
Agreement and the Notes.
5.2 Exchange of Notes. Upon surrender of any Note at the office
of the Company maintained pursuant to Section 6.3 and, if applicable,
compliance with Section 1.3(b), the Company, at the request of the holder
thereof, will execute and deliver, at the Company's expense (except as provided
below), new Notes in exchange therefor in denominations of at least $1,000,000,
in an aggregate principal amount equal to the unpaid principal amount of the
surrendered Note. Each such new Note shall be payable to such Person as such
holder may request and shall be a Registered Note substantially in the form of
the Note set out in Exhibit A. Each such new Note shall be dated and bear
interest from the date to which interest has been paid on the surrendered Note
or dated the date of the surrendered Note if no interest has been paid thereon.
The Company may require payment of a sum sufficient to cover any stamp tax or
governmental charge imposed in respect of any transfer.
5.3 Replacement of Notes. Upon receipt by the Company of evidence
reasonably satisfactory to it of the ownership of and the loss, theft,
destruction, or mutilation of any Note and
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(a) in the case of loss, theft, or destruction, of
indemnity reasonably satisfactory to the Company (provided, if you are
the holder of the Note or the holder of the Note is an insurance
company having admitted assets in excess of $100,000,000, your or its
own unsecured agreement of indemnity shall be deemed to be
satisfactory), or
(b) in the case of mutilation, upon surrender and
cancellation thereof,
the Company at its own expense will execute and deliver in lieu thereof a new
Note of like tenor, dated and bearing interest from the date to which interest
has been paid on such lost, stolen, destroyed, or mutilated Note or dated the
date of such lost, stolen, destroyed, or mutilated Note if no interest has been
paid thereon. Every new Note issued pursuant to this Section 5.3 in lieu of
any destroyed, lost, stolen, or mutilated Note shall constitute an original
additional contractual obligation of the Company, regardless of whether the
destroyed, lost, stolen, or mutilated Note shall be at any time enforceable by
anyone, and shall be entitled to all the benefits of this Agreement equally and
proportionately with any and all other Notes duly issued hereunder.
5.4 Interest. Each Note delivered under this Agreement upon
registration of, transfer of, or in exchange for or in lieu of any other Note
shall carry the rights to interest accrued and unpaid, and to accrue, which
were carried by such other Note. Interest on the Notes shall be computed on
the basis of a 365- or 366-day year, as applicable.
SECTION 6. COMPANY BUSINESS COVENANTS
The Company covenants that on and after the date of initial issue of
the Notes, as long as any of the Notes are outstanding:
6.1 Payment of Taxes and Claims. The Company shall pay, and shall
cause each Subsidiary, Partnership, and Joint Venture to pay, before they
become delinquent:
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(a) all taxes, assessments, and governmental charges or
levies imposed upon it or its Property, and
(b) all claims or demands of materialmen, mechanics,
carriers, warehousemen, landlords, and other like Persons that, if
unpaid, might result in the creation of a Lien upon its Property;
provided, however, that any of the foregoing items need not be paid while being
contested in good faith and by appropriate proceedings, and so long as adequate
book reserves have been established with respect thereto, and so long as the
failure to pay timely any such item does not materially and adversely affect
the business, prospects, profits, Properties, or condition (financial or
otherwise) of the Company or any Subsidiary, Partnership, or Joint Venture. In
the case of any item of the foregoing description involving in excess of
$100,000, the adequacy of such reserves shall be supported by a certificate of
the independent accountants of the Company delivered to you promptly upon the
failure to pay timely such item.
6.2 Maintenance of Properties and Corporate Existence. The
Company shall, and shall cause each Subsidiary, Partnership, and Joint Venture
to:
(a) Property - maintain its Property in good condition
and make all renewals, replacements, additions, betterments, and
improvements thereto necessary for the effective and proper conduct of
its business;
(b) Insurance - maintain, with financially sound and
reputable insurers, insurance with respect to its Properties and
business against such casualties and contingencies, of such types
(including public liability, larceny, embezzlement, or other criminal
misappropriation insurance) and in such amounts as is customary in the
case of corporations of established reputations engaged in the same or
a similar business and similarly situated, and shall not cause or
permit the alteration of the insurance coverage described in Exhibit H
without at least 30 days' prior written notice to you;
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(c) Financial Records - keep books of records and
accounts in which true and complete entries will be made of all its
business transactions, and will reflect in its financial statements
adequate accruals and appropriations to reserves, all in accordance
with generally accepted accounting principles;
(d) Existence and Rights - except as otherwise permitted
by Sections 6.4 and 6.5, do or cause to be done all things necessary
to preserve and keep in full force and effect its corporate or other
applicable existence, rights, and franchises to the extent that the
failure to preserve and keep the same in full force and effect might
materially and adversely affect the business, prospects, profits,
Properties, or condition (financial or otherwise) of the Company, the
Subsidiaries, the Partnerships, and the Joint Ventures taken as a
whole or of any Subsidiary, Partnership, or Joint Venture that
accounts for 25% or more of Consolidated Net Worth, Consolidated Net
Income, or Consolidated Cash Flow; and
(e) Compliance with Law - not be in violation of any
laws, ordinances, or governmental rules and regulations to which it is
subject and not fail to obtain any licenses, permits, franchises, or
other governmental authorizations necessary to the ownership of its
Properties or to the conduct of its business, which violation or
failure to obtain might materially and adversely affect the business,
prospects, profits, Properties or condition (financial or otherwise)
of the Company, the Subsidiaries, Partnerships, and the Joint Ventures
taken as a whole or of any Subsidiary, Partnership, or Joint Venture
that accounts for 25% or more of Consolidated Net Worth, Consolidated
Net Income, or Consolidated Cash Flow.
6.3 Payment of Notes and Maintenance of Office. The Company will
punctually pay or cause to be paid the principal and interest to become due in
respect of the Notes according to the terms thereof and will maintain an office
or agency where the Notes may be surrendered upon maturity or for prepayment,
conversion, or transfer in accordance with this
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Agreement. Such office or agency shall be maintained at the address given in
Section 11.l(a)(ii) until 10 days after such time as the Company shall notify
the holders of the Notes of any change of location of such office.
6.4 Acquisition and Disposal of Equity Interests. The Company
shall not permit any Subsidiary, Partnership, or Joint Venture to issue, sell,
or otherwise dispose of any shares of its own stock (or any options or warrants
to purchase stock or other Securities exchangeable for or convertible into
stock) of a Subsidiary or any interest in a Partnership or Joint Venture (said
stock, options, warrants, other Securities, and equity interests herein called
"Subject Stock"), if the effect of the transaction would be to reduce the
proportionate interest of the Company, direct or indirect, in the outstanding
Subject Stock of the Subsidiary, Partnership, or Joint Venture the interests in
which are the subject of the transaction; provided, however, that the foregoing
restrictions do not apply to:
(a) the issue of directors' qualifying shares; and
(b) the sale for a cash consideration at one time to a
Person (other than directly or indirectly to an Affiliate) of the
entire investment (whether represented by stock, debt, claims, or
otherwise) of the Company, the Subsidiaries, the Partnerships, and the
Joint Ventures in any Subsidiary, Partnership, or Joint Venture, if
all of the following conditions are met:
(i) the assets (valued at the greater of fair
market value or net book value) of such Subsidiary,
Partnership, or Joint Venture, do not, together with assets of
the Company and all Subsidiaries, Partnerships, and Joint
Ventures previously disposed of during the twelve months
immediately preceding the date of the proposed disposition
(other than in the ordinary course of business), exceed a
Substantial Part of the consolidated assets of the Company and
its Subsidiaries;
(ii) in the fiscal year then most recently ended,
the sum of the portions of Consolidated Net Income that were
contributed during such year by
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(x) such Subsidiary, Partnership, or Joint Venture, (y) each
Subsidiary that has been disposed of since the beginning of
such fiscal year, and (z) other assets of the Company, the
Subsidiaries, the Partnerships, and the Joint Ventures
disposed of since the beginning of such fiscal year (other
than in the ordinary course of business), has not constituted
a Substantial Part of Consolidated Net Income for any such
year;
(iii) in the opinion of the Company's Board of
Directors, the sale is for fair value and is in the best
interests of the Company;
(iv) such Subsidiary, Partnership, or Joint Venture
being disposed of has no continuing investment in any other
Subsidiary, Partnership, or Joint Venture not being
simultaneously disposed of or in the Company; and
(v) immediately after the consummation of the
transaction and after giving effect thereto, no Default or
Event of Default would exist.
6.5 Sale of Assets or Merger. (a) Sale of Assets. The Company
shall not, and shall not permit any Subsidiary, Partnership, or Joint Venture
to, sell, lease, transfer, or otherwise dispose of assets except in the
ordinary course of business; provided, however, that the foregoing restrictions
do not apply to the sale of such assets for a cash consideration to a Person
other than an Affiliate if all of the following conditions are met:
(i) such assets (valued at the greater of fair market value
or net book value) do not, together with assets of the Company and all
other Subsidiaries, Partnerships, and Joint Ventures previously
disposed of during the twelve months immediately preceding the date of
the proposed disposition (other than in the ordinary course of
business), exceed a Substantial Part of the consolidated assets of the
Company and its Subsidiaries;
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(ii) in the fiscal year then most recently ended, the sum of
the portions of Consolidated Net Income (excluding losses) that were
contributed during such year by (x) such assets and (y) other assets
of the Company, the Subsidiaries, the Partnerships, and the Joint
Ventures disposed of since the beginning of such fiscal year (other
than in the ordinary course of business), has not constituted a
Substantial Part of Consolidated Net Income for any such year;
(iii) in the opinion of the Company's Board of Directors, the
sale is for fair value and is in the best interest of the Company; and
(iv) immediately after the consummation of the transaction,
and after giving effect thereto, no Default or Event of Default would
exist.
(b) Merger and Consolidation. The Company shall not, and shall
not permit any Subsidiary, Partnership, or Joint Venture to, consolidate with
or merge into any other Person or permit any other Person to consolidate with
or merge into it (except that a Subsidiary may consolidate with or merge into
the Company or another Subsidiary); provided, however, that the foregoing
restriction does not apply to the merger or consolidation of the Company with
another corporation, if:
(i) the Company is the corporation that results from such
merger or consolidation (the "surviving corporation");
(ii) immediately after the consummation of the proposed
merger or consolidation, and after giving effect thereto, the
surviving corporation will not have outstanding any Indebtedness or
have its Property subject to any Lien not permitted to be incurred by
the Company pursuant to this Agreement; and
(iii) immediately after the consummation of the proposed
merger or consolidation, and after giving effect thereto, no Default
or Event of Default would exist.
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6.6 Leases. (a) Limitation on Leases. The Company shall not, and
shall not permit any Subsidiary, Partnership, or Joint Venture to, become
liable as lessee under any lease (other than (i) a Capitalized Lease
Obligation, (ii) a lease of data processing equipment, office furniture, office
space, or vehicles, (iii) a lease expiring not more than three years from the
date of incurrence, or longer in the case of leases of oilfield equipment
entered into in the ordinary cause of business, (iv) a lease under which the
Company or a Wholly-Owned Subsidiary is lessor, or (v) a lease of oil, gas, or
other hydrocarbon Property) of Property if the aggregate annual Rentals payable
during any current or future period of twelve consecutive months under the
lease in question and all other such leases under which the Company or a
Subsidiary, Partnership, or Joint Venture is then lessee would exceed 1% of the
Company's aggregate Reserves Value.
(b) Subsidiary. Any corporation that becomes a Subsidiary after the
date hereof shall be deemed to have become liable as lessee, at the time it
becomes a Subsidiary, under all leases (under which it is liable as lessee) of
such corporation existing immediately after it becomes a Subsidiary.
(c) Rentals. The term "Rentals" means, as of the date of
determination, all fixed payments which the lessee is required to make by the
terms of any lease which is restricted by Section 6.6(a) net of sublease
income, but shall not include amounts required to be paid in respect of
maintenance, repairs, income taxes, property taxes, insurance, assessments, or
other similar charges or additional rentals (in excess of fixed minimums) based
upon a percentage of gross receipts.
6.7 Liens and Encumbrances. The Company shall not, and shall not
permit any Subsidiary, Partnership, or Joint Venture to, cause, or agree or
consent to cause in the future (upon the happening of a contingency or
otherwise), any of its Property, whether now owned or hereafter acquired, to be
subject to a Lien except:
(a) Liens securing taxes, assessments, or governmental charges
or levies or the claims or demands of materialmen, mechanics,
carriers, warehousemen, land-
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lords and other like Persons, provided the payment thereof is not at
the time required by Section 6.1;
(b) Liens incurred or deposits made in the ordinary course of
business (i) in connection with workers' compensation, unemployment
insurance, social security, and other like laws, or (ii) to secure the
performance of letters of credit, bids, tenders, sales contracts,
leases, statutory obligations, surety, appeal and performance bonds,
and other similar obligations not incurred in connection with the
borrowing of money, the obtaining of advances or the payment of the
deferred purchase price of Property; provided, however, that in any
one case or in the aggregate, such Liens do not have a material and
adverse effect upon the Company's or any Subsidiary's, Partnership's,
or Joint Venture's title to any of its Property, or upon the business,
condition (financial or otherwise), affairs, operations, or prospects
of the Company, Subsidiaries, the Partnerships, and the Joint Venture
taken as a whole or of any Subsidiary, Partnership, or Joint Venture
that accounts for 25% or more of Consolidated Net Worth, Consolidated
Net Income, or Consolidated Cash Flow;
(c) attachments, judgments, and other similar Liens arising in
connection with court proceedings, provided the execution or other
enforcement of such Liens is effectively stayed and the claims secured
thereby are being actively contested in good faith and by appropriate
proceedings;
(d) Liens securing only obligations owing to the Company or
a Wholly-Owned Subsidiary;
(e) reservations, exceptions, encroachments, easements,
rights-of-way, covenants, conditions, restrictions, leases, and other
similar title exceptions or encumbrances affecting real Property (or
Property consisting of an interest or interests in oil, gas or other
hydrocarbons) that were not incurred in connection with the borrowing
of money and that do not in the aggregate materially detract from the
value of said Properties or materially interfere with their use in the
ordinary conduct of the owning entity's business;
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(f) Liens on Property hereafter acquired (i) existing on
Property of a Person at the time it becomes a Subsidiary or (ii)
existing on Property acquired by the Company or a Subsidiary through
purchase, merger, consolidation or otherwise, whether or not assumed
by the Company or such Subsidiary, and any Lien renewing, extending or
refunding any such Lien;
(g) Liens described on Exhibit G or exclusively securing the
Indebtedness described in Exhibit G; and
(h) Liens securing borrowings permitted by Section 6.18 from
one or more banks for working capital.
6.8 Consolidated Debt. The Company shall not, and shall not permit
any Subsidiary, Partnership, or Joint Venture to, create, incur, assume, suffer
to exist, or in any manner become liable in respect of any Consolidated Debt
other than:
(a) debt represented by commercial paper exempt from
registration pursuant to section 3(a)(2) of the 1933 Act, provided
that the Company at all times shall have unused lines of credit from
commercial banks organized under the laws of the United States or any
State thereof equal to 100% of the outstanding debt represented by
such commercial paper; and
(b) any other Consolidated Debt, provided that the
requirements of Section 6.18 would be met after taking into account
any such proposed additional Consolidated Debt.
The Company shall not, and shall not permit any Subsidiary, Partnership, or
Joint Venture to, create, suffer to exist, or in any manner become or remain
liable in respect of any Consolidated Debt (other than Subordinated Debt) in
favor of any Affiliate of the Company or such Subsidiary, Partnership, or Joint
Venture (i) on terms less favorable to the Company or such Subsidiary,
Partnership, or Joint Venture than would result from an arms-length negotiated
agreement, or (ii) without having first offered to you and without your
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having declined the right to become the obligee under such Consolidated Debt in
lieu of such Affiliate on identical terms and conditions. For purposes of this
Section 6.8, neither the Company nor any Subsidiary, Partnership, or Joint
Venture will be required to include in Consolidated Debt the Indebtedness of
any partnership or joint venture in which the Company or such Subsidiary,
Partnership, or Joint Venture is a general partner ("Partnership Indebtedness")
or its obligation as a guarantor of Indebtedness of an Affiliate of the Company
or such Subsidiary, Partnership, or Joint Venture ("Guaranteed Indebtedness")
except to the extent that (x) such Partnership Indebtedness or Guaranteed
Indebtedness is a recourse obligation to the Company or any Subsidiary,
Partnership, or Joint Venture and (y) (1) such Partnership Indebtedness exceeds
50% of such partnership or joint venture's aggregate Reserves Value, or (2)
such Guaranteed Indebtedness exceeds 50% of the aggregate Reserves Value of the
Affiliate debt of which has been guaranteed, or (3) in cases where the
Affiliate obligated on Guaranteed Indebtedness is the same Person as the
partnership or joint venture obligated on Partnership Indebtedness, such
Guaranteed Indebtedness and Partnership Indebtedness together exceed 50% of
such Person's aggregate Reserves Value.
6.9 Distributions and Investments. (a) The Company shall not, and
shall not permit any Subsidiary, Partnership, or Joint Venture to declare,
make, or incur any liability to make any Distribution in respect of the capital
stock of the Company (other than a Distribution consisting solely of such
capital stock) or make or authorize any Restricted Investment if, immediately
after giving effect to the proposed Distribution or Restricted Investment, the
sum of Distributions in respect of its capital stock and the amount of
Restricted Investments (valued immediately after such action, as provided in
the definition thereof) for the period subsequent to December 31, 1987, would
exceed 50% of cumulative Consolidated Net Income for the period from December
31, 1987, to the end of the fiscal quarter immediately preceding the making of
the Distribution or Restricted Investment. Any corporation that becomes a
Subsidiary hereafter shall be deemed to have made, at the time it becomes a
Subsidiary, all Restricted Investments of such corporation existing immediately
after it becomes a Subsidiary.
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(b) The Company shall not authorize a Distribution on its capital
stock that is not payable within ninety days of authorization.
(c) The Company shall not, and shall not permit any Subsidiary,
Partnership, or Joint Venture to, authorize or make a Distribution on the
capital stock of the Company or make any Restricted Investment if, immediately
after giving effect to the proposed Distribution or Restricted Investment, a
Default or an Event of Default would exist.
(d) The Company shall not, and shall not permit any Subsidiary,
Partnership, or Joint Venture to, make a Distribution consisting of evidences
of its Indebtedness or assets (including, without limitation, Securities) other
than a Distribution of Common Stock, rights, options, or warrants to subscribe
for or purchase Common Stock, or cash out of the earned surplus of the Company
or such Subsidiary, Partnership, or Joint Venture. For the purpose of this
Section 6.9(d), the reclassification (including any reclassification upon a
consolidation or merger in which the Company is the continuing corporation) of
Common Stock into securities other than Common Stock shall be deemed to involve
a Distribution of securities other than Common Stock.
6.10 Guaranties. The Company shall not, and shall not permit any
Subsidiary, Partnership, or Joint Venture to, become or be liable in respect of
any Guaranty except (a) the endorsement in the ordinary course of business of
negotiable instruments for deposit or collection, (b) to the extent that the
obligation so guaranteed is limited to a specific and finite amount that could
then be incurred directly by the Company pursuant to Section 6.8, or (c)
Guaranties of the Company's or any Wholly-Owned Subsidiary's Indebtedness
otherwise permitted hereby. "Guaranty" by any Person shall mean all
obligations of such Person guaranteeing or in effect guaranteeing any
Indebtedness, dividend, or other obligation of any other Person (the "primary
obligor") in any manner, whether directly or indirectly, including obligations
incurred through an agreement contingent or otherwise, by such Person:
(i) to purchase such Consolidated Debt or
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obligation or any Property or assets constituting security therefor;
(ii) to advance or supply funds (x) for the purchase or
payment of such Indebtedness or obligation, or (y) to maintain working
capital or other balance sheet condition or any income statement
condition or otherwise to advance or make available funds for the
purchase or payment of such Indebtedness or obligation;
(iii) to lease Property or to purchase Securities or other
Property or services primarily for the purpose of assuring the owner
of such Indebtedness or obligation of the ability of the primary
obligor to make payment of the Indebtedness or obligation; or
(iv) otherwise to assure the owner of the Indebtedness or
obligation of the primary obligor against loss in respect thereof.
6.11 ERISA Compliance. (a) The Company shall not, and shall not
permit any ERISA Affiliate (as such term is defined in Section 2.15) to, at any
time:
(i) engage in any "prohibited transaction" described in
section 406 of ERISA or section 4975 of the Code;
(ii) sponsor, maintain, or contribute to any employee pension
benefit plan (within the meaning of section 3(2) of ERISA) that is
subject to title IV of ERISA;
(iii) contribute to or assume an obligation to contribute to
any "multiemployer plan" as such term is defined in section 3(37) or
4001(a)(3) of ERISA; or
(iv) acquire an interest in a Person that causes such Person
to become an ERISA Affiliate with respect to the Company or with
respect to any ERISA Affiliate of the Company if such Person sponsors,
maintains, or contributes to, or at any time in the six-year period
preceding such acquisition has sponsored, maintained, or contributed
to, (A) any "multiemployer pension plan" as
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that term is defined in section (3)(37) or 4001(a)(3) of ERISA or (B)
any employee pension benefit plan that is subject to title IV of
ERISA.
6.12 Transactions with Affiliates. The Company shall not, and shall
not permit any Subsidiary, Partnership, or Joint Venture to, enter into any
transaction, including, without limitation, the purchase, sale, or exchange of
Property or the rendering of any service, with any Affiliate thereof except in
the ordinary course of and pursuant to the reasonable requirements of the
Company's or such Subsidiary's, Partnership's, or Joint Venture's business and
upon fair and reasonable terms no less favorable to the Company or such
Subsidiary, Partnership, or Joint Venture than would obtain in a comparable
arm's-length transaction with a Person not an Affiliate.
6.13 Sale or Discount of Receivables. Except in connection with a
sale of assets permitted by Section 6.5, neither the Company shall not, and
shall not permit any Subsidiary, Partnership, or Joint Venture to, discount or
sell any of its notes receivable or accounts receivable.
6.14 Business. The Company shall not, and shall not permit any
Subsidiary, Partnership, or Joint Venture to, engage in any business other than
the exploration for, development of, and production of oil, gas, and related
hydrocarbons, the acquisition, disposition, and operation of real and personal
property in connection therewith, and the providing of services in conjunction
with and attendant to such activities (whether for its own account or for
others), and any or all other activities necessary or desirable and relating to
such business.
6.15 Acquisition of Notes. Without creating any right to purchase or
to prepay any Note except as otherwise expressly provided herein, the Company
shall not, and shall not permit any Subsidiary, Partnership, or Joint Venture
to, directly or indirectly, acquire or make any offer to acquire any Notes
unless the Company or such Subsidiary, Partnership, or Joint Venture has
offered to acquire Notes pro rata from all holders of the Notes and upon the
same terms. In case the Company acquires any Notes, such Notes shall
thereafter
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be cancelled and no Notes shall be issued in substitution therefor.
6.16 ReceivabLes. The Company shall, and shall cause each Subsidiary,
Partnership, and Joint Venture to, take, and to the extent necessary will
require any Person from whom it purchases or otherwise acquires any
Receivables for value to take, all actions necessary to perfect and preserve
its rights and security interests in and to effect the transfer to it of full
ownership of and title to substantially all such Receivables (and any
underlying collateral therefor) so purchased or acquired, or acquired as
security for an obligation owed to it, including, without limitation:
(a) in the case of such Receivables that do not constitute
Chattel Paper, the filing and the maintaining of the filing of all
such financing and continuation statements or other documents as may
be necessary or appropriate under the Uniform Commercial Code or any
other applicable laws to perfect and preserve such rights and security
interests, and
(b) in the case of Chattel Paper (i) acquiring only Chattel
Paper with respect to which the vendor thereof has perfected its
security interest, if any, therein and in any underlying collateral,
and (ii) taking and maintaining by the Company of physical possession
of such Chattel Paper and documents relating thereto.
6.17 Certain Registrations or Approvals. If the Note, the Warrant or
the stock issuable pursuant thereto require declaration or registration with or
approval of any governmental official or authority (other than registration
under the Securities Act or state securities or blue sky laws under Section 12)
the Company will at its sole expense take all requisite action in connection
with such declaration and will use its best efforts to cause such Notes,
Warrant, or stock to be duly registered or approved as may be required.
6.18 Coverage. The Company shall cause (a) its Consolidated Cash Flow
for each fiscal year to equal or exceed the greater of (i) 200% of the
aggregate principal payments payable with respect to Consolidated Debt during
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such fiscal year or (ii) 200% of the aggregate principal payments payable on
Consolidated Debt during the next succeeding fiscal year, and (b) its Reserves
Value (determined as of March 31 of each year by a recognized firm of
independent petroleum engineers) to equal at least 225% of the aggregate of all
Consolidated Debt as of such date.
SECTION 7. INFORMATION AS TO COMPANY
7.1 Financial and Business Information. The Company will deliver, or
will cause to be delivered, to you, if at the time you or your nominee holds
any Notes (or if you are obligated to purchase any Notes), and to each other
Institutional Holder of at least 20% of the then outstanding Notes:
(a) Quarterly Statements - as soon as practicable after the
end of each quarterly fiscal period in each fiscal year of the
Company, and in any event within 60 days thereafter, duplicate copies
of:
(i) consolidated balance sheets of the Company and
its consolidated Subsidiaries, if any, as at the end of such
quarter, and
(ii) consolidated statements of operations and of
retained earnings of the Company and its consolidated
Subsidiaries, if any, for such quarter and (in the case of the
second and third quarters) for the portion of the fiscal year
ending with such quarter,
setting forth in each case in comparative form the figures for the
corresponding periods in the previous fiscal year, all in reasonable
detail and certified as complete and correct, subject to changes
resulting from year-end adjustments, by a principal financial officer
of the Company;
(b) Annual Statements - as soon as practicable after the end
of each fiscal year of the Company, and in any event within 120 days
thereafter, duplicate copies of:
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(i) consolidated balance sheets of the Company and its
consolidated Subsidiaries, if any, at the end of such year, and
(ii) consolidated statements of operations and of retained
earnings of the Company and its consolidated Subsidiaries, if any, for
such year,
setting forth, in the case of the consolidated statements, in comparative form,
the figures for the previous year, all in reasonable detail and, in the case of
the consolidated statements, accompanied by an opinion thereon of the
accountants named in Section 2.3 or other independent certified public
accountants of recognized national standing selected by the Company, which
opinion shall state that, except as expressly set forth in said opinion, such
financial statements fairly present the financial condition and the results of
operations and changes in financial position (all consolidated, if applicable)
of the companies being reported upon in accordance with generally accepted
accounting principles consistently applied (except for changes in application
in which such accountants concur) and that the examination of such accountants
in connection with such financial statements has been made in accordance with
generally accepted auditing standards and, accordingly, included such tests of
the accounting records and such other auditing procedures as they considered
necessary in the circumstances;
(c) Opinions of Independent Accountants - as soon as practicable after
the end of each fiscal year of the Company, and in any event within 120 days
thereafter, duplicate copies of all certificates of the independent accountants
of the Company required pursuant to Section 7.1(b);
(d) Audit Reports - promptly upon receipt thereof, one copy of each
other report submitted to the Company or any Subsidiary by independent
accountants in connection with any annual, interim or special audit made by
them of the books of the Company or any Subsidiary, Partnership, or Joint
Venture;
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(e) SEC and Other Reports - promptly upon their becoming available,
one copy of each financial statement, report, notice or proxy statement sent by
the Company or any Subsidiary, Partnership, or Joint Venture to stockholders or
owners of equity interests therein generally, and of each regular or periodic
report and any registration statement, prospectus or written communication
(other than transmittal letters) in respect thereof filed by the Company or any
Subsidiary, Partnership, or Joint Venture with, or received by such Person in
connection therewith from, any securities exchange or the Securities and
Exchange Commission or any successor agency;
(f) ERISA - immediately upon becoming aware of the occurrence of any
(i) "reportable event" as such term is defined in section 4043 of ERISA or (ii)
"prohibited transaction" as such term is defined in section 4975 of the Code,
in either case in connection with any employee pension benefit plan or any
trust created thereunder, a written notice specifying the nature thereof, what
action the Company or any Subsidiary, Partnership, or Joint Venture is taking
or proposes to take with respect thereto and, when known, any action taken by
the Internal Revenue Service, the Department of Labor, or the Pension Benefit
Guaranty Corporation with respect thereto;
(g) Notice of Default or Event of Default - as soon as practicable,
but in any event within five Business Days, after becoming aware of the
existence of any condition or event which constitutes a Default or an Event of
Default, a written notice specifying the nature and period of existence thereof
and what action the Company is taking or proposes to take with respect thereto;
(h) Notice of Claimed Default - as soon as practicable, but in any
event within five Business Days, after becoming aware that the holder of any
Note or of any evidence of Indebtedness or other Security of the Company or any
Subsidiary, Partnership, or Joint Venture has given notice or taken any other
action with respect to a claimed Default or Event of Default, a written
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notice specifying the notice given or action taken by such holder and the
nature of the claimed Default or Event of Default and what action the Company
is taking or proposes to take with respect thereto;
(i) Reserve Report - within 60 days following March 31 each
year, a reserve report of the type described in Section 6.18(b); and
(j) Requested Information - with reasonable promptness, such
other data and information as from time to time may be reasonably
requested.
(k) Bankruptcy Event - immediately following its occurrence,
an event of the type described in Section 9.1(g), (h), or (i) with
respect to the Company or any Subsidiary, Partnership, or Joint
Venture, regardless of the requirements of Section 9.1(g), (h), or (i)
with respect to Consolidated Net Worth, Consolidated Net Income, or
Consolidated Cash Flow.
7.2 Officers' Certificates. Each set of financial statements
delivered to you or any other Institutional Holder of the Notes pursuant to
Section 7.1(a) or (b) will be accompanied by an Officers' Certificate setting
forth:
(a) Covenant Compliance - the information (including detailed
calculations) required in order to establish whether the Company was
in compliance with the requirements of Section 6 during the period
covered by the income statement then being furnished; and
(b) Event of Default - that the signers have reviewed the
relevant terms of this Agreement and have made, or caused to be made,
under their supervision, a review of the transactions and conditions
of the Company and the Subsidiaries, the Partnerships, and the Joint
Ventures from the beginning of the accounting period covered by the
income statements being delivered therewith to the date of the
certificate and that such review has not disclosed the existence
during such period of any condition or event which constitutes a
Default or an Event of Default or, if any such condition or event
existed or exists, specifying the nature and
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period of existence thereof and what action the Company has taken or
proposes to take with respect thereto.
7.3 Accountants' Certificate. Each set of annual financial statements
delivered pursuant to Section 7.1(b) will be accompanied by a certificate of
the accountants who certify such financial statements, stating that they have
reviewed this Agreement and stating further whether, in making their audit,
such accountants have become aware of any condition or event that then
constitutes a Default or an Event of Default and, if any such condition or
event then exists, specifying the nature and period of existence thereof.
7.4 Inspection. The Company shall permit, and shall cause each
Subsidiary, Partnership, and Joint Venture to permit, any of your
representatives, while you or your nominee holds any Note, or the
representatives of any other Institutional Holder that holds at least 20% of
the aggregate outstanding principal amount of the Notes, at your or such
holder's expense, to visit and inspect any of the Properties of the Company or
any Subsidiary, Partnership, or Joint Venture, to examine all their books of
account, records, reports, and other papers, to make copies and extracts
therefrom, and to discuss their respective affairs, finances, and accounts with
their respective officers and employees (and by this provision the Company
authorizes said accountants to discuss the finances and affairs of the Company
and all Subsidiaries, Partnerships, and Joint Ventures) all at such reasonable
times and as often as may be reasonably requested; provided, however, that you
or such holder will keep confidential all information obtained in connection
with any such inspection that the Company designates to you and such holder in
writing as confidential prior to your disclosure, except that you or such
holder may reveal such information (a) pursuant to the receipt of any legal
process that appears valid on its face, (b) pursuant to order or request of any
governmental or industry regulatory body having or acquiring jurisdiction over
you or such holder, as applicable, (c) that has become public through no action
of you or such holder, as applicable, or (d) to your or such holder's
accountants, attorneys, or other advisers who have been instructed to be bound
by such restrictions.
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SECTION 8. PREPAYMENT OF NOTES
8.1 Required Prepayments. The Company covenants and agrees that, in
addition to the payments of principal of the Notes to be made on the expressed
maturity date thereof, the Company shall prepay principal on the Notes to the
extent and under the following circumstances:
(a) To the extent that, during any fiscal year, the Company
expends less than 50% of its Consolidated Cash Flow on payment of
principal on outstanding Indebtedness and capital expenditures
(computed in accordance with the Company's practices in effect as of
the date hereof), an amount equal to the difference between the
aggregate of such expenditures and 50% of the Company's Consolidated
Cash Flow for such fiscal year shall be prepaid and applied by the
Company on the principal indebtedness evidenced by the Notes on June
30 of the next succeeding fiscal year following the fiscal year in
question ("Required Prepayment Dates"); and
(b) on June 30, 1994, and on each June 30 thereafter through
June 30, 1997, $1,000,000; provided, however, that the amount of such
prepayment due June 30, 1997 shall be reduced by an amount equal to
the sum of the prepayments made pursuant to Section 8.1(a) and, if
such sum exceeds $1,000,000, such excess shall be applied to reduce
the prepayments due pursuant to this Section 8.1(b) in like fashion in
reverse chronological order.
The portion of this amount applied to the principal outstanding under any given
Note shall be in the same proportion that the principal evidenced by such Note
bears to the aggregate of the outstanding principal of all Notes then
outstanding.
8.2 No Prepayment or Call. Except as provided in Sections 1.1 and
8.1, the Company shall have no right to prepay or to acquire any Note.
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SECTION 9. EVENTS OF DEFAULT
9.1 Nature of Events. An "Event of Default" shall exist if any of
the following occurs and is continuing:
(a) Principal Payments - the Company fails to make any payment
of principal on any Note on or before the date such payment is due;
(b) Interest Payments - the Company fails to make any payment
of interest on any Note on or before the date such payment is due;
(c) Particular Covenant Defaults - the Company or any
Subsidiary, Partnership, Joint Venture, or Affiliate fails to perform
or observe any covenant contained in Sections 6.3 through 6.10, 6.13
through 6.18, in Section 7.1(g), (h), or (i) or in the Investment
Agreement or the Warrant;
(d) Other Defaults - the Company or any Subsidiary,
Partnership, Joint Venture, or Affiliate fails to perform, observe, or
comply with any other provision of this Agreement, and such failure
continues for more than 30 days after such failure shall first become
known to any officer of the Company or any Subsidiary;
(e) Warranties or Representations - any warranty,
representation, or other statement by or on behalf of the Company
contained in this Agreement or in any instrument furnished in
compliance with or in reference to this Agreement is false or
misleading in any respect;
(f) Default on Indebtedness or Other Security - the Company
or any Subsidiary, Partnership, or Joint Venture fails to make any
payment due on any Indebtedness or other Security or any event shall
occur or any condition shall exist in respect of any Indebtedness or
other Security of the Company or any Subsidiary, Partnership, or Joint
Venture, or under any agreement securing or relating to such
Indebtedness or other Security, the effect of which is (i) to cause
(or permit any holder of such Indebtedness or other Security or a
trustee to cause) such Indebtedness or other
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Security, or a portion thereof, to become due prior to its stated
maturity or prior to its regularly scheduled date of payment or (ii)
to permit a trustee or the holder of any Security (other than common
stock of the Company or any Subsidiary, Partnership, or Joint
Venture) to elect a majority of the directors on the Board of
Directors of the Company or such Subsidiary or to change the control
of any Partnership or Joint Venture;
(g) Involuntary Bankruptcy Proceedinqs - a receiver,
liquidator, custodian, or trustee of the Company or any Subsidiary,
Partnership, or Joint Venture that accounts for 25% or more of
Consolidated Net Worth, Consolidated Net Income, or Consolidated Cash
Flow, or of any material Property of the Company or any Subsidiary,
Partnership, or Joint Venture, is appointed by court order and such
order remains in effect for more than 60 days; or any of the material
Property of the Company or any Subsidiary, Partnership, or Joint
Venture, is sequestered by court order and such order remains in
effect for more than 60 days; or a petition is filed, a case is
commenced or relief is ordered against the Company or any Subsidiary,
Partnership, or Joint Venture that accounts for 25% or more of
Consolidated Net Worth, Consolidated Net Income, or Consolidated Cash
Flow, under any bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, dissolution, or liquidation law of any
jurisdiction, whether now or hereafter in effect, and is not dismissed
within 60 days after such filing, commencement, or relief is ordered
against the Company or any such Subsidiary, Partnership, or Joint
Venture;
(h) Voluntary Petitions - the Company or any Subsidiary,
Partnership, or Joint Venture that accounts for 25% or more of
Consolidated Net Worth, Consolidated Net Income, or Consolidated Cash
Flow files a petition commencing a case in voluntary bankruptcy or
seeking relief under any provision of any bankruptcy, reorganization,
arrangement, insolvency, readjustment of debt, dissolution, or
liquidation law of any jurisdiction, whether now or hereafter in
effect, or consents to
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the filing of any petition or the commencement of any case against it
under any such law;
(i) Assiqnments for Benefit of Creditors, etc.- the Company
or any Subsidiary, Partnership, or Joint Venture that accounts for 25%
or more of Consolidated Net Worth, Consolidated Net Income, or
Consolidated Cash Flow makes an assignment for the benefit of its
creditors, or fails to pay its debts generally as they become due, or
consents to the appointment of a receiver, trustee, custodian or
liquidator of the Company or any Subsidiary, Partnership, or Joint
Venture that accounts for 25% or more of Consolidated Net Worth,
Consolidated Net Income, or Consolidated Cash Flow, or of all or any
part of the Property of any of them; or
(j) Undischarged Final Judgments- final judgment or judgments
for the payment of money aggregating in excess of $250,000 is or are
outstanding against one or more of the Company, the Subsidiaries, the
Partnerships, and the Joint Ventures, and any one of such judgments
has been outstanding for more than 60 days from the date of its entry
and has not been discharged in full or stayed.
9.2 Default Remedies.
(a) Acceleration. If an Event of Default exists, the holder
or holders of more than 33-1/3% in principal amount of the Notes then
outstanding (exclusive of Notes then owned by the Company, the
Subsidiaries, the Partnerships, the Joint Ventures, and the
Affiliates) may exercise any right, power, or remedy permitted to such
holder or holders' by law, and shall have, in particular, without
limiting the generality of the foregoing, the right to declare the
entire principal and all interest accrued on all the Notes then
outstanding to be, and such Notes shall thereupon become, forthwith
due and payable, without any presentment, demand, protest, or other
notice of any kind, all of which are hereby expressly waived. The
Company forthwith will pay to the holder or holders of all the Notes
then outstanding the entire principal of and interest accrued on the
Notes, provided that during the existence of an Event of Default
described in Section 9.1(a)
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or (b) and irrespective of whether the holder or holders of more than
33-1/3% in principal amount of Notes then outstanding have declared
all the Notes to be due and payable pursuant to this Section 9.2(a),
any holder of Notes that has not consented to any waiver with respect
to such Event of Default, at its option by notice in writing to the
Company, may declare the Notes then held by such holder to be, and
such Notes shall thereupon become, forthwith due and payable together
with all interest accrued thereon without any presentment, demand,
protest, or other notice of any kind, all of which are hereby
expressly waived, and the Company forthwith shall pay to such holder
the entire principal of and interest accrued on such Notes.
(b) Nonwaiver and Expenses. No course of dealing on the part
of any holder of the Notes nor any delay or failure on the part of any
holder of the Notes to exercise any right, power, or remedy shall
operate as a waiver of such right, power, or remedy or otherwise
prejudice such holder's rights, powers, and remedies. If the Company
fails to pay when due the principal or interest on any Note, or fails
to comply with any other provision of this Agreement, the Company will
pay to the holders of the Notes, to the extent permitted by law, such
further amounts as shall be sufficient to cover the cost and expenses,
including, without limitation, reasonable attorneys' fees, incurred by
such holders in collecting any sums due on the Notes or in otherwise
enforcing any of their rights.
9.3 Annulment of Acceleration of Notes. If a declaration is made
pursuant to Section 9.2(a) by any holder or holders of the Notes, then and in
every such case, the holders of 66-2/3% in aggregate principal amount of the
Notes then outstanding (exclusive of Notes then owned by the Company, the
Subsidiaries, the Partnerships, the Joint Ventures, and the Affiliates) by
written instrument filed with the Company, may rescind and annul such
declaration, and the consequences thereof, provided that at the time such
declaration is annulled and rescinded:
(a) no judgment or decree has been entered for the payment of
any monies due pursuant to the Notes or this Agreement;
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(b) all arrears of interest upon all the Notes and all other
sums payable under the Notes and under this Agreement (except any
principal or interest on the Notes that has become due and payable by
reason of such declaration under Section 9.2(a)) shall have been duly
paid; and
(c) each and every other Default and Event of Default shall
have been waived pursuant to Section 11.5 or otherwise made good or
cured;
and provided further that no such rescission and annulment shall extend to or
affect any subsequent Default or Event of Default or impair any right
consequent thereon.
SECTION 10. INTERPRETATION OF THIS AGREEMENT
10.1 Terms Defined. As used in this Agreement, the following terms
have the respective meanings set forth below or set forth in the Section
following such term:
Affiliate - any Person that directly or indirectly, through
one or more intermediaries, controls, or is controlled by, or is under
common control with, the Company or any Subsidiary, Partnership, or
Joint Venture. The term "control" as used in the foregoing sentence
means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person,
whether through, the ownership of voting securities, by contract, or
otherwise.
Business Day - Each Monday, Tuesday, Wednesday, Thursday, or
Friday that is not a day on which banking institutions in the State of
Oklahoma are authorized or obligated by law or executive order to
close.
Capitalized Lease Obliqations - all rental obligations
that, under generally accepted accounting principles in effect on the
date hereof, are or would be required to be capitalized on the books
of the Company or any Subsidiary (including, without limitation, all
existing rental obligations that would be required to be so
capitalized for calendar or fiscal years beginning
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after March 31, 1987, and any rentals incurred in connection with
issues of "industrial revenue bonds" as defined in section 103(c)(2)
and "pollution control bonds" within the meaning of section
103(b)(4)(f) of the Code), in each case taken at the amount thereof
accounted for as Indebtedness (net of interest expense) in accordance
with such principles.
Chattel Paper - "chattel paper" as defined in the Uniform
Commercial Code.
Closinq - Section 1.2.
Closing Date - Section 1.2.
Code - the Internal Revenue Code of 1986, as amended from time
to time.
Common Stock - any stock of any class of the Company that has
no preference in respect of dividends or of amounts payable in the
event of any voluntary or involuntary liquidation, dissolution, or
winding up of the Company, and that is not subject to prepayment or
redemption by the Company.
Consolidated Cash Flow - Consolidated Net Income plus
depreciation, depletion, amortization and deferred taxes.
Consolidated Debt - with respect to any Person, means, without
duplication:
(1) its liabilities for borrowed money;
(2) liabilities secured by any Lien' existing on Property
owned by such Person (regardless of whether such
liabilities have been assumed);
(3) liabilities under Capitalized Lease Obligations;
(4) any other obligations (other than deferred taxes, gas
balancing amounts (regardless or whether current)),
and other noncurrent
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liabilities) that are required by generally accepted
accounting principles to be shown as liabilities on
its balance sheet and which are payable or remain
unpaid more than one year from the creation thereof;
and
(5) Guaranties (other than those permitted by Section
6.10(a)).
Consolidated Net Income - net earnings (or loss) after income
taxes of the Company and the Subsidiaries determined on a consolidated
basis, but excluding:
(1) any gain (or loss) arising from the sale of capital
assets (i.e., those assets other than current assets);
(2) any gain (or loss) arising from any write-up or
write-down of assets;
(3) net earnings (or loss) of any Subsidiary accrued
prior to the date it became a Subsidiary;
(4) net earnings (or loss) of any Person, substantially
all the assets of which have been acquired in any manner,
realized by such Person prior to the date of such
acquisition;
(5) net earnings (or loss) of any Person (other than a
Subsidiary) in which the Company or any Subsidiary has an
equity interest unless such net earnings (or loss) shall
have actually been received by the Company or such
Subsidiary in the form of cash distributions;
(6) any portion of the net earnings (or loss) of any
Subsidiary which contractually or legally is unavailable
for payment of dividends to the Company or any other
Subsidiary;
(7) the net earnings (or loss) of any Person with which
the Company shall have merged, prior to the date of such
transaction; and
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(8) any gain (or loss) arising from the acquisition of
any Securities of the Company or any Subsidiary.
Consolidated Net Worth - the sum of the capital stock (but excluding
treasury stock and capital stock subscribed and unissued) and surplus
(including earned surplus, capital surplus, and the balance of the current
profit and loss account not transferred to surplus) accounts of the Company and
its Subsidiaries appearing on a consolidated balance sheet of the Company and
its Subsidiaries prepared in accordance with generally accepted accounting
principles, consistently applied, as of the date of determination, after
eliminating all intercompany transactions and all amounts properly
attributable to minority interests, if any, in Subsidiaries.
Default - an event or condition the occurrence of which, with the
lapse of time or the giving of notice or both, would become an Event of
Default.
Distribution - in respect of any corporation or other entity means:
(1) dividends or other distributions on capital stock or equity
interests in such entity; and
(2) the redemption or acquisition of such stock or other equity
interests or of warrants, rights, or other options to purchase
such stock unless made, contemporaneously, from the net
proceeds of a sale of such stock or other equity interests.
ERISA - means Security Act of 1974,the Employee Retirement Income as
amended from time to time.
Event of Default - Section 9.1.
Guaranty - Section 6.10.
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Indebtedness - all obligations that, in accordance with generally
accepted accounting principles, should be classified as liabilities upon a
balance sheet, and in any event includes all borrowings and other monetary
obligations, whether direct or indirect or a direct or indirect guarantee, it
being understood that such term shall not include capital'or capital surplus.
Institutional Holder - any institutional investor of recognized
standing (including any commercial bank, savings bank, insurance company,
pension or retirement fund, bank holding company, or insurance holding
company) that shall become a holder of Note.
Joint Venture - any joint venture in which the Company or any
Subsidiary, Partnership, or other such Joint Venture is a participant;
provided, however, that the term "Joint Venture" shall not be deemed to include
joint exploration and operating arrangements customary in the oil and gas
industry and not intended to create (even if having the legal effect of
creating) a partnership, joint venture, or other relationship (other than
for income tax purposes) creating joint and several liability on the part of
the participants therein.
Lien - any interest in Property securing an obligation owed to, or a
claim by, a Person other than the owner of the Property, whether such interest
is based on law, statute, or contract, and including, without limitation, the
security interest lien arising from a mortgage, encumbrance, pledge,
conditional sale, or trust receipt or a lease, consignment or bailment for
security purposes. The term "Lien" shall include reservations, exceptions,
encroachments, easements, rights-of-way, covenants, conditions, restrictions,
leases, and other title exceptions and encumbrances affecting Property. For
the purposes of this Agreement, the Company or a Subsidiary, Partnership, or
Joint Venture shall be deemed to be the owner of any Property that it has
acquired or holds subject to a conditional sale agreement, financing lease, or
other arrangement pursuant to which title to the Property has been
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retained by or vested in some other Person for security purposes.
Net Worth - as to any Person, the net worth of such Person computed in
accordance with generally accepted accounting principles consistently applied.
Notes - Section 1.1.
Officers' Certificate - a certificate signed by (1) the Chairman of
the Board, the President, or a Vice President of the Company and (2) the
Treasurer, an Assistant Treasurer, the Secretary, or an Assistant Secretary of
the Company.
Partnership - any partnership (as defined in the Uniform Partnership
Act in effect in any applicable jurisdiction) or limited partnership in which
the Company or any Subsidiary, Joint Venture, or other such Partnership is a
partner; provided, however, that the term "Partnership" shall not be deemed to
include joint exploration and operating arrangements customary in the oil and
gas industry and not intended to create (even if having the legal effect of
creating) a partnership, joint venture, or other relationship (other than for
income tax purposes) creating joint and several liability on the part of the
participants therein.
Pension Plans - Section 2.-15(a).
Person - an individual, partnership, corporation, trust,
unincorporated organization, or other legal entity, or a government or agency
or political subdivision thereof.
Property - any interest in any kind of property or asset, whether
real, personal or mixed, or tangible or intangible.
Receivables - Section 2.16.
Reqistered Notes - Section 1.1.
Rentals - Section 6.6(c).
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<PAGE> 56
Required Prepayment Dates - Section 8.1.
Reserves Value - the present value of proved developed and undeveloped
oil and gas reserves owned by a Person as calculated using Securities and
Exchange Commission valuation methods and definitions.
Restricted Investments - all investments, made in cash or by delivery
of Property, by the Company, the Subsidiary, the Partnerships, and the Joint
Ventures (x) in any Person, whether by acquisition of stock, indebtedness or
other obligation or Security, or by loan, advance or capital contribution, or
otherwise, or (y) in any Property (items (x) and (y) herein called
"Investments"), except the following:
(1) investments in one or more Subsidiaries or any
corporation which concurrently with such Investment
becomes a Subsidiary;
(2) investments made in the ordinary course of business
as described in Section 2.2;
(3) investments in direct obligations of the United
States of America, or any agency thereof or
obligations guaranteed by the United States of
America, provided that such obligations mature within
two years from the date of acquisitions thereof;
(4) investments in municipal bonds given a rating of at
least AA or Aa or their equivalent by a national
credit rating agency and-maturing not more than 18
months from the date of purchase thereof;
(5) investments in certificates of deposit maturing
within one year from the date of acquisition issued
by a bank or trust company organized under the laws
of the United States or any state thereof or Canada
or any province thereof having capital, surplus and
undivided profits aggregating at least $40,000,000;
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<PAGE> 57
(6) investments in commercial paper given a rating of at
least Prime-1 or its equivalent by a national credit
rating agency and maturing not more than 270 days
from the date of creation thereof;
(7) the repurchase of capital stock of the Company from
any Company employee upon termination of his or her
employment with the Company to the extent that such
capital stock was acquired by such employee pursuant
to an employee incentive stock purchase plan (which
may relate to Common Stock directly or to rights,
options, warrants, or conversion rights with respect
thereto) adopted by the Company and submitted to all
and approved by a majority of its shareholders; and
(8) the repurchase of capital stock of the Company
pursuant to the agreements described on Exhibit J.
Investments shall be valued at cost less any net return of capital through the
sale or liquidation thereof or other return of capital thereon.
Security - shall have the same meaning as in section 2(1) of
the 1933 Act.
Subordinated Debt - all Consolidated Debt of the Company that
provides for the subordination of such Consolidated Debt to the Notes.
Subsidiary - a corporation, if any, of which the Company owns,
directly or indirectly, more than 50% of the Voting Stock.
Substantial Part - as used in Sections 6.4 and 6.5 means, when
used with respect to consolidated assets of the Company, the
Subsidiaries, the Partnerships, and the Joint Ventures more than 25%
thereof and when used with respect to Consolidated Net Income for any
period, more than 25% thereof for such period. Computations pursuant
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to Section 6.5 shall include dispositions made pursuant to Section 6.4
and computations pursuant to Section 6.4 shall include dispositions
made pursuant to Section 6.5.
Votinq Stock - Securities of any class or classes of a
corporation the holders of which ordinarily, in the absence of
contingencies, are entitled to elect a majority of the corporate
directors (or Persons performing similar functions).
Wholly-Owned Subsidiary - any Subsidiary, all of the
outstanding capital stock (except directors' qualifying shares) of
which are owned by the Company and/or other Wholly-Owned Subsidiaries.
1933 Act - Section 1.3(b).
10.2 Accountinq Principles. Where the character or amount of any
asset or liability or item of income or expense is required to be determined or
any consolidation or other accounting computation is required to be made for
the purposes of this Agreement, this shall be done in accordance with generally
accepted accounting principles at the time of effect, to the extent applicable,
except where such principles are inconsistent with the requirements of this
Agreement. When any computations are made with respect to Subsidiaries,
Partnerships, or Joint Ventures, only the portion attributable to the
Company's direct or indirect equity interest therein shall be included.
10.3 Directly or Indirectly. Where any provision in this Agreement
refers to action to be taken by any Person, or which such Person is prohibited
from taking, such provision shall be applicable whether such action is taken
directly or indirectly by such Person, including actions taken by or on behalf
of any partnership in which such Person is a general partner.
10.4 Governinq Law. The parties hereto specifically agree that this
Agreement and the Notes shall be governed by and construed in accordance with
the laws of the State of Oklahoma, excluding any conflict-of-law rule or law
that might refer same to the laws of another jurisdiction. The parties hereto
specifically and non-exclusively submit
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themselves to the personal jurisdiction of the state and federal courts in the
Commonwealth of Massachusetts, in connection with all controversies and
disputes arising out of or relating to the effect, interpretation, performance,
or breach of this Agreement, and, in that connection, the Company hereby
appoints the Secretary of State of the Commonwealth of Massachusetts as its
agent for service of process and any actions brought in the state or federal
courts in the Commonwealth of Massachusetts, arising out of or relating to the
effect, interpretation, performance, or breach of this Agreement.
10.5 References. All references herein to one gender shall include
the others. Unless otherwise expressly provided, all references to "Sections"
are to Sections of this Agreement and all references to "Exhibits" are to the
exhibits attached hereto, each of which is made a part hereof for all purposes.
SECTION 11. MISCELLANEOUS
11.1 Notices. (a) Except as otherwise provided in this Agreement or
in the Notes, all communications under this Agreement or under the Notes shall
be in writing and shall be mailed by first class mail, postage prepaid,
(i) if to you, in the manner set forth on Exhibit L, or at
such other address in Massachusetts as you have furnished the Company
by at least 15 days' prior notice, or
(ii) if to the Company, at Suite 600, Triad Center, 501
Northwest Expressway, Oklahoma City, Oklahoma 73118, Attention: Bob G.
Alexander,. or at such other address as it may have furnished by at
least 15 days' prior notice to you and all other holders of the Notes
at the time outstanding.
(b) Any notice so addressed and mailed by registered or certified
mail shall be deemed to be given when so mailed.
11.2 Survival. All warranties, representations, and covenants made
by the Company herein or on any certificate or other instrument delivered by it
under this Agreement shall
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<PAGE> 60
be considered to have been relied upon by you and shall survive the delivery to
you of the Notes and the Warrant regardless of any investigation made by you or
on your behalf. All statements in any such certificate or other instrument
shall constitute warranties and representations by the Company hereunder.
11.3 Successors and Assign. The Company may not assign any of its
rights or delegate any of its duties to any Person without your prior written
consent. Except as expressly set forth in Section 5 and this Section 11.3,
this Agreement shall inure to the benefit of and be binding upon the successors
and assigns of each of the parties, and the provisions of this Agreement are
intended to be for the benefit of all holders, from time to time, of the Notes,
and shall be enforceable by any such holder, regardless of whether an express
assignment to such holder of rights under this Agreement has been made by you
or your successor or assign.
11.4 Amendment and Waiver. (a) This Agreement may be amended, and
the observance of any term of this Agreement may be waived, with (and only
with) the written consent of the Company and the holders of at least 66-2/3% in
aggregate principal amount of the Notes at the time outstanding (exclusive of
Notes then owned by the Company, the Subsidiaries, the Partnerships, the Joint
Ventures, and the Affiliates); provided, however, that no such amendment or
waiver of any of the provisions of Sections 1 through 4 shall be effective as
to you unless consented to by you in writing; and provided further that without
the written consent of the holders of all the Notes at the time outstanding, no
such amendment or waiver shall (i) subject to Section 9.3, change the amount or
time of any payment of principal or the rate or time of payment of interest,
(ii) amend Section 9, or (iii) amend this Section 11.4.
(b) So long as any outstanding Notes are owned by you, the Company
shall not solicit, request, or negotiate for or with respect to any proposed
waiver or amendment of any of the provisions of this Agreement or the Notes
unless each holder of the Notes (irrespective of the amount of Notes then owned
by it) shall be informed thereof by the Company and shall be afforded the
opportunity of considering the same and
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shall be supplied by the Company with sufficient information to enable it to
make an informed decision with respect thereto. Executed or true and correct
copies of any waiver or consent effected pursuant to the provisions of this
Section 11.4 shall be delivered by the Company to each holder of outstanding
Notes forthwith following the date on which the same shall have been executed
and delivered by the holder or holders of the requisite percentage of
outstanding Notes. The Company shall not, directly or indirectly, pay or cause
to be paid any remuneration, whether by way of supplemental or additional
interest, fee, or otherwise, to any holder of the Notes as consideration for or
as an inducement to entering into by any holder of the Notes of any waiver or
amendment of any of the terms and provisions of this Agreement unless such
remuneration is concurrently paid, on the same terms, ratably to the holders of
all of the Notes then outstanding.
(c) Any such amendment or waiver shall apply equally to all the
holders of the Notes and shall be binding upon each future holder of any Note
and upon the Company regardless of whether such Note shall have been marked to
indicate such amendment or waiver. No such amendment or waiver shall extend to
or affect any obligation not expressly amended or waived or impair any right
consequent thereon.
11.5. Knowledqe. Any statement in this Agreement that is expressed
in terms of the knowledge of the Company or any Subsidiary, Partnership, or
Joint Venture is intended to and shall be deemed to mean the actual knowledge
of the officers, directors, or managerial personnel of such Person with
respect to the matter in question, and the knowledge that any of such officers,
directors, or managerial personnel would obtain after making due investigation
into the matter in question.
11.6 Multiple Counterparts. Two or more counterparts of this
Agreement may be signed by the parties, each of which shall be an original but
all of which together shall constitute one and the same instrument.
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<PAGE> 62
If this Agreement is satisfactory to you, please so indicate by
signing the acceptance at the foot of a counterpart of this Agreement and
return such counterpart to the Company, whereupon this Agreement will become
binding between us in accordance with its terms effective as of June 1, 1988.
Very truly yours,
ALEXANDER ENERGY CORPORATION
BY: /S/ BOB G. ALEXANDER
--------------------
Name: Bob G. Alexander
--------------------
Title: President
--------------------
Accepted:
JOHN HANCOCK MUTUAL LIFE
INSURANCE COMPANY
By: /s/ Margaret M. Stapleton
-------------------------
Name: Margaret M. Stapleton
-------------------------
Title: VICE PRESIDENT
-------------------------
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<PAGE> 63
EXHIBIT A
10% SENIOR NOTE
$_________________Oklahoma City, Oklahoma ___________, 19__
FOR VALUE RECEIVED, Alexander Energy Corporation, an Oklahoma
corporation ("the Company"), promises and agrees to pay to___________________
_____________________ , a ________________________________________, or its
registered assign ("Holder") at the Bank of Boston, 100 Federal Street, Boston,
Massachusetts (or such other place as Holder may designate from time to time on
at least 30 days' notice to the Company), in coin or currency of the United
States of America that at the time of payment is legal tender for the payment
of public and private debts, the principal sum of_____________________________
AND______ /100THS DOLLARS ($_________), and to pay interest on the unpaid
principal balance thereof from the date of this Note at the rate of 10% per
annum, such interest to be payable semi-annually on the last day of June and
December in each year commencing with December 31, 1988, and continuing until
the entire principal balance thereof is paid. The rate of interest set forth
above shall be computed on the basis of a 365-day or 366-day year, as the
case may be. This Note, together with all accrued unpaid interest, shall be
paid June 30, 1998, provided, however, that mandatory prepayments of principal
shall be due and payable in four installments of _____________________________
AND ________ /100THS DOLLARS ($___________) each commencing June 30, 1994, and
continuing on June 30 each year thereafter through and including June 30, 1997;
provided, however, that the amount of such prepayment due June 30, 1997, under
this Note and all other 10% Secured Notes issued pursuant to the Note Agreement
(as hereinafter defined) shall be reduced by an amount equal to the sum of the
prepayments (if any) made pursuant to the Note Agreement and if such sum
exceeds $1,000,000, such excess shall be applied to reduce the mandatory
prepayments due pursuant to this Note and such other Notes in like fashion in
reverse chronological order.
Each payment made by the Company under this Note shall be made in
federal or other immediately available funds before 12:00 noon, Boston time, on
the date that such payment
<PAGE> 64
or prepayment is required to be made. Any payment received and accepted by
Holder after such time shall be considered for all purposes (including the
calculation of interest, to the extent permitted by law) as having been made on
the next following Business Day.
If the date for any payment hereunder falls on a day that is not a
Business Day, then for all purposes of this Note the same shall be deemed to
have fallen on the next preceding Business Day.
The Company and each co-maker, guarantor, accommodation party,
endorser, or other person or entity liable for the payment or collection of
this Note expressly waive demand and presentment for payment, notice of
nonpayment, protest, notice of protest, notice of dishonor, bringing of suit
and diligence in taking any action to collect amounts called for hereunder and
in the handling of property at any time existing as security in connection
herewith, and shall be directly and primarily liable for the payment of all
sums owing and to be owing hereon, regardless of and without any notice,
diligence, act or omission as or with respect to the collection of any amount
called for hereunder or in connection with any right, lien, interest or
property at any and all times had or existing as security for any amount called
for hereunder.
This Note is issued pursuant to and shall have the benefit of a Note
Agreement between the Company and Holder, dated as of June 1, 1988. Reference
is made to said Note Agreement for provisions regarding acceleration,
additional mandatory prepayments, payment of attorneys' fees, disbursements,
expenses, and all other purposes.
Except as provided in such Note Agreement and except for the mandatory
prepayments described herein, this Note may not be prepaid in whole or in part
at any time.
This Note is a registered note, and, as provided in the Note
Agreement, is transferable on the note register of the Company upon notice to
the Company accompanied by a written instrument of transfer reasonably
satisfactory to the Company duly executed by, or on behalf of, the registered
holder hereof. The Company may treat the person whose name appears in the note
register as the owner hereof for the purpose of receiving payment as herein
provided.
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It is expressly stipulated and agreed to be the intention of Holder
and the Company to comply at all times with applicable laws governing the
maximum rate or amount of interest payable on or in connection with this Note.
Accordingly, if any of the transactions contemplated hereby would be usurious
under applicable law now or hereafter governing the interest payable hereunder
(including applicable United States federal law or applicable state law, to the
extent not preempted by United States federal law), then, in that event,
notwithstanding anything to the contrary in this Note or any other agreement
entered into in connection with or as security for this Note, it is agreed as
follows: (x) the aggregate of all consideration that constitutes interest
under applicable law that is contracted for, charged, taken, reserved, or
received under this Note or under any of the other aforesaid agreements or
otherwise in connection with this Note under no circumstances shall exceed the
maximum amount of interest allowed by applicable law, and any excess shall be
credited on this Note by the holder thereof (or if such Note shall have been
paid in full, refunded to the Company); and (y) in the event that maturity of
this Note is accelerated by reason of an election by the holder thereof
resulting from any default hereunder or otherwise, or in the event of any
required or permitted prepayment or conversion, then such consideration that
constitutes interest may never include more than the maximum amount allowed by
applicable law, and excess interest, if any, provided for in this Note or
otherwise shall be cancelled automatically as of the date of such acceleration
or prepayment and, if theretofore prepaid, shall be credited on this Note (or
if this Note shall have been paid in full, refunded to the Company, and the
provisions of this Note and any other agreements entered into in connection
with or as security for such Note shall immediately be deemed reformed and the
amounts thereafter collectible hereunder and thereunder reduced accordingly,
without the necessity of the execution of any new document, so as to comply
with the then applicable law. Determination of the rate of interest for
purposes of determining whether this transaction is usurious under any
applicable laws, to the full extent permitted by applicable law, shall be made
by amortizing, prorating, allocating, and spreading throughout the full stated
term hereof until payments in full, all sums at any time contracted for,
charged, taken, reserved, or received from the Company for the use,
forbearance, or detention of money in connection herewith.
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As used in this Note, the term "Business Day" means any day other than
a Saturday, Sunday, or legal holiday for commercial banks under the laws of the
Commonwealth of Massachusetts or any executive order issued thereunder. This
Note has been made in Oklahoma City, Oklahoma, and the Company and Holder agree
that this Note shall be governed by and construed in accordance with the laws
of the State of Oklahoma, excluding any conflict-of-law rule or law that might
refer same to the laws of another jurisdiction. The Company and Holder
specifically and non-exclusively submit themselves to the personal jurisdiction
of the state and federal courts in the Commonwealth of Massachusetts, in
connection with all controversies and disputes arising out of or relating to
the effect, interpretation, performance, or breach of this Note, and, in that
connection, the Company hereby appoints the Secretary of State of the
Commonwealth of Massachusetts as its agent for service of process and any
actions brought in the state of federal courts in the Commonwealth of
Massachusetts , arising out of or relating to the effect, interpretation,
performance, or breach of this Note.
ALEXANDER ENERGY CORPORATION
By: /s/ Bob G. Alexander
--------------------
Name: Bob G. Alexander
--------------------
Title: President
--------------------
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EXHIBIT B
THE SECURITIES REPRESENTED BY THIS INSTRUMENT OR DOCUMENT HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE TRANSFERRED
EXCEPT IN COMPLIANCE WITH SUCH LAWS.
Warrant to Purchase 670,000 Shares
Void after 5:00 p.m., Oklahoma City, Oklahoma Time on December 31, 1993
ALEXANDER ENERGY CORPORATION
Stock Purchase Warrant
June 1, 1988
THIS CERTIFIES THAT JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
(the "Holder") is entitled to purchase from Alexander Energy Corporation, an
Oklahoma corporation (the "Company"), at the price and during the period
hereinafter specified, up to 670,000 shares of the Company's $0.01 per share par
value Common Stock ("Common Stock"), subject to adjustment as herein provided,
upon the terms and conditions set forth herein. This Warrant is issued pursuant
to that certain Investment Agreement (the "Agreement") dated June 1, 1988
between the Company and the Holder.
1. Warrant Price. This Warrant shall be exercisable by the
Holder, in whole or in part, at the price (the "Warrant Price") of $1.00 per
share, subject to adjustment as herein provided.
2. Duration. This Warrant shall expire and be of no further
force and effect, and the Holder shall have no right to purchase any shares
hereunder, after 5:00 p.m. Oklahoma City, Oklahoma, time on December 31, 1993.
3. Exercise of Warrant. This Warrant may be exercised at any
time and from time to time within the period above specified, in whole or in
part, by (a) the surrender of this Warrant (with a properly executed counterpart
of the Purchase Form annexed hereto) at the Company's office (or
<PAGE> 68
such other office or agency of the Company as it may designate by notice of at
least five days (other than Saturdays, Sundays, or legal holidays under the laws
of the Commonwealth of Massachusetts) in writing to the Holder); and (b) payment
to the Company of an amount equal to the Warrant Price multiplied by the number
of shares of Common Stock specified in the appropriate Purchase Form. This
Warrant shall be deemed to have been exercised, in whole or in part to the
extent specified in the Purchase Form, immediately prior to the close of
business on the date this Warrant is surrendered and payment and delivery of the
appropriate agreement is made in accordance with the foregoing provisions of
this Section 3, and the person or persons in whose name or names the
certificates for shares of Common Stock shall be issuable upon such exercise
shall thereupon be deemed the holder or holders of record of such Common Stock
as of that time and date. The certificates for the Common Stock so purchased
shall be delivered to the Holder within a reasonable time, not exceeding ten
days (other than Saturdays, Sundays, or legal holidays under the laws of the
Commonwealth of Massachusetts), after this Warrant shall have been so
exercised. The certificate shall bear a legend regarding the unregistered
nature of those shares. At the time any Common Stock is delivered pursuant to
the preceding sentence, the Holder shall be entitled to receive a new Warrant
identical in all respects hereto for the unexercised portion (if any) of this
and any succeeding Warrant.
4. Holder's Put Option. At any time and from time to time after
December 31, 1992 and prior to 5:00 p.m., Oklahoma City, Oklahoma time on
December 31, 1993, the Holder, at its option and pursuant to the terms of this
Section 4, may sell and the Company agrees to purchase, all or any portion of
this Warrant not theretofore exercised or, theretofore purchased by the Company
pursuant to the Warrant Call Option (hereafter defined) for a purchase price
(the "Warrant Put Consideration") equal to $3.33 (adjusted in the same fashion
as the Warrant Price from time to time may be adjusted pursuant to Sections 7
and 8, but with $3.33 substituted for the Warrant Price of $1.00 (as previously
adjusted, if applicable) each place it appears) multiplied by the number of
shares of Common Stock represented by this Warrant with respect to which such
option is to be exercised (such option is herein referred to as the "Warrant Put
Option"). The Holder may, upon 60 days' written notice, exercise the Warrant Put
Option by surrendering this Warrant (with a
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<PAGE> 69
properly executed counterpart of the Warrant Put Form annexed hereto) at the
Company's office or such other office or agency of the Company as it may
designate by notice of at least five days (other than Saturdays, Sundays, or
legal holidays under the laws of the Commonwealth of Massachusetts) in writing
to the Holder. Contemporaneously with the surrender by the Holder of this
Warrant and the Warrant Put Form, the Company shall (a) pay to the Holder at the
Bank of Boston, 100 Federal Street, Boston Massachusetts (or such other place as
the Holder may designate from time to time on at least five days' notice to the
Company), in federal or other immediately available funds available before 12:00
noon, Boston, Massachusetts, time on the date of such surrender, the Warrant Put
Consideration and (b) shall deliver to the Holder a new Warrant identical in all
respects hereto for the portion (if any) of this and any succeeding Warrant not
theretofore (i) exercised by the Holder, (ii) sold to a third party, or (iii)
sold to the Company pursuant to an exercise of the Warrant Put Option. The
transfer of this Warrant by the Holder pursuant to the terms of this Section 4
shall be without representation or warranty of any kind, express or implied
(except for a warranty of title free and clear of encumbrances). Anything herein
to the contrary notwithstanding, the Holder's right to exercise the Warrant Put
Option and the Company's obligation to purchase the Warrant shall be subject to
and limited by the provisions of the Oklahoma General Corporation Act and the
terms of the Note Agreement.
5. Company's Call Option. At any time and from time to time
prior to December 31, 1993, if the daily closing price of the Common Stock as
reflected by the National Association of Securities Dealers Automated Quotations
system bid and asked quotations as published in the Wall Street Journal
(Southwest edition) exceeds $6.00 per share (adjusted in the same fashion as the
Warrant Price from time to time may be adjusted pursuant to Sections 7 and 8,
but with $6.00 substituted for the Warrant Price of $1.00 (as previously
adjusted, if applicable) each place it appears) for 90 consecutive trading days,
the Company, at its option and pursuant to the terms of this Section 5, may
purchase, and the Holder agrees to sell, this Warrant (to the extent not
theretofore exercised) for a purchase price (the "Warrant Call Consideration")
equal to $3.33 (adjusted in the same fashion as the Warrant Price from time to
time may be adjusted pursuant to Sections 7 and 8 but with $3.33 sub-
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stituted for the Warrant Price of $1.00 (as previously adjusted, if applicable)
each place it appears) multiplied by the number of shares then represented by
this Warrant (such option is herein referred to as the "Warrant Call Option").
The Company may, upon 60 days' written notice, exercise the Warrant Call Option
by paying to the Holder at the Bank of Boston, 100 Federal Street, Boston,
Massachusetts (or such other place as the Holder may designate from time to time
on at least five days' notice to the Company), in federal or other immediately
available funds available before 12:00 noon, Boston, Massachusetts, time on the
date the Company wishes to consummate such purchase, the Warrant Call
Consideration. Contemporaneously with its receipt of the Warrant Call
Consideration, the Holder shall deliver this Warrant to the Company at its
office or such other office or agency of the Company as it may designate by
notice of at least five days (other than Saturdays, Sundays, or legal holidays
under the laws of the Commonwealth of Massachusetts) in writing to the Holder.
The transfer of this Warrant by the Holder pursuant to the terms of this Section
5 shall be without representation or warranty of any kind, express or implied
(except for a warranty of title free and clear of encumbrances).
6. No Rights of Stockholder. This Warrant shall not entitle any
Holder to any voting rights or other rights as a stockholder of the Company,
either at law or in equity.
7. Adjustments of and Number of Shares and Warrant Price. The
number of shares of Common Stock purchasable pursuant to this Warrant and the
Warrant Price shall be subject to adjustment from time to time as follows:
(a) In case the Company at any time shall issue or sell any
shares of Common Stock (including shares held in the Company's treasury but not
including shares issued or distributed as a result of the exercise of this
Warrant) for a consideration per share less than the Warrant Price in effect
immediately prior to the issuance or sale of such shares of Common Stock, or
without consideration, then, and thereafter successively upon each such issuance
or sale, the Warrant Price at the time of such issuance or sale shall forthwith
be reduced to a price (calculated to the nearest full cent) determined by
dividing (i) an amount equal to the sum of (x) the product of the number of
shares of Common Stock outstanding immediately prior to such issuance or sale
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multiplied by the Warrant Price in effect immediately prior to such issuance or
sale, plus (y) the consideration, if any, received by the Company upon such
issuance or sale, by (ii) the total number of shares of Common Stock outstanding
immediately after such issuance or sale.
(b) For the purposes of any computation to be made in accordance
with the provisions of Section 7(a), the following provisions shall be
applicable:
(i) in case of the issuance or sale of shares of Common Stock for
cash, the consideration received by the Company therefor shall be deemed to be
the net cash proceeds received by the Company for such shares after deducting
commissions or other expenses paid or incurred by the Company for any
underwriting of, or otherwise in connection with, the issuance or sale of such
shares;
(ii) in case of the issuance or sale of shares of Common Stock
for a consideration other than cash or a consideration a part of which shall be
other than cash, the amount of the consideration other than cash received by the
Company for such shares shall be deemed to be the value as determined by an
independent appraiser selected by the Board of Directors of the Company with the
approval of the Holder the expense of such appraiser to be borne equally by the
Company and the Holder;
(iii) in case of the issuance of shares of Common Stock as a stock
dividend or stock split, the shares shall be deemed to have been issued for no
consideration at the close of business on the dividend or split record date, but
if no dividend or split record date is fixed, the first day (other than a
Saturday, Sunday, or legal holiday under the laws of the Commonwealth of
Massachusetts) during which the transfer books of the Company shall be closed in
connection with the dividend or split shall be treated as the record date; and
(iv) the number of shares of Common Stock at any time outstanding
shall not include any shares then owned or held by or for the account of the
Company or any shares deliverable in respect of this Warrant until
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after the actual issuance of such shares, but shall include the aggregate number
of shares deliverable in respect of the options, rights and convertible and
exchangeable securities referred to in Section 7(c).
(c) In case the Company at any time shall issue options or warrants or
rights to subscribe for shares of Common Stock (including shares now or
hereafter held in the Company's treasury), or issue any securities convertible
into or exchangeable for shares of Common Stock, for a consideration per share
less than the Warrant Price in effect immediately prior to the issuance of such
options or rights or convertible or exchangeable securities, or without
consideration, the Warrant Price as of the date of such issuance shall be
reduced to a price determined by making a computation in accordance with the
provisions of Section 7(a); provided, however, that
(i) the aggregate maximum number of shares of Common Stock
deliverable under such options or rights shall be considered to have been
delivered at the time such options or rights were issued for a consideration
equal to the minimum purchase price per share of such Common Stock provided for
in such options or rights, plus the consideration, if any, received by the
Company for such options or rights;
(ii) the aggregate maximum number of shares of Common Stock
deliverable upon conversion of or exchange for any such exchangeable or
convertible securities shall be considered to have been delivered at the time of
issuance of such exchangeable or convertible securities, and for a consideration
equal to the consideration received by the Company for such exchangeable or
convertible securities deducting therefrom commissions or other expenses paid or
incurred by the Company for any underwriting of, or otherwise in connection
with, the issuance of such exchangeable or convertible securities, plus the
minimum consideration, if any, to be received by the Company upon the conversion
or exchange thereof; and
(iii) on the expiration of such options or rights, or the
termination of such rights to convert or exchange, the Warrant Price as adjusted
as a result of the issuance of such options or rights shall be read-
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<PAGE> 73
justed to such price as would have resulted had the adjustment made upon the
issuance of such options, rights or convertible or exchangeable securities
been made upon the basis of (x) the delivery of only the number of shares of
Common Stock of the Company actually delivered upon the exercise, conversion
or exchange of such securities and (y) the receipt by the Company only the
consideration actually received by it upon the exercise, conversion or exchange
of such options or rights, plus the consideration, if any, received by it for
the options or rights so exercised, or, as the case may be, the consideration
received by the Company for such securities so converted or exchanged, after
deducting therefrom commissions or other expenses paid or incurred by it for
any underwriting of, or otherwise in connection with, the issuance of such
securities, plus only the consideration, if any, actually received by it upon
the conversion or exchange thereof.
(d) Upon each adjustment of the Warrant Price pursuant to this
Section, the Holder of this Warrant shall thereafter (until another such
adjustment) be entitled to purchase, pursuant to this Warrant, at the then
current Warrant Price the number of shares of Common Stock, calculated to the
nearest full share, obtained by multiplying the number of shares Common Stock
specified at the head hereof by $1.00 and dividing the product so obtained by
the Warrant Price then in effect.
(e) Notwithstanding any other provision of this Section, no
adjustment shall be made in the Warrant Price or the number of shares of Common
Stock purchasable hereunder on account of options granted to the Company's
employees not aggregating in excess of 600,000 shares.
8. Reorganization Merger, etc. If as a result of any
reorganization, merger, consolidation, liquidation, recapitalization,
reclassification or stock split, combination of shares or stock dividend payable
with respect to such Common Stock, or any other reason, the outstanding shares
of Common Stock of the Company at any time shall be increased or decreased or
changed into or exchanged for a different number or kind of share or other
security of the Company or of another corporation, appropriate adjustments in
the number and kind of such securities then subject to this Warrant and the
Warrant Price therefor shall be made, effective as of the
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<PAGE> 74
date of such occurrence, so that the position of the Holder upon exercise of its
Warrant will be the same as it would have been had it exercised and owned,
immediately prior to the occurrence of such events, the Common Stock subject to
this Warrant.
9. Governing Law. This Warrant shall be governed by and
construed in accordance with the laws of the State of Oklahoma, excluding any
conflict-of-law rule or law that might refer same to the laws of another
jurisdiction. The Company and the Holder specifically and non-exclusively submit
themselves to the personal jurisdiction of the state and federal courts in the
Commonwealth of Massachusetts, in connection with all controversies and disputes
arising out of or relating to the effect, interpretation, performance, or breach
of this Warrant, and, in that connection, the Company hereby appoints the
Secretary of State of the Commonwealth of Massachusetts as its agent for service
of process and any actions brought in the state or federal courts in the
Commonwealth of Massachusetts, arising out of or relating to the effect,
interpretation, performance, or breach of this Warrant.
10. Transferability and Survival. Subject to the requirements of
federal or state securities laws, this Warrant shall be fully transferable by
the Holder to (a) any subsidiary, parent, or affiliate of the Holder, or (b) any
other person upon ten days' written notice to the Company. Any other transfer is
prohibited; provided, however, that the Holder shall always have control of its
assets. The Warrant Put Option shall be exercisable by and shall inure to the
benefit of the transferees, successors, and assigns of the Holder to the full
extent they would be exercisable if any such transferee, successor or assign was
a party to this Agreement. Notwithstanding anything in this Agreement to the
contrary, the Warrant Call Option shall be void and of no further force or
effect upon and to the extent of a transfer of a portion of this Warrant to a
third party, provided that such transfer occurs prior to the receipt by the
Holder of notice from the Company of its intent to exercise the Warrant Call
Option as set forth in Section 3.
11. Entire Aqreement. This Warrant and the Agreement constitute
the entire agreement of the Holder and the Company with respect to the subject
matter hereof and may not be changed or modified in any way except by written
instrument
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<PAGE> 75
executed by both the Holder and the Company.
12. Notices. If any notice shall be required hereunder, it shall
be in writing and delivered personally or by first-class United States Mail as
follows:
If to the Holder:
As provided in the Agreement
If to the Company:
Alexander Energy Corporation
Triad Center
501 Northwest Expressway, Suite 600
Oklahoma City, Oklahoma 73118
Attention: President
All notices shall be effective upon receipt.
13. Successors and Assigns. The provisions of this Warrant shall
be binding upon and inure to the benefit of the Holder, the Company, and their
respective successors and assigns to the extent permitted herein.
IN WITNESS WHEREOF, Alexander Energy Corporation has caused this
Warrant to be signed by its duly authorized officers this first day of June,
1988.
ALEXANDER ENERGY CORPORATION
By: /s/ Bob G. Alexander
Name: Bob G. Alexander
Title: President
ATTEST:
/s/ Sue Barnard
Sue Barnard, Secretary
<PAGE> 76
PURCHASE FORM
(To be signed only upon exercise of Warrant)
The undersigned, the holder of the foregoing Warrant, hereby
irrevocably elects to exercise the purchase rights represented by such Warrant
to the extent of _____ shares of Alexander Energy Corporation $.__ Par Value
Common Stock, and herewith makes payment in full of the applicable Warrant Price
in the amount of $_____, and the undersigned further agrees to be bound by the
terms of the foregoing Warrant.
DATED:________________________________________________, 19__.
________________________________
Name of Holder
________________________________
Address of Holder
<PAGE> 77
WARRANT PUT FORM
(To be signed only upon exercise of Warrant Put Option)
The undersigned, the holder of the foregoing Warrant, hereby
irrevocably elects to exercise the Warrant Put Option as set forth in such
Warrant to the extent of _____ shares of Alexander Energy Corporation $.__
Par Value Common Stock.
DATED:_________________, 19__.
___________________________________
Name of Holder
___________________________________
Address of Holder
<PAGE> 78
EXHIBIT C
INVESTMENT AGREEMENT
Dated as of June 1, 1988
by and between
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
and
ALEXANDER ENERGY CORPORATION
<PAGE> 79
TABLE OF CONTENTS
I. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
II. REPRESENTATIONS, WARRANTIES, AND COVENANTS OF HANCOCK
2.1 Investment Intent........................ 2
2.2 Limitation on Transfer................... 2
2.3 Restrictive Legend....................... 2
2.4 Corporate Authority...................... 3
2.5 Brokers and Finders...................... 3
III. COVENANTS OF THE COMPANY
3.1 Compliance with Securities Laws.......... 4
3.2 SEC Filings.............................. 4
IV. PUT AND CALL OPTIONS
4.1 Hancock's Put Option..................... 4
4.2 Company's Call Option.................... 5
4.3 Adjustment............................... 6
V. CERTAIN RIGHTS AS SECURITIES HOLDER
5.1 Registration Rights...................... 6
5.2 Reports.................................. 13
5.3 NASDAQ Trading........................... 14
5.4 Assignment............................... 14
VI. GENERAL PROVISIONS
6.1 Representations, Warranties, and
Covenants................................ 14
6.2 No Third-Party Beneficiaries;
Assignability; Binding Nature............ 15
6.3 Entire Agreement......................... 15
6.4 Partial Invalidity....................... 15
6.5 Notices.................................. 15
6.6 Further Assurances....................... 16
6.7 Rights Cumulative........................ 16
6.8 No Waiver................................ 16
6.9 Internal References...................... 16
6.10 Counterpart Execution.................... 17
6.11 Governing Law............................ 17
<PAGE> 80
INVESTMENT AGREEMENT
THIS INVESTMENT AGREEMENT (the "Agreement") is made and entered
into as of June 1, 1988, by and between JOHN HANCOCK MUTUAL LIFE INSURANCE
COMPANY, a Massachusetts corporation ( "Hancock" ), and ALEXANDER ENERGY
CORPORATION, an Oklahoma corporation (the "Company").
WITNESSETH:
WHEREAS, contemporaneously with the execution hereof, the Company
has delivered to Hancock that certain Warrant of even date herewith (the
"Warrant") entitling Hancock and/or its permitted transferees thereunder, among
other things, to purchase up to 670,000 shares of common stock, $0.01 par value,
of the Company (the "Warrant Shares," including any other securities into which
such stock is converted pursuant to any merger, consolidation, stock split or
combination, or otherwise) at a price of $1.00 per share; and
WHEREAS, Hancock and the Company desire to set forth their
understanding with respect to certain matters relating to the Warrant, the
Warrant Shares, and other matters:
NOW, THEREFORE, the parties hereto have agreed and, by these
presents, do hereby agree as follows:
I. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
To induce Hancock to enter into the transactions contemplated by
this Agreement and that certain Note Agreement of even date herewith by and
between the Company and Hancock (the "Note Agreement," and capitalized used
herein and not otherwise defined having the meanings given them in the Note
Agreement) the Company represents and warrants to Hancock that all the
representations and warranties of the Company under the Note Agreement, and all
Officers' Certificate delivered at the Closing, are true and correct.
<PAGE> 81
II. REPRESENTATIONS, WARRANTIES, AND COVENANTS OF HANCOCK
To induce the Company to enter into the transactions
contemplated hereby Hancock represents, warrants, and/or covenants (as
applicable) to the Company that:
2.1 Investment Intent. Hancock represents and warrants that it
is acquiring the Warrant and, to the extent purchased, the Warrant Shares, for
its own account and for the purpose of investment and not with a view to the
sale or distribution thereof; provided, however, that the disposition by Hancock
of its assets shall at all times remain within its control. In addition, Hancock
understands that the Warrant and, to the extent purchased, the Warrant Shares
have not been (and as of any given date may not have been) registered under the
1933 Act (the Company being under no obligation to effect such registration
except as provided in this Agreement) and that such shares must be held
indefinitely unless a subsequent disposition thereof is registered under the
1933 Act and any applicable state securities law or is exempt from such
registration.
2.2 Limitation on Transfer. Hancock covenants and agrees
that it will not sell or otherwise dispose of the Warrant or, to the
extent purchased, the Warrant Shares in the absence of (a) registration under
the 1933 Act and applicable state securities laws, or (b) an opinion acceptable
in form to the Company from counsel reasonably satisfactory to the Company (it
being understood that counsel on Hancock's in-house legal staff is satisfactory
counsel) or an opinion of counsel to the Company, to the effect that no
registration is required for such disposition, or (c) as to the 1933 Act, a
"no-action" letter from the staff of the Securities and Exchange Commission to
the effect that such staff will not recommend any action to such commission if
such a disposition takes place without registration.
2.3 Restrictive Leqend. The certificates representing the
Warrant Shares shall have stamped or imprinted thereon or affixed thereto a
legend to the effect:
"THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
ANY APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE
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<PAGE> 82
SOLD , PLEDGED, HYPOTHECATED OR OTHERWISE
TRANSFERRED In THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933 AND ANY APPLICABLE STATE SECURITIES LAWS OR AN
OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT
SUCH REGISTRATION IS NOT REQUIRED."
The Company agrees to the issuance of replacement certificates
without the foregoing legend for any Warrant Shares then owned by Hancock to the
extent and under the conditions permitted by paragraph (k) of rule 144 of the
Securities and Exchange Commission or any successor rule or regulation.
2.4 Corporate Authority. Hancock has, or will have at any time so
required, all necessary corporate power and authority to enter into this
Agreement and all other documents and instruments to be entered into pursuant
hereto and to perform all the obligations to be performed by it hereunder and
thereunder, including, without limitation, the purchase of the Warrants Shares,
if purchased. The execution, delivery, and performance of this Agreement and all
other documents and instruments to be entered into pursuant hereto have been, or
will be at any time so required, duly authorized by all requisite action on the
part of the officers, directors, and security holders of Hancock and each such
document or instrument is, or will be when so authorized, a valid and binding
obligation of Hancock, enforceable against Hancock in accordance with its terms.
2.5 Brokers and Finders. No person or firm has, or will have, any
right, interest, or valid claim against the Company or any Subsidiary,
Partnership, or Joint Venture because of any agreement or undertaking by Hancock
or any of its affiliates (as defined in the rules and regulations under the
1933 Act) or agents for any commission, fee, or other compensation as a result
of this transaction as a finder or broker or in any similar capacity as a result
of any act or omission by Hancock, any affiliate thereof (as defined above) or
anyone acting on behalf of Hancock or any such affiliate. Hancock agrees to
indemnify and hold harmless the Company, the Subsidiaries, the Partnerships, and
the Joint Ventures from and against any and all such commissions, fees, or other
compensation together with any and all claims, disputes, or
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<PAGE> 83
other losses or costs (including, without limitation, reasonable attorneys'
fees) arising from agreements or undertakings of Hancock or any of its
affiliates (as defined above) or agents.
III. COVENANTS OF THE COMPANY
For as long as Hancock or any person controlling, controlled by,
or under common control with Hancock shall own any common stock of the Company
or the Warrant shall be exercisable, the Company shall faithfully and punctually
perform the following covenants:
3.1 Compliance with Securities Laws. Neither the Company
nor any agent acting on its behalf will take any action that would
subject the offer or sale of the Warrant Shares, to the extent purchased, to the
provisions of section 5 of the 1933 Act or the comparable provisions of any
applicable state securities laws, or that would have the effect of preventing or
otherwise hindering the sale of such stock by Hancock.
3.2 SEC Filinqs. The Company shall make all filings
required by section 12(g) of the Securities Exchange Act of 1934, as
amended, that may be necessary or appropriate 'to permit Hancock or such other
Person to dispose of such stock under the provisions of rule 144 (other than
rule 144(k)) of the Securities and Exchange Commission.
IV. PUT AND CALL OPTIONS
4.1 Hancock's Put Option. At any time and, from time to
time after December 31, 1992, and prior to 5:00 p.m., Oklahoma City,
Oklahoma time on December 31, 1993, Hancock, at its option and pursuant to the
terms of this Section 4.1, may sell, and the Company agrees to purchase, all or
any of the shares of stock of the Company acquired pursuant to an exercise of
the Warrant and not theretofore purchased by the Company pursuant to the Stock
Call Option (hereafter defined) for a purchase price (the "Stock Put
Consideration") equal to $4.33 multiplied by the number of shares of stock to be
so sold and purchased (such option herein referred to
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<PAGE> 84
as the "Stock Put Option"). Hancock may, upon 60 days' written notice, exercise
the Stock Put Option by surrendering share certificates, duly endorsed in blank,
representing not fewer than the number of shares of stock that Hancock wishes to
sell to the Company at the Company's office or such other office or agency of
the Company as it may designate by notice of at least five days (other than
Saturdays, Sundays, or legal holidays under the laws of the Commonwealth
Massachusetts) in writing to Hancock. Contemporaneously with the surrender by
Hancock of such share certificates the Company shall (a) pay to Hancock at the
Bank of Boston, 100 Federal Street, Boston Massachusetts (or such other place as
Hancock may designate from time to time on at least five days' notice to the
Company), in federal or other immediately available funds available before 12:00
noon, Boston, Massachusetts time, on the date of such surrender, the Stock Put
Consideration and (b) shall deliver to Hancock certificates representing a
number of shares of stock equal to the difference (if any) between the number of
shares of stock represented by the share certificates surrendered to the Company
in connection with the exercise cf such Share Put Option and the number of
shares of stock sold to the Company pursuant to the exercise of such Stock Put
Option. The transfer of the shares of stock by Hancock pursuant to the terms of
this Section 4.1 shall be without representation or warranty of any kind,
express or implied (except for a warranty of title free and clear of
encumbrances). Anything herein to the contrary notwithstanding, Hancock's right
to exercise the Stock Put Option and the Company's obligation purchase shares of
stock of the Company pursuant thereto shall be subject to and limited by the
provisions of the Oklahoma General Corporation Act and the terms of the Note
Agreement.
4.2 Company's Call Option. At any time and from time to
time prior to December 31, 1993, if the daily closing price of the Common Stock
as reflected by the National Association of Securities Dealers Automated
Quotations system bid and asked quotations as published in the Wall Street
Journal (Southwest edition) exceeds $6.00 per share for 90 consecutive trading
days, the Company, at its option and pursuant to the terms of this Section 4.2,
may purchase, and Hancock agrees to sell, all but not fewer than all the shares
of stock of the Company acquired by Hancock pursuant to an
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<PAGE> 85
exercise of the Warrant for a purchase price (the "Stock Call Consideration")
equal to $4.33 multiplied by the number of shares of stock to be so purchased
and sold (such option is herein referred to as the "Stock Call Option"). The
Company may, upon 60 days' written notice, exercise the Stock Call Option by
paying to Hancock at the Bank of Boston, 100 Federal Street, Boston,
Massachusetts (or such other place as Hancock may designate from time to time on
at least five days' notice to the Company), in federal or other immediately
available funds available before 12:00 noon, Boston, Massachusetts time, on the
date the Company wishes to consummate such purchase, the Stock Call
Consideration. Contemporaneously with its receipt of the Stock Call
Consideration, Hancock shall deliver share certificates, duly endorsed in blank,
representing the shares to be purchased and sold to the Company at its office or
such other office or agency of the Company as it may designate by notice of at
least five days (other than Saturdays, Sundays, or legal holidays under the laws
of the Commonwealth of Massachusetts) in writing to Hancock. The transfer of the
shares of stock by Hancock pursuant to the terms of this Section 4.2 shall be
without representation or warranty of any kind, express or implied (except for a
warranty of title free and clear of encumbrances).
4.3 Adjustment. If an event of the type described in Section 8
of the Warrant shall occur following the issuance of any Warrant Shares,
the number of shares to be purchased and the $4.33 figure in Sections 4.1 and
4.2 shall be adjusted in the same manner as is described in Section 8 of the
Warrant.
V. CERTAIN RIGHTS AS SECURITIES HOLDER
5.1 Reqistration Riqhts. (a) Promptly (and in no event more than
60 days) after the written request of Hancock, the Company shall file a
registration statement under the 1933 Act covering all Registrable Common Shares
(as hereinafter defined) that Hancock desires to register and shall use its best
efforts to cause such registration statement to become effective as soon as
practicable. Such written request shall include a designation of the number of
Registrable Common Shares to be registered. The Company
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<PAGE> 86
shall not, however, be required to file a registration statement with respect to
fewer than 100,000 Registrable Shares, unless there are then fewer than 100,000
Registrable Shares outstanding. If such offering is to be underwritten, the
Company shall have the right to select the managing underwriters, subject to the
consent of Hancock, which shall not be unreasonably withheld. Except for and
subject to the rights, terms, and provisions contained in the Investment
Agreement (the "Energy Reserves Agreement") dated as of December 12, 1985, by
and between Energy Reserves, Inc., a Wyoming corporation ("Energy Reserves"),
and the Company, no other Person (including the Company) shall be entitled to
include any securities in any registration pursuant to this Section 5.1(a)
without the consent of Hancock. If a registration pursuant to this Section
5.1(a) is commenced but has not become effective or becomes effective but fails
to remain effective for such period not exceeding nine months, as Hancock may
specify, the parties hereto agree that, for purposes of this Section 5.1(a),
such registration shall be deemed not to have taken place and Hancock shall
remain entitled to demand such registration pursuant to this Section 5.1(a);
provided, however, that such right shall be deemed to have been satisfied as of
the date on which a registration made pursuant to and in accordance with this
Section 5.1(a) has been effective for such specified period. In the event that
Energy Reserves notifies the Company of its election to exercise its
registration rights under the Energy Reserves Agreement within 30 days after its
receipt of the Company's notice of a proposed filing of a registration statement
requested by Hancock under this Section 5.1(a), and the managing underwriters
advise the Company that in their opinion the inclusion of the total number of
shares requested for inclusion would materially and adversely affect the
distribtion, only that number of shares that in the underwriter's opinion would
not have such an effect shall be included in the registration statement. In the
latter event, Energy Reserves and Hancock shall be entitled to include shares in
the registration statement in the ratio that the number of shares owned by each
that are entitled to registration bears to the aggregate number of shares owned
by both of them which are entitled to registration. Notwithstanding the
foregoing, if the number of shares that Hancock could include would be reduced
as aforesaid, Hancock may withdraw its demand with the effect that such demand
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<PAGE> 87
shall be deemed to not have been made. The Company shall not be required to
effect more than two registrations pursuant to this Section 5.1(a); provided,
however, if after Hancock has received two demand registrations under this
Section 5.1(a) it has not disposed of all of its Registrable Common Shares,
Hancock shall have one additional demand registration pursuant to this Section
5.1(a) but shall pay a percentage of the costs thereof that the Company
otherwise would pay pursuant to Section 5.1(f)(iii) equal to the ratio that the
number of Registrable Common Shares that were included in Hancock's second
demand registration bears to the total number of Registrable Common Shares that
Hancock requested to be registered in such registration.
(b) If the Company at any time shall propose to register any of
its securities under the 1933 Act for its own account or the account of any
security holders (other than a registration pursuant to Section 5.1(a) or any
registration relating to a merger or other business combination transaction), it
shall promptly give written notice to Hancock of its intention to do so. Subject
to Section 5.1(a) and (c), the Company shall include in such registration such
Registrable Common Shares as Hancock shall specify in a written notice delivered
to the Company within 30 days after its receipt of the Company's notice of the
proposed filing of the registration statement; provided, however, that the
Company may withdraw or cease proceeding with the registration of its securities
for any reason without liability to Hancock. Nothing contained in this Section
5.1(b) shall be construed to limit or otherwise prejudice the registration
rights provided Hancock in Section 5.1(a); provided, however, that if such
registration shall be made at the request of Energy Reserves and if, pursuant to
Section 5.1(c) and the similar provisions in. the Energy Reserves Agreement, the
total number of shares that Energy Reserves requested to be registered shall not
be registered, Hancock shall be required to pay, on the exercise of its second
registration pursuant to Section 5.1(a), a percentage of the cost thereof that
the Company otherwise would pay pursuant to Section 5.1(f)(iii) equal to the
ratio of the number of Registrable Common Shares that were included in such
registration requested by Energy Reserves bears to the total number of
Registrable Common Shares that Hancock requested to be registered.
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<PAGE> 88
(c) If the proposed registration of securities by the Company
referred to in Section 5.1(b) is an underwritten registration and the managing
underwriters advise the Company in writing that, in their opinion, the amount of
Registrable Common Shares proposed to be included in such registration
statement, together with any shares proposed for inclusion by Energy Reserves,
is likely to materially and adversely affect the distribution of the securities
originally proposed to be registered, Hancock and Energy Reserves shall be
entitled to include in such registration statement only such aggregate number of
shares as would not, in the opinion of such underwriters, materially and
adversely affect the distribution. In the latter event, Energy Reserves and
Hancock shall be entitled to include such aggregate number of shares in the
registration statement in the ratios that the number of share owned by each that
are entitled to registration bears to the aggregate number of shares owned by
both of them that are entitled to registration.
(d) If any proposed registration would, in the opinion of the
Board of Directors of the Company, determined reasonably and in good faith,
substantially and adversely affect the business of the Company or a transaction
or negotiation pending at the time (provided a written notice specifying the
reasons for such judgment by the Board of Directors is promptly delivered by the
Company to Hancock), then the Company may defer, for a period not exceeding 120
days from the date of first request for registration by Hancock, the filing of a
registration statement with respect to such Registrable Common Shares; provided,
however, that, in the case of a registration right afforded by Section 5.1(b),
the Company shall not be obligated to file such a deferred registration
statement for any transferee who is not an affiliate (as that term is defined in
the rules and regulations under the 1933 Act) of Hancock unless such transferee
has requested registration of at least 100,000 shares of Registrable Common
Shares.
(e) For purposes hereof, the term "Registrable Common Shares"
shall include all shares of Warrant Stock purchased by Hancock regardless of
whether such shares of Warrant Stock have been sold or transferred, except that
such term shall not include any shares of common stock of the Company that
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<PAGE> 89
previously have been sold or transferred pursuant to an effective registration
statement or pursuant to rule 144 of the Securities and Exchange Commission.
(f) Registration of Registrable Common Shares pursuant to Section 5.1
(a) or (b) shall be subject to the following:
(i) The Company shall file such amendments and supplements to the
registration statement and the related prospectus and take such other action as
may be necessary to keep the registration statement effective and to comply with
the 1933 Act for such period, not exceeding nine months (or two years in the
case of shelf registration pursuant to rule 415 of the Securities and Exchange
Commission) from the original effective date of the registration statement, as
Hancock may request.
(ii) The Company shall take such action under the securities laws
of such states as Hancock reasonably shall request; provided, however, that the
Company shall not be required by this Section 5.1(f)(ii) to qualify to do
business as a foreign corporation, or to file any general consent to service of
process, in any state.
(iii) Except to the extent prohibited by applicable state
securities laws or as provided in the last sentence of Section 5.1(a), all
expenses incurred by the Company in complying with this Article V, including,
without limitation, all registration and filing fees, including necessary blue
sky filing fees and expenses, printing expenses, and fees and disbursements of
counsel and auditors for the Company, shall be paid by the Company; provided,
however, that any other underwriting expenses, including, without limitation,
fees of underwriter's counsel and underwriter's selling expenses, brokerage
fees, discounts, or commissions, shall be prorated among all selling
shareholders and the Company as issuer. Applicable insurance or stock transfer
taxes incurred by Hancock in connection with transfers pursuant to such
registration, or any fees of counsel to Hancock, shall be paid by Hancock.
(iv) The Company shall not be required to effect
registration with respect to a distribution of the
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<PAGE> 90
Registrable Common Shares pursuant to Section 5.1(a) or (b) if Hancock shall
not have provided such information and executed such documents (including an
underwriting agreement containing representations, warranties, conditions, and
indemnification provisions customarily included in underwriting agreements for
similar offerings then used by the managing underwriter, if any, for the sale
of those Registrable Common Shares as are to be registered) as may reasonably
be required by the managing underwriter.
(v) The Company shall not be required to furnish any
annual reports, filings with the Securities and Exchange Commission, or audited
financial statements at the request of Hancock other than those statements
customarily prepared at the end of its fiscal quarter or year or otherwise
prepared pursuant to a registration under Section 5.1(b), unless Hancock agrees
to reimburse the Company for the out-of-pocket costs incurred by the Company in
the preparation of such other reports, filing, and statements.
(vi) the Company shall indemnify and hold harmless
Hancock, each Person who under the 1933 Act is deemed a controlling person of
Hancock, and each underwriter of Hancock against any losses, claims, damages,
or liabilities to which Hancock or any such controlling person or underwriter
may become subject under the 1933 Act or otherwise, insofar as such losses,
claims, damages, or liabilities (or actions in respect thereof) shall arise out
of or be based upon any untrue or allegedly untrue statement of any material
fact contained in the registration statement, any related prospectus or
preliminary prospectus, or any amendment or supplement to the registration
statement or any prospectus or preliminary prospectus, or upon the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and shall
reimburse any legal or other expenses reasonably incurred by Hancock or any
such controlling person or underwriter in connection with investigating or
defending against any such loss, claim, damage, liability, or action;
provided, however, that the Company
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<PAGE> 91
shall not be liable to Hancock or any such controlling person or underwriter for
any losses, claims, damages, liabilities, or actions insofar as the same shall
arise out of or be based upon any such untrue statement or omission made in
reliance upon and conformity with written information furnished by Hancock or
any such controlling person or underwriter seeking indemnification hereunder to
the Company for use in the registration statement, prospectus, preliminary
prospectus, amendment, or supplement. Hancock shall indemnify and hold harmless
the Company, each Person who under the Act is deemed a controlling person of the
Company, and each underwriter of the Company against any losses, claims,
damages, or liabilities to which the Company or any such controlling person or
underwriter may become subject under the 1933 Act or otherwise, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereof) shall
arise out of or be based upon any untrue or allegedly untrue statement of any
material fact contained in the registration statement, any related prospectus or
preliminary prospectus, or any amendment or supplement to the registration
statement or any prospectus or preliminary prospectus, or upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, but insofar and only
insofar as the same shall arise out of or be based on any untrue statement or
omission made in reliance on and in conformity with information furnished by
Hancock to the Company in writing for use in such document, and shall reimburse
any legal or other expenses reasonably incurred by the Company or any such
controlling person or underwriter in connection with investigating or defending
against any such loss, claim, damage, liability, or action.
(vii) Hancock shall not be entitled to request
registration or inclusion in a registration of its Registrable' Common Stock
pursuant to Section 5.1(a) or (b) at any time after all Registrable Common
Shares have been covered by a registration statement or registration statements
filed and effective under the 1933 Act for such period, not exceeding nine
months, as Hancock may specify.
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<PAGE> 92
(g) If the Securities and Exchange Commission shall adopt new
procedures or forms for public resales of restricted securities, the Company
shall take such action as reasonably may be requested by Hancock to permit
public resales of the Registrable Common Stock pursuant to such new procedures
or forms.
(h) If the Company at any time in the future should list its
common stock on a securities exchange, to the extent permitted by such
exchange's rules, the Company shall include all shares of common stock of the
Company owned by Hancock in such listing at no cost to Hancock.
5.2 Reports. (a) As long as Hancock or any Person controlling,
controlled by, or under common control with Hancock is the record holder of the
Warrant or any Warrant Shares, the Company shall furnish to such holder,
within 120 days after the end of each fiscal year, an annual report and a
copy of its Form 10-K as filed with the Securities and Exchange Commission
for such period. In addition, the Company shall furnish to such holder, within
45 days after the end of each fiscal quarter ending in June, September, and
December, a copy of its Form 10-Q as filed with the Securities and Exchange
Commission for such period.
(b) The Company shall permit Hancock and its affiliates (as that
term is defined in the rules and regulations under the 1933 Act) or their
designated representatives, and shall permit Hancock's transferees who are not
affiliates of Hancock and who own at least 134,000 shares of Warrant Shares,
full access during normal business hours to the books and records of the Company
and the Affiliates. Hancock shall not, and any transferee shall agree that it
will not, disclose or divulge to any Person (other than its employees, auditors,
counsel, or other consultants) any written information furnished by the Company
that is expressly identified as confidential or proprietary in writing at the
time of its delivery to Hancock or the transferee and will keep confidential any
such information; provided, however, that Hancock or the transferee shall not be
obligated to treat as confidential any information (a) that is or becomes
publicly available or readily ascertainable from public sources or that Hancock
or the transferee receives from a
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<PAGE> 93
third party (other than the Company's employees, auditors, or counsel), (b) as
may be required or appropriate in any report, statement, or testimony submitted
to any municipal, state, or federal regulatory body having or claiming to have
jurisdiction over Hancock or the transferee or to the National Association of
Insurance Commissioners or similar organizations or their successors, (c) as may
be required or appropriate in response to any summons or subpoena or in
connection with any litigation, (d) to the extent that Hancock or the transferee
believes it appropriate to comply with any law, order, regulation, or ruling
applicable to it, and (e) to the extent that Hancock or the transferee believes
it appropriate to disclose such information to a prospective transferee, but
only to the extent that such prospective transferee shall agree to be subject to
the same terms and conditions described in this sentence and that such
disclosure is not in violation of applicable securities laws.
5.3 NASDAQ Trading. Neither the Company or any Affiliate
nor any director, officer, or employee of the Company, shall perform or
allow any act to be performed that would cause the common stock of the Company
to cease to be quoted by the National Association of Securities Dealers
Automated Quotations system.
5.4 Assignment. Subject to the limitation on the right of access
by any transferee set forth in Section 5.2(b), Hancock may transfer or assign
all or any part of its rights under this Article V to any transferee or assignee
of the Warrant Shares.
VI. GENERAL PROVISIONS
6.1 Representations, Warranties, and Covenants. (a) All
representations, warranties, and covenants herein shall survive the closing of
the issuance of the Warrant and the purchase of any Warrant Shares.
(b) Each party hereto hereby agrees to defend, indemnify, and
hold harmless each other party against and in respect of (i) all liability,
loss, damage, or deficiency resulting from any misrepresentation or breach of
warranty by the indemnifying party in this Agreement, or in any
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<PAGE> 94
certificate or other instrument furnished by or on behalf of the indemnifying
party pursuant to this Agreement, or from noncompliance by the indemnifying
party with any provisions of this Agreement, and (ii) all actions, suits,
proceedings, claims, demands, assessments, judgments, costs, and expenses
(including, without limitation, attorneys' fees) incident to any of the
foregoing.
6.2 No Third-Party Beneficiaries; Assignability; Binding
Nature. Nothing in this Agreement (express or implied) is intended or shall be
construed to confer upon any Person not a party hereto any right, remedy, or
claim under or by reason of this Agreement. Except as expressly provided herein,
the rights and duties of the parties hereunder are not assignable; provided,
however, that Hancock may assign this Agreement or any portion hereof to any
affiliate (as that term is defined in the rules and regulations under the 1933
Act) of Hancock. Subject to the prior provisions of this Section 6.2, this
Agreement shall be binding upon and shall inure to the benefit of the respective
successors and assigns of the parties hereto.
6.3 Entire Agreement. This Agreement and the Warrant constitute
the entire agreement between the parties hereto pertaining to the subject matter
hereof and supersede all prior and contemporaneous agreements and understandings
of the parties hereto in connection therewith and may not be amended or modified
in any manner except by an instrument in writing executed by the parties hereto.
6.4 Partial Invalidity. In case any one or more of the
covenants, agreements, or provisions hereof shall be invalid, illegal, or
unenforceable in any respect, the validity of the remaining covenants,
agreements, or provisions hereof shall be in no way affected, prejudiced, or
disturbed thereby.
6.5 Notices. All notices, consents, approvals, requests,
demands, or other communications required or permitted to be given hereunder
shall be in writing, shall be given by mail, return receipt requested, postage
prepaid, prepaid telegram with confirmation of delivery obtained, or personally
delivered with confirmation of delivery obtained,
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<PAGE> 95
and shall be deemed to have been duly given when received at the address
specified below:
If to the Company:
Alexander Energy Corporation
Triad Center
501 Northwest Expressway, Suite 600
Oklahoma City, Oklahoma 73118
Attention: President
If to Hancock:
As provided in the Note Agreement
Any party shall have the right to change its address for notice hereunder from
time to time to such other address within the continental United States of
America as may hereafter be furnished in writing by such party to the other
parties hereto.
6.6 Further Assurances. Each party hereto from time to time
shall do and perform such further acts and execute and deliver such further
instruments, assignments and documents as may be required or reasonably
requested by the other party to establish, maintain, or protect the respective
rights and remedies of the parties hereto and to carry out and effect the
intentions and purposes of this Agreement.
6.7 Rights Cumulative. The rights and remedies granted to the
parties under this Agreement shall not be exclusive rights and remedies but
shall be in addition to all other rights and remedies available at law or in
equity.
6.8 No Waiver. The failure of any party hereto to insist upon
strict performance of any provision hereof shall not constitute a waiver of, or
estoppel against asserting, the right to require such performance in the future,
nor shall a waiver or estoppel in any one instance constitute a waiver or
estoppel with respect to a later breach of a similar nature or otherwise.
6.9 Internal References. Unless otherwise specified,
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<PAGE> 96
all references in this Agreement to "Articles" and "Sections" are to Articles
in Sections of this Agreement.
6.10 Counterpart Execution. This Agreement may be executed in a
number of counterparts, each of which shall have the force and effect of an
original although constituting but one instrument for all purposes.
6.11 Governing Law. The parties hereto specifically agree that
this Agreement shall be governed by and construed in accordance with the laws of
the State of Oklahoma, excluding any conflict-of-law rule or law that might
refer same to the laws of another jurisdiction. The parties hereto specifically
and non-exclusively submit themselves to the personal jurisdiction of the state
and federal courts in the Commonwealth of Massachusetts, in connection with all
controversies and disputes arising out of or relating to the effect,
interpretation, performance, or breach of this Agreement, and, in that
connection, the Company hereby appoints the Secretary of State of the
Commonwealth of Massachusetts as its agent for service of process and any
actions brought in the state or federal courts in the Commonwealth of
Massachusetts, arising out of or relating to the effect, interpretation,
performance, or breach of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the day and year first above written.
JOHN HANCOCK MUTUAL LIFE
INSURANCE COMPANY
By:
Name:
Title:
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<PAGE> 97
ALEXANDER ENERGY CORPORATION
By: /S/ Bob G. Alexander
Name: Bob G. Alexander
Title: President
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<PAGE> 98
EXHIBIT D
ALEXANDER ENERGY CORPORATION
STOCK OWNERSHIP
<TABLE>
<CAPTION>
Actual Shares Outstanding
Owned Options
---------------- -----------
<S> <C> <C>
EMPLOYEE OWNERSHIP
Officers and Directors
Bob G. Alexander - -
Lila Alexander 852,417(1) -
Roger G. Alexander 53,600 42,000
Jim L. David 867,415(2) -
David E. Grose 41,000 10,000
M. Sue Barnard 250 4,000
Russell E. Christiansen -(3) -
DeWayne R. VonFeldt 190,131(2) -
Other Employees
Original employees 503,487 -
Employees hired subsequent
to public offering - 67,000
--------- -------
2,488,900 123,000
Former Employee(s) 562,200 -
INSTITUTIONAL OWNERSHIP
Liberty National Bank & Trust
Company and Liberty National
Corporation - shared invest-
ment and voting power 677,331
John Hancock Mutual Life
Insurance Company 314,735 78,684
Energy Reserves, Inc., a
wholly owned subsidiary of
Midwest Energy Company 314,735(3) 78,684
American National Bank &
Trust - Chicago 57,100 -
First Wilshire Securities
Management Inc. 18,800 -
Over-the-Counter Securities 142,000 -
Wellington Management 286,000(4) -
Bank of California 10,000 -
--------- -------
1,820,701 157,368
OPEN MARKET OWNERSHIP 2,432,565 -
OTHER OUTSTANDING STOCK OPTIONS
Brooks Hall - 220,000
-------
TOTAL OUTSTANDING SHARES OF AEC
COMMON STOCK AND OUTSTANDING
OPTIONS 7,304,366 500,368
=======
TREASURY STOCK 696,060
---------
TOTAL ISSUED SHARES OF AEC
COMMON STOCK 8,000,426
=========
</TABLE>
(1) Lila Alexander is the former wife of Bob G. Alexander. Mr. Alexander
maintains the voting rights for these shares.
(2) Amounts shown include both direct and indirect beneficial ownership.
(3) Mr. Christiansen, as Chairman of the Board of Energy Reserves, Inc. and
Midwest Energy Company, has beneficial interest in these shares and may
exercise influence of their vote.
(4) Amount shown was verified by Binkley Shorts of Wellington Management as of
March 9, 1988.
<PAGE> 99
EXHIBIT E
SUBSIDIARIES, PARTNERSHIPS AND JOINT VENTURES
A. Subsidiaries
1. Edwards & Leach Oil Company
a. Date of Incorporation - December 1, 1980
State of Incorporation - Delaware
b. Shares of Common Stock Authorized - 3,000
Shares of Common Stock Issued - 1
Alexander Energy Corporation wholly owns (100%) the issued
stock of Edwards & Leach Oil Company. This subsidiary accounts
for 25% or more of consolidated net worth, consolidated net
income, or consolidated net cash flow of the Company as
reflected in the financial statements described in Section
2.3.
This Subsidiary accounts for 25% or more of Consolidated Net Worth,
Consolidated Net Income or Consolidated Cash Flow of the Company as
reflected in the financial statements described in Section 2.3 of the
Agreement.
B. Partnerships and Joint Ventures
ELOC 1981 Program, Ltd.
ELOC 1982-A Program, Ltd.
Alexander Energy 1983 Program, Ltd.
AEJH 1985 Limited Partnership
AEER 1985 Limited Partnership
AEJH 1987 Limited Partnership
AEJH 1987-A Limited Partnership
Oak Grove Gas Gathering System, a Joint Venture
<PAGE> 100
EXHIBIT F
LITIGATION
1. The Company is a named party in a lawsuit, Ralph L. Harvey ("Harvey") v.
ELOC, ELOC 1982-A Program, Ltd. (the "Program") and the Company, brought
in the Oklahoma County, Oklahoma, District Court on January 10, 1986,
pursuant to which Harvey, as a limited partner in the Program, alleges that
ELOC, the Program and the Company breached their fiduciary duties to him in
connection with the Program's exploration activities. Harvey alleges the
Company, as the parent of ELOC, the general partner of the Program, is
liable for the breach of these duties because it allegedly controlled ELOC.
Harvey also contends a contract was created between ELOC, the Program and
Harvey and that the actions of ELOC and the Program constitute a breach of
that contract. Harvey seeks actual damages of $1,000,000 and punitive
damages of $250,000. The punitive damage claim is only against ELOC and the
Company. The Company is vigorously defending the suit and is proceeding to
initiate discovery. Management of the Company believes the suit to be
frivolous and totally without merit.
2. Samson Resources Company v. Edwards & Leach Oil Company ("ELOC"), et. al,
Case No. C-82-245, filed in the District Court of Dewey County, Oklahoma.
Samson sued ELOC for nonpayment of $254,607, plus interest and attorney
fees, which represents ELOC's share of cost associated with the recomple-
tion of the Clark 11-8 well. ELOC filed a counter-claim against Samson,
denying responsibility for such costs due to Samson's negligence during the
operation. The Company assumed ELOC's responsibility upon its merger with
ELOC.
<PAGE> 101
EXHIBIT G
CERTAIN LOANS AND LIENS
A. Secured note payable to bank, interest at prime (10% at May 16, 1988);
balance of $2,808,001 at May 16, 1988. This is a $6,000,000 line of credit
due October 1988, limited to a borrowing base of $4,000,000, which is
determined based on the bank's evaluation of the Company's semi-annual
reserves study. A 1/2% commitment fee is payable on the unused portion of
the revolving credit.
B. 7% convertible debenture due in quarterly installments of $71,500, plus
interest until 1991, at which time the balance is due, convertible into
common stock of the Company at $7.00 per share. Balance of $6,024,126 at May
16, 1988.
C. Secured note payable to bank, interest at prime (10% at May 16, 1988);
balance of $402,133 at May 16, 1988, due in monthly installments of
$25,,133, plus interest until retired in August 1989.
D. Adjustable rate mortgage note (8..92% at May 16, 1988) is secured by real
estate and is due in monthly installments until 2014. Current payment is
$1,761 monthly,, with $211,782 outstanding at May 1988.
E. Unsecured notes payable to officer/director, due in monthly installments of
$3,029 for amortization of $90,889 amount. Interest due quarterly at prime
(10% at May 16, 1988) with an additional $50,000 of principal due October
1996, unless accelerated by holder to a four year pay-out retroactive from
October 1986.
F. Unsecured note payable to former employee/stockholder, due in monthly
installment of $4,651, plus interest at prime (10% at May 16, 1988) until
September 1989. Current balance at May 1988 is $74,416.
G. Current liabilities including accounts payable, revenues payable, accrued
liabilities and other liabilities due within one year.
Borrowings under the line of credit (described in A above) and the Secured
Credit Agreement (described in B and C above) are secured by a mortgage on
substantially all oil and gas properties. The terms of the agreements
include, among other terms, a minimum net worth requirement, a prohibition
on the payment of dividends, a restriction on sale of assets, mergers and
acquisition of treasury stock, and a limitation on the incurrence of
additional indebtedness.
<PAGE> 102
EXHIBIT H
INSURANCE
Property & Casualty
<TABLE>
<CAPTION>
Type of Coverage Carrier Term Limits Policy Number
---------------- ------- ---- ------ -------------
<S> <C> <C> <C> <C>
Comprehensive Mid-Continent Casualty Co. 12/15/87-88 $1,000,000 GL 110403
General Liability
Excess Liability Pacific Insurance Company 12/15/87-88 $5,000,000 PI 69119
Umbrella excess of primary
Excess Liability Transamerica Insurance 12/15/87-88 $2,000,000 XLX 1300827
Umbrella Company excess of
$5,000,000
Commerical Mid-Continent Casualty Co. 4/1/88-89 $1,000,000 GLA 52115
Automobile
Workers' Compensation Mid-Continent Casualty Co. 4/1/88-89 Statutory Limits WC 100241
and Employers'
Liability
Control of Well and New Hampshire through 4/1/88-89 $2MM to 10,000' PMI 87109
Operators Extra Petroleum Marine Insurance $3MM below
Expense Inc., Houston, TX 10,000'
Personal Property Employers National 12/15/87-88 $250,000 164482
(office contents, Insurance Company
computers and
software)
Valuable Papers Mid-Continent Casualty Co. 12/15/87-88 $100,000 SP 26470
Commercial Property Cigna Insurance Company of 1/12/88-89 $300,000 TCP DI 80 58
& General Liability Texas 45 5
</TABLE>
Employee
<TABLE>
<CAPTION>
Type of Coverage Carrier Term Policy Number
---------------- ------- ---- -------------
<S> <C> <C> <C>
Health, Life and AD&D Association Life Insurance 8/1/87-88 Group 11765 Unit 6152
Company Inc.
Supplemental Life Principal Mutual Life 8/1/87-88 M50682-1
Insurance Company
Dental Security Benefit Life 8/1/87-88 GDB A0455-0001
Insurance Company
Long-Term Disability Union Life Insurance Company 8/1/87-88 0300210
of America
</TABLE>
<PAGE> 103
EXHIBIT I
CERTAIN AGREEMENTS
Secured Credit Agreement by and between the Company and Liberty National Bank
and Trust Company, Oklahoma City, Oklahoma, dated June 6, 1984, and including
First Amendment (November 30, 1984), Second Amendment (November 4, 1985), Third
Amendment (January 24, 1986) and Fourth Amendment (October 24, 1986).
Revolving line of credit (Note #402) as last amended on October 29, 1987.
<PAGE> 104
EXHIBIT J
AGREEMENTS TO REPURCHASE STOCK
Pursuant to certain Employee Stock Purchase Agreements entered into as of the
6th day of November, 1981, by and between the Company and individuals who were
employed by the Company at said date (the "Agreements"), the Company has the
right of first refusal to repurchase those shares of Company common stock
subject to the Agreements upon (a) the employee's termination of employment with
the Company or (b) the employee's receipt of a bona fide offer from a third
party to purchase all or part of his shares of Company common stock. The Company
is in no way obligated to repurchase said common stock.
Those individuals and the number of shares of Company common stock subject to
the above Agreements are as follows:
<TABLE>
<S> <C>
Donna Kay (nee: Ports) Alexander 94,000
F. Wayne Campbell 75,000
Jim L. David 847,415
David E. Grose 41,000
Kim A. Lockwood 92,000
Randy T. McKenzie 50,000
Connie K. Vinyard 11,500
</TABLE>
The Company has a conditional obligation to repurchase limited partnership
interests in ELOC 1981 Program, Ltd., ELOC 1982-A Program, Ltd. and Alexander
Energy 1983 Program, Ltd. The Company has a right of first refusal to purchase
shares pursuant to the John Hancock and Energy Reserve Investment Agreements.
<PAGE> 105
EXHIBIT K
[McAFEE & TAFT LETTERHEAD]
June 1, 1988
John Hancock Mutual Life Insurance
Company
John Hancock Place
P.O. Box 111
Boston, Massachusetts 02117
Re: Alexander Energy Corporation
Ladies and Gentlemen:
We have acted as counsel to Alexander Energy Corporation, an Oklahoma
corporation (the "Company"), in connection with the authorization, execution,
and delivery of that certain Note Agreement of even date herewith (the
"Agreement"), by and between you and the Company and that certain Investment
Agreement of even date herewith by and between you and the Company, and the
issuance and sale by the Company to you of that certain 10% Senior Note of even
date herewith in the original principal amount of $5,000,000.00 (the "Initial
Note") and of that certain Stock Purchase Warrant of even date herewith.
Capitalized terms used in this opinion not otherwise defined have the meanings
given to them in the Agreement.
In connection with this opinion, we have examined original executed
counterparts of the Agreement, the Investment Agreement, and the Officers'
Certificates delivered at the closing under the Agreement, the Initial Note, and
the Warrant. We also have examined the originals or duplicate copies certified
to our satisfaction of the articles of incorporation and the bylaws of the
Company and the Subsidiaries, such other corporate and other records of the
Company, the Subsidiaries, the Partnership, and the Joint Ventures as we have
deemed appropriate, and such other documents, instruments, and records as we
have deemed appropriate. We have assume the genuineness of all signatures, the
authenticity of all documents and records
<PAGE> 106
submitted to us as originals, and the conformity to originals of all documents
and records submitted to us as copies.
Based on the foregoing, having due regard for such legal consideration as
we deemed relevant, and subject to the qualifications hereinafter set forth, we
are of the opinion that:
1. The Company is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Oklahoma and has all requisite
power and authority and all necessary licenses and other governmental
authorizations to own and operate its Properties and to conduct its business as
such business is now and has heretofore been conducted and as presently proposed
to be conducted. The Company is duly qualified, authorized to do business, and
in good standing as a foreign corporation in each jurisdiction where the
character of its Properties or the nature of its activities makes such
qualification necessary, including, without limitation, the States of Arkansas,
California, Colorado, Kansas, Louisiana, Montana, Nebraska, New Mexico, Texas,
and Wyoming. The authorized number of shares of common stock of the Company is
20,000,000, par value $0.01 per share, and the Company is not authorized to
issue any other form of stock or equity security. As of the date hereof,
7,304,366 shares of such common stock are issued and outstanding. All of the
outstanding shares of capital stock of the Company are validly issued, fully
paid, and nonassessable, were issued in compliance with applicable securities
laws, and are owned of record as shown on Exhibit D to the Agreement.
2. To our knowledge, Exhibit E to the Agreement correctly lists all
Subsidiaries of the Company as of the date of this Agreement and, as to each
such Subsidiary, (i) its name, (ii) the jurisdiction of its incorporation, and
(iii) the percentage of its issued and outstanding shares owned of record by the
Company or another Subsidiary (specifying such other Subsidiary). Each
Subsidiary is a corporation duly organized, validly existing, and in good
standing under the laws of the jurisdiction of its incorporation and has all
requisite power and authority and all necessary licenses and other governmental
authorizations to own and operate its Properties and to conduct its business as
such business is now and has heretofore been conducted and as presently proposed
to be conducted, and is duly qualified,
-2-
<PAGE> 107
authorized to do business, and in good standing as a foreign corporation in each
jurisdiction where the character of its Properties or where the nature of its
activities makes such qualification necessary. All of the outstanding shares of
capital stock of each Subsidiary are validly issued, fully paid, and
nonassessable, all such shares indicated in Exhibit E to the Agreement as being
owned by the Company or by any other Subsidiary are held of record by the
Company or its nominees as specified on Exhibit E to the Agreement or by such
other Subsidiary or its nominees as specified on Exhibit E to the Agreement, and
to our knowledge there is no outstanding right, regardless of whether currently
exercisable, to acquire any capital stock of any Subsidiary the Net Worth of
which (i) exceeds 2% of Consolidated Net Worth, or (ii) when aggregated with the
Net Worth of all other Subsidiaries as to which there are such outstanding
rights, exceeds 5% of Consolidated Net Worth.
3. The Company has all necessary corporate power and authority to enter
into the Agreement and the Investment Agreement, to issue and sell the Notes and
the Warrant, and to perform all of the obligations to be performed by it
thereunder. The execution, delivery, and performance of the Agreement, the
Notes, the Investment Agreement, and the Warrant have been duly authorized by
all requisite action on the part of the officers, directors, and security
holders of the Company, and each of the Agreement, the Investment Agreement, the
Warrant, and the Initial Note constitutes, and each of the other Notes and the
stock to be issued pursuant to the Warrant when executed, delivered, and (if
applicable) paid for in accordance with the terms of the Agreement and the
Warrant will constitute, a valid and binding obligation of the Company,
enforceable in accordance with its terms.
4. The Company or a Subsidiary is a partner (and if such Partnership is a
limited partnership, is a general partner) in the Partnerships and is a party to
the Joint Ventures described on Exhibit E to the Agreement. To our knowledge,
none of the Company, the Subsidiaries, the Partnerships, and the Joint Ventures
has any equity interest in any Person other than the Subsidiaries and the
Company's and the Subsidiaries' interests in the Partnerships and the Joint
Ventures described in Exhibit E to the Agreement.
5. Except as set forth in Exhibit F to the Agreement, to our knowledge
there is no action, suit, proceeding,
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<PAGE> 108
arbitration, or investigation pending or threatened against the Company or any
Subsidiary, Partnership, or Joint Venture, or involving any of their assets, or
against any employee, officer, director, stockholder, or partner thereof in his
capacity as such or relating to his activities with the Company or any
Subsidiary, Partnership, or Joint Venture, that might result in any material and
adverse change in the Properties, business, prospects, profits, or condition
(financial or otherwise) of the Company or any Subsidiary, Partnership, or Joint
Venture, or the ability of the Company to perform its obligations under the
Agreement, the Notes, the Investment Agreement, or the Warrant, or the ability
of the Company or any Subsidiary, Partnership, Joint Venture to perform any
agreement entered into in connection herewith, and aware of any fact that might
result in or form the basis for any such action, suit, proceeding, arbitration,
or investigation. To our knowledge, none of the Company, the Subsidiaries, the
Partnerships, and the Joint Ventures is in default with respect to any order of
any court, governmental authority, or arbitration board or tribunal.
6. The execution, delivery, and performance by the Company of any of the
provisions of the Agreement, the Notes, the Investment Agreement, or the
Warrant, with or without the giving of notice or the passage of time or both,
will not violate any provision of law or any regulation or award, judgment,
order, injunction, or decree of any arbitrator or court or other governmental
body to which the Company or any Subsidiary, Partnership, or Joint Venture is
subject, or any provision of the Company's or any Subsidiary's articles of
incorporation or bylaws or the organizational documents of any Partnership or
Joint Venture, or to our knowledge result in the breach of or constitute a
default under any indenture, contract, or other agreement, document, or
instrument to which the Company or any Subsidiary, Partnership, or Joint Venture
is a party or by which it or any of its Properties are bound or affected, or to
our knowledge result in the creation or imposition of any Lien of any nature
whatsoever upon the Properties of the Company or any Subsidiary, Partnership, or
Joint Venture or cause the Company or any Subsidiary, Partnership, or Joint
Venture to lose the benefit of any material right or privilege it presently
enjoys or any Person who normally does a material amount of business with the
Company or any Subsidiary, Partnership, or Joint Venture to discontinue to do so
on the same basis.
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<PAGE> 109
7. No consent, authorization, approval, permit, or order of, or
declaration to or filing with, any governmental or regulatory authority is
required in connection with the execution, delivery, and performance of this
Agreement by the Company or the offer, issuance, sale, or delivery of the Notes
and the Warrant. The offer or sale of neither the Notes nor the Warrant nor the
stock issuable pursuant thereto is subject to the provisions of section 5 of
the 1933 Act, or to comparable provisions of any applicable state securities
laws.
8. Neither the Company nor any Subsidiary, Partnership, or Joint Venture
is a "utility company" or a "holding company" or a "subsidiary company" or an
"affiliate" of the foregoing, as such terms are defined in the Public Utility
Holding Company Act of 1935, as amended. To our knowledge, no determination has
been made by the Securities and Exchange Commission that the Company is subject
to a controlling influence by any such holding company. Neither the Company nor
any Subsidiary, Partnership, or Joint Venture is an "investment company" or a
company "controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
9. Except as provided in the agreements described on Exhibit J to the
Agreement, to our knowledge neither the Company nor any Subsidiary,
Partnership, or Joint Venture is obligated to purchase any stock, warrants,
or other equity interests in any of them or any debt or other security
convertible into any of the foregoing.
10. You shall not be required, solely on account of the transactions
contemplated by this Agreement, the Notes, the Warrant, and the Investment
Agreement, to do any of the following:
(i) qualify a foreign corporation or file a designation for service
of process or file any reports to any governmental agency of the State of
Oklahoma;
(ii) pay any taxes, fees, charges, under the laws of the State of
Oklahoma; or other levies or
(iii) file any returns in respect of any taxes or other matters
described in clause (ii) above.
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<PAGE> 110
The opinions set forth above are qualified in all respects by the
following:
a. We are licensed to practice law in the State of Oklahoma, and
accordingly our opinions set forth above are limited in all respect to laws of
such state and of United States America.
b. With respect to the opinion set forth in the second sentence of
paragraph 3 above, we note that enforceability of the documents and instruments
therein described may be limited by bankruptcy, insolvency, moratorium, and
other laws effecting creditors' rights generally and by general equitable
principles (whether arising in a proceeding inequity or otherwise), and we have
assumed that you have duly authorized, executed, and delivered the Agreement and
the Investment Agreement and have accepted delivery of the Initial Note and the
Warrant.
c. In rendering our opinion set forth in paragraph 7 above, we have relied
your representations and warranties set forth in Section 1.3 of the Agreement
and Section 2.2 of the Investment Agreement.
Very truly yours,
McAFEE & TAFT
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<PAGE> 111
EXHIBIT L
SCHEDULE OF INFORMATION FOR PAYMENT AND NOTICES
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
GUARANTEED BENEFIT SUB-ACCOUNT
1. All payments on account of the Notes or other obligations in accordance
with the provisions thereof shall be made by bank wire transfer of
immediately available funds for credit, not later than 12 noon, Boston
time, to:
The First National Bank of Boston
100 Federal Street
Boston, Massachusetts 02110
Attention: Insurance Division
Account of: John Hancock Mutual Life Insurance
Company, GBSA Account
Account Number: 535-84164
On Order of: Alexander Energy Corporation
2. Contemporaneous with the above wire transfer, advice setting forth (1) the
full name, interest rate and maturity date of the Notes or other
obligations; (2) allocation of payment between principal and interest and
any special payment; and (3) name and address of Bank (or Trustee) from
which wire transfer was sent, shall be delivered or mailed to:
John Hancock Mutual Life Insurance Company
John Hancock Place
P.O. Box 111
Boston, Massachusetts 02117
Attention: Securities Administration T-56
3. All other communications shall be delivered or mailed to:
John Hancock Mutual Life Insurance Company
John Hancock Place
P.O. Box 111
Boston, Massachusetts 02117
Attention: Bond and Corporate Finance Department,
T-57
4. All Securities acquired for the Guaranteed Benefit Sub-Account shall be
registered in the name of John Hancock Mutual Life Insurance Company.
<PAGE> 1
EXHIBIT 4(c)
NOTE AGREEMENT
Dated as of April 25, 1989
By and Among
AEJH 1989 LIMITED PARTNERSHIP,
ALEXANDER ENERGY CORPORATION
And
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
10-1/2% Senior Secured Notes
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
SECTION 1. PURCHASE AND SALE OF NOTES.................................. 1
1.1 Issue of Notes.............................................. 1
1.2 The Closing................................................. 3
1.3 Purchase for Investment..................................... 4
1.4 Failure to Deliver.......................................... 4
1.5 Expenses.................................................... 4
1.6 Escrow Arrangements......................................... 5
SECTION 2. WARRANTIES AND REPRESENTATIONS.............................. 10
2.1 Organization and Authority.................................. 10
2.2 Business.................................................... 12
2.3 Financial Statements........................................ 12
2.4 Full Disclosure............................................. 13
2.5 Pending Litigation.......................................... 14
2.6 Title to Properties......................................... 14
2.7 Compliance with Laws and Other Instruments.................. 15
2.8 No Defaults................................................. 15
2.9 Governmental Consents; Offering of Notes.................... 15
2.10 Taxes....................................................... 16
2.11 Use of Proceeds............................................. 16
2.12 Insurance Coverage.......................................... 17
2.13 Brokers and Finders......................................... 17
2.14 Restrictions on Company and Affiliates...................... 17
2.15 ERISA....................................................... 17
2.16 Trading With the Enemy Act, Etc.; Holding Company;
Investment Company........................................ 18
2.18 Trademarks, Patents, Etc. .................................. 19
2.19 Equity Repurchase Obligations............................... 19
2.20 Local Qualification and Taxes............................... 19
2.21 Hazardous Materials......................................... 20
SECTION 3. CLOSING CONDITIONS.......................................... 20
3.1 Your Conditions............................................. 20
3.2 Company's Condition......................................... 22
SECTION 4. PURCHASER'S SPECIAL RIGHTS................................... 22
4.1 Direct Payment............................................... 22
4.2 Delivery Expenses............................................ 22
4.3 Issue and Other Taxes........................................ 23
SECTION 5. REGISTRATION; SUBSTITUTION OF NOTES; INTEREST................ 23
5.1 Registration of Notes........................................ 23
5.2 Exchange of Notes............................................ 23
5.3 Replacement of Notes......................................... 24
5.4 Interest..................................................... 24
SECTION 6. COMPANY BUSINESS COVENANTS................................... 24
6.1 Payment of Taxes and Claims.................................. 24
6.2 Maintenance of Properties and Existence...................... 25
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
6.3 Payment of Notes and Maintenance of Office.................. 26
6.4 Covenant to Secure Note..................................... 27
6.5 Sale of Assets; Merger and Consolidation.................... 27
6.6 Liens and Encumbrances...................................... 29
6.7 Consolidated Debt........................................... 30
6.8 Distributions and Investments............................... 30
6.9 Guaranties.................................................. 30
6.10 ERISA Information and Compliance............................ 31
6.11 Transactions with Affiliates................................ 33
6.12 Sale or Discount of Receivables............................. 34
6.13 Business.................................................... 34
6.14 Acquisition of Notes........................................ 34
6.15 Certain Registrations or Approvals.......................... 34
6.16 Oil and Gas Business and Properties......................... 34
6.17 Indemnity With Respect to Certain Representations and
Warranties................................................ 35
SECTION 7. INFORMATION AS TO COMPANY................................... 37
7.1 Financial and Business Information.......................... 37
7.2 Officers' Certificates...................................... 40
7.3 Accountants' Certificate.................................... 41
7.4 Inspection.................................................. 41
SECTION 8. PREPAYMENT OF NOTES......................................... 42
8.1 Required Prepayments........................................ 42
8.2 Additional Required Prepayments; Additional Security........ 42
8.3 No Prepayment or Call....................................... 43
SECTION 9. EVENTS OF DEFAULT........................................... 43
9.1 Nature of Events............................................ 43
9.2 Default Remedies............................................ 46
9.3 Annulment of Acceleration of Notes.......................... 48
9.4 Recourse and Non-Recourse Matters........................... 48
SECTION 10. INTERPRETATION OF THIS AGREEMENT............................ 49
10.1 Terms Defined............................................... 49
10.2 Accounting Principles....................................... 59
10.3 Directly or Indirectly...................................... 59
10.4 Governing Law............................................... 59
10.5 References.................................................. 60
SECTION 11. MISCELLANEOUS............................................... 60
11.1 Notices..................................................... 60
11.2 Survival.................................................... 60
11.3 Successors and Assigns...................................... 60
11.4 Amendment and Waiver........................................ 61
11.5 Knowledge................................................... 62
11.6 Multiple Counterparts....................................... 62
</TABLE>
<PAGE> 4
DEFINED TERMS
-------------
<TABLE>
<S> <C>
1993 Act.............................................................. 4, 59
Affiliate............................................................. 49
Agreement............................................................. 1
Alexander Contract Operating Agreement................................ 9, 21
Assignments........................................................... 21
Business Day.......................................................... 49
Capitalized Lease Obligations......................................... 49
Chattel Paper......................................................... 49
Closing............................................................... 3, 49
Closing Date.......................................................... 3, 49
Code.................................................................. 49
Collateral............................................................ 2
Company............................................................... 1
Consolidated Debt..................................................... 49
Consolidated Net Income............................................... 50
Contract Operating Agreements......................................... 51
Contracts............................................................. 51
Control............................................................... 49
Default............................................................... 51
Distribution.......................................................... 51
ERISA................................................................. 51
ERISA Affiliate....................................................... 52
ERISA Event........................................................... 52
Escrow Agreement...................................................... 5
Escrow Properties..................................................... 6
Event of Default...................................................... 43, 52
Financing Statements.................................................. 4
First Lien Collateral................................................. 52
General Escrow Note................................................... 5
General Escrow Properties............................................. 6
General Partner....................................................... 1, 11
Governmental Authorities.............................................. 52
Guaranty.............................................................. 30, 52
Hazardous Materials................................................... 52
Hazardous Materials Claims............................................ 53
Hazardous Materials Laws.............................................. 53
Indebtedness.......................................................... 53
Industrial revenue bonds.............................................. 49
Institutional Holder.................................................. 53
Investments........................................................... 58
Joint Ventures........................................................ 54
Legal Requirements.................................................... 54
Lender Account........................................................ 7
Lien.................................................................. 54
Margin security....................................................... 16
Maximum Lawful Rate................................................... 1
Minerals.............................................................. 54
Mortgages............................................................. 3
Multiemployer Plan.................................................... 54
Net Proceeds.......................................................... 55
Net Revenue Interest.................................................. 14, 36
</TABLE>
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<PAGE> 5
<TABLE>
<S> <C>
Net Worth............................................................ 55
Non-Recourse Matters................................................. 55
Note Agreement....................................................... 1
Notes................................................................ 1, 55
NRI.................................................................. 14, 36
Officers' Certificate ............................................... 55
Oil and Gas Properties............................................... 3, 6
Partnership.......................................................... 55
PBGC................................................................. 56
Permits.............................................................. 56
Permitted Liens...................................................... 29, 56
Person............................................................... 56
Plan................................................................. 56
Pollution control bonds.............................................. 49
Present Value of Estimated Future Net Revenues....................... 56
Primary obligor...................................................... 30
Property or Properties............................................... 56
Purchase Agreement................................................... 16
Purchaser Account.................................................... 7
Receivables.......................................................... 57
Recourse Matters..................................................... 57
References........................................................... 60
Registered Notes..................................................... 2, 57
Release.............................................................. 7
Release Date......................................................... 7
Restricted Investments............................................... 58
Security............................................................. 58
Senior Secured Debt.................................................. 42
Stevens Escrow Note.................................................. 6
Stevens Escrow Properties............................................ 6
Subject Interests.................................................... 3
Subordinated Debt.................................................... 58
Subsidiary........................................................... 58
Substantial Part..................................................... 58
Surviving entity..................................................... 28
Valuation Date....................................................... 35
Voting Stock......................................................... 59
Wholly-Owned Subsidiary.............................................. 59
WI................................................................... 14, 36
Working Interest..................................................... 14, 36
Zilkha............................................................... 5, 16
Zilkha Account....................................................... 7
Zilkha Contract Operating Agreement.................................. 9, 21
</TABLE>
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<PAGE> 6
EXHIBITS
<TABLE>
<S> <C>
Exhibit 1.1(vi).................................. Registered Notes
Exhibit 1.1(vii)................................. Collateral
Exhibit 1.2(ii)-1................................ Form of Mortgage, Deed of
Trust, Assignment of
Proceeds, Security Agreement
and Financing Statement
Exhibit 1.2(ii)-2................................ Oil and Gas Properties
Exhibit 1.6(a)................................... Form of Escrow Agreement
Exhibit 1.6(a)(i)-1.............................. General Escrow Properties
Exhibit 1.6(a)(i)-2.............................. Stevens Escrow Properties
Exhibit 2.1(a)-1................................. Limited Partnership
Interests of Company
Exhibit 2.5...................................... Pending Litigation
Exhibit 2.12..................................... Insurance Coverage
Exhibit 2.14..................................... Restrictions Against
Consolidated Debt
Exhibit 2.19..................................... Equity Repurchase
Obligations
Exhibit 3.1(a)................................... Opinion of McAfee & Taft
Exhibit 3.1(h)(i)................................ Form of Assignment, Bill
of Sale and Conveyance
Exhibit 3.1(h)(ii)............................... Form of Alexander Contract
Operating Agreement
Exhibit 3.1(h)(iii).............................. Form of Zilkha Contract
Operating Agreement
Exhibit 4.1...................................... Schedule of Information
for Payments and Notices
</TABLE>
<PAGE> 7
AEJH 1989 LIMITED PARTNERSHIP
____________________________
$2,185,276.30
____________________________
10-1/2% Senior Secured Notes due December 31, 1999
Dated as of April 25, 1989
John Hancock Mutual Life
Insurance Company
Bond and Corporate Finance
Department, T-57
John Hancock Place
200 Clarendon Street
Boston, Massachusetts 02117
Attention: William A. Kinsley
Dear Sirs:
AEJH 1989 Limited Partnership (the "Company"), a Delaware limited
partnership, and its general partner, Alexander Energy Corporation, an Oklahoma
corporation (the "General Partner"), hereby agree with you as follows (this
letter agreement being entitled the "Note Agreement" and sometimes referred to
herein as this "Agreement" and certain terms being defined in Section 10.1 or
elsewhere herein):
SECTION 1. PURCHASE AND SALE OF NOTES
1.1 Issue of Notes. Subject to the provisions of Section 1.6, the
Company will duly authorize the issue of TWO MILLION ONE HUNDRED EIGHTY-FIVE
THOUSAND TWO HUNDRED SEVENTY-SIX AND 30/100 ($2,185,276.30) in aggregate
principal amount of its 10-1/2% Senior Secured Notes due December 31, 1999 (the
"Notes"). Each Note (i) will be in the amount of at least the lesser of
$500,000 or the remaining outstanding principal amount of any Note or Notes
being surrendered in exchange for the Note in question pursuant to Section 5.2
(except for any Notes issued pursuant to Section 1.6, which shall be in the
amount or amounts provided for therein), (ii) will bear interest on the unpaid
principal balance thereof from the date of the Note at the lesser of the rate
of 10-1/2% per annum or the maximum rate of interest that may be lawfully
contracted for, charged, taken, reserved, or received by you from the Company
in connection with this Agreement under applicable law (the "Maximum Lawful
Rate"), (iii) will require monthly payments of accrued interest in arrears on
the first Business Day of each calendar month, commencing June 1, 1989, until
the principal amount thereof
<PAGE> 8
shall be paid, with the final interest payment being due and payable
upon maturity of the Notes, (iv) will bear interest on any overdue principal
(including any overdue prepayment of principal) and (to the extent permitted by
applicable law) on any overdue installment of interest, at the lesser of (a)
the greater (determined on a daily basis) of (1) the rate of 12-1/2% per annum
and (2) the rate per annum that The Chase Manhattan Bank, N.A. announces
publicly from time to time as its "prime" rate of interest or successor rate,
and (b) the Maximum Lawful Rate, (v) will be subject to certain required
prepayments of principal, but will not otherwise be prepayable, and will mature
on December 31, 1999, (vi) will be substantially in the form set out in Exhibit
1.1 (vi) (herein sometimes called the "Registered Notes") to this Agreement, and
(vii) will be secured by the collateral described in Exhibit 1.1 (vii) hereto
(the "Collateral"). It is expressly stipulated and agreed to be the intention
of the Company and you to comply at all times with applicable laws governing
the maximum rate or amount of interest payable on or in connection with the
Notes. Accordingly, if any of the transactions contemplated hereby would be
usurious under applicable law now or hereafter governing the interest payable
hereunder (including applicable United States federal law or applicable state
law, to the extent not preempted by United States federal law), then, in that
event, notwithstanding anything to the contrary in this Note Agreement or any
other agreement entered into in connection with or as security for any Note, it
is agreed as follows: (x) the aggregate of all consideration that constitutes
interest under applicable law that is contracted for, charged, taken, reserved,
or received under such Note or under any of the other aforesaid agreements or
otherwise in connection with such Note under no circumstances shall exceed the
maximum amount of interest allowed by applicable law, and any excess shall be
credited on such Note by the holder thereof (or if such Note shall have been
paid in full, refunded to the Company); and (y) in the event that maturity of
such Note is accelerated by reason of an election by the holder thereof
resulting from any default hereunder or otherwise, or in the event of any
required or permitted prepayment or conversion, then such consideration that
constitutes interest may never include more than the maximum amount allowed by
applicable law, and excess interest, if any, provided for in such Note or
otherwise shall be cancelled automatically as of the date of such
acceleration or prepayment and, if theretofore prepaid, shall be credited
on such Note (or if such Note shall have been paid in full, refunded
to the Company), and the provisions of such Note, such Note Agreement
and any other agreements entered into in connection with or as
security for such Note shall immediately be deemed reformed and the
amounts thereafter collectible hereunder and thereunder reduced accordingly,
without the necessity of the execution of any new document, so as to
comply with the then applicable law. Determination of the
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<PAGE> 9
rate of interest for purposes of determining whether this transaction is
usurious under any applicable laws, to the full extent permitted by applicable
law, shall be made by amortizing, prorating, allocating, and spreading
throughout the full stated term hereof until payments in full, all sums at any
time contracted for, charged, taken, reserved, or received from the Company
for the use, forbearance, or detention of money in connection herewith.
1.2 The Closing. Subject to the terms and conditions hereof and
on the basis of the representations and warranties hereinafter set forth, the
Company hereby agrees to issue and sell to you, and you hereby agree to purchase
from the Company, in accordance with the provisions of this Agreement, up to the
aggregate principal amount of the Notes at a price of 100% of the principal
amount of the Notes. The closing of your purchase (the "Closing") shall be held
at 2:00 p.m. Boston time on April 25, 1989 ("Closing Date") at your offices in
Boston, Massachusetts. Subject to the provisions of Section 1.6, at the Closing
the Company will duly execute and deliver to you, against payment by check or
bank wire transfer (to an account in Massachusetts designated in writing to you
by the Company no later than twenty-four hours prior to the Closing) in
immediately available funds, (i) a single Note in the principal amount of
$2,052,122.50, dated the Closing Date and payable to you, and (ii) a Mortgage,
Deed of Trust, Assignment of Proceeds, Security Agreement and Financing
Statement substantially in the form of Exhibit 1.2(ii)-1 hereto as to each of
the oil, gas and mineral interests, leases, estates and other Properties (or
portions thereof or interests therein) described in Exhibit 1.2(ii)-2 hereto
(collectively, the "Oil and Gas Properties") (collectively, the "Mortgages") to
the extent of the rights, titles, interests and claims of the Company therein
and in the unitization and pooling agreements applicable thereto and the units
created thereby (such rights, titles, interests and claims of the Company being
herein referred to as the "Subject Interests"), regardless of whether such
rights, titles, interests or claims be under or by virtue of fee mineral or
surface interests, royalty interests, overriding royalty interests, net profits
interests, production payments and similar interests, leases, subleases, farmout
agreements or other participation agreements of any kind, unitization or pooling
agreements, unitization or pooling orders, operating agreements, division
orders, transfer orders or any other type of contract, conveyance or instrument
or under any other type of title, legal or equitable, recorded or unrecorded,
even though the Company's Subject Interest be incorrectly or incompletely
described in Exhibit 1.2(ii)-2, all as the same shall be enlarged by the
discharge of any payments out of production, by the removal of any charges or
encumbrances to which any of the same are or become subject, or by the entering
into of non-consent operations, together with the
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<PAGE> 10
related financing statements ("Financing Statements"), the Mortgages and
Financing Statements being in form and number of original counterparts suitable
for recordation in the appropriate public records where each Oil and Gas
Property is located.
1.3 Purchase for Investment.
(a) You represent to the Company that you are acquiring
the Notes for your own account for the purpose of investment and not
with a view to the resale or distribution thereof; provided, however,
that the disposition of your property shall at all times be within
your control. It is understood that, in making the representations set
out in Sections 2.7 and 2.9, the Company is relying, to the extent
applicable, upon your representation in this Section 1.3(a).
(b) You agree that you will not sell or otherwise dispose
of any Note in the absence of (i) registration under the Securities
Act of 1933, as amended (the "1933 Act") or any applicable state
securities laws, or (ii) an opinion acceptable in form to the Company
from counsel reasonably satisfactory to the Company (it being
understood that counsel on your in-house legal staff is satisfactory
counsel), or an opinion of counsel to the Company, to the effect that
no registration is required for such disposition, or (iii) as to the
1933 Act, a "no-action" letter from the staff of the Securities and
Exchange Commission to the effect that such staff will not recommend
any action to such commission if such a disposition takes place
without registration.
1.4 Failure to Deliver. Subject to Section 1.6, if at the Closing
the Company fails to tender to you the Notes to be purchased by you or the
Mortgages or the Financing Statements or if the conditions specified in Section
3.1 have not been fulfilled, you thereupon may elect to be relieved of all
further obligations under this Agreement. Nothing in this Section shall
operate to relieve the Company from any of its obligations hereunder or to
waive any of your rights against the Company.
1.5 Expenses. Regardless of whether the Notes are sold, except as
otherwise specifically provided in this Agreement or the documents delivered at
the Closing, the Company will pay all expenses relating to this Agreement,
including, without limitation, the following:
(a) the cost of reproducing this Agreement, the Notes,
the Mortgages, the Financing Statements, the Purchase Agreement, the
Contract Operating Agreements, the Escrow Agreement, and the other
documents contemplated hereby and thereby, and the cost of filing
-4-
<PAGE> 11
any of same (if applicable) in appropriate public records,
(b) the reasonable fees and disbursements of all of
your special counsel and special local counsel as well as the
Company's counsel and special title counsel,
(c) your reasonable out-of-pocket expenses,
(d) all expenses relating to any amendments, waivers or
consents pursuant to the provisions of this Agreement, the Notes, the
Mortgages, the Financing Statements, and the other documents
contemplated hereby and thereby,
(e) all expenses relating to the enforcement of your
rights under this Agreement, the Notes, the Mortgages, the Financing
Statements, and the other documents and transactions contemplated
hereby and thereby, and
(f) all expenses relating to the Escrow Agreement and the
transactions contemplated thereby, including without limitation, the
fees and expenses of the Escrow Agent, and the reasonable fees and
disbursements of all of your special counsel and special local counsel
as well as the Company's counsel and special title counsel incurred in
connection with the transactions contemplated by the Escrow Agreement.
The obligations of the Company under this Section 1.5 shall survive the payment
or prepayment, if any, of the Notes and the termination of this Agreement.
1.6 Escrow Arrangements.
(a) In addition to the transactions described in and
deliveries required pursuant to Section 1.2, it is understood and
agreed that, at the Closing, you, the Company and the General Partner
shall enter into with Zilkha Energy Company, a Delaware corporation
("Zilkha"), an Escrow Agreement substantially in the form of Exhibit
1.6(a) hereto (the "Escrow Agreement"), and the General Partner, the
Company and you shall perform or cause to be performed each of the
transactions provided therein to be performed by or caused to be
performed by the General Partner, the Company or you, respectively, at
or prior to Closing, including but not limited to the following:
(i) The Company will duly execute and deliver to
the Escrow Agent two Notes in the principal amount of
$75,123.79 (the "General Escrow Note") with respect to the
Escrow Properties identified on
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Exhibit 1.6(a)(i)-1 (the "General Escrow Properties") and
$58,030.00 (the "Stevens Escrow Note") with respect to the
Escrow Properties identified on Exhibit 1.6(a)(i)-2 (the
"Stevens Escrow Properties"), respectively, dated the Closing
Date and payable to you,
(ii) The Company will duly execute and deliver to
the Escrow Agent a Mortgage and a Financing Statement as to
each of the General Escrow Properties and the Stevens Escrow
Properties (collectively, the "Escrow Properties") such
Mortgages and Financing Statements being in form and number of
original counterparts suitable for recordation in the
appropriate public records where each Escrow Property is
located,
(iii) The General Partner will pay to the Escrow
Agent by bank wire transfer in immediately available funds the
amount of $28,532.95, and you shall pay to the Escrow Agent by
bank wire transfer in immediately available funds the amount
of $133,153.80 as lender,
to be held subject to and in accordance with the terms of the Escrow
Agreement. Nothing contained in this Section 1.6(a) is intended to or
shall be deemed to obligate any of the General Partner, the Company or
you to perform any of the foregoing in the event of the failure of any
other party to the Escrow Agreement to perform any of its obligations
thereunder.
(b) Anything to the contrary contained elsewhere in this
Agreement notwithstanding, but except for references to such term
contained in this Section 1.6 or in Exhibits 1.6(a)(i)-1 or
1.6(a)(i)-2, the term "Oil and Gas Properties" shall be deemed not to
include any Escrow Property unless and until an Assignment executed
and delivered by Zilkha to the Escrow Agent at the Closing and
covering such Escrow Property is released and delivered to the Company
as provided therein. Upon such delivery, the Escrow Properties
affected by each such Assignment shall be deemed to be included in the
Oil and Gas Properties for all purposes hereunder effective as of the
Closing Date, and the release and delivery to you by the Escrow Agent
of the Mortgages and the Financing Statements with respect to such
Escrow Properties shall, and shall be deemed to, constitute
delivery of such Mortgages and Financing Statements from the Company
to you, effective as of the Closing Date.
(c) Upon release and delivery by the Escrow Agent to the
Company of Assignments, and to you of Mortgages and Financing
Statements, affecting any Escrow
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Properties, the release of funds out of the account maintained by the
Escrow Agent on behalf of you as lender pursuant to the Escrow
Agreement (the "Lender AcCount") by the Escrow Agent to the account
maintained by the Escrow Agent on behalf of the Company pursuant to
the Escrow Agreement (the "Purchaser Account") or, on behalf of the
Company, to the account maintained by the Escrow Agent on behalf of
Zilkha (the "Zilkha Account") with respect to such Escrow Properties
shall, to the extent of the funds so released, be deemed to constitute
payment by you to the Company of the purchase price for the General
Escrow Note (in the case of the General Escrow Properties) and/or the
Stevens Escrow Note (in the case of the Stevens Escrow Properties)
released and delivered by the Escrow Agent to you with respect to such
Escrow Properties, and upon receiving any such Note or Notes you shall
surrender such Note or Notes, to the Company in exchange for a single
Note in the aggregate principal amount outstanding under all of the
Notes so surrendered, which exchange shall take place on the Release
Date (as defined below); provided, however, that for purposes of
calculating the aggregate outstanding principal thereunder, to the
extent that any amounts deposited by you at Closing into the Lender
Account remain in the Lender Account under the Escrow Agreement or are
released and refunded to you, the amount of such funds so retained or
refunded shall be considered not to have been advanced and therefore
shall not constitute outstanding principal. Simultaneously with such
exchange, the Company shall execute and deliver to the Escrow Agent a
single Note in the principal amount of the amount remaining in the
Lender Account with respect the General Escrow Properties (if the
Properties released were General Escrow Properties) and a single Note
in the principal amount of the amount remaining in the Lender Account
with respect to the Stevens Escrow Properties (if the Properties
released were Stevens Escrow Properties) remaining under the Escrow
Agreement, dated the Closing Date and payable to you, to be held by
the Escrow Agent in accordance with the terms of the Escrow Agreement.
The date of any such release of Escrow Properties, funds and related
documents (the "Release", whether one or more) is herein referred to
as the "Release Date" (whether one or more).
(d) Anything to the contrary contained herein or in the
Escrow Agreement notwithstanding, but subject to Section 1.6(e) below,
the General Partner and the Company hereby agree that they shall
not execute or deliver any Release Notice (as that term is defined in
the Escrow Agreement) unless and until the following conditions
precedent have been met:
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<PAGE> 14
(i) Opinions of Counsel. You shall have received
from McAfee & Taft, counsel for the Company, and from Vinson &
Elkins, your special counsel, and Sullivan & Worcester, your
special Massachusetts counsel, and Richards, Layton & Finger,
your special Delaware counsel, opinions dated as of the
Release Date in question to the effect of the opinions
furnished by them on the Closing Date.
(ii) Warranties and Representations True as of
Closing Date. The warranties and representations contained
herein or in any exhibit, certificate, or document delivered
pursuant hereto shall be true and complete in all material
respects on the Release Date in question with the same effect
as though made on and as of the Release Date in question,
subject to any change hereafter because of any action required
by this Agreement and subject to any waiver by you in writing
of any such representation or warranty.
(iii) Compliance with Business Covenants. Neither
the Company nor the General Partner shall be taking any action
or permitting any condition to exist that would be prohibited
by Section 6.
(iv) Compliance with this Agreement. The Company
and the General Partner shall have performed and complied with
all agreements and conditions on its respective part required
to be performed or complied with by the Company or the General
Partner, as the case may be, pursuant to this Agreement and
the Mortgages before or at the Release in question.
(v) No Material Adverse Changes. No event shall
have occurred and no condition shall exist that has or might
result in a material and adverse change in the Properties,
business, prospects, profits, or condition (financial or
otherwise) of the Company or the General Partner, or the
ability of the Company to perform its obligations under this
Agreement, the Note, the Mortgages, the Contract Operating
Agreements and the Escrow Agreement, and any other agreement
entered into in connection herewith, or the ability of the
General Partner to perform its obligations under this
Agreement, the Company's Agreement of Limited Partnership,
the Contract Operating Agreements and the Escrow Agreement.
(vi) Officers' Certificate. You shall have
received an Officers' Certificate dated the Release
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<PAGE> 15
Date in question certifying that the conditions specified in
Section 1.6(d) (ii) through (v) have been fulfilled.
(vii) Legality. The Notes, as secured by the Liens
created pursuant to the Mortgages and the Financing
Statements, and your interest as a limited partner in the
Company shall qualify immediately after the Release Date in
question as a legal investment for insurance companies under
chapter 175, section 63 of the Massachusetts General Laws, and
you shall have received such evidence as you may reasonably
request to establish compliance with this condition.
(viii) Certain Documents. You shall have received
from the Company evidence satisfactory to you of the complete
execution and delivery:
(a) by Zilkha to the Escrow Agent of an
Assignment, Bill of Sale and Conveyance substantially
in the form of Exhibit 3.1(h)(i) hereto as to each of
the Escrow Properties to be released to the Company,
(b) by the General Partner and the
Company of a Contract Operating Agreement
substantially in the form of Exhibit 3.1(h)(ii) hereto
(the "Alexander Contract Operating Agreement") with
respect to those of the Escrow Properties identified
in said Exhibit 3.1(h)(ii),
(c) by Zilkha, the General Partner and
the Company of a Contract Operating Agreement
substantially in the form of Exhibit 3.1(h)(ii)
hereto (the "Zilkha Contract Operating Agreement")
with respect to those of the Escrow Properties
identified in said Exhibit 3.1(h)(iii),
(d) the transactions provided in the
Escrow Agreement to take place at or prior to the
Release shall have been completed in all respects.
(ix) Proceedings Satisfactory. All proceedings
taken in connection with the issuance and sale of the Notes
and your interest as a limited partner in the Company and
the other transactions contemplated hereby and all
documents and papers relating thereto shall be satisfactory
to you and your special counsel. You and your special counsel
shall have received copies of such
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<PAGE> 16
closing documents as you or they may reasonably request in
connection therewith, all in form and substance satisfactory
to you and your special counsel.
(e) The provisions of Section 1.6(d) notwithstanding, as
long as the requirements of Section 1.6(d) have not been satisfied
with respect to any Escrow Properties proposed to be released, then
the General Partner and the Company shall not deliver any notice
providing for, and shall not cause, the Company to, acquire such
Escrow Properties, although the Company may, subject to the terms of
its Agreement of Limited Partnership and the Escrow Agreement, elect
to acquire such Escrow Properties using its own funds and not those
held in the Lender Account, or the General Partner may elect to
acquire such Escrow Properties in its own name, provided in each case
that the funds being held in the Lender Account with respect to such
Escrow Properties shall be returned to you upon the release of
Assignments with respect to such Escrow Properties to the Company or
the General Partner.
SECTION 2. WARRANTIES AND REPRESENTATIONS
The Company and the General Partner warrant and represent to you, as
of the date of this Agreement and again as of the Closing Date, that:
2.1 Organization and Authority.
(a) The Company is a limited partnership duly organized,
validly existing, and in good standing under the laws of the State of
Delaware and has all requisite power and authority and all necessary
Permits to own and operate its Properties now owned or to be acquired
pursuant to the Purchase Agreement and to conduct its business as
such business is now and has heretofore been conducted and as
presently proposed to be conducted. The Company is duly qualified,
authorized to do business, and in good standing as a foreign limited
partnership in each jurisdiction where the character of its Properties
now owned or to be acquired pursuant to the Purchase Agreement or the
nature of its activities now and as presently proposed to be conducted
makes such qualification necessary, including, without limitation, the
States of Oklahoma and Texas. All of the outstanding limited
partnership interests of the Company are validly issued, were
issued in compliance with applicable securities laws, and are owned
beneficially and of record as shown in Exhibit 2.1(a)-1. The Company
heretofore has delivered to you true and complete copies of the
Company's Agreement of Limited
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<PAGE> 17
Partnership, including, without limitation, all amendments thereto.
The Company's sole general partner is Alexander Energy Corporation, a
corporation duly organized, validly existing, and in good standing
under the laws of the State of Oklahoma, which has all requisite power
and authority and all necessary Permits to own and operate its
Properties and to conduct its business as such business is now and has
heretofore been conducted and as presently proposed to be conducted.
The General Partner is duly qualified, authorized to do business, and
in good standing as a foreign corporation in each jurisdiction where
the character of its Properties or the nature of its activities makes
such qualification necessary, including, without limitation, the State
of Texas. The Company heretofore has delivered to you true and
complete copies of the General Partner's articles of incorporation and
bylaws, including, without limitation, all amendments thereto.
(b) The Company has no Subsidiaries, and is not a partner
in any Partnerships or a party to any Joint Venture, and has no equity
interest in any Person.
(c) The Company has all necessary limited partnership
power and authority to enter into, execute and deliver this Agreement,
the Notes, the Mortgages, the Financing Statements, the Contract
Operating Agreements and the Escrow Agreement, and to perform all of
the obligations to be performed by it hereunder and thereunder. The
General Partner has all necessary corporate power and authority to
enter into, execute and deliver as General Partner of the Company this
Agreement, the Company's Agreement of Limited Partnership, the Notes,
the Mortgages, the Financing Statements, the Contract Operating
Agreements and the Escrow Agreement. The General Partner has all
necessary corporate power and authority to enter into, execute and
deliver on its own behalf this Agreement, the Company's Agreement of
Limited Partnership, the Escrow Agreement and the Contract Operating
Agreements. The execution, delivery, and performance of this
Agreement, the Company's Agreement of Limited Partnership, the Notes,
the Mortgages, the Financing Statements, the Contract Operating
Agreements and the Escrow Agreement have been duly authorized by all
requisite action on the part of the partners of the Company and the
officers, directors, and security holders of the General Partner. This
Agreement constitutes, and each of the Notes, the Mortgages, the
Contract Operating Agreements and the Escrow Agreement when executed,
delivered, and (if applicable) paid for in accordance with the terms
of this Agreement, will constitute, a valid and binding obligation of
the Company, enforceable in accordance with its terms. This Agreement
constitutes, and the
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<PAGE> 18
Company's Agreement of Limited Partnership, the Escrow Agreement and
the Contract operating Agreements when executed, delivered, and (if
applicable) paid for in accordance with the terms of this Agreement,
will constitute, a valid and binding obligation of the General Partner
in its own behalf, enforceable in accordance with its terms.
2.2 Business. The Company was organized in 1989 and is engaged
exclusively in the development of, and production of oil and gas and related
hydrocarbons from, the Property to be acquired pursuant to the Purchase
Agreement, and the acquisition, disposition, and operation through others on
its behalf of real and personal property in connection therewith, and from time
to time also may engage in any or all other activities necessary or desirable
and relating to such business including, without limitation, the treatment,
transportation, and marketing of oil and gas and related hydrocarbons or
products derived therefrom.
2.3 Financial Statements. The Company heretofore has delivered to
you the following financial statements: (i) the unaudited pro forma balance
sheet of the Company dated as of the date of this Agreement, reflecting
consummation of the transactions contemplated by the Purchase Agreement and
this Agreement, (ii) the audited consolidated balance sheets of the General
Partner, the General Partner's partnerships and Joint Ventures, as applicable,
and the General Partner's Subsidiaries as of March 31, 1986, 1987 and 1988, and
the related consolidated statements of operations, changes in shareholders'
equity, and changes in financial position for the years ended March 31, 1986,
1987 and 1988, together with the notes thereto, as certified by Arthur Young &
Co., Certified Public Accountants, and (iii) the unaudited consolidated
balance sheet of the General Partner and its Subsidiaries as of December 31,
1988, and the related consolidated statements of operations, changes in
shareholders' equity, and changes in financial position for the nine-month
period ended December 31, 1988. Such financial statements described in clauses
(ii) and (iii) include the accounts of the General Partner and its Subsidiaries
and their share of the assets, liabilities and operations of the General
Partner's Partnerships and Joint Ventures. All such financial statements
present fairly, in accordance with generally accepted accounting principles
(applied on a consistent basis except as disclosed in the notes thereto), the
financial position of the Company and the consolidated financial position and
consolidated results of operations of the General Partner and its Subsidiaries
as of the dates and for the periods therein set forth. As of the date of the
balance sheets included in the most recent unaudited consolidated financial
statements of the Company and the General Partner delivered to you, which are
dated as of the date of this Agreement and December 31, 1988,
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<PAGE> 19
respectively, none of the Company, the General Partner or the Subsidiaries,
Partnerships, and Joint Ventures of the General Partner had any debts,
liabilities or obligations, whether absolute, accrued, contingent, or
otherwise, that are not fully reflected in such balance sheets or the notes
thereto other than those that, in any one case or in the aggregate, would not
have a material and adverse effect on the business, assets, liabilities,
condition (financial or otherwise), affairs, operations, or prospects of the
Company or the General Partner or such Subsidiary, Partnership or Joint Venture
of the General Partner, or the ability of the Company to perform its
obligations under this Agreement, the Notes, the Mortgages, the Contract
Operating Agreements and the Escrow Agreement and any other agreement entered
into in connection therewith, as of such date, or the ability of the General
Partner to perform its obligations under this Agreement, the Company's
Agreement of Limited Partnership, the Escrow Agreement and the Contract
Operating Agreements or any other agreement entered into in connection
therewith, as of such date. Since December 31, 1988, there has not been any
material and adverse change in the financial condition, results of operations,
business or prospects of the General Partner or any Subsidiary, Partnership or
Joint Venture of the General Partner, and there has been no occurrence or other
event or condition that might reasonably be expected to result in such material
and adverse change after the date hereof.
2.4 Full Disclosure. None of the financial statements referred to
in Section 2.3, and neither this Agreement nor any writing furnished by or on
behalf of the Company or the General Partner to you pursuant to or in
connection with this Agreement or the negotiation of the issuance of the Notes
contains any untrue statement of a material fact or omits a material fact
necessary to make the statements contained therein or herein not misleading in
light of the circumstances under which they are made; provided, however, that
in the case of projections (if any) prepared jointly by the Company and you,
the Company represents and warrants only the factual information serving as a
basis for such projections and not the assumptions therein. To the knowledge of
the Company and the General Partner, there is no fact or circumstance that the
Company has not disclosed to you in writing and that, in its judgment,
materially and adversely affects, or threatens in the future materially and
adversely to affect, the business, Properties, liabilities, condition
(financial or otherwise), affairs, operations, or prospects of the Company or
the General Partner, or the ability of the Company to perform its obligations
under this Agreement, the Notes, the Mortgages, the Contract Operating
Agreements and the Escrow Agreement and any other agreement entered into in
connection herewith, or the ability of the General Partner to perform its
obligations under this Agreement, the Company's Agreement of Limited
Partnership,
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<PAGE> 20
the Escrow Agreement and the Contract Operating Agreements, in each case other
than economic trends or proposed legislation affecting the oil and gas industry
generally.
2.5 Pending Litigation. Except as set forth in Exhibit 2.5, there
is no action, suit, proceeding, arbitration, or investigation pending or, to the
best knowledge of the Company or the General Partner, threatened against the
Company or the General Partner, or involving any of their assets, or against
any employee, officer, director, stockholder, or partner thereof in his
capacity as such or relating to his activities with the Company or the General
Partner, that might result in any material and adverse change in the
Properties, business, prospects, profits, or condition (financial or otherwise)
of the Company or the General Partner, or the ability of the Company to perform
its obligations under this Agreement, the Notes, the Mortgages, the Contract
Operating Agreements and the Escrow Agreement and any other agreement entered
into in connection herewith or the ability of the General Partner to perform
its obligations under this Agreement, the Company's Agreement of Limited
Partnership, the Escrow Agreement and the Contract Operating Agreements. Except
as set forth in Exhibit 2.5, based upon the knowledge of the officers and
directors of the General Partner after due investigation, none of the Company
or the General Partner is aware of any fact that might result in or form the
basis for any such action, suit, proceeding, arbitration, or investigation, or
of any action, suit, proceeding, arbitration or investigation affecting the
Properties to be acquired pursuant to the Purchase Agreement. The Company is
not in default with respect to any Legal Requirement.
2.6 Title to Properties. The Company has good and defensible title
to all Properties used or held for use in its business (other than to
non-producing oil and gas properties, with respect to which the Company has
made such examinations of title, and is satisfied it has such title, as
conforms to best industry practice for such types of properties), and shall
have, upon consummation of the transactions contemplated by the Purchase
Agreement described in Section 2.11, good and defensible title to the Oil and
Gas Properties that (x) entitles the Company to receive from its record title
ownership of each such Oil and Gas Property not less than the interest shown as
the "Net Revenue Interest" or "NRI" therefor shown on Exhibit 1.2(ii)-2 of all
Minerals produced, saved and marketed from such Oil and Gas Properties without
reduction, suspension or termination throughout the productive life of such Oil
and Gas Properties, (y) obligates the Company to bear a percentage of the
costs and expenses relating to operations on and the maintenance and
development of such Oil and Gas Properties and wells associated therewith not
greater than the interest shown as the "Working Interest" or "WI" for each such
Oil and Gas
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<PAGE> 21
Property in Exhibit 1.2(ii)-2 without increase throughout the productive life
of such producing Property, and (z) is otherwise free and clear of all Liens
other than Permitted Liens.
2.7 Compliance with Laws and Other Instruments. The business and
operations of the Company have been and are being conducted in accordance with
all Legal Requirements to which it is subject, and the Company has not failed
to obtain any Permits, the failure to comply with or obtain which, either
singly or in the aggregate, would have a material and adverse effect upon the
Properties, business, prospects, profits, or condition (financial or otherwise)
of the Company. The execution, delivery, and performance by the Company of any
of the provisions of this Agreement, the Notes, the Mortgages, the Financing
Statements, the Contract Operating Agreements and the Escrow Agreement, or by
the General Partner of any of the provisions of this Agreement, the Company's
Agreement of Limited Partnership, the Escrow Agreement and the Contract
Operating Agreements with or without the giving of notice or the passage of
time or both, will not violate any Legal Requirements to which the Company or
the General Partner is subject, or any provision of the Company's Agreement of
Limited Partnership or the articles of incorporation or bylaws of the General
Partner, or result in the breach of or constitute a default under any Contract
of the Company or the General Partner, or result in the creation or imposition
of any Lien of any nature whatsoever upon the Properties of the Company or, to
the best knowledge of the Company and the General Partner, will cause the
Company to lose the benefit of any material right or privilege it presently
enjoys or cause any Person who normally does a material amount of business with
the Company to discontinue to do so on the same basis.
2.8 No Defaults. No event has occurred and no condition exists
that, upon the issuance of the Notes, would constitute a Default or an Event
of Default. Each of the Company and the General Partner in all material
respects has performed all obligations required to be performed by each of them
to date by this Agreement or any agreement entered into in connection herewith,
and is not in violation of its articles of incorporation, bylaws, agreement of
limited partnership or other organizational documents, nor is the Company in
default under any Contract to which it is a party or by which it may be bound,
and no event or condition has occurred that, with the giving of notice or
passage of time, or both, would constitute a default by the Company under any
such Contract.
2.9. Governmental Consents; Offerinq of Notes. No Permit, and no
declaration to or filing with any Governmental Authority, is required in
connection with the execution, delivery, and performance of this Agreement,
the
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<PAGE> 22
Mortgages, the Financing Statements, the Contract Operating Agreements and the
Escrow Agreement by the Company, or this Agreement, the Company's Agreement of
Limited Partnership, the Escrow Agreement and the Contract Operating Agreements
by the General Partner, or the offer, issuance, sale, or delivery of the Notes.
Neither the Company or the General Partner nor any agent acting on its behalf
has, directly or indirectly, sold or offered for sale, or solicited any offers
to buy, any securities, or otherwise approached or negotiated with any Person
or Persons, so as to subject the offer or sale of the Notes to the provisions
of section 5 of the 1933 Act, or to comparable provisions of any applicable
state securities laws, and, except as expressly provided to the contrary in
this Agreement, the Company agrees that neither it nor the General Partner nor
any agent acting on its behalf will take any action that would subject the
offer or sale of the Notes, to those provisions or that is intended by the
Company to have the effect of preventing or otherwise hindering the sale by you
of the Notes.
2.10 Taxes. The Company has accurately prepared and duly and timely
filed with the appropriate governmental agencies all federal, state, and local
income, franchise, real and personal property, excise, severance, and other tax
returns and reports required to be filed and has paid all taxes shown or
claimed to be due thereon. The Company has not executed or filed with the
Internal Revenue Service any agreement extending the period for assessment and
collection of any federal tax, nor is the Company a party to any action or
proceeding by any governmental authority for assessment and collection of
taxes, and no claim for assessment and collection of taxes which has been
asserted against the Company remains unpaid.
2.11 Use of Proceeds. The Company will use the proceeds of the sale
of the Notes to you to discharge its organizational expenses and the expenses
of this transaction, and to acquire from Zilkha certain interests in the Oil
and Gas Properties pursuant to and in accordance with the terms of that certain
Purchase Agreement dated as of April 25, 1989, and entered into by and among
Zilkha, the General Partner and the Company (the "Purchase Agreement"). None of
the transactions contemplated in this Agreement (including, without limitation,
the use of the proceeds from the sale of the Notes) will violate or result in a
violation by the Company or any of its Affiliates of section 7 of the
Securities Exchange Act of 1934, as amended, or any regulations issued pursuant
thereto, including, without limitation, Regulations G (12 C.F.R. 207, as
amended), T (12 C.F.R. 220, as amended), U (12 C.F.R. 221, as amended), and X
(12 C.F.R. 2.24, as amended) of the Board of Governors of the Federal Reserve
System. Neither the Company nor any Affiliate owns or intends to carry or
purchase any "margin security" within the meaning of said Regulation G or U
or X,
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<PAGE> 23
including, without limitation, margin securities originally issued by it.
2.12 Insurance Coverage. Exhibit 2.12 contains an accurate list of
the insurance coverage maintained by the Company. Such coverage, in the
Company's and the General Partner's judgment, is adequate for the business
being conducted by the Company and properties owned or leased by the Company or
to be acquired by the Company pursuant to the Purchase Agreement.
2.13 Brokers and Finders. No Person has or will have any right,
interest, or valid claim against you or the Company because of any agreement or
undertaking by the Company or the General Partner or other Person acting on
behalf of the Company or any of the foregoing for any commission, fee, or other
compensation as a result of this transaction as a finder or broker or in any
similar capacity as a result of any act or omission by the Company or
the General Partner or other Person acting on behalf of the Company. The Company
hereby agrees to indemnify you and hold you harmless from and against any and
all such commissions, fees, or other compensation together with any and all
claims, disputes or other losses or costs (including, without limitation,
reasonable attorneys' fees) arising from agreements or undertakings of the
Company or the General Partner or other Person acting on behalf of the Company.
2.14 Restrictions on Company and Affiliates. The Company is not a
party to any Contract, or subject to any corporate, partnership, or other
restriction, that materially and adversely affects the business of the Company.
Except as described on Exhibit 2.14, the Company is not a party to any contract
or agreement that restricts the right or ability of such entity to incur
Consolidated Debt other than this Agreement. The Company has not agreed or
consented to cause or permit in the future (upon the happening of a contingency
or otherwise) the Property of the Company, whether now owned or hereafter
acquired, to be subject to a Lien not permitted by Section 6.6.
2.15 ERISA.
(a) The Company and each ERISA Affiliate have complied in
all material respects with ERISA and, where applicable, the Code
regarding each Plan.
(b) Each Plan is, and has been, maintained in
substantial compliance with ERISA and, where applicable, the Code.
(c) No act, omission or transaction has occurred which
could result in imposition on the Company or any ERISA Affiliate
(whether directly or indirectly) of (i)
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<PAGE> 24
either a civil penalty assessed pursuant to Section 502(c) or (i) of
ERISA or a tax imposed pursuant to Section 4975 of the Code or (ii)
breach of fiduciary duty liability damages under Section 409 of ERISA.
(d) No Plan (other than a defined contribution plan) or
any trust created under any such Plan has been terminated since
September 2, 1974. No liability to the PBGC (other than for the
payment of current premiums which are not past due) by the Company or
any ERISA Affiliate has been or is expected by the Company or any
ERISA Affiliate to be incurred with respect to any Plan. No ERISA
Event with respect to any Plan has occurred.
(e) Full payment has been made of all amounts which the
Company or any ERISA Affiliate is required under the terms of each
Plan or applicable law to have paid as contributions to such Plan as
of the date hereof, and no accumulated funding deficiency (as defined
in Section 302 of ERISA and Section 412 of the Code), whether or not
waived, exists with respect to any Plan.
(f) The actuarial present value of the benefit
liabilities under each Plan which is subject to Title IV of ERISA does
not, as of the end of the General Partner's most recently ended fiscal
year, exceed the current value of the assets (computed on a plan
termination basis in accordance with Title IV of ERISA) of such Plan
allocable to such benefit liabilities. The term "actuarial present
value of the benefit liabilities" shall have the meaning specified in
Section 4041 of ERISA.
(g) Neither the Company nor any ERISA Affiliate sponsors,
maintains, or contributes to an employee welfare benefit plan, as
defined in Section 3(1) of ERISA, including, without limitation, any
such plan maintained to provide benefits to former employees of such
entities, that may not be terminated by the Company or any ERISA
Affiliate in its sole discretion at any time without any material
liability.
(h) Neither the Company nor any ERISA Affiliate sponsors,
maintains or contributes to, or has at any time in the six-year period
preceding the date of this Agreement sponsored, maintained or
contributed to, any Multiemployer Plan.
2.16 Trading With the Enemy Act, Etc.; Holding Company; Investment
Company. Neither this Agreement nor any of the transactions contemplated hereby
is or would be in violation of the Trading With the Enemy Act, as amended, the
International Emergency Economic Powers Act or the Executive
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Orders of the President of the United States issued pursuant to such Act, or
any regulations issued under such Acts or Executive Orders, including, without
limitation, the following regulations of the United States Treasury Department
(31 C.F.R. subtitle B, chapter V, as amended): the Foreign Assets Control
Regulations, the Transactions Control Regulations, the Cuban Assets Control
Regulations, the Foreign Funds Control Regulations, the Iranian Assets Control
Regulations, the Libyan Sanctions Regulations, the Nicaraguan Trade Control
Regulations, and the South African Transactions Regulations; nor will the
proceeds of the sale of the Notes be used by the Company in a manner that would
violate any such Acts, Executive Orders, or regulations. The Company is not a
"utility company" or a "holding company" or a "subsidiary company" or an
"affiliate" of the foregoing, as such terms are defined in the Public Utility
Holding Company Act of 1935, as amended. No determination has been made by the
Securities and Exchange Commission that the Company is subject to a controlling
influence by any such holding company. The Company is not an "investment
company" or a company "controlled" by an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
2.18 Trademarks, Patents, Etc. The Company possesses such
trademarks, tradenames, copyrights, patents, licenses, or rights in any
thereof, as are adequate for the conduct of its business, without known
conflict with the rights of others.
2.19 Equity Repurchase Obliqations. Except as provided in the
agreements described on Exhibit 2.19, the Company is not a party to any
obligation to purchase any stock, warrants, or other equity interests in itself
or the General Partner or any debt or other security convertible into any of
the foregoing.
2.20 Local Qualification and Taxes. You shall not be required,
solely on account of the transactions contemplated by this Agreement, the
Notes, the Mortgages, the Financing Statements, the Contract Operating
Agreements and the Escrow Agreement, to do any of the following:
(a) qualify as a foreign corporation or file a
designation for service of process or file any reports to any
governmental agency of the State of Oklahoma or Texas or any other
jurisdiction in which the Company or the General Partner owns
Properties or transacts business;
(b) pay any taxes, fees, charges, or other levies under
the laws of any such jurisdiction; or
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(c) file any returns in respect of any taxes or other
matters described in Section 2.20(b).
2.21 Hazardous Materials. No Hazardous Materials have at any time
been extracted from, transported to or from, or used, generated, stored or
disposed of on, under or about, the Oil and Gas Properties in violation of any
Hazardous Materials Laws or in any manner that could lead to the existence of
any Hazardous Materials Claims.
SECTION 3. CLOSING CONDITIONS
3.1 Your Conditions. Your obligation to purchase and pay for the
Notes to be delivered to you at the Closing shall be subject to the following
conditions precedent:
(a) Opinions of Counsel. You shall have received from
McAfee & Taft, counsel for the Company, the closing opinion described
in Exhibit 3.1(a) and from Vinson & Elkins, your special counsel, and
Sullivan & Worcester, your special Massachusetts counsel, and
Richards, Layton & Finger, your special Delaware counsel, opinions in
form and substance satisfactory to you.
(b) Warranties and Representations True as of Closing
Date. The warranties and representations contained herein or in any
exhibit, certificate, or document delivered pursuant hereto shall be
true and complete in all material respects on the Closing Date with
the same effect as though made on and as of the Closing, subject to
any change hereafter because of any action required by this Agreement
and subject to any waiver by you in writing of any such representation
or warranty.
(c) Compliance with Business Covenants. Neither the
Company nor the General Partner shall be taking any action or
permitting any condition to exist that would be prohibited by Section
6.
(d) Compliance with this Aqreement. The Company and the
General Partner shall have performed and complied with all agreements
and conditions on its respective part required to be performed or
complied with by the Company or the General Partner, as the case may
be, pursuant to this Agreement before or at the Closing.
(e) No Material Adverse Changes. No event shall have
occurred and no condition shall exist that has or might result in a
material and adverse change in the properties, business, prospects,
profits, or condition (financial or otherwise) of the Company or the
General
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Partner, or the ability of the Company to perform its obligations
under this Agreement, the Note, the Mortgages, the Contract Operating
Agreements and the Escrow Agreement, and any other agreement entered
into in connection herewith, or the ability of the General Partner to
perform its obligations under this Agreement, the Company's Agreement
of Limited Partnership, the Escrow Agreement and the Contract
Operating Agreements.
(f) Officers' Certificate. You shall have received an
Officers' Certificate dated the Closing Date certifying that the
conditions specified in Section 3.1(b) through (e) have been
fulfilled.
(g) Leqality. The Notes, as secured by the Liens created
pursuant to the Mortgages and the Financing Statements, and your
interest as a limited partner in the Company shall qualify on the
Closing Date as a legal investment for insurance companies under
chapter 175, section 63 of the Massachusetts General Laws, and you
shall have received such evidence as you may reasonably request to
establish compliance with this condition.
(h) Certain Documents. You shall have received from the
Company evidence satisfactory to you of the complete execution and
delivery:
(i) by Zilkha to the Company of an
Assignment, Bill of Sale and Conveyance substantially in the
form of Exhibit 3.1(h)(i) hereto as to each of the Oil and Gas
Properties (the "Assignments"),
(ii) by the General Partner and the Company of a
Contract Operating Agreement substantially in the form of
Exhibit 3.1(h)(ii) hereto (the "Alexander Contract Operating
Agreement") with respect to those of the Oil and Gas
Properties identified in said Exhibit 3.1(h)(ii),
(iii) by Zilkha, the General Partner and the
Company of a Contract Operating Agreement substantially in the
form of Exhibit 3.1(h)(iii) hereto (the "Zilkha Contract
Operating Agreement") with respect to those of the Oil and Gas
Properties identified in said Exhibit 3.1(h)(iii), and the
Purchase Agreement in form and substance reviewed by and
satisfactory to you,
(iv) by the General Partner, the Company, Zilkha
and you of the Escrow Agreement, and the transactions provided
therein to take place at or prior to First Closing (as such
term is defined in
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the Escrow Agreement) shall have been completed in all
respects.
(i) Proceedings Satisfactory. All proceedings taken in
connection with the issuance and sale of the Notes and your interest
as a limited partner in the Company and the other transactions
contemplated hereby and all documents and papers relating thereto
shall be satisfactory to you and your special counsel. You and your
special counsel shall have received copies of such closing documents
as you or they may reasonably request in connection therewith, all in
form and substance satisfactory to you and your special counsel.
3.2 Company's Condition. The Company's obligation to issue and
deliver to you the Notes and to execute and deliver the Mortgages and the
Financing Statements at the Closing shall be subject to the condition precedent
that you shall have performed and complied with all agreements and conditions
on your part required to be performed or complied with by you pursuant to this
Agreement before or at the Closing.
SECTION 4. PURCHASER'S SPECIAL RIGHTS
4.1 Direct Payment. Notwithstanding anything to the contrary in
this Agreement or the Notes, the Company shall pay all amounts payable with
respect to any Notes held by each holder of Registered Notes (without any
presentment of such Notes and without any notation of such payment being made
thereon) by crediting before 12:00 noon, Boston time, by federal funds bank
wire transfer to the account and in the manner described in Exhibit 4.1, or in
such other manner or to such other address in the continental United States as
may be designated in writing to the Company by such holder at least ten days
prior to the date fixed for such payment, each such payment being accompanied
by sufficient information to identify the source and application thereof. The
holder of any Notes to which this Section 4.1 applies agrees that in the event
it shall sell or transfer any such Notes (a) prior to the delivery of such
Notes, it shall make a notation thereon of all principal, if any, prepaid on
such Notes and will also note thereon the date to which interest has been paid
on such Notes, and (b) it promptly shall notify the Company of the name and
address of the transferee of any Notes so transferred; provided, however, that
failure to comply with the preceding provisions of this sentence shall not
relieve the Company of its obligations to make payments under the Notes as and
when the same become due.
4.2 Delivery Expenses. If you surrender any Note to the Company
pursuant to this Agreement, the Company shall pay the cost of delivering to or
from your home office from or to
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the Company, insured to your satisfaction, the surrendered Note and any Note
issued in substitution or replacement for the surrendered Note.
4.3 Issue and Other Taxes. The Company shall pay all taxes in
connection with the issuance and sale of the Notes and the execution and
delivery of the Mortgages and the Financing Statements and the Escrow Agreement
and any transactions contemplated thereby and in connection with any
modification of the Notes, the Mortgages, the Financing Statements, and the
Escrow Agreement, and shall save you harmless without limitation as to time
against any and all liabilities with respect to all such taxes. The obligations
of the Company under this Section 4.3 shall survive the payment or prepayment,
if any, of the Notes and the termination of this Agreement.
SECTION 5. REGISTRATION; SUBSTITUTION OF NOTES; INTEREST
5.1 Registration of Notes. As provided in Section 1.1, the Notes
issuable under this Agreement shall be in the form of Registered Notes. The
Company shall cause to be kept at its office maintained pursuant to Section 6.3
or at its office in Oklahoma City, Oklahoma, a register for the registration
and transfer of Registered Notes. The names and addresses of the holders of
Registered Notes shall be registered in the register. The Person in whose name
any Registered Note shall be registered shall be deemed and treated as the
owner and holder thereof for all purposes of this Agreement, and the Company
shall not be affected by any notice or knowledge to the contrary, provided that
the Company at all times shall use its best efforts promptly and properly to
record the names and addresses of all holders of Notes whose ownership and
identity is disclosed to the Company in accordance with the provisions of this
Agreement and the Notes.
5.2 Exchange of Notes. Upon surrender of any Note at the office
of the Company maintained pursuant to Section 6.3 and, if applicable,
compliance with Section 1.3(b), the Company, at the request of the holder
thereof, will execute and deliver, at the Company's expense (except as provided
below), new Notes in exchange therefor in denominations of at least the lesser
of $500,000 or the remaining outstanding principal balance of the Note or Notes
being surrendered in exchange therefor, in an aggregate principal amount equal
to the unpaid principal amount of the surrendered Note or Notes or as
otherwise provided in Section 1.6. Each such new Note shall be payable to such
Person as such holder may request and shall be a Registered Note
substantially in the form of the Note set out in Exhibit 1.1(vi). Each such new
Note shall be dated and bear interest from the date to which interest has been
paid on the surrendered Note or dated the
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date of the surrendered Note if no interest has been paid thereon. The Company
may require payment of a sum sufficient to cover any stamp tax or governmental
charge imposed in respect of any transfer.
5.3 Replacement of Notes. Upon receipt by the Company of evidence
reasonably. satisfactory to it of the ownership of and the loss, theft,
destruction, or mutilation of any Note and
(a) in the case of loss, theft, or destruction, of
indemnity reasonably satisfactory to the Company (provided, if you are
the holder of the Note or the holder of the Note is an insurance
company having admitted assets in excess of $100,000,000, your or its
own unsecured agreement of indemnity shall be deemed to be
satisfactory), or
(b) in the case of mutilation, upon surrender and
cancellation thereof,
the Company at its own expense will execute and deliver in lieu thereof a new
Note of like tenor, dated and bearing interest from the date to which interest
has been paid on such lost, stolen, destroyed, or mutilated Note or dated the
date of such lost, stolen, destroyed, or mutilated Note if no interest has been
paid thereon. Every new Note issued pursuant to this Section 5.3 in lieu of any
destroyed, lost, stolen, or mutilated Note shall constitute an original
additional contractual obligation of the Company, regardless of whether the
destroyed, lost, stolen, or mutilated Note shall be at any time enforceable by
anyone, and shall be entitled to all the benefits of this Agreement equally and
proportionately with any and all other Notes duly issued hereunder.
5.4 Interest. Each Note delivered under this Agreement upon
registration of, transfer of, or in exchange for or in lieu of any other Note
shall carry the rights to interest accrued and unpaid, and to accrue, which
were carried by such other Note. Interest on the Notes shall be computed on the
basis ofa 365- or 366-day year, as applicable.
SECTION 6. COMPANY BUSINESS COVENANTS
The General Partner and the Company covenant that on and after the
date of initial issue of the Notes, as long as any of the Notes are
outstanding:
6.1 Payment of Taxes and Claims. The Company shall pay, and shall
cause its Subsidiaries, Partnerships and Joint Ventures (if any) to pay, before
they become delinquent:
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(a) all taxes, assessments, and governmental charges or
levies imposed upon it or its Property, and
(b) all claims or demands of operators, materialmen,
mechanics, carriers, warehousemen, landlords, and other like Persons
that, if unpaid, might result in the creation of a Lien upon its
Property;
provided, however, that any of the foregoing items need not be paid while being
diligently contested in good faith and by appropriate proceedings in the normal
course of business, and so long as adequate book reserves have been established
with respect thereto, and so long as the failure to pay timely any such item
does not materially and adversely affect the business, prospects, profits,
Properties, or condition (financial or otherwise) of the Company or any
Subsidiary, Partnership or Joint Venture of the Company, as the case may be. In
the case of any item of the foregoing description involving in excess of
$100,000, the adequacy of such reserves shall be supported by a certificate of
the independent accountants of the Company delivered to you promptly upon the
failure to pay timely such item.
6.2 Maintenance of Properties and Existence. The Company shall
and, with respect to clause (d) only, the General Partner shall, and shall
cause its Subsidiaries, Partnerships and Joint Ventures (if any) to:
(a) Property - maintain its Property in good condition
and make all renewals, replacements, additions, betterments, and
improvements thereto necessary for the effective and proper conduct of
its business;
(b) Insurance - maintain, with financially sound and
reputable insurers, insurance with respect to its Properties and
business against such casualties and contingencies, of such
types (including public liability, larceny, embezzlement, or other
criminal misappropriation insurance) and in such amounts as is
customary in the case of businesses of established reputations engaged
in the same or a similar business and similarly situated, and shall
not cause or permit the alteration of the insurance coverage described
in Exhibit 2.12 without at least 30 days' prior written notice to you;
(c) Financial Records - keep books of records, and
accounts in which true and complete entries will be made of all its
business transactions, and will reflect in its financial statements
adequate accruals and appropriations to reserves, all in
accordance with generally accepted accounting principles;
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(d) Agreements; Existence and Rights - (i) except as and
to the extent that you have given your prior written consent to any
such amendment, termination or other modification, which consent shall
not be unreasonably withheld, refrain from amending, terminating or
otherwise modifying any of the Purchase Agreement, the Contract
Operating Agreements or the Assignments, and (ii) except as otherwise
permitted by Sections 6.4 and 6.5, do or cause to be done all things
necessary to preserve and keep in full force and effect its limited
partnership, corporate or other (as the case may be) existence,
rights, and franchises to the extent that the failure to preserve and
keep the same in full force and effect might materially and adversely
affect the business, prospects, profits, Properties, or condition
(financial or otherwise) of the Company and its Subsidiaries,
Partnerships, and Joint Ventures (if any) taken as a whole, or of the
General Partner and its Subsidiaries, Partnerships, and Joint Ventures
(if any) taken as a whole; and
(e) Compliance with Law - not be in violation of any
laws, ordinances, or governmental rules and regulations to which it is
subject and not fail to obtain any licenses, permits, franchises, or
other governmental authorizations necessary to the ownership of its
Properties or to the conduct of its business, which violation or
failure to obtain might materially and adversely affect the business,
prospects, profits, Properties or condition (financial or otherwise)
of the Company and its Subsidiaries, Partnerships, and Joint Ventures
(if any) taken as a whole.
(f) Oil, Gas and Mineral Properties - use its best
efforts to cause its oil, gas and mineral interests, leases, estates
and other Properties to be equipped, maintained, developed, protected
against drainage, and operated for the production of hydrocarbons and
in a good and workmanlike manner as would a prudent operator and in
accordance with generally accepted oil field practices, applicable
operating agreements and applicable Legal Requirements.
6.3 Payment of Notes and Maintenance of Office.
(a) The Company shall, for so long as and to the extent
that there remains any outstanding principal under all Notes then
outstanding, pay to you on the first Business Day of each calendar
month an amount equal to 80.75% of the Net Proceeds for the second
preceeding calendar month. Such payments shall be applied first to
interest accrued on the Notes as of and
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payable on such payment date and second to principal as provided in
Section 8.1(a).
(b) The Company will maintain an office or agency in the
continental United States where the Notes may be surrendered upon
maturity or for prepayment, conversion, or transfer in accordance
with this Agreement. Such office or agency shall be maintained at the
address given in Section 11.1(a)(ii) until 10 days after such time as
the Company shall notify the holders of the Notes of any change of
location of such office.
6.4 Covenant to Secure Note. Without limiting the other provisions
hereof, the Company covenants that in the event it shall create or assume
(without regard to whether the provisions of Section 6.7 would be breached) any
Lien upon any of its Property, whether now owned or hereafter acquired, other
than Liens excepted by the provisions of Section 6.6 (unless prior written
consent to the creation or assumption thereof shall have been obtained pursuant
to Section 11.4), it will make or cause to be made effective provision whereby,
as long as any other Consolidated Debt of the Company shall be so secured, the
Notes will be secured with a Lien prior and superior to such Lien. In the event
that the Company shall hereafter acquire any additional oil, gas and mineral
interests, leases, estates or other Properties other than the Subject
Interests, the Company will, unless prior consent to the contrary shall have
been obtained pursuant to Section 11.4, (a) take all actions necessary to
secure immediately payment of all amounts under the Notes by first and prior
lien, mortgage and security interest on such additional Properties and on all
fixtures thereto and all proceeds and production therefrom pursuant to the form
of Mortgage attached hereto as Exhibit 1.2(ii)-1 (subject to additional
requirements of form imposed in the jurisdictions where such additional
Properties are located), and related financing statements which shall be
completed in form and substance satisfactory to you and properly recorded in
all appropriate mortgage, deed, deed of trust and UCC records and (b) promptly
(and in any event within thirty (30) calendar days after the acquisition)
notify you of such acquisition and provide you with a fully executed and
acknowledged original of such Mortgage and related financing statements in
sufficient form and number of original counterparts for recordation with
respect to each such additional Property.
6.5 Sale of Assets; Merger and Consolidation.
(a) Sale of Assets. The Company shall not, and shall not
permit any of its Subsidiaries, Partnerships, or Joint Ventures to,
sell, lease, transfer, or otherwise dispose of assets except in the
ordinary course of business; provided, however, that the
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foregoing restrictions do not apply to the sale of such assets for a
cash consideration to a Person other than an Affiliate of the selling
entity if all of the following conditions are met:
(i) such assets (valued at the greater of fair
market value or net book value) do not, together with assets
of the Company and all other Subsidiaries, Partnerships, and
Joint Ventures of the Company previously disposed of during
the 12 months immediately preceding the date of the proposed
disposition (other than in the ordinary course of business),
exceed a Substantial Part of the consolidated assets of the
Company and its Subsidiaries;
(ii) in the fiscal year then most recently ended,
the sum of the portions of Consolidated Net Income of the
Company (excluding losses) that were contributed during such
year by (x) such assets and (y) other assets of the Company,
as the case may be, and the Subsidiaries, Partnerships, and
Joint Ventures of the Company disposed of since the beginning
of such fiscal year (other than in the ordinary course of
business), has not constituted a Substantial Part of
Consolidated Net Income of the Company for any such year;
(iii) in the opinion of the General Partner and its
Board of Directors, the sale is for fair value and is in the
best interest of the Company; and
(iv) immediately after the consummation of the
transaction, and after giving effect thereto, no Default or
Event of Default would exist.
(b) Merger and Consolidation. The Company shall not, and
shall not permit any of its Subsidiaries, Partnerships, or Joint
Ventures to, consolidate with or merge into any other Person or permit
any other Person to consolidate with or merge into it (except that a
Subsidiary of the Company may consolidate with or merge into another
Subsidiary of the Company); provided, however, that the foregoing
restriction does not apply to the merger or consolidation of the
Company with another legal entity other than the General Partner, if:
(i) the Company is the legal entity that
results and survives from such merger or consolidation
(the "surviving entity");
(ii) immediately after the consummation of the
proposed merger or consolidation, and after giving
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effect thereto, the surviving entity will not have outstanding
any Indebtedness or have its Property subject to any Lien not
permitted to be incurred by the Company pursuant to this
Agreement; and
(iii) immediately after the consummation of the
proposed merger or consolidation, and after giving effect
thereto, no Default or Event of Default would exist.
6.6 Liens and Encumbrances. The Company shall not, and shall not
permit any of its Subsidiaries, Partnerships, or Joint Ventures to, cause, or
agree or consent to cause in the future (upon the happening of a contingency or
otherwise), any of the Collateral, whether now owned or hereafter acquired, to
be subject to a Lien except for the following (collectively, the "Permitted
Liens"): (i) lessor's royalties, non-participating royalties, overriding
royalties, reversionary interests, division orders, reversionary interests, and
similar burdens and other Liens the cumulative net effect of all of which do
not operate to materially prevent the Company from receiving the proceeds of
production from the Subject Interests, reduce the Net Revenue Interest of the
Company in any Oil and Gas Property to less than the Net Revenue Interest set
forth therefor on Exhibit 1.2(ii)-2, or obligate the Company to bear costs and
expenses relating to the maintenance, development, and operation of any of the
Oil and Gas Properties in any amount greater than the Working Interest set
forth on Exhibit 1.2(ii)-2, (ii) production sales contracts containing
customary terms and provisions that are terminable without penalty upon no
more than 30 days' prior notice to the purchaser thereunder covering oil, gas
or associated liquefied or gaseous hydrocarbons, (iii) Liens for taxes or
assessments not yet due or delinquent or, if delinquent, that are being
diligently contested in good faith by appropriate proceedings in the normal
course of business by or on behalf of the Company and for which the Company
shall have set up appropriate reserves therefor on its books adequate under
generally accepted accounting principles, (iv) operators', vendors', carriers',
warehousemen's, repairmen's, mechanics', workmen's, materialmen's, construction
or other like Liens arising by operation of law or, in the case of operators'
Liens, under customary oil and gas property operating agreements in the
ordinary course of business or incident to the construction or improvement of
any property in respect of obligations which are not yet due or, if due, which
are being diligently contested in good faith by appropriate proceedings in the
normal course of business by or on behalf of the Company and for which the
Company shall have set up appropriate reserves therefor on its books adequate
under generally accepted accounting principles, (v) rights reserved to or
vested in any municipality or governmental, statutory, or public authority (x)
by the terms of any right, power, franchise,
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grant, license or permit, or by any provision of law, to terminate such right,
power, franchise grant, license or permit or to purchase, condemn, expropriate
or recapture or to designate a purchaser of any of the Oil and Gas Properties,
or (y) to control or regulate any of the Oil and Gas Properties, but only to
the extent that actual or threatened enforcement of any and all matters
described in such clauses (x) and (y) would not have a cumulative material and
adverse effect on the value to or use by the Company of the Oil and Gas
Properties, (vi) the Liens created by the Mortgages and the Financing
Statements, and (vii) any other Liens expressly and specifically waived in
writing by you.
6.7 Consolidated Debt. The Company shall not, and shall not permit
any Subsidiary, Partnership, or Joint Venture to, create, incur, assume, suffer
to exist, or in any manner become liable in respect of any Consolidated Debt
other than (i) the indebtedness evidenced by the Notes and (ii) short-term
advances from the General Partner, Limited Partner or other party permitted by
the terms of the Company's Agreement of Limited Partnership.
6.8 Distributions and Investments.
(a) The Company shall not, and shall not permit its
Subsidiaries, Partnerships, or Joint Ventures to declare, make, or
incur any liability to make any Distribution in respect of the
partnership interests of the Company except in accordance with the
Company's Agreement of Limited Partnership or make or authorize any
Restricted Investment. Any corporation or other legal entity that
becomes a Subsidiary, Partnership or Joint Venture hereafter shall be
deemed to have made, at the time it becomes a Subsidiary, Partnership
or Joint Venture, all Restricted Investments of such corporation or
other legal entity existing immediately after it becomes a Subsidiary,
Partnership or Joint Venture.
(b) The Company shall not, and shall not permit its
Subsidiaries, Partnerships, or Joint Ventures to, make a Distribution
consisting of evidences of its Indebtedness or assets (including,
without limitation, Securities).
6.9 Guaranties. The Company shall not, and shall not permit its
Subsidiaries, Partnerships, or Joint Ventures to, become or be liable in
respect of any Guaranty except the endorsement in the ordinary course of
business of negotiable instruments for deposit or collection. "Guaranty" by
any Person shall mean all obligations of such Person guaranteeing or in
effect guaranteeing any Indebtedness, dividend, or other obligation of any
other Person (the "primary obligor") in any manner, whether directly or
indirectly, including.
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obligations incurred through an agreement contingent or otherwise, by such
Person:
(i) to purchase such Consolidated Debt or obligation or
any Property or assets constituting security therefor;
(ii) to advance or supply funds (x) for the purchase or
payment of such Indebtedness or obligation, or (y) to maintain working
capital or other balance sheet condition or any income statement
condition or otherwise to advance or make available funds for the
purchase or payment of such Indebtedness or obligation;
(iii) to lease Property or to purchase Securities or other
Property or services primarily for the purpose of assuring the owner
of such Indebtedness or obligation of the ability of the primary
obligor to make payment of the Indebtedness or obligation; or
(iv) otherwise to assure the owner of the Indebtedness or
obligation of the primary obligor against loss in respect thereof.
6.10 ERISA Information and Compliance.
(a) The Company will promptly furnish and will cause its
Subsidiaries, Partnerships and Joint Ventures and any ERISA Affiliate
to promptly furnish to you (i) promptly after the filing thereof with
the United States Secretary of Labor, the Internal Revenue Service or
the PBGC, copies of each annual and other report with respect to each
Plan or any trust created thereunder, (ii) immediately upon becoming
aware of the occurrence of any ERISA Event or of any "prohibited
transaction," as described in Section 406 of ERISA or in Section 4975
of the Code, in connection with any Plan or any trust created
thereunder, a written notice signed by the President or the principal
financial officer of the Company or the appropriate Subsidiary,
Partnership or Joint Venture of the Company or the ERISA Affiliate, as
the case may be, specifying the nature thereof, what action the
Company or the appropriate Subsidiary, Partnership or Joint Venture of
the Company or the ERISA Affiliate, as the case may be, is taking or
proposes to take with respect thereto, and, when known, any action
taken or proposed by the Internal Revenue Service, the Department of
Labor or the PBGC with respect thereto, and (iii) immediately upon
receipt thereof, copies of any notice of the PBGC's intention to
terminate or to have a trustee appointed to administer any Plan. With
respect to each Plan (other than a Multiemployer Plan), the Company
will, and will cause its Subsidiaries, Partnerships and Joint Ventures
and each ERISA Affiliate
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to, (i) satisfy in full and in a timely manner, without incurring any
late payment or underpayment charge or penalty and without giving rise
to any lien, all of the contribution and funding requirements of
Section 412 of the Code (determined without regard to subsections (d),
(e), (f) and (k) thereof) and of Section 302 of ERISA (determined
without regard to Sections 303, 304 and 306 of ERISA), and (ii) pay,
or cause to be paid, to the PBGC in a timely manner, without incurring
any late payment or underpayment charge or penalty, all premiums
required pursuant to Sections 4006 and 4007 of ERISA.
(b) The Company and its Subsidiaries, Partnerships and
Joint Ventures will not at any time:
(i) engage in, or permit any ERISA Affiliate to
engage in, any transaction in connection with which the
Company or any Subsidiary, Partnership or Joint Venture of the
Company or any ERISA Affiliate could be subjected to either a
civil penalty assessed pursuant to Section 502(c) or (i) of
ERISA or a tax imposed by Section 4975 of the Code;
(ii) terminate, or permit any ERISA Affiliate to
terminate, any Plan in a manner, or take any other action with
respect to any Plan, which could result in any liability of
the Company or any Subsidiary, Partnership or Joint Venture of
the Company or any ERISA Affiliate to the PBGC;
(iii) fail to make, or permit any ERISA Affiliate
to fail to make, full payment when due of all amounts which,
under the provisions of any Plan or applicable law, the
Company or any Subsidiary, Partnership or Joint Venture of the
Company or any ERISA Affiliate is required to pay as
contributions thereto;
(iv) permit to exist, or allow any ERISA Affiliate
to permit to exist, any accumulated funding deficiency within
the meaning of Section 302 of ERISA or section 412 of the
Code, whether or not waived, with respect to any Plan;
(v) permit, or allow any ERISA Affiliate to
permit, the actuarial present value of the benefit liabilities
under any Plan. maintained by the Company or any. Subsidiary,
Partnership or Joint Venture of the Company or any ERISA
Affiliate which is regulated under Title IV or ERISA to
exceed the current value of the assets (computed on a plan
termination basis in accordance with Title IV of ERISA) of
such Plan allocable to such benefit
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liabilities (the term "actuarial present value of the benefit
liabilities" shall have the meaning specified in Section 4041
of ERISA);
(vi) contribute to or assume an obligation to
contribute to or assume an obligation to contribute to, any
Multiemployer Plan;
(vii) acquire, or permit any ERISA Affiliate to
acquire, an interest in any Person that causes such Person to
become an ERISA Affiliate with respect to the Company or any
Subsidiary, Partnership or Joint Venture of the Company or
with respect to any ERISA Affiliate if such Person sponsors,
maintains or contributes to, or at any time in the six-year
period preceding such acquisition has sponsored, maintained,
or contributed to, (1) any Multiemployer Plan, or (2) any
other Plan that is subject to Title IV of ERISA under which
the actuarial present value of the benefit liabilities under
such Plan exceeds the current value of the assets (computed on
a plan termination basis in accordance with Title IV of ERISA)
of such Plan allocable to such benefit liabilities;
(viii) incur, or permit any ERISA Affiliate to
incur, a liability to or on account of a Plan under Sections
515, 4062, 4063, 4064, 4201 or 4204 of ERISA; or
(ix) contribute to or assume an obligation to
contribute to, or permit any ERISA Affiliate to contribute to
or assume an obligation to contribute to, any employee welfare
benefit plan, as defined in Section 3(1) of ERISA, including,
without limitation, any such plan maintained to provide
benefits to former employees of such entities, that may not be
terminated by such entities in' their sole discretion at any
time without any material liability.
6.11 Transactions with Affiliates. The Company shall not, and shall
not permit any of its Subsidiaries, Partnerships, or Joint Ventures to enter
into any transaction, including, without limitation, the purchase, sale, or
exchange of Property or the rendering of any service, with any Affiliate
thereof except in the ordinary course of and pursuant to the reasonable
requirements of the Company's or such Subsidiary's, partnership's, or Joint
Venture's business and upon fair and reasonable terms no less favorable to
the Company or such Subsidiary, Partnership, or Joint Venture than would obtain
in a comparable arm's-length transaction with a Person not an Affiliate.
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6.12 Sale or Discount of Receivables. Except in connection with a
sale of assets permitted by Section 6.5, the Company shall not, and shall not
permit any of its Subsidiaries, Partnerships, or Joint Ventures to, discount or
sell any of its notes receivable or accounts receivable.
6.13 Business. The Company shall not, and shall not permit any of
its Subsidiaries, Partnerships, or Joint Ventures to, engage in any business
other than the business described for such Person in Section 2.2.
6.14 Acquisition of Notes. Without creating any right to purchase
or to prepay any Note except as otherwise expressly provided herein, each of
the Company and the General Partner shall not, and shall not permit any of
their respective Subsidiaries, Partnerships, or Joint Ventures to, directly or
indirectly, acquire or make any offer to acquire any Notes unless the Company
or the General Partner or such Subsidiary, Partnership, or Joint Venture of the
Company or the General Partner has offered to acquire Notes pro rata from all
holders of the Notes and upon the same terms. In case the Company acquires any
Notes, such Notes shall thereafter be cancelled and no Notes shall be issued in
substitution therefor.
6.15 Certain Registrations or Approvals. If the Notes or any of
them requires declaration or registration with or approval of any Governmental
Authority (other than registration under the Securities Act or state securities
or blue sky laws under Section 12) the Company will at its sole expense take
all requisite action in connection with such declaration and will use its best
efforts to cause such Notes to be duly registered or approved as may be
required.
6.16 Oil and Gas Business and Properties.
(a) The Company shall, and shall cause each of its
Subsidiaries, Partnerships, and Joint Ventures, if any, to (i) pay in
the ordinary course of business all fees, overrides and landholder
royalties in respect of oil and gas producing properties when due
except for suspense funds being disputed in good faith, (ii) insure
the prompt production, transportation, storage, processing or
marketing of petroleum, natural gas, condensate or other minerals from
its oil, gas and mineral interests, leases, estates and other
Properties, and (iii) cause all of its oil, gas and mineral interests,
leases, estates and other Properties to remain in full force and
effect as would a prudent operator in accordance with generally
accepted oil field practices, applicable operating agreements and
applicable Legal Requirements. As soon as practicable after the
release, expiration, termination or other
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cessation of any Subject Interest constituting Collateral and in no
event later than 30 calendar days thereafter, the Company shall
deliver to you an Officer's Certificate certifying as to whether all
of the provisions of clause 8.2(a) remain satisfied after such
Subject Interest is no longer in full force and effect, the
satisfaction of such provisions to be determined based on the latest
engineering report delivered to you pursuant to Section 7.1(d) and as
of the valuation date set forth in said report (the "Valuation Date")
with the Present Value of Estimated Future Net Revenues attributable
to such Subject Interest deleted and given no effect. The Company
shall, and shall cause each of its Subsidiaries, Partnerships, or Joint
Ventures, if any, to use its best efforts to promptly sell or dispose
of all petroleum, natural gas, condensate or other minerals produced
by it or received by it as a working or nonworking interest payment on
terms comparable in the area between unrelated parties. To the extent
the obligations set forth in Section 6.2(f) and this Section 6.16 are
performed by a third party, the Company shall use its best efforts to
insure that such third party discharges such obligations in accordance
with the requirements applicable thereto for a discharge of such
obligations by the Company.
(b) The Company shall not permit the extraction from the
transportation to or from, or the use, generation, storage or disposal
on, under or about, the Oil and Gas Properties of any Hazardous
Materials in violation of any Hazardous Materials Laws or in any
manner that could lead to any Hazardous Materials Claims.
6.17 Indemnity With Respect to Certain Representations and
Warranties.
(a) The General Partner and the Company hereby agree to
indemnify you and hold you harmless from and against any all losses in
value, increases in burdens or encumbrances, and other costs,
expenses, claims, liabilities, damages, obligations, penalties, fines,
judgments and assessments (including but not limited to reasonable
attorney's fees) to the extent arising out of or resulting from any
fact, matter or circumstance that constitutes a breach by the General
Partner and the Company of their representations and warranties set
forth in Section 2.6 of this Agreement or Section 4.02(a)(i) of the
Mortgages; provided, however, that the aggregate of all such breaches
of said Sections 2.6 or 4.02(a)(i), together with the aggregate of
all breaches or other failures to perform of any and all covenants
and agreements set forth in Section 6.1, 6.2, 6.3(b),
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6.4 through 6.10 or 6.12 through 6.16, causes the aggregate value of
the First Lien Collateral to be less than 95 percent of what it would
have been in the absence of such breaches or failures to perform, and
provided further that the foregoing indemnity shall not apply with
respect to any Oil and Gas Property as to which a title opinion
meeting the requirements of paragraph (b) immediately below has been
furnished or is not required to be furnished in accordance with such
paragraph (b).
(b) As soon as practicable following the Closing Date (in
the case of the Oil and Gas Properties), or the applicable Release
Date (in the case of any Escrow Property released to the Company
pursuant to the Escrow Agreement) but in any event within 60 days
thereafter, the Company shall deliver or cause to be delivered to you
from special title counsel to the Company reasonably satisfactory to
you, dated as of the Closing or the Release, as the case may be,
based on an examination of the record covering a period from the
sovereignty of the soil (in the case of Properties in Texas) or
inception of title (in the case of Properties in Oklahoma) to such
date and addressed to the Company and you, to the effect that (1) the
Company has acquired good and defensible title to those of the Oil and
Gas Properties that are specified in Exhibit 1.2(ii)-2 as being
subject to the requirements of this Section 6.17 that (x) entitles the
Company to receive from its record title ownership of each such Oil
and Gas Property not less than the interest shown as the "Net Revenue
Interest" or "NRI" therefor shown on Exhibit 1.2(ii)-2 of all Minerals
produced, saved and marketed from such Oil and Gas Properties without
reduction, suspension or termination throughout the productive life of
such Oil and Gas Properties based on facts, interests and conditions
in existence as of the date hereof whether known or unknown, (y)
obligates the Company to bear a percentage of the costs and expenses
relating to operations on and the maintenance and development of such
Oil and Gas Properties and wells associated therewith not greater than
the interest shown as the "Working Interest" or "WI" for each such Oil
and Gas Property in Exhibit 1.2(ii)-2 without increase throughout the
productive life of such producing property based on facts, interests
and conditions in existence as of the Closing, whether known or
unknown, and (z) is otherwise free and clear of all Liens other than
the Permitted Liens, and ,(2) the Liens purported to be created in
your favor by the Mortgages and the Financing Statements constitute
valid, perfected and enforceable first priority, security interests;
mortgages and liens, in each case subject to no prior or superior
security interest, mortgage, lien or encumbrance except for the
Permitted Liens. In
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rendering such opinion, such special title counsel may rely, as to
all matters concerning the enforceability of the Mortgages, on the
opinion rendered by McAfee & Taft as described in Section 3.1(a) or
1.6(d)(i), as the case may be.
(c) Within 20 days following your receipt of any title
opinion pursuant to paragraph (b) immediately above, you shall notify
the Company in writing as to whether you consider such opinion to meet
the standards set forth in said paragraph (b). Failure to give such
notice shall be deemed to constitute your agreement that such title
opinion so satisfies such standards. If you raise any such objections
within said 20 day period, the Company and you shall consult in good
faith to resolve any disagreements over whether such title opinion
meets the standards set forth in paragraph (b), or whether and to what
extent any curative requirements set forth in said title opinion may
be satisfied. At any time that either party desires, such party may by
giving written notice to the other elect to refer the question of
whether the requirements of paragraph (b) have been satisfied by such
title opinion to Mr. R. Clark Musser, of the firm of Musser, Bunch,
Robinson & Hirsch, 100 Park Avenue Building, Suite 400, Oklahoma City,
Oklahoma 73102, or to such title attorney as shall be mutually
agreeable to the Company and you, which attorney may retain such
consultants as he reasonably deems advisable to resolve the questions
so referred to him, and all of the reasonable fees and expenses of
such attorney and his consultants shall be borne in equal halves by
each of the General Partner and you. The conclusions of such attorney
with respect to the issues so referred to him shall be final and
binding on the parties for purposes of this Section 6.17, and may be
confirmed in and enforced by any court of competent jurisdiction.
SECTION 7. INFORMATION AS TO COMPANY
7.1 Financial and Business Information. The Company will deliver,
or will cause to be delivered, to you, if at the time you or your nominee holds
any Notes (or if you are obligated to purchase any Notes), and to each other
Institutional Holder of at least 20% of the then outstanding Notes:
(a) Quarterly Statements - as soon as practicable after
the end of each of the first three quarterly fiscal periods in each
fiscal year ending after the Closing of the Company and in any event
within 60 days thereafter, duplicate copies of:
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(i) the unaudited consolidated balance sheets of
the Company and its consolidated Subsidiaries, if any, as
at the end of such quarter, and
(ii) the unaudited consolidated statements of
operations and of retained earnings of the Company and its
consolidated Subsidiaries, if any, for such quarter and (in
the case of the second and third quarters) for the portion of
the fiscal year ending with such quarter,
setting forth in each case in comparative form the figures for the
corresponding periods in the previous fiscal year, all in reasonable
detail and accompanied by a certificate of a principal financial
officer of the General Partner certifying that such financial
statements fairly present the financial condition and the results of
operations and changes in financial position (all consolidated, if
applicable) of the companies being reported upon in accordance with
generally accepted accounting principles consistently applied except
to the extent stated therein and subject to changes resulting from
year-end adjustments;
(b) Annual Statements - as soon as practicable after the
end of each fiscal year of the Company and in any event within 120
days thereafter, duplicate copies of:
(i) the audited consolidated balance sheets of
the Company and its consolidated Subsidiaries, if any, at the
end of such year, and
(ii) the audited consolidated statements of
operations and of retained earnings of the Company and its
consolidated Subsidiaries, if any, for such year,
setting forth, in the case of the consolidated statements, in
comparative form, the figures for the previous year, all in reasonable
detail and, in the case of the consolidated statements, accompanied by
duplicate copies of an opinion thereon of the accountants named in
Section 2.3 or other independent certified public accountants of
recognized national standing selected by the Company and satisfactory
to you, which opinion shall state that, except as expressly set forth
in said opinion, such financial statements fairly present the
financial condition and the results of operations and changes in
financial position (all consolidated, if applicable) of the
companies being reported upon in accordance with generally accepted
accounting principles consistently applied (except for changes in
application in which such accountants concur) and that the
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examination of such accountants in connection with such financial
statements has been made in accordance with generally accepted
auditing standards and, accordingly, included such tests of the
accounting records and such other auditing procedures as they
considered necessary in the circumstances;
(c) Audit Reports - promptly upon receipt thereof, one
copy of each other report submitted to the Company or the General
Partner, as the case may be, or any Subsidiary of the Company by
independent accountants in connection with any annual, interim or
special audit made by them of the books of the Company or any of its
Subsidiaries, Partnerships, or Joint Ventures;
(d) Reserve Report - within 60 days following December 31
of each year, annual reports on oil and gas reserves owned by the
Company or any of its Subsidiaries, if any, prepared by Edinger, Inc.,
or a nationally recognized, independent petroleum engineering
consultant familiar with the areas in which such reserves are located
and satisfactory to you, all in reasonable detail and satisfactory in
scope to you, which reports shall set forth the Present Value of
Estimated Future Net Revenues from the Subject Interests;
(e) Notice of Default or Event of Default - as soon as
practicable, but in any event within five Business Days, after
becoming aware of the existence of any condition or event which
constitutes a Default or an Event of Default, a written notice
specifying the nature and period of existence thereof and what action
the Company or the General Partner, as applicable, is taking or
proposes to take with respect thereto;
(f) Notice of Claimed Default - as soon as practicable,
but in any event within five Business Days, after becoming aware that
the holder of any Note has given notice or taken any other action that
the Company or the General Partner has knowledge of with respect to a
claimed Default or Event of Default, a written notice specifying the
notice given or action taken by such holder and the nature of the
claimed Default or Event of Default and what action the Company or the
General Partner, as applicable, is taking or proposes to take with
respect thereto;
(g) Requested Information - with reasonable
promptness, such other data and information as from time to time may
be reasonably requested by you;
(h) Bankruptcy Event - immediately following its
occurrence, an event of the type described in
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Section 9.1(g), (h), or (i) with respect to the Company or
any Subsidiary, Partnership, or Joint Venture of the Company;
(i) Net Proceeds - as soon as practicable after the end
of each fiscal year of the Company, and in any event within 120 days
thereafter, a special purpose report, prepared by the same accountants
whose opinion is furnished pursuant to Section 7.1(b) above,
expressing their opinion as to the computation during the preceding
fiscal year of Net Proceeds prepared on a cash basis. Such computation
shall include a summary itemization, by type and/or classification, of
the total revenues, costs and expenses used in calculating Net
Proceeds; and
(j) Changes in Reserves - within 30 days following
discovery by Company that an event has occurred which may, in the
reasonable opinion of the Company, lead to a reduction in the Present
Value of Estimated Future Net Revenues from the Subject Interests of
more than 10 percent, excluding a reduction as a result of normal
production or due to a decrease in the price of oil or gas, notice to
you of such discovery, and the Company will make available to you all
of its records relating thereto and additional engineering work
relating to the affected Properties and any estimates and reports
which the Company has internally prepared or which have been prepared
for the Company.
7.2 Officers' Certificates. Each set of financial statements
delivered to you or any other Institutional Holder of the Notes pursuant to
Section 7.1(a) or (b) will be accompanied by an Officers' Certificate setting
forth:
(a) Covenant Compliance - the information (including
detailed calculations) required in order to establish whether the
Company was in compliance with the requirements of Section 6 during
the period covered by the income statement then being furnished; and
(b) Event of Default - that the signers have reviewed the
relevant terms of this Agreement and have made, or caused to be made,
under their supervision, a review of the transactions and conditions
of the Company, and the Subsidiaries, Partnerships, and Joint Ventures
of the Company from the beginning of the accounting period covered by
the income statements being delivered therewith to the date of the
certificate and that such review has not disclosed the existence
during such period of any condition or event which cohstitutes
a Default or an Event of Default or, if any such condition or event
existed or exists, specifying the nature and period of existence
thereof and what action
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the Company or the General Partner, as applicable, has taken or
proposes to take with respect thereto.
7.3 Accountants' Certificate. Each set of annual financial
statements delivered pursuant to Section 7.1(b) will be accompanied by
a certificate of the accountants who certify such financial statements, stating
that they have reviewed this Agreement and stating further whether, in making
their audit, such accountants have become aware of any condition or event that
then constitutes a Default or an Event of Default and, if any such condition or
event then exists, specifying the nature and period of existence thereof.
7.4 Inspection. The Company shall permit, and shall cause each
Subsidiary, Partnership, and Joint Venture of the Company to permit, any of
your representatives, while you or your nominee holds any Note, or the
representatives of any other Institutional Holder that holds at least 20% of
the aggregate outstanding principal amount of the Notes, at your or such
holder's expense, to visit and inspect any of the Properties of the Company or
any Subsidiary, Partnership, or Joint Venture of the Company to examine all
their books of account, records, reports, and other papers (including but not
limited to all records regarding all cores, cuttings, well logs, and other
geological, well and production data secured from operations on the Subject
Interests), to make copies and extracts therefrom, and to discuss their
respective affairs, finances, and accounts with their respective officers and
employees (and by this provision the Company authorizes said accountants to
discuss the finances and affairs of the Company, and all Subsidiaries,
Partnerships, and Joint Ventures of the Company) all at such reasonable times
and as often as may be reasonably requested; provided, however, that you or
such holder will keep confidential all information obtained in connection with
any such inspection that the Company designates to you and such holder in
writing as confidential prior to your disclosure, except that you or such
holder may reveal such information (a) pursuant to the receipt of any legal
process that appears valid on its face, (b) pursuant to order or request of any
governmental or industry regulatory body having or acquiring jurisdiction over
you or such holder, as applicable, (c) that has become public through no action
of you or such holder, as applicable, or (d) to your or such holder's
accountants, attorneys, or other advisers who have been instructed to be bound
by such restrictions.
7.5 Exceptions to Statements. If you shall take exception to any
item or items included in any statements rendered by the Company,
including but not limited to those required pursuant to Section 8.1(c), or to
the computations of Net Proceeds, you shall have the right but not the
obligation to notify the Company in writing, setting forth in
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such notice the specific charges complained of and to which exception is taken
or the specific credits which should have been made and allowed, and with
respect to such complaints and exceptions as you and the Company shall agree
are justified, adjustment shall be made; provided, however, that, with respect
to such complaints and exceptions as the Company shall not agree are justified,
you shall nonetheless have all rights and remedies available to you under this
Agreement or otherwise at law or in equity, and provided further that neither
any course of dealing on the part of any holder of the Notes nor any failure or
delay of any holder of the Notes to take exception to any such item or items
shall operate as a waiver of a right of any holder of the Notes to take such
exception.
SECTION 8. PREPAYMENT OF NOTES
8.1 Required Prepayments.
(a) The Company covenants and agrees that, in addition to
the payments of principal of the Notes to be made on the expressed
maturity date thereof, the Company shall prepay principal on the Notes
on the first Business Day of each calendar month in an amount equal to
(1) 80.75% of the Net Proceeds for the second preceding calendar
month, minus (2) interest accrued on the Notes as of and payable on
such prepayment date. The Company shall base such monthly payments on
the actual Net Proceeds for the second preceding month.
(b) On or before the date of payment of the amount set
forth in Section 8.1(a), the Company shall furnish to you a detailed
statement clearly reflecting the Net Proceeds as of the close of
business on the last day of the second preceding calendar month.
Nothing contained herein is intended to render, or shall be deemed to
have the effect of rendering, you personally responsible for payment
of any part of the costs and expenses charged against Net Proceeds or
for any of the liabilities incurred in connection with developing,
exploring, equipping and operating the Oil and Gas Properties.
8.2 Additional Required Prepayments; Additional Security. In the
event that the outstanding principal amount of all Notes then outstanding plus
all interest accrued and unpaid thereon through the Valuation Date
(collectively, the "Senior Secured Debt") is greater than (1) the Present
Value of Estimated Future Net Revenues from the Subject. Interests
constituting Collateral determined as of the Valuation Date from the most
recent report prepared and delivered pursuant to Section 7.1(d), or (2) the
Present Value of Estimated Future Net Revenues from the Subject
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Interests constituting Collateral determined in accordance with Section 6.16
at the time any Subject Interest constituting Collateral terminates, expires or
otherwise becomes no longer in full force and effect, the Company shall
promptly notify you of same and, at your option and within 30 calendar days
after your request, prepay such a portion of the outstanding principal of all
Notes then outstanding as you shall direct in your sole discretion, together
with all interest accrued and unpaid on such portion, and/or provide you with
such additional collateral of such type and quality (including, without
limitation, the quality of the title thereto and the first priority of your
Lien thereon as you shall require in your sole discretion) and of such value
(as you shall determine in your sole discretion) and shall eliminate the
existence of the foregoing condition. The Company shall provide you with such
satisfactory evidence of the quality of the additional collateral as you shall
request, including without limitation an opinion of counsel satisfactory to
you and in form, scope and substance satisfactory to you, that the Liens
created in your favor with respect to such additional collateral constitute
valid, perfected and enforceable first prior security interest, mortgages,
liens and encumbrances subject to no prior security interests, mortgage,
encumbrance or other Lien except as you shall have specified in writing to be
satisfactory to you in your sole discretion. The portion of this amount applied
to the principal outstanding under any given Note shall be in the same
proportion that the principal evidenced by such Note bears to the aggregate of
the outstanding principal of all Notes then outstanding.
8.3 No Prepayment or Call. Except as provided in Sections 1.1 and
8.1 and 8.2, the Company shall have no right to prepay or to acquire any Note.
SECTION 9. EVENTS OF DEFAULT
9.1 Nature of Events. An "Event of Default" shall exist if any of
the following occurs and is continuing:
(a) Principal and Interest Payments - (i) the Company
fails to make any required payment or prepayment of principal of any
Note when due (whether such payment or pre-payment falls due by reason
of maturity of any Note, acceleration, the provisions of Section 8.1
or 8.2, or otherwise), or (ii) the Company fails at any time after
October 1, 1989 to pay any and all accrued but unpaid interest on
any Note prior to the expiration of one month following the date such
interest payment is due to the extent (in the case of this clause
(ii) only) that the 80.75% of Net Proceeds payable to you on such date
under Section 6.3(a) is insufficient to cover such accrued but unpaid
interest;
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(b) Security Invalidity - the Mortgages or the Financing
Statements or any Lien pursuant thereto shall become, or be
determined to be, invalid or void, in whole or in part, provided that
the Subject Interests to which such invalid or void Mortgages or
Financing Statements or Lien relate constitute in the aggregate more
than $5,000 in value;
(c) Particular Covenant Defaults - the Company or the
General Partner, as applicable, or any Subsidiary, Partnership, Joint
Venture, or Affiliate of the Company or the General Partner, as
applicable, fails to perform or observe any covenant contained in
Sections 6.3 through 6.9, 6.12 through 6.16, or Section 7.1(d), (e),
or (f), provided that, in the case of Section 6.4, 6.5, 6.6, 6.12, and
6.13 of this Agreement, the aggregate of all such breaches or failures
to perform, together with the aggregate of all breaches or other
failures to perform of any and all covenants and agreements set forth
in Sections 6.1, 6.2(a), 6.2(b) or 6.2(f) of this Agreement, or
Sections 4.02(a)(i), (ii) or (iii), 4.03 or 9.01 of the Mortgages, and
all breaches of representations and warranties of the General Partner
or the Company set forth in Section 2.6 of this Agreement or Section
4.02(a)(i) of the Mortgages, causes the aggregate value of the First
Lien Collateral to be less than 95 percent of what it would have been
in the absence of such breaches or failures to perform, and provided
further that in the case of Sections 6.3(b), 6.7, 6.8, 6.9, 6.15, and
7.1(d), (e), and (f), such breaches or failures to perform constitute
a material breach or failure to perform the covenant or agreement in
question.
(d) Other Defaults - the Company or the General Partner,
as applicable, or any Subsidiary, Partnership, Joint Venture, or
Affiliate of the Company or the General Partner, as applicable fails
to perform, observe, or comply with any other provision or obligation
of this Agreement, the Notes, or the Mortgages or of any other
instrument or documents securing the payment or performance of such
obligations, and such failure continues for more than 30 days after
such failure shall first become known to any officer of the General
Partner or any Subsidiary of the Company or the General Partner,
provided, however, that, in the case of Sections 6.1, 6.2(a), 6.2(b)
and 6.2(f), of this Agreement, and Sections 4.02(a)(i), (ii) and
(iii), 4.03 and 9.01 of the Mortgages, the aggregate of all such
breaches or failures to perform, together with the aggregate of all
breaches or other failures to perform of any and all covenants and
agreements set forth in Sections 6.4, 6.5, 6.6, 6.12 or 6.13 of this
Agreement,
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and all breaches of representations and warranties of the General
Partner or the Company set forth in Section 2.6 of this Agreement or
Section 4.02(a)(i) of the Mortgages, causes the aggregate value of
the First Lien Collateral to be less than 95 percent of what it would
have been in the absence of such breaches or failures to perform, and
provided further that, in the case of all other covenants and
obligations in this Agreement, the Notes or the Mortgages (other than
Section 6.11 and 6.17, and other than in the case of any obligation to
make any payment of principal or interest on any Note on or before the
date such payment is due) such breaches or failures to perform
constitute a material breach or failure to perform of the covenant or
agreement in question;
(e) Warranties or Representations - any warranty,
representation, or other statement by or on behalf of the Company, the
General Partner, or any Affiliate thereof contained in this Agreement
or in any instrument furnished by any of them in compliance with or
pursuant to this Agreement is false or misleading in any respect in
the case of Section 2.6 of this Agreement and Section 4.02(a)(i) of
the Mortgages (provided that the aggregate of all such breaches of
said Sections 2.6 and 4.02(a)(i), together with the aggregate of all
breaches or other failures to perform of any and all covenants and
agreements set forth in Sections 6.1, 6.2(a), 6.2(b), 6.2(f), 6.4,
6.5, 6.6, 6.12 or 6.13 of this Agreement, or Sections 4.02(a)(i), (ii)
or (iii), 4.03 and 9.01 of the Mortgages, causes the aggregate value
of the First Lien Collateral to be less than 95 percent of what it
would have been in the absence of such breaches), and in any material
respect in the case of all other warranties and representations;
(f) Default on Indebtedness or Other Security - the
Company fails to make any payment due on any Indebtedness or other
Security or any event shall occur or any condition shall exist in
respect of any Indebtedness or other Security of the Company, or under
any agreement securing or relating to such Indebtedness or other
Security, the effect of which is (i) to cause (or permit any holder of
such Indebtedness or other Security or a trustee to cause) such
Indebtedness or other Security, or a portion thereof, to become due
prior to its stated maturity or prior to its regularly scheduled date
of payment or (ii) to permit a trustee or the holder of any Security
(other than common stock of the General Partner) to elect a majority of
the directors on the Board of Directors of the General Partner or to
change the control of the Company;
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(g) Involuntary Bankruptcy Proceedinqs - a receiver,
liquidator, custodian, or trustee of the Company or the General
Partner or of any material Property of the Company or the General
Partner is appointed by court order and such order remains in effect
for more than 60 days; or any of the material Property of the Company
or the General Partner is sequestered by court order and such order
remains in effect for more than 60 days; or a petition is filed, a
case is commenced or relief is ordered against the Company or the
General Partner under any bankruptcy, reorganization, arrangement,
insolvency, readjustment of debt, dissolution, or liquidation law of
any jurisdiction, whether now or hereafter in effect, and is not
dismissed within 60 days after such filing, commencement, or relief is
ordered against the Company or the General Partner;
(h) Voluntary Petitions - the Company or the General
Partner files a petition commencing a case in voluntary bankruptcy or
seeking relief under any provision of any bankruptcy, reorganization,
arrangement, insolvency, readjustment of debt, dissolution, or
liquidation law of any jurisdiction, whether now or hereafter in
effect, or consents to the filing of any petition or the commencement
of any case against it under any such law, or takes any corporate or
partnership action to authorize or effect any of the foregoing;
(i) Assignments for Benefit of Creditors, etc. - the
Company or the General Partner makes a general assignment for the
benefit of its creditors, or fails to pay its debts generally as they
become due, or admits in writing its inability to pay its debts
generally as they become due, or consents to the appointment of a
receiver, trustee, custodian or liquidator of the Company or the
General Partner or of all or any part of the Property of any of them,
or takes any corporate or partnership action to authorize or effect
any of the foregoing;
(j) Undischarqed Final Judgments- final judgment or
judgments for the payment of money aggregating in excess of $250,000
is or are outstanding against the Company and any one of such
judgments has been outstanding for more than 60 days from the date of
its entry and has not been discharged in full or stayed; or
(k) Discontinuance of Business - the Company
discontinues its usual business as described in Section 2.2.
9.2 Default Remedies.
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(a) Acceleration. If an Event of Default exists, the
holder or holders of more than 33-1/3% in principal amount of the
Notes then outstanding (exclusive of Notes then owned by the Company
or the General Partner or any of their respective Subsidiaries,
Partnerships, Joint Ventures or other Affiliates) may exercise any
right, power, or remedy permitted to such holder or holders by law,
and shall have, in particular, without limiting the generality of the
foregoing, the right to declare the entire principal and all interest
accrued on all the Notes then outstanding to be, and such Notes shall
thereupon become, forthwith due and payable, without any presentment,
demand, protest, or other notice of any kind, all of which are hereby
expressly waived. The Company forthwith will pay to the holder or
holders of all the Notes then outstanding the entire principal of and
interest accrued on the Notes, provided that during the existence of
an Event of Default described in Section 9.1(a) or (b) and
irrespective of whether the holder or holders of more than 33-1/3% in
principal amount of Notes then outstanding have declared all the Notes
to be due and payable pursuant to this Section 9.2(a), any holder of
Notes that has not consented to any waiver with respect to such Event
of Default, at its option by notice in writing to the Company, may
declare the Notes then held by such holder to be, and such Notes shall
thereupon become, forthwith due and payable together with all interest
accrued thereon without any presentment, demand, protest, or other
notice of any kind, all of which are hereby expressly waived, and the
Company forthwith shall pay to such holder the entire principal of and
interest accrued on such Notes.
(b) Nonwaiver and Expenses. No course of dealing on the
part of any holder of the Notes nor any delay or failure on the part
of any holder of the Notes to exercise any right, power, or remedy
shall operate as a waiver of such right, power, or remedy or otherwise
prejudice such holder's rights, powers, and remedies. If the Company
fails to pay when due the principal or interest on any Note, or fails
to comply with any other provision of this Agreement, the Notes, or
the Mortgages or any other instrument or document securing the payment
or performance of the obligations provided for in this Agreement, the
Company will pay to the holders of the Notes, to the extent permitted
by law, such further amounts as shall be sufficient to cover the cost
and expenses, including, without limitation, reasonable attorneys'
fees, incurred by such holders in collecting any sums due on the Notes
or in otherwise enforcing any of their rights.
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9.3 Annulment of Acceleration of Notes. If a declaration is made
pursuant to Section 9.2(a) by any holder or holders of the Notes, then and in
every such case, the holders of 66-2/3% in aggregate principal amount of the
Notes then outstanding (exclusive of Notes then owned by the Company or the
General Partner or any of their respective Subsidiaries, Partnerships, Joint
Ventures or other Affiliates) by written instrument filed with the Company, may
rescind and annul such declaration, and the consequences thereof, provided that
at the time such declaration is annulled and rescinded:
(a) no judgment or decree has been entered for the
payment of any monies due pursuant to the Notes, the Mortgages or this
Agreement;
(b) all arrears of interest upon all the Notes, the
Mortgages and all other sums payable under the Notes, the Mortgages
and this Agreement and any other instrument or document securing the
payment or performance of the obligations provided for in this
Agreement (except any principal or interest on the Notes that has
become due and payable by reason of such declaration under Section
9.2(a)) shall have been duly paid; and
(c) each and every other Default and Event of Default
shall have been waived pursuant to Section 11.4 or otherwise made good
or cured;
and provided further that no such rescission and annulment shall extend to or
affect any subsequent Default or Event of Default or impair any right
consequent thereon.
9.4 Recourse and Non-Recourse Matters. It is expressly agreed that
neither the Company nor the General Partner shall be personally or individually
liable for any Non-Recourse Matters, and holders of any Notes shall neither
seek nor take any deficiency or monetary judgment for any Non-Recourse Matters
against the Company, the General Partner, or against any Property thereof other
than the Collateral or any other Properties covered by any other instruments or
documents securing the payment of amounts payable with respect to Non-Recourse
Matters, and said holders of the Notes shall look solely to enforcement of the
Liens covering said Collateral and Properties for the payment of amounts
payable with respect to Non-Recourse Matters; provided, however, that nothing
contained in this Section 9.4 shall in any way limit or restrict, or
constitute a waiver by you of, your right of recourse and remedy against the
Company and the General Partner personally or individually on account of any
Recourse Matters. Under no circumstances shall any limited partner of the
Company be personally or individually liable on account of its interest
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as limited partner in the Company for the obligations of the Company undertaken
in or pursuant to this Agreement.
SECTION 10. INTERPRETATION OF THIS AGREEMENT
10.1 Terms Defined. As used in this Agreement, the following terms
have the respective meanings set forth below or set forth in the Section
following such term:
Affiliate - any Person that directly or indirectly, through
one or more intermediaries, controls, or is controlled by, or is under
common control with, the Company or the General Partner, as the case
may be, or any Subsidiary, Partnership, or Joint Venture of the
Company or the General Partner, as the case may be. The term "control"
as used in the foregoing sentence means the possession, directly or
indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of
voting securities, by contract, or otherwise.
Business Day - Any day other than a Saturday, Sunday or legal
holiday for commercial banks under the laws of the Commonwealth of
Massachusetts or the State of Oklahoma or any executive order issued
thereunder.
Capitalized Lease Obligations - all rental obligations that,
under generally accepted accounting principles in effect on the date
hereof, are or would be required to be capitalized on the books of the
Company or any Subsidiary (including, without limitation, all existing
rental obligations that would be required to be so capitalized for
calendar or fiscal years beginning after March 31, 1988, and any
rentals incurred in connection with issues of "industrial revenue
bonds" as defined in section 103(c)(2) and "pollution control bonds"
within the meaning of section 103(b)(4)(f) of the Code), in each case
taken at the amount thereof accounted for as Indebtedness (net of
interest expense) in accordance with such principles.
Chattel Paper - "chattel paper" as defined in the Uniform
Commercial Code.
Closing - Section 1.2.
Closing Date - Section 1.2.
Code - the Internal Revenue Code of 1986, as amended.
Consolidated Debt - with respect to any Person, means, without
duplication:
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(1) its liabilities for borrowed money;
(2) liabilities secured by any Lien existing on
Property owned by such Person (regardless of whether such
liabilities have been assumed);
(3) liabilities under Capitalized Lease
Obligations;
(4) any other obligations (other than deferred
taxes, gas balancing amounts (regardless or whether current)),
and other noncurrent liabilities) that are required by
generally accepted accounting principles to be shown as
liabilities on its balance sheet and which are payable or
remain unpaid more than one year from the creation thereof;
and
(5) Guaranties (other than those permitted by
Section 6.9(a)).
Consolidated Net Income - net earnings (or loss) after income
taxes of the Company or the General Partner, as the case may be, and
its respective Subsidiaries determined on a consolidated basis, but
excluding:
(1) any gain (or loss) arising from the sale of
capital assets (i.e., those assets other than current assets);
(2) any gain (or loss) arising from any write-up
or write-down of assets;
(3) net earnings (or loss) of any such Subsidiary
accrued prior to the date it became such a Subsidiary;
(4) net earnings (or loss) of any Person,
substantially all the assets of which have been acquired by
the Company or the General Partner, as the case may be, in any
manner, realized by such Person prior to the date of such
acquisition;
(5) net earnings (or loss) of any Person in which
the Company or the General Partner, as the case may be, or any
Subsidiary thereof has an equity interest (other than
a Subsidiary) unless such net earnings (or loss) shall have
actually, been received by the Company or the General
Partner, as the case may be, or such Subsidiary in the form of
cash distributions;
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(6) any portion of the net earnings (or loss) of
any Subsidiary of the Company or the General Partner, as the
case may be, which contractually or legally is unavailable for
payment of dividends to the Company or the General Partner,
as the case may be, or any other Subsidiary thereof;
(7) the net earnings (or loss) of any Person with
which the Company or the General Partner, as the case may be,
shall have merged, prior to the date of such transaction; and
(8) in the case of the General Partner, any gain
(or loss) arising from the acquisition of any Securities of
the General Partner or any Subsidiary thereof.
Contract Operating Agreements - collectively, the Alexander
Contract Operating Agreement and the Zilkha Contract Operating
Agreement.
Contracts - when described as being those of or applicable to
any Person, means any and all contracts, agreements, franchises,
understandings, arrangements, leases, licenses, registrations,
authorizations, easements, servitudes, rights-of-way, mortgages,
bonds, notes, guaranties, liens, indebtedness, approvals or other
instruments or undertakings to which such Person is a party or to
which or by which such Person or the Property of such Person is
subject or bound, excluding any Permits.
Default - an event or condition the occurrence of which, with
the lapse of time or the giving of notice or both, would become an
Event of Default.
Distribution - in respect of any corporation or other
entity means:
(1) dividends or other distributions on capital
stock or equity interests in such entity; and
(2) the redemption or acquisition of such stock or
other equity interests or of warrants, rights, or other
options to purchase such stock unless made, contemporaneously,
from the net proceeds of a sale of such stock or other equity
interests.
ERISA - the Employee Retirement Income Security Act of 1974,
as amended from time to time.
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ERISA Affiliate - each trade or business (whether or not
incorporated) which together with the Company, or its General Partner
or any of its or their Subsidiaries, Partnerships or Joint Ventures
would be deemed to be a "single employer" within the meaning of
Section 4001(b)(1) of ERISA or subsections (b), (c), (m) or (o) of
Section 414 of the Code.
ERISA Event - (i) a "Reportable Event" described in Section
4042 of ERISA and the regulations issued thereunder, (ii) the
withdrawal of the Company or its General Partner or any of its or
their Subsidiaries, Partnerships or Joint Ventures or any ERISA
Affiliate from a Plan during a plan year in which it was a
"substantial employer" as defined in Section 4001(a)(2) of ERISA,
(iii) the filing of a notice of intent to terminate a Plan or the
treatment of a Plan amendment as a termination under Section 4041 of
ERISA, (iv) the institution of proceedings to terminate a Plan by the
PBGC, or (v) any other event or condition which might constitute
grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Plan.
Event of Default - Section 9.1.
First Lien Collateral - that portion of the Collateral in
which you have valid, perfected and enforceable first priority
security interests, mortgages and liens, in each case subject to no
prior or superior Lien other than the Permitted Liens.
Governmental Authorities - any state or country (including but
not limited to the United States) and any commonwealth, territory or
possession thereof and any political subdivision of any of the
foregoing, including but not limited to courts, departments,
commissions, boards, bureaus, agencies, ministries or other
instrumentalities or any official thereof.
Guaranty - Section 6.10.
Hazardous Materials - (a) any oil, flammable substances,
explosives, radioactive materials, hazardous wastes or substances,
toxic wastes or substances, or any other materials or pollutants which
(i) pose a hazard to the lands in which the Oil and Gas Properties are
located and the improvements thereon or to persons on or about such
lands and improvements, or (ii) cause the lands in which the Oil and
Gas Properties are located and the improvements thereon to be in
violation of any Hazardous Materials Laws; (b) asbestos, urea
formaldehyde foam insulation, transformers or other equipment which
contain dielectric fluid containing
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levels of polychlorinated biphenyls in excess of fifty (50) parts per
million; (c) any chemical, material or substance defined as or
included in the definition of "hazardous substances," "hazardous
wastes," "hazardous materials," "extremely hazardous waste,"
"restricted hazardous waste," or "toxic substances" or words of
similar import under any applicable local, state or federal law or
under the regulations adopted or publications promulgated pursuant
thereto, including, but not limited to, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as
amended, 42 U.S.C. Sec. 9601, et. seq.; the Hazardous Materials
Transportation Act, as amended 49 U.S.C. Sec. 1801, et. seq.; the
Resource Conservation and Recovery Act, as amended, 42 U.S.C. Sec.
6901, et. seq.; the Federal Water Pollution Control Act, as amended,
33 U.S.C. Sec. 1251, et. seq.; and (d) any other chemical, material or
substance, exposure to which is prohibited, limited or regulated by
any Governmental Authority or may or could pose a hazard to the health
and safety of persons on or about the aforesaid land and improvements.
Hazardous Materials Claims - any and all enforcement,
clean-up, removal or other governmental or regulatory actions or
orders threatened, instituted or completed pursuant to any Hazardous
Materials Laws, together with all claims made or threatened by any
third party against the Company or other owners of the Oil and Gas
Properties or against the Oil and Gas Properties relating to damage,
contribution, cost recovery compensation, loss or injury resulting
from any Hazardous Materials.
Hazardous Materials Laws-- any federal, state or local laws,
ordinances, regulations, or policies relating to the environment,
health and safety, any Hazardous Materials (including, without
limitation, the use, handling, transportation, production, disposal,
discharge or storage thereof) or to industrial hygiene or the
environmental conditions on, under or about the Oil and Gas
Properties, including, without limitation, soil and groundwater
conditions.
Indebtedness - all obligations that, in accordance with
generally accepted accounting principles, should be classified as
liabilities upon a balance sheet, and in any event includes all
borrowings and other monetary obligations, whether direct or indirect
or a direct or indirect guarantee, it being understood that such term
shall not include capital or capital surplus.
Institutional Holder - any institutionai investor of
recognized standing (including any commercial bank, savings bank,
insurance company, pension or retirement
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fund, bank holding company, or insurance holding company) that shall
become a holder of Note.
Joint Venture - any joint venture in which the Company or the
General Partner or any Subsidiary, Partnership, or other such Joint
venture of the Company or the General Partner is a participant;
provided, however, that the term "Joint Venture" shall not be deemed
to include joint exploration and operating arrangements customary in
the oil and gas industry and not intended to create (even if having
the legal effect of creating) a partnership, joint venture, or other
relationship (other than for income tax purposes) creating joint and
several liability on the part of the participants therein.
Leqal Requirements - when described as being applicable to any
Person, means any and all laws (statutory, judicial or otherwise),
ordinances, rules, regulations, judgments, orders, directives,
injunctions, writs, decrees or awards of, and any contracts,
agreements, franchises, understandings or arrangements with, any
Governmental Authority or arbitration board, panel or tribunal, in each
case as and to the extent applicable to such Person or such Person's
business, operations or properties.
Lien - any interest in Property securing an obligation owed
to, or a claim by, a Person other than the owner of the Property,
whether such interest is based on law, statute, or contract
(including, without limitation, the security interest lien arising
from a mortgage, encumbrance, pledge, conditional sale, or trust
receipt or a lease, consignment or bailment for security purposes),
and any reservations, exceptions, encroachments, easements,
rights-of-way,covenants, conditions, restrictions, leases, defects,
irregularities, deficiencies, servitudes, and other title exceptions
and encumbrances affecting Property. For the purposes of this
Agreement, the Company or the General Partner or any Subsidiary,
Partnership, or Joint Venture of either shall be deemed to be the
owner of any Property that it has acquired or holds subject to a
conditional sale agreement, financing lease, or other arrangement
pursuant to which title to the Property has been retained by or vested
in some other Person for security purposes.
Minerals - oil, gas, other liquid and gaseous hydrocarbons and
other minerals, whether similar or dissimilar.
Multiemployer Plan - a Plan which is a
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multiemployer plan as defined in Section 3(37) or 4001(a)(3) of ERISA.
Net Proceeds - for any period after the Closing Date, the "net
revenues from oil and gas production" attributable to the Subject
Interests during such period, to the extent and only to the extent
related to "proved developed oil and gas reserves," as the foregoing
terms in quotation marks are defined in and calculated under the
"full-cost method of accounting" and other valuation methods and
definitions not inconsistent therewith set forth in Section 210.4-10 of
Regulation S-X promulgated by the Securities and Exchange Commission,
17 C.F.R. Section 210.4-10, as amended ("Regulation Section 210.4-10"),
Net Proceeds for any given month being computed in accordance with
Section 8.1(b) hereof; provided that (1) the Management Fee provided
for under the Company's Agreement of Limited Partnership shall be
included in the costs to be deducted from revenues, and (2) any and all
proceeds from the sale or other disposition of any Subject Interests
(including but not limited to compensatory damages, awards, insurance
or indemnity recovered for damage to, condemnation of, or loss of any
Subject Interests), after deducting therefrom the reasonable
out-of-pocket costs and expenses incurred in effecting such sale or
other disposition, and any and all damages or indemnity recovered from
Zilkha or its successors or assigns pursuant to the Purchase Agreement,
shall be included in revenues for purposes of calculating the Net
Proceeds as described immediately above.
Net Worth - as to any Person, the net worth of such Person
computed in accordance with generally accepted accounting principles
consistently applied.
Non-Recourse Matters - any and all breaches or failures to
perform of representations, warranties, covenants or agreements of the
Company or the General Partner set forth in this Agreement, the Notes
or the Mortgages not otherwise included in the definition of Recourse
Matters.
Notes - Section 1.1.
Officers' Certificate - a certificate signed by (1) the
Chairman of the Board, the President, or a Vice President of the
General Partner, and (2) the Treasurer, an Assistant Treasurer, the
Secretary, or an Assistant Secretary of the General Partner.
Partnership - any partnership (as defined in the Uniform
Partnership Act in effect in any applicable jurisdiction) or limited
partnership in which the
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Company or the General Partner or any Subsidiary, Joint Venture or
other such Partnership is a partner; provided, however, that the term
"Partnership" shall not be deemed to include joint exploration and
operating arrangements customary in the oil and gas industry and not
intended to create (even if having the legal effect of creating) a
partnership, joint venture, or other relationship (other than for
income tax purposes) creating joint and several liability on the part
of the participants therein, and in the case of the General Partner
shall not include the Company.
Permits - any and all permits, licenses, consents, approvals,
authorizations, legal status, orders or other agreements, franchises,
understandings or arrangements under any Legal Requirement or
otherwise granted or required by any Governmental Authority.
Permitted Liens - with respect to any Property, the Liens
permitted for such Property under Section 6.6.
Person - an individual, partnership, corporation, trust,
unincorporated organization, or other legal entity, or a government
or agency or political subdivision thereof.
PBGC - the Pension Benefit Guaranty Corporation, or any
successor thereto.
Plan - any employee pension benefit plan, as defined in
Section 3(2) of ERISA, which (a) is currently or hereafter sponsored,
maintained or contributed to by the Company or any of its
Subsidiaries, Partnerships or Joint Ventures or an ERISA Affiliate or
(b) was at any time during the six calendar years preceding the date
of this Agreement, sponsored, maintained or contributed to by the
Company or any of its Subsidiaries, Partnerships or Joint Ventures
or an ERISA Affiliate.
Present Value of Estimated Future Net Revenues - the "Present
Value of Estimated Future Net Revenues" from any interest in oil, gas
or mineral interests, leases, estates and other Properties to the
extent and only to the extent related to "proved developed oil and gas
reserves," as the foregoing terms in quotation marks are defined in
and calculated under the "full cost method of accounting" and other
valuation methods and definitions not inconsistent therewith set forth
in Regulation Section 210.4-10.
Property or Properties - any interest or interests in any
kind of property or asset, whether real, personal or mixed, or
tangible or intangible.
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Receivables - Section 2.16.
Recourse Matters - any and all of the following matters:
(i) any and all material breaches of representations or
warranties of the General Partner or the Company set forth in this
Agreement, the Notes or the Mortgages other than those set forth in
Section 2.6 of this Agreement or Section 4.02(a)(i) of the Mortgages,
(ii) any and all breaches of representations or warranties
of the General Partner or the Company set forth in Section 2.6 of this
Agreement or Section 4.02(a)(i) of the Mortgages, provided that the
aggregate of all such breaches of said Sections 2.6 and 4.02(a)(i),
together with the aggregate of all breaches or other failures to
perform of any and all covenants and agreements set forth in Section
6.1, 6.2, 6.3(b), 6.4 through 6.10 or 6.12 through 6.16, causes the
aggregate value of the First Lien Collateral to be less than 95
percent of what it would have been in the absence of such breaches or
failures to perform, and provided further that this clause (ii) shall
not apply with respect to any Oil and Gas Property as to which a title
opinion meeting the requirements of Section 6.17(b) has been furnished
or is not required to be furnished in accordance with such Section
6.17(b),
(iii) any and all breaches or other failures to perform of
any and all covenants and agreements set forth in (x) Section 6.1,
6.2, 6.3(b), 6.4 through 6.10 and 6.12 through 6.16, but only as and
to the extent that the aggregate of all such breaches and/or failures
to perform, together with the aggregate of all breaches of
representations and warranties of the General Partner or the Company
set forth in Section 2.6 of this Agreement or Section 4.02(a)(i) of
the Mortgages, causes the aggregate value of the First Lien Collateral
to be less than 95 percent of what it would have otherwise been in the
absence of such breaches or failures to perform, (y) Section 6.11 of
this Agreement and Section 4.04 of the Mortgages (without regard to
any diminution in value of the First Lien Collateral), and (z) Section
6.17 of this Agreement, as such Section 6.17 is limited by its own
terms, and
(iv) any and all breaches or other failures to
perform of any and all covenants and agreements set forth in
Section 6.3(a).
Registered Notes - Section 1.1.
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Restricted Investments - all investments, made in cash or by
delivery of Property, by the Company or any of its Subsidiaries,
Partnerships, or Joint Ventures (x) in any Person, whether by
acquisition of stock, indebtedness or other obligation or Security,
or by loan, advance or capital contribution, or otherwise, or (y) in
any Property (items (x) and (y) herein called "Investments"), except
the following:
(1) investments in direct obligations of the
United States of America, or any agency thereof or obligations
guaranteed by the United States of America, provided that such
obligations mature within two years from the date of
acquisitions thereof; and
(2) investments in certificates of deposit
maturing within one year from the date of acquisition issued
by, and interest-bearing demand deposit accounts maintained
at, The Liberty National Bank and Trust Company of Oklahoma
City or another bank or trust company that is a member of the
Federal Deposit Insurance Corporation and organized under the
laws of the United States or any state thereof having
comparable or greater capital, surplus and undivided profits.
Investments shall be valued at cost less any net return of capital
through the sale or liquidation thereof or other return of capital
thereon.
Security - shall have the same meaning as in section 2(1) of
the 1933 Act.
Subordinated Debt - all Consolidated Debt of the Company or
the General Partner, as the case may be, that provides for the
subordination of such Consolidated Debt to the Notes.
Subsidiary - a corporation, if any, of which the Company or
the General Partner, as applicable, owns, directly or indirectly, more
than 50% of the Voting Stock.
Substantial Part - as used in Sections 6.4 and 6.5 means, when
used with respect to consolidated assets of the Company and its
Subsidiaries, Partnerships, and Joint Ventures, more than 25% thereof,
and when used with respect to Consolidated Net Income for any period,
more than 25% thereof for such period. Computations pursuant to
Section 6.5 shall include dispositions made pursuant to Section 6.4
and computations pursuant to Section 6.4 shall include dispositions
made pursuant to Section 6.5.
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<PAGE> 65
Voting Stock - securities of any class or classes of a
corporation the holders of which ordinarily, in the absence of
contingencies, are entitled to elect a majority of the corporate
directors (or Persons performing similar functions).
Wholly-Owned Subsidiary - any Subsidiary, all of the
outstanding capital stock (except directors' qualifying shares) of
which are owned by the Company or the General Partner, as the case may
be, and/or other Wholly-Owned Subsidiaries of the Company or the
General Partner, respectively.
1933 Act - Section 1.3(b).
10.2 Accountinq Principles. Except as expressly stated otherwise in
this Agreement, where the character or amount of any asset or liability or item
of income or expense is required to be determined or any consolidation or other
accounting computation is required to be made for the purposes of this
Agreement, this shall be done in accordance with generally accepted accounting
principles at the time of effect, to the extent applicable. When any
computations are made with respect to Subsidiaries, Partnerships, or Joint
Ventures, only the portion attributable to the Company's or the General
Partner's, as the case may be, direct or indirect equity interest therein shall
be included.
10.3 Directly or Indirectly. Where any provision in this Agreement
refers to action to be taken by any Person, or which such Person is prohibited
from taking, such provision shall be applicable whether such action is taken
directly or indirectly by such Person, including actions taken by or on behalf
of any partnership in which such Person is a general partner.
10.4 Governing Law. The parties hereto specifically agree that this
Agreement and the Notes shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts, excluding any conflict-of-law
rule or law that might refer same to the laws of another jurisdiction. The
parties hereto specifically and non-exclusively submit themselves to the
personal jurisdiction of the state and federal courts in the Commonwealth of
Massachusetts, in connection with all controversies and disputes arising out of
or relating to the effect, interpretation, performance, or breach of this
Agreement, and, in that connection, the Company hereby appoints the Secretary
of State of the Commonwealth of Massachusetts as its agent for service of
process and any actions brought in the state or federal courts in the
Commonwealth of Massachusetts, arising out of
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<PAGE> 66
or relating to the effect, interpretation, performance, or breach of this
Agreement.
10.5 References. All references herein to one gender shall include
the others. Unless otherwise expressly provided, all references to "Sections"
are to Sections of this Agreement and all references to "Exhibits" are to the
exhibits attached hereto, each of which is made a part hereof for all purposes.
SECTION 11. MISCELLANEOUS
11.1 Notices.
(a) Except as otherwise provided in this Agreement or in
the Notes, all communications under this Agreement or under the Notes
shall be in writing and shall be mailed by first class mail, postage
prepaid,
(i) if to you, in the manner set forth on Exhibit
4.1, or at such other address in Massachusetts as you have
furnished the Company by at least 15 days' prior notice, or
(ii) if to the Company, or the General Partner, at
Suite 600, Triad Center, 501 Northwest Expressway, Oklahoma
City, Oklahoma 73118, Attention: Bob G. Alexander, or at such
other address as it may have furnished by at least 15 days'
prior notice to you and all other holders of the Notes at the
time outstanding.
(b) Any notice so addressed and mailed by registered or
certified mail shall be deemed to be given when so mailed.
11.2 Survival. All warranties, representations, and covenants made
by the Company herein or on any certificate or other instrument delivered by it
under this Agreement shall be considered to have been relied upon by you and
shall survive the delivery to you of the Notes and the Warrant regardless of
any investigation made by you or on your behalf. All statements in any such
certificate or other instrument shall constitute warranties and representations
by the Company hereunder.
11.3 Successors and Assigns. The Company may not assign any of its
rights or delegate any of its duties to any Person without your prior written
consent. Except as expressly set forth in Section 5 and this Section 11.3,
this Agreement shall inure to the benefit of and be binding upon the successors
and assigns of each of the parties, and the provisions of this Agreement are
intended to be for the
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<PAGE> 67
benefit of all holders, from time to time, of the Notes, and shall be
enforceable by any such holder, regardless of whether an express assignment to
such holder of rights under this Agreement has been made by you or your
successor or assign.
11.4 Amendment and Waiver.
(a) This Agreement may be amended, and the observance of
any term of this Agreement may be waived, with (and only with) the
written consent of the Company and the holders of at least 66-2/3% in
aggregate principal amount of the Notes at the time outstanding
(exclusive of Notes then owned by the Company, the General Partner or
any of their respective Subsidiaries, Partnerships, Joint Ventures,
and Affiliates); provided, however, that no such amendment or waiver
of any of the provisions of Sections 1 through 4 shall be effective as
to you unless consented to by you in writing; and provided further
that without the written consent of the holders of all the Notes at
the time outstanding, no such amendment or waiver shall (i) subject to
Section 9.3, change the amount or time of any payment of principal or
the rate or time of payment of interest, (ii) amend Section 9, or
(iii) amend this Section 11.4.
(b) So long as any outstanding Notes are owned by you,
the Company shall not solicit, request, or negotiate for or with
respect to any proposed waiver or amendment of any of the provisions
of this Agreement or the Notes unless each holder of the Notes
(irrespective of the amount of Notes then owned by it) shall be
informed thereof by the Company and shall be afforded the opportunity
of considering the same and shall be supplied by the Company with
sufficient information to enable it to make an informed decision with
respect thereto. Executed or true and correct copies of any waiver or
consent effected pursuant to the provisions of this Section 11.4
shall be delivered by the Company to each holder of outstanding Notes
forthwith following the date on which the same shall have been
executed and delivered by the holder or holders of the requisite
percentage of outstanding Notes. The Company shall not, directly or
indirectly, pay or cause to be paid any remuneration, whether by way
of supplemental or additional interest, fee, or otherwise, to any
holder of the Notes as consideration for or as an inducement to
entering into by any holder of the Notes of any waiver or amendment
of any of the terms and provisions of this Agreement unless such
remuneration is concurrently paid, on the same terms, ratably to the
holders of all of the Notes then outstanding.
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<PAGE> 68
(c) Any such amendment or waiver shall apply equally to
all the holders of the Notes and shall be binding upon each future
holder of any Note and upon the Company regardless of whether such
Note shall have been marked to indicate such amendment or waiver. No
such amendment or waiver shall extend to or affect any obligation not
expressly amended or waived or impair any right consequent thereon.
11.5 Knowledge. Any statement in this Agreement that is expressed
in terms of the knowledge of the Company or the General Partner or any
Subsidiary, Partnership, or Joint Venture is intended to and shall be deemed to
mean the actual knowledge of the officers, directors, or managerial personnel
of such Person with respect to the matter in question, and the knowledge that
any of such officers, directors or managerial personnel would obtain after
making due investigation into the matter in question.
11.6 Multiple Counterparts. Two or more counterparts of this
Agreement may be signed by the parties, each of which shall be an original but
all of which together shall constitute one and the same instrument.
If this Agreement is satisfactory to you, please so indicate by
signing the acceptance at the foot of a counterpart of this Agreement and
return such counterpart to the Company, whereupon this Agreement will become
binding between us in accordance with its terms effective as of April 25, 1989.
Very truly yours,
AEJH 1989 LIMITED PARTNERSHIP
By: Alexander Energy Corporation,
General Partner
By: /s/ BOB G. ALEXANDER
---------------------------
Name: Bob G. Alexander
-------------------------
Title: President
------------------------
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<PAGE> 69
The General Partner joins in this Note Agreement for the purposes of
the representations and warranties in Section 2 hereof and to covenant and
agree, for the benefit of all holders of the Notes, to do the things it
agrees to do or the Company has agreed to cause it to do.
ALEXANDER ENERGY CORPORATION
By: /s/ BOB G. ALEXANDER
---------------------------
Name: Bob G. Alexander
-------------------------
Title: President
------------------------
ACCEPTED:
JOHN HANCOCK MUTUAL LIFE
INSURANCE COMPANY
By: /s/ WILLIAM A. KINSLEY
----------------------------
Name: WILLIAM A. KINSLEY
--------------------------
Title: Senior Investment Officer
-------------------------
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<PAGE> 70
EXHIBIT 1.1 (vi)
10-1/2% SENIOR SECURED NOTE
$____________ Boston, Massachusetts April 25, 1989
FOR VALUE RECEIVED, AEJH 1989 Limited Partnership, a Delaware limited
partnership ("the Company"), promises and agrees to pay to JOHN HANCOCK MUTUAL
LIFE INSURANCE COMPANY, a Massachusetts mutual life insurance company, or its
registered assign ("Holder") at The First National Bank of Boston, 100 Federal
Street, Boston, Massachusetts (or such other place as Holder may designate from
time to time on at least 10 days' notice to the Company), in coin or currency
of the United States of America that at the time of payment is legal tender for
the payment of public and private debts, the principal sum of ____ AND ____
/100THS DOLLARS ($_____), and to pay interest on the unpaid principal balance
thereof from the date of this Note at the rate of 10-1/2% per annum, such
interest to be payable monthly in arrears on the first Business Day of each
calendar month and continuing until the entire principal balance thereof is
paid, with the final interest payment being due and payable upon maturity of
this Note. The rate of interest set forth above shall be computed on the basis
of a 365-day or 366-day year, as the case may be. This Note, together with all
accrued unpaid interest, shall be paid December 31, 1999, provided, however,
that mandatory prepayments of principal shall be due and payable as follows.
Subject to and in accordance with the provisions of the Note Agreement, the
Company shall prepay principal on this Note on the first Business Day of each
calendar month in an amount equal to the proportion that the amount of
principal outstanding under this Note bears to the aggregate of all outstanding
principal under all Notes of an amount equal to (1) 80.75% of the Net Proceeds
for the second preceding calendar month, minus (2) interest accrued on all
Notes as of and payable on such prepayment date.
Each payment made by the Company under this Note shall be made in
federal or other immediately available funds before 12:00 noon, Boston time, on
the date that such payment or prepayment is required to be made. Any payment
received and accepted by Holder after such time shall be considered for all
purposes (including the calculation of interest, to the extent permitted by
law) as having been made on the next following Business Day.
<PAGE> 71
If the date for any payment hereunder falls on a day that is not a
Business Day, then for all purposes of this Note the same shall be deemed to
have fallen on the next preceding Business Day.
The Company and each co-maker, guarantor, accommodation party,
endorser, or other person or entity liable for the payment or collection of
this Note expressly waive demand and presentment for payment, notice of
nonpayment, protest, notice of protest, notice of dishonor, bringing of suit
and diligence in taking any action to collect amounts called for hereunder and
in the handling of property at any time existing as security in connection
herewith, and shall be directly and primarily liable for the payment of all
sums owing and to be owing hereon, regardless of and without any notice,
diligence, act or omission as or with respect to the collection of any amount
called for hereunder or in connection with any right, lien, interest or
property at any and all times had or existing as security for any amount
called for hereunder.
This Note is issued pursuant to and is entitled to the benefits of a
certain Note Agreement entered into among the Company, Alexander Energy
Corporation, an Oklahoma corporation, and John Hancock Mutual Life Insurance
Company, dated as of April 25, 1989 (the "Note Agreement"). Unless otherwise
defined herein or the context otherwise requires, each term used herein with
its initial letter capitalized has the meaning given to such term in the Note
Agreement. This Note is subject to prepayment as specified in, and the Company
agrees to make prepayments of principal on the dates and in the amounts as
required by, the Note Agreement, but except for the mandatory prepayments
described herein and therein, this Note may not be prepaid in whole or in part
at any time. In case an Event of Default shall occur and be continuing, the
principal of this Note and all accrued but unpaid interest thereon and premium,
if any, may be declared due and payable in the manner and with the effect
provided in the Note Agreement. Reference is made to said Note Agreement for
provisions regarding acceleration, additional mandatory prepayments, payment of
attorneys' fees, disbursements, expenses, and all other purposes.
Payment of this Note is secured by certain Mortgages dated April 25,
1989, and executed by the Company in favor of the holders of the Notes
(including this Note) and granting a mortgage, lien and security interest in
certain Collateral.
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<PAGE> 72
This Note is a registered note, and, as provided in the Note
Agreement, is transferable on the note register of the Company upon notice to
the Company accompanied by a written instrument of transfer reasonably
satisfactory to the Company duly executed by, or on behalf of, the registered
holder hereof. The Company may treat the person whose name appears in the note
register as the owner hereof for the purpose of receiving payment as herein
provided.
It is expressly stipulated and agreed to be the intention of Holder
and the Company to comply at all times with applicable laws governing the
maximum rate or amount of interest payable on or in connection with this Note.
Accordingly, if any of the transactions contemplated hereby would be usurious
under applicable law now or hereafter governing the interest payable hereunder
(including applicable United States federal law or applicable state law, to the
extent not preempted by United States federal law), then, in that event,
notwithstanding anything to the contrary in this Note or any other agreement
entered into in connection with or as security for this Note, it is agreed as
follows: (x) the aggregate of all consideration that constitutes interest under
applicable law that is contracted for, charged, taken, reserved, or received
under this Note or under any of the other aforesaid agreements or otherwise in
connection with this Note under no circumstances shall exceed the maximum
amount of interest allowed by applicable law, and any excess shall be credited
on this Note by the holder thereof (or if such Note shall have been paid in
full, refunded to the Company); and (y) in the event that maturity of this Note
is accelerated by reason of an election by the holder thereof resulting from
any default hereunder or otherwise, or in the event of any required or
permitted prepayment or conversion, then such consideration that constitutes
interest may never include more than the maximum amount allowed by applicable
law, and excess interest, if any, provided for in this Note or otherwise shall
be cancelled automatically as of the date of such acceleration or prepayment
and, if theretofore prepaid, shall be credited on this Note (or if this Note
shall have been paid in full, refunded to the Company), and the provisions of
this Note and any other agreements entered into in connection with or as
security for such Note shall immediately be deemed reformed and the amounts
thereafter collectible hereunder and thereunder reduced accordingly, without
the necessity of the execution of any new document, so as to comply with the
then applicable law. Determination of the rate of interest for purposes of
determining whether this transaction is usurious under any applicable laws, to
the full extent permitted by applicable law, shall be made by amortizing,
prorating, allocating, and spreading throughout
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<PAGE> 73
the full stated term hereof until payments in full, all sums at any time
contracted for, charged, taken, reserved or received from the Company for the
use, forbearance or detention of money in connection herewith.
This Note has been made in Boston, Massachusetts, and the Company and
Holder agree that this Note shall be governed by and construed in accordance
with the laws of the Commonwealth of Massachusetts, excluding any
conflict-of-law rule or law that might refer same to the laws of another
jurisdiction. The Company and Holder specifically and nonexclusively submit
themselves to the personal jurisdiction of the state and federal courts in the
Commonwealth of Massachusetts, in connection with all controversies and disputes
arising out of or relating to the effect, interpretation, performance, or breach
of this Note, and, in that connection, the Company hereby appoints the
Secretary of State of the Commonwealth of Massachusetts as its agent for
service of process and any actions brought in the state of federal courts in
the Commonwealth of Massachusetts, arising out of or relating to the effect,
interpretation, performance, or breach of this Note.
The rights, powers and remedies permitted to any Holder of this Note
who is either the Company or the General Partner or any of their respective
Subsidiaries, Partnerships, Joint Ventures or other Affiliates are subject to
certain limitations and restrictions as and to the extent set forth in the Note
Agreement, and reference is hereby made to such limitations and restrictions
for all purposes.
It is expressly agreed that neither the Company nor the General
Partner shall be personally or individually liable for any Non-Recourse
Matters, and the holder of this Note shall neither seek nor take any deficiency
or monetary judgment for any Non-Recourse Matters against the Company, the
General Partner or against any Property other than the Collateral or any other
Properties covered by any other instruments or documents securing the payment
of amounts with respect to Non-Recourse Matters, and said holder of this Note
shall look solely to enforcement of the Liens covering said Collateral and
Properties for the payment of amounts with respect to Non-Recourse Matters;
provided, however, that nothing contained in this Note shall in any way limit
or restrict, or constitute a waiver by any Holder of such Holder's right of
recourse and remedy against the Company and the General Partner personally or
individually on account of any Recourse Matters. Under no circumstances shall
any limited partner of the Company be liable on account of its interest as
limited partner in the Company for the
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<PAGE> 74
obligations of the Company undertaken in or pursuant to this Note.
AEJH 1989 LIMITED PARTNERSHIP
By: ALEXANDER ENERGY CORPORATION,
General Partner
By:____________________________
Name:__________________________
Title:_________________________
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<PAGE> 1
EXHIBIT 10(k)
AGREEMENT
OF
LIMITED PARTNERSHIP
OF
AEJH 1987-A LIMITED PARTNERSHIP
By and Between
ALEXANDER ENERGY CORPORATION
As General Partner
and
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
As Limited Partner
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C> <C>
ARTICLE I
ORGANIZATION
SECTION 1.01 Formation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.02 Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.03 Principal Place of Business . . . . . . . . . . . . . . . . . . . . . . . . 2
1.04 Purposes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.05 Organizational Certificates . . . . . . . . . . . . . . . . . . . . . . . . 3
1.06 Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.07 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE II
CAPITAL CONTRIBUTIONS
SECTION 2.01 Initial Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.02 Optional Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.03 Payment of Capital Contributions . . . . . . . . . . . . . . . . . . . . . . 9
2.04 Default in Payment of Capital Contributions . . . . . . . . . . . . . . . . 10
2.05 Return of Capital Contributions . . . . . . . . . . . . . . . . . . . . . . 11
2.06 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.07 Certain Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.08 Capital Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE III
COSTS, REVENUES AND ALLOCATIONS
SECTION 3.01 Sharing of Costs and Revenues . . . . . . . . . . . . . . . . . . . . . . . 15
3.02 Allocations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.03 Limitations on Deductions . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.04 Lender as Partner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.05 Windfall Profit Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE IV
MANAGEMENT AND OPERATION
SECTION 4.01 Management of Partnership Affairs . . . . . . . . . . . . . . . . . . . . . 19
4.02 Powers of General Partner . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.03 Operating Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.04 Limitations on General Partner's Powers . . . . . . . . . . . . . . . . . . 21
4.05 Performance of Obligations as Operator . . . . . . . . . . . . . . . . . . . 22
4.06 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.07 Fiduciary Relationship . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.08 Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C> <C> <C>
4.09 Organizational Costs and Organizational Fee . . . . . . . . . . . . . . . . 24
4.10 Management Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE V
TAXES
SECTION 5.01 Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.02 Tax Elections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.03 Maintenance of Status as Partnership . . . . . . . . . . . . . . . . . . . 26
5.04 Partnership Tax Audits . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE VI
RIGHTS OF LIMITED PARTNER
SECTION 6.01 Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.02 Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.03 Limited Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.04 Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE VII
DISTRIBUTIONS
SECTION 7.01 Monthly Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.02 Method of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE VIII
BOOKS, RECORDS, REPORTS AND BANK ACCOUNTS
SECTION 8.01 Maintenance of Books . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
8.02 Periodic Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
8.03 Quarterly Financial Reports . . . . . . . . . . . . . . . . . . . . . . . . 31
8.04 Annual Certified Financial Statements . . . . . . . . . . . . . . . . . . . 31
8.05 Additional Reports and Information . . . . . . . . . . . . . . . . . . . . . 32
8.06 Bank Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE IX
OPTIONAL OPERATIONS; LEASEHOLD ACQUISITION
SECTION 9.01 Optional Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
9.02 Acquisition of Leasehold Interests . . . . . . . . . . . . . . . . . . . . . 34
9.03 Limitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE X
ASSIGNMENT OF INTERESTS AND SUBSTITUTIONS; REMOVAL
SECTION 10.01 Assignment by Limited Partners . . . . . . . . . . . . . . . . . . . . . . . 35
10.02 Assignment by General Partner . . . . . . . . . . . . . . . . . . . . . . . 36
10.03 Partition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
10.04 Removal of the General Partner . . . . . . . . . . . . . . . . . . . . . . . 36
</TABLE>
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<PAGE> 4
<TABLE>
<S> <C> <C> <C>
ARTICLE XI
LIQUIDATION AND TERMINATION
SECTION 11.01 Dissolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
11.02 Covenant Not to Withdraw . . . . . . . . . . . . . . . . . . . . . . . . . . 38
11.03 Continuation and Reconstitution . . . . . . . . . . . . . . . . . . . . . . 38
11.04 Liquidation and Termination . . . . . . . . . . . . . . . . . . . . . . . . 38
11.05 Cancellation of Certificate . . . . . . . . . . . . . . . . . . . . . . . . 40
ARTICLE XII
GENERAL PROVISIONS
SECTION 12.01 No Third-Party Beneficiaries; Assignability; Binding Nature . . . . . . . . 40
12.02 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
12.03 Partial Invalidity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
12.04 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
12.05 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
12.06 Rights Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
12.07 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
12.08 No Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
12.09 Internal References . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
12.10 Counterpart Execution . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
</TABLE>
<TABLE>
<S> <C>
EXHIBIT A Form of Certificate of Limited Partnership
EXHIBIT B Insurance
</TABLE>
-iii-
<PAGE> 5
AGREEMENT
OF
LIMITED PARTNERSHIP
OF
AEJH 1987-A LIMITED PARTNERSHIP
THIS AGREEMENT OF LIMITED PARTNERSHIP (the "Agreement") is entered
into as of December 28, 1987, by and between ALEXANDER ENERGY CORPORATION, an
Oklahoma corporation, as general partner (the "General Partner") and JOHN
HANCOCK MUTUAL LIFE INSURANCE COMPANY, a Massachusetts corporation, as limited
partner (the "Limited Partner"). The General Partner and the Limited Partner
are each sometimes referred to herein individually as a "Partner" and
collectively as "Partners." This Agreement is entered into under the following
terms and conditions:
ARTICLE I.
ORGANIZATION
1.01 Formation. The parties hereto hereby form a limited
partnership (the "Partnership") for the purposes hereinafter set forth under
and pursuant to the Delaware Revised Uniform Limited Partnership Act, as
amended, 6 Del. C. Section 17-101 et seq. (the "Act"). The Limited Partner is
hereby admitted as a limited partner of the Partnership.
1.02 Name. The name of the Partnership shall be "AEJH 1987-A
Limited Partnership" and all Partnership business shall be conducted in such
name, unless the law of a state in which the Partnership does business requires
that the business be conducted in some other name. In such a case, the business
may be conducted under such other name or names as the General Partner shall
determine to be necessary that do not adversely affect the limited liability of
the Limited Partner hereunder. All property owned by the Partnership, whether
real or personal, tangible or intangible, shall be deemed to be owned by the
Partnership as an entity, and no Partner, individually, shall have any
ownership of such property. The Partnership shall hold all of its assets in the
name of the Partnership. Nothing in this Section 1.02 shall be deemed to limit
the ability of the General Partner, any Affiliate, or any other person to
operate Leasehold Interests in which the Partnership owns an interest pursuant
to an Operating Agreement as described in Section 4.03.
<PAGE> 6
1.03 Principal Place of Business. (a) The address of the registered
office of the Partnership in the State of Delaware shall be:
The Corporation Trust Company
1209 Orange Street
Corporation Trust Center
Wilmington, New Castle County, Delaware 19801
The name and address of the registered agent for service of process on the
Partnership in the State of Delaware shall be:
The Corporation Trust Company
1209 Orange Street
Corporation Trust Center
Wilmington, New Castle County, Delaware 19801
(b) The principal place of business of the Partnership
shall be:
600 Triad Center
501 Northwest Expressway
Oklahoma City, Oklahoma 73118
or such other place as designated by the General Partner. The Partnership shall
have such other places of business as the General Partner deems necessary or
desirable. The General Partner shall notify the Limited Partner of any change
in the principal place of business of the Partnership.
(c) The General Partner's principal place of business is:
600 Triad Center
501 Northwest Expressway
Oklahoma City, Oklahoma 73118
The Limited Partner's principal place of business is:
P.O. Box 111
Boston, Massachusetts 02117
Attention: Bond and Corporate Finance Department
1.04 Purposes. The purpose of the Partnership shall be to acquire,
own, and dispose of Leasehold Interests attributable to the Chalmers Properties
and otherwise, to explore for, produce, transport, sell, treat, and process
oil, gas, and other minerals produced therefrom. The Partnership may also
acquire, own and dispose of other Leasehold Interests and explore for, produce,
transport, sell, treat, and process oil, gas and other minerals therefrom, and
may engage in any other business
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<PAGE> 7
that now or hereafter may be necessary, proper, advisable, or convenient to
accomplish the purposes set forth herein, and that are not forbidden by the
laws of any jurisdiction in which the Partnership does business.
1.05 Organizational Certificates. Immediately following the
execution hereof, the General Partner shall cause the Partnership to execute
and file the Certificate with the Secretary of State of Delaware and shall
deliver a certified copy thereof as filed to the Limited Partner. The
Certificate shall be in the form of Exhibit A. The General Partner also shall
deliver to the Limited Partner a certified copy of each amendment to the
Certificate (if any) as filed with the Secretary of State of Delaware promptly
after such filing. Upon the request of the General Partner, the Limited Partner
shall execute, acknowledge, and deliver all other certificates and instruments
conforming with this Agreement that are necessary to enable the General Partner
to organize, qualify, continue, and terminate the Partnership as a limited
partnership (or a partnership in which the Limited Partner has limited
liability) under the laws of the State of Delaware and to qualify, continue,
and terminate the Partnership as a limited partnership (or a partnership in
which the Limited Partner has limited liability) in all other jurisdictions in
which the Partnership may conduct business. Prior to commencing business the
General Partner shall obtain an opinion of counsel satisfactory to the Limited
Partner as to the limited liability of the Limited Partner under the laws of
the State of Delaware. Prior to conducting business in any jurisdiction other
than Delaware, the General Partner shall comply with all requirements necessary
to qualify the partnership as a foreign limited partnership (or a partnership
in which the Limited Partner has limited liability) in such jurisdiction and
shall obtain an opinion of counsel in such jurisdiction satisfactory to the
Limited Partner as to the limited liability of the Limited Partner in such
jurisdiction. Throughout the term of the Partnership, the General Partner shall
cause the partnership to comply with all requirements necessary to maintain the
limited liability of the Limited Partner under the laws of the State of
Delaware and of each other jurisdiction in which the Partnership does business.
1.06 Term. The Partnership shall commence at the time the
Certificate is filed with the Secretary of State of Delaware and shall continue
in existence until the close of Partnership business on December 31, 2010, or
until the earlier termination of the Partnership in accordance with any
provision of this Agreement.
1.07 Definitions. As used in this Agreement, the terms "Agreement,"
"General Partner," "Limited Partner," "Partner," "Partnership," and "Act" shall
have the meanings set forth
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<PAGE> 8
hereinabove. In addition, the following terms shall have the following
respective meanings:
"Acquisition Amount" with respect to any property acquired by
the Partnership (or group of properties acquired in the same
transaction) including, without limitation, any Leasehold Interest or
interest therein, shall mean (a) if such property (or group of
properties) is contributed to the Partnership by a Partner, the fair
market value thereof as determined by the contributing Partner and the
Partnership, or (b) if such property (or group of properties) is
purchased by the Partnership or otherwise acquired except as described
in clause (a), the purchase price or other consideration paid by the
Partnership therefor.
"Affiliate" shall mean any person or entity controlling,
controlled by, or under common control with the General Partner.
"Control" as used in the immediately preceding sentence, means, with
respect to any person or entity, the possession, directly or
indirectly, of the power to direct or cause the direction of the
management or policies of the controlled person or entity.
"Business Day" shall mean any day other than a Saturday, a
Sunday, or a holiday for banks in the State of Oklahoma or the
Commonwealth of Massachusetts.
"Capital Contribution" shall mean any Initial Contribution or
Optional Contribution.
"Carrying Value" shall mean, with respect to any asset, the
asset's adjusted basis for federal income tax purposes, except as
follows:
(i) The Carrying Value of any asset contributed
by a Partner to the Partnership shall be the gross fair market value
of such asset, as determined by the contributing Partner and the
Partnership;
(ii) The Carrying Value of all Partnership assets
shall be adjusted to equal their respective gross fair market values,
as determined by the General Partner, as of the following times:
(a) The acquisition of an additional
interest in the Partnership by any new or existing Partner in exchange
for more than a minimal capital contribution;
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<PAGE> 9
(b) The distribution by the Partnership
to a Partner of more than a minimal amount of Partnership property
other than money, unless all partners receive simultaneous
distributions of undivided interests in the distributed property in
proportion to their interest in the Partnership; and
(c) Termination of the Partnership for
federal income tax purposes pursuant to Code Section 708(b)(1)(B); and
(iii) If the Carrying Value of an asset has been
determined or adjusted pursuant to (i) or (ii) above, such Carrying
Value shall hereafter be adjusted by the Depreciation taken into
account with respect to such asset.
"Certificate" shall mean the Certificate of Limited
Partnership of the Partnership, as it may be amended or restated from
time to time.
"Certified Public Accountants" shall mean Arthur Young & Co.
or such other certified public accounting firm of national standing
designated by the General Partner and approved by the Limited Partner.
"Chalmers Agreement" shall mean that certain Agreement between
the Partnership, Chalmers Exploration Company and John Hancock Mutual
Life Insurance Company to be dated as of December , 1987.
"Chalmers Properties" shall mean all Leasehold Interests
acquired by the Partnership from Chalmers Exploration Company under or
pursuant to the Chalmers Agreement.
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
"Cost Overruns" shall mean the excess of the costs charged to
the Partnership in connection with any Optional Operation over the
amount of Optional Contributions, if any, agreed to be made to the
Partnership by the Partners to fund such Optional Operation.
"Depreciation" shall mean, for each taxable year of the
Partnership, an amount equal to the depreciation, amortization or
other cost recovery deduction allowable for federal income tax
purposes with respect to an asset for such taxable year, except that
if the Carrying Value of an asset differs from its adjusted basis for
federal income tax purposes at the beginning
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<PAGE> 10
of such taxable year, then the depreciation, amortization or cost
recovery deductions with respect to such Partnership property shall be
computed in accordance with any reasonable method selected by the
Partnership; provided, (i) if the book value of the Partnership
property exceeds the adjusted tax basis thereof, the depreciation,
amortization or cost recovery deduction, as computed by the
Partnership, will be no less than the depreciation, amortization or
cost recovery deduction as computed for tax purposes, and (ii) if the
adjusted tax basis of the Partnership property exceeds the book value
thereof, the depreciation, amortization, or cost recovery deduction,
as computed by the Partnership, will be no greater than the
depreciation, amortization or cost recovery deduction, as computed for
tax purposes.
"Distributable Net Revenues" shall mean Net Revenues less all
payments made by the Partnership to the Limited Partner pursuant to
the Note.
"Election Period" shall have the meaning specified in Section
9.01.
"Initial Contribution" shall mean any contribution to the
capital of the Partnership made pursuant to Section 2.01.
"Initial Costs" shall mean the Acquisition Amounts of the
Leasehold Interests that the Partnership shall acquire, and the costs
of drilling, testing, and completing or plugging and abandoning
Partnership Wells (other than plugging and abandoning after a period
of production), but shall exclude Lease Operating Costs.
"Interest Rate" shall mean the lower of (a) 2% over the prime
commercial lending rate from time to time announced by Citibank, N.A.
for new 90-day loans to substantial and responsible borrowers or (b)
the maximum lawful rate provided for by applicable law.
"Lease Operating Costs" shall mean costs chargeable to the
Partnership under an Operating Agreement other than the costs of (i)
acquiring Leasehold Interests, (ii) drilling, testing, and completing
or plugging and abandoning a Partnership Well, or (iii) Optional
Operations; provided, however, such term shall include (x) the costs
of plugging and abandoning Partnership Wells after a period of
production and (y) the costs of reworking a Partnership Well.
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<PAGE> 11
"Leasehold Interest" shall mean any right, title, or interest
(or contractual right to acquire any right, title, or interest) in and
under any oil, gas or other mineral lease or any other interest in oil
and gas including, without limitation, mineral rights, leases,
royalties, overriding royalties, or farm-ins.
"Management Fee" shall mean the monthly fee to be paid to the
General Partner pursuant to Section 4.10.
"Net Operating Cash Flow" shall mean the excess, if any, of
the Partnership's share of the aggregate Revenues generated by and
identifiable with the Partnership's Leasehold Interests, over the
aggregate of all Lease Operating Costs.
"Net Revenues" shall mean the Revenues attributable to the
Partnership's Leasehold Interests less all cash expenditures
(including, without limitation, the Management Fee and Organizational
Costs but excluding payments on the Note) attributable to the
Partnership's Leasehold Interests.
"Note" shall mean that certain promissory note issued by
Chalmers Exploration Company ("Chalmers") to the Limited Partner dated
October 31, 1985, as amended by that certain Amendment and Assumption
Agreement by and between Chalmers, the Limited Partner, and the
Partnership to be dated as of December , 1987, and having an amended
outstanding principal balance of $1,400,000.00.
"Operating Agreement" shall mean any operating or similar
agreement to which the Leasehold Interests of the Partnership are
subject.
"Optional Contribution" shall mean any contribution to the
capital of the Partnership to fund an Optional Operation under Section
9.01, or acquire additional Leasehold Interests under Section 9.02.
"Optional Operation" shall mean the drilling, recompleting,
deepening, or plugging back of a Partnership Well; provided, however,
that any matter that, under the applicable Operating Agreement, the
operator may undertake without the consent of the co-owners shall not
constitute an Optional Operation.
"Organizational Costs" shall mean all costs associated with
forming the Partnership and qualifying it as a foreign limited
partnership (or a partnership
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<PAGE> 12
in which the Limited Partner has limited liability), including,
without limitation, fees of Vinson & Elkins, and all reasonable
expenses incurred by the General Partner in connection with the
acquisition of the Chalmers Properties and the negotiation,
preparation, printing, reproduction, execution, delivery, filing,
recording or registration and any refiling, re-recording, or
re-registration, of this Agreement and the Chalmers Agreement and all
instruments and documents executed and delivered pursuant hereto and
thereto, including counsel fees and expenses and all reasonable
out-of-pocket expenses and fees.
"Organizational Fee" shall mean the sum of $25,000 which shall
be paid by the Partnership to the General Partner upon the formation
of the Partnership.
"Partnership Account" shall mean the Partnership's bank
account described in Section 8.06.
"Partnership Well" shall mean any well in which the
Partnership has an interest.
"Payout" shall mean that point in time when the Limited
Partner shall have received either (1) payments on the Note, whether
as principal or interest, or (2) out of the Net Revenues, cash
distributions under Section 7.01, in an amount equal to the sum of
$1,400,000.00 plus any Optional Contributions of the Limited Partner.
"Revenues" for any period shall mean the gross revenues to the
Partnership during such period from whatever source derived
(including, without limitation, revenues from production of
Partnership Wells, sale of Leasehold Interests and other Partnership
assets, and interest income on Partnership funds).
"Sharing Ratio" shall have the meaning specified in Section
3.01.
ARTICLE II.
CAPITAL CONTRIBUTIONS
2.01 Initial Contributions. Following the formation of the
Partnership, the Partnership shall enter into the Chalmers Agreement. It is
contemplated that the Partnership will acquire the Chalmers Properties under
the Chalmers Agreement. Certain of the Chalmers Properties will be acquired by
the Partnership subject to (i) that certain Mortgage, Deed of Trust,
Assignment, Assignment of Production, Security Agreement and Financing State-
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<PAGE> 13
ment dated as of October 25, 1985, and executed by Chalmers Exploration Company
("Chalmers") to Margaret M. Stapleton, Trustee, in favor of the Limited
Partner, as holder of the Note, with respect to certain properties located in
the State of Texas, (ii) that certain Mortgage, Deed of Trust, Assignment,
Assignment of Production, Security Agreement and Financing Statement executed
by Chalmers to Margaret M. Stapleton, Trustee, in favor of the Limited Partner,
as holder of the Note, covering certain properties located in the State of
Oklahoma (collectively, the "Mortgages"), and (iii) that certain Deed of Trust
and Security Agreement executed by Chalmers to Margaret M. Stapleton, Trustee,
in favor of the Limited Partner, as holder of the Note, covering certain
interests in two tracts of land located in Taylor County, Texas, containing
approximately 0.44 and 0.36 acres of land, respectively, more or less, (the
"Deed of Trust"), as those instruments may have been modified to correct
typographical errors by that certain letter from Chalmers to the Limited
Partner dated August 12, 1986, and each of which instruments having been
recorded as described in the recording schedule attached hereto as Schedule I.
In the event the Note is paid in full prior to a foreclosure of the
Mortgages and the Deed of Trust, whether in connection with a dissolution of
the Partnership or otherwise, the Limited Partner agrees that it will release
the Mortgages and the Deed of Trust.
2.02 Optional Contributions. If, pursuant to Article IX, the
Limited Partner shall elect to make Optional Contributions, each Partner shall
be liable to contribute to the capital of the Partnership an amount equal to
its Sharing Ratio of the Partnership's share of the costs of the Optional
Operations or acquisitions in question, as the case may be. Within a reasonable
time after any such election shall be made, the General Partner shall prepare
any appropriate amendments to this Agreement and any other certificates or
documents that have been filed that may be required by law, in form and
substance satisfactory to the Limited Partner and its counsel, setting forth
the Limited Partner's agreement to make such Optional Contributions. To the
extent required by applicable law, such amendments shall be executed,
acknowledged and delivered by the Partners and filed by the General Partner as
required by the laws of the State of Delaware and any other state in which the
Partnership then shall be doing business.
2.03 Payment of Capital Contributions. On or before the 15th day of
each calendar month (but if such day shall not be a Business Day, on the first
Business Day thereafter), the General Partner shall present the Limited Partner
with a certificate stating that the General Partner is in compliance with the
provisions of this Agreement and that no event described in Section 11.01(g) or
11.02 has occurred with respect to the General Partner and a statement, in
reasonable detail, of the fol-
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<PAGE> 14
lowing items to the extent that same constitute costs incurred by the
Partnership in accordance with this Agreement:
(a) estimated dry-hole costs or completion costs of any
Partnership Well as set forth in Authority for Expenditure statements received
prior to the date of the statement from the General Partner and since the
latest such statement that the Limited Partner shall have received from the
operator of such Partnership Well (which Authorities for Expenditure, if the
General Partner shall be the operator, shall be for amounts proportional to
those of other owners of working or operating interests in such Partnership
Well taking into account the percentage of such interests);
(b) amounts by which actual dry-hole costs or completion
costs of any Partnership Well during the preceding month shall have exceeded
previously estimated costs, reduced by amounts by which actual dry-hole costs
or completion costs of any Partnership Well shall have fallen short of
previously estimated costs as per a final accounting thereof prepared by the
operator of such Partnership Well and received prior to the date of the
statement from the General Partner and since the latest such statement (and, if
the General Partner shall be the operator, such accounting shall be prepared as
soon as reasonably practicable after completion of all operations with respect
to such Partnership Well); and
(c) costs of acquiring Leasehold Interests as provided in
Section 9.02, unless previously funded; provided, however, that no such cost or
expense shall be included in such a statement more than once.
To the extent that funds are at that time required to pay that portion
of the costs so itemized as to which the Limited Partner has elected to make
Optional Contributions, the itemized statement shall include a request by the
General Partner for contributions to the Capital of the Partnership, stating
specifically the amounts of Capital Contributions required at that time. To the
extent the Limited Partner has elected to make Optional Contributions in
accordance with the provisions of Article IX, then not later than the 15th day
after the Limited Partner's receipt of such statement, each Partner shall pay
into the Partnership Account by wire transfer of immediately available funds an
amount equal to its Sharing Ratio of the total Capital Contributions so called
for by the General Partner with respect to the Optional Operations or
acquisitions in question, as the case may be.
2.04 Default in Payment of Capital Contributions. In the event any
Partner shall default in the payment of any Capital Contribution such Partner
shall be obligated to make, the Partnership shall have all rights and remedies
available at law, in
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<PAGE> 15
equity, or under this Agreement to collect the unpaid amount of such Capital
Contribution, and if such amount or any portion thereof shall remain unpaid for
ten days after the date due, such unpaid amount shall bear interest at a rate
equal to the Interest Rate from the date due until paid.
2.05 Return of Capital Contribution. No Partner shall be entitled
to a return of any cash or property contributed to the capital of the
Partnership except as provided in Section 4.09 or Articles VII and XI;
provided, however, that if the Limited Partner shall have agreed to make
Optional Contributions but shall not have received statements pursuant to
Section 2.03 calling for the actual contribution of such amounts within six
months following the date of such agreement (or such other time as the General
Partner and the Limited Partner may agree at the time of the Limited Partner's
agreement to make such Optional Contributions), or if any amount so contributed
shall not have been spent within such six-month (or other) period, the Limited
Partner shall not be required to contribute any amount not already contributed
and the amounts already contributed but not so spent shall constitute "revenues
received by the Partnership during the immediately preceding calendar month"
for purposes of Section 7.01, and any such reduction or return shall constitute
a compromise under Section 17-502(b) of the Act.
2.06 Interest. No Partner shall be entitled to be paid interest on
its capital account or on Capital Contributions.
2.07 Certain Borrowings. Lease Operating Costs and Cost Overruns
shall be funded out of Revenues generated by the Partnership's Leasehold
Interests, to the extent that such Revenues are available therefor; provided,
however, at any time the Partnership shall not have sufficient cash available
to fund Lease Operating Costs and Cost Overruns, the General Partner shall
notify the Limited Partner of the need for funds and the time by which they
shall be needed. Before the time such funds are so needed, the Limited Partner,
at its sole option, may lend funds to the Partnership, or propose to third
parties that they make loans to the Partnership, to cover such needs, but in
any such case, the interest rate shall be lower than the General Partner's
average short-term borrowing rate. If the Limited Partner shall not make or
arrange for such loans by the time the funds shall be needed to pay Lease
Operating Costs or Cost Overruns, the General Partner may (a) advance such
funds for or on behalf of the Partnership, and each such advance shall
constitute a loan from the General Partner to the Partnership and shall bear
interest (on the basis of a 365-day year) from the date of the advance until
the date of repayment at the average short-term borrowing rate then being paid
by the General Partner, or (b) cause the Partnership to borrow such funds from
one or more third parties that are not Affiliates but only if such loan is (i)
unsecured or (ii) nonrecourse except as to Leasehold Interests on
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<PAGE> 16
which such funds shall be spent; provided, however, that the aggregate of any
and all of such funds borrowed by the Partnership as described in clauses (a)
or (b) of this sentence, shall not exceed $200,000. Such advances shall not be
considered as Capital Contributions. All advances shall be repaid out of the
next available funds of the Partnership, including Capital Contributions
received; provided, however, that if such advance is from a partner, any
amounts so payable shall be applied to amounts then due to the Partnership from
such Partner. The partners acknowledge their intent that, from time to time the
General Partner may, with the contemporaneous written consent of the Limited
Partner, cause the Partnership to borrow additional funds needed to fund Cost
Overruns, provided that the aggregate of such additional borrowings and
Distributable Net Revenues retained by the General Partner pursuant to the last
sentence of Section 7.01 hereof shall not exceed $700,000 at any one time.
2.08 Capital Accounts. A capital account shall be established and
maintained for each Partner. Except as specified in clauses (A) through (G)
below, each Partner's capital account shall be (a) increased by (i) the amount
of cash and the fair market value of all property contributed by such Partner
to the Partnership (net of any liabilities assumed by the Partnership on
account thereof or to which such property is subject at the time of such
acquisition), (ii) that Partner's allocable share of income and gain for
federal income tax purposes, including income and gain (other than Simulated
Gain) described in Treasury Regulation Section 1.704-l(b)(2)(iv)(g), but
excluding income and gain described in Treasury Regulation Section
1.704-1(b)(4)(i), (iii) that Partner's allocable share of Simulated Gain, and
(iv) that Partner's allocable share (determined by reference to its share of
the related proceeds of such items under the terms of this Agreement) of income
exempt from tax described in Section 705 (a)(1)(B) of the Code, and (b)
decreased by (i) the amount of cash and the fair market value of property
distributed to such Partner (net of liabilities assumed by the Partner or to
which the property is subject), (ii) that Partner's allocable share of losses
and other items of deduction for federal income tax purposes, including loss
and deduction (other than Simulated Loss) described in Treasury Regulation
Section 1.704-l(b)(2)(iv)(g), but excluding loss and deduction described in
Treasury Regulation Section 1.704-1(b)(4)(i), (iii) that Partner's allocable
share of Simulated Loss and Simulated Depletion, (iv) that Partner's al1ocable
share of expenditures described in Section 705(a)(2)(B) of the Code (determined
by reference to such Partner's share of the cost of such related items), and
(v) the amount of windfall profit tax withheld on such Partner's proportionate
share of income resulting from sales of crude oil. The definitions and rules
governing the maintenance and operation of the capital accounts and the
computation of the amounts to be charged and credited thereto are as follows:
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<PAGE> 17
(A) If the Carrying Value of any property contributed to
the Partnership is different from its adjusted basis, upon a sale or other
taxable disposition of such property the gain or loss resulting from such sale
or disposition with respect to which gain or loss is recognized for federal
income tax purposes shall be computed by reference to the Carrying Value of
such property, notwithstanding that the adjusted tax basis of such property
differs from its Carrying Value. If the Carrying Value of any distributed
property is different from its then adjusted basis on the books and records of
the Partnership, the gain or loss (including Simulated Gain or Simulated Loss)
that would have been realized if such properties had been sold and the cash
proceeds distributed to such Partner or Partners shall be charged or credited
to the capital accounts of the Partners in accordance with the preceding
sentence. In lieu of the depreciation, amortization and other cost recovery
deduction taken into account for federal income tax purposes there shall be
taken into account Depreciation as defined in Section 1.07.
(B) The allocation of basis pursuant to Section 3.02(f)
and amounts realized pursuant to clause (D) below to a Partner shall have no
effect on that Partner's capital account except as specified in clause (C)
below. Further, neither the deduction for depletion nor the taxable gain or
loss resulting upon the sale, abandonment, or other taxable disposition of an
oil or gas property (all as computed pursuant to Section 3.02(f)), shall be
charged or credited to any Partner's capital account, except to the extent and
in the manner provided in clause (C) below.
(C) For the purposes of maintaining the Partners' capital
accounts, the following rules shall apply:
(x) The Partnership shall establish and maintain
books and records containing asset accounts representing the aggregate
adjusted depletable basis credited to the capital accounts of all
Partners in each oil or gas property (as defined in Section 614 of the
Code) at the time the property first begomes a property of the
Partnership (the "Simulated Basis"). The Simulated Basis for each
property shall be adjusted from time to time in the same manner as if
the Simulated Basis were the Partnership's adjusted basis in such
property to reflect (1) additions to basis and (2) Simulated
Depletion, as provided in clause (y) below; and the Simulated Basis,
as adjusted, shall be utilized to determine Simulated Gain or
Simulated Loss, as provided in clause (z) below.
(y) The Partnership shall compute a depletion
allowance ("Simulated Depletion") on each oil or gas property for each
taxable year based on the Simu-
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<PAGE> 18
lated Basis, as theretofore adjusted, in accordance with the
provisions of Treasury Regulation Section 1.704-1(b)(2)(iv)(k)(2).
Such Simulated Depletion allowance with respect to each oil or gas
property shall be allocated to the Partners, and shall reduce each
Partner's capital account, in the same proportion that the Partners
were allocated the adjusted basis of such property as provided in
Section 3.02(f). However, in no event shall the Partnership's
aggregate Simulated Depletion allowance with respect to an oil or gas
property exceed the Partnership's Simulated Basis of such property.
(z) The Partnership shall compute simulated gain
or loss attributable to the sale, abandonment, or other taxable
disposition of an oil or gas property based on the difference between
the amount realized from the disposition and the Simulated Basis of
such property, as theretofore adjusted. Any resulting gain ("Simulated
Gain") shall be allocated to the Partners and shall increase their
respective capital accounts in the same manner as the amount realized
from such disposition in excess of Simulated Basis is allocated to the
Partners under Section 2.08(D). Any resulting loss ("Simulated Loss")
shall be allocated to the Partners and shall reduce their capital
accounts in the same proportion that such Partners (or their
predecessors in interest) shall have been allocated the adjusted basis
of such property as provided in Section 3.02(f).
(D) Subject to the provisions of Section 2.08(A), for
purposes of determining each Partner's allocable share of the amount realized
from the sale or other taxable disposition of oil or gas properties (other than
oil, gas, or other hydrocarbon substances), the following steps shall be taken:
First, the portion of the amount realized that represents a recovery of the
Partnership's Simulated Basis, as theretofore adjusted to date, in each
property sold or disposed of shall be allocated to the Partners in the same
proportion as the Partners (or their predecessors in interest) shall have been
allocated adjusted basis with respect to that property under Section 3.02(f).
Second, any remaining portion of the amount realized shall then be allocated to
the Partners in such a way as to cause, to the maximum extent possible, the
total amount realized allocated to that Partner under this clause (D) to equal
that Partner's Sharing Ratio of the proceeds derived from such sale or other
disposition (including such Partner's Sharing Ratio of any proceeds from the
sale or disposition of tangible property associated with such oil or gas
property).
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<PAGE> 19
(E) In the event the Carrying Value of the Partnership
assets is adjusted in accordance with the provisions of Subparagraph (ii) under
the definition of "Carrying Value" contained in Section 1.07 hereof, the
capital accounts of all Partners shall be adjusted simultaneously to reflect
the aggregate net adjustment as if the Partnership recognized gain or loss
equal to the amount of such aggregate net adjustment.
(F) In all events, and notwithstanding anything contained
in this Agreement which might otherwise produce a conflicting result, capital
accounts shall be maintained in accordance with the provisions of Treasury
Regulation Section 1.704-1(b)(2)(iv) and Section 1.704-1(b)(4)(iv).
(G) In the event any interest in the partnership is
transferred in accordance with the terms of this Agreement, the transferee
shall succeed to the capital account of the transferor to the extent it relates
to the transferred interest, and to the extent such succession is necessary to
maintain the capital accounts in compliance with applicable Treasury
Regulations.
ARTICLE III.
COSTS, REVENUES AND ALLOCATIONS
3.01 Sharing of Costs and Revenues. All costs and revenues of the
Partnership shall be shared between the Partners in proportion to their
respective sharing ratios ("Sharing Ratios"). The Partners' Sharing Ratios
shall be as follows:
(a) Prior to Payout, all costs (other than interest
payable pursuant to Section 7.02) and revenues shall be shared:
<TABLE>
<S> <C>
General Partner 1%
Limited Partner 99%
</TABLE>
(b) Interest payable pursuant to Section 7.02:
<TABLE>
<S> <C>
General Partner 100%
Limited Partner 0%
</TABLE>
(c) After Payout, all costs and revenues shall be shared:
<TABLE>
<S> <C>
General Partner 25%
Limited Partner 75%
</TABLE>
3.02 Allocations. Except as provided in Section 11.04, for
accounting and income tax purposes all items of Part-
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nership income, gain, loss, deduction, and credit shall be allocated to the
Partners as follows:
(a) All items of income arising from the sale of oil,
gas, or other hydrocarbon substances and all other items of income or gain
other than those items described in Section 3.02(b), (c), (h), (k), (l) and (m)
shall be allocated to the Partners in accordance with the allocation of the
revenues giving rise to such income or gain;
(b) Gain or loss realized upon the sale, abandonment, or
other taxable disposition of all or part of any oil or gas property shall be
computed separately by the Partners in the same manner as depletion pursuant to
Section 3.02(f) and shall not be charged or credited to any Partner's capital
account, except to the extent and in the manner provided in Section 2.08(C)(2);
(c) Gain or loss realized upon the sale, abandonment, or
other taxable disposition of tangible property shall be allocated to the
Partners in accordance with their contributions to the unadjusted cost basis of
such tangible property;
(d) Cost recovery deductions with respect to tangible
property shall be allocated to the Partners in accordance with their respective
contributions to the unadjusted cost basis of such tangible property;
(e) If any depreciation, cost recovery, or intangible
drilling and development costs shall be recaptured as a result of the
disposition of any Partnership property, the character of the gain allocated
under other provisions of this Agreement shall be determined and allocated to
the Partners in such manner and in the proportion (to the maximum extent
possible) that the Partners that originally received allocations of cost
recovery and intangible drilling and development cost deductions attributable
to the assets disposed of shall recognize the ordinary income element of any
such gain so recognized;
(f) The deduction for depletion with respect to each
separate Partnership property (as defined in Section 614 of the Code) shall be
computed separately for each Partner rather than by the Partnership and shall
not be charged to any Partner's capital account; and for purposes of such
computation, each Partner shall be considered to own, and shall be allocated,
its proportionate share of the adjusted basis in each Partnership oil and gas
property as follows: the proportionate share of each Partner in the adjusted
basis of each Partnership property shall be such Partner's interest in the
Partnership capital with respect to that property, which shall be determined in
accordance with its Sharing Ratio (i) in the Partnership capital used to
acquire or provide capitalized improvements to such property if
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the property shall be acquired or improved by the Partnership, or (ii) in the
adjusted basis of property if such property shall be contributed to the
Partnership; provided, however, that if the fair market value of such property
differs from its adjusted basis to the contributor immediately preceding such
contribution, the basis of such property shall be shared between the Partners
to take account of such variance in accordance with the principles of Section
704(c) of the Code; and the General Partner shall maintain separate records for
each Partner's share of the adjusted basis in each Partnership oil and gas
property and adjust each Partner's share of the adjusted basis in each such
property for any cost or percentage depletion allowable on such property and
use such adjusted basis in the computation of gain or loss on the disposition
of such property; provided, however, that the Limited Partner shall advise the
General Partner upon request by the General Partner of the Limited Partner's
adjusted basis on each oil and gas property of the partnership as computed in
this Section 3.02(f); and the amount of gain or loss to be recognized by a
Partner for income tax purposes as a result of the sale or other taxable
disposition of an oil or gas property shall be equal to the difference between
the amount realized from such sale or disposition allocated to such Partner,
pursuant to Section 2.08(D) and such Partner's adjusted basis in such property,
computed in the manner described above;
(g) Deductions with respect to Lease Operating Costs and
intangible drilling and development costs shall be allocated to the Partners in
accordance with their respective contributions to such costs;
(h) The consequent decrease in deduction or increase in
income resulting from any dry-hole or bottom-hole contribution obtained from a
third person in connection with the drilling of a Partnership Well shall be
allocated in the same manner as the costs of drilling such Partnership Well are
charged to the parties under this Agreement;
(i) All other losses, deductions, and credits not falling
within the foregoing provisions of this Section 3.02 shall be allocated to and
accounted for by each Partner in accordance with its respective contributions
to the costs that gave rise to the loss, deduction, or credit;
(j) If not otherwise provided for herein, income arising
from the receipt of property other than money shall be allocated to the
Partners in the same proportions as the proceeds of sale would be shared if the
property were sold immediately after receipt thereof by the Partnership;
(k) Notwithstanding the foregoing provisions of this
Section 3.02, no allocation of loss or deduction (other than an allocation of
nonrecourse deductions described in paragraph
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3.02(l) below) shall be made to a Limited Partner to the extent such allocation
would cause or increase a deficit balance in such Limited Partner's capital
account. Such loss or deduction shall be allocated to the General Partner.
(l) Notwithstanding the foregoing provisions of this
Section 3.02, in the event there is a net decrease in Partnership "Minimum
Gain" during a Partnership taxable year, all Partners with a deficit capital
account balance at the end of such year (excluding from each Partner's deficit
capital account balance any amount that such Partner is obligated to restore
under Treasury Regulation Section 1.704-1(b)(2)(ii)(c), as well as any addition
thereto pursuant to the next to last sentence of Treasury Regulation
Section 1.704-1(b)(4)(iv)(f) computed with respect to the amount of Partnership
minimum gain after such net decrease) will be allocated, before any other
allocation is made under this Agreement of Partnership items for such taxable
year, items of income and gain for such year (and, if necessary, subsequent
years) in the amount and in the proportions needed to eliminate such deficit as
quickly as possible. For purposes of this Section 3.02(l), a Partner's capital
account shall be reduced for the items described in Treasury Regulation Section
1.704-1(b)(2)(ii)(d)(4), (5) and (6). In addition, for purposes of this Section
3.02(l), the amount of the Partnership's "Minimum Gain", and a Partner's share
thereof, shall be as determined under Treasury Regulation Section
1.704-1(b)(4)(iv);
(m) In the event any Partner unexpectedly receives any
adjustment, allocation or distribution described in Treasury Regulation Section
1.704-1(b)(2)(ii)(d)(4), (5) or (6), items of Partnership income and gain shall
be specially allocated to such Partner in an amount and manner sufficient to
eliminate the deficit balance in such Partner's capital account created by such
adjustments, allocations, or distributions as quickly as possible; and
(n) Notwithstanding anything else herein provided to the
contrary, all items of income, gain, loss and deduction with respect to
property contributed to the Partnership shall, solely for tax purposes, be
allocated among the Partners so as to take account of the variation between the
basis of the property to the Partnership and its fair market value at the time
of contribution, in such manner as the General Partner determines comports with
the requirements of Section 704(c) of the Code and the Treasury Regulations
issued thereunder.
3.03 Limitation on Deductions. Notwithstanding any provision of
this Agreement to the contrary, in no event shall (a) the aggregate deductions
that may be claimed by the Partners as their distributive shares of Partnership
losses during the first two years of operation of the Partnership exceed the
sum of the capital contributions of the Partners to the Partnership, or
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(b) the interest of the General Partner in any item of Partnership income,
gain, loss, deduction, expense, or credit ever be less than 1% thereof.
3.04 Lender as Partner. Without limiting the provisions of Section
4.04(a), no creditor that makes a nonrecourse loan to the Partnership may have
or acquire at any time as a result of making the loan any direct or indirect
interest in the profits, capital, or property of the Partnership unless and to
the extent it is as a secured creditor.
3.05 Windfall Profit Taxes. For windfall profit tax purposes, the
Partnership's economic interest in any crude oil produced by it shall be
allocated between the Partners on the basis of each Partner's proportionate
share of income from such crude oil, and such Partner to whom such crude oil or
the income therefrom is allocated shall be treated as the producer of such
crude oil in accordance with the provisions of Section 4996(a)(1)(C) of the
Code. The capital account of each Partner shall be charged with the amount of
windfall profit tax withheld on such Partner's proportionate share of income
resulting from sales of such crude oil. The General Partner shall keep records
of all documents, material, and information necessary for the determination of
windfall profit taxes and shall provide such records to the Partners as are
necessary to enable each Partner timely to determine its windfall profit tax
liability and to prepare and file any windfall profit tax returns or claims for
credit or refund of windfall profit taxes due with respect to any Partnership
production.
ARTICLE IV.
MANAGEMENT AND OPERATION
4.01 Management of Partnership Affairs. Except where the consent of
the Limited Partner is expressly required by this Agreement or by law, the
General Partner shall have full, complete, and exclusive authority to manage
the affairs of the Partnership, to make all decisions regarding the business of
the Partnership, and to perform any and all other acts or activities customary
or incident to the management of the Partnership's business.
4.02 Powers of General Partner. Except as otherwise provided in
this Agreement or applicable law and subject in all respects to the terms,
conditions, and limitations contained in this Agreement and any applicable
Operating Agreement, the General Partner shall have the rights, powers, and
authority to do on behalf of the Partnership all things that, in the General
Partner's judgment, are necessary, proper, or desirable to carry out its duties
and responsibilities pursuant to this Agreement, including, without limitation,
the power:
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<PAGE> 24
(a) To acquire interests in Leasehold Interests to the
extent permitted by Article IX and other real or personal property necessary or
appropriate to the conduct of the Partnership business;
(b) To maintain, explore, develop, operate, manage, and
defend the Partnership's property, to drill, test, plug and abandon, complete,
equip, rework, deepen, and recomplete Partnership Wells for the production of
oil and gas therefrom, and to do any and all other things necessary or
appropriate to carry out the terms and provisions of this Agreement that would
or might be done by a normal and prudent operator in the exploration,
development, operation, and management of its own property;
(c) To sell the production accruing to the Leasehold
Interests in which the Partnership owns an interest, and to execute gas sales
contracts, casinghead gas contracts, transfer orders, division orders, or any
other instruments in connection with the sale of production from the Leasehold
Interests in which the Partnership owns an interest;
(d) To purchase, lease, rent, or otherwise acquire or
obtain the use of facilities, machinery, equipment, tools, materials, and all
other kinds and types of real or personal property that may in any way be
deemed necessary, convenient, or advisable in connection with carrying on the
business of the Partnership;
(e) To pay all taxes, charges, and assessments against
the Partnership and its property;
(f) To sue and be sued, complain, and defend in the name
of and on behalf of the Partnership;
(g) To quitclaim, surrender, release, or abandon the
Partnership's interest in any Leasehold Interest not productive of oil or gas
or to transfer same pursuant to forced pooling, unitization, and
communitization orders of a governmental agency having jurisdiction over
such Leasehold Interest; provided, however, that the General Partner shall
notify the Limited Partner of any such action it proposes to take prior to
taking such action and provided further that the General Partner shall not, and
shall not permit any Affiliate to, file or otherwise instigate, directly or
indirectly, proceedings leading to any such order;
(h) To execute and deliver all checks, drafts,
endorsements, and other orders for the payment of Partnership obligations;
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(i) To appear and to represent the Partnership before any
regulatory agency, and to make all necessary or appropriate filings and
elections before such agency; and
(j) To take any other action, execute, and deliver any
other documents, and perform any other acts that the General Partner deems
appropriate to carry out the business and affairs of the Partnership in
accordance with this Agreement.
Persons dealing with the Partnership shall be entitled to rely conclusively on
the specific authority and express power of the General Partner as set forth in
this Agreement.
4.03 Operating Agreements. The General Partner may cause the
Partnership to enter into one or more Operating Agreements, which Operating
Agreements shall govern the exploration, development, and operation of the
Leasehold Interests in which the Partnership owns an interest. Except for
Operating Agreements applicable to Leasehold Interests at the time the General
Partner, an Affiliate, or the Partnership first shall acquire an interest
therein, each such Operating Agreement (a) shall be on terms usual and
customary in the oil and gas industry, (b) to the extent reasonably practicable
shall be on the A.A.P.L. Form 610 (1977 or 1982 version) Model Form Operating
Agreement, and (c) shall not include "non-consent penalties" exceeding 400% or
permission for the operator to make expenditures in excess of $25,000 without
the consent of the co-owners. The General Partner or an Affiliate may be the
operator under any Operating Agreement even though it owns no interest in the
Leasehold Interests governed thereby.
4.04 Limitations on General Partner's Powers. Notwithstanding any
other provisions of this Agreement to the contrary, the General Partner shall
not have the power or authority to, and shall not, do, perform, or authorize
any of the following for the Partnership without having first obtained the
consent in writing of all of the Partners:
(a) Borrow any money in the name or on behalf of the
Partnership except as provided in Section 2.07;
(b) Mortgage, pledge, assign in trust, or otherwise
encumber any Partnership property, or to assign any monies owing or to be owing
to the Partnership, except for the operator's lien provided for in any
Operating Agreement to which the Partnership's Leasehold Interests are subject;
(c) Guarantee in the name or on behalf of the Partnership
the payment of money or the performance of any contract or other obligation of
any person, firm, or corporation, other than of the Partnership;
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(d) Sell, assign, farm out, abandon, or otherwise dispose
of, or take any action that will lead to (or fail to take action that will
prevent) the release or disposition of, the Partnership's interest in any
Leasehold Interest on which a Partnership Well that is producing or capable of
producing oil or gas in paying quantities shall be located; provided, however,
that after a Partnership Well that previously shall have been producing shall
have ceased production, or shall have been plugged, the General Partner may
sell, assign, farm out, abandon, or otherwise dispose of, or take an action
that will lead to (or fail to take action that will prevent) the disposition
of, the Leasehold Interests in which the Partnership owns an interest with
respect to such well, but if the General Partner or an Affiliate owns an
interest for its own account in the same Leasehold Interests, the General
Partner shall have the right to make such disposition or to take (or fail to
take) such action for the Partnership if and only if it does so on the same
terms and conditions as the General Partner or such Affiliate shall dispose of,
or take action that will lead to (or fail to take action that will prevent) the
release or disposition of, such interest it owns for its own account; and
provided further that, if the same constitutes a permitted election under a
forced pooling, unitization, or communitization order of a governmental agency
having jurisdiction over such Leasehold Interest, the General Partner may cause
the Partnership to farm out such Leasehold Interest to a person other than the
General Partner or an Affiliate on terms usual and customary in the oil and gas
industry, following five Business Days' notice to the Limited Partner;
(e) Cause the Partnership to purchase any Leasehold
Interest unless the Limited Partner shall have agreed to contribute its Sharing
Ratio of the costs of such purchase pursuant to Sections 2.02 and 9.02;
(f) Cause the Partnership to participate in any Optional
Operation unless the Limited Partner shall have agreed to contribute its
Sharing Ratio of the costs thereof pursuant to Sections 2.02 and 9.01, except
as otherwise provided in the last sentence of Section 9.01;
(g) Take any action that would lead any third party
reasonably to believe that the Limited Partner is a general partner of the
Partnership; or
(h) Amend or in any way modify or change this Agreement,
except as provided in Section 2.02 or 12.07.
4.05 Performance of Obligations as Operator. The General Partner as
operator under any Operating Agreement pursuant to which it is operator shall
perform all of its obligations and duties thereunder in accordance with all of
the terms and provisions thereof.
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4.06 Insurance. The General Partner shall carry and maintain in
force and effect on behalf of the Partnership (either directly or through
Operating Agreements) the insurance coverages shown on Exhibit B from the date
hereof and as long hereafter as the Partnership remains in existence, or until
the Limited Partner shall notify the General Partner that it no longer desires
for the Partnership to be covered by such insurance. The General Partner shall
be free to change insurance carriers from time to time; provided, however, that
the coverages of the policies, their limits, and the financial standing of the
insurance carriers at all times shall not be diminished from the coverages and
limits of the policies and the financial standing of the insurance carriers
shown on Exhibit B. The Partnership and the Limited Partner shall be named as
additional insureds or loss payees on such policies, as the case may be. Each
such insurance policy shall include a provision requiring the issuer of such
insurance policy to give the Limited Partner 30 days' prior written notice of
any change, alteration, cancellation, or termination of any such policy. Upon
request by the Limited Partner, the General Partner shall cause the carrier of
any such insurance to provide the Limited Partner a certificate of insurance or
other evidence of such coverage satisfactory to the Limited Partner.
4.07 Fiduciary Relationship. The General Partner shall have a
fiduciary duty and obligation to the Limited Partner to conduct the affairs of
the Partnership in the best interests of the Partnership and the mutual best
interests of its Partners, including, without limitation, the safekeeping and
use of all Partnership funds and assets and the use thereof for the benefit of
the Partnership. The General Partner at all times shall act with integrity and
in good faith and utilize its best efforts in all activities relating to the
conduct of the business of the Partnership and in resolving conflicts of
interest. During the existence of the Partnership, the General Partner shall
devote such time and effort to the Partnership business and operations as shall
be necessary to promote fully the interests of the Partnership and the mutual
best interests of the Partners; however, it is specifically understood and
agreed that the General Partner shall not be required to devote full time to
Partnership business, and (subject to the other express provisions hereof) the
General Partner and Affiliates at any time and from time to time may engage in
and possess an interest in other business ventures of any and every type and
description, independently or with others, including, without limitation, the
ownership, acquisition, exploration, development, operation, and management of
oil and gas properties, oil and gas drilling programs, and partnerships similar
to this Partnership (but the General Partner promptly shall notify the Limited
Partner of any such action involving Leasehold Interests in which the
Partnership also owns an interest unless otherwise expressly provided herein);
and
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(subject to the other express provisions hereof) neither the Partnership nor
the Limited Partner by virtue of this Agreement shall have any right, title, or
interest in or to such independent ventures. In addition to the Management Fee,
the General Partner shall be entitled to reimbursement from the Partnership for
the reasonable out-of-pocket expenses (including the portion of salaries of the
General Partner's employees allocable (based on time) to Partnership
activities, but in no event pension or other benefits or any other form of
overhead) incurred by it on account of the duties and services provided,
furnished, or performed by it as General Partner; provided, however, that with
respect to Organizational Costs, the provisions of Section 4.09 shall apply.
4.08 Compliance. The General Partner shall:
(a) Comply in all respects with the terms of this
Agreement;
(b) Cause all Affiliates to comply with the terms of this
Agreement; and
(c) Cause the Partnership:
(i) To comply with the terms and provisions of
all agreements to which the Partnership is a party or to which its
properties are subject;
(ii) To comply with all applicable laws,
ordinances, or governmental rules and regulations to which the
Partnership is subject;
(iii) To obtain and maintain in good standing all
licenses, permits, franchises, and other governmental authorizations
necessary with respect to the ownership of Partnership properties and
the conduct of Partnership business and operations; and
(iv) To expend Partnership funds in accordance
with this Agreement and, in particular, to expend Capital
Contributions for the purposes for which they are advanced hereunder.
4.09 Organizational Costs and Organizational Fee. The Partnership
shall pay the Organizational Fee to the General Partner and shall be
responsible for and pay all Organizational Costs. To this end, the Partnership
shall reimburse the General Partner for all Organizational Costs it shall incur
on behalf of the Partnership.
4.10 Management Fee. The Partnership shall pay the General Partner,
monthly within 5 days after billing, the direct
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internal general and administrative costs incurred by the General Partner in
managing the Partnership's Leasehold Interests. Bills shall be submitted to the
Partnership by the General Partner by the 10th of each month, itemizing the
direct general and administrative costs incurred by the General Partner during
the previous month to manage the Partnership's Leasehold Interests; provided,
however, in no event shall a monthly bill from the General Partner exceed
$10,000.
ARTICLE V.
TAXES
5.01 Tax Returns. The General Partner shall prepare and timely file
the necessary federal (and any state) income tax returns for the Partnership
and shall use its best efforts to prepare and file properly such income tax
returns, including making the elections described below. In addition, the
General Partner each year shall submit a copy of the final partnership return
figures to the Limited Partner not later than 15 days before such Partnership
return must be filed. The General Partner will consider in good faith any
reasonable changes in such return recommended by the Limited Partner. The
Limited Partner shall furnish to the General Partner all pertinent information
in its possession relating to Partnership operations that is necessary to
enable the General Partner to prepare and file such partnership income tax
returns.
5.02 Tax Elections. The General Partner shall make the following
elections on the appropriate returns of the Partnership:
(a) In accordance with Section 263(c) of the Code and the
applicable income tax regulations and comparable provisions of state law, to
deduct as an expense intangible drilling and development costs with respect to
productive and nonproductive wells, and the preparation of wells for production
of oil or gas;
(b) To adopt the calendar year as the Partnership's
fiscal year;
(c) To adopt the accrual basis of accounting;
(d) If there is a distribution of Partnership property as
described in Section 734 of the Code or if there is a transfer of a Partnership
interest as described in Section 743 of the Code, upon written request of any
Partner to the General Partner, pursuant to Section 754 of the Code, to adjust
the basis of Partnership properties; provided, however, that the Partner making
such request shall pay any incremental accounting costs for determining such
adjustment;
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(e) To claim cost recovery deductions in accordance with
the accelerated cost recovery system described in Section 168 of the Code;
(f) To elect to amortize the organizational expenses of
the Partnership ratably over a period of 60 months as permitted by Section
709(b) of the Code; and
(g) Any other election the General Partner may deem
appropriate and in the best interests of the Partners.
Neither the Partnership nor any Partner shall make an election for the
Partnership to be excluded from the provisions of Subchapter K, Chapter 1,
Subtitle A of the Code or any similar provision of any state's income tax laws.
5.03 Maintenance of Status as Partnership. The General Partner at
all times during the existence of the Partnership shall maintain a net worth
not less than the following:
(a) If and while the General Partner shall have an
interest in only one limited partnership, the total contributions of all
partners to which are less than $2,500,000, 15% of such total contributions or
$250,000, whichever shall be the less;
(b) If and while the General Partner shall have an
interest in only one limited partnership, the total contributions of all
partners to which shall be $2,500,000 or more, 10% of such total contributions;
and
(c) If and while the General Partner shall have an
interest in more than one limited partnership, an amount as large as the sum of
the amounts required under Subsections (a) and (b) above for each separate
limited partnership.
For the purposes of computing the net worth of the General Partner, the current
fair market value of its assets will be used and there will be excluded from
such assets any interest in, and any notes and accounts receivable from and
payable to, any limited partnership. The General Partner hereby agrees to
indemnify and save the Limited Partner harmless from all liabilities, costs,
expenses, and damages (including, without limitation, any increased tax
liability or obligations and attorneys' fees and costs of suit) the Limited
Partner may incur in the event of a breach of this Section 5.03 by the General
Partner; provided, however, that such indemnification shall not arise if,
within 30 days following the event causing such breach, the General Partner
shall notify the Limited Partner of its election to dissolve the Partnership
pursuant to Section 11.01(c) if such an election then shall be permitted.
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5.04 Partnership Tax Audits. The General Partner will be treated as
the tax matters partner of the Partnership pursuant to Section 6231(a)(7) of
the Code. The General Partner shall inform all other Partners of all matters
that may come to its attention in its capacity as tax matters partner by giving
notice thereof within five days after becoming so informed, and the General
Partner shall not take any action contemplated by Sections 6222 through 6232 of
the Code unless the General Partner shall have (i) given the Limited Partner
prior notice of the contemplated action and (ii) if such action in any way
binds or limits the rights of the Limited Partner, received the consent of the
Limited Partner thereto. This provision is not intended to authorize the
General Partner to take any action left to the determination of an individual
Partner under Sections 6222 through 6232 of the Code.
ARTICLE VI.
RIGHTS OF LIMITED PARTNER
6.01 Generally. In addition to the other rights specifically set
forth herein, the Limited Partner shall have the right:
(a) To have the Partnership books kept at the principal
place of business of the Partnership and at all reasonable times to inspect and
copy any of them;
(b) To have on demand true and full information of all
things affecting the Partnership and a formal account of Partnership affairs
whenever circumstances render it just and reasonable;
(c) To have dissolution and winding up by decree of court
as provided for in the Act;
(d) To approve (i) the dissolution and winding up of the
Partnership; (ii) any amendment of this Agreement; (iii) the sale, exchange,
lease, mortgage, pledge, or other transfer of a material portion of the assets
of the Partnership other than in the ordinary course of business; and (iv) the
incurrence, renewal, or refinancing of a debt by the Partnership other than in
the ordinary course of business;
(e) To consult with and advise the General Partner with
respect to any matter related to the business of the Partnership; and
(f) To exercise all other rights of a limited partner
under the Act.
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If not otherwise permitted under other provisions of the Act, the provisions
hereof granting the Limited Partner the right to advance funds to the
Partnership, to propose to third parties that they advance funds to the
Partnership, to approve assignments of the General Partner's interests as
provided herein, to approve any of the matters set forth in Section 4.04 as
requiring the consent of all the Partners, and to make other decisions
contemplated hereby are not regarded by the parties hereto as, and shall not be
deemed to be, "participation...in the control of the business of the limited
partnership" within the meaning of Section 17-303 of the Act.
6.02 Limitations. The Limited Partner shall not have the authority
or power in its capacity as a Limited Partner to act as agent for or on behalf
of the Partnership or any other Partner, to do any act that would be binding on
the Partnership or any other Partner, or to incur any expenditures on behalf of
or with respect to the Partnership.
6.03 Limited Liability. The Limited Partner shall not be liable for
the losses, debts, liabilities, contracts, or other obligations of the
Partnership except to the extent of (a) any unpaid Capital Contributions the
Limited Partner has agreed to make as described in Sections 2.01 and 2.02, (b)
the Limited Partner's share of the assets of the Partnership, and (c) its share
of the undistributed net profits of the Partnership. The Limited Partner shall
not be required to make any loans to the Partnership. If all or any portion of
the Limited Partner's Capital Contributions is returned to it as defined in
Section 17-608(c) of the Act, it will be liable to the Partnership in
accordance with Sections 17-608(a) and (b) of the Act. The Partnership shall
indemnify the Limited Partner and hold it harmless from and against all losses,
costs, liabilities, and expenses it shall incur on account of its being a
Partner in the Partnership beyond the matters previously set forth in this
Section 6.03 as matters for which it shall be liable; provided, however, that
such indemnification shall not apply to the extent that such losses, costs,
liabilities and expenses shall have arisen pursuant to Section 17-303(a) of the
Act on account of the Limited Partner's having participated in control of the
business of the Partnership.
6.04 Trustee. If the General Partner shall fail to comply with any
material provision hereof and such failure shall have continued for a period of
30 days following notice thereof from the Limited Partner, or if an event
described in Section 11.01(g) or (h) shall occur with respect to the General
Partner, the Limited Partner may cause the Partnership, at the General
Partner's sole expense, to assign the Partnership's rights to receive revenues
to a trustee named by the Limited Partner. Such trustee shall receive and hold
Partnership revenues for the benefit of all the Partners but shall not have the
rights of the
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General Partner hereunder. The trustee's sole right and responsibility shall be
to receive Partnership funds and disburse them in accordance with the other
provisions of this Agreement.
ARTICLE VII.
DISTRIBUTIONS
7.01 Monthly Distributions. Concurrently with delivery of the
statement described in the first sentence of Section 2.03 (or, if no Capital
Contributions then are to be made, at the time such statement would have been
sent), commencing with the month following the month in which the General
Partner first receives Revenues attributable to the activities of the
Partnership, the General Partner shall distribute to the Partners all
Distributable Net Revenues of the Partnership during the immediately preceding
calendar month; provided, however, that the General Partner, at its option, may
cause the Partnership to retain all or any portion of such amount up to the
amount the Limited Partner then shall be obligated to contribute to the capital
of the Partnership pursuant to the statement contemporaneously delivered
pursuant to Section 2.03 or pursuant to Section 2.04, and any sums so retained
shall be deemed to satisfy the Limited Partner's obligation to make such
portion of the Capital Contribution it then shall be required to make. All
distributions of Distributable Net Revenues realized (i) prior to the time the
Note has been paid in full, or (ii) prior to the time the Mortgages and Deed of
Trust have been foreclosed in cancellation of the indebtedness secured thereby
and all properties acquired as a result of the foreclosure contributed to the
Partnership, shall be made 100% to the General Partner. All distributions of
Distributable Net Revenues realized (i) after the time the Note has been paid
in full, or (ii) after the time the Mortgages and Deed of Trust have been
foreclosed in cancellation of the indebtedness secured thereby and all
properties acquired as a result of the foreclosure contributed to the
Partnership, shall be made to the Partners in accordance with their respective
Sharing Ratios. Anything to the contrary contained in this Section 7.01
notwithstanding, however, the General Partner shall be entitled to cause the
Partnership to retain any Distributable Net Revenues that would otherwise be
required to be distributed to the partners to the extent needed to fund Cost
Overruns, provided that the aggregate of such retained Distributable Net
Revenues and the additional borrowings made as contemplated in the last
sentence of Section 2.07 hereof shall not exceed $700,000 at any one time.
7.02 Method of Payment. All distributions to the Limited Partner
shall be made by wire transfer in immediately available funds to such bank or
address and in accordance with such instructions as the Limited Partner may
from time to time give to the General Partner. Any distributions required to be
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paid but not paid within ten days after the date due shall bear interest at a
rate equal to the Interest Rate from the due date until paid minus the
interest, if any, earned on such funds during such period while they are
deposited in the Partnership Account.
ARTICLE VIII.
BOOKS, RECORDS, REPORTS AND BANK ACCOUNTS
8.01 Maintenance of Books. The Partnership's books shall be
maintained in accordance with the terms of this Agreement at the principal
place of business of the Partnership. The calendar year shall be selected as
the accounting year of the Partnership and the Partnership's books of account
shall be maintained on an accrual basis according to the successful efforts
method. The costs and revenues of the Partnership shall be reported on a
well-by-well basis.
8.02 Periodic Reports. If requested by the Limited Partner,
concurrently with the delivery of the statement described in the first sentence
of Section 2.03 (or, if no Capital Contributions then are to be made, at the
time such statement would have been sent), the General Partner shall deliver to
the Limited Partner a moving 12-month statement of Partnership monthly
production and the related revenue and lease operating expenses on a
well-by-well basis, and of costs by well itemized by appropriate tax
classification with respect to new Partnership Wells. The General Partner also
shall deliver to the Limited Partner an annual reserve report prepared by an
independent petroleum engineering firm selected by the General Partner and
reasonably acceptable to the Limited Partner. The General Partner shall use its
best efforts to prepare any additional reports reasonably requested by the
Limited Partner at the expense of the Limited Partner. The General Partner
shall furnish copies of all written reports delivered pursuant to this Section
8.02 to such other persons as the Limited Partner reasonably may request. The
costs of all such reports shall be borne by the Partnership. The Limited
Partner shall not disclose or divulge to any person (other than its employees,
auditors, counsel, or other consultants) any information contained in any such
report that is expressly identified as confidential or proprietary in writing
at the time of its delivery to the Limited Partner and will keep confidential
any such information; provided, however, that the Limited Partner shall not be
obligated to treat as confidential any information (a) that is or becomes
publicly available or readily ascertainable from public sources or that the
Limited Partner receives from a third party (other than the General Partner's
or the Partnership's employees, auditors, or counsel), (b) as may be required
or appropriate in any report, statement, or testimony submitted to any
municipal, state, or federal regulatory body having or claiming to have
jurisdiction over the
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Limited Partner or to the National Association of Insurance Commissioners or
similar organizations or their successors, (c) as may be required or
appropriate in response to any summons or subpoena or in connection with any
litigation, (d) to the extent that the Limited Partner believes it appropriate
to comply with any law, order, regulation, or ruling applicable to it, and (e)
to the extent that the Limited Partner believes it appropriate to disclose such
information to the prospective transferee of all or any of its interest as
Limited Partner, but only to the extent that such prospective transferee shall
agree to be subject to the same terms and conditions described in this sentence
and that such disclosure is not in violation of applicable securities laws.
8.03 Quarterly Financial Reports. The General Partner shall furnish
the Limited Partner quarterly financial reports of the General Partner. The
Limited Partner shall not disclose or divulge to any person (other than its
employees, auditors, counsel, and other consultants) any information contained
in any financial statements of the General Partner delivered pursuant to this
Section 8.03 that is expressly identified as confidential or proprietary and
will keep confidential any such information, subject, however, to the
exceptions provided in the last sentence of Section 8.02.
8.04 Annual Certified Financial Statements. Unless otherwise
notified in writing by the Limited Partner prior to the end of the calendar
year, within 90 days after the end of each calendar year during the term of
this Agreement, the General Partner shall furnish the Limited Partner financial
statements covering the activities of the Partnership as of the end of and for
such period certified by the Certified Public Accountants. The financial
statements shall include a balance sheet, an income statement, descriptions of
the Partners' respective investments hereunder, and changes in Partners'
capital. Such financial statements shall be prepared in accordance with
generally accepted accounting principles and shall be accompanied by a report
of the Certified Public Accountants certifying the statements and stating that
(a) their examination was made in accordance with generally accepted auditing
standards and, in their opinion, such financial statements fairly present the
financial position, financial results of operations, and changes in Partners'
capital in accordance with generally accepted accounting principles
consistently applied and (b) in making the examination and reporting on the
financial statements described above, nothing came to their attention that
caused them to believe that (i) the income and revenues were not paid or
credited in accordance with the financial and accounting provisions of this
Agreement, (ii) the costs and expenses were not charged in accordance with the
financial and accounting provisions of this Agreement, or (iii) the General
Partner failed to comply in any material respect with the financial and
accounting provisions of this Agreement, or if
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they did conclude that the General Partner so failed, specifying the nature and
period of existence of such failure. The costs of all such reports shall be
borne by the Partnership. Within 120 days after the end of each fiscal year
during the term of this Agreement, the General Partner at its sole cost and
expense shall prepare and furnish to the Limited Partner a certified annual
financial statement of the General Partner. The Limited Partner shall not
disclose or divulge to any person (other than its employees, auditors, counsel,
and other consultants) any information contained in any financial statements of
the General Partner delivered pursuant to this Section 8.04 that is expressly
identified as confidential or proprietary and will keep confidential any such
information, subject, however, to the exceptions provided in the last sentence
of Section 8.02.
8.05 Additional Reports and Information. The General Partner shall
furnish the Limited Partner such additional reports and information as the
General Partner may consider appropriate or as the Limited Partner reasonably
may request. The costs of all such reports shall be borne by the Partnership.
During ordinary business hours the Limited Partner or its authorized agent or
representative shall have reasonable access to all books, records, and
materials in the Partnership's offices regarding the Partnership or its
activities.
8.06 Bank Account. The General Partner shall establish and maintain
a separate interest-bearing account for all Partnership funds in the
Partnership name at The Liberty National Bank and Trust Company of Oklahoma
City or another bank having comparable or greater capital, surplus, and
undivided profits. Such account shall provide the highest interest rate
available at the bank for such funds. The General Partner may not commingle the
Partnership funds with other funds of the General Partner.
ARTICLE IX.
OPTIONAL OPERATIONS; LEASEHOLD ACQUISITION
9.01 Optional Operations.
Upon receipt of any notice pursuant to an Operating Agreement or other
arrangement proposing any Optional Operation, or upon the General Partner's
giving such a notice (either for itself or for the Partnership) to third
parties on account of an interest in any Leasehold Interest in which the
Partnership owns an interest, the General Partner shall notify the Limited
Partner of the same; provided, however, that if the Election Period (as
hereinafter defined) shall be less than thirty days and if the General Partner
shall give such notice, the General Partner shall notify the Limited Partner of
the same at least 40 days prior to the expiration of such Election Period. Such
notice shall include a copy of any written notice from any third party or by
the
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General Partner to any third party proposing such Optional Operation, a
statement of the time by which the Partnership shall be obliged contractually
to notify the operator of the applicable Leasehold Interest or other
appropriate person whether the Partnership elects to participate in such
operation (the "Election Period"), the consequences of failing to notify such
person within such period, a summary of the pertinent geological and
engineering data and financial projections regarding the proposed operation, a
statement (the "Statement") whether the General Partner recommends
participation in such Optional Operation and whether the General Partner has
agreed or intends to agree to participate with respect to any interest it owns
for its own account in the Leasehold Interests affected, such title information
as the Limited Partner reasonably may request, and a statement that the Limited
Partner's failure to respond at least 10 days prior to the expiration of the
Election Period shall be deemed to mean it elects not to make additional
contributions to the capital of the Partnership to fund such Optional
Operation, provided, if the Statement from the General Partner recommends that
the Partnership participate in the Optional Operation in question, such
Statement shall also include a cash purchase offer from the General Partner to
the Partnership for the Partnership's interest in the well bore, and well bore
only, of the Partnership Well (whether existing or to be drilled) which is the
subject of such Optional Operation setting forth the terms of such offer
including, without limitation, the amount which the General Partner offers to
pay for such interest.
If the Statement from the General Partner recommends that the
Partnership not participate in the Optional Operation in question, the
Partnership will not participate in such Optional Operation. Instead, the
Partnership will, subject to the other provisions of this Agreement including,
without limitation, Sections 4.04 and 6.01 hereof, follow the General Partner's
recommendation (which shall be contained in such Statement) to (i) farm-out to
a third party, which is not an Affiliate of the General Partner, the
Partnership's interest in the well bore, and well bore only, of the Partnership
Well (whether existing or to be drilled) which is the subject of the proposed
Optional Operation, (ii) sell such interest to a third party which is not an
Affiliate of the General Partner, or (iii) be subject to the non-consent
provisions of the applicable Operating Agreement.
If the Statement from the General Partner recommends that the
Partnership participate in the Optional Operation in question, the Limited
Partner shall have the right (but not the obligation), at its sole option, to
make additional contributions of capital to the Partnership to fund such
Optional Operation, which election may be exercised by the Limited Partners'
notifying the General Partner at least 10 days before the expiration of the
Election Period whether it elects to make such Optional Contributions;
provided, however, the Limited Partner's failure
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to notify the General Partner of its election at least 10 days before the
expiration of the Election Period shall be deemed to mean it has elected not to
make such Optional Contributions. If the Limited Partner elects, or is deemed
to elect, not to make additional contributions to the capital of the
Partnership to fund the proposed Optional Operation, then the General Partner
shall not cause the Partnership to participate in such Optional Operation, and
shall either (i) cause the Partnership to give all notices, make such
elections, and take all such further actions as may be necessary to prevent the
Partnership from becoming obligated to so participate, or (ii) farm-out to a
third party, which is not an affiliate of the General Partner, the
Partnership's interest in the Partnership Well which is the subject of the
proposed Optional Operation; provided, however, if the Limited Partner consents
in writing at least 10 days before the expiration of the Election Period, the
Partnership may accept the General Partner's purchase offer and sell its
interest in the Partnership Well in question to the General Partner. Anything
to the contrary contained in this Section 9.01 notwithstanding, but subject to
the remainder of this sentence, the General Partner may cause the Partnership
to participate in an Optional Operation notwithstanding the Limited Partner's
election not to make Optional Contributions with respect thereto, to the extent
that Distributable Net Revenues retained by the Partnership pursuant to the
last sentence of Section 7.01 and borrowings made as contemplated by the last
sentence of Section 2.07 hereof, are sufficient therefor and for all other
expenses of the Partnership.
9.02 Acquisition of Leasehold Interests. Whenever the General
Partner receives a request or proposal under any agreement or arrangement to
which the Partnership is a party for the Partnership to acquire Leasehold
Interests that are covered by an Operating Agreement, or at any other time that
the General Partner desires to propose that the Partnership acquire additional
Leasehold Interests that are covered by an Operating Agreement, the General
Partner may (but shall not be obligated to) propose that the Partnership
acquire Leasehold Interests by giving notice thereof to the Limited Partner.
Such notice shall include copies of proposed acquisition documents, a statement
of the proposed Acquisition Amount therefor, a summary of the pertinent
geological, geophysical, and engineering data, financial projections regarding
the proposed acquisition, title information (if such Leasehold Interests then
shall be producing) a summary of any existing reserve report, if available, (if
such notice shall be from the General Partner), and a statement whether the
General Partner recommends such acquisition and whether the General Partner has
agreed or intends to agree to acquire an interest in such Leasehold Interest
for its own account. The Limited Partner shall have the right (but not the
obligation), at its sole option, to make additional contributions to the
capital of the Partnership therefor, and the Limited Partner shall notify
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the General Partner whether it elects to make such contributions; provided,
however, that the Limited Partner's failure to notify the General Partner of
its election within 30 Business Days after its receipt of the General Partner's
notice shall be deemed to mean it has elected not to make such contributions.
If the Limited Partner elects not to make such contributions, or if the Limited
Partner has not made its election before the Partnership is required to notify
any party as to the Partnership's decision, or if the General Partner does not
give notice of the proposed acquisition to the Limited Partner, then the
General Partner shall not cause the Partnership to acquire such Leasehold
Interests, and shall cause the Partnership to give all notices, make such
elections and to take all such other actions as may be necessary to prevent the
Partnership from becoming obligated to so acquire same.
9.03 Limitation. Under no circumstances shall the Limited Partner
be obligated by this Article IX to contribute more to an acquisition and/or
operation, as applicable, than the maximum amount of such contributions, or
upon any schedule other than the schedule for such contributions, to which it
agrees in its notice to the General Partner of its election to make such
contributions pursuant to this Article IX.
ARTICLE X.
ASSIGNMENT OF INTERESTS AND SUBSTITUTIONS; REMOVAL
10.01 Assiqnment by Limited Partners. The Limited Partner may assign
or otherwise transfer all or any part of its interest in the Partnership at any
time, but no such assignee shall become a substitute Limited Partner unless (a)
the Limited Partner shall give the assignee such right, (b) the General Partner
shall consent in its sole discretion to the admission of the assignee as a
substitute Limited Partner, and (c) the assignee shall execute and deliver such
instruments, in form and substance reasonably satisfactory to the General
Partner, as the General Partner may deem necessary to effect such substitution
and to confirm the agreement of the assignee to be bound by all of the terms
and provisions of this Agreement; and until such conditions shall be fulfilled,
the Limited Partner shall continue as a limited partner of the Partnership. The
Partnership and the General Partner shall be entitled to treat the record owner
of any Partnership interest as the absolute owner thereof in all respects and
shall incur no liability for distributions of cash or other property made in
good faith to such owner until such time as the General Partner shall have
received a written assignment of such interest that complies with the terms of
this Agreement. The assignor shall reimburse the Partnership for all expenses
the Partnership shall incur on account of any such assignment.
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10.02 Assignment by General Partner. The General Partner shall not
assign or otherwise transfer all or any part of its interest in the Partnership
(including the right to receive distributions, except as hereinafter provided)
without the prior written consent of the Limited Partner, and no assignee of
the General Partner shall become a substitute General Partner without the prior
written consent of the Limited Partner in its sole discretion. The General
Partner shall not pledge, mortgage, or otherwise encumber its interest in the
Partnership; provided, however, that the General Partner may pledge its right
to receive any or all distributions hereunder if:
(i) Partnership funds are not used or obligated in any
way to repay the debt secured thereby;
(ii) No property of the Partnership is mortgaged, pledged,
or otherwise encumbered to secure such debt;
(iii) The Partnership's right to receive the proceeds from
the sale of production attributable to its interests in Leasehold Interests is
not pledged, mortgaged, or otherwise encumbered; and
(iv) The debt is secured by the full faith and credit of
the General Partner.
All of the expenses of obtaining and servicing any assignment or financing
permitted under this Section 10.02 and all repayments thereof and costs and
interest or other charges related thereto shall be borne and paid by the
General Partner, and in no event shall such repayments, costs, interest, or
other charges be charged to the account of or paid by the Limited Partner or
the Partnership.
10.03 Partition. Neither Partner nor the Partnership shall partition
or seek to partition, whether through order of any court or otherwise, any
Leasehold Interest in which the Partnership owns an interest.
10.04 Removal of the General Partner. The General Partner may be
removed by the Limited Partner at any time that the Limited Partner, in the
good faith exercise of its sole and absolute discretion, determines that the
General Partner has experienced a material and adverse change in its financial
condition and/or circumstances.
ARTICLE XI.
DISSOLUTION, LIQUIDATION AND TERMINATION
11.01 Dissolution. The Partnership shall be dissolved upon the first
to occur of any of the following:
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(a) The consent in writing of the General Partner and the
Limited Partner;
(b) The election of the Limited Partner by written notice
to the General Partner at any time after the earliest to occur of (i) any
change in the ownership or control of the stock of the General Partner such
that the current management of the General Partner no longer is ultimately
directing its business and affairs, as determined by the Limited Partner in
good faith, or (ii) the enactment of any legislation that, for federal or
applicable state income tax purposes, either would cause the Partnership to be
treated as an association taxable as a corporation or would eliminate or
substantially reduce deductions, credits, or other benefits permitted as of the
date hereof with respect to Initial Costs, in each case as determined by the
Limited Partner in good faith;
(c) The election of the General Partner by written notice
to the Limited Partner at any time after the date occurring three years
following the date hereof;
(d) The sale or other disposition of all or substantially
all of the assets of the Partnership;
(e) The removal of the General Partner in accordance with
the provisions of Section 10.04 hereof;
(f) The occurrence of any event that, under the Act,
causes the dissolution of a limited partnership;
(g) Entry of a decree or order relating to a Partner by a
court having jurisdiction (i) granting relief under Title 11 of the United
States Code or any successor statute; (ii) approving as properly filed a
petition seeking reorganization of such party under Title 11 of the United
States Code or any successor statute, or any other state or federal law; (iii)
for the appointment of a receiver, liquidator, trustee in bankruptcy or
insolvency of such Partner or of the property of such Partner; (iv) appointing
a custodian, trustee, receiver, or agent with authorization to take charge of a
material portion of the property of a Partner for the purpose of enforcing a
lien against such property; or (v) for the winding up or liquidation of the
affairs of a Partner, and, in any such case, such decree or order shall have
remained in force undischarged and unstayed for 60 days;
(h) December 31, 2010; or
(i) The election of either Partner by written notice to
the other, at any time after October 31, 1995, if the Note has not been paid in
full by such date.
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11.02 Covenant Not to Withdraw. Except for causing a dissolution
pursuant to Section 11.01(c), the General Partner covenants and agrees not to
withdraw voluntarily from the Partnership, whether directly or by dissolution
or any other voluntary act. If the General Partner shall violate such covenant
and agreement, the withdrawal shall be effective for purposes of Section 11.01
to cause a dissolution of the Partnership, but the General Partner shall be
liable to the Limited Partner for all damages suffered or incurred by it as a
result of such withdrawal. For purposes of this Agreement, a "voluntary
withdrawal" by the General Partner shall consist of any of the applicable
events set forth in Section 17-402 of the Act other than those described in
subparagraphs (3) and (5) thereof.
11.03 Continuation and Reconstitution. Upon the occurrence of any
event that would cause a dissolution pursuant to Section 11.01 that also
constitutes an "event of withdrawal of a general partner" as defined in Section
17-101(3) of the Act, the Partnership shall, notwithstanding anything to the
contrary contained in Section 17-801(3) of the Act, be dissolved but shall not
be wound up by reason of such event if, within 90 days after such event, the
Limited Partner agrees in writing to continue the business of and reconstitute
the Partnership and to the appointment of, effective as of the date of such
event, a new general partner of the Partnership, which shall be admitted as the
general partner and shall succeed to the rights and duties of the General
Partner hereunder. In the event the Partnership shall be so continued and
reconstituted, the Partnership shall distribute to the General Partner an
amount equal to the amount that would have been distributed to the General
Partner pursuant to Section 11.04 had the Partnership been liquidated at that
time. The General Partner's consent shall not be required for any continuation
and reconstitution hereunder or for the designation of the new general partner
hereunder. The Limited Partner's right to elect to continue the business of and
reconstitute the Partnership may be exercised at its sole option, and its
failure to exercise such right shall not relieve the General Partner of any of
its obligations, including, without limitation, those arising pursuant to
Section 11.02.
11.04 Liquidation and Termination. Upon dissolution of the
Partnership, the General Partner shall act as liquidator or may appoint in
writing one or more liquidators who shall have full authority to wind up the
affairs of the Partnership and make final distribution as provided herein;
provided, however, that if the Partnership shall be dissolved pursuant to the
provisions of Section 11.01(c), (e), or, to the extent such event affects the
General Partner only, (g) or Section 11.02, the liquidator shall be a person
selected in writing by the Limited Partner. The liquidator shall proceed
diligently to wind up the affairs of the Partnership and make final
distribution as provided herein. Once
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liquidation shall be completed a final accounting shall be made of the affairs
of the Partnership and of each Partner from the date of the last accounting. In
the event the Partnership shall be dissolved and liquidated pursuant to the
provisions of Section 11.01(c), (e), or, to the extent such affects the General
Partner only, (g) or Section 11.02, all costs associated with liquidation of
the Partnership shall be borne by the General Partner; otherwise, the costs of
liquidation shall be borne as a Partnership expense. Until final distribution,
the liquidator shall continue to operate the Partnership properties with all of
the power and authority of the General Partner. The steps to be accomplished by
the liquidator are as follows:
(a) As promptly as possible after dissolution and again
after final liquidation, the liquidator shall cause a proper accounting to be
made by the Certified Public Accountants of the Partnership's assets,
liabilities, and operations through the last day of the calendar month in which
the dissolution shall occur or the final liquidation shall be completed, as
appropriate;
(b) The liquidator shall pay all of the debts and
liabilities of the Partnership (including all expenses incurred in liquidation
and any advances made by the Partners pursuant to Section 2.07) or otherwise
make adequate provision therefor (including, without limitation, the
establishment of a cash escrow fund for contingent liabilities in such amount
and for such term as the liquidator may reasonably determine); and
(c) All remaining assets of the Partnership shall be
distributed to the Partners as follows:
(i) If all Partners consent, selected Partnership
property may be sold, and any resulting gain or loss (including
Simulated Gain or Simulated Loss) from each sale shall be computed and
allocated to the capital accounts of the Partners as provided in
Sections 2.08 and 3.02; provided, however, that any interest in any
Leasehold Interest contributed by a Partner for which such Partner
shall not yet have received credit as required by Section 2.08, shall
be reassigned to such Partner;
(ii) With respect to any properties of the
Partnership not sold pursuant to clause (i) above, the fair market
value of such properties shall be determined and the unrealized gain
or loss (including unrealized Simulated Gain or Simulated Loss) that
would have been realized if the sale of all such properties at their
fair market values had occurred shall be charged or credited to the
capital accounts of the
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Partners above as if such properties had been actually sold;
(iii) After the allocations of gain or loss
(including Simulated Gain or Simulated Loss) required by clauses (i)
and (ii) above shall have been credited or debited, as the case may
be, to the capital accounts of the Partners, the balances of the
capital accounts of the Partners shall be determined. If the General
Partner has a deficit balance in its capital account, it shall restore
the amount of such deficit balance to the Partnership within 90 days
and thereafter, the capital accounts of all Partners shall be
satisfied in full. In the event cash proceeds or property of
sufficient value are unavailable to satisfy the capital accounts of
the Partners, distribution shall be made to the Partners in proportion
to the ratio of their positive capital accounts.
All assignments made under the provisions of this Section 11.04 shall be made
in a form acceptable to the Partnership and assignee and shall be made subject
to the liability of each assignee for costs, expenses, and liabilities
theretofore incurred or for which the Partnership shall have committed prior to
the date of termination and such costs, expenses, and liabilities shall be
allocated to such assignee pursuant to this Section 11.04. The distribution of
cash and/or property to a Limited Partner in accordance with the provisions of
this Section 11.04 shall constitute a complete return to the Limited Partner of
its Capital Contributions and a complete distribution to the Limited Partner of
its interest in the Partnership and all the Partnership's property.
11.05 Cancellation of Certificate. Upon the completion of the
distribution of Partnership assets as provided herein, the Partnership shall be
terminated, and the person acting as liquidator (or the Partners if necessary)
shall cause the cancellation of the Certificate and shall take such other
actions as may be necessary to terminate the Partnership.
ARTICLE XII.
GENERAL PROVISIONS
12.01 No Third-Party Beneficiaries; Assignability, Binding Nature.
Nothing in this Agreement (express or implied) is intended or shall be
construed to confer upon any person or entity not a party hereto any right,
remedy, or claim under or by reason of this Agreement. Except as expressly
provided herein, the rights and duties of the parties hereunder are not
assignable. Subject to the prior provisions of this Section 12.01, this
Agreement shall be binding upon and shall inure to the
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benefit of the respective successors and assigns of the parties hereto.
12.02 Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto pertaining to the subject matter hereof
and supersedes all prior and contemporaneous agreements and understandings of
the parties hereto in connection therewith.
12.03 Partial Invalidity. In case any one or more of the covenants,
agreements, or provisions hereof shall be invalid, illegal, or unenforceable in
any respect, the validity of the remaining covenants, agreements, or provisions
hereof shall be in no way affected, prejudiced, or disturbed thereby.
12.04 Notices. All notices, consents, approvals, requests, demands,
or other communications required or permitted to be given hereunder shall be in
writing, shall be given by mail, return receipt requested, postage prepaid,
prepaid telegram with confirmation of delivery obtained, or personally
delivered with confirmation of delivery obtained and shall be deemed to have
been duly given when received at the address specified below:
If to the General Partner:
Alexander Energy Corporation
Triad Center
501 Northwest Expressway, Suite 600
Oklahoma City, Oklahoma 73118
Attention: Bob G. Alexander
If to the Limited Partner:
John Hancock Mutual Life Insurance Company
John Hancock Place
200 Clarendon Street
P.O. Box 111
Boston, Massachusetts 02117
Attention: Bond and Corporate Finance Department, T-57
(and, if regarding any statement pursuant to
Section 2.03, an additional copy to
Securities Administration)
provided, however, that if any Election Period shall be less than five Business
Days or any well shall be in progress of the kind described in Section 9.02,
any notice with respect thereto may be made by telephone, if to the General
Partner, to Bob G. Alexander at (405) 840-5020, and if to the Limited Partner,
to William A.
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Kinsley at (617) 421-4998. Any party shall have the right to change its address
for notice hereunder from time to time to such other address within the
continental United States of America as may hereafter be furnished in writing
by such party to the other parties hereto.
12.05 Further Assurances. Each party hereto from time to time shall
do and perform such further acts and execute and deliver such further
instruments, assignments, and documents as may be required or reasonably
requested by the other party to establish, maintain, or protect the respective
rights and remedies of the parties hereto and to carry out and effect the
intentions and purposes of this Agreement.
12.06 Rights Cumulative. The rights and remedies granted to the
parties under this Agreement shall not be exclusive rights and remedies but
shall be in addition to all other rights and remedies available at law or in
equity.
12.07 Amendment. This Agreement may be modified or amended at any
time, but only by a writing signed by both Partners.
12.08 No Waiver. The failure of any party hereto to insist upon
strict performance of any provision hereof shall not constitute a waiver of, or
estoppel against asserting the right to require such performance in the future,
nor shall a waiver or estoppel in any one instance constitute a waiver or
estoppel with respect to a later breach of a similar nature or otherwise.
12.09 Internal References. Unless otherwise specified, all
references in this Agreement to "Articles" and "Sections" are to articles and
sections of this Agreement, and all references to "Exhibits" are to Exhibits
attached to this Agreement, all of which are made parts hereof for all
purposes.
12.10 Counterpart Execution. This Agreement may be executed in a
number of counterparts, each of which shall have the force and effect of an
original although constituting but one instrument for all purposes.
IN WITNESS WHEREOF, the Partners have executed this Agreement on the
date set forth first above.
GENERAL PARTNER: ALEXANDER ENERGY CORPORATION
By: /s/ BOB G. ALEXANDER
-------------------------------
Name: Bob G. Alexander
Title: President
-42-
<PAGE> 47
LIMITED PARTNER: JOHN HANCOCK MUTUAL LIFE
INSURANCE COMPANY
By: /s/ WILLIAM A. KINSLEY
-------------------------------
Name: WILLIAM A. KINSLEY
Title: Senior Investment Officer
-43-
<PAGE> 48
EXHIBIT A
CERTIFICATE OF LIMITED PARTNERSHIP OF
AEJH 1987-A LIMITED PARTNERSHIP
This Certificate of Limited Partnership of AEJH 1987-A Limited
Partnership (the "Partnership") is being executed and filed by the undersigned
General Partner (the "General Partner") to form a limited partnership under the
Delaware Revised Uniform Limited Partnership Act (6 Del. C. Section 17-101, et
seq.).
ARTICLE I
The name of the limited partnership formed hereby is
AEJH 1987-A LIMITED PARTNERSHIP
ARTICLE II
The address of the registered office of the Partnership in the State
of Delaware is: The Corporation Trust Company, 1209 Orange Street, Corporation
Trust Center, Wilmington, New Castle County, Delaware 19801, and the name and
address of the registered agent for service of process on the Partnership in
the State of Delaware is: The Corporation Trust Company, 1209 Orange Street,
Corporation Trust Center, Wilmington, New Castle County, Delaware 19801.
ARTICLE III
The name and business address of the General Partner of the
Partnership is:
<TABLE>
<CAPTION>
Name Business Address
---- ----------------
<S> <C>
Alexander Energy Corporation 600 Triad Center
501 Northwest Expressway
Oklahoma City, Oklahoma 73118
</TABLE>
IN WITNESS WHEREOF, the undersigned has executed this Certificate
this ______ day of____________, 1987.
GENERAL PARTNER: ALEXANDER ENERGY CORPORATION
By:_________________________________
Bob G. Alexander, President
<PAGE> 49
EXHIBIT B
Insurance
At all times during the conducting (including predrilling and
exploratory drilling activity) of operations hereunder:
A. Workmen's Compensation and/or Employer's Liability Insurance
in amounts reasonably sufficient to cover liability for injury to or death of
operator's employees, such insurance if required by laws of the state in which
the leased lands are located, to be in conformity with such laws.
B. Comprehensive General Liability Insurance with combined limits
of not less than $500,000 and no deductibles covering bodily injury and
property damage liability, including coverage for the following hazards:
Personal Injury
Broad Form PD
Premises Medical
Broad Form Contractual
Additional Insured - Working Interest
Underground Resources & Equipment (also see paragraph D
below)
Blowout & Cratering (also see paragraph E below)
Explosion, Collapse & Underground PD
Incidental Malpractice
Waiver of Subrogation
Owner's Protective
C. Comprehensive Automobile Liability Insurance with combined
limits of not less than $500,000 and deductibles not greater than $500 covering
bodily injury and property damage liability, including coverage for all owned,
hired and nonowned vehicles.
D. Umbrella Liability Insurance in an amount not less than
$5,000,000 in excess of all primary limits.
E. Operator's Expense Indemnity Insurance of at least $3,000,000
on an annual basis as a combined single limit covering: costs incurred as a
result of blowout of a well, including damage to drilling and production
equipment, cleanup, containment and redrilling, and liability for gradual
pollution, subject to a $25,000 deductible per occurrence.
In addition, the Partnership will carry such other available insurance
as is necessary to protect the Partnership against losses due to casualty and
will require contractors and subcontractors to maintain such insurance. The
policies shall contain a waiver of territorial restrictions where necessary,
and otherwise shall conform to the provisions set forth in the Cer-
<PAGE> 50
tificate and Agreement of Limited Partnership to which this Exhibit B is
attached. The insurance policies will be underwritten by insurance companies
having a Best's Rating of A+.
-2-
<PAGE> 51
PAGE 1
STATE OF DELAWARE
[LOGO]
OFFICE OF SECRETARY OF STATE
_____________
I, MICHAEL HARKINS, SECRETARY OF STATE OF THE STATE OF DELAWARE DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
LIMITED PARTNERHIP OF AEJH 1987-A LIMITED PARTNERSHIP FILED IN THIS OFFICE ON
THE TWENTY-EIGHTH DAY OF DECEMBER, A.D. 1987, AT 10 O'CLOCK A.M.
MICHAEL HARKINS
------------------------------------------
[SEAL] Michael Harkins, Secretary of State
873620246 AUTHENTIFICATION: 11518430
DATE: 12/28/1987
<PAGE> 52
CERTIFICATE OF LIMITED PARTNERSHIP
OF
AEJH 1987-A LIMITED PARTNERSHIP
This Certificate of Limited Partnership of AEJH 1987-A Limited
Partnership (the "Partnership") is being executed and filed by the undersigned
General Partner (the "General Partner") to form a limited partnership under the
Delaware Revised Uniform Limited Partnership Act (6 Del. C. Section 17-101, et
seq.).
ARTICLE I
The name of the limited partnership formed hereby is
AEJH 1987-A LIMITED PARTNERSHIP
ARTICLE II
The address of the registered office of the Partnership in the State
of Delaware is: The Corporation Trust Company, 1209 Orange Street, Corporation
Trust Center, Wilmington, New Castle County, Delaware 19801, and the name and
address of the registered agent for service of process on the Partnership in
the State of Delaware is: The Corporation Trust Company, 1209 Orange Street,
Corporation Trust Center, Wilmington, New Castle County, Delaware 19801.
ARTICLE III
The name and business address of the General Partner of the
Partnership is:
<TABLE>
<CAPTION>
Name Business Address
---- ----------------
<S> <C>
Alexander Energy Corporation 600 Triad Center
501 Northwest Expressway
Oklahoma City, Oklahoma 73118
</TABLE>
IN WITNESS WHEREOF, the undersigned has executed this Certificate this
24th day of December, 1987.
GENERAL PARTNER: ALEXANDER ENERGY CORPORATION
By: /s/ BOB G. ALEXANDER
--------------------------------
Bob G. Alexander, President
<PAGE> 1
EXHIBIT 10(l)
AGREEMENT
OF
LIMITED PARTNERSHIP
OF
AEJH 1989 LIMITED PARTNERSHIP
By and Between
ALEXANDER ENERGY CORPORATION
As General Partner
And
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
As Limited Partner
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
ARTICLE I
ORGANIZATION
SECTION 1.01 Formation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.02 Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.03 Principal Place of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.04 Purposes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.05 Organizational Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.06 Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.07 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE II
CAPITAL CONTRIBUTIONS
SECTION 2.01 Initial Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.02 Optional Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.03 Payment of Optional Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.04 Default in Payment of Capital Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.05 Return of Capital Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.06 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.07 Certain Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.08 Capital Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE III
COSTS, REVENUES AND ALLOCATIONS
SECTION 3.01 Sharing of Costs and Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.02 Allocations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.03 Limitations on Deductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.04 Lender as Partner. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE IV
MANAGEMENT AND OPERATION
SECTION 4.01 Management of Partnership Affairs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.02 Powers of General Partner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.03 Operating Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.04 Limitations on General Partner's Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.05 Performance of Obligations as Operator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.06 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.07 Fiduciary Relationship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.08 Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.09 Organizational Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.10 Management Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C> <C> <C>
ARTICLE V
TAXES
SECTION 5.01 Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.02 Tax Elections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.03 Maintenance of Status as Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.04 Partnership Tax Audits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE VI
RIGHTS OF LIMITED PARTNER
SECTION 6.01 Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.02 Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.03 Limited Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.04 Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE VII
DISTRIBUTIONS
SECTION 7.01 Monthly Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.02 Method of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE VIII
BOOKS, RECORDS, REPORTS AND BANK ACCOUNTS
SECTION 8.01 Maintenance of Books . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
8.02 Periodic Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
8.03 Quarterly Financial Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
8.04 Annual Certified Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
8.05 Additional Reports and Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
8.06 Bank Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE IX
OPTIONAL OPERATIONS; LEASEHOLD ACQUISITION
SECTION 9.01 Optional Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
9.02 Acquisition of Leasehold Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.03 Limitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
ARTICLE X
ASSIGNMENT OF INTERESTS AND SUBSTITUTIONS; REMOVAL
SECTION 10.01 Assignment by Limited Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
10.02 Assignment by General Partner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
10.03 Partition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
10.04 Removal of the General Partner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C> <C>
ARTICLE XI
LIQUIDATION AND TERMINATION
SECTION 11.01 Dissolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
11.02 Covenant Not to Withdraw . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
11.03 Continuation and Reconstitution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
11.04 Liquidation and Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
11.05 Cancellation of Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE XII
GENERAL PROVISIONS
12.01 No Third-Party Beneficiaries; Assignability; Binding Nature . . . . . . . . . . . . . . . . . . . . . . 40
12.02 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
12.03 Partial Invalidity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
12.04 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
12.05 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
12.06 Rights Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
12.07 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
12.08 No Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
12.09 Internal References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
12.10 Counterpart Execution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
EXHIBIT A Form of Certificate of Limited Partnership Insurance
EXHIBIT B Insurance
</TABLE>
-iii-
<PAGE> 5
AGREEMENT
OF
LIMITED PARTNERSHIP
OF
AEJH 1989 LIMITED PARTNERSHIP
THIS AGREEMENT OF LIMITED PARTNERSHIP (the "Agreement") is entered
into as of ______________, 1989, by and between ALEXANDER ENERGY CORPORATION,
an Oklahoma corporation, as general partner (the "General Partner") and JOHN
HANCOCK MUTUAL LIFE INSURANCE COMPANY, a Massachusetts mutual life insurance
company, as limited partner (the "Limited Partner"). The General Partner and
the Limited Partner are each sometimes referred to herein individually as a
"Partner" and collectively as "Partners." This Agreement is entered into under
the following terms and conditions:
ARTICLE I.
ORGANIZATION
1.01 Formation. The parties hereto hereby form a limited
partnership (the "Partnership") for the purposes hereinafter set forth under
and pursuant to the Delaware Revised Uniform Limited Partnership Act, as
amended, 6 Del. C. Sections 17-101, et seq. (the "Act"). The Limited Partner
is hereby admitted as a limited partner of the Partnership.
1.02 Name. The name of the Partnership shall be "AEJH 1989 Limited
Partnership" and all Partnership business shall be conducted in such name,
unless the law of a state in which the Partnership does business requires that
the business be conducted in some other name. In such a case, the business may
be conducted under such other name or names as the General Partner shall
determine to be necessary that do not adversely affect the limited liability
of the Limited Partner hereunder. All property owned by the Partnership,
whether real or personal, tangible or intangible, shall be deemed to be owned
by the Partnership as an entity, and no Partner, individually, shall have any
ownership of such property. The Partnership shall hold all of its assets in the
name of the Partnership. Nothing in this Section 1.02 shall be deemed to limit
the ability of the General Partner, any Affiliate, or any other person to
operate Leasehold Interests in which the Partnership owns an interest pursuant
to an Operating Agreement as described in Section 4.03.
1.03 Principal Place of Business. (a) The address of the registered
office of the Partnership in the State of Delaware shall be:
<PAGE> 6
The Corporation Trust Company
1209 Orange Street
Corporation Trust Center
Wilmington, New Castle County, Delaware 19801
The name and address of the registered agent for service of process on the
Partnership in the State of Delaware shall be:
The Corporation Trust Company
1209 Orange Street
Corporation Trust Center
Wilmington, New Castle County, Delaware 19801
(b) The principal place of business of the Partnership shall be:
600 Triad Center
501 Northwest Expressway
Oklahoma City, Oklahoma 73118
or such other place as designated by the General Partner. The Partnership shall
have such other places of business as the General Partner deems necessary or
desirable. The General Partner shall notify the Limited Partner of any change
in the principal place of business of the Partnership.
(c) The General Partner's principal place of business is:
600 Triad Center
501 Northwest Expressway
Oklahoma City, Oklahoma 73118
The Limited Partner's principal place of business is:
P.O. BOX 111
Boston, Massachusetts 02117
Attention: Bond and Corporate Finance Department
1.04 Purposes. The purpose of the Partnership shall be to acquire,
own, and dispose of Leasehold Interests attributable to the Zilkha Properties
and otherwise, to explore for, produce, transport, sell, treat, and process
oil, gas, and other minerals produced therefrom. The Partnership may also
acquire, own and dispose of other Leasehold Interests and explore for, produce,
transport, sell, treat, and process oil, gas and other minerals therefrom, and
may engage in any other business that now or hereafter may be necessary,
proper, advisable, or convenient to accomplish the purposes set forth herein,
including entering into and performing its obligations under the Zilkha
-2-
<PAGE> 7
Agreement, the Note Agreement and the Escrow Agreement, and that are not
forbidden by the laws of any jurisdiction in which the Partnership does
business.
1.05 Organizational Certificates. Immediately following the
execution hereof, the General Partner shall cause the Partnership to execute
and file the Certificate with the Secretary of State of Delaware and shall
deliver a certified copy thereof as filed to the Limited Partner. The
Certificate shall be in the form of Exhibit A. The General Partner also shall
deliver to the Limited Partner a certified copy of each amendment to the
Certificate or any amended and restated Certificate (if any) as filed with the
Secretary of State of Delaware promptly after such filing. Upon the request of
the General Partner, the Limited Partner shall execute, acknowledge, and
deliver all other certificates and instruments conforming with this Agreement
that are necessary to enable the General Partner to organize, qualify,
continue, and terminate the Partnership as a limited partnership (or otherwise
as a partnership in which the Limited Partner has limited liability) under the
laws of the State of Delaware and to qualify, continue, and terminate the
Partnership as a limited partnership (or otherwise as a partnership in which
the Limited Partner has limited liability) in all other jurisdictions in which
the Partnership may conduct business. Prior to commencing business the General
Partner shall obtain an opinion of counsel satisfactory to the Limited Partner
as to the limited liability of the Limited Partner under the laws of the State
of Delaware. Prior to conducting business in any jurisdiction other than
Delaware, the General Partner shall comply with all requirements necessary to
qualify the Partnership as a foreign limited partnership (or otherwise as a
partnership in which the Limited Partner has limited liability) in such
jurisdiction and shall obtain an opinion of counsel in such jurisdiction
satisfactory to the Limited Partner as to the limited liability of the Limited
Partner in such jurisdiction. Throughout the term of the Partnership, the
General Partner shall cause the Partnership to comply with all requirements
necessary to maintain the limited liability of the Limited Partner under the
laws of the State of Delaware and of each other jurisdiction in which the
Partnership does business.
1.06 Term. The Partnership shall commence at the time the
Certificate is filed with the Secretary of State of Delaware and shall continue
in existence until the close of Partnership business on December 31, 2015 or
until the earlier termination of the Partnership in accordance with any
provision of this Agreement.
1.07 Definitions- As used in this Agreement, the terms "Agreement,"
"General Partner," "Limited Partner," "Partner," "partnership," and "Act" shall
have the meanings set forth
-3-
<PAGE> 8
hereinabove. In addition, the following terms shall have the following
respective meanings:
"Acquisition Amount" with respect to any property acquired by
the Partnership (or group of properties acquired in the same
transaction) including, without limitation, any Leasehold Interest or
interest therein, shall mean (a) if such property (or group of
properties) is contributed to the Partnership by a Partner, the fair
market value thereof as determined by the contributing Partner and the
Partnership, or (b) if such property (or group of properties) is
purchased by the Partnership or otherwise acquired except as described
in clause (a), the purchase price or other consideration paid by the
Partnership therefor.
"Affiliate" shall mean any person or entity controlling,
controlled by, or under common control with the General Partner.
"Control" as used in the immediately preceding sentence, means, with
respect to any person or entity, the possession, directly or
indirectly, of the power to direct or cause the direction of the
management or policies of the controlled person or entity.
"Business Day" shall mean any day other than a Saturday, a
Sunday, or a holiday for banks in the State of Oklahoma or the
Commonwealth of Massachusetts.
"Capital Contribution" shall mean any Initial Contribution
or Optional Contribution.
"Carrying Value" shall mean, with respect to any asset, the
asset's adjusted basis for federal income tax purposes, except as
follows:
(i) The Carrying Value of any asset contributed
by a Partner to the Partnership shall be the gross fair market value
of such asset, as determined by the contributing Partner and the
Partnership;
(ii) The Carrying Value of all Partnership assets
shall be adjusted to equal their respective gross fair market values,
as determined by the General Partner, as of the following times:
(a) The acquisition of an additional
interest in the Partnership by any new or existing Partner in exchange
for more than a minimal capital contribution;
-4-
<PAGE> 9
(b) The distribution by the Partnership
to a Partner of more than a minimal amount of Partnership property
other than money, unless all Partners receive simultaneous
distributions of undivided interests in the distributed property in
proportion to their interest in the Partnership; and
(c) Termination of the Partnership for
federal income tax purposes pursuant to Code Section 708(b)(1)(B); and
(iii) If the Carrying Value of an asset has been
determined or adjusted pursuant to (i) or (ii) above, such Carrying
Value shall hereafter be adjusted by the Depreciation (or Simulated
Depletion, as the case may be, as defined in Section 2.08(C)), taken
into account with respect to such asset.
"Certificate" shall mean the Certificate of Limited
Partnership of the Partnership, as it may be amended or restated from
time to time.
"Certified Public Accountants" shall mean Arthur
Young & Co. or such other certified public accounting firm of national
standing designated by the General Partner and approved by the Limited
Partner.
"Code" shall mean the Internal Revenue Code of 1986,
as amended.
"Cost Overruns" shall mean the excess of the costs
charged to the Partnership in connection with any Optional Operation
over the amount of Optional Contributions, if any, agreed to be made
to the Partnership by the Partners to fund such Optional Operation.
"Depreciation" shall mean, for each taxable year of
the Partnership, an amount equal to the depreciation, amortization or
other cost recovery deduction allowable for federal income tax
purposes with respect to an asset for such taxable year, except that
if the Carrying Value of an asset differs from its adjusted basis for
federal income tax purposes at the beginning of such taxable year,
then the depreciation, amortization or cost recovery deductions with
respect to such Partnership property shall be an amount which bears
the same ratio to such beginning Carrying Value as federal income tax
depreciation, amortization or other cost recovery deduction for such
taxable year bears to such beginning adjusted tax basis.
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"Distributable Net Revenues" shall mean Net Revenues
less all payments made by the Partnership pursuant to the Note.
"Election Period" shall have the meaning specified
in Section 9.01.
"Initial Contribution" shall mean any contribution to
the capital of the Partnership made pursuant to Section 2.01.
"Initial Costs" shall mean the Acquisition Amounts of
the Leasehold Interests that the Partnership shall acquire, and the
costs of drilling, testing, and completing or plugging and abandoning
Partnership Wells (other than plugging and abandoning after a period
of production), but shall exclude Lease Operating Costs.
"Interest Rate" shall mean the lower of (a) 2% over
the prime commercial lending rate from time to time announced by
Citibank, N.A. for new 90-day loans to substantial and responsible
borrowers or (b) the maximum lawful rate provided for by applicable
law.
"Lease Operating Costs" shall mean costs chargeable
to the Partnership under an Operating Agreement other than the costs
of (i) acquiring Leasehold Interests, (ii) drilling, testing, and
completing or plugging and abandoning a Partnership Well, or (iii)
Optional Operations; provided, however, such term shall include (x) the
costs of plugging and abandoning Partnership Wells after a period of
production and (y) the costs of reworking a Partnership Well.
"Leasehold Interest' shall mean any right, title, or
interest (or contractual right to acquire any right, title, or
interest) in and under any oil, gas or other mineral lease or any
other interest in oil and gas including, without limitation, mineral
rights, leases, royalties, overriding royalties, or farm-ins.
"Management Fee" shall mean the monthly fee to be
paid to the General Partner pursuant to Section 4.10.
"Net Operating Cash Flow" shall mean the excess, if
any, of Revenues generated by and identifiable with the Partnership's
Leasehold Interests, over the aggregate of all Lease Operating Costs.
"Net Revenues" shall mean the Revenues, less all
cash expenditures (including, without limitation, the
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Management Fee and Organizational Costs but excluding payments on the
Note) attributable to the Partnership's Leasehold Interests and
determined in the same manner as Net Proceeds are determined as
defined in the Note.
"Note" shall mean those certain promissory notes,
whether one or more, issued by the Partnership pursuant to the Note
Agreement (as defined below) and dated April 25, 1989 in the maximum
aggregate principal face amount of $2,185,276.30.
"Operating Agreement" shall mean any operating or
similar agreement to which the Leasehold Interests of the Partnership
are subject.
"Optional Contribution" shall mean any contribution
to the capital of the Partnership to fund an Optional Operation under
Section 9.01, or acquire additional Leasehold Interests under Section
9.02.
"Optional Operation" shall mean the drilling,
recompleting, deepening, or plugging back of a Partnership Well;
provided, however, that any matter that, under the applicable
Operating Agreement, the operator may undertake without the consent of
the co-owners shall not constitute an Optional Operation.
"Organizational Costs" shall mean all costs
associated with forming the Partnership and qualifying it as a foreign
limited partnership (or otherwise as a partnership in which the
Limited Partner has limited liability), including, without limitation,
all legal fees and expenses and all reasonable expenses incurred by
the General Partner or the Partnership in connection with the
acquisition of the Zilkha Properties and the negotiation, preparation,
printing, reproduction, execution, delivery, filing, recording or
registration and any refiling, re-recording, or re-registration, of
this Agreement and the Zilkha Agreement, the Note Agreement dated
April 25, 1989, by and among the Partnership, the General Partner and
John Hancock Mutual Life Insurance Company (the "Note Agreement"), the
Escrow Agreement (as defined in the Note Agreement), the Mortgages (as
defined in the Note Agreement), and all instruments and documents
executed and delivered pursuant hereto and thereto, including counsel
fees and expenses and all reasonable out-of-pocket expenses and fees,
including any post-closing expenses and fees related to any of the
foregoing instruments or agreements.
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"Partnership Account" shall mean the Partnership's
bank account described in Section 8.06.
"Partnership Well" shall mean any well in which the
Partnership has an interest.
"Payout" shall mean that point in time when the Note
shall have been paid in full and discharged.
"Revenues" for any period shall mean the gross
revenues to the Partnership during such period from whatever source
derived (including, without limitation, revenues from production of
Partnership Wells, sale of Leasehold Interests and other Partnership
assets, recoveries from third parties pursuant to contract rights and
interest income on Partnership funds).
"Sharing Ratio" shall have the meaning specified in
Section 3.01.
"Zilkha Agreement" shall mean that certain Purchase
Agreement between the Partnership and Zilkha Energy Company to be
dated as of April 25, 1989, which shall be in the form and substance
reviewed by and acceptable to the Limited Partner.
"Zilkha Properties" shall mean all Leasehold
Interests acquired by the Partnership from Zilka Energy Company under
or pursuant to the Zilkha Agreement.
ARTICLE II.
CAPITAL CONTRIBUTIONS
2.01 Initial Contributions. Following the formation of the
Partnership, the Partnership shall enter into the Zilkha Agreement. It is
contemplated that the Partnership will acquire the Zilkha Properties under the
Zilkha Agreement with money contributed to the Partnership by the Partners and
money loaned to the Partnership pursuant to the Note Agreement. The original
capital of the Partnership shall consist of a sum of $879,481.10, which shall
be contributed to the Partnership $439,740.55 by the General Partner and
$439,740.55 by the Limited Partner. No additional contributions may be made to
the capital of the Partnership except in money and except as set forth in this
Agreement; provided, however, that if the Partnership elects to accept
assignments out of escrow of any of the properties placed in escrow pursuant
to the Zilkha Agreement and the Partnership causes 70% of the purchase price
of such properties to be funded out of funds that had been contributed to
escrow by the Limited Partner in its capacity as lender with respect to the
properties being so acquired, then the Limited Partner and the General Partner
each shall be obligated to contribute to the capital of the Partnership 15% of
the purchase price of the properties being so acquired, up to a maximum of
$28,532.95 each with respect to all such escrowed properties in the aggregate.
Any acquisition or proposed acquisition by the Partnership of any such
escrowed properties without causing 70% of the purchase price therefor to be
funded out of funds that had been contributed to the escrow by the Limited
Partner in the capacity as lender with respect to the specific properties
being acquired shall be treated as and deemed to constitute an Optional
Operation under Section 9.02 hereof. The General Partner may elect to acquire
for its own account any such escrow properties described in the immediately
foregoing sentence, but only after proposing acquisition by the Partnership of
such properties pursuant to the procedures of Section 9.02, and only if the
Limited Partner elects not to contribute with respect to acquisition by the
Partnership of such properties.
2.02 Optional Contributions. If, pursuant to Article IX, the
Limited Partner shall elect to make Optional Contributions, each Partner shall
be liable to contribute to the capital of the Partnership an amount equal to
its Sharing Ratio of the Partnership's share of the costs of the Optional
Operations or acquisitions in question, as the case may be. Within a reasonable
time after any such election shall be made, the General
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Partner shall prepare any appropriate amendments to this Agreement and any
other certificates or documents that have been filed that may be required by
law, in form and substance satisfactory to the Limited Partner and its counsel,
setting forth the Limited Partner's agreement to make such Optional
Contributions. To the extent required by applicable law, such amendments shall
be executed, acknowledged and delivered by the Partners and filed by the
General partner as required by the laws of the State of Delaware and any other
state in which the Partnership then shall be doing business.
2.03 payment of Optional Contributions. On or before the 15th day
of each calendar month (but if such day shall not be a Business Day, on the
first Business Day thereafter), the General Partner shall present the Limited
Partner with a certificate stating that the General Partner is in compliance
with the provisions of this Agreement and that no event described in Section
11.01(g) or 11.02 has occurred with respect to the General Partner and a
statement, in reasonable detail, of the following items to the extent that same
constitute costs incurred by the Partnership in accordance with this Agreement:
(a) estimated dry-hole costs or completion costs of any
Partnership Well as set forth in Authority for Expenditure statements received
prior to the date of the statement from the General Partner and since the
latest such statement that the Limited Partner shall have received from the
operator of such Partnership Well (which Authorities for Expenditure, if the
General Partner shall be the operator, shall be for amounts proportional to
those of other owners of working or operating interests in such Partnership
Well taking into account the percentage of such interests);
(b) amounts by which actual dry-hole costs or completion
costs of any Partnership Well during the preceding month shall have exceeded
previously estimated costs, reduced by amounts by which actual dry-hole costs
or completion costs of any Partnership Well shall have fallen short of
previously estimated costs as per a final accounting thereof prepared by the
operator of such Partnership Well and received prior to the date of the
statement from the General Partner and since the latest such statement (and, if
the General Partner shall be the operator, such accounting shall be prepared as
soon as reasonably practicable after completion of all operations with respect
to such Partnership Well); and
(c) costs of acquiring Leasehold Interests as provided in
Section 9.02, unless previously funded; provided, however, that no such cost or
expense shall be included in such a statement more than once.
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To the extent that funds are at that time required to pay that portion
of the costs so itemized as to which the Limited Partner has elected to make
Optional Contributions, the itemized statement shall include a request by the
General Partner for contributions to the Capital of the Partnership, stating
specifically the amounts of Optional Contributions required at that time. To
the extent the Limited Partner has elected to make Optional Contributions in
accordance with the provisions of Article IX, then not later than the 25th day
after the Limited Partner's receipt of such statement, each Partner shall pay
into the Partnership Account by wire transfer of immediately available funds an
amount equal to its Sharing Ratio of the total Optional Contributions so called
for by the General Partner with respect to the Optional Operations or
acquisitions in question, as the case may be.
2.04 Default in Payment of Capital Contributions. In the event any
Partner shall default in the payment of any Capital Contribution such Partner
shall be obligated to make, the Partnership shall have all rights and remedies
available at law, in equity, or under this Agreement to collect the unpaid
amount of such Capital Contribution, and if such amount or any portion thereof
shall remain unpaid for ten days after the date due, such unpaid amount shall
bear interest at a rate equal to the Interest Rate from the date due until
paid.
2.05 Return of Capital Contribution. No Partner shall be entitled
to a return of any cash or property contributed to the capital of the
Partnership except as provided in Section 4.09 or Articles VII and XI;
provided, however, that if the Limited Partner shall have agreed to make
Optional Contributions but shall not have received statements pursuant to
Section 2.03 calling for the actual contribution of such amounts within six
months following the date of such agreement (or such other time as the General
Partner and the Limited Partner may agree at the time of the Limited Partner's
agreement to make such Optional Contributions), or if any amount so contributed
shall not have been spent within such six-month (or other) period, the Limited
Partner shall not be required to contribute any amount not already contributed
and the amounts already contributed but not so spent shall be returned to the
Limited Partner, and any such reduction or return shall constitute a compromise
under Section section 17-502(b) of the Act.
2.06 Interest. No Partner shall be entitled to be paid interest on
its capital account or on Capital Contributions.
2.07 Certain Borrowing. Lease Operating Costs and Cost Overruns
shall be funded out of Revenues generated by the Partnership's Leasehold
Interests, to the extent that such Revenues are available therefor; provided,
however, at any time the Partnership shall not have sufficient cash available
to fund
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Lease Operating Costs and Cost Overruns, the General Partner shall notify the
Limited Partner of the need for funds and the time by which they shall be
needed. Before the time such funds are so needed, the Limited Partner, at its
sole option, may lend funds to the Partnership, or propose to the General
Partner that it propose to third parties that they make loans to the
Partnership, to cover such needs, but in any such case, the interest rate shall
be lower than the General Partner's average short-term borrowing rate. If the
Limited Partner shall not make or arrange for such loans by the time the funds
shall be needed to pay Lease Operating Costs or Cost Overruns, the General
Partner may (a) advance such funds for or on behalf of the Partnership, and
each such advance shall constitute a loan from the General Partner to the
Partnership and shall bear interest (on the basis of a 365-day year) from the
date of the advance until the date of repayment at the average short-term
borrowing rate then being paid by the General Partner, or (b) cause the
Partnership to borrow such funds from one or more third parties that are not
Affiliates but only if such loan is (i) unsecured or (ii) nonrecourse except as
to Leasehold Interests on which such funds shall be spent; provided, however,
that the aggregate of any and all of such funds borrowed by the Partnership as
described in clauses (a) or (b) of this sentence, shall not exceed $200,000 and
that the rate of interest on such loans shall be the lesser of the applicable
rate as determined above and the maximum rate permitted by law. Such advances
shall not be considered as Capital Contributions. All advances shall be repaid
out of the next available funds of the Partnership, including Capital
Contributions received; provided, however, that if such advance is from a
Partner, any amounts so payable shall be applied to amounts then due to the
Partnership from such Partner.
2.08 Capital Accounts. A capital account shall be established and
maintained for each Partner. Except as specified in clauses (A) through (G)
below, each Partner's capital account shall be (a) increased by (i) the amount
of cash and the fair market value of all property contributed by such Partner
to the Partnership (net of any liabilities securing such contributed property
that the Partnership is considered to assume or take subject to under Section
752 of the Code), (ii) that Partner's allocable share of income and gain (or
items thereof) for federal income tax purposes, including income and gain
(other than Simulated Gain) described in Treasury Regulation
section 1.704-1(b)(2)(iv)(g), but excluding income and gain described in
Treasury Regulation section 1.704-1(b)(4)(i), (iii) that Partner's
allocable share of Simulated Gain, and (iv) that Partner's allocable share
(determined by reference to its share of the related proceeds of such items
under the terms of this Agreement) of income exempt from tax described in
Section 705 (a)(1)(B) of the Code, and (b) decreased by (i) the amount of cash
and the fair market value of property distributed to such Partner (net of
liabilities securing such distributed property that such partner
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is considered to assume or take subject to under Section 752 of the Code), (ii)
that Partner's allocable share of losses and other items of deduction for
federal income tax purposes, including loss and deduction (other than Simulated
Loss) described in Treasury Regulation section 1.704-1(b)(2)(iv)(g), but
excluding loss and deduction described in Treasury Regulation section
1.704-1(b)(4)(i) or section 1.704-1(b)(4)(iii), (iii) that Partner's allocable
share of Simulated Loss and Simulated Depletion, and (iv) that
Partner's allocable share of expenditures described in Section 705(a)(2)(B) of
the Code (determined by reference to such Partner's share of the cost of such
related items). The definitions and rules governing the maintenance and
operation of the capital accounts and the computation of the amounts to be
charged and credited thereto are as follows:
(A) If the Carrying Value of any property contributed to the
Partnership is different from its adjusted basis, upon a sale or other taxable
disposition of such property the gain or loss resulting from such sale or
disposition with respect to which gain or loss is recognized for federal income
tax purposes shall be computed by reference to the Carrying Value of such
property, notwithstanding that the adjusted tax basis of such property differs
from its Carrying Value. If the Carrying Value of any distributed property is
different from its then adjusted basis on the books and records of the
Partnership, the gain or loss (including Simulated Gain or Simulated Loss) that
would have been realized if such properties had been sold and the cash proceeds
distributed to such Partner or Partners shall be charged or credited to the
capital accounts of the Partners in accordance with the preceding sentence. In
lieu of the depreciation, amortization and other cost recovery deduction taken
into account for federal income tax purposes there shall be taken into account
Depreciation as defined in Section 1.07.
(B) The allocation of basis pursuant to Section 3.02(f) and
amounts realized pursuant to clause (D) below to a Partner shall have no effect
on that Partner's capital account except as specified in clause (C) below.
Further, neither the deduction for depletion nor the taxable gain or loss
resulting upon the sale, abandonment, or other taxable disposition of an oil or
gas property (all as computed pursuant to Section 3.02 (f)), shall be charged
or credited to any Partner's capital account, except to the extent and in the
manner provided in clause (C) below.
(C) For the purposes of maintaining the Partners' capital
accounts, the following rules shall apply:
(x) The Partnership shall establish and maintain books
and records containing asset accounts representing the aggregate
adjusted depletable basis credited to the capital accounts of all
Partners in
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each oil or gas property (as defined in Section 614 of the Code) at
the time the property first becomes a property of the Partnership (the
"Simulated Basis"). The Simulated Basis for each property shall be
adjusted from time to time in the same manner as if the Simulated
Basis were the Partnership's adjusted basis in such property to
reflect (1) additions to basis and (2) Simulated Depletion, as
provided in clause (y) below; and the Simulated Basis, as adjusted,
shall be utilized to determine Simulated Gain or Simulated Loss, as
provided in clause (z) below.
(y) The Partnership shall compute a depletion allowance
("Simulated Depletion") on each oil or gas property for each taxable
year based on the Simulated Basis, as theretofore adjusted, in
accordance with the provisions of Treasury Regulation 1.704-1(b)(2)
(iv)(k)(2) or (k)(3). Such Simulated Depletion allowance with
respect to each oil or gas property shall be allocated to the
Partners, and shall reduce each Partner's capital account, in the same
proportion that the Partners were allocated the adjusted basis of such
property as provided in Section 3.02(f). However, in no event shall
the Partnership's aggregate Simulated Depletion allowance with respect
to an oil or gas property exceed the Partnership's Simulated Basis of
such property.
(z) The Partnership shall compute simulated gain or loss
attributable to the sale, abandonment, or other taxable disposition of
an oil or gas property based on the difference between the amount
realized from the disposition and the Simulated Basis of such
property, as theretofore adjusted. Any resulting gain ("Simulated
Gain") shall be allocated to the Partners and shall increase their
respective capital accounts in the same manner as the amount realized
from such disposition in excess of Simulated Basis is allocated to the
Partners under Section 2.08(D). Any resulting loss ("Simulated Loss")
shall be allocated to the Partners and shall reduce their capital
accounts in the same proportion that such Partners (or their
predecessors in interest) shall have been allocated the adjusted basis
of such property as provided in Section 3.02(f).
(D) Subject to the provisions of Section 2.08 (A), for
purposes of determining each Partner's allocable share of the amount realized
from the sale or other taxable disposition of oil or gas properties (other than
oil, gas, or other hydrocarbon substances), the following steps shall be taken:
First, the portion of the amount realized that represents a recovery of
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the Partnership's Simulated Basis, as theretofore adjusted to date, in each
property sold or disposed of shall be allocated to the Partners in the same
proportion as the Partners (or their predecessors in interest) shall have been
allocated adjusted basis with respect to that property under Section 3.02(f).
Second, any remaining portion of the amount realized shall then be allocated to
the Partners in such a way as to cause, to the maximum extent possible, the
total amount realized allocated to that Partner under this clause (D) to equal
that Partner's Sharing Ratio of the proceeds derived from such sale or other
disposition (including such Partner's Sharing Ratio of any proceeds from the
sale or disposition of tangible property associated with such oil or gas
property).
(E) In the event the Carrying Value of the Partnership
assets is adjusted in accordance with the provisions of Subparagraph (ii) under
the definition of "Carrying Value" contained in Section 1.07 hereof, the
capital accounts of all Partners shall be adjusted simultaneously to reflect
the aggregate net adjustment as if the Partnership recognized gain or loss
equal to the amount of such aggregate net adjustment.
(F) In all events, and notwithstanding anything contained
in this Agreement which might otherwise produce a conflicting result, capital
accounts shall be maintained in accordance with the provisions of Treasury
Regulation Section 1.704-1(b)(2)(iv) and Section 1.704-1(b)(4)(iv).
(G) In the event any interest in the Partnership is
transferred in accordance with the terms of this Agreement, the transferee
shall succeed to the capital account of the transferor to the extent it relates
to the transferred interest, and to the extent such succession is necessary to
maintain the capital accounts in compliance with applicable Treasury
Regulations.
ARTICLE III.
COSTS, REVENUES AND ALLOCATIONS
3.01 Sharing of Costs and Revenues. All costs and revenues of the
Partnership shall be shared between the Partners in proportion to their
respective sharing ratios ("Sharing Ratios"). The Partners' Sharing Ratios
shall be as follows:
(a) All costs (other than interest payable pursuant to
Section 7.02, costs of Optional Operations, cost of acquiring properties
and interest payable on the Note) and revenues shall be shared:
General Partner 47.5%
Limited Partner 52.5%
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(b) Costs of interest payable pursuant to Section 7.02:
General Partner 100%
Limited Partner 0%
(c) Costs of Optional Operations, costs of acquiring
properties and interest payable on the Note shall be shared:
General Partner 50%
Limited Partner 50%
3.02 Allocations. Except as provided in Section 11.04, for
accounting and income tax purposes all items of Partnership income, gain,
loss, deduction, and credit shall be allocated to the Partners as follows:
(a) All items of income arising from the sale of oil,
gas, or other hydrocarbon substances and all other items of income or gain
other than those items described in Section 3.02(b), (c), (h), (k), (1) and (m)
shall be allocated to the Partners in accordance with the allocation of the
revenues giving rise to such income or gain.
(b) Gain or loss realized upon the sale, abandonment, or
other taxable disposition of all or part of any oil or gas property shall be
computed separately by the Partners in the same manner as depletion pursuant to
Section 3.02 (f) and shall not be charged or credited to any Partner's
capital account, except to the extent and in the manner provided in Section
2.08(C)(z).
(c) Gain or loss realized upon the sale, abandonment, or
other taxable disposition of tangible property shall be allocated to the
Partners in accordance with the manner in which the Partners shared the cost of
such tangible property.
(d) Cost recovery deductions with respect to tangible
property shall be allocated to the Partners in accordance with the manner in
which the Partners shared the cost of such tangible property.
(e) If any depreciation, cost recovery, or intangible
drilling and development costs shall be recaptured as a result of the
disposition of any Partnership property, the character of the gain allocated
under other provisions of this Agreement shall be determined and allocated to
the Partners in such manner and in the proportion (to the maximum extent
possible) that the Partners that originally received allocations of cost
recovery and intangible drilling and development cost
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deductions attributable to the assets disposed of shall recognize the ordinary
income element of any such gain so recognized.
(f) The deduction for depletion with respect to each
separate Partnership property (as defined in Section 614 of the Code) shall be
computed separately for each Partner rather than by the Partnership and shall
not be charged to any Partner's capital account; and for purposes of such
computation, each Partner shall be considered to own, and shall be allocated,
its proportionate share of the adjusted basis in each Partnership oil and gas
property as follows: the proportionate share of each Partner in the adjusted
basis of each Partnership property shall be such Partner's interest in the
Partnership capital with respect to that property, which shall be determined in
accordance with its Sharing Ratio (i) in the Partnership capital used to
acquire or provide capitalized improvements to such property if the property
shall be acquired or improved by the Partnership, or (ii) in the adjusted basis
of property if such property shall be contributed to the Partnership; provided,
however, that if the fair market value of such property differs from its
adjusted basis to the contributor immediately preceding such contribution, the
basis of such property shall be shared between the Partners to take account of
such variance in accordance with the principles of Section 704(c) of the Code;
and the General Partner shall maintain separate records for each Partner's
share of the adjusted basis in each Partnership oil and gas property and adjust
each Partner's share of the adjusted basis in each such property for any cost
or percentage depletion allowable on such property and use such adjusted basis
in the computation of gain or loss on the disposition of such property;
provided, however, that the Limited Partner shall advise the General Partner
upon request by the General Partner of the Limited Partner's adjusted basis on
each oil and gas property of the Partnership as computed in this Section
3.02(f); and the amount of gain or loss to be recognized by a Partner for
income tax purposes as a result of the sale or other taxable disposition of an
oil or gas property shall be equal to the difference between the amount
realized from such sale or disposition allocated to such Partner, pursuant to
Section 2.08(D) and such Partner's adjusted basis in such property, computed in
the manner described above.
(g) Deductions with respect to Lease Operating Costs and
intangible drilling and development costs shall be allocated to the Partners in
accordance with their respective share of such costs.
(h) The consequent decrease in deduction or increase in income
resulting from any dry-hole or bottom-hole contribution obtained from a third
person in connection with the drilling of a Partnership Well shall be allocated
in the same manner as the costs of drilling such Partnership Well are charged
to the parties under this Agreement.
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(i) All other losses, deductions, and credits not falling
within the foregoing provisions of this Section 3.02 shall be allocated to and
accounted for by each Partner in accordance with its respective share of the
costs that gave rise to the loss, deduction, or credit.
(j) If not otherwise provided for herein, income arising
from the receipt of property other than money shall be allocated to the
Partners in the same proportions as the proceeds of sale would be shared if the
property were sold immediately after receipt thereof by the Partnership.
(k) Notwithstanding the foregoing provisions of this
Section 3.02, no allocation of loss or deduction (other than an allocation of
nonrecourse deductions described in paragraph 3.02(1) or 3.02(0) below) shall
be made to a Limited Partner to the extent such allocation would cause or
increase a deficit balance in such Limited Partner's capital account. Such loss
or deduction shall be allocated to the General Partner.
(l) Notwithstanding the foregoing provisions of this
Section 3.02, in the event there is a net decrease in Partnership minimum gain
for the Partnership's taxable year, each partner will be allocated items of
income and gain for such year (and, if necessary, for subsequent years), in
proportion to, and to the extent of, an amount equal to the greater of (i) the
portion of such Partner's share of the net decrease in Partnership minimum gain
during such year that is allocable to the disposition of Partnership properties
subject to one or more nonrecourse liabilities of the Partnership; or (ii) the
deficit balance in such Partner's Capital Account at the end of such year
(determined before any allocation of Partnership income, gain, loss, deduction,
or Section 705(a)(2)(B) expenditure for such year and excluding from such
deficit Capital Account balance any amount that such Partner is obligated to
restore under Treasury Regulation Section 1.704-1(b)(2)(ii)(c), as well as any
addition thereto pursuant to the next to last sentences of paragraphs,
(b)(4)(iv)(f) and (h)(5) of Treasury Regulation Section 1.704-1 after taking
into account thereunder any changes during such year in Partnership minimum
gain and in the minimum gain attributable to any Partner's nonrecourse debt).
For purposes of this Section 3.02(1) the Partner's Capital Account shall be
reduced by the items described in Treasury Regulation Section
1.704-1(b)(2)(ii)(d)(4), (5) and (6). Also, the amount of the Partnership's
"minimum gain" shall be as determined under Treasury Regulation Section
1.704-1(b)(4)(iv)(c) and a Partner's share of Partnership minimum gain shall be
as determined under Treasury Regulation Section 1.704-1(b)(4)(iv)(f). This
Section 3.02(1) is intended to comply with the minimum gain chargeback
provisions of Treasury Regulation Section 1.704-1(b)(4)(iv)(e) and shall be
interpreted consistently therewith.
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(m) In the event any limited partner unexpectedly
receives any adjustment, allocation or distribution described in Treasury
Regulation 1.704-1(b)(2)(ii)(d)(4), (5) or (6), items of Partnership income and
gain shall be specially allocated to such Partner in an amount and manner
sufficient to eliminate the deficit balance in such Partner's capital account
created by such adjustments, allocations, or distributions as quickly as
possible. This Section 3.02(m) is intended to constitute a "qualified income
offset" under Treasury Regulation Section 1.704-1(b)(2)(ii)(d) and shall be
interpreted consistently therewith.
(n) Notwithstanding anything else herein provided to the
contrary, all items of income, gain, loss and deduction with respect to
property contributed to the Partnership shall, solely for tax purposes, be
allocated among the Partners so as to take account of the variation between the
basis of the property to the Partnership and its fair market value at the time
of contribution, in such manner as the General Partner determines comports with
the requirements of Section 704(c) of the Code and the Treasury Regulations
issued thereunder.
(o) Notwithstanding the foregoing provisions in this
Section 3.02, any item of Partnership loss, deduction or Section 705(a)(2)(B)
expenditure that is attributable to a partner nonrecourse debt (as defined in
Treasury Regulation Section 1.704-1T(b)(4)(iv)(k)(4)) will be allocated to the
Partner that bears the economic risk of loss for such debt to the extent
required by Treasury Regulation Section 1.704-1T(b)(4)(iv)(h). Also, in the
event there is a net decrease during a Partnership taxable year in the minimum
gain attributable to a partner nonrecourse debt, then any Partner with a share
of the minimum gain attributable to such debt at the beginning of such year
will be allocated items of Partnership income and gain for such year (and, if
necessary, for subsequent years) in proportion to, and to the extent of, an
amount equal to the greater of (i) the portion of such Partner's share of the
net decrease in the minimum gain attributable to such partner nonrecourse debt
that is allocable to the disposition of Partnership property subject to such
debt; or (ii) the deficit balance in such partner's capital account at the end
of such year (determined before any allocation of Partnership income, gain,
loss, deduction, or Section 705(a)(2)(B) expenditure for such year and
excluding from such deficit capital account balance any amount that such
Partner is obligated to restore under Treasury Regulation Section
1.704-1(b)(2)(ii)(c), as well as any addition thereto pursuant to the next to
last sentences of paragraphs (b)(4)(iv)(f) and (h)(5) of Treasury Regulation
Section 1.704-1T after taking into account thereunder any changes during such
year in Partnership minimum gain and in the minimum gain attributable to any
partner nonrecourse debt). For purposes of this Section 3.02(o), the Partner's
capital account shall be reduced by the items described in Treasury Regulations
Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6). Also, the amount of the
Partnership's "minimum gain
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attributable to a partner nonrecourse debt" shall be as determined under
Treasury Regulation Section 1.704-1T(b)(4)(iv)(h). This Section 3.02(o) is
intended to comply with the provisions of Treasury Regulation Section
1.704-1T(b)(4)(iv)(h) and shall be interpreted consistently therewith.
3.03 Limitation on Deductions. Notwithstanding any provision of
this Agreement to the contrary, in no event shall (a) the aggregate deductions
that may be claimed by the Partners as their distributive shares of Partnership
losses during the first two years of operation of the Partnership exceed the
sum of the Capital Contributions of the Partners to the Partnership, or (b) the
interest of the General Partner in any item of Partnership income, gain, loss,
deduction, expense, or credit ever be less than 1% thereof.
3.04 Lender as Partner. Without limiting the provisions of Section
4.04(a),except as provided in the Note Agreement and Mortgages no creditor that
makes a nonrecourse loan to the Partnership may have or acquire at any time as
a result of making the loan any direct or indirect interest in the profits,
capital, or property of the Partnership unless and to the extent it is as a
secured creditor.
ARTICLE IV.
MANAGEMENT AND OPERATION
4.01 Management of Partnership Affairs. Except where the consent of
the Limited Partner is expressly required by this Agreement or by law, the
General Partner shall have full, complete, and exclusive authority to manage
the affairs of the Partnership, to make all decisions regarding the business of
the Partnership, and to perform any and all other acts or activities customary
or incidental to the management of the Partnership's business.
4.02 Powers of General Partner. Except as otherwise provided in
this Agreement or applicable law and subject in all respects to the terms,
conditions, and limitations contained in this Agreement and any applicable
Operating Agreement, the General Partner shall have the rights, powers, and
authority to do on behalf of the Partnership all things that, in the General
Partner's judgment, are necessary, proper, or desirable to carry out its duties
and responsibilities pursuant to this Agreement, including, without limitation,
the power:
(a) To acquire interests in Leasehold Interests to the
extent permitted by Article IX and other real or personal property necessary or
appropriate to the conduct of the Partnership business;
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(b) To maintain, explore, develop, operate, manage, and
defend the Partnership's property, to drill, test, plug and abandon, complete,
equip, rework, deepen, and recomplete Partnership Wells for the production of
oil and gas therefrom, and to do any and all other things necessary or
appropriate to carry out the terms and provisions of this Agreement that would
or might be done by a normal and prudent operator in the exploration,
development, operation, and management of its own property;
(c) To sell the production accruing to the Leasehold
Interests in which the Partnership owns an interest, and to execute gas sales
contracts, casinghead gas contracts, transfer orders, division orders, or any
other instruments in connection with the sale of production from the Leasehold
Interests in which the Partnership owns an interest;
(d) To purchase, lease, rent, or otherwise acquire or
obtain the use of facilities, machinery, equipment, tools, materials, and all
other kinds and types of real or personal property that may in any way be
deemed necessary, convenient, or advisable in connection with carrying on the
business of the Partnership;
(e) To pay all taxes, charges, against the Partnership
and its property;
(f) To sue and be sued, complain, and defend in the name
of and on behalf of the Partnership;
(g) To quitclaim, surrender, release, or abandon the
Partnership's interest in any Leasehold Interest not productive of oil or gas
or to transfer same pursuant to forced pooling, unitization, and
communitization orders of a governmental agency having jurisdiction over such
Leasehold Interest; provided, however, that the General Partner shall notify
the Limited Partner of any such action it proposes to take prior to taking such
action and provided further that the General Partner shall not, and shall not
permit any Affiliate to, file or otherwise instigate, directly or indirectly,
proceedings leading to any such order;
(h) To execute and deliver all checks, drafts,
endorsements, and other orders for the payment of Partnership obligations;
(i) To appear and to represent the Partnership before any
regulatory agency, and to make all necessary or appropriate filings and
elections before such agency;
(j) To take any other action, execute, and deliver any
other documents, including the Zilkha Agreement, the Note Agreement and the
Escrow Agreement, and perform any other
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acts that the General Partner deems appropriate to carry out the business and
affairs of the Partnership in accordance with this Agreement; and
(k) To approve the merger or consolidation of the Partnership.
Persons dealing with the Partnership shall be entitled to rely conclusively on
the specific authority and express power of the General Partner as set forth in
this Agreement.
4.03 Operating Agreements. The General Partner may cause the
Partnership to enter into one or more Operating Agreements, which Operating
Agreements shall govern the exploration, development, and operation of the
Leasehold Interests in which the Partnership owns an interest. Except for
Operating Agreements applicable to Leasehold Interests at the time the General
Partner, an Affiliate, or the Partnership first shall acquire an interest
therein, each such Operating Agreement (a) shall be on terms usual and
customary in the oil and gas industry, (b) to the extent reasonably practicable
shall be on the A.A.P.L. Form 610 , (1977 or 1982 version) Model Form Operating
Agreement, and (c) shall not include "non-consent penalties" exceeding 400% or
permission for the operator to make expenditures in excess of $25,000 without
the consent of the co-owners. The General Partner or an Affiliate may be the
operator under any Operating Agreement even though it owns no interest in the
Leasehold Interests governed thereby.
4.04 Limitations on General Partner's Powers. Notwithstanding
any other provisions of this Agreement to the contrary, the General Partner
shall not have the power or authority to, and shall not, do, perform, or
authorize any of the following for the Partnership without having first
obtained the consent in writing of all of the Partners:
(a) Borrow any money in the name or on behalf of the
Partnership except as provided in Section 2.07;
(b) Mortgage, pledge, assign in trust, or otherwise
encumber any Partnership property, or to assign any monies owing or to be owing
to the Partnership, except for the operator's lien provided for in any
Operating Agreement to which the Partnership's Leasehold Interests are
subject;
(c) Guarantee in the name or on behalf of the Partnership
the payment of money or the performance of any contract or other obligation of
any person, firm, or corporation, other than of the Partnership;
(d) Sell, assign, farm out, abandon, or otherwise
dispose of, or take any action that will lead to (or fail to
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take action that will prevent) the release or disposition of, the Partnership's
interest in any Leasehold Interest on which a Partnership Well that is
producing or capable of producing oil or gas in paying quantities shall be
located; provided, however, that after a Partnership Well that previously shall
have been producing shall have ceased production, or shall have been plugged,
the General Partner may sell, assign, farm out, abandon, or otherwise dispose
of, or take an action that will lead to (or fail to take action that will
prevent) the disposition of, the Leasehold Interests in which the Partnership
owns an interest with respect to such well, but if the General Partner or an
Affiliate owns an interest for its own account in the same Leasehold Interests,
the General Partner shall have the right to make such disposition or to take
(or fail to take) such action for the Partnership if and only if it does so on
the same terms and conditions as the General Partner or such Affiliate shall
dispose of, or take action that will lead to (or fail to take action that will
prevent) the release or disposition of, such interest it owns for its own
account; and provided further that, if the same constitutes a permitted
election under a forced pooling, unitization, or communitization order of a
governmental agency having jurisdiction over such Leasehold Interest, the
General Partner may cause the Partnership to farm out such Leasehold Interest
to a person other than the General Partner or an Affiliate on terms usual and
customary in the oil and gas industry, following five Business Days, notice to
the Limited Partner;
(e) Cause the Partnership to purchase any Leasehold
Interest unless the Limited Partner shall have agreed to contribute its Sharing
Ratio of the costs of such purchase pursuant to Sections 2.02 and 9.02;
(f) Cause the Partnership to participate in any Optional
Operation unless the Limited Partner shall have agreed to contribute its
Sharing Ratio of the costs thereof pursuant to Sections 2.02 and 9.01;
(g) Take any action that would lead any third party
reasonably to believe that the Limited Partner is a general partner of the
Partnership;
(h) Amend or in any way modify or change this except as
provided in Section 2.02 or 12.07; or
(i) Cause the Partnership to change the nature of its
business.
4.05 Performance of Obligations as operator. The General Partner
as operator under any Operating Agreement pursuant to which it is operator
shall perform all of its obliga-
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tions and duties thereunder in accordance with all of the terms and provisions
thereof.
4.06 Insurance. The General Partner shall carry and maintain in
force and effect on behalf of the Partnership (either directly or through
Operating Agreements) the insurance coverages shown on Exhibit B from the date
hereof and as long hereafter as the Partnership remains in existence, or until
the Limited Partner shall advise the General Partner that it no longer desires
for the Partnership to be covered by such insurance. The General Partner shall
be free to change insurance carriers from time to time; provided, however, that
the coverages of the policies, their limits, and the financial standing of the
insurance carriers at all times shall not be diminished from the coverages and
limits of the policies and the financial standing of the insurance carriers
shown on Exhibit B. The Partnership and the Limited Partner shall be named as
additional insureds or loss payees on such policies, as the case may be. Each
such insurance policy shall include a provision requiring the issuer of such
insurance policy to give the Limited Partner 30 days, prior written notice of
any change, alteration, cancellation, or termination of any such policy. Upon
request by the Limited Partner, the General Partner shall cause the carrier of
any such insurance to provide the Limited Partner a certificate of insurance or
other evidence of such coverage satisfactory to the Limited Partner.
4.07 Fiduciary Relationship. The General Partner shall have a
fiduciary duty and obligation to the Limited Partner to conduct the affairs of
the Partnership in the best interests of the Partnership and the mutual best
interests of its Partners, including, without limitation, the safekeeping and
use of all Partnership funds and assets and the use thereof for the benefit of
the Partnership. The General Partner at all times shall act with integrity and
in good faith and utilize its best efforts in all activities relating to the
conduct of the business of the Partnership and in resolving conflicts of
interest. During the existence of the Partnership, the General Partner shall
devote such time and effort to the Partnership business and operations as shall
be necessary to promote fully the interests of the Partnership and the mutual
best interests of the Partners; however, it is specifically understood and
agreed that the General Partner shall not be required to devote full time to
Partnership business, and (subject to the other express provisions hereof) the
General Partner and Affiliates at any time and from time to time may engage in
and possess an interest in other business ventures of any and every type and
description, independently or with others, including, without limitation, the
ownership, acquisition, exploration, development, operation, and management of
oil and gas properties, oil and gas drilling programs, and partnerships similar
to this Partnership (but the General Partner promptly shall notify the Limited
Partner of any
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such action involving Leasehold Interests in which the Partnership also owns an
interest unless otherwise expressly provided herein); and
(subject to the other express provisions hereof) neither the Partnership nor
the Limited Partner by virtue of this Agreement shall have any right, title, or
interest in or to such independent ventures. In addition to the Management
Fee, the General Partner shall be entitled to reimbursement from the
partnership for the reasonable out-of-pocket expenses (other than (i) general
and administrative costs included in the determination of the Management Fee
and (ii) pension or other benefits or any other form of overhead) incurred by
it on account of the duties and services provided, furnished, or performed by
it as General Partner; provided, however, that with respect to Organizational
Costs, the provisions of Section 4.09 shall apply,
4.08 Compliance. The General Partner shall:
(a) Comply in all respects with the terms of this Agreement;
(b) Cause all Affiliates to comply with the terms of this
Agreement; and
(c) Cause the Partnership:
(i) To comply with the terms and provisions of all
agreements to which the Partnership is a party or to which its
properties are subject;
(ii) To comply with all applicable laws, ordinances,
or governmental rules and regulations to which the Partnership is
subject;
(iii) To obtain and maintain in good standing all
licenses, permits, franchises, and other governmental authorizations
necessary with respect to the ownership of Partnership properties and
the conduct of Partnership business and operations; and
(iv) To expend Partnership funds in accordance with
this Agreement and, in particular, to expend Capital Contributions for
the purposes for which they are advanced hereunder.
4.09 Organizational Costs. The Partnership shall be responsible for
and pay all Organizational Costs. To this end, the Partnership shall reimburse
the General Partner for all Organizational Costs it shall incur on behalf of
the Partnership.
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4.10 Management Fee. The Partnership shall pay the General Partner,
monthly within 5 days after billing, the direct internal general and
administrative costs incurred by the General Partner in managing the
Partnership's Leasehold Interests. Bills shall be submitted to the Partnership
by the General Partner by the 10th of each month, itemizing the direct general
and administrative costs incurred by the General Partner during the previous
month to manage the Partnership's Leasehold Interests; provided, however, in no
event shall a monthly bill from the General Partner exceed $10,000.
ARTICLE V.
TAXES
5.01 Tax Returns. The General Partner shall prepare and timely file
the necessary federal (and any state) income tax returns for the Partnership
and shall use its best efforts to prepare and file properly such income tax
returns, including making the elections described below. In addition, the
General Partner each year shall submit a copy of the final Partnership return
figures to the Limited Partner not later than 15 days before such Partnership
return must be filed. The General Partner will consider in good faith any
reasonable changes in such return recommended by the Limited Partner. The
Limited Partner shall furnish to the General Partner all pertinent information
in its possession relating to Partnership operations that is necessary to
enable the General Partner to prepare and file such Partnership income tax
returns.
5.02 Tax Elections. The General Partner shall make the following
elections on the appropriate returns of the Partnership:
(a) In accordance with Section 263(c) of the Code and the
applicable income tax regulations and comparable provisions of state law, to
deduct as an expense intangible drilling and development costs with respect to
productive and nonproductive wells, and the preparation of wells for production
of oil or gas;
(b) To adopt the calendar year as the partnership's
fiscal year;
(c) To adopt the accrual basis of accounting;
(d) If there is a distribution of Partnership property as
described in Section 734 of the Code or if there is a transfer of a Partnership
interest as described in Section 743 of the Code, upon written request of any
Partner to the General Partner, pursuant to Section 754 of the Code, to adjust
the basis of Partnership properties; provided, however, that the partner
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making such request shall pay any incremental accounting costs for determining
such adjustment;
(e) To claim cost recovery deductions in accordance with
the accelerated cost recovery system described in Section 168 of the Code;
(f) To elect to amortize the organizational expenses of
the Partnership ratably over a period of 60 months as permitted by Section
709(b) of the Code; and
(g) Any other election the General Partner may deem
appropriate and in the best interests of the Partners.
Neither the Partnership nor any Partner shall make an election for the
Partnership to be excluded from the provisions of Subchapter K, Chapter 1,
Subtitle A of the Code or any similar provision of any state's income tax laws.
5.03 Maintenance of Status as Partnership. The General Partner at
all times during the existence of the Partnership shall maintain a net worth
not less than 10% of the total capital contributions to the Partnership. For
the purposes of computing the net worth of the General Partner, the current
fair market value of its assets will be used and there will be excluded from
such assets any interest in, and any notes and accounts receivable from and
payable to, any limited partnership. The General Partner hereby agrees to
indemnify and save the Limited Partner harmless, to the fullest extent
permitted by law, from all liabilities, costs, expenses, and damages
(including, without limitation, any increased tax liability or obligations and
attorneys, fees and costs of suit) the Limited Partner may incur in the event
of a breach of this Section 5.03 by the General Partner; provided, however,
that such indemnification shall not arise if, within 30 days following the
event causing such breach, the General Partner shall notify the Limited Partner
of its election to dissolve the Partnership pursuant to Section 11.01(c) if
such an election then shall be permitted.
5.04 Partnership Tax Audits. The General Partner will be treated as
the tax matters partner of the Partnership pursuant to Section 6231(a)(7) of
the Code. The General Partner shall inform all other Partners of all matters
that may come to its attention in its capacity as tax matters partner by giving
notice thereof within five days after becoming so informed, and the General
Partner shall not take any action contemplated by Sections 6222 through 6232 of
the Code unless the General Partner shall have (i) given the Limited Partner
prior notice of the contemplated action and (ii) if such action in any way
binds or limits the rights of the Limited Partner, received the consent of the
Limited Partner thereto. This provision is not intended to authorize the
General Partner to take any action left to the
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determination of an individual Partner under Sections 6222 through 6232 of the
Code.
ARTICLE VI.
RIGHTS OF LIMITED PARTNER
6.01 Generally. In addition to the other rights specifically set
forth herein, the Limited Partner shall have the right:
(a) To have the Partnership books kept at the principal
place of business of the Partnership and at all reasonable times to inspect and
copy any of them;
(b) To have on demand true and full information of all
things affecting the Partnership and a formal account of Partnership affairs
whenever circumstances render it just and reasonable;
(c) To have dissolution and winding up by decree of court
as provided for in the Act;
(d) To approve (i) the dissolution and winding up of the
Partnership; (ii) any amendment of this Agreement; (iii) the sale, exchange,
lease, mortgage, pledge, or other transfer of a material portion of the assets
of the Partnership other than in the ordinary course of business; (iv) the
merger or consolidation of the Partnership; (v) the admission, removal or
retention of any Partner; (vi) the incurrence, renewal, or refinancing of a
debt by the partnership other than in the ordinary course of business; and
(vii) the matters set forth in Section 4.04 hereof;
(e) To consult with and advise the General Partner with
respect to any matter related to the business of the Partnership; and
(f) To exercise all other rights of a limited partner
under the Act.
The Partners hereby agree that the rights granted to the Limited Partner under
this Agreement, and the exercise of such rights, shall not be deemed to be
participation in the control of the business of the Partnership within the
meaning of the Act.
6.02 Limitations. The Limited Partner shall not have the authority
or power in its capacity as a Limited Partner to act as agent for or on behalf
of the Partnership or any other Partner, to do any act that would be binding on
the Partnership or any other Partner, or to incur any expenditures on behalf of
or with respect to the Partnership.
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6.03 Limited Liability. The Limited Partner shall not be liable
for the losses, debts, liabilities, contracts, or other obligations of the
Partnership except to the extent of (a) any unpaid Capital Contributions
the Limited Partner has agreed to make as described in Sections 2.01 and 2.02,
(b) the Limited Partner's share of the assets of the Partnership, and (c) its
share of the undistributed net profits of the Partnership. The Limited Partner
shall not be required to make any loans to the Partnership. The Limited Partner
may under certain circumstances be required pursuant to the Act return an
amount wrongfully distributed to it. The Partnership shall indemnify the
Limited Partner and hold it harmless, to the fullest extent permitted by law,
from and against all losses, costs, liabilities, and expenses it shall incur on
account of its being a Partner in the Partnership beyond the matters previously
set forth in this Section 6.03 as matters for which it shall be liable;
provided, however, that such indemnification shall not apply to the extent that
such losses, costs, liabilities and expenses shall have arisen pursuant to
Section 17-303(a) of the Act on account of the Limited Partner's having
participated in control of the business of the Partnership.
6.04 Trustee. If the General Partner shall fail to comply with any
material provision hereof and such failure shall have continued for a period of
30 days following notice thereof from the Limited Partner, the Limited Partner
may cause the Partnership, at the General Partner's sole expense, to assign the
Partnership's rights to receive revenues to a trustee named by the Limited
Partner. Such trustee shall receive and hold Partnership revenues for the
benefit of all the Partners but shall not have the rights of the General
Partner hereunder. The trustee's sole right and responsibility shall be to
receive Partnership funds and disburse them in accordance with the other
provisions of this Agreement. Notwithstanding any such assignment, the General
Partner and the Limited Partner shall continue to be the general partner and
the limited partner, respectively, of the Partnership.
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ARTICLE VII.
DISTRIBUTIONS
7.01 Monthly Distributions. On the first day of the month following
delivery of the statement described in the first sentence of Section 2.03 (or,
if no Capital Contributions then are to be made, at the time such statement
would have been sent), commencing with the first day of the second month
following the month in which the General Partner first receives Revenues
attributable to the activities of the Partnership, the General Partner shall
distribute to the Partners all Distributable Net Revenues of the Partnership
received during the second preceding calendar month; provided, however, that
the General Partner, at
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its option, may cause the Partnership to retain all or any portion of such
amount up to the amount the Limited Partner then shall be obligated to
contribute to the capital of the Partnership pursuant to the statement
delivered pursuant to Section 2.03 or pursuant to Section 2.04, and any sums so
retained shall be deemed to satisfy the Limited Partner's obligation to make
such portion of the Optional Contribution it then shall be required to make.
All distributions of Distributable Net Revenues realized prior to Payout shall
be made 63% to the Limited Partner and 37% to the General Partner. All
distributions of Distributable Net Revenues realized after Payout shall be made
52.5% to the Limited Partner and 47.5% to the General Partner.
7.02 Method of Payment. All distributions to the Limited Partner
shall be made by wire transfer in immediately available funds to such bank or
address and in accordance with such instructions as the Limited Partner may
from time to time give to the General Partner. Any distributions required to be
paid but not paid within ten days after the date due shall bear interest at a
rate equal to the Interest Rate from the due date until paid.
ARTICLE VIII.
BOOKS, RECORDS, REPORTS AND BANK ACCOUNTS
8.01 Maintenance of Books. The Partnership's books shall be
maintained in accordance with the terms of this Agreement at the principal
place of business of the Partnership. The calendar year shall be selected as
the accounting year of the Partnership and the Partnership's books of account
shall be maintained on an accrual basis according to the successful efforts
method. The costs and revenues of the Partnership shall be reported on a
well-by-well basis.
8.02 Periodic Reports. If requested by the Limited Partner,
concurrently with the delivery of the statement described in the first sentence
of Section 2.03 (or, if no Optional Contributions then are to be made, at the
time such statement would have been sent), the General Partner shall deliver to
the Limited Partner a moving 12-month statement of Partnership monthly
production and the related revenue and lease operating expenses on a
well-by-well basis, and of costs by well itemized by appropriate tax
classification with respect to new Partnership Wells. The General Partner also
shall deliver to the Limited Partner an annual reserve report prepared by an
independent petroleum engineering firm selected by the General Partner and
reasonably acceptable to the Limited Partner. The General Partner shall use its
best efforts to prepare any additional reports reasonably requested by the
Limited Partner at the expense of the Limited Partner. The General Partner
shall furnish copies of all written reports delivered pursuant to this Section
8.02 to such
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other persons as the Limited Partner reasonably may request. The costs of all
such reports shall be borne by the Partnership. The Limited Partner shall not
disclose or divulge to any person (other than its employees, auditors,
counsel, or other consultants) any information contained in any such report
that is expressly identified as confidential or proprietary in writing at the
time of its delivery to the Limited Partner and will keep confidential any such
information; provided, however, that the Limited Partner shall not be obligated
to treat as confidential any information (a) that is or becomes publicly
available or readily ascertainable from public sources or that the Limited
Partner receives from a third party (other than the General Partner's or the
Partnership's employees, auditors, or counsel), (b) as may be required or
appropriate in any report, statement, or testimony submitted to any municipal,
state, or federal regulatory body having or claiming to have jurisdiction over
the Limited Partner or to the National Association of Insurance Commissioners
or similar organizations or their successors, (c) as may be required or
appropriate in response to any summons or subpoena or in connection with any
litigation, (d) to the extent that the Limited Partner believes it appropriate
to comply with any law, order, regulation, or ruling applicable to it, and (e)
to the extent that the Limited Partner believes it appropriate to disclose
such information to the prospective transferee of all or any of its interest as
Limited Partner, but only to the extent that such prospective transferee shall
agree to be subject to the same terms and conditions described in this sentence
and that such disclosure is not in violation of applicable securities laws.
8.03 Quarterly Financial Reports. The General Partner shall furnish
the Limited Partner quarterly financial reports of the General Partner. The
Limited Partner shall not disclose or divulge to any person (other than its
employees, auditors, counsel, and other consultants) any information contained
in any financial statements of the General Partner delivered pursuant to this
Section 8.03 that is expressly identified as confidential or proprietary and
will keep confidential any such information, subject, however, to the
exceptions provided in the last sentence of Section 8.02.
8.04 Annual Certified Financial Statements. Unless otherwise
notified in writing by the Limited Partner prior to the end of the calendar
year, within 90 days after the end of each calendar year during the term of
this Agreement, the General Partner shall furnish the Limited Partner financial
statements covering the activities of the Partnership as of the end of and for
such period certified by the Certified Public Accountants. The financial
statements shall include a balance sheet, an income statement, descriptions of
the Partners' respective investments hereunder, and changes in Partners'
capital. Such financial statements shall be prepared in accordance with
generally accep-
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ted accounting principles and shall be accompanied by a report of the Certified
Public Accountants certifying the statements and stating that (a) their
examination was made in accordance with generally accepted auditing standards
and, in their opinion, such financial statements fairly present the financial
position, financial results of operations, and changes in Partners' capital in
accordance with generally accepted accounting principles consistently applied
and (b) in making the examination and reporting on the financial statements
described above, nothing came to their attention that caused them to believe
that (i) the income and revenues were not paid or credited in accordance with
the financial and accounting provisions of this Agreement, (ii) the costs and
expenses were not charged in accordance with the financial and accounting
provisions of this Agreement, or (iii) the General Partner failed to comply in
any material respect with the financial and accounting provisions of this
Agreement, or if they did conclude that the General Partner so failed,
specifying the nature and period of existence of such failure. The costs of all
such reports shall be borne by the Partnership. Within 120 days after the end
of each fiscal year during the term of this Agreement, the General Partner at
its sole cost and expense shall prepare and furnish to the Limited Partner a
certified annual financial statement of the General Partner. The Limited
Partner shall not disclose or divulge to any person (other than its employees,
auditors, counsel, and other consultants) any information contained in any
financial statements of the General Partner delivered pursuant to this Section
8.04 that is expressly identified as confidential or proprietary and will keep
confidential any such information, subject, however, to the exceptions provided
in the last sentence of Section 8.02.
8.05 Additional Reports and Information. The General Partner shall
furnish the Limited Partner such additional reports and information as the
General Partner may consider appropriate or as the Limited Partner reasonably
may request. The costs of all such reports shall be borne by the Partnership.
During ordinary business hours the Limited Partner or its authorized agent or
representative shall have reasonable access to all books, records, and
materials in the Partnership's offices regarding the Partnership or its
activities.
8.06 Bank Account. The General Partner shall establish and maintain
a separate interest-bearing account for all Partnership funds in the
Partnership name at The Liberty National Bank and Trust Company of Oklahoma
City or another bank which is a member of the Federal Deposit Insurance
Corporation having comparable or greater capital, surplus, and undivided
profits. Such account shall provide the highest interest rate available at the
bank for such funds. The General Partner may not commingle the Partnership
funds with other funds of the General Partner.
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ARTICLE IX.
OPTIONAL OPERATIONS; LEASEHOLD ACQUISITION
9.01 Optional Operations.
Upon receipt of any notice pursuant to an Operating Agreement or other
arrangement proposing any Optional Operation, or upon the General Partner's
giving such a notice (either for itself or for the Partnership) to third
parties on account of an interest in any Leasehold Interest in which the
Partnership owns an interest, the General Partner shall notify the Limited
Partner of the same; provided, however, that if the Election Period (as
hereinafter defined) shall be less than thirty days and if the General Partner
shall give such notice, the General Partner shall notify the Limited Partner of
the same at least 40 days prior to the expiration of such Election Period. Such
notice shall include a copy of any written notice from any third party or by
the General Partner to any third party proposing such Optional Operation, a
statement of the time by which the Partnership shall be obliged contractually
to notify the operator of the applicable Leasehold Interest or other
appropriate person whether the Partnership elects to participate in such
operation (the "Election Period"), the consequences of failing to notify such
person within such period, a summary of the pertinent geological and
engineering data and financial projections regarding the proposed operation, a
statement (the "Statement") whether the General Partner recommends
participation in such Optional Operation and whether the General Partner has
agreed or intends to agree to participate with respect to any interest it owns
for its own account in the Leasehold Interests affected, such title information
as the Limited Partner reasonably may request, and a statement that the Limited
Partner's failure to respond at least 10 days prior to the expiration of the
Election Period shall be deemed to mean it elects not to make additional
contributions to the capital of the Partnership to fund such Optional
Operation, provided, if the Statement from the General Partner recommends that
the Partnership participate in the Optional Operation in question, such
Statement shall also include a cash purchase offer from the General Partner to
the Partnership for the Partnership's interest in the well bore, and well bore
only, of the Partnership Well (whether existing or to be drilled) which is the
subject of such Optional Operation setting forth the terms of such offer
including, without limitation, the amount which the General Partner offers to
pay for such interest.
IF the Statement from the General Partner recommends that the
Partnership not participate in the Optional Operation in question, the
Partnership will not participate in such Optional Operation. Instead, the
Partnership will, subject to the other provisions of this Agreement including,
without limitation,
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Sections 4.04 and 6.01 hereof, follow the General Partner's recommendation
(which shall be contained in such Statement) to (i) farm-out to a third party,
which is not an Affiliate of the General Partner, the Partnership's interest in
the well bore, and well bore only, of the Partnership Well (whether existing or
to be drilled) which is the subject of the proposed Optional Operation, (ii)
sell such interest to a third party which is not an Affiliate of the General
Partner, or (iii) be subject to the nonconsent provisions of the applicable
Operating Agreement.
If the Statement from the General Partner recommends that the
Partnership participate in the Optional Operation in question, the Limited
Partner shall have the right (but not the obligation), at its sole option, to
make additional contributions of capital to the Partnership to fund such
Optional Operation, which election may be exercised by the Limited Partners
notifying the General Partner at least 10 days before the expiration of the
Election Period whether it elects to make such Optional Contributions;
provided, however, the Limited Partner's failure to notify the General Partner
of its election at least 10 days before the expiration of the Election Period
shall be deemed to mean it has elected not to make such Optional Contributions.
If the Limited Partner elects, or is deemed to elect, not to make additional
contributions to the capital of the Partnership to fund the proposed Optional
Operation, then the General Partner shall not cause the Partnership to
participate in such Optional Operation, and shall either (i) cause the
Partnership to give all notices, make such elections, and take all such further
actions as may be necessary to prevent the Partnership from becoming obligated
to participate, or (ii) farm-out to a third party, which is not an Affiliate of
the General Partner, the Partnership's interest in the Partnership Well which
is the subject of the proposed Optional Operation; provided, however, if the
Limited Partner consents in writing at least 10 days before the expiration of
the Election Period, the Partnership may accept the General Partner's purchase
offer and sell its interest in the Partnership Well in question to the General
Partner.
9.02 Acquisition of Leasehold Interests. Whenever the General
Partner receives a request or proposal under any agreement or arrangement to
which the Partnership is a party for the Partnership to acquire Leasehold
Interests that are covered by an Operating Agreement, or at any other time that
the General Partner desires to propose that the Partnership acquire additional
Leasehold Interests that are covered by an Operating Agreement, the General
Partner may (but shall not be obligated to) propose that the Partnership
acquire Leasehold Interests by giving notice thereof to the Limited Partner.
Such notice shall include copies of proposed acquisition documents, a statement
of the proposed Acquisition Amount therefor, a summary of the pertinent
geological, geophysical, and engineering data, financial projections regarding
the proposed acquisition, title
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<PAGE> 38
information (if such Leasehold Interests then shall be producing) a summary of
any existing reserve report, if available, (if such notice shall be from the
General Partner), and a statement whether the General Partner recommends such
acquisition and whether the General Partner has agreed or intends to agree to
acquire an interest in such Leasehold Interest for its own account. The Limited
Partner shall have the right (but not the obligation), at its sole option, to
make additional contributions to the capital of the Partnership therefor, and
the Limited Partner shall notify the General Partner whether it elects to make
such contributions; provided, however, that the Limited Partner's failure to
notify the General Partner of its election within 30 Business Days after its
receipt of the General Partner's notice shall be deemed to mean it has elected
not to make such contributions. If the Limited Partner elects not to make such
contributions, or if the Limited Partner has not made its election before the
Partnership is required to notify any party as to the Partnership's decision,
or if the General Partner does not give notice of the proposed acquisition to
the Limited Partner, then the General Partner shall not cause the Partnership,
to acquire such Leasehold Interests, and shall cause the Partnership to give
all notices, make such elections and to take all such other actions as may be
necessary to prevent the Partnership from becoming obligated to so acquire
same.
9.03 Limitation. Under no circumstances shall the Limited Partner
be obligated by this Article IX to contribute more to an acquisition and/or
operation, as applicable, than the maximum amount of such contributions, or
upon any schedule other than the schedule for such contributions, to which it
agrees in its notice to the General Partner of its election to make such
contributions pursuant to this Article IX.
ARTICLE X.
ASSIGNMENT OF INTERESTS AND SUBSTITUTIONS; REMOVAL
10.01 Assignment by Limited Partners. The Limited Partner may
assign or otherwise transfer all or any part of its interest in the Partnership
at any time, but no such assignee shall become a substitute Limited Partner
unless (a) the Limited Partner shall give the assignee such right, (b) the
General Partner shall consent in its sole discretion to the admission of the
assignee as a substitute Limited Partner, and (c) the assignee shall execute
and deliver such instruments, in form and substance reasonably satisfactory to
the General Partner, as the General Partner may deem necessary to effect such
substitution and to confirm the agreement of the assignee to be bound by all of
the terms and provisions of this Agreement; and until such conditions shall be
fulfilled, the Limited Partner shall continue as a limited partner of the
Partnership. The Partnership and the General Partner shall be entitled to treat
the record owner of
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<PAGE> 39
any Partnership interest as the absolute owner thereof in all respects and
shall incur no liability for distributions of cash or other property made in
good faith to such owner until such time as the General Partner shall have
received a written assignment of such interest that complies with the terms of
this Agreement. The assignor shall reimburse the Partnership for all expenses
the Partnership shall incur on account of any such assignment.
10.02 Assignment by General Partner. The General Partner shall not
assign or otherwise transfer all or any part of its interest in the Partnership
(including the right to receive distributions, except as hereinafter provided)
without the prior written consent of the Limited Partner, and no assignee of
the General Partner shall become a substitute General Partner without the prior
written consent of the Limited Partner in its sole discretion. The General
Partner shall not pledge, mortgage, or otherwise encumber its interest in the
Partnership; provided, however, that the General Partner may pledge its right
to receive any or all distributions hereunder if:
(i) Partnership funds are not used or obligated in any
way to repay the debt secured thereby;
(ii) No property of the Partnership is mortgaged, pledged,
or otherwise encumbered to secure such debt;
(iii) The Partnership's right to receive the proceeds from
the sale of production attributable to its interests in Leasehold Interests is
not pledged, mortgaged, or otherwise encumbered; and
(iv) The debt is secured by the full faith and credit of
the General Partner.
All of the expenses of obtaining and servicing any assignment or financing
permitted under this Section 10.02 and all repayments thereof and costs and
interest or other charges related thereto shall be borne and paid by the
General Partner, and in no event shall such repayments, costs, interest, or
other charges be charged to the account of or paid by the Limited Partner or
the Partnership.
10.03 Partition. Neither Partner nor the Partnership shall partition
or seek to partition, whether through order of any court or otherwise, any
Leasehold Interest in which the Partnership owns an interest.
10.04 Removal of the General Partner. The General Partner may be
removed by the Limited Partner at any time that the Limited Partner, in the
good faith exercise of its sole and absolute discretion, determines that the
General Partner (a) has
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<PAGE> 40
engaged in gross negligence or wilfull misconduct in carrying out its duties
hereunder, or (b) has experienced a material and adverse change in its
financial condition and/or circumstances.
ARTICLE XI.
DISSOLUTION, LIQUIDATION AND TERMINATION
11.01 Dissolution. The Partnership shall be dissolved upon the first
to occur of any of the following:
(a) The consent in writing of the General Partner and the
Limited Partner;
(b) The election of the Limited Partner by written notice
to the General Partner at any time after the earliest to occur of (i) any
change in the ownership or control of the stock of the General Partner such
that the current management of the General Partner no longer is ultimately
directing its business and affairs, as determined by the Limited Partner in
good faith, or (ii) the enactment of any legislation that, for federal or
applicable state income tax purposes, either would cause the Partnership to be
treated as an association taxable as a corporation or would eliminate or
substantially reduce deductions, credits, or other benefits permitted as of the
date hereof with respect to Initial Costs, in each case as determined by the
Limited Partner in good faith;
(c) The election of the General Partner by written notice
to the Limited Partner at any time after December 31, 1999;
(d) The sale or other disposition of all or substantially
all of the assets of the Partnership;
(e) The removal of the General Partner in accordance with
the provisions of Section 10.04 hereof;
(f) The occurrence of any event that, under the Act,
causes the dissolution of a limited partnership;
(g) Entry of a decree or order relating to a Partner by a
court having jurisdiction (i) granting relief under Title 11 of the United
States Code or any successor statute; (ii) approving as properly filed a
petition seeking reorganization of such party under Title 11 of the United
States Code or any successor statute, or any other state or federal law; (iii)
for the appointment of a receiver, liquidator, trustee in bankruptcy or
insolvency of such Partner or of the property of such Partner; (iv) appointing
a custodian, trustee, receiver, or agent with authorization to take charge of a
material portion of the property of a Partner for the purpose of enforcing a
lien against
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<PAGE> 41
such property; or (v) for the winding up or liquidation of the affairs of a
Partner, and, in any such case, such decree or order shall have remained in
force undischarged and unstayed for 60 days;
(h) December 31, 2015;
(i) The election of either partner by written notice to
the other, at any time after December 31, 1999, if the Note has not been paid in
full by such date; or
(j) THE General Partner makes a general assignment for
the benefit of its creditors, or fails to pay its debts generally as they
become due, or admits in writing its inability to pay its debts generally as
they become due.
11.02 Covenant Not to Withdraw. Except for causing a dissolution
pursuant to Section 11.01(c), the General Partner covenants and agrees not to
withdraw voluntarily from the Partnership, whether directly or by dissolution
or any other voluntary act. If the General Partner shall violate such covenant
and agreement, the withdrawal shall be effective for purposes of Section 11.01
to cause a dissolution of the Partnership, but the General Partner shall be
liable to the Limited Partner for all damages suffered or incurred by it as a
result of such withdrawal. For purposes of this Agreement, a "voluntary
withdrawal" by the General Partner shall consist of any of the applicable
events set forth in Section 17-402 of the Act other than those described in
subparagraphs (3) and (5) thereof.
11.03 Continuation and Reconstitution. Upon the occurrence of any
event that would cause a dissolution pursuant to Section 11.01 that also
constitutes an "event of withdrawal of a general partner" as defined in
Section 17-101(3) of the Act, the partnership shall not, notwithstanding
anything to the contrary contained in Section 17-801(3) of the Act, be
dissolved and shall not be wound up by reason of such event if, within 90 days
after such event, the Limited Partner agrees in writing to continue the
business of the partnership and to the appointment of, effective as of the date
of such event, a new general partner of the Partnership, which shall be
admitted as the general partner and shall succeed to the rights and duties of
the General Partner hereunder. In the event the partnership shall be so
continued, the Partnership shall distribute to the General Partner an amount
equal to the amount that would have been distributed to the General Partner
pursuant to Section 11.04 had the partnership been liquidated at that time.
The General Partner's consent shall not be required for any continuation
hereunder or for the designation of the new general partner hereunder. The
Limited Partner's right to elect to continue the business of the
Partnership may be exercised at its sole option, and its failure to exercise
such right shall not relieve the General Partner of any
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<PAGE> 42
of its obligations, including, without limitation, those arising pursuant to
Section 11.02.
11.04 Liquidation and Termination. Upon dissolution of the
Partnership, the General Partner shall act as liquidating trustee or may
appoint in writing one or more liquidating trustees who shall have full
authority to wind up the affairs of the Partnership and make final distribution
as provided herein; provided, however, that if the Partnership shall be
dissolved pursuant to the provisions of Section 11.01(c), (e), or, to the
extent such event affects the General Partner only, (g) or Section 11.02, the
liquidating trustee shall be a person selected in writing by the Limited
Partner. The liquidating trustee shall proceed diligently to wind up the
affairs of the Partnership and make final distribution as provided herein. Once
liquidation shall be completed a final accounting shall be made of the affairs
of the Partnership and of each Partner from the date of the last accounting.
In the event the Partnership shall be dissolved and liquidated pursuant to the
provisions of Section 11.01(c), (e), or, to the extent such affects the
General Partner only, (g) or Section 11.02, all costs associated with
liquidation of the Partnership shall be borne by the General Partner;
otherwise, the costs of liquidation shall be borne as a Partnership expense.
Until final distribution, the liquidating trustee shall continue to operate the
Partnership properties with all of the power and authority of the
General Partner. The steps to be accomplished by the liquidating trustee are
as follows:
(a) As promptly as possible after dissolution and again
after final liquidation, the liquidating trustee shall cause a proper
accounting to be made by the Certified Public Accountants of the Partnership's
assets, liabilities, and operations through the last day of the calendar month
in which the dissolution shall occur or the final liquidation shall be
completed, as appropriate;
(b) The liquidating trustee shall pay all of the debts
and liabilities of the Partnership (including all expenses incurred in
liquidation and any advances made by the Partners pursuant to Section 2.07) or
otherwise make reasonable provision therefor (including, without limitation,
the establishment of a cash escrow fund for contingent liabilities in such
amount and for such term as the liquidating trustee may reasonably determine);
and
(c) All remaining assets of the Partnership shall be
distributed to the Partners as follows:
(i) If all Partners consent, selected Partnership
property may be sold, and any resulting gain or loss (including
Simulated Gain or Simulated Loss) from each sale shall be computed and
allocated to
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the capital accounts of the Partners as provided in Sections 2.08 and
3.02; provided, however, that any interest in any Leasehold Interest
contributed by a Partner for which such Partner shall not yet have
received credit as required by Section 2.08, shall be reassigned to
such Partner;
(ii) With respect to any properties of the
Partnership not sold pursuant to clause (i) above, the fair market
value of such properties shall be determined and the unrealized gain
or loss (including unrealized Simulated Gain or Simulated Loss) that
would have been realized if the sale of all such properties at their
fair market values had occurred shall be charged or credited to the
capital accounts of the Partners above as if such properties had been
actually sold;
(iii) After the allocations of gain or loss
(including Simulated Gain or Simulated Loss) required by clauses (i)
and (ii) above shall have been credited or debited, as the case may
be, to the capital accounts of the Partners, the balances of the
capital accounts of the Partners shall be determined. If the General
Partner has a deficit balance in its capital account, it shall restore
the amount of such deficit balance to the Partnership within 90 days
and thereafter, the capital accounts of all Partners shall be
satisfied in full.
All assignments made under the provisions of this Section 11.04 shall be made
in a form acceptable to the Partnership and assignee and shall be made subject
to the liability of each assignee for costs, expenses, and liabilities
theretofore incurred or for which the Partnership shall have committed prior to
the date of termination and such costs, expenses, and liabilities shall be
allocated to such assignee pursuant to this Section 11.04. The distribution of
cash and/or property to a Limited Partner in accordance with the provisions of
this Section 11.04 shall constitute a complete return to the Limited Partner of
its Capital Contributions and a complete distribution to the Limited Partner of
its interest in the Partnership and all the Partnership's property.
11.05 Cancellation of Certificate. Upon the completion of the
distribution of Partnership assets as provided herein, the Partnership shall be
terminated, and the person acting as liquidating trustee (or the Partners if
necessary) shall cause the cancellation of the Certificate and shall take such
other actions as may be necessary to terminate the Partnership.
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ARTICLE XII.
GENERAL PROVISIONS
12.01 No Third-Party Beneficiaries; Assignability; Binding Nature.
Nothing in this Agreement (express or implied) is intended or shall be
construed to confer upon any person or entity not a party hereto any right,
remedy, or claim under or by reason of this Agreement. Except as expressly
provided herein, the rights and duties of the parties hereunder are not
assignable. Subject to the prior provisions of this Section 12.01, this
Agreement shall be binding upon and shall inure to the benefit of the
respective successors and assigns of the parties hereto.
12.02 Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto pertaining to the subject matter hereof
and supersedes all prior and contemporaneous agreements and understandings of
the parties hereto in connection therewith.
12.03 Partial Invalidity. In case any one or more of the covenants,
agreements, or provisions hereof shall be invalid, illegal, or unenforceable in
any respect, the validity. of the remaining covenants, agreements, or
provisions hereof shall be in no way affected, prejudiced, or disturbed
thereby.
12.04 Notices. All notices, consents, approvals, requests, demands,
or other communications required or permitted to be given hereunder shall be in
writing, shall be given by mail, return receipt requested, postage prepaid,
prepaid telegram with confirmation of delivery obtained, or personally
delivered with confirmation of delivery obtained and shall be deemed to have
been duly given when received at the address specified below:
If to the General Partner:
Alexander Energy Corporation
Triad Center
501 Northwest Expressway, Suite 600
Oklahoma City, Oklahoma 73118
Attention: Bob G. Alexander
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<PAGE> 45
If to the Limited Partner:
John Hancock Mutual Life Insurance
John Hancock Place
200 Clarendon Street
P.O. Box 111
Boston, Massachusetts 02117
Attention: Bond and Corporate Finance Department, T-57
(and, if regarding any statement pursuant to
Section 2.03, an additional copy to
Securities Administration)
provided, however, that if any Election Period shall be less than five Business
Days or any well shall be in progress of the kind described in Section 9.02,
any notice with respect thereto may be made by telephone, if to the General
Partner, to Bob G. Alexander at (405) 840-5020, and if to the Limited Partner,
to William A. Kinsley at (617) 572-9600. Any party shall have the right to
change its address for notice hereunder from time to time to such other address
within the continental United States of America as may hereafter be furnished
in writing by such party to the other parties hereto.
12.05 Further Assurances. Each party hereto from time to time shall
do and perform such further acts and execute and deliver such further
instruments, assignments, and documents as may be required or reasonably
requested by the other party to establish, maintain, or protect the respective
rights and remedies of the parties hereto and to carry out and effect the
intentions and purposes of this Agreement.
12.06 Rights Cumulative. The rights and remedies granted to the
parties under this Agreement shall not be exclusive rights and remedies but
shall be in addition to all other rights and remedies available at law or in
equity.
12.07 Amendment. This Agreement may be modified, restated or amended
at any time, but only by a writing signed by both Partners.
12.08 No Waiver. The failure of any party hereto to insist upon
strict performance of any provision hereof shall not constitute a waiver of, or
estoppel against asserting the right to require such performance in the future,
nor shall a waiver or estoppel in any one instance constitute a waiver or
estoppel with respect to a later breach of a similar nature or otherwise.
12.09 Internal References. Unless otherwise specified, all
references in this Agreement to "Articles" and "Sec-
-41-
<PAGE> 46
tions" are to articles and sections of this Agreement, and all references to
"Exhibits" are to Exhibits attached to this Agreement, all of which are made
parts hereof for all purposes.
12.10 Counterpart Execution. This Agreement may be executed in a
number of counterparts, each of which shall have the force and effect of an
original although constituting but one instrument for all purposes.
IN WITNESS WHEREOF, the Partners have executed this Agreement on the
date set forth first above.
GENERAL PARTNER: ALEXANDER ENERGY CORPORATION
By :/s/ BOB G. ALEXANDER
Name: Bob B. Alexander
Title: President
LIMITED PARTNER: JOHN HANCOCK MUTUAL LIFE
INSURANCE COMPANY
By: /s/ WILLIAM A KINSLEY
Name: William A. Kinsley
Title: Senior Investment Officer
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<PAGE> 47
EXHIBIT A
CERTIFICATE OF LIMITED PARTNERSHIP OF
AEJH 1989 LIMITED PARTNERSHIP
This Certificate of Limited Partnership of AEJH 1989 Limited
Partnership (the "Partnership") is being executed and filed by the undersigned
General Partner (the "General Partner") to form a limited partnership under the
Delaware Revised Uniform Limited Partnership Act (6 Del. C. 17-101, et seq.).
ARTICLE I
The name of the limited partnership formed hereby is
AEJH 1989 LIMITED PARTNERSHIP
ARTICLE II
The address of the registered office of the Partnership in the State
of Delaware is: The Corporation Trust Company, 1209 Orange Street, Corporation
Trust Center, Wilmington, New Castle County, Delaware 19801, and the name and
address of the registered agent for service of process on the Partnership in
the State of Delaware is: The Corporation Trust Company, 1209 Orange Street,
Corporation Trust Center, Wilmington, New Castle County, Delaware 19801.
ARTICLE III
The name and business address of the General Partner of the
Partnership is:
Name Business Address
---- ----------------
Alexander Energy Corporation 600 Triad Center
501 Northwest Expressway
Oklahoma City, Oklahoma 73118
IN WITNESS WHEREOF, the undersigned has executed this Certificate this
day of , 1989.
GENERAL PARTNER: ALEXANDER ENERGY CORPORATION
By:_________________________
Name:
Title:
<PAGE> 48
EXHIBIT B
Insurance
At all times during the conducting (including predrilling and
exploratory drilling activity) of operations hereunder:
A. Workmen's Compensation and/or Employer's Liability Insurance
in amounts reasonably, sufficient to cover liability for injury to or death of
operator's employees, such insurance if required by laws of the state in which
the leased lands are located, to be in conformity with such laws.
B. Comprehensive General Liability Insurance with combined limits
of not less than $500,000 and no deductibles covering bodily injury and
property damage liability, including coverage for the following hazards:
Personal Injury
Broad Form PD
Premises Medical
Broad Form Contractual
Additional Insured - Working Interest
Underground Resources & Equipment (also see
paragraph D below)
Blowout & Cratering (also see paragraph E below)
Explosion, Collapse & Underground PD
Incidental Malpractice
Waiver of Subrogation
Owner's Protective
C. Comprehensive Automobile Liability Insurance with combined
limits of not less than $500,000 and deductibles not greater than $500 covering
bodily injury and property damage liability, including coverage for all owned,
hired and nonowned vehicles. ,
D. Umbrella Liability Insurance in an amount not less than
$5,000,000 in excess of all primary limits.
E. Operator's Expense Indemnity Insurance of at least $3,000,000
on an annual basis as a combined single limit covering: costs incurred as a
result of blowout of a well, including damage to drilling and production
equipment, cleanup, containment and redrilling, and liability for gradual
pollution, subject to a $25,000 deductible per occurrence.
In addition, the Partnership will carry such other available insurance
as is necessary to protect the Partnership against losses due to casualty and
will require contractors and subcontractors to maintain such insurance. The
policies shall contain a waiver of territorial restrictions where necessary,
and otherwise shall conform to the provisions set forth in the Cer-
<PAGE> 49
tificate and Agreement of Limited Partnership to which this Exhibit B is
attached. The insurance policies will be underwritten by insurance companies
having a Best's Rating of A+.
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<PAGE> 1
ALEXANDER ENERGY CORPORATION (LETTERHEAD) EXHIBIT 10(n)
BOB G. ALEXANDER
PRESIDENT
August 22, 1994
SENT VIA FACSIMILE
AND CERTIFIED MAIL
Independent Energy Marketing, Inc.
220 Travis Street, Suite 300
Shreveport, Louisiana 71101
ATTN: Mr. Allen Alderson
RE: TERMINATION OF PARTNERSHIP
Gentlemen:
Boomer Marketing Company ("Boomer"), a wholly owned subsidiary of
Alexander Energy Corporation, as Limited Partner of Independent Energy
Marketing, Ltd. ("IEM Partnership") hereby notifies Independent Energy
Marketing, Inc., General Partner, of its desire to terminate the IEM
Partnership effective August 31, 1994. In accordance with Article 12.02 of the
Agreement of Limited Partnership dated January 1, 1990, Boomer requests the
General Partner execute this letter in the space provided below acknowledging
the voluntary termination of the IEM Partnership effective August 31, 1994.
Please return one signed copy on or before August 26, 1994.
In conjunction with the voluntary termination of the IEM Partnership,
we request that you provide us copies of all contracts or agreements, if any,
which might remain in effect and encumber our interest after the effective date
of the termination. We further request that you provide David Grose with a plan
of winding up the affairs of the partnership.
<PAGE> 2
IEM, Inc.
August 22, 1994
Page Two
Should you have any questions regarding this matter, please feel free
to contact me.
Very truly yours,
/s/ BOB G. ALEXANDER
Bob G. Alexander
cc: Lynn Duncan
BGA/jlp
THE GENERAL PARTNER AND LIMITED PARTNER HEREBY AGREE TO THE VOLUNTARY
TERMINATION OF INDEPENDENT ENERGY MARKETING, LTD.
GENERAL PARTNER LIMITED PARTNER
INDEPENDENT ENERGY MARKETING, INC. BOOMER MARKETING COMPANY
BY: /s/ (Illegible) /s/ BOB G. ALEXANDER
DATE:8/24/94 DATE: 8/23/94
<PAGE> 1
EXHIBIT 10(u)
THE REGISTERED HOLDER OF THIS PURCHASE OPTION BY ITS ACCEPTANCE HEREOF, AGREES
THAT IT WILL NOT SELL, TRANSFER OR ASSIGN THIS PURCHASE OPTION EXCEPT AS HEREIN
PROVIDED.
NOT EXERCISABLE PRIOR TO SEPTEMBER 14, 1994. VOID AFTER 5:00 P.M. EASTERN
TIME, SEPTEMBER 14, 1998.
PURCHASE OPTION
For the Purchase of 97,500 Shares of Common Stock
OF
AMERICAN NATURAL ENERGY CORPORATION
(An Oklahoma Corporation)
1. Purchase Option.
THIS CERTIFIES THAT, in consideration of $0.001 per share duly
paid by or on behalf of GAINES, BERLAND, INC. (the "Holder"), as registered
owner of this Purchase Option, to American Natural Energy Corporation (the
"Company"), Holder is entitled, at any time or from time to time at or after
September 14, 1994, and at or before 5:00 p.m., Eastern Time, September 14,
1998, but not thereafter, to subscribe for, purchase and receive, in whole or
in part, up to 97,500 shares (the "Shares") of common stock of the Company,
$0.01 par value, (the "Common Stock"). If September 14, 1998, is a day on which
banking institutions are authorized by law to close, then this Purchase Option
may be exercised on the next succeeding day which is not such a day in
accordance with the terms herein. During the period ending September 14, 1998,
the Company agrees not to take any action that would terminate the Purchase
Option. This Purchase Option is initially exercisable at $5.70 per Share so
purchased; provided, however, that upon the occurrence of any of the events
specified in Section 6 hereof, the rights granted by this Purchase Option,
including the exercise price per Share and the number of Shares to be received
upon such exercise, shall be adjusted as therein specified. The term "Exercise
Price" shall mean the initial exercise price or the adjusted exercise price,
depending on the context, of a Share.
2. Exercise.
2.1 Exercise Form. In order to exercise this Purchase Option, the
exercise form attached hereto must be duly executed and completed and delivered
to the Company, together with this Purchase Option and payment of the Exercise
Price for the Shares being
<PAGE> 2
purchased. If the subscription rights represented hereby shall not be exercised
at or before 5:00 p.m., Eastern time, on September 14, 1998, this Purchase
Option shall become and be void without further force or effect, and all rights
represented hereby shall cease and expire.
2.2 Legend. Each certificate for securities purchased under this
Purchase Option shall bear a legend as follows unless such securities have been
registered under the Act.
"The securities represented by this certificate have not been
registered under the Securities Act of 1933 (the "Act"). The
securities may not be offered for sale, sold or otherwise
transferred except pursuant to an effective registration
statement under the Act, or pursuant to an exemption from
registration under the Act."
2.3 Conversion Right.
2.3.1 Determination of Amount. In lieu of the payment of
the Exercise Price, the Holder shall have the right (but not the obligation),
to require the Company to convert this Purchase Option, in whole or in part,
into Shares ("Conversion Right") as provided for in this Section. Upon exercise
of the Conversion Right, the Company shall deliver to the Holder (without
payment by the Holder of any of the Exercise Price) that number of Shares equal
to the quotient obtained by dividing (x) the "Value" (as defined below) of the
portion of the Purchase Option being converted at the time the Conversion Right
is exercised by (y) the Market Price (as defined in Section 6.2.6) immediately
prior to the exercise of the Conversion Right. The "Value" of the portion of
the Purchase Option being converted shall mean the difference between (i) the
Exercise Price and (ii) the Market Price, multiplied by the number of Shares
being converted.
2.3.2 Exercise of Conversion Right. The Conversion Right
may be exercised by the Holder on any business day between (i) September 14,
1994 and (ii) September 14, 1998 by delivering the Purchase Option with a duly
executed exercise form attached hereto with the conversion section completed to
the Company, exercising the Conversion Right and specifying the total number of
Shares the Holder will purchase pursuant to such conversion.
3. Transfer.
3.1 General Restrictions. The registered Holder of this Purchase
Option, by its acceptance hereof, agrees that it will not sell, transfer or
assign or hypothecate this Purchase Option prior to September 14, 1994, to
anyone other than (i) an officer or partner of such Holder, (ii) an officer or
partner of Gaines,
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<PAGE> 3
Berland Inc. ("Underwriter") or any other underwriter or Selected Dealer in
connection with the Company's public offering of shares of Common Stock
underwritten by the Underwriter, or ( iii ) any underwriter or Selected Dealer.
On and after September 14, 1994, transfers to others may be made. In order to
make any permitted assignment, the Holder must deliver to the Company the
assignment form attached hereto duly executed and completed, together with the
Purchase Option and payment of all transfer taxes, if any, payable in
connection therewith. The Company shall immediately transfer this Purchase
Option on the books of the Company and shall execute and deliver a new Purchase
Option or Purchase Options of like tenor to the appropriate assignee(s)
expressly evidencing the right to purchase the number of Shares purchasable
hereunder or such portion of such number as shall be contemplated by any such
assignment.
3.2 Restrictions Imposed by the Act. The securities shall not be
transferred unless and until (i) the Company has received the opinion of
counsel for the Holder that the securities may be sold pursuant to an exemption
from registration under the Securities Act of 1933, as amended (the "Act"), the
availability of which is established to the reasonable satisfaction of the
Company, or (ii) a registration statement relating to such securities has been
filed by the Company and declared effective by the Securities and Exchange
Commission.
4. New Purchase Options to be Issued.
4.1 Partial Exercise or Transfer. Subject to the restrictions in
Section 3 hereof, this Purchase Option may be exercised or assigned in whole or
in part. In the event of the exercise or assignment hereof in part only, upon
surrender of this Purchase Option for cancellation, together with the duly
executed exercise or assignment form and funds sufficient to pay any transfer
tax, the Company shall cause to be delivered to the Holder without charge a new
Purchase Option of like tenor to this Purchase Option in the name of the Holder
evidencing the right of the Holder to purchase the number of Shares purchasable
hereunder as to which this Purchase Option has not been exercised or assigned.
4.2 Lost Certificate. Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, destruction or mutilation of this
Purchase Option and of reasonably satisfactory indemnification, the Company
shall execute and deliver a new Purchase Option of like tenor and date. Any
such new Purchase Option executed and delivered as a result of such loss,
theft, mutilation or destruction shall constitute an additional contractual
obligation on the part of the Company.
5. Registration Rights.
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<PAGE> 4
5.1 Demand Registration.
5.1.1 Grant of Right. The Company, upon written demand
("Initial Demand Notice") of the Holder(s) of at least 51% of the Purchase
Options and/or the underlying Shares ("Majority Holders"), agrees to register
on one occasion, all or any portion of the Purchase Options requested by the
Majority Holders in the Initial Demand Notice and all of the securities
underlying such Purchase Options, including the Shares (collectively the
"Registerable Securities"). On such occasion, the Company will file a
Registration Statement covering the Registrable Securities within sixty days
after receipt of the Initial Demand Notice and use its best efforts to have
such registration statement declared effective promptly thereafter. The demand
for registration may be made at any time during a period of four years
beginning one year from the Effective Date. The Company covenants and agrees to
give written notice of its receipt of any Initial Demand Notice by any
Holder(s) to all other registered Holders of the purchase Options and/or the
Registerable Securities within ten days from the date of the receipt of any
such Initial Demand Notice.
5.1.2 Terms. The Company shall bear all fees and expenses
attendant to registering the Registrable Securities, but the Holders shall pay
any and all underwriting commissions and the expenses of any legal counsel
selected by the Holders to represent them in connection with the sale of the
Registrable Securities. The Company agrees to use its prompt best efforts to
cause the filing required herein to become effective and to qualify or register
the Registrable Securities in such States as are reasonably requested by the
Holder(s); provided, however, that in no event shall the Company be required to
register the Registrable Securities in a State in which such registration would
cause (i) the Company to be obligated to do business in such State, or (ii) the
principal stockholders of the Company to be obligated to escrow their shares of
capital stock of the Company. The Company shall cause any registration
statement filed pursuant to the demand rights granted under Section 5.1.1 to
remain effective for a period of at least nine consecutive months from the
effective date of such registration statement.
5.2 "Piggy-Back" Registration.
5.2.1 Grant of Right. In addition to the demand right of
registration, the Holders of the Purchase Options shall have the right, for a
period of six years beginning one year from the Effective Date, to include the
Registrable Securities as part of any other registration of securities filed by
the Company (other than in connection with a transaction contemplated by Rule
145 (as promulgated under the Act or pursuant to Form S-8 or equivalent form).
4
<PAGE> 5
5.2.2 Terms. The Company shall bear all fees and expenses
attendant to registering the Registrable Securities, but the Holders shall pay
any and all underwriting commissions and the expenses of any legal counsel
selected by the Holders to represent them in connection with the sale of the
Registrable Securities. In the event of such a proposed registration, the
Company shall furnish the then Holders of outstanding Registrable Securities
with not less than thirty days written notice prior to the proposed date of
filing of such registration statement. Such notice to the Holders shall
continue to be given for each registration statement filed by the Company until
such time as all of the Registrable Securities have been registered and sold.
The holders of the Registrable Securities shall exercise the "piggy-back"
rights provided for herein by giving written notice, within twenty days of the
receipt of the Company's notice of its intention to file a registration
statement. The Company shall cause any registration statement filed pursuant to
the above "piggyback" rights to remain effective for at least nine months from
the date that the Holders of the Registrable Securities are first given the
opportunity to sell all of such securities.
5.3 General Terms.
5.3.1 Indemnification. The Company shall indemnify the
Holder(s) of the Registrable Securities to be sold pursuant to any registration
statement hereunder and each person, if any, who controls such Holders within
the meaning of Section 15 of the Act or Section 20(a) of the Securities
Exchange Act of 1934, as amended ("Exchange Act"), against all loss, claim,
damage, expense or liability (including all reasonable attorneys' fees and
other expenses reasonably incurred in investigating, preparing or defending
against any claim whatsoever) to which any of them may become subject under the
Act, the Exchange Act or otherwise, arising from such registration statement
but only to the same extent and with the same effect as the provisions pursuant
to which the Company has agreed to indemnify the Underwriter contained in
Section 5 of the Underwriting Agreement. The Holder(s) of the Registrable
Securities to be sold pursuant to such registration statement, and their
successors and assigns, shall severally, and not jointly, indemnify the Company
against all loss, claim, damage, expense or liability (including all reasonable
attorneys' fees and other expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which they may become
subject under the Act, the Exchange Act or otherwise, arising from information
furnished by or on behalf of such Holders, or their successors or assigns, in
writing, for specific inclusion in such registration statement to the same
extent and with the same effect as the provisions contained in Section 5 of the
Underwriting Agreement pursuant to which the Underwriter has agreed to
indemnify the Company.
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<PAGE> 6
5.3.2 Exercise of Purchase Options. Nothing contained in
this Purchase Option shall be construed as requiring the Holder(s) to exercise
their Purchase Options prior to or after the initial filing of any registration
statement or the effectiveness thereof.
5.3.3 Exclusivity. The Company shall not permit the
inclusion of any securities other than the Registerable Securities be included
in any registration statement filed pursuant to Section 5.1 hereof without the
prior written consent of the Majority Holders of the Registrable Securities.
5.3.4 Documents Delivered to Holders. The Company shall
furnish to each Holder participating in any of the foregoing offerings and to
each underwriter of any such offering, if any, a signed counterpart, addressed
to such Holder or underwriter, of (i) an opinion of counsel to the Company,
dated the effective date of such registration statement (and, if such
registration includes an underwritten public offering, an opinion dated the
date of the closing under any underwriting agreement related thereto), and (ii)
a "cold comfort" letter dated the effective date of such registration statement
(and, if such registration includes an underwritten public offering, a letter
dated the date of the closing under the underwriting agreement) signed by the
independent public accountants who have issued a report on the Company's
financial statements included in such registration statement, in each case
covering substantially the same matters with respect to such registration
statement (and the prospectus included therein) and, in the case of such
accountants' letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's
counsel and in accountants' letters delivered to underwriters in underwritten
public offerings of securities. The Company shall also deliver promptly to each
Holder participating in the offering requesting the correspondence and
memoranda described below and to the managing underwriter copies of all
correspondence between the Commission and the Company, its counsel or auditors
and all memoranda relating to discussions with the Commission or its staff with
respect to the registration statement and permit each Holder and underwriter to
do such investigation, upon reasonable advance notice, with respect to
information contained in or omitted from the registration statement as it deems
reasonably necessary to comply with applicable securities laws or rules of the
National Association of Securities Dealers, Inc. ("NASD"). Such investigation
shall include access to books, records and properties and opportunities to
discuss the business of the Company with its officers and independent auditors,
all to such reasonable extent and at such reasonable times and as often as any
such Holder shall reasonably request.
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<PAGE> 7
5.3.5 Underwriting Agreement. The Company shall enter into
an underwriting agreement with the managing underwriter(s) selected by any
Holders whose Registerable Securities are being registered pursuant to this
Section 5. Such agreement shall be reasonably satisfactory in form and
substance to the Company, each Holder and such managing underwriters, and shall
contain such representations, warranties and covenants by the Company and such
other terms as are customarily contained in agreements of that type used by the
managing underwriter. The Holders shall be parties to any underwriting
agreement relating to an underwritten sale of their Registrable Securities and
may, at their option, require that any or all the representations, warranties
and covenants of the Company to or for the benefit of such underwriters shall
also be made to and for the benefit of such Holders. Such Holders shall not be
required to make any representations or warranties to or agreements with the
Company or the underwriters except as they may relate to such Holders and their
intended methods of distribution.
6. Adjustments to Exercise Price and Number of Securities.
6.1 Computation of Adjusted Exercise Price. Except as hereinafter
provided, in case the Company shall at any time after the date hereof issue or
sell any shares of Common Stock (other than the issuances or sales referred to
in Section 6.8 hereof), including shares held in the Company's treasury and
shares of Common Stock issued upon the exercise of any options, rights or
warrants to subscribe for shares of Common Stock and shares of Common Stock
issued upon the direct or indirect conversion or exchange of securities for
shares of Common Stock, for a consideration per share less than either the
Exercise Price or the Market Price (as hereinafter defined) in effect
immediately prior to the issuance or sale of such shares, or without
consideration, then forthwith upon such issuance or sale, the Exercise Price
shall (until another such issuance or sale) be reduced to the price (calculated
to the nearest full cent) equal to the quotient derived by dividing (i) an
amount equal to the sum of (X) the number of shares of Common Stock outstanding
immediately prior to such issuance or sale multiplied by the lesser of the
Exercise Price in effect immediately prior to such issuance or sale or the
Market Price in effect on the date immediately prior to such issuance or sale,
plus (Y) the aggregate of the amount of all consideration, if any, received by
the Company upon such issuance or sale, by (ii) the number of shares of Common
Stock outstanding immediately after such issuance or sale; provided, however,
that in no event shall the Exercise Price be adjusted pursuant to this
computation to an amount in excess of the Exercise Price in effect immediately
prior to such computation, except in the case of a combination of outstanding
shares of Common Stock, as provided by Section 6.4 hereof.
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<PAGE> 8
6.2 General Rules for Computation of Adjustments. For the purposes
of any computation to be made in accordance with Section 6.1, the following
provisions shall be applicable:
6.2.1 Cash Consideration. In case of the issuance or sale
of shares of Common Stock for a consideration part or all of which shall be
cash, the amount of the cash consideration therefor shall be deemed to be the
amount of cash received by the Company for such shares (or, if shares of Common
Stock are offered by the Company for subscription, the subscription price, or,
if either of such securities shall be sold to underwriters or dealers for
public offering without a subscription offering, the initial public offering
price), before deducting therefrom any compensation paid or discount allowed in
the sale, underwriting or purchase thereof by underwriters or dealers or others
performing similar services, or any expenses incurred in connection therewith.
6.2.2 Other Than Cash Consideration. In case of the
issuance or sale (otherwise than as a dividend or other distribution on any
stock of the Company) of shares of Common Stock for a consideration part or all
of which shall be other than cash, the amount of the consideration therefor
other than cash shall be deemed to be the value of such consideration as
determined in good faith by the Board of Directors of the Company.
6.2.3 Share Dividends. Shares of Common Stock issuable by
way of dividend or other distribution on any stock of the Company shall be
deemed to have been issued immediately after the opening of business on the day
following the record date for the determination of stockholders entitled to
receive such dividend or other distribution and shall be deemed to have been
issued without consideration.
6.2.4 Reclassification. The reclassification of securities
of the Company other than shares of Common Stock into securities including
shares of Common Stock shall be deemed to involve the issuance of such shares
of Common Stock for a consideration other than cash immediately prior to the
close of business on the date fixed for the determination of security holders
entitled to receive such shares, and the value of the consideration allocable
to such shares of Common Stock shall be determined as provided in Section
6.2.2.
6.2.5 Outstanding Shares. The number of shares of Common
Stock at any one time outstanding shall include the aggregate number of shares
issued or issuable (subject to readjustment upon the actual issuance thereof)
upon the exercise of any and all outstanding options, rights, warrants to
purchase shares of Common Stock and upon the conversion or exchange of any and
all outstanding securities convertible or exchangeable into shares of Common
Stock.
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<PAGE> 9
6.2.6 Market Price. As used herein, the term "Market Price"
at any date shall be deemed to be the last reported sale price, or, in case no
such reported sale takes place on such day, the average of the last reported
sale prices for the last three trading days, in either case as officially
reported by the principal securities exchange on which the Common Stock is
listed or admitted to trading or, if the Common Stock is not listed or admitted
to trading on any national securities exchange or if any such exchange on which
the Common Stock is listed is not its principal trading market, then as
reported by the National Association of Securities Dealers, Inc. Automated
Quotation System ("NASDAQ") or similar organization. If any of the Common Stock
is no longer listed or admitted to trading on any exchange or quoted on NASDAQ,
the Market Price shall be determined in good faith by resolution of the Board
of Directors of the Company, based on the best information available to it.
6.3 Options, Rights, Warrants and Convertible and Exchangeable
Securities. In case the Company shall at any time after the date hereof issue
options, rights or warrants to subscribe for shares of Common Stock, or issue
any securities convertible into or exchangeable for shares of Common Stock, for
a consideration per share less than either the Exercise Price or the Market
Price in effect immediately prior to the issuance of such options, rights or
warrants, or such convertible or exchangeable securities, or without
consideration, the Exercise Price in effect immediately prior to the issuance
of such options, rights or warrants, or such convertible or exchangeable
securities, as the case may be, shall be reduced to a price determined by
making a computation in accordance with the provisions of Section 6.1 hereof,
provided that:
(i) The aggregate maximum number of shares of Common
Stock, as the case may be, issuable under such options, rights or warrants
shall be deemed to be issued and outstanding at the time such options, rights
or warrants were issued, and for a consideration equal to the minimum purchase
price per share provided for in such options, rights or warrants at the time of
issuance, plus the consideration, if any, received by the Company for the
issuance of such options, rights or warrants.
(ii) The aggregate maximum number of shares of Common
Stock issuable upon conversion or exchange of any convertible or exchangeable
securities shall be deemed to be issued and outstanding at the time of issuance
of such securities, and for a consideration equal to the consideration received
by the Company for the issuance of such securities, plus the minimum
consideration, if any, receivable by the Company upon the conversion or
exchange thereof.
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<PAGE> 10
(iii) If any change shall occur in the exercise price per
share provided for in any of the options, rights or warrants referred to in
clause (i) of Section 6.3, or in the price per share at which the securities
referred to in clause (ii) of Section 6.3 are convertible or exchangeable, such
options, rights or warrants or conversion or exchange rights, as the case may
be, shall be deemed to have expired or terminated on the date when such price
change became effective in respect of shares not theretofore issued pursuant to
the exercise or conversion or exchange thereof, and the Company shall be deemed
to have issued upon such date new options, rights or warrants or convertible or
exchangeable securities at the new price in respect of the number of shares
issuable upon the exercise of such options, rights or warrants or the
conversion or exchange of such convertible or exchangeable securities.
6.4 Subdivision and Combination. In case the Company shall at any
time subdivide or combine the outstanding shares of Common Stock, the Exercise
Price shall forthwith be proportionately decreased in the case of subdivision
or increased in the case of combination.
6.5 Adjustment in Number of Shares. Upon each adjustment of the
Exercise Price pursuant to the provisions of this Section 6, the number of
Shares issuable upon the exercise of this Purchase Option shall be adjusted to
the nearest full number by multiplying the Exercise Price in effect immediately
prior to such adjustment by the number of Shares issuable upon exercise of this
Purchase Option immediately prior to such adjustment and dividing the product
so obtained by the adjusted Exercise Price.
6.6 Definition of Common Stock. For the purpose of this Purchase
Option, the term "Common Stock" shall mean (i) the class of stock designated as
Common Stock in the Certificate of Incorporation of the Company as may be
amended as of the date hereof, or (ii) any other class of stock resulting from
successive changes or reclassifications of such Common Stock consisting solely
of changes in par value, or from par value to no par value, or from no par
value to par value. In the event that the Company shall after the date hereof
issue securities with greater or superior voting rights than the shares of
Common Stock outstanding as of the date hereof, the Holder, at its option, may
receive upon exercise of any Purchase Option either shares of Common Stock or a
like number of such securities with greater or superior voting rights.
6.7 Merger or Consolidation. Incase of any consolidation of the
Company with, or merger of the Company with, or merger of the Company into,
another corporation (other than a consolidation or merger which does not result
in any reclassification or change of the outstanding Common Stock), the
corporation formed by such consolidation or merger shall execute and deliver to
the Holder a supplemental Purchase Option providing that the holder of each
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<PAGE> 11
Purchase Option then outstanding or to be outstanding shall have the right
thereafter (until the stated expiration of such Purchase Option) to receive,
upon exercise of such Purchase Option, the kind and amount of shares of stock
and other securities and property receivable upon such consolidation or merger,
by a holder of the number of shares of Common Stock of the Company for which
such Purchase Option might have been exercised immediately prior to such
consolidation, merger, sale or transfer. Such supplemental Purchase Option
shall provide for adjustments which shall be identical to the adjustments
provided in Section 6. The above provision of this Section shall similarly
apply to successive consolidations or mergers.
6.8 No Adjustment of Exercise Price in Certain Cases. No adjustment
of the Exercise Price shall be made:
(i) Upon the issuance or sale of the shares of Common
Stock issuable upon the exercise of (1) the Purchase Options or (2) the options
outstanding on the date hereof and described in the prospectus relating to the
Company's public offering of Common Stock; or
(ii) Upon the issuance or sale of shares of Common Stock
upon the exercise of options, rights or warrants, or upon the conversion or
exchange of convertible or exchangeable securities, in any case where the
Exercise Price was adjusted at the time of issuance of such options, rights or
warrants, or convertible or exchangeable securities, as contemplated by
Section 6.3 hereof, or
(iii) Except in the case of events referred to in Sections
6.2.3, 6.2.4, 6.4 and 6.7, if the amount of said adjustment shall be less than
$0.2375 per Share for any single event or series of related events.
6.9 [Intentionally omitted.]
6.10 [Intentionally omitted.]
6.11 Dividends and Other Distributions. In the event that the
Company shall at any time prior to the exercise of all Purchase Options declare
a dividend (other than a dividend consisting solely of shares of Common Stock)
or otherwise distribute to its stockholders any assets, property, rights,
evidences of indebtedness, securities (other than shares of Common Stock),
whether issued by the Company or by another, or any other thing of value, the
Holders of the unexercised Purchase Options shall thereafter be entitled, in
addition to the shares of Common Stock or other securities and property
receivable upon the exercise thereof, to receive, upon the exercise of such
Purchase Options, the same property, assets, rights, evidences of indebtedness,
securities or any other thing of value that they would have been entitled to
receive at the time of
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<PAGE> 12
such dividend or distribution as if the Purchase Options had been exercised
immediately prior to such dividend or distribution. At the time of any such
dividend or distribution, the Company shall make appropriate reserves to ensure
the timely performance of the provisions of this Section 6.11.
6.12 Elimination of Fractional Interests. The Company shall not be
required to issue certificates representing fractions of shares of Common Stock
upon the exercise of the Purchase Option, nor shall it be required to issue
scrip or pay cash in lieu of any fractional interests, it being the intent of
the parties that all fractional interests shall be eliminated by rounding any
fraction up to the nearest whole number of shares of Common Stock or other
securities, properties or rights.
7. Reservation and Listing. The Company shall at all times reserve and
keep available out of its authorized shares of Common Stock, solely for the
purpose of issuance upon exercise of the Purchase Options, such number of
shares of Common Stock or other securities, properties or rights as shall be
issuable upon the exercise thereof. The Company covenants and agrees that, upon
exercise of the Purchase Options and payment of the Exercise Price therefor,
all shares of Common Stock and other securities issuable upon such exercise
shall be duly and validly issued, fully paid and non-assessable and not subject
to preemptive rights of any stockholder. As long as the purchase Options shall
be outstanding, the Company shall use its best efforts to cause all shares of
Common Stock issuable upon exercise of the Purchase Options to be listed
(subject to official notice of issuance) on all securities exchanges (or, if
applicable on NASDAQ) on which the Common Stock issued to the public in
connection herewith may then be listed and/or quoted.
8. Certain Notice Requirements.
8.1 Holder's Right to Receive Notice. Nothing herein shall be
construed as conferring upon the Holders the right to vote or consent or to
receive notice as a stockholder for the election of directors or any other
matter, or as having any rights whatsoever as a stockholder of the Company. If,
however, at any time prior to the expiration of the Purchase Options and their
exercise, any of the events described in Section 8.2 shall occur, then, in one
or more of said events, the Company shall give written notice of such event at
least fifteen days prior to the date fixed as a record date or the date of
closing the transfer books for the determination of the stockholders entitled
to such dividend, distribution, conversion or exchange of securities or
subscription rights, or entitled to vote on such proposed dissolution,
liquidation, winding up or sale. Such notice shall specify such record date or
the date of the closing of the transfer books, as the case may be.
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<PAGE> 13
8.2 Events Requiring Notice. The Company shall be required to give
the notice described in this Section 8 upon one or more of the following
events: (i) if the Company shall take a record of the holders of its shares of
Common Stock for the purpose of entitling them to receive a dividend or
distribution payable otherwise than in cash, or a cash dividend or distribution
payable otherwise than out of retained earnings, as indicated by the accounting
treatment of such dividend or distribution on the books of the Company, or (ii)
the Company shall offer to all the holders of its Common Stock any additional
shares of capital stock of the Company or securities convertible into or
exchangeable for shares of capital stock of the Company, or any option, right
or warrant to subscribe therefor, or (iii) a dissolution, liquidation or
winding up of the Company (other than in connection with a consolidation or
merger) or a sale of all or substantially all of its property, assets and
business shall be proposed.
8.3 Notice of Change in Exercise Price. The Company shall,
promptly after an event requiring a change in the Exercise Price pursuant to
Section 6 hereof, send notice to the Holders of such event and change ("Price
Notice"). The Price Notice shall describe the event causing the change and the
method of calculating same and shall be certified as being true and accurate by
the Company's President and Chief Financial Officer.
8.4 Transmittal of Notices. All notices, requests, consents and
other communications under this Purchase Option shall be in writing and shall
be deemed to have been duly made when hand delivered, or mailed by express mail
or private courier service: (i) If to the registered Holder of the Purchase
Option, to the address of such Holder as shown on the books of the Company, or
(ii) if to the Company, to following address or to such other address as the
Company may designate by notice to the Holders:
5727 South Lewis, Suite 700
Tulsa, Oklahoma 74105
9. Miscellaneous.
9.1 Amendments. The Company and the Underwriter may from time to
time supplement or amend this Purchase Option without the approval of any of
the Holders in order to cure any ambiguity, to correct or supplement any
provision contained herein which may be defective or inconsistent with any
other provisions herein, or to make any other provisions in regard to matters
or questions arising hereunder which the Company and the Underwriter may deem
necessary or desirable and which the Company and the Underwriter deem shall not
adversely affect the interest of the Holders. All other modifications or
amendments shall require the written consent of
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<PAGE> 14
signed by the party against whom enforcement of the modification or amendment
is sought.
9.2 Headings. The headings contained herein are for the sole
purpose of convenience of reference, and shall not in anyway limit or affect
the meaning or interpretation of any of the terms or provisions of this
Purchase Option.
9.3 Entire Agreement. This Purchase Option (together with the
other agreements and documents being delivered pursuant to or in connection
with this Purchase Option) constitutes the entire agreement of the parties
hereto with respect to the subject matter hereof, and supersedes all prior
agreements and understandings of the parties, oral and written, with respect to
the subject matter hereof.
9.4 Binding Effect. This Purchase Option shall inure solely to the
benefit of and shall be binding upon, the Holder and the Company and their
permitted assignees, respective successors, legal representatives and assigns,
and no other person shall have or be construed to have any legal or equitable
right, remedy or claim under or in respect of or by virtue of this Purchase
Option or any provisions herein contained.
9.5 Governing Law; Submission to Jurisdiction. This Purchase
Option shall be governed by and construed and enforced in accordance with the
law of the State of New York, without giving effect to conflict of laws. The
Company hereby agrees that any action, proceeding or claim against it arising
out of, or relating in any way to this Purchase Option shall be brought and
enforced in the courts of the State of New York or of the United States of
America for the Southern District of New York, and irrevocably submits to such
jurisdiction, which jurisdiction shall be exclusive. The Company hereby waives
any objection to such exclusive jurisdiction and that such courts represent an
inconvenient forum. Any process or summons to be served upon the Company may be
served by transmitting a copy thereof by registered or certified mail, return
receipt requested, postage prepaid, addressed to it at the address set forth in
Section 8 hereof. Such mailing shall be deemed personal service and shall be
legal and binding upon the Company in any action, proceeding or claim. The
Company agrees that the prevailing party(ies) in any such action shall be
entitled to recover form the other party(ies) all of its reasonable attorneys'
fees and expenses relating to such action or proceeding and/or incurred in
connection with the preparation therefor.
9.6 Waiver, Etc. The failure of the Company or the Holder to at
any time enforce any of the provisions of this Purchase Option shall not be
deemed or construed to be a waiver of any such provision, nor to in any way
affect the validity of this Purchase Option or any provision hereof or the
right of the Company or any
14
<PAGE> 15
Holder to thereafter enforce each and every provision of this Purchase Option.
No waiver of any breach, non-compliance or nonfulfillment of any of the
provisions of this purchase Option shall be effective unless set forth in a
written instrument executed by the party or parties against whom or which
enforcement of such waiver is sought, and no waiver of any such breach,
non-compliance or non-fulfillment shall be construed or deemed to be a waiver
of any other or subsequent breach, non-compliance or non-fulfillment.
9.7 Execution in Counterparts. This Purchase Option may be
executed in one or more counterparts, and by the different parties hereto in
separate counterparts, each of which shall be deemed to be an original, but all
of which taken together shall constitute one and the same agreement, and shall
become effective when one or more counterparts has been signed by each of the
parties hereto and delivered to each of the other parties hereto.
IN WITNESS WHEREOF, the Company has caused this Purchase Option to be
signed by its duly authorized officer as of the 21st day of September 1993.
AMERICAN NATURAL ENERGY CORPORATION
By /s/ Michael K. Paulk
Name Michael K. Paulk
Title: President
15
<PAGE> 16
Form to be used to exercise or convert Purchase Option:
AMERICAN NATURAL ENERGY CORPORATION
5727 South Lewis, Suite 700
Tulsa, Oklahoma 74105
Date: , 19
The Undersigned hereby elects irrevocably to exercise the within
Purchase Option and to purchase Shares of Common Stock of American
Natural Energy Corporation and hereby makes payment of $ (at the
rate of $ per Share) in payment of the Exercise Price pursuant
thereto. Please issue the Shares as to which this Purchase Option is
exercised in accordance with the instructions given below.
or
The Undersigned hereby elects irrevocably to convert of the Shares
purchasable under the within Purchase Option into Shares of American
Natural Energy Corporation (based on "Market Price" of $ ). Please
issue the Shares in accordance with the instructions given below.
Signature______________________________________
Signature Guaranteed___________________________
INSTRUCTIONS FOR REGISTRATION OF SECURITIES
Name_____________________________________________________________________
(Print in Block Letters )
Address__________________________________________________________________
NOTICE: THE SIGNATURE TO THIS FORM MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE WITHIN PURCHASE OPTION IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE GUARANTEED BY A
BANK, OTHER THAN A SAVINGS BANK, OR BY A TRUST COMPANY OR BY A FIRM HAVING
MEMBERSHIP ON A REGISTERED NATIONAL SECURITIES EXCHANGE.
<PAGE> 17
Form to be used to assign Purchase Option:
ASSIGNMENT
(To be executed by the registered Holder to effect a transfer of the
within Purchase Option):
FOR VALUE RECEIVED, _________________________________________________
does hereby sell, assign and transfer unto ___________________________________
the right to purchase _____________ Shares of Common Stock of American Natural
Energy Corporation ("Company") evidenced by the within Purchase Option and does
hereby authorize the Company to transfer such right on the books of the
Company.
Dated: _________________, 199__
________________________________
Signature
________________________________
Signature Guaranteed
NOTICE: THE SIGNATURE TO THIS FORM MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE WITHIN PURCHASE OPTION IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE GUARANTEED BY A
BANK, OTHER THAN A SAVINGS BANK, OR BY A TRUST COMPANY OR BY A FIRM HAVING
MEMBERSHIP ON A REGISTERED NATIONAL SECURITIES EXCHANGE.
<PAGE> 1
Exhibit 10(x)
AMERICAN NATURAL ENERGY CORPORATION
April 19, 1993
To: Larry L. Terry
We are pleased to inform you that on April 19, 1993, the Option
Committee of the Board of Directors of American Natural Energy Corporation (the
"Company") granted you an option to purchase 50,000 shares of Common Stock of
the Company, par value $.01 per share (the "Shares"), at a price of $3.25 per
Share (the "Option").
The Option is exercisable (i) with respect to the first 25,000 Shares,
subsequent to the completion of one year of service as an employee or director
of the Company ("Employee"), and (ii) with respect to the remaining 25,000
Shares, subsequent to the completion of a second year of service as an Employee
of the Company; provided however that service prior to the Grant Date shall be
included for the purpose of calculating the periods referred to in items (i)
and (ii) above, provided further, however, that the Option shall become
immediately exercisable upon the sale of all or substantially all of the assets
of the Company or upon the completion of a tender offer for any amount of the
Common Stock of the Company exceeding 50% of the then issued and outstanding
Common Shares of the Company. Notwithstanding anything to the contrary herein,
(i) this option shall be exercisable only if you are an Employee, or if
exercised within 30 days after you cease to be an Employee, for any reason
other than a Termination for Cause (as defined below), but in any event, on or
prior to April 19, 1998. For the purpose of this agreement, "Termination for
Cause" shall be deemed to mean (i) your willful and repeated refusal to follow
the lawful directives of the Board of Directors or the President of the Company
for the performance of material duties which you are required to perform, other
than any such failure resulting from your incapacity due to physical or mental
illness, or (ii) conviction of the Employee for a felony involving moral
turpitude.
The Company, in its sole discretion, may file a registration statement under
the Securities Act of 1933, as
<PAGE> 2
amended (the "Act") in order to register the Shares. Unless at the time of the
exercise of the Option a registration statement under the Act is in effect as
to such Shares, any Shares purchased by you upon the exercise of the Option
shall be acquired for investment and not for sale or distribution, and if the
Company so requests, upon any exercise of the Option, in whole or in part, you
will execute and deliver to the Company a certificate to such effect. The
Company shall not be obligated to issue any Shares pursuant to the Option if,
in the opinion of counsel to the Company, the Shares to be so issued are
required be registered or otherwise qualified under the Act or under any other
applicable statute, regulation or ordinance affecting the sale of securities,
unless and until such Shares have been so registered or otherwise qualified.
You understand and acknowledge that, under existing law, unless at the
time of the exercise of the Option a registration statement under the Act is in
effect as to such Shares (i) any Shares purchased by you upon exercise of the
Option may be required to be held indefinitely unless such Shares are
subsequently registered under the Act or an exemption from such registration is
available; (ii) any sales of such Shares made in reliance upon Rule 144
promulgated under the Act may be made only in accordance with the terms and
conditions of that Rule (which, under certain circumstances, restrict the
number of shares which may be sold and the manner in which shares may be sold);
(iii) in the case of securities to which Rule 144 is not applicable, compliance
with Regulation A promulgated under the Act or some other disclosure exemption
will be required before any Shares may be sold; (iv) certificates for Shares to
be issued to you hereunder shall bear a legend to the effect that the Shares
have not been registered under the Act and that the Shares may not be sold,
hypothecated or otherwise transferred in the absence of an effective
registration statement under the Act relating thereto or an opinion of counsel
satisfactory to the Company that such registration is not required; (v) the
Company will place an appropriate "stop transfer" order with its transfer agent
with respect to such Shares; and (vi) the Company has undertaken no obligation
to register the Shares or to include the Shares in any registration statement
which may be filed by it subsequent to the issuance of any of the Shares to
you.
The Option (or installment thereof) is to be exercised by delivering
to the Company a written notice of exercise in the form attached hereto as
Exhibit A, specifying the number of Shares to be purchased, together with
payment of the purchase price of the Shares to be purchased. The purchase price
is to be paid in cash or, at the discretion of the Option Committee, by
delivering shares of the Company's stock already owned by you, such shares to
be deemed to have a value of $3.25 per share, or a combination of such shares
and cash.
-2-
<PAGE> 3
Would you kindly evidence your acceptance of the Option by executing
this letter under the words "Agreed To and Accepted."
Very truly yours,
AMERICAN NATURAL ENERGY CORPORATION
By /s/ MICHAEL K. PAULK,
Michael K. Paulk,
President
AGREED TO AND ACCEPTED
/s/ LARRY L. TERRY
-3-
<PAGE> 4
AMERICAN NATURAL ENERGY CORPORATION
November 29, 1993
To: Larry L. Terry
We are pleased to inform you that on October 5, 1993, the Option
Committee of the Board of Directors on American Natural Energy Corporation (the
"Company") granted you an option to purchase 50,000 shares of Common Stock of
the Company, par value $.01 per share (the "Shares"), at a price of $5.00 per
Share (the "Option").
The Option is exercisable (i) with respect to the first 25,000 Shares,
subsequent to the completion of one year of service as an employee or director
of the Company ("Employee"), and (ii) with respect to the remaining 25,000
Shares, subsequent to the completion of a second year of service as an Employee
of the Company; provided however that service prior to the Grant Date shall be
included for the purpose of calculating the periods referred to in items (i)
and (ii) above, provided further, however, that the Option shall become
immediately exercisable upon the sale of all or substantially all of the assets
of the Company or upon the completion of a tender offer for any amount of the
Common Stock of the Company exceeding 50% of the then issued and outstanding
Common Shares of the Company. Notwithstanding anything to the contrary herein,
(i) this Option shall be exercisable only if you are an Employee, or if
exercised within 30 days after you cease to be an Employee, for any reason
other than a Termination for Cause (as defined below), but in any event, on or
prior to October 5, 1998. For the purpose of this agreement, "Termination for
Cause" shall be deemed to mean (i) your willful and repeated refusal to follow
the lawful directives of the Board of Directors of the President of the Company
for the performance or material duties which you are required to perform, other
than any such failure resulting from your incapacity due to physical or
mental illness, or (ii) conviction of the Employee for a felony involving moral
turpitude.
The Company, in its sole discretion, may file a registration statement
under the Securities Act of 1933, as amended (the "Act") in order to register
the Shares. Unless at the time of the exercise of the Option a registration
statement under the Act is in effect as to such Shares, and Shares purchased by
you upon the exercise of the Option shall be acquired
5727 South Lewis / Suite 700 / Tulsa, Oklahoma 74105
(918) 749-5666 / FAX (918) 749-5882
<PAGE> 5
for investment and not for sale or distribution, and if the Company so
requests, upon any exercise of the Option, in whole or in part, you will
execute and deliver to the Company a certificate to such effect. The Company
shall not be obligated to issue any Shares pursuant to the Option if, in the
opinion of counsel to the Company, the Shares to be so issued are required to
be registered or otherwise qualified under the Act or under any other
applicable statute, regulation or ordinance affecting the sale of securities,
unless and until such Shares have been so registered or otherwise qualified.
You understand and acknowledge that, under existing law, unless at the
time of the exercise of the Option a registration statement under the Act is in
effect as to such Shares (i) any Shares purchased by you upon exercise of the
Option may be required to be held indefinitely unless such Shares are
subsequently registered under the Act or as an exemption from such registration
is available, (ii) any sales of such Shares made in reliance upon Rule 144
promulgated under the Act may be made only in accordance with the terms and
conditions of that Rule (which, under certain circumstance, restrict the number
of Shares which may be sold and the manner in which Shares may be sold); (iii)
in the case of securities to which Rule 144 is not applicable, compliance with
Regulation A promulgated under the Act or some other disclosure exemption will
be required before any Shares may be sold, (iv) certificates for Shares to be
issued to you hereunder shall bear a legend to the effect that the Shares have
not been registered under the Act and that the Shares may not be sold,
hypothecated or otherwise transferred in the absence of an effective
registration statement under the Act relating thereto or an opinion of counsel
satisfactory to the Company that such registration is not required; (v) the
Company will place an appropriate "stop transfer" order with its transfer agent
with respect to such Shares; and (vi) the Company has undertaken no obligation
to register the Shares or to include the Shares in any registration statement
which may be filed by it subsequent to the issuance of any of the Shares to
you.
The Option (or installment thereof) is to be exercised by delivering
to the Company a written notice of exercise in the form attached hereto as
Exhibit A, specifying the number of Share to be purchased, together with
payment of the purchase price of the Shares to be purchased. The purchase price
is to be paid in cash or, at the discretion of the Option Committee, by
delivering shares of the Company's stock already owned by
<PAGE> 6
you, such Shares to be deemed to have a value of $5.00 per share, or a
combination of such shares and cash.
Would you kindly evidence your acceptance of the Option by
executing this letter under the words "Agreed To and Accepted".
Very truly yours,
AMERICAN NATURAL ENERGY CORPORATION
BY: /s/ MICHAEL PAULK
Michael Paulk, President
AGREED TO AND ACCEPTED:
/s/ LARRY L. TERRY
<PAGE> 1
EXHIBIT 10(y)
EXHIBIT "C"
AMERICAN NATURAL ENERGY CORPORATION
1992 DIRECTORS' STOCK OPTION PLAN
ARTICLE I
PURPOSE
The purpose of the ALN Resources Corporation 1992 Directors' Stock
Option Plan (the "Plan") is to secure for ALN Resources Corporation and its
stockholders the benefits arising from stock ownership by its Directors. The
Plan will provide a means whereby such Directors may purchase shares of the
common stock, $.01 par value, of American Natural Energy Corporation pursuant
to options granted in accordance with the Plan.
ARTICLE II
DEFINITIONS
The following capitalized terms used in the Plan shall have the
respective meanings set forth in this Article:
2.1 "Board" shall mean the Board of Directors of American Natural
Energy Corporation.
2.2 "Chairman" shall mean the duly appointed Chairman of any
standing Committee of the Board.
2.3 "Committee" shall mean a duly appointed standing committee of
the Board.
2.4 "Company" shall mean American Natural Energy Corporation and
any of its subsidiaries.
2.5 "Director" shall mean any person who is a member of the Board
of Directors of the Company.
2.6 "Eligible Director" shall mean any Director who is not a
full-time employee of the Company.
2.7 "Exercise Price" shall mean the price per Share at which an
Option may be exercised.
2.8 "Fair Market Value" shall mean the closing sales price of a
Share as quoted on the National Association of Securities Dealers Automated
Quotation ("NASDAQ") System on the Grant Date or on the preceding date on which
such Shares are traded if no Shares were traded on such Grant Date. If the
Shares are not quoted on the NASDAQ System, Fair Market Value shall be deemed
to
<PAGE> 2
be the average of the closing bid and asked prices of the Shares in the
over-the-counter market on the Grant Date, or on the next preceding date on
which the last prices were recorded.
2.9 "Grant Date" shall mean the Initial Grant Date or Subsequent
Grant Date.
2.10 "Initial Grant Date" shall mean, with respect to each Eligible
Director, the date such Eligible Director is first elected as a member of the
Board subsequent to the adoption of this Plan by the Board of Directors of the
Company.
2.11 "Option" shall mean an option to purchase Shares granted
pursuant to the Plan.
2.12 "Option Agreement" shall mean the written agreement described
in Article VI herein.
2.13 "Permanent Disability" shall mean the condition of an Eligible
Director who is unable to participate as a member of the Board by reason of any
medically determined physical or mental impairment which can be expected to
result in death or which can be expected to last for a continuous period of not
less than twelve (12) months.
2.14 "Purchase Price" shall be the Exercise Price multiplied by the
number of whole Shares with respect to which an Option is being exercised.
2.15 "Shares" shall mean shares of common stock, $.01 par value, of
the Company.
2.16 "Subsequent Grant Date" shall mean each anniversary date of the
Initial Grant Date during the term of the Plan.
ARTICLE III
ADMINISTRATION
3.1 General. This Plan shall be administered by the Board in
accordance with the express provisions of this Plan.
3.2 Powers of the Board. The Board shall have full and complete
authority to adopt such rules and regulations and to make all such other
determinations not inconsistent with the Plan as may be necessary for the
administration of the Plan.
<PAGE> 3
ARTICLE IV
SHARES SUBJECT TO PLAN
Subject to adjustment in accordance with Article IX, an aggregate of
100,000 Shares is reserved for issuance under this Plan. Shares sold under this
Plan may be either authorized but unissued Shares or reacquired Shares. If an
Option, or any portion thereof, shall expire or terminate for any reason
without having been exercised in full, the unpurchased Shares covered by such
Option shall be available for future grants of Options.
ARTICLE V
GRANTS
5.1 Initial Grants. On the Initial Grant Date, each Eligible
Director shall receive the grant of an option to purchase 4,000 Shares.
5.2 Subsequent Grants. On each Subsequent Grant Date, each Eligible
Director shall receive the grant of an Option to purchase 4,000 Shares.
5.3 Compliance With Rule 16b-3. The terms for the grant of Options
to an Eligible Director may only be changed if permitted under Rule 16b-3 of
the Securities Exchange Act of 1934, as amended, and accordingly the formula
for the grant of Options may not be changed or otherwise modified more than
once in any six month period.
ARTICLE VI
TERMS OF OPTION
Each Option shall be evidenced by a written Option Agreement executed
by the Company and the Eligible Director which shall specify the Grant Date,
the number of Shares subject to the Option, the Exercise Price and shall also
include or incorporate by reference the substance of all of the following
provisions and such other provisions consistent with this Plan as the Board may
determine.
6.1 Term. The term of the Option shall be five (5) years from the
Grant Date of each Option, subject to earlier termination in accordance with
Articles VI and X.
6.2 Restriction on Exercise. Options shall be exercisable at such
time or times and subject to such terms and conditions as shall be determined
by the Committee at grant; provided, however, that except in the case of the
Eligible Director's death or Permanent Disability, upon which events the
<PAGE> 4
Option will become immediately exercisable, unless a longer vesting period is
otherwise determined by the Committee at grant, Options shall be exercisable as
follows: up to one-third of the aggregate Shares purchasable under an Option
shall be exercisable commencing one year after the Grant Date, an additional
one-third of the Shares purchasable under an Option shall be exercisable
commencing two years after the Grant Date and the balance commencing on the
third anniversary from the Grant Date. The Committee may waive such installment
exercise provision at any time in whole or in part based on performance and/or
such other factors as the Committee may determine in its sole discretion;
provided, however, that no Option shall be exercisable until more than six
months have elapsed from the Grant Date.
6.3 Exercise Price. The Exercise Price for each Share subject to an
Option shall be the Fair Market Value thereof.
6.4 Manner of Exercise. An Option shall be exercised in accordance
with its terms, by delivery of a written notice of exercise to the Company and
payment of the full Purchase Price of the Shares being purchased. An Eligible
Director may exercise an Option with respect to all or less than all of the
Shares for which the Option may then be exercised.
6.5 Payment. The Purchase Price of Shares purchased pursuant to an
Option or portion thereof, may be paid:
(a) in United States Dollars, in cash or by check, bank
draft or money order payable to the Company;
(b) by delivery of Shares already owned by an Eligible
Director with an aggregate Fair Market Value on the date of exercise equal to
the Purchase Price, subject to the provisions of Section 16(b) of the
Securities and Exchange Act of 1934;
(c) through the written election of the Eligible Director
to have Shares withheld by the Company from the Shares otherwise to be received
upon the exercise of an Option, with such withheld Shares having an aggregate
Fair Market Value on the date of exercise equal to the Purchase Price.
6.6 Transferability. No Option shall be transferable otherwise
than by will or the laws of descent and distribution or a qualified domestic
relations order, and an Option shall be exercisable during the Eligible
Director's lifetime only by the Eligible Director, his guardian or legal
representative.
6.7 Termination of Membership on the Board. If an Eligible
Director's membership on the Board terminates for any reason, an Option held on
the date of termination may be exercised in whole or in part at any time within
one (1) year after the date
<PAGE> 5
of such termination (but in no event after the term of the Option expires) and
shall thereafter terminate.
ARTICLE VII
GOVERNMENT AND OTHER REGULATIONS
7.1 Delivery of Shares. The obligation of the Company to issue or
transfer and deliver Shares for exercised Options under the Plan shall be
subject to all applicable laws, regulations, rules, orders and approvals which
shall then be in effect.
7.2 Holding of Stock After Exercise of Option. The Option
Agreement shall provide that the Eligible Director, by accepting such Option,
represents and agrees, for the Eligible Director and his permitted transferees
hereunder that none of the Shares purchased upon exercise of the Option shall
be aquired with a view to any sale, transfer or distribution of the Shares in
violation of the Securities Act of 1933, as amended (the "Act") and the person
exercising an Option shall furnish evidence satisfactory to that Company to
that effect, including an indemnification of the Company in the event of any
violation of the Act by such person. Notwithstanding the foregoing, the Company
in its sole discretion may register under the Act the Shares issuable upon
exercise of the Options under the Plan.
ARTICLE VIII
WITHHOLDING TAX
The Company may in its discretion, require an Eligible Director to pay
to the Company, at the time of exercise of an Option an amount that the Company
deems necessary to satisfy its obligations to withhold federal, state or local
income or other taxes (which for purposes of this Article includes an Eligible
Director's FICA obligation) incurred by reason of such exercise. When the
exercise of an Option does not give rise to the obligation to withhold federal
income taxes on the date of exercise, the Company may, in its discretion,
require an Eligible Director to place Shares purchased under the Option in
escrow for the benefit of the Company until such time as federal income tax
withholding is required on amounts included in the Eligible Director's
gross income as a result of the exercise of an Option. At such time, the
Company, in its discretion, may require an Eligible Director to pay to the
Company an amount that the Company deems necessary to satisfy its obligation
to withhold federal, state or local taxes incurred by reason of the exercise of
the Option, in which case the Shares will be released from escrow upon such
payment by an Eligible Director.
<PAGE> 6
ARTICLE IX
ADJUSTMENTS
9.1 Proportionate Adjustments. If the outstanding Shares are
increased, decreased, changed into or exchanged into a different number or kind
of Shares or securities of the Company through reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split (other than the reverse stock split described in the proxy statement for
the annual meeting of shareholders of the Company held on November 30, 1992) or
other similar transaction, an appropriate and proportionate adjustment shall be
made to the maximum number and kind of Shares as to which Options may be granted
under this Plan. A corresponding adjustment changing the number or kind of
Shares allocated to unexercised Options or portions thereof, which shall have
been granted prior to any such change, shall likewise be made. Any such
adjustment in the outstanding Options shall be made without change in the
Purchase Price applicable to the unexercised portion of the Option with a
corresponding adjustment in the Exercise Price of the Shares covered by the
Option. Notwithstanding the foregoing, there shall be no adjustment for the
issuance of Shares on conversion of notes, preferred stock or exercise of
warrants or Shares issued by the Board for such consideration as the Board
deems appropriate.
9.2 Dissolution or Liquidation. Upon the dissolution or
liquidation of the Company, or upon a reorganization, merger or consolidation
of the Company with one or more corporations as a result of which the Company
is not the surviving corporation, or upon a sale of substantially all of the
property or more than 80% of the then outstanding Shares of the Company to
another corporation, the Company shall give to each Eligible Director at the
time of adoption of the plan or agreement relating to such liquidation,
dissolution, merger or sale either (1) a reasonable time thereafter within
which to exercise the Option prior to the effective date of such liquidation or
dissolution, merger or sale, or (2) the right to exercise the Option as to an
equivalent number of shares of stock of the corporation succeeding the Company
or acquiring its business by reason of such liquidation, dissolution, merger,
consolidation or reorganization.
ARTICLE X
AMENDMENT OR TERMINATION OF PLAN
10.1 Amendments. The Board may at any time amend or revise the
terms of the Plan; provided, however, that no such amendment or revision shall,
unless appropriate stockholder approval of such amendment or revision is
obtained:
<PAGE> 7
(a) increase the maximum number of Shares which may be
sold pursuant to Options granted under the Plan, except as permitted under the
provisions of Article IX;
(b) change the minimum Exercise Price set forth in
Article VI;
(c) increase the maximum term of Options Provided for in
Article VI; or
(d) permit the granting of Options to any one other than
as provided in Article V.
10.2. Termination. The Board may suspend or terminate this Plan at
any time. This Plan, unless sooner terminated, shall terminate on the tenth
(10th) anniversary of its adoption by the Board. No Option may be granted under
this plan while this Plan is suspended or after it is terminated.
10.3 Holder of Consent. No amendment, suspension or termination of
the Plan shall, without the consent of the holder of Options, alter or impair
any rights or obligations under any Option theretofore granted under the Plan.
ARTICLE XI
MISCELLANEOUS PROVISIONS
11.1 Privileqe of Stock Ownership. No Eligible Director entitled to
exercise any Option granted under the Plan shall have any of the rights or
privileges of a stockholder of the Company with respect to any Shares issuable
upon exercise of an Option until certificates representing the Shares shall
have been issued and delivered.
11.2 Plan Expenses. Any expenses incurred in the administration of
the Plan shall be borne by the Company.
11.3 Use of Proceeds. Payments received from an Eligible Director
upon the exercise of Options shall be used for general corporate purposes of
the Company
11.4 Governinq Law. The Plan has been adopted under the laws of the
State of Oklahoma. The Plan and all Options which may be granted hereunder and
all matters related thereto, shall be governed by and construed and enforceable
in accordance with the laws of the State of Oklahoma as it then exists.
<PAGE> 8
ARTICLE XII
SHAREHOLDER APPROVAL
This Plan is subject to approval, at a duly held shareholders' meeting
within twelve (12) months after the date the Board approves this Plan, by the
affirmative vote of holders of a majority of the voting Shares of the Company
represented in person or by proxy and entitled to vote at the meeting. Options
may be granted, but not exercised, before such shareholder approval. If the
shareholders fail to approve the Plan within the required time period, any
Options granted under this Plan shall be void, and no additional Options may
thereafter be granted.
<PAGE> 1
EXHIBIT 10(z)
EMPLOYMENT AND OPTION
AGREEMENT
AGREEMENT made as of the 1st day of July, 1990, between ALN Resources
Corporation (hereinafter called the "Company"), and Michael Paulk (hereinafter
called "Employee").
1. EMPLOYMENT. The Company employs Employee who accepts employment upon
the terms and conditions of this Agreement.
2. TERM. The Term of employment provisions of this Agreement shall begin
on July 1, 1990, and shall terminate on June 30, 1995, unless renewed. The
Company shall have the option of renewing this contract for an additional
two-year period, commencing on July 1, 1995, and ending on June 30, 1997.
Notice of the Company's intention to renew the Agreement for an additional
two-year period shall be made in writing to Employee on or before January 1,
1995.
3. COMPENSATION. For all services rendered by Employee, the Company
shall pay him a salary of $89,100. a year, payable in equal monthly
installments on the 15th day of each month. Salary payment shall be subject to
withholding and other applicable taxes. The Company shall review said
compensation semiannually with the opportunity to provide raises or increases
to Employee at the review date, with such decision to be subject to approval by
the President.
4. BONUS COMPENSATION. It will be the Company's policy to provide
Employee, as an additional incentive, either on an annual or quarterly basis,
additional bonus compensation in the form of additional cash payments at the
discretion of the President. Such bonus compensation, if any, shall be
determined by the President in consideration of such factors as the Company's
profitability, change in asset size of Company, number of employees, sales
levels and growth in sales, and other factors determined by the President as
relevant in its decision.
5. STOCK OPTIONS. At the discretion of the Board of Directors, as
additional incentive to the employee, options to purchase stock of the Company
will be issued at times and amounts determined by the Board. Such issuances
will be within all Security and Exchange Commission, or other governing body
rules.
6. DUTIES. Employee is to be employed as the President of the Company
and will be charged with all activities related thereto. Employee shall devote
all time, attention and energies to the Company's business.
7. EXPENSES. Employee may incur reasonable expenses
<PAGE> 2
for promoting the Company's business, including expenses for entertainment,
travel and similar items. The Company will reimburse Employee for all such
expenses upon the periodic presentation of an itemized account of such
expenditures.
8. VACATIONS. Employee shall be entitled each year to a vacation of
three weeks, during which time his compensation shall be paid in full.
9. DISABILITY. If Employee should be unable to perform his services by
reason of illness or incapacity for a period of more than thirty (30)
consecutive days, the compensation thereafter payable to him during the
continued period of such illness or incapacity shall be reduced by 50%.
Employee's full compensation shall be reinstated upon a return to full
employment and discharge of full duties. Notwithstanding anything to the
contrary, the Company may terminate this Agreement at any time after the
Employee shall be absent from his employment, for whatever cause, for a
continuing period of more than six months, and all obligations of the Company,
other than Paragraphs 10 and 11 of this Agreement, shall thereupon terminate.
10. DEATH DURING EMPLOYMENT. If Employee should die during the term of
employment, the Company shall pay to the estate of Employee the compensation
which would otherwise be payble to him up to the end of the month in which his
death occurs. In addition, the Company shall pay an additional three (3) months
salary within 60 days after the death of the Employee, to the widow, to the
Employee's surviving children in equal shares or, if there are no such
surviving children, to the estate of the Employee.
11. TERMINATION OF EMPLOYMENT. This agreement may terminate for any
reason based on the sole discretion of the Board of Directors. In the event the
Board of Directors of the Company decides that it is in the best interest of
the Company to terminate this agreement, Employee will be promptly notified and
this agreement shall terminate. In the event this agreement is terminated by
the Board of Directors of the Company, Employee shall be entitled to a one time
severance payment, made upon termination, equal to the remaining months of this
agreement before expiration or if applicable, the renewal agreement. Other than
the payment of severance as set forth in this paragraph, all other duties,
obligations, payments, privileges and consideration of any sort shall terminate
and shall no longer be effective by and between the Company and Employee.
12. NO RIGHTS IN OPTION STOCK. Employee shall have no rights as
shareholders in respect of shares as to which the option shall not have been
exercised and payment made as herein provided, and shall have no rights with
respect to such shares not expressly conferred by this Agreement.
<PAGE> 3
13. SHARES RESERVED. The Company shall at all times during the term of
this Agreement reserve and keep available such number of its common shares as
will be sufficient to satisfy the requirements of this Agreement, and shall pay
all original issue taxes on the exercise of this option, and all other fees and
expenses necessarily incurred by the Company in connection therewith.
14. ASSIGNMENT. Employee acknowledges that the services to be performed
by him are unique and personal. Accordingly, the Employee may not assign any of
his rights or delegate any of his duties or obligations under this Agreement.
The rights and obligations of the Company under this Agreement shall inure to
the benefit of and shall be binding upon the successors and assigns of the
Company.
IN WITNESS WHEREOF, the parties have signed this Agreement.
By /s/ MICHAEL PAULK
Title
(Corporate Seal)
Attest:
/s/ CHRIS WILLIFORD
Secretary
Employee:
/s/ MICHAEL PAULK
<PAGE> 4
AMENDMENT NUMBER 1 TO EMPLOYMENT
AND OPTION AGREEMENT
THIS AMENDMENT is made as of the 1st day of May, 1993 between American
Natural Energy Corporation (the "Company") and Michael Paulk (the "Employee")
amending the Employment and Option Agreement entered into by and between the
Company and the Employee dated as of July 1, 1990 (the "Agreement").
1. The Company and the Employee agree to amend the Agreement as follows:
(a) Section 3 of the Agreement is hereby amended to provide that
the Employee's salary is $96,000 per annum. The parties hereto confirm that the
Employee's Salary has been $96,000 per annum since January 1, 1992, and the
parties agree that the amendment of the Agreement provided for by this Section
1(a) shall be deemed effective as of such date.
(b) Section 4 of the Agreement is hereby amended to provide that
payment of any bonus compensation to the Employee shall be made pursuant to the
authorization of the Company's Board of Directors, or any duly appointed
committee thereof, in consideration of such factors as are listed in Section 6
of the Agreement.
(c) The following provision is added to the Agreement effective as
of the date of this Amendment:
"15. Non-competition. In the event the Employee is terminated for
cause, as defined below, or refuses to continue his employment
with the Company if the Company has exercised its option under
Section 2 of this Agreement to renew this Agreement for an additional
two year period, the Employee agrees, notwithstanding any
<PAGE> 5
provision to the contrary in this Agreement, that for a period of one
year commencing upon such termination he shall not, directly or
indirectly, engage in the oil and gas business at any location in the
State of Oklahoma or the State of Texas. For the purposes of this
Agreement, "cause" shall mean (i) willful and repeated refusal of the
Employee to follow the lawful directives of the Board of Directors of
the Company for the performance of material duties which the Employee
is required to perform hereunder, other than any such failure
resulting from the Employee's incapacity due to physical or mental
illness, or (ii) conviction of the Employee for a felony involving
moral turpitude."
(d) The following provision is hereby added to the Amendment:
"16. Reimbursement. The Employee and the Company hereby agree that
the Employee shall be reimbursed for all dues or fees incurred
by him with respect to his country club membership now existing or
hereafter acquired."
2. The Company and the Employee agree that except as otherwise expressly
provided by this Amendment, the terms and provisions of the Agreement shall
remain in full force and effect.
IN WITNESS WHEREOF, the parties have duly executed this Amendment as of
the date first above written.
AMERICAN NATURAL ENERGY CORPORATION
By: /s/ MICHAEL PAULK
Name:
Title: President
/s/ MICHAEL PAULK
Michael Paulk
<PAGE> 1
EXHIBIT 10(aa)
CANCELLATION AND SEVERANCE AGREEMENT
THIS CANCELLATION AGREEMENT (the "Cancellation Agreement") dated this
19th day of September, 1994 by and between AMERICAN NATURAL ENERGY CORPORATION,
an Oklahoma corporation ("American") and MICHAEL PAULK ("Paulk"), an
individual.
WITNESSETH:
WHEREAS, American and Paulk entered into an Employment and Option
Agreement dated July 1, 1990 as amended by Amendment Number 1 dated May 1, 1993
(herein collectively referred to as the "Employment Agreement"); and
WHEREAS, the Employment Agreement terminates on June 30, 1995, but
Paulk is desirous of terminating his relationship with American in accordance
with the terms and provisions of this Cancellation Agreement; and
WHEREAS, American has been acquired by Alexander Energy Corporation
("Alexander") pursuant to that certain Agreement and Plan of Merger (the
"Merger Agreement"); and
WHEREAS, the closing (the "Closing") of the transaction described in
this Cancellation Agreement will be September 19, 1994 or at a subsequent date
mutually agreed to by the parties.
NOW, THEREFORE, in consideration of the promises herein and other
valuable consideration the receipt of which is hereby acknowledged by Paulk,
the parties hereto agree as follows:
1. Aqreement of Cancellation. Effective September 1, 1994, the
Employment Agreement is hereby mutually cancelled by American and Paulk and all
the terms and provisions thereof are hereby terminated with neither party
bearing any liability or responsibility to the other party under the Employment
Agreement from the date hereof.
2. Payments to Paulk. In consideration of Paulk terminating the
Employment Agreement and his relationship with American, its parent and its
subsidiaries, American agrees to pay to Paulk at Closing a cash payment of
$120,000 in settlement of American's obligations under the Employment
Agreement.
3. Tulsa Office Expenses. Commencing not later than November 1,
1994, Paulk shall assume all expenses of the Tulsa, Oklahoma office of
American, including without limitation, (a) all obligations and liabilities
with respect to the remaining American employees (Kim Ward, Gordia Cosby and
Linda Elsey) in Tulsa for severance pay or otherwise and (b) all obligations
and liabilities pursuant to the Lease Agreement between American and Planet
Pacific, Inc. ("Planet") for the leased premises at One Summit
<PAGE> 2
Plaza (the "Tulsa Lease"). Paulk covenants and agrees to indemnify and hold
American and Alexander harmless from any and all such costs, expenses and
liabilities. Upon Paulk providing evidence satisfactory to Alexander that
Planet has released, without condition, American from any and all obligations
or liabilities under or pursuant to the Tulsa Lease, American shall pay Paulk,
but not earlier than January 1, 1995, the sum of $125,000 less the aggregate of
(i) amounts owed by Paulk to American on such date as reflected by the books
and records of American and (ii) interest on the outstanding amounts owed
American by Paulk from September 1, 1994 through the date of payment by
American, at a rate per annum equal to the rate charged to Alexander by its
principal lending bank.
4. Automobile Lease. At Closing, Paulk shall assume American's
lease of the automobile identified on Exhibit A hereto and hereby covenants and
agrees to hold American harmless for any and all costs, liabilities or expenses
with respect thereto from and after September 1, 1994; provided American will
continue the liability coverage, if permitted by the insurer, on such
automobile until November 1, 1994.
5. Resignation of Paulk. Effective upon the Closing, Paulk hereby
submits and American and Alexander hereby accept Paulk's resignation as an
employee, director or officer of American and Alexander, and any subsidiaries
of American and Alexander.
6. Release. In consideration of the mutual provisions herein
contained each party hereto, on his or its behalf and on behalf all others who
might assert claims based on any of their respective rights, does hereby
release and discharge the other party hereto and, in the case of American, its
parent, successors, affiliates, subsidiaries, partners, employees, officers,
directors and agents (hereinafter sometimes referred to collectively as the
"Company"), from all claims, liabilities, demands, and causes of action known
or unknown, fixed or contingent, which such party may have or claim to have
against the other party as a result of Paulk's past employment and the
severance of that relationship and Paulk's decision to resign from the Company
and does hereby covenant not to file a lawsuit to assert such claims under any
such agreements, plans, programs or arrangements which shall include by example
and not by limitation the Employment Agreement and claims arising under
federal, state, or local laws prohibiting employment discrimination (including
age discrimination) or growing out of any legal restriction on the Company's
right not to continue an employment relationship with its employees. Paulk
acknowledges that he may have rights under the Older Workers Benefit Protection
Act (the "Act") which he hereby agrees to waive, including any statutory rights
which he may have to timing for review and/or revocation of any release. Paulk
further represents that he understands the nature of the waiver of his rights
under the Act, and that he has had sufficient opportunity to be advised by
counsel
-2-
<PAGE> 3
of his rights and the nature of this release. Notwithstanding the foregoing,
any rights of indemnification which Paulk has as a result of the Oklahoma
General Corporation Act or the Bylaws or Certificate of Incorporation of
American shall not be impaired as a result of the foregoing.
7. Confidentiality. Except as otherwise agreed to by American,
for a term of two (2) years from the date of the Closing, Paulk shall not
disclose or furnish to any other party any confidential information obtained by
him as a result of his employment relating to American's or Alexander's
business affairs, finances, or other confidential information without, in each
case, the written consent of Alexander.
8. Applicable Taxes. All amounts which will be paid, transferred
or delivered to Paulk in accordance with the terms of this Agreement, except
the payment provided for in Section 3 hereof, will be considered as additional
compensation and subject to all appropriate withholding and employment taxes.
9. Limitation on Health Benefits. Paulk agrees that in
consideration of the payments provided for herein, he will not elect to
continue coverage under COBRA with respect to any health plan (the "Plan") in
which Paulk has been a participant; and if Paulk does elect such coverage, and
if any claims are made in accordance with the terms and provisions of the Plan,
American shall have a right for reimbursement from Paulk for any payments so
made under the Plan.
10. Entire Agreement. This Cancellation Agreement contains the
entire understanding of the parties with respect to its subject matter. This
Cancellation Agreement supersedes all prior agreements and understandings
between the parties with respect to its subject matter.
11. Headings. The headings contained in this Cancellation
Agreement are for reference purposes only and will not affect in any way the
meaning or interpretation of this Cancellation Agreement.
12. Specific Performance. Paulk acknowledges that American may not
have an adequate remedy at law for money damages in the event that this
Cancellation Agreement is not performed in accordance with its terms, and
therefore agrees that American shall be entitled to specific enforcement of the
terms hereof in addition to any other remedy to which it may be entitled, at
law or in equity.
13. Severability. If any term, provision, covenant or restriction
of this Cancellation Agreement is held by a court of competent jurisdiction to
be invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of
-3-
<PAGE> 4
this Cancellation Agreement shall remain in full force and effect and shall in
no way be effected, impaired or invalidated.
14. Closinq of Aqreement. Execution of this Agreement and delivery
of all amounts and the performance by the parties hereunder of their
respective obligations is contingent and conditioned upon the Closing. In the
event that the Closing does not occur, then, the parties under this Agreement
shall have no duty to perform the required obligations under this Agreement and
all prior obligations of American to Paulk, including the obligations of
American to Paulk under the Employment Agreement, will continue in full force
and effect.
15. Miscellaneous. No provisions of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by Paulk and the president or vice president of
American. No waiver by either party hereto at any time of any breach by the
other party hereto of, or compliance with any condition or provision of this
Cancellation Agreement to be performed by such other party shall be deemed a
waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not set forth expressly in this Cancellation Agreement.
The validity, interpretation, construction and performance of this Agreement
shall be governed by the laws of the State of Oklahoma.
This Cancellation Agreement is effective as to the date first above
written.
<TABLE>
<S> <C>
"AMERICAN" AMERICAN NATURAL ENERGY CORPORATION
By /s/ BOB G. ALEXANDER
Bob G. Alexander, President
"ALEXANDER" ALEXANDER ENERGY CORPORATION
By /s/ BOB G. ALEXANDER
Bob G. Alexander, President
"PAULK" /s/ MICHAEL PAULK
Michael Paulk
</TABLE>
-4-
<PAGE> 1
Exhibit 10(bb)
EMPLOYMENT AND OPTION
AGREEMENT
AGREEMENT made as of the 1st day of July, 1990, between ALN Resources
Corporation (hereinafter called the "Company"), and Robert Johnson (hereinafter
called "Employee").
1. EMPLOYMENT. The Company employs Employee who accepts
employment upon the terms and conditions of this Agreement.
2. TERM. The term of employment provisions of this Agreement
shall begin on July 1, 1990, and shall terminate on June 30, 1995, unless
renewed. the Company shall have the option of renewing this contract for an
additional two-year period, commencing on July 1, 1995, and ending on June 30,
1997. Notice of the company's intention to renew the Agreement for an
additional two-year period shall be made in writing to employee on or before
January 1, 1995.
3. COMPENSATION. For all services rendered by Employee, the
Company shall pay him a salary of $ 61,200. a year, payable in equal monthly
installments on the 15th day of each month. Salary payment shall be subject to
withholding and other applicable taxes. The Company shall review said
compensation semiannually with the opportunity to provide raises or increases
to Employee at that review date, with such decision to be subject to approval
by the President.
4. BONUS COMPENSATION. It will be the Company's policy to
provide Employee, as an additional incentive, either on an annual or quarterly
basis, additional bonus compensation in the form of additional cash payments at
the discretion of the President. Such bonus compensation, if any, shall be
determined by the President in consideration of such factors as the Company's
profitability, change in asset size of Company, number of employees, sales
levels and growth in sales, and other factors determined by the President as
relevant in its decision.
5. STOCK OPTIONS. At the discretion of the Board of Directors,
as additional incentive to the employee, options to purchase stock of the
Company will be issued at times and amounts determined by the Board. Such
issuances will be within all Security and Exchange Commission, or other
governing body rules.
6. DUTIES. Employee is to be employed as the Vice President of
the Company and will be charged with all activities related thereto. Employee
shall devote all time, attention and energies to the Company's business.
7. EXPENSES. Employee may incur reasonable expenses
<PAGE> 2
for promoting the Company's business, including expenses for entertainment,
travel and similar items. The Company will reimburse Employee for all such
expenses upon the periodic presentation of an itemized account of such
expenditures.
8. VACATIONS. Employee shall be entitled each year to a vacation
of three weeks, during which time his compensation shall be paid in full.
9. DISABILITY. If Employee should be unable to perform his
services by reason of illness or incapacity for a period of more than thirty
(30) consecutive days, the compensation thereafter payable to him during the
continued period of such illness or incapacity shall be reduced by 50%.
Employee's full compensation shall be reinstated upon a return to full
employment and discharge of full duties. Notwithstanding anything to the
contrary, the Company may terminate this Agreement at any time after the
Employee shall be absent from his employment, for whatever cause, for a
continuing period of more than six months, and all obligations of the Company,
other than Paragraphs 10 and 11 of this Agreement, shall thereupon terminate.
10. DEATH DURING EMPLOYMENT. If Employee should die during the
term of employment, the Company shall pay to the estate of Employee the
compensation which would otherwise be payable to him up to the end of the month
in which his death occurs. In addition, the Company shall pay an additional
three (3) months salary within 60 days after the death of the Employee, to the
widow, to the Employee's surviving children in equal shares or, if there are no
such surviving children, to the estate of the Employee.
11. TERMINATION OF EMPLOYMENT. This agreement may terminate for
any reason based on the sole discretion of the Board of Directors. In the
event the Board of Directors of the Company decides that it is in the best
interest of the Company to terminate this agreement, Employee will be promptly
notified and this agreement shall terminate. In the event this agreement is
terminated by the Board of Directors of the Company, Employee shall be entitled
to a one time severance payment, made upon termination, equal to the remaining
months of this agreement before expiration or if applicable, the renewal
agreement. Other than the payment of severance as set forth in this paragraph,
all other duties, obligations, payments, privileges and consideration of any
sort shall terminate and shall no longer be effective by and between the
Company and Employee.
12. NO RIGHTS IN OPTION STOCK. Employee shall have no rights as
shareholders in respect of shares as to which the option shall not have been
exercised and payment made as herein provided, and shall have no rights with
respect to such shares not expressly conferred by this Agreement.
<PAGE> 3
13. SHARES RESERVED. The Company shall at all times during the term of
this Agreement reserve and keep available such number of its common shares as
will be sufficient to satisfy the requirements of this Agreement, and shall pay
all original issue taxes on the exercise of this option, and all other fees and
expenses necessarily incurred by the Company in connection therewith.
14. ASSIGNMENT. Employee acknowledges that the services to be
performed by him are unique and personal. Accordingly, the Employees may not
assign any of his rights or delegate any of his duties or obligations under
this Agreement. The rights and obligations of the Company under this Agreement
shall inure to the benefit of and shall be binding upon the successors and
assigns of the Company.
IN WITNESS WHEREOF, the parties have signed this Agreement.
By /s/ MICHAEL [ILLEGIBLE]
----------------------------
Title
[Corporate Seal]
Attest:
/s/ CHRIS WILLFORD
----------------------------
Secretary
Employee:
/s/ ROBERT C. JOHNSON
-------------------------------
<PAGE> 4
AMENDMENT NUMBER 1 TO EMPLOYMENT
AND OPTION AGREEMENT
THIS AMENDMENT is made as of the 1st day of May, 1993 between American
Natural Energy Corporation (the "Company") and Robert C. Johnson (the
"Employee") amending the Employment and Option Agreement entered into by and
between the Company and the Employee dated as of July 1, 1990 (the
"Agreement").
1. The Company and the Employee agree to amend the Agreement as follows:
(a) Section 3 of the Agreement is hereby amended to provide that
the Employee's salary is $72,000 per annum. The parties hereto confirm that the
Employee's Salary has been $72,000 per annum since January 1, 1992, and the
parties agree that the amendment of the Agreement provided for by this Section
1(a) shall be deemed effective as of such date.
(b) Section 4 of the Agreement is hereby amended to provide that
payment of any bonus compensation to the Employee shall be made pursuant to the
authorization of the Company's Board of Directors, or any duly appointed
committee thereof, in consideration of such factors as are listed in Section 6
of the Agreement.
(c) The following provision is added to the Agreement effective as
of the date of this Amendment:
"15. Non-competition. In the event the Employee is terminated for
cause, as defined below, or refuses to continue his employment
with the Company if the Company has exercised its option under
Section 2 of this Agreement to renew this Agreement for an additional
two year period, the Employee agrees, notwithstanding any
<PAGE> 5
provision to the contrary in this Agreement, that for a period
of one year commencing upon such termination, or refusal, he shall not,
directly or indirectly, engage in the oil and gas business at any
location in the State of Oklahoma or the State of Texas. For the
purposes of this Agreement, "cause" shall mean (i) willful and
repeated refusal of the Employee to follow the lawful directives of
the Board of Directors of the Company for the performance of material
duties which the Employee is required to perform hereunder, other than
any such failure resulting from the Employee's incapacity due to
physical or mental illness, or (ii) conviction of the Employee for a
felony involving moral turpitude."
2. The Company and the Employee agree that except as otherwise expressly
provided by this Amendment, the terms and provisions of the Agreement shall
remain in full force and effect.
IN WITNESS WHEREOF, the parties have duly executed this Amendment as of
the date first above written.
AMERICAN NATURAL ENERGY CORPORATION
By: /s/ MICHAEL PAULK
Name:
Title:
/s/ ROBERT C. JOHNSON
Robert C. Johnson
<PAGE> 1
EXHIBIT 10(cc)
CANCELLATION AND SEVERANCE AGREEMENT
THIS CANCELLATION AGREEMENT (the "Cancellation Agreement") dated this
19th day of September, 1994 by and between AMERICAN NATURAL ENERGY CORPORATION,
an Oklahoma corporation ( "American" ) and ROBERT C. JOHNSON ( "Johnson" ), an
individual.
W I T N E S S E T H:
WHEREAS, American and Johnson entered into an Employment and Option
Agreement dated July 1, 1990 as amended by Amendment Number 1 dated May 1, 1993
(herein collectively referred to as the "Employment Agreement"); and
WHEREAS, the Employment Agreement terminates on June 30, 1995, but
Johnson is desirous of terminating his relationship with American in accordance
with the terms and provisions of this Cancellation Agreement; and
WHEREAS, American has been acquired by Alexander Energy Corporation
("Alexander") pursuant to that certain Agreement and Plan of Merger (the
"Merger Agreement"); and
WHEREAS, the closing (the "Closing") of the transaction described in
this Cancellation Agreement will be September 19, 1994 or at a subsequent date
mutually agreed to by the parties.
NOW, THEREFORE, in consideration of the promises herein and other
valuable consideration the receipt of which is hereby acknowledged by Johnson,
the parties hereto agree as follows:
1. Aqreement of Cancellation. Effective September 1, 1994, the
Employment Agreement is hereby mutually cancelled by American and Johnson and
all the terms and provisions thereof are hereby terminated with neither party
bearing any liability or responsibility to the other party under the Employment
Agreement from the date hereof.
2. Payments to Johnson. In consideration of Johnson terminating
the Employment Agreement and his relationship with American, its parent and its
subsidiaries, American agrees to pay to Johnson at Closing a cash payment of
$60,000, less all amounts owed by Johnson to American as reflected on the books
and records of American as of the Closing date, in settlement of American's
obligations under the Employment Agreement.
3. Automobile. At Closing, Johnson shall purchase the automobile
identified on Exhibit A hereto for the book value thereof as reflected on
American's records as of September 1, 1994.
-10-
<PAGE> 2
4. Resiqnation of Johnson. Effective upon the Closing, Johnson
hereby submits and American hereby accepts Johnson's resignation as an
employee, director or officer of American and any subsidiaries of American.
5. Release. In consideration of the mutual provisions herein
contained each party hereto, on his or its behalf and on behalf of all others
who might assert claims based on any of their respective rights, does hereby
release and discharge the other party hereto and, in the case of American, its
parent, successors, affiliates, subsidiaries, partners, employees, officers,
directors and agents (hereinafter sometimes referred to collectively as the
"Company"), from all claims, liabilities, demands, and causes of action known
or unknown, fixed or contingent, which such party may have or claim to have
against the other party as a result of Johnson's past employment and the
severance of that relationship and his decision to resign from the Company and
does hereby covenant not to file a lawsuit to assert such claims under any such
agreements, plans, programs or arrangements which shall include by example and
not by limitation the Employment Agreement and claims arising under federal,
state, or local laws prohibiting employment discrimination (including age
discrimination) or growing out of any legal restriction on the Company's right
not to continue an employment relationship with its employees. Johnson
acknowledges that he may have rights under the Older Workers Benefit Protection
Act (the "Act") which he hereby agrees to waive, including any statutory rights
which he may have to timing for review and/or revocation of any release.
Johnson further represents that he understands the nature of the waiver of his
rights under the Act, and that he has had sufficient opportunity to be advised
by counsel of his rights and the nature of this release. Notwithstanding the
foregoing, any rights of indemnification which Johnson has as a result of the
Oklahoma General Corporation Act or the Bylaws or Certificate of Incorporation
of American shall not be impaired as a result of the foregoing.
6. Confidentiality. Except as otherwise agreed to by American,
for a term of two (2) years from the date of the Closing, Johnson shall not
disclose or furnish to any other party any confidential information obtained by
him as a result of his employment relating to American's or Alexander's
business affairs, finances, or other confidential information without, in each
case, the written consent of Alexander.
7. Applicable Taxes. All amounts which will be paid, transferred
or delivered to Johnson in accordance with the terms of this Agreement will be
considered as additional compensation and subject to all appropriate
withholding and employment taxes.
8. Limitation on Health Benefits. Johnson agrees that in
consideration of the payments provided for herein, he will not elect to
continue coverage under COBRA with respect to any health
-2-
<PAGE> 3
plan (the "Plan") in which Johnson has been a participant; and if Johnson does
elect such coverage, and if any claims are made in accordance with the terms
and provisions of the Plan, American shall have a right for reimbursement from
Johnson for any payments so made under the Plan.
9. Entire Aqreement. This Cancellation Agreement contains the
entire understanding of the parties with respect to its subject matter. This
Cancellation Agreement supersedes all prior agreements and understandings
between the parties with respect to its subject matter.
10. Headinqs. The headings contained in this Cancellation
Agreement are for reference purposes only and will not affect in any way the
meaning or interpretation of this Cancellation Agreement.
11. Specific Performance. Johnson acknowledges that American may
not have an adequate remedy at law for money damages in the event that this
Cancellation Agreement is not performed in accordance with its terms, and
therefore agrees that American shall be entitled to specific enforcement of the
terms hereof in addition to any other remedy to which it may be entitled, at
law or in equity.
12. Severability. If any term, provision, covenant or restriction
of this Cancellation Agreement is held by a court of competent jurisdiction to
be invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of this Cancellation Agreement shall remain in full
force and effect and shall in no way be effected, impaired or invalidated.
13. Closing of Agreement. Execution of this Agreement and delivery
of all amounts and the performance by the parties hereunder of their respective
obligations is contingent and conditioned upon the Closing. In the event that
the Closing does not occur, then, the parties under this Agreement shall have
no duty to perform the required obligations under this Agreement and all prior
obligations of American to Johnson, including the obligations of American to
Johnson under the Employment Agreement, will continue in full force and effect.
14. Miscellaneous. No provisions of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by Johnson and the president or vice president of
American. No waiver by either party hereto at any time of any breach by the
other party hereto of, or compliance with any condition or provision of this
Cancellation Agreement to be performed by such other party shall be deemed a
waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to
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<PAGE> 4
the subject matter hereof have been made by either party which are not set
forth expressly in this Cancellation Agreement. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the State of Oklahoma.
This Cancellation Agreement is effective as to the date first above
written.
"AMERICAN" AMERICAN NATURAL ENERGY CORPORATION
By /s/ BOB G. ALEXANDER
Bob G. Alexander, President
"JOHNSON" By /s/ ROBERT C. JOHNSON
Robert C. Johnson
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<PAGE> 1
EXHIBIT 10(dd)
ALEXANDER ENERGY CORPORATION
EMPLOYMENT AGREEMENT
<PAGE> 2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") entered into between
ALEXANDER ENERGY CORPORATION, an Oklahoma corporation (the "Company" ), and
, an individual ( the "Executive"), dated as of the
8th day of December, 1994.
The Board of Directors of the Company (the "Board"), has determined
that it is in the best interests of the Company and its shareholders to assure
that the Company will have the continued dedication of the Executive,
notwithstanding the possibility, threat, or occurrence of a Change of Control
(as defined below) of the Company. The Board believes it is important to
diminish the inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change of Control,
and to encourage the Executive's full attention and dedication to the affairs
of the Company during the term of this Agreement and upon the occurrence of
such event. The Board also believes the Company is best served by providing the
Executive with compensation arrangements upon a Change of Control which provide
the Executive with individual financial security and which are competitive with
those of other corporations. In order to accomplish these objectives, the Board
has caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions.
(a) The "Effective Date" shall be the first date during
the "Change of Control Period" (as defined below) on which a Change of Control
(as defined below) occurs. Anything in this Agreement to the contrary
notwithstanding, if the Executive's employment with the Company is terminated
prior to the date on which a Change of Control occurs, and it is reasonably
demonstrated that such termination (i) was at the request of a third party who
has taken steps reasonably calculated to effect a Change of Control or (ii)
otherwise arose in connection with or anticipation of a Change of Control, then
for all purposes of this Agreement the "Effective Date" shall mean the date
immediately prior to the date of such termination.
(b) The "Change of Control Period" is the period
commencing on the date hereof and ending on the earlier to occur of (i) the
third anniversary of such date or (ii) the first day of the month next
following the Executive's attainment of age 65 ("Normal Retirement Date");
provided, however, that commencing on the date one year after the date hereof,
and on each annual anniversary of such date (such date and each annual
anniversary thereof is hereinafter referred to as the "Renewal Date"), the
Change of Control Period shall be automatically extended so as to terminate on
the earlier of (i) three years from such Renewal Date or (ii)
<PAGE> 3
the first day of the month coinciding with or next following the Executive's
Normal Retirement Date, unless at least 60 days prior to the Renewal Date, the
Company shall give notice that the Change of Control Period shall not be so
extended.
2. Change of Control. For the purpose of this Agreement, a
"Change of Control" shall mean:
(i) The acquisition in a transaction or a series of
transactions by any person, entity or "group," within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities and Exchange Act of 1934 (the "Exchange
Act") (excluding, for this purpose, any employee benefit plan of the Company or
its subsidiaries) which acquires beneficial ownership of voting securities of
the Company with the approval of a majority of the Incumbent Board (as defined
below) of beneficial ownership, (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 30% or more of either the then outstanding shares of
common stock or the combined voting power of the Company's then outstanding
voting securities; provided, however, that any acquisition of beneficial
ownership of common stock or voting securities of the Company which would
otherwise come within this Section 2(i) shall not be deemed to be a change of
control if a majority of the Incumbent Board determines (either before or
within twenty (20) business days after such acquisition) that such acquisition
has not caused a "change of control" to occur; provided further, if acquisition
of securities as described in this Section 2(i) is 40% or more, such
acquisition shall be deemed to be a "change of control" and the Board shall
have no right to make a determination that a "change of control" has not
occurred.
(ii) Individuals who, as of the date hereof, constitute
the Board of Directors of the Company (as of the date hereof the "Incumbent
Board") cease for any reason to constitute at least a majority of the Board,
provided that any person becoming a director subsequent to the date hereof
whose election, appointment, or nomination for election by the Company's
shareholders, was approved by a vote of a majority of the directors comprising
the Incumbent Board (other than an election, appointment, or nomination of an
individual whose initial assumption of office is in connection with an actual
or threatened election contest relating to the election of the Directors of the
Company, as such terms are used in Rule 14a-11 of Regulation 14A promulgated
under the Exchange Act) shall be, for purposes of this Agreement, considered as
though such person were a member of the Incumbent Board; or
(iii) Approval by the stockholders of the Company of a
reorganization, share exchange, merger or consolidation, in each case, with
respect to which the stockholders of the Company do not, immediately
thereafter, own more than 50% of the combined voting power of the reorganized,
merged or consolidated company's then outstanding voting securities, or a
liquidation or dissolution of
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<PAGE> 4
the Company or the sale of all or substantially all of the assets of the
Company.
3. Employment Period. The Company hereby agrees to continue the
Executive in its employ, and the Executive hereby agrees to remain in the
employ of the Company, for the period commencing on the Effective Date and
ending on the earlier to occur of (a) the third anniversary of such date or (b)
the first day of the month coinciding with or next following the Executive's
Normal Retirement Date (the "Employment Period").
4. Terms of Employment.
(a) Position and Duties.
(i) During the Employment Period, (A) the
Executive's position (including status, offices, secretarial and
administrative support, titles and reporting requirements), authority, duties
and responsibilities shall be at least commensurate in all material respects
with the most significant of those held, exercised and assigned at any time
during the 12-month period immediately preceding the Effective Date and (B) the
Executive's services shall be performed at the location where the Executive was
employed immediately preceding the Effective Date or any office or location
less than 25 miles from such location.
(ii) During the Employment Period, and excluding
any periods of vacation and sick leave to which the Executive is entitled, the
Executive agrees to devote reasonable attention and time during normal business
hours to the business and affairs of the Company and, to the extent necessary
to discharge the responsibilities assigned to the Executive hereunder, to use
the Executive's reasonable best efforts to perform faithfully and efficiently
such responsibilities. During the Employment Period it shall not be a violation
of this Agreement for the Executive to (A) serve on corporate, civic or
charitable boards or committees, (B) deliver lectures, fulfill speaking
engagements or teach at educational institutions and (C) manage personal
investments, so long as such activities do not significantly interfere with the
performance of the Executive's responsibilities as an employee of the Company
in accordance with this Agreement. It is expressly understood and agreed that
to the extent that any such activities have been conducted by the employee
prior to the Effective Date, the continued conduct of such activities (or the
conduct of activities similar in nature and scope thereto) subsequent to the
Effective Date shall not thereafter be deemed to interfere with the performance
of the Executive's responsibilities to the Company.
(b) Compensation.
(i) Base Salary. During the Employment Period,
the Executive shall receive a base salary ("Base Salary")
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<PAGE> 5
at a monthly rate at least equal to the highest monthly base salary paid or
payable to the Executive by the Company during the 36-month period immediately
preceding the month in which the Effective Date occurs before reduction (i) for
any deferrals of compensation made pursuant to Sections 125 and 401(k) of the
Internal Revenue Code of 1986, as amended (the "Code") and (ii) any
withholding for income or employment taxes. During the Employment Period, the
Base Salary shall be reviewed at least annually and shall be increased at any
time and from time to time as shall be substantially consistent with increases
in base salary awarded in the ordinary course of business to other key
management employees of the Company and its subsidiaries. Any increase in Base
Salary shall not serve to limit or reduce any other obligation to the Executive
under this Agreement. Base Salary shall not be reduced after any such increase.
(ii) Annual Bonus. In addition to Base Salary,
the Executive shall be awarded, for each fiscal year during the Employment
Period, an annual bonus (an "Annual Bonus") (either pursuant to the incentive
compensation plan of the Company or otherwise) in cash at least equal to the
highest bonus paid or payable to the Executive from the Company and its
subsidiaries during any of the last five fiscal years immediately preceding the
fiscal year in which the Effective Date occurs.
(iii) Incentive, Savings and Retirement Plans. In
addition to Base Salary and Annual Bonus payable as hereinabove provided, the
Executive shall be entitled to participate during the Employment Period in all
incentive, savings and retirement plans, practices, supplemental retirement
plan policies and programs applicable to other key management employees of the
Company and its subsidiaries, in each case providing benefits which are the
economic equivalent to those in effect or as subsequently amended. Such plans,
practices, policies and programs, in the aggregate, shall provide the Executive
with compensation, benefits and reward opportunities at least as favorable as
the most favorable of such compensation, benefits and reward opportunities
provided by the Company for the Executive under such plans, practices, policies
and programs as in effect at any time during the 12-month period immediately
preceding the Effective Date or, if more favorable to the Executive, as
provided at any time thereafter with respect to other key management employees
of the Company and its subsidiaries.
(iv) Welfare Benefit Plans. During the Employment
Period, the Executive and/or the Executive's family, as the case may be, shall
be eligible for participation in and shall receive all benefits under welfare
benefit plans, practices, policies and programs provided by the Company and its
subsidiaries (including, without limitation, medical, prescription, dental,
disability, salary continuance, employee life, group life, accidental death and
travel accident insurance plans and programs), at least as favorable as the
most favorable of such plans,
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<PAGE> 6
practices, policies and programs in effect at any time during the 12-month
period immediately preceding the Effective Date or, if more favorable to the
Executive and/or the Executive's family, as in effect at any time thereafter
with respect to other key management employee of the Company and its
subsidiaries.
(v) Expenses. During the Employment Period, the
Executive shall be entitled to receive prompt reimbursement for all reasonable
expenses incurred by the Executive in accordance with the most favorable
policies, practices and procedures of the Company and its subsidiaries in
effect at any time during the 12-month period immediately preceding the
Effective Date or, if more favorable to the Executive, as in effect at any time
thereafter with respect to other key management employees of the Company and
its subsidiaries.
(vi) Fringe Benefits. During the Employment
Period, the Executive shall be entitled to fringe benefits, including use of an
automobile and payment of related expenses, in accordance with the most
favorable plans, practices, programs and policies of the Company and its
subsidiaries in effect at any time during the 12-month period immediately
preceding the Effective Date or, if more favorable to the Executive, as in
effect at any time thereafter with respect to other key management employees of
the Company and its subsidiaries.
(vii) Office and Support Staff. During the
Employment Period, the Executive shall be entitled to an office or offices of a
size and with furnishings and other appointments, and to secretarial and other
assistance, at least equal to the most favorable of the foregoing provided to
the Executive by the Company and its subsidiaries at any time during the
12-month period immediately preceding the Effective Date or, if more favorable
to the Executive, as provided at any time thereafter with respect to other key
management employees of the Company and its subsidiaries.
(viii) Vacation. During the Employment Period, the
Executive shall be entitled to paid vacation in accordance with the most
favorable plans, policies, programs and practices of the Company and its
subsidiaries as in effect at any time during the 12-month period immediately
preceding the Effective Date or, if more favorable to the Executive, as in
effect at any time thereafter with respect to other key management employees of
the Company and its subsidiaries.
(ix) Effect of Increases. Any increase in Base
Salary, Annual Bonus or any other benefit or perquisite described in the
foregoing Sections (i)-(viii) shall in no way diminish any obligation of the
Company under the Agreement.
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<PAGE> 7
5. Termination.
(a) Death or Disability. This Agreement shall terminate
automatically upon the Executive's death. If the Company determines in good
faith that the Disability of the Executive has occurred (pursuant to the
definition of "Disability" set forth below), it may give to the Executive
written notice of its intention to terminate the Executive's employment. In
such event, the Executive's employment with the Company shall terminate
effective on the 30th day after receipt of such notice by the Executive (the
"Disability Effective Date"), provided that, within the 30 days after such
receipt, the Executive shall not have returned to full-time performance of the
Executive's duties. For purposes of this Agreement, "Disability" means
disability (either physical or mental) which, at least 26 weeks after its
commencement, is determined to be total and permanent by a physician selected
by the Company or its insurers and acceptable to the Executive or the
Executive's legal representative (such agreement as to acceptability not to be
withheld unreasonably).
(b) Cause. The Company may terminate the Executive's
employment for "Cause." For purposes of this Agreement, termination of the
Executive's employment by the Company for Cause shall mean termination for one
of the following reasons: (i) the conviction of the Executive of a felony by a
federal or state court of competent jurisdiction; (ii) an act or acts of
dishonesty taken by the Executive and intended to result in substantial
personal enrichment of the Executive at the material expense of the Company; or
(iii) the Executive's "willful" failure to follow a direct, reasonable, lawful
written order from his supervisor, within the reasonable scope of the
Executive's duties, which failure is not cured within 30 days. Further, for
purposes of this Section (b):
(1) No act or failure to act, on the Executive's
part shall be deemed "willful" unless done, or omitted to be done, by the
Executive not in good faith and without reasonable belief that the Executive's
action or omission was in the best interest of the Company.
(2) The Executive shall not be deemed to have
been terminated for Cause unless and until there shall have been delivered to
the Executive a copy of a resolution duly adopted by the affirmative vote of
not less than three-fourths (3/4ths) of the entire membership of the Board at a
meeting of the Board called and held for such purpose (after reasonable notice
to the Executive and an opportunity for the Executive, together with the
Executive's counsel, to be heard before the Board), finding that in the good
faith opinion of the Board the Executive was guilty of conduct set forth in
clauses (i), (ii), or (iii) above and specifying the particulars thereof in
detail.
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<PAGE> 8
(c) Good Reason. The Executive's employment may be
terminated by the Executive for Good Reason. For purposes of this Agreement,
"Good Reason" means:
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position (including status,
offices, titles and reporting requirements), authority, duties or
responsibilities as contemplated by Section 4(a) of this Agreement, or any
other action by the Company which results in a diminution in such position,
authority, duties or responsibilities, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(ii) any failure by the Company to comply with
any of the provisions of Section 4(b) of this Agreement, other than an
isolated, insubstantial and inadvertent failure not occurring in bad faith and
which is remedied by the Company promptly after receipt of notice thereof given
by the Executive;
(iii) the Company's requiring the Executive to be
based at any office or location other than that described in Section 4(a)(i)(B)
hereof, except for travel reasonably required in the performance of the
Executive's responsibilities;
(iv) any purported termination by the Company of
the Executive's employment otherwise than as expressly permitted by this
Agreement; or
(v) any failure by the Company to comply with
and satisfy Section 11(c) of this Agreement.
For purposes of this Section 5(c), any good faith determination of
"Good Reason" made by the Executive shall be conclusive.
(d) Notice of Termination. Any termination by the Company
for Cause or by the Executive for Good Reason shall be communicated by Notice
of Termination to the other party hereto given in accordance with Section
13(b) of this Agreement. For purposes of this Agreement, a "Notice of
Termination" means a written notice which (i) indicates the specific
termination provisions in this Agreement relied upon, (ii) sets forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so indicated and
(iii) if the Date of Termination (as defined below) is other than the date of
receipt of such notice, specifies the termination date (which date shall be not
more than 15 days after the giving of such notice). The failure by the
Executive to set forth in the Notice of Termination any fact or circumstance
which contributes to a showing of Good Reason shall
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<PAGE> 9
not waive any right of the Executive hereunder or preclude the Executive from
asserting such fact or circumstance in enforcing his rights hereunder.
(e) Date of Termination. "Date of Termination" means the
date of receipt of the Notice of Termination or any later date specified
therein, as the case may be; provided, however, that (i) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
Date of Termination shall be the date on which the Company notifies the
Executive of such termination and (ii) if the Executive's employment is
terminated by reason of death or Disability, the Date of Termination shall be
the date of death of the Executive or the Disability Effective Date, as the
case may be.
6. Obligations of the Company upon Termination.
(a) Death. If the Executive's employment is terminated
by reason of the Executive's death, this Agreement shall terminate without
further obligations to the Executive's legal representatives under this
Agreement, other than those obligations accrued or earned and vested (if
applicable) by the Executive as of the Date of Termination, including, for this
purpose (i) the Executive's full Base Salary through the Date of Termination
at the rate in effect on the Date of Termination or, if higher, at the highest
rate in effect at any time from the 36-month period preceding the Effective
Date through the Date of Termination (the "Highest Base Salary"), (ii) the
product of the Annual Bonus as defined in Section 4(b)(ii) or if higher, the
Annual Bonus paid during any fiscal year during the Employment Period and a
fraction, the numerator of which is the number of days in the current fiscal
year through the Date of Termination, and the denominator of which is 365 and
(iii) any compensation previously deferred by the Executive (together with any
accrued interest thereon) and not yet paid by the Company and any accrued
vacation pay not yet paid by the Company (such amounts specified in clauses
(i), (ii) and (iii) are hereinafter referred to as "Accrued Obligations"). All
such Accrued Obligations shall be paid to the Executive's estate or
beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of
Termination. Anything in this Agreement to the contrary notwithstanding, the
Executive's family shall be entitled to receive benefits at least equal to the
most favorable benefits provided by the Company and any of its subsidiaries to
surviving families of employees of the Company and such subsidiaries under such
plans, programs, practices and policies relating to family death benefits, if
any, in accordance with the most favorable plans, programs, practices and
policies of the Company and its subsidiaries in effect at any time during the
12-month period immediately preceding the Effective Date or, if more favorable
to the Executive and/or the Executive's family, as in effect on the date of the
Executive's death with respect to other key management employees of the Company
and its subsidiaries and their families.
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<PAGE> 10
(b) Disability. If the Executive's employment is
terminated by reason of the Executive's Disability, this Agreement shall
terminate without further obligations to the Executive, other than those
obligations accrued or earned and vested (if applicable) by the Executive as of
the Date of Termination, including for this purpose, all Accrued Obligations.
All such Accrued Obligations shall be paid to the Executive in a lump sum in
cash within 30 days of the Date of Termination. Anything in this Agreement to
the contrary notwithstanding, the Executive shall be entitled after the
Disability Effective Date to receive disability and other benefits at least
equal to the most favorable of those provided by the Company and its
subsidiaries to disabled employees and/or their families in accordance with
such plans, programs, practices and policies relating to disability, if any, in
accordance with the most favorable plans, programs, practices and policies of
the Company and its subsidiaries in effect at any time during the 12-month
period immediately preceding the Effective Date or, if more favorable to the
Executive and/or the Executive's family, as in effect at any time thereafter
with respect to other key management employees of the Company and its
subsidiaries and their families.
(c) Cause; Other than for Good Reason. If the Executive's
employment shall be terminated for Cause, this Agreement shall terminate
without further obligations to the Executive other than the obligation to pay
to the Executive the Highest Base Salary through the Date of Termination plus
the amount of any compensation previously deferred by the Executive (together
with accrued interest thereon). If the Executive terminates employment other
than for Good Reason, this Agreement shall terminate without further
obligations to the Executive, other than those obligations accrued or earned
and vested (if applicable) by the Executive through the Date of Termination,
including for this purpose, all Accrued Obligations. All such Accrued
Obligations shall be paid to the Executive in a lump sum in cash within 30 days
of the Date of Termination.
(d) Good Reason; Termination Other Than for Cause or
Disability. If, during the Employment Period, the Company shall terminate the
Executive's employment other than for Cause, Disability, or death or if the
Executive shall terminate his employment for Good Reason:
(i) the Company shall pay to the Executive in a
lump sum in cash within 30 days after the Date of Termination the aggregate of
the following amounts:
A. to the extent not theretofore paid,
the Executive's Highest Base Salary through the Date of Termination; and
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B. the product of (i) the Annual Bonus
paid to the Executive for the last full fiscal year (if any) ending during the
Employment Period or, if higher, the Annual Bonus paid to the Executive as
defined under Section 4(b)(ii) (as applicable, the "Recent Bonus") and (ii) a
fraction, the numerator of which is the number of days in the current fiscal
year through the Date of Termination and the denominator of which is 365; and
C. the product obtained by multiplying
three times the sum of (i) 12-months of the Highest Base Salary and (ii) the
Recent Bonus; and
D. in the case of compensation
previously deferred by the Executive, all amounts previously deferred (together
with any accrued interest thereon) and not yet paid by the Company, and any
accrued vacation pay not yet paid by the Company; and
(ii) for the remainder of the Employment Period,
or such longer period as any plan, program, practice or policy may provide, the
Company shall continue benefits to the Executive and/or the Executive's family
at least equal to those which would have been provided to them in accordance
with the plans, programs, practices and policies described in Section 4(b)(iv)
of this Agreement if the Executive's employment had not been terminated,
including health insurance and life insurance, in accordance with the most
favorable plans, practices, programs or policies of the Company and its
subsidiaries during the 12-month period immediately preceding the Effective
Date or, if more favorable to the Executive, as in effect at any time
thereafter with respect to other key management employees and their families
and for purposes of eligibility for retiree benefits pursuant to such plans,
practices, programs and policies, the Executive shall be considered to have
remained employed until the end of the Employment Period and to have retired on
the last day of such period.
7. Non-Exclusivity of Rights. Nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation in any
benefit, bonus, incentive or other plans, programs, policies or practices,
provided by the Company or any of its subsidiaries and for which the Executive
may qualify, nor shall anything herein limit or otherwise affect such rights as
the Executive may have under any stock option or other agreements with the
Company or any of its subsidiaries. Amounts which are vested benefits or which
the Executive is otherwise entitled to receive under any plan, policy, practice
or program of the Company or any of its subsidiaries at or subsequent to the
Date of Termination shall be payable in accordance with such plan, policy,
practice or program.
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<PAGE> 12
8. Full Settlement. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any setoff, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement. The Company
agrees to pay, to the full extent permitted by law, all legal fees and expenses
which the Executive may reasonably incur as a result of any contest (regardless
of the outcome thereof) by the Company or others of the validity or
enforceability of, or liability under, any provision of this Agreement or any
guarantee of performance thereof (including as a result of any contest by the
Executive about the month of any payment pursuant to Section 9 of this
Agreement), plus in each case interest at the applicable Federal rate provided
for in Section 7872(f)(2) of the Code.
9. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment or
distribution by the Company to or for the benefit of the Executive, whether
paid or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise including, by example and not by limitation,
acceleration of the date of vesting or payment or rate of payment under any
plan, program or arrangement of the Company (a "Payment"), would be subject to
the excise tax imposed by Section 4999 of the Code, or any interest or
penalties with respect to such excise tax (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with
respect to such taxes), including any Excise Tax, imposed upon the Gross-Up
Payment, the Executive retains an amount of the Gross-Up Payment equal to the
Excise Tax imposed upon the Payments.
(b) Subject to the provisions of Section 9(c), all
determinations required to be made under this Section 9, including whether a
Gross-Up Payment is required and the amount of such Gross-Up Payment, shall be
made by Ernst & Young (the "Accounting Firm") which shall provide detailed
supporting calculations both to the Company and the Executive within 15
business days of the Date of Termination, if applicable, or such earlier time
as is requested by the Company. The initial Gross-Up Payment, if any, as
determined pursuant to this Section 9(b), shall be paid to the Executive
within five days of the receipt of the Accounting Firm's determination. If the
Accounting Firm determines that no Excise Tax is
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payable by the Executive, it shall furnish the Executive with an opinion that
he has substantial authority not to report any Excise Tax on his federal income
tax return. Any determination by the Accounting Firm shall be binding upon the
Company and the Executive. As a result of the uncertainty in the application
of Section 4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments which will not
have been made by the Company should have been made ("Underpayment"),
consistent with the calculations required to be made hereunder. In the event
that the Company exhausts its remedies pursuant to Section 9(c) and the
Executive thereafter is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment that has
occurred and any such Underpayment shall be promptly paid by the Company to or
for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of
any claim by the Internal Revenue Service that, if successful, would require
the payment by the Company of the Gross-Up Payment. Such notification shall be
given as soon as practicable but no later than ten business days after the
Executive knows of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to the Company (or such
shorter period ending on the date that any payment of taxes with respect to
such claim is due). If the Company notifies the Executive in writing prior to
the expiration of such period that it desires to contest such claim, the
Executive shall:
(i) give the Company any information reasonably
requested by the Company relating to such claim,
(ii) take such action in connection with
contesting such claim as the Company shall reasonably request in writing from
time to time, including, without limitation, accepting legal representation
with respect to such claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in
order effectively to contest such claim,
(iv) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as a result of such representation and
payment of
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<PAGE> 14
costs and expenses. Without limitation on the foregoing provisions of this
Section 9(c), the Company shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
the Executive to pay the tax claimed and sue for a refund or contest the claim
in any permissible manner, and the Executive agrees to prosecute such contest
to a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and
hold the Executive harmless, on an after-tax basis, from any Excise Tax or
income tax, including interest or penalties with respect thereto, imposed with
respect to such advance or with respect to any imputed income with respect to
such advance; and further provided that any extension of the statute of
limitations relating to payment of taxes for the taxable year of the Executive
with respect to which such contested amount is claimed to be due is limited
solely to such contested amount. Furthermore, the Company's control of the
contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 9(c), the Executive becomes
entitled to receive any refund with respect to such claim, the Executive shall
(subject to the Company's complying with the requirements of Section 9(c))
promptly pay to the Company the amount of such refund (together with any
interest paid or credited thereon after taxes applicable thereto). If, after
the receipt by the Executive of an amount advanced by the Company pursuant to
Section 9(c), a determination is made that the Executive shall not be entitled
to any refund with respect to such claim and the Company does not notify the
Executive in writing of its intent to contest such denial of refund prior to
the expiration of thirty days after such determination, then such advance shall
be forgiven and shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid.
10. Confidential Information. The Executive shall hold in a
fiduciary capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its
subsidiaries, and their respective businesses, which shall have been obtained
by the Executive during the Executive's employment by the Company or any of its
subsidiaries and which shall not be or become public knowledge (other than by
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<PAGE> 15
acts by the Executive or his representatives in violation of this Agreement).
After termination of the Executive's employment with the Company, the Executive
shall not, without the prior written consent of the Company, communicate or
divulge any such information, knowledge or data to anyone other than the
Company and those designated by it. In no event shall an asserted violation of
the provisions of this Section 10 constitute a basis for deferring or
withholding any amounts otherwise payable to the Executive under this
Agreement.
11. Successors.
(a) This Agreement is personal to the Executive and
without the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
(c) The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform it if no such
succession had taken place. As used in this Agreement, "Company" shall mean the
Company as hereinbefore defined and any successor to its business and/or assets
as aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
12. Indemnification. The Executive shall be (i) covered by the
Company's "Officers and Directors Errors and Omissions Insurance Policy" and
(ii) indemnified and held harmless by the Company during the term of this
Agreement and following any termination of this Agreement for any reason
whatsoever in the same manner as would any other key management employee of the
Company with respect to acts or omissions occurring prior to (a) the
termination of this Agreement or (b) the termination of employment of the
Executive. Provided, in no event will the obligation of the Company to
indemnify the Executive under this Section 12 be less than the obligation which
the Company had to the Executive immediately prior to the occurrence of a
Change of Control.
13. Miscellaneous.
(a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Oklahoma, without reference to
principles of conflict of laws. The captions of this Agreement are not part of
the provisions hereof and shall
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<PAGE> 16
have no force or effect. This Agreement may not be amended or modified
otherwise than by a written agreement executed by the parties hereto or their
respective successors and legal representatives.
(b) All notices and other communications hereunder shall
be in writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Executive:
If to the Company: Alexander Energy Corporation
701 Cedar Lake Boulevard
Oklahoma City, Oklahoma 73114
Attn: Bob G. Alexander, President
and Chief Executive Officer
With a copy to: McAfee & Taft A Professional Corporation
10th Floor, Two Leadership Square
Oklahoma City, Oklahoma 73102
Attention: Jerry A. Warren, Esq.
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) The Company may withhold from any amounts payable
under this Agreement such federal, state or local taxes as shall be required to
be withheld pursuant to any applicable law or regulation.
(e) The Executive's failure to insist upon strict
compliance with any provision hereof shall not be deemed to be a waiver of such
provision or any other provision thereof.
(f) This Agreement contains the entire understanding of
the Company and the Executive with respect to the subject matter hereof.
(g) The Executive and the Company acknowledge that the
employment of the Executive by the Company is "at will," and, prior to the
Effective Date, may be terminated by either the Executive or the Company at any
time. Upon a termination of the
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<PAGE> 17
Executive's employment or upon the Executive's ceasing to be an officer of the
Company, in each case, prior to the Effective Date, there shall be no further
rights under this Agreement.
IN WITNESS WHEREOF, the Executive has hereunto set his hand and,
pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
________________________________
, an individual
"EXECUTIVE"
ALEXANDER ENERGY CORPORATION, an
Oklahoma corporation
By _____________________________
Bob G. Alexander, President
and Chief Executive Officer
"COMPANY"
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<PAGE> 1
EXHIBIT 10(ee)
ALEXANDER ENERGY CORPORATION
SPECIAL SEVERANCE AGREEMENT
<PAGE> 2
SPECIAL SEVERANCE AGREEMENT
SPECIAL SEVERANCE AGREEMENT (the "Agreement") entered into between
Alexander Energy Corporation, an Oklahoma corporation (the "Company"), and
___________________, an individual (the "Employee"), dated this 8th day of
December, 1994 (the "Effective Date" ).
WHEREAS, the Company deems the services of the Employee to be of great
and unique value to the business of the Company and the Company desires to
assure both itself of continuity of management and the Employee of continued
employment; and
WHEREAS, the Employee is a key management employee or professional
employee of the Company and is presently making and is expected to continue
making substantial contributions to the Company; and
WHEREAS, it is in the best interests of the Company and its
shareholders to induce the Employee to remain in the employ of the Company; and
WHEREAS, the Employee presently is serving in his/her employment
capacity with the Company; and
WHEREAS, the Company desires to provide an additional inducement for
the Employee to remain in the employ of the Company as hereinafter provided by
providing to him/her additional amounts of compensation as provided in this
Agreement in the event of his/her termination of employment for the reasons
specified herein.
NOW THEREFORE, in consideration of the mutual covenants hereinafter
set forth and for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the Employee and the Company hereby agree as
provided below.
1. Operation of Agreement. The purpose of this Agreement is to
provide to the Employee additional amounts of compensation as provided in this
Agreement in the event of his/her termination of employment for the reasons
specified herein. Accordingly, the Company and the Employee have entered into
this Agreement in accordance with the terms and provisions herein to provide
for such protection to the Employee.
(a) "Effective Date." The Effective Date shall be the
first date during the "Change of Control Period" (as defined below) on which a
Change of Control (as defined below) occurs. Anything in this Agreement to the
contrary notwithstanding, if the Employee's employment with the Company is
terminated prior to the date on which a Change of Control occurs, and it is
reasonably demonstrated that such termination (i) was at the request of a third
party who has taken steps reasonably calculated to effect a
<PAGE> 3
Change of Control or (ii) otherwise arose in connection with or anticipation of
a Change of Control, then for all purposes of this Agreement the "Effective
Date" shall mean the date immediately prior to the date of such termination.
(b) "Change of Control period." Change of Control Period
is the period commencing on the date hereof and ending on the earlier to occur
of (i) the second anniversary of such date or (ii) the first day of the month
next following the Employee's attainment of age 65 ("Normal Retirement Date");
provided, however, that commencing on the date one year after the date hereof,
and on each annual anniversary of such date (such date and each annual
anniversary thereof is hereinafter referred to as the "Renewal Date" ), the
Change of Control Period shall be automatically extended so as to terminate on
the earlier of (i) two years from such Renewal Date or (ii) the first day of
the month coinciding with or next following the Employee's Normal Retirement
Date, unless at least 60 days prior to the Renewal Date, the Company shall give
notice that the Change of Control Period shall not be so extended.
(c) Definition of Change of Control. For the purpose of
this Agreement, a "Change of Control" shall mean:
(i) The acquisition in a transaction or a series
of transactions by any person, entity or "group," within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities and Exchange Act of 1934 (the "Exchange
Act") (excluding, for this purpose, any employee benefit plan of the Company or
its subsidiaries) which acquires beneficial ownership of voting securities of
the Company with the approval of a majority of the Incumbent Board (as defined
below) of beneficial ownership, (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 30% or more of either the then outstanding shares of
common stock or the combined voting power of the Company's then outstanding
voting securities; provided, however, that any acquisition of beneficial
ownership of common stock or voting securities of the Company which would
otherwise come within this Section 1(c)(i) shall not be deemed to be a change
of control if a majority of the Incumbent Board determines (either before or
within twenty (20) business days after such acquisition) that such acquisition
has not caused a "change of control" to occur; provided further, if acquisition
of securities as described in this Section 1(c)(i) is 40% or more, such
acquisition shall be deemed to be a "change of control" and the Board shall
have no right to make a determination that a "change of control" has not
occurred.
(ii) Individuals who, as of the date hereof,
constitute the Board of Directors of the Company (as of the date hereof the
"Incumbent Board") cease for any reason to constitute at least a majority of
the Board, provided that any person becoming a director subsequent to the date
hereof whose election, appointment,
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<PAGE> 4
or nomination for election by the Company's shareholders, was approved by a
vote of a majority of the directors comprising the Incumbent Board (other than
an election, appointment or nomination of an individual whose initial
assumption of office is in connection with an actual or threatened election
contest relating to the election of the Directors of the Company, as such terms
are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act)
shall be, for purposes of this Agreement, considered as though such person were
a member of the Incumbent Board; or
(iii) Approval by the stockholders of the Company
of a reorganization, share exchange, merger or consolidation, in each case,
with respect to which the stockholders of the Company do not, immediately
thereafter, own more than 50% of the combined voting power of the reorganized,
merged or consolidated company's then outstanding voting securities, or a
liquidation or dissolution of the Company or the sale of all or substantially
all of the assets of the Company.
2. Agreement Not Employment Contract. This Agreement
shall be considered solely as a "severance agreement" obligating the Company to
pay to the Employee certain amounts of compensation in the event and only in
the event of his termination of employment after the Control Date for the
reasons and at the times specified herein. Apart from the obligation of the
Company to provide the amounts of additional compensation as provided in this
Agreement, the Company shall at all times retain the right to terminate the
employment of the Employee since the obligation of the Company to the Employee
shall only be considered as an employment relationship which exists between the
Company and the Employee which may be terminated at will by either party
subject to the obligation of the Company to make payment as provided in this
Agreement.
3. Termination. Except as provided in Section 5 hereof,
this Agreement shall terminate upon the first to occur of the following events.
(a) Death. The date of death of the Employee.
(b) Cause. The termination of the Employee's
employment by the Company for "Cause." For purposes of this Agreement,
termination of the Employee's employment by the Company for Cause shall mean
termination for one of the following reasons: (i) if the Employee shall be
mentally or physically disabled from properly and fully performing his duties
and responsibilities hereunder for a period of 120 consecutive days, or 180
days, even though not consecutive, within any 360 day period, all as determined
by the board in good faith and supported by medical evidence; (ii) the
conviction of the Employee of a felony by a federal or state court of competent
jurisdiction; (iii) an act or acts of dishonesty taken by the Employee and
intended to result in substantial personal enrichment of the Employee at the
material
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<PAGE> 5
expense of the Company; or (iv) the Employee's "willful" failure to follow
direct, reasonable, lawful written order from his supervisor, within the
reasonable scope of the Employee's duties, which failure is not cured within 30
days. Further, for purposes of this Section (b):
(1) No act or failure to act, on the
Employee's part shall be deemed "willful" unless done, or omitted to be done,
by the Employee not in good faith and without reasonable belief that the
Employee's action or omission was in the best interest of the Company.
(2) The Employee shall not be deemed to
have been terminated for Cause unless and until there shall have been
delivered to the Employee a copy of a resolution duly adopted by the
affirmative vote of not less than three-fourths (3/4ths) of the entire
membership of the Board at a meeting of the Board called and held for such
purpose (after reasonable notice to the Employee and an opportunity for the
Employee, together with the Employee's counsel, to be heard before the Board),
finding that in the good faith opinion of the Board the Employee was guilty of
conduct set forth in clauses (i), (ii), (iii) or (iv) in Section 3(b) above and
specifying the particulars thereof in detail.
(c) Good Reason. The termination of the
Employee's employment by the Employee for Good Reason. For purposes of this
Agreement, "Good Reason" means:
(i) (1) the assignment to the Employee of
any duties inconsistent in any respect with the Employee's
position (including status, offices, titles and reporting
requirements), authority, duties or responsibilities or (2)
any other action by the Company which results in a
diminishment in such position, authority, duties or
responsibilities, other than an insubstantial and inadvertent
action which is remedied by the Company promptly after receipt
of written notice thereof given by the Employee.
(ii) the Company's requiring the Employee
to be based at any office or location other than that at which
the Employee is based at the Effective Date which is greater
than 25 miles from such office or location, except for travel
reasonably required in the performance of the Employee's
responsibilities;
(iii) any failure by the Company to comply
with and satisfy Section 10(c) of this Agreement.
(d) Failure to Extend Agreement. The Company
gives notice of its intent not to extend the Change of Control Period as
provided in Section 1 hereof.
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<PAGE> 6
4. Notice of Termination. Any termination of employment
by the Company for Cause or by the Employee for Good Reason as provided in
Section 3, above, shall be communicated by Notice of Termination to the other
party hereto given in accordance with Section 12 of this Agreement. For
purposes of this Agreement, a "Notice of Termination" means a written notice
which (i) indicates the specific termination provision in this Agreement relied
upon, (ii) sets forth in reasonable detail the facts and circumstances claimed
to provide a basis for termination of the Employee's employment under the
provision so indicated and (iii) if the termination date is other than the date
of receipt of such notice, specifies the termination date (which date shall be
not more than 15 days after the giving of such notice).
5. Obligations of the Company Upon Termination Following
Change of Control. If (i) within 24 months after the Effective Date the Company
shall terminate the Employee's employment for any reason other than for Cause
or death, or (ii) within 24 months of the Effective Date the employment of the
Employee shall be terminated by the Employee for Good Reason, then, upon the
occurrence of either event as described in clauses (i) and (ii), the Company
shall pay to the Employee in a lump sum, in cash, within 30 days after the date
of termination of employment an amount equal to the lesser of (i) 24 times the
Base Compensation Rate (defined below) or (ii) 2.99 times the Employee's "base
amount" (as such term is defined by Section 280G of the Code, on the Effective
Date. "Base Compensation Rate" shall mean the monthly rate of compensation of
the Employee (before any reductions for income or employment tax withholding
and before salary deferrals on account of contributions made pursuant to either
Sections 401(k) or 125 of the Code, if applicable) in effect as of the
Effective Date hereof or such rate as increased but not reduced) from the
Effective Date hereof until the Effective Date. The Employee's Base
Compensation Rate as of the Effective Date of this Agreement is the monthly
rate of salary, payable bi-weekly. Provided, in the event the Employee has not
attained his Normal Retirement Date as of the Effective Date, and if his Normal
Retirement Date would occur within 24 months of his Effective Date assuming the
Employee continued in the employ of the Company until his Normal Retirement
Date and then retired, then, in such event, the aforesaid factor "24" shall be
reduced to equal the number of months (partial months shall be considered as a
whole month) remaining between the Effective Date and the Employee's Normal
Retirement Date. Provided further, if the Employee has attained his Normal
Retirement Date on the Effective Date, then, the factor "24" as used in this
Section 5 shall be reduced to zero, and such Employee shall be entitled to no
payment under this Agreement.
6. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any
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<PAGE> 7
payment or distribution by the Company to or for the benefit of the Employee,
whether paid or payable or distributed or distributable pursuant to the terms
of this Agreement or otherwise including, by example and not by limitation,
acceleration of the date of vesting or payment or rate of payment under any
plan, program or arrangement of the Company (a "Payment"), would be subject to
the excise tax imposed by Section 4999 of the Code, or any interest or
penalties with respect to such excise tax (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Employee shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Employee of all taxes (including any interest or penalties imposed with respect
to such taxes), including any Excise Tax, imposed upon the Gross-Up Payment,
the Employee retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
(b) Subject to the provisions of Section 6(c),
all determinations required to be made under this Section 6, including whether
a Gross-Up Payment is required and the amount of such Gross-Up Payment, shall
be made by Ernst & Young (the "Accounting Firm") which shall provide detailed
supporting calculations both to the Company and the Employee within 15 business
days of the date of termination, if applicable, or such earlier time as is
requested by the Company. The initial Gross-Up Payment, if any, as determined
pursuant to this Section 6(b), shall be paid to the Employee within five days
of the receipt of the Accounting Firm's determination. If the Accounting Firm
determines that no Excise Tax is payable by the Employee, it shall furnish the
Employee with an opinion that he has substantial authority not to report any
Excise Tax on his federal income tax return. Any determination by the
Accounting Firm shall be binding upon the Company and the Employee. As a result
of the uncertainty in the application of Section 4999 of the Code at the time
of the initial determination by the Accounting Firm hereunder, it is possible
that Gross-Up Payments which will not have been made by the Company should have
been made ("Underpayment"), consistent with the calculations required to be
made hereunder. In the event that the Company exhausts its remedies pursuant to
Section 6(c) and the Employee thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Employee.
(c) The Employee shall notify the Company in
writing of any claim by the Internal Revenue Service that, if successful, would
require the payment by the Company of the Gross-Up Payment. Such notification
shall be given as soon as practicable but no later than ten business days after
the Employee knows of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid. The
Employee shall not pay such claim prior to the expiration of
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<PAGE> 8
the 30-day period following the date on which it gives such notice to the
Company (or such shorter period ending on the date that any payment of taxes
with respect to such claim is due). If the Company notifies the Employee in
writing prior to the expiration of such period that it desires to contest such
claim, the Employee shall:
(i) give the Company any information
reasonably requested by the Company relating to such claim,
(ii) take such action in connection with
contesting such claim as the Company shall reasonably request in writing from
time to time, including, without limitation, accepting legal representation
with respect to such claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good
faith in order effectively to contest such claim,
(iv) permit the Company to participate in
any proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Employee harmless, on an
after-tax basis, for any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions
of this Section 6(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct the Employee to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Employee agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Employee to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Employee, on an interest-free basis and shall indemnify and hold
the Employee harmless, on an after-tax basis, from any Excise Tax or income
tax, including interest or penalties with respect thereto, imposed with respect
to such advance or with respect to any imputed income with respect to such
advance; and further provided that any extension of the statute of limitations
relating to payment of taxes for the taxable year of the Employee with respect
to which such contested amount is claimed to be due is limited solely to such
contested amount. Furthermore, the Company's control of the contest shall be
limited to issues with respect to which a Gross-Up Payment would be payable
hereunder and
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<PAGE> 9
the Employee shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
(d) If, after the receipt by the Employee of an
amount advanced by the Company pursuant to Section 6(c), the Employee becomes
entitled to receive any refund with respect to such claim, the Employee shall
(subject to the Company's complying with the requirements of Section 6(c))
promptly pay to the Company the amount of such refund (together with any
interest paid or credited thereon after taxes applicable thereto). If, after the
receipt by the Employee of an amount advanced by the Company pursuant to
Section 6(c), a determination is made that the Employee shall not be entitled
to any refund with respect to such claim and the Company does not notify the
Employee in writing of its intent to contest such denial of refund prior to the
expiration of thirty days after such determination, then such advance shall be
forgiven and shall not be required to be repaid and the amount of such advance
shall offset, to the extent thereof, the amount of Gross-Up Payment required to
be paid.
7. Non-exclusivity of Rights. Nothing in this Agreement
shall prevent or limit the Employee's continuing or future participation in any
benefit, bonus, incentive or other plan or program provided by the Company or
any of its affiliated companies and for which the Employee may qualify, nor
shall anything herein limit or otherwise affect such rights as the Employee may
have under any stock option or other agreements with the Company or any of its
affiliated companies. Amounts which are vested benefits or which the Employee
is otherwise entitled to receive under any plan or program of the Company or
any of its affiliated companies at or subsequent to the date of termination of
employment shall be payable in accordance with such plan or program.
8. Full Settlement. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any circumstances, including,
without limitation, any set-off, counterclaim, recoupment, defense or other
right which the Company may have against the Employee or others. In no event
shall the Employee be obligated to seek other employment by way of mitigation of
the amounts payable to the Employee under any of the provisions of this
Agreement.
9. Confidential Information. The Employee shall hold in
a fiduciary capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its
subsidiaries, and their respective businesses, which shall have been obtained
by the Employee during the Employee's employment by the Company or any of its
subsidiaries and which shall not be or become public knowledge (other than by
acts
-8-
<PAGE> 10
by the Employee or his representatives in violation of this Agreement). After
termination of the Employee's employment with the Company, the Employee shall
not, without the prior written consent of the Company, communicate or divulge
any such information, knowledge or data to anyone other than the Company and
those designated by it. In no event shall an asserted violation of the
provisions of this Section 9 constitute a basis for deferring or withholding
any amounts otherwise payable to the Employee under this Agreement.
10. Successors.
(a) This Agreement is personal to the Employee
and without the prior written consent of the Company shall not be assignable by
the Employee otherwise than by will or the laws of descent and distribution.
This Agreement shall inure to the benefit of and be enforceable by the
Employee's legal representatives.
(b) This Agreement shall inure to the benefit of
and be binding upon the Company and its successors and assigns.
(c) The Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise)
to all or substantially all of the business and/or assets of the Company to
assume expressly and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform it if no such
succession had taken place. As used in this Agreement, "Company" shall mean the
Company as hereinbefore defined and any successor to its business and/or assets
as aforesaid which assumes and agrees to perform this Agreement by operation
of law, or otherwise.
11. Indemnification. The Employee shall be indemnified
and held harmless by the Company during the term of this Agreement and
following any termination of this Agreement for any reason whatsoever in the
same manner as would any other key management employee of the Company with
respect to acts or omissions occurring prior to (a) the termination of this
Agreement or (b) the termination of employment of the Employee. Provided, in no
event will the obligation of the Company to indemnify the Employee under this
Section 11 be less than the obligation which the Company had to the Employee
immediately prior to the occurrence of a Change of Control.
12. Miscellaneous.
(a) This Agreement shall be governed by and
construed in accordance with the laws of the State of Oklahoma, without
reference to principles of conflict of laws. The captions of this Agreement are
not part of the provisions hereof and shall
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<PAGE> 11
have no force or effect. This Agreement may not be amended or modified
otherwise than by a written agreement executed by the parties hereto or their
respective successors and legal representatives.
(b) All notices and other communications
hereunder shall be in writing and shall be given by hand delivery to the other
party or by registered or certified mail, return receipt requested, postage
prepaid, addressed as follows:
If to the Employee:
If to the Company: Alexander Energy Corporation
701 Cedar Lake Boulevard
Oklahoma City, Oklahoma 73114
Attn: Bob G. Alexander, President
and Chief Executive Officer
With a copy to: McAfee & Taft A Professional Corporation
10th Floor, Two Leadership Square
Oklahoma City, Oklahoma 73102
Attention: Jerry A. Warren, Esq.
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
(d) The Company may withhold from any amounts
payable under this Agreement such federal, state or local taxes as shall be
required to be withheld pursuant to any applicable law or regulation.
(e) The Employee's failure to insist upon strict
compliance with any provision hereof shall not be deemed to be a waiver of such
provision or any other provision thereof.
(f) This Agreement contains the entire
understanding of the Company and the Employee with respect to the subject
matter hereof.
(g) The Employee and the Company acknowledge that
the employment of the Employee by the Company is "at will," and, prior to the
Effective Date, may be terminated by either the
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<PAGE> 12
Employee or the Company at any time. Upon a termination of the Employee's
employment or upon the Employee's ceasing to be an officer of the Company, in
each case, prior to the Effective Date, there shall be no further rights under
this Agreement.
IN WITNESS WHEREOF, the Employee has hereunto set his hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
____________________________________
"Employee"
ALEXANDER ENERGY CORPORATION, an
Oklahoma corporation
By _________________________________
Bob G. Alexander, President
and Chief Executive Officer
"COMPANY"
-11-
<PAGE> 1
Exhibit 10(ff)
ALEXANDER ENERGY CORPORATION
SEPARATION POLICY
<PAGE> 2
ALEXANDER ENERGY CORPORATION
SEPARATION POLICY
Table of Contents
<TABLE>
<S> <C> <C>
ARTICLE I ESTABLISHMENT OF POLICY . . . . . . . . . . . . . . . . 1
ARTICLE II DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE III ELIGIBILITY . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE IV SEPARATION BENEFITS . . . . . . . . . . . . . . . . . . 4
ARTICLE V PARTICIPATING EMPLOYERS . . . . . . . . . . . . . . . . 8
ARTICLE VI SUCCESSOR TO COMPANY . . . . . . . . . . . . . . . . . . 8
ARTICLE VII DURATION, AMENDMENT AND TERMINATION . . . . . . . . . . 9
ARTICLE VIII MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . 9
</TABLE>
<PAGE> 3
ALEXANDER ENERGY CORPORATION
SEPARATION POLICY
THE ALEXANDER ENERGY CORPORATION SEPARATION POLICY is hereby adopted
by Alexander Energy Corporation, an Oklahoma corporation, to be effective the
8th day of December, 1994.
W I T N E S S E T H:
WHEREAS, the Board of Directors of Alexander Energy Corporation
recognizes that, as is the case with many publicly held corporations, there
exists the possibility of a Change of Control of the Company;
WHEREAS, due to this possibility and the uncertainty it creates may
result in the loss or distraction of employees of the Company and its
Subsidiaries to the detriment of the Company and its shareholders;
WHEREAS, the Board considers the avoidance of such loss and
distraction to be essential to protecting and enhancing the best interests of
the Company and its shareholders;
WHEREAS, The Board also believes that when a Change of Control is
perceived as imminent, or is occurring, the Board should be able to receive and
rely on disinterested service from employees regarding the best interests of
the Company and its shareholders without concern that employees might be
distracted or concerned by the personal uncertainties and risks created by the
perception of an imminent or occurring Change of Control; and
WHEREAS, the Board has determined that appropriate steps should be
taken to assure the Company of the continued employment and attention and
dedication to duty of its employees and to ensure the availability of their
continued service, notwithstanding the possibility, threat or occurrence of a
change in control.
THEREFORE, in order to fulfill the above purposes, the following plan
has been developed and is hereby adopted.
ARTICLE I
ESTABLISHMENT OF POLICY
As of the Effective Date, the Company hereby establishes a separation
compensation policy known as the Alexander Energy Corporation Separation Policy
as set forth in this document.
<PAGE> 4
ARTICLE II
DEFINITIONS
As used herein the following words and phrases shall have the
following respective meanings unless the context clearly indicates otherwise.
(a) Base Salary. The amount a Participant is entitled to receive
as wages or salary on a monthly basis, excluding all bonus, overtime and
incentive compensation, payable by an Employer as consideration for the
Participant's services, as determined on the date immediately preceding
termination of employment, except that in the case of a termination of
employment described in Section 4.2(a)(ii) of this Policy, Base Salary shall be
determined as of the date immediately before the reduction (i) in compensation
which gave rise to the Participant's right to terminate his employment and
collect Separation Benefits, (ii) for any deferrals of compensation made
pursuant to Sections 125 or 401(k) of the Internal Revenue Code of 1986, as
amended (the "Code") and (iii) for withholding for income or employment taxes.
(b) Board. The Board of Directors of Alexander Energy Corporation.
(c) Change of Control. "Change of Control" shall mean:
(i) The acquisition in a transaction or a series of
transactions by any person, entity or "group," within the meaning of Section 13
(d)(3) or 14(d)(2) of the Securities and Exchange Act of 1934 (the "Exchange
Act") (excluding, for this purpose, any employee benefit plan of the Company or
its subsidiaries) which acquires beneficial ownership of voting securities of
the Company with the approval of a majority of the Incumbent Board (as defined
below) of beneficial ownership, (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 30% or more of either the then outstanding shares
of common stock or the combined voting power of the Company's then outstanding
voting securities; provided, however, that any acquisition of beneficial
ownership of common stock or voting securities of the Company which would
otherwise come within this Section (c) shall not be deemed to be a change of
control if a majority of the Incumbent Board determines (either before or
within 20 business days after such acquisition) that such acquisition has not
caused a "change of control" 'to occur; provided further, if acquisition of
securities as described in this Section (c) is 40% or more, such acquisition
shall be deemed to be a "change of control" and the Board shall have no right
to make a determination that a "change of control" has not occurred.
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<PAGE> 5
(ii) Individuals who, as of the date hereof, constitute
the Board of Directors of the Company (as of the date hereof the "Incumbent
Board") cease for any reason to constitute at least a majority of the Board,
provided that any person becoming a director subsequent to the date hereof
whose election, appointment, or nomination for election by the Company's
shareholders, was approved by a vote of a majority of the directors comprising
the Incumbent Board (other than an election, appointment or nomination of an
individual whose initial assumption of office is in connection with an actual
or threatened election contest relating to the election of the Directors of the
Company, as such terms are used in Rule 14a-11 of Regulation 14A promulgated
under the Exchange Act) shall be, for purposes of this Agreement, considered as
though such person were a member of the Incumbent Board; or
(iii) Approval by the stockholders of the Company of a
reorganization, share exchange, merger or consolidation, in each case, with
respect to which the stockholders of the Company do not, immediately
thereafter, own more than 50% of the combined voting power of the reorganized,
merged or consolidated company's then outstanding voting securities, or a
liquidation or dissolution of the Company or the sale of all or substantially
all of the assets of the Company.
(d) Code. The Internal Revenue Code of 1986, as amended from time
to time.
(e) Committee. The Compensation Committee of the Board.
(f) Company. Alexander Energy Corporation and any successor
thereto.
(g) Effective Date. With respect to an Employer and its Employees,
the date the Policy is approved by the Board of Directors of that Employer, or
such other date as the Board shall designate in its resolution approving the
Policy.
(h) Employee. Any employee of an Employer.
(i) Employer. The Company or a Subsidiary of the Company which has
adopted the Policy pursuant to Article V hereof.
(j) Participant. An Employee who meets the eligibility
requirements of Section 3.1.
(k) Policy. Alexander Energy Corporation Separation Policy.
(l) Separation Benefit. The benefit payable in accordance with
Section 4.3 of the Policy.
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<PAGE> 6
(m) Subsidiary. Any corporation in which the Company, directly or
indirectly, holds a majority of the voting power of such corporation's
outstanding shares of capital stock.
(n) Successor. Another corporation or unincorporated entity or
group of corporations or unincorporated entities which acquires all or
substantially all of the assets or the stock of the Company.
(o) Year of Service. A 12-month continuous period of employment by
an Employee with an Employer or Employers.
ARTICLE III
ELIGIBILITY
3.1 Participation. Each Employee who has been designated by the
Committee as a Participant under the Policy as of the Effective Date, or his
date of hire by an Employer, whichever occurs later. The initial Participants
in the Policy are listed on Exhibit "A" attached hereto. An Employee once
designated as a Participant may be excluded from the Policy by action of the
Committee at any time prior to the occurrence of a Change of Control provided
that such exclusion is not in connection or in anticipation of a Change of
Control.
3.2 Duration of Participation. A Participant shall cease to be a
Participant in the Policy when he ceases to be an Employee of an Employer,
unless such Participant is then entitled to payment of Separation Benefit as
provided in the Policy. A Participant entitled to payment of a Separation
Benefit shall remain a Participant in the Policy until the full amount of the
Separation Benefit has been paid to the Participant.
ARTICLE IV
SEPARATION BENEFITS
4.1 Right to Separation Benefit. A Participant shall be entitled
to receive from his Employer a Separation Benefit in the amount provided in
Section 4.3 if a Change of Control has occurred and if, within two years
thereafter, the Participant's employment by an Employer shall terminate for any
reason specified in Section 4.2 (a), whether the termination is voluntary or
involuntary. Anything herein to the contrary notwithstanding, with respect to
any Participant, no Separation Benefits shall be payable to any such
Participant hereunder if the Change of Control results from or arises out of a
purchase or other acquisition of the Company, directly or indirectly, by a
corporation or other entity in which such Participant has a 5% or more direct
or indirect equity interest; provided, however, that the limitation contained
in this sentence shall not apply to any 5% or more direct or indirect
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<PAGE> 7
equity interest in a corporation or other entity (a) which equity interest is
part of a class of equity interests which are publicly traded on any securities
exchange or other market system, (b) received by the Participant, without the
Participant's concurrence or consent, as a result of a purchase or other
acquisition of the Company by such corporation or other entity, or (c) received
by the Participant, without the Participant's concurrence or consent, in
connection with a purchase or other acquisition of the Company by such
corporation or other entity in respect of any stock options or performance
awards granted to the Participant by the Company.
4.2 Termination of Employment.
(a) Terminations Which Give Rise to Separation Benefits
Under This Policy.
(i) Subject to the limitations set forth in
Section 4.2(b) below, a termination of employment with an Employer by action of
the Employer within two years after a Change of Control (excluding any transfer
to another Employer) shall entitle a Participant to a Separation Benefit in
accordance with Section 4.3.
(ii) If within two years after a Change of
Control, a Participant's salary, as in effect on the Effective Date or as such
salary may be changed from time to time, is reduced below the amount in effect
immediately prior to the Change of Control, a Participant may terminate his
employment within 60 days of the occurrence of such reduction and be entitled
to the Separation Benefits set forth in Section 4.3.
(iii) If within two years after a Change of Control
a Participant's duties and responsibilities are materially and adversely
diminished without his consent, he may terminate his employment within 60 days
of the occurrence of such reduction and be entitled to the Separation Benefits
set forth in Section 4.3.
(iv) If within two years after a Change of Control
the Company requires the Participant to be based at any office or location
other than that at which the Participant is based immediately prior to the
Change of Control which is greater than 25 miles from such office or location,
except travel reasonably required in the performance of the Participant's
duties.
(b) Terminations Which Do Not Give Rise to Separation
Benefits Under This Policy. If a Participant's employment is terminated after a
Change of Control due to disability, retirement, good cause, sale of business,
or voluntary termination (as those terms are defined below), the Participant
shall not be entitled to Separation Benefits under the Policy, regardless of
the occurrence of a Change of Control.
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<PAGE> 8
(i) A termination for disability shall have
occurred where a. Participant is terminated because illness or injury has
prevented him from performing his duties (as they existed immediately prior to
the illness or injury) on a full time basis for 180 consecutive business days.
(ii) A termination by retirement shall have
occurred where a Participant's termination is due to his retirement under the
qualified pension plan of the Employer on or after the date the Participant
attains age 62.
(iii) A termination for "good cause" shall have
occurred where a Participant is terminated because of an act or acts of
dishonesty, moral turpitude or willful misconduct intended to result in
substantial personal enrichment at the expense of the Company or any of its
Subsidiaries or which have a material adverse effect on the business or
reputation of the Company or any of Subsidiaries.
(iv) A termination due to sale of business shall
have occurred within two years of a Change of Control where an Employer has
sold a Subsidiary, branch or other business unit in which the Participant was
employed before such sale, and the Participant has been offered employment with
the purchaser of such unit on substantially the same terms and conditions under
which he worked for the Employer. Such terms and conditions shall include an
agreement or plan binding on such purchaser, providing that upon a termination
of employment with the purchaser of the kind described in Section 4.2 (a) of
this Policy, within two years of the Change of Control of the Company, the
purchaser will pay to each such former Participant an amount equal to the
Separation Benefit that such former Participant would have received under the
Policy had he been a Participant at the time of such termination. For purposes
of this Section, the purchaser's plan or agreement must treat service with the
Employer and the purchaser as continuous service for purposes of calculating
separation benefits.
(v) A voluntary termination by the Participant
other than if such termination results from the occurrence of one of the events
specified in Section 4.2(a), above.
4.3 Separation Benefits. If a Participant's employment is
terminated in circumstances entitling him to a Separation Benefit as provided
in Section 4.2(a), the. Participant's Employer shall pay such Participant,
within 3 0 days of the date such termination takes effect (the "Date of
Termination"), a Separation Benefit equal to the Participant's Base Salary
multiplied by the number of full or partial Years of Service earned by the
Participant as of the Date of Termination (but not to exceed 12 years of
Service. Periods of employment which are less than a full Year of Service will
be prorated for purposes of calculating a Participant's Separation Benefit.
Provided, in no event will a Partici-
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<PAGE> 9
pant's Separation Benefit be less than six-months of such Participant's Base
Salary.
4.4 Other Benefits payable. The Separation Benefit described in
Section 4.3 above shall be payable in addition to, and not in lieu of, all
other accrued or vested or earned but deferred compensation, rights, options or
other benefits which may be owed to a Participant following termination,
including but not limited to accrued vacation or sick pay, amounts or benefits
pay able under any bonus or other compensation plans, stock option plan, stock
ownership plan, stock purchase plan, life insurance plan, health plan,
disability plan or similar or successor plan.
4.5 Certain Reduction of Payments by the Company.
(a) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment or
distribution by the Company to or for the benefit of an Employee (whether paid
or payable or distributed or distributable pursuant to the terms of this Policy
or otherwise) (a "Payment") would be nondeductible by the Company for Federal
income tax purposes because of Section 280G of the Code, then the aggregate
present value of amounts payable or distributable to or for the benefit of the
Employee pursuant to this Policy (such payments or distributions pursuant to
this Policy are hereinafter referred to as "Policy Payments") shall be reduced
to the Reduced Amount. The "Reduced Amount" shall be an amount expressed in
present value which maximizes the aggregate present value of Policy Payments
without causing any Payment to be nondeductible by the Company because of
Section 280G of the Code. For purposes of this Section 4.5, present value
shall be determined in accordance with Section 280G(d)(4) of the Code.
(b) All determinations required to be made under this
Section 4.5 shall be made by Ernst & Young (the "Accounting Firm") which shall
provide detailed supporting calculations both to the Company and the Employee
within 15 business days of the Date of Termination or such earlier time as is
requested by the Company and an opinion to the Employee that he has substantial
authority not to report any Excise Tax on his Federal income tax return with
respect to any Policy Payments. Any such determination by the Accounting Firm
shall be binding upon the Company and the Employee. Within five business days
of the determination by the Accounting Firm as to the Reduced Amount, the
Company shall pay to or distribute to or for the benefit of the Employee such
amounts as are then due to the Employee under this Policy.
(c) As a result of the uncertainty in the application of
Section 280G of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Policy Payments will have been
made by the Company which should not have been made ("Overpayment") or that
additional Policy Payments
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<PAGE> 10
which will not have been made by the Company could have been made
("Underpayment"), in each case, consistent with the calculations required to
be made hereunder. In the event that the Accounting Firm, based upon the
assertion of a deficiency by the Internal Revenue Service against the Employee
which the Accounting Firm believes has a high probability of success determines
that an Overpayment has been made, any such Overpayment paid or distributed by
the Company to or for the benefit of the Employee shall be treated for all
purposes as a loan ab initio to the Employee which the Employee shall repay to
the Company together with interest at the applicable federal rate provided for
in Section 7872(f)(2) of the Code; provided, however, that no such loan shall
be deemed to have been made and no amount shall be payable by the Employee to
the Company if and to the extent such deemed loan and payment would not either
reduce the amount on which the Employee is subject to tax under Section 1 and
Section 4999 of the Code or generate a refund of such taxes. In the event that
the Accounting Firm, based upon controlling precedent or other substantial
authority, determines that an Underpayment has occurred, any such Underpayment
shall be promptly paid by the Company to or for the benefit of the Employee
together with interest at the applicable federal rate provided for in Section
7872(f)(2) of the Code.
4.6 Payment Obligations Absolute. Upon a Change of Control,
subject to Section 4.5, an Employer's obligations to pay the Separation
Benefits described in Section 4.3 shall be absolute and unconditional and shall
not be affected by any circumstances, including, without limitation, any
set-off, counterclaim, recoupment, defense or other right which the Company or
any of its Subsidiaries may have against any Participant. In no event shall a
Participant be obligated to seek other employment or take any other action by
way of mitigation of the amounts payable to a Participant under any of the
provisions of this Policy, nor shall the amount of any payment hereunder be
reduced by any compensation earned by a Participant as a result of employment
by another employer.
ARTICLE V
PARTICIPATING EMPLOYERS
Upon approval by the Board, this Policy may be adopted by any
Subsidiary of the Company. Upon such adoption, the Subsidiary shall become an
Employer hereunder and the provisions of the Policy shall be fully applicable
to the Employees of that Subsidiary.
ARTICLE VI
SUCCESSOR TO COMPANY
This Policy shall bind any Successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise), in the
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<PAGE> 11
same manner and to the same extent that the Company would be obligated under
this Policy if no succession had taken place. In the case of any transaction in
which a Successor would not by the foregoing provision or by operation of law
be bound by this Policy, the Company shall require such Successor expressly and
unconditionally to assume and agree to perform the Company's obligations under
this Policy, in the same manner and to the same extent that the Company would
be required to perform if no such succession had taken place. The term
"Company," as used in this Policy, shall mean the Company as hereinbefore
defined and any Successor or assignee to the business or assets which by reason
hereof becomes bound by this Policy.
ARTICLE VII
DURATION, AMENDMENT AND TERMINATION
7.1 Duration. If a Change of Control has not occurred, this Policy
shall expire five years from the Effective Date designated by the Board, unless
sooner terminated as provided in Section 7.2, or unless extended for an
additional period or periods by resolution adopted by the Board at any time
during the fifth year of the Policy. If a Change of Control occurs, this Policy
shall continue in full force and effect and shall not terminate or expire until
after all Participants who become entitled to Separation Benefits hereunder
shall have received such payments in full.
7.2 Amendment and Termination. The Policy may be terminated or
amended in any respect by resolution adopted by a majority of the Incumbent
Board, unless a Change of Control has previously occurred. Furthermore, this
Policy may not be amended in connection with or under circumstances likely to
result in a Change of Control. If a Change of Control occurs, the Policy shall
no longer be subject to amendment, change, substitution, deletion, revocation
or termination in any respect whatsoever.
7.3 Form of Amendment. The form of any amendment or termination of
the Policy shall be a written instrument signed by a duly authorized officer or
officers of the Company, certifying that the amendment or termination has been
approved by the Incumbent Board (as defined under "Change of Control" ). An
amendment of the Policy shall automatically effect a corresponding amendment to
all Participants' rights hereunder. A termination of the Policy shall
automatically effect a termination of all Participants' rights and benefits
hereunder.
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<PAGE> 12
ARTICLE VIII
MISCELLANEOUS
8.1 Indemnification. If a Participant institutes any legal action
in seeking to obtain or enforce, or is required to defend in any legal action
the validity or enforceability of, any right or benefit provided by this
Policy, the Employer will, if the Participant prevails in such action to any
extent, pay for all actual legal fees and expenses incurred by such
Participant.
8.2 Employment status. This Policy does not constitute a contract
of employment or impose on the Participant or the Participant's Employer any
obligation to retain the Participant as an Employee, to change the status of
the Participant's employment, or to change the Company's policies or its
Subsidiaries' regarding termination of employment.
8.3 Validity and Severability. The invalidity or unenforceability
of any provision of the Policy shall not affect the validity or enforceability
of any other provision of the Policy, which shall remain in full force and
effect, and any prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction.
8.4 Governing Law. The validity, interpretation, construction and
performance of the Policy shall in all respects be governed by the laws of the
State of Oklahoma.
8.5 Administration and Claims. The Policy shall be administered by
the Committee. Consistent with the requirements of the Employee Retirement
Income Security Act of 1974 and the regulations thereunder of the Department of
Labor, the Committee shall provide adequate written notice to any Participant
whose claim for Separation Benefits has been denied, setting forth specific
reasons for such denial, written in a manner calculated to be understood by
such Participant, and affording such Participant a full and fair review of the
decision denying the claim. The Committee shall have such duties and powers as
may be necessary to discharge its duties hereunder as it determines in its sole
and absolute discretion, including, but not by way of limitation, the
following:
(a) to construe and interpret the Policy and resolve any
ambiguities with respect to any of the terms and provisions thereof as written
and as applied to the operation of the Policy; and
(b) to decide all questions of eligibility and determine
the amount, manner and time of payment of any benefits hereunder.
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<PAGE> 13
8.6 Policy in Lieu of All Others. This Policy is in lieu of and
supersedes any other plan, policy, program or arrangement to pay separation,
termination or severance benefits to any Participant.
8.7 Article and Section Titles and Headings. The titles and
headings at the beginning of each Article and Section shall not be considered
in construing the meaning of any provision in this Policy.
DATED the day and year first above written.
ALEXANDER ENERGY CORPORATION,
an Oklahoma corporation
ATTEST:
/s/ SUE BARNARD By /s/ BOB G. ALEXANDER
Secretary Bob G. Alexander, President
and Chief Executive Officer
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<PAGE> 14
EXHIBIT "A"
<PAGE> 1
EXHIBIT 11
PAGE 1 OF 3
ALEXANDER ENERGY CORPORATION
COMPUTATION OF EARNINGS (LOSS) PER SHARE
YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
<TABLE>
<CAPTION>
For the Twelve Months Ended For the Twelve
----------------------------------------------------- Months Ended
March 31, June 30, September 30, December 31, December 31,
--------- -------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
1994:
Weighted average common and
common equivalent shares:
Common stock outstanding from
beginning of period . . . . . . . 11,715,504 11,715,504 11,715,504 12,161,476
Common stock issued. . . . . . . . - - 355,715 37,916
Common stock equivalents . . . . . 516,483 454,584 - -
---------- ---------- ------------ ------------
12,231,987 12,170,088 12,071,219 12,199,392
========== ========== ============ ============
Weighted average shares (sum of quarters above divided by four). . . . . . . . . . . . . . . . 12,168,172
============
Net income (loss) applicable to
common stock:
Income (loss) before extraordinary
item. . . . . . . . . . . . . . . $ 945,560 $ 490,440 $ (1,945,558) $ (1,784,664) $ (2,294,222)
Gain on extraordinary item . . . . - - - 1,051,760 1,051,760
---------- ---------- ------------ ------------ ------------
Net income (loss) applicable to
common stock . . . . . . . . . . . $ 945,560 $ 490,440 $ (1,945,558) $ (732,904) $ (1,242,462)
========== ========== ============ ============ ============
Income (loss) per common and
common equivalent share:
Income (loss) before gain on
extraordinary item . . . . . . . . $ .08 $ .04 $ (.16) $ (.15) $ (.19)
Gain on extraordinary item . . . . - - - .09 .09
---------- ---------- ------------ ------------ ------------
Net income (loss) per common
share . . . . . . . . . . . . . . . $ .08 $ .04 $ (.16) $ (.06) $ (.10)
========== ========== ============ ============ ============
</TABLE>
<PAGE> 2
PAGE 2 OF 3
ALEXANDER ENERGY CORPORATION
COMPUTATION OF EARNINGS (LOSS) PER SHARE
YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
<TABLE>
<CAPTION>
For the Twelve Months Ended For the Twelve
---------------------------------------------------- Months Ended
March 31, June 30, September 30, December 31, December 31,
--------- -------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
1993:
Weighted average common and
common equivalent shares:
Common stock outstanding from
beginning of period . . . . . . 6,329,028 9,357,908 9,551,341 11,336,674
Common stock issued . . . . . . . 937,810 137,052 490,921 4,678
Common stock equivalents . . . . --- 738,393 854,822 855,579
--------- ---------- ---------- ----------
7,266,838 10,233,353 10,897,084 12,196,931
========= ========== ========== ==========
Weighted average shares (sum of quarters above divided by four). . . . . . . . . . . . . . . 10,148,552
Net income (loss) applicable to ==========
common stock:
Income (loss) before loss on
extraordinary item and cumulative
effect of accounting change . . . $(514,245) $1,690,613 $ 859,501 $ 538,719 $2,574,588
Dividend on preferred stock, if not
converted . . . . . . . . . . . (19,273) (9,000) (8,384) --- (36,657)
--------- ---------- ---------- ---------- ----------
Income (loss) before loss on
extraordinary item and cumulative
effect of accounting change . . . (533,518) 1,681,613 851,117 538,719 2,537,931
Loss on extraordinary item . . . --- (510,000) --- --- (510,000)
Cumulative effect of accounting
change . . . . . . . . . . . . . 425,000 --- --- --- 425,000
--------- ---------- ---------- ---------- ----------
Net income (loss) applicable to
common stock . . . . . . . . . . $(108,518) $1,171,613 $ 851,117 $ 538,719 $2,452,931
========= ========== ========== ========== ==========
Income (loss) per common and common
equivalent shares:
Income (loss) before cumulative
effect of accounting change and
extraordinary item . . . . . . . $ (.07) $ .16 $ .08 $ .04 $ .25
Loss on extraordinary item . . . . --- (.05) --- --- (.05)
Cumulative effect of accounting
change . . . . . . . . . . . . . .06 --- --- --- .04
--------- ---------- ---------- ---------- ----------
Net income (loss) per common
share . . . . . . . . . . . . . $ (.01) $ .11 $ .08 $ .04 $ .24
========= ========== ========== ========== ==========
</TABLE>
<PAGE> 3
PAGE 3 OF 3
ALEXANDER ENERGY CORPORATION
COMPUTATION OF EARNINGS (LOSS) PER SHARE
YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
<TABLE>
<CAPTION>
For the Twelve Months Ended For the Twelve
----------------------------------------------------- Months Ended
March 31, June 30, September 30, December 31, December 31,
--------- -------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
1992:
Weighted average common and
common equivalent shares:
Common stock outstanding from
beginning of period . . . . . . . 4,628,613 4,636,011 5,535,012 5,537,928
Common stock issued . . . . . . . . - 906,440 824 -
Preferred stock, if convened . . . - - - 333,333
Common stock equivalents . . . . . - - - 156,927
---------- ---------- ---------- ----------
4,628,613 5,542,451 5,535,836 6,028,188
========== ========== ========== ==========
Weighted average shares (sum of quarters above divided by four). . . . . . . . . . . . . . . . 5,433,722
==========
Net income (loss) applicable to
common stock:
Income (loss) before discontinued
operations . . . . . . . . . . . . $ (187,808) $ (92,791) $ 235,429 $ 587,424 $ 542,254
Dividend on preferred stock, if
not converted . . . . . . . . . . (43,437) (43,437) (43,437) (30,820) (161,131)
---------- ---------- ---------- ---------- ----------
Income (loss) before discontinued
operations . . . . . . . . . . . . (231,245) (136,228) 191,992 556,604 381,123
========== ========== ========== ========== ==========
Loss from discontinued
operations . . . . . . . . . . . . - - (681,142) - (681,142)
---------- ---------- ---------- ---------- ----------
Net income (loss) applicable to
common stock . . . . . . . . . . . $ (231,245) $ (136,228) $ (489,150) $ 556,604 $ (300,019)
Income (loss) per common and
common equivalent share:
Income (loss) before discontinued
operations . . . . . . . . . . . $ (.05) $ (.02) $ .03 $ .09 $ .07
Loss from discontinued operations . - - (.12) - (.13)
---------- ---------- ---------- ---------- ----------
Net income (loss) per common
share . . . . . . . . . . . . . . $ (.05) $ (.02) $ (.09) $ .09 $ (.06)
========== ========== ========== ========== ==========
</TABLE>
<PAGE> 1
EXHIBIT 21
Subsidiaries of the Registrant
1) Edwards & Leach Oil Company, a Delaware corporation
2) Boomer Marketing Corporation, an Oklahoma corporation
3) Bradmar Petroleum Corporation, an Oklahoma corporation
4) American Natural Energy Corporation, an Oklahoma corporation
<PAGE> 1
Exhibit 23(a)
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
pertaining to the Alexander Energy Corporation 1993 Stock Option Plan (Form S-8
No. 33-63978) and the 1986 Incentive Stock Option Plan (Form S-8 No. 33-20425)
of our report dated March 24, 1995, with respect to the consolidated financial
statements of Alexander Energy Corporation included in the Annual Report (Form
10-K) for the year ended December 31, 1994.
ERNST & YOUNG LLP
Oklahoma City, Oklahoma
March 29, 1995
<PAGE> 1
Exhibit 23(b)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements
pertaining to the Alexander Energy Corporation 1993 Stock Option Plan (Form S-8
No. 33-63978) and the 1986 Incentive Stock Option Plan (form S-8 No. 33-20425)
of our report dated February 22, 1994, on our audits of the consolidated
financial statements of American Natural Energy Corporation and Subsidiaries as
of December 31, 1993 and 1992 and the related consolidated statements of
operations, stockholders' equity, and cash flows for the years ended December
31, 1993 and 1992, which report is included in the Annual Report on Form 10-K,
of Alexander Energy Corporation, for the year ended December 31, 1994.
COOPERS & LYBRAND L.L.P.
Tulsa, Oklahoma
March 29, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 793
<SECURITIES> 0
<RECEIVABLES> 5,402
<ALLOWANCES> 0
<INVENTORY> 307
<CURRENT-ASSETS> 6,647
<PP&E> 129,875
<DEPRECIATION> 38,330
<TOTAL-ASSETS> 99,814
<CURRENT-LIABILITIES> 12,228
<BONDS> 46,514
<COMMON> 368
0
0
<OTHER-SE> 33,856
<TOTAL-LIABILITY-AND-EQUITY> 99,814
<SALES> 17,390
<TOTAL-REVENUES> 20,683
<CGS> 6,135
<TOTAL-COSTS> 22,977
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,395
<INCOME-PRETAX> (2,294)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,294)
<DISCONTINUED> 0
<EXTRAORDINARY> 1,052
<CHANGES> 0
<NET-INCOME> (1,242)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> (.10)
</TABLE>
