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EXHIBIT 10.1
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GRYPHON EXPLORATION COMPANY
Preferred Stock and Common Stock
CONTRIBUTION AND SUBSCRIPTION AGREEMENT
Dated as of September 15, 2000
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GRYPHON EXPLORATION COMPANY
Contribution and Subscription Agreement
TABLE OF CONTENTS
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Section 1. Definitions......................................................................................... 1
Section 2. Issuance of Shares; Closings........................................................................ 8
(a) Initial Contributions by CHEX................................................................. 8
(i) Contribution of Assets............................................................... 8
(ii) Assumption of Liabilities............................................................ 8
(iii) Exclusion of Liabilities............................................................. 8
(iii) Exclusion of Liabilities............................................................. 8
(iv) Initial Issuance of Common Stock to CHEX............................................. 9
(v) Payment to CHEX; Issuance of the CHEX Note........................................... 9
(vi) Operating Fee........................................................................ 10
(b) Initial Cash Contributions by WPEP and the Management Investors............................... 10
(i) Cash Contributions................................................................... 10
(ii) Initial Issuance of Preferred Stock.................................................. 10
(c) Subsequent Financings......................................................................... 10
(d) Call Notices.................................................................................. 11
(e) Participation Notices......................................................................... 12
(f) Eligible Investor Non-Participation in a Subsequent Financing................................. 13
(g) Limitation on Capital Calls................................................................... 13
(h) Closings...................................................................................... 13
Section 3. Investors' Conditions of Initial Closing............................................................ 14
(a) Initial Closing Conditions of the Investors................................................... 14
(i) Representations and Warranties....................................................... 14
(ii) Performance.......................................................................... 14
(iii) Formation Documents and Stockholders Agreement....................................... 14
(iv) Compliance with Securities Laws...................................................... 15
(v) No Adverse Action or Decision........................................................ 15
(vi) Approvals and Consents............................................................... 15
(vii) Board Nominees....................................................................... 15
(viii) Stock Option Plan.................................................................... 15
(ix) Cancellation of CHEX Securities...................................................... 15
(x) Employment Agreements................................................................ 15
(xi) HSR Act Filings...................................................................... 16
(xii) Company Qualification................................................................ 16
(xiii) Contract Operating Agreement......................................................... 16
(xiv) Stockholders Agreement............................................................... 16
(b) WPEP's Initial Closing Conditions............................................................. 16
(i) Opinion of CHEX's Counsel............................................................ 16
(ii) Representations and Warranties....................................................... 16
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GRYPHON EXPLORATION COMPANY
Contribution and Subscription Agreement
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(iii) Performance.......................................................................... 16
(iv) Corporate Documentation.............................................................. 16
(v) Consents............................................................................. 17
(c) CHEX's Initial Closing Conditions............................................................. 17
(i) Representations and Warranties....................................................... 17
(ii) Performance.......................................................................... 17
(iii) Corporate Documentation.............................................................. 17
(d) Subsequent Closing Conditions................................................................. 17
Sections 4. The Company's Conditions of Closing................................................................ 18
(a) Representations and Warranties................................................................ 18
(b) Performance................................................................................... 18
(c) Approvals and Consents........................................................................ 18
Section 5. Covenants........................................................................................... 18
(a) Cooperation, Approvals, Further Action........................................................ 19
(b) Closing Conditions; Adverse Effect............................................................ 19
(c) HSR Act Compliance............................................................................ 19
(d) Ongoing Negotiations.......................................................................... 20
(e) Access; Confidentiality....................................................................... 21
(f) Additional Affirmative Covenants of the Company............................................... 22
(i) Shares to be Reserved................................................................ 22
(ii) Payment of Expenses.................................................................. 22
(iii) Office Space......................................................................... 22
(iv) Override Programs.................................................................... 22
(v) Company Qualification................................................................ 23
(vi) Payment to Fairfield................................................................. 23
(g) Additional Affirmative Covenants of CHEX...................................................... 23
(i) Financial Service.................................................................... 23
(ii) Transfer Fees........................................................................ 23
(iii) Taxes................................................................................ 23
(iv) Shark Prospect....................................................................... 24
(h) Oil and Gas Lease OCS-G 21549................................................................. 24
Section 6. Representations and Warranties of the Company....................................................... 24
(a) Organization; Qualification and Authority..................................................... 24
(b) Authorized Shares and Related Matters......................................................... 25
(c) Defaults; Outstanding Debt.................................................................... 25
(d) No Violation.................................................................................. 25
(e) Offering of Shares............................................................................ 26
Section 7. Representations, and Warranties of the Investors.................................................... 26
(a) Investment Matters............................................................................ 26
(b) Authority..................................................................................... 27
(c) No Conflicts.................................................................................. 27
Section 8. Representations and Warranties of CHEX.............................................................. 27
(a) Organization; Qualification and Authority..................................................... 27
(b) Defaults; Outstanding Debt.................................................................... 28
(c) No Violation.................................................................................. 28
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(d) Governmental Consents......................................................................... 29
(e) Investment Company Status..................................................................... 29
(f) Taxes......................................................................................... 29
(g) Compliance with Law........................................................................... 29
(h) Proceedings................................................................................... 29
(i) Environmental Matters......................................................................... 30
(j) Title......................................................................................... 30
(k) Contracts..................................................................................... 30
(l) Permits....................................................................................... 30
(m) Consents, Preferential Rights, etc............................................................ 31
(n) No Other Activities........................................................................... 31
Section 9. Termination......................................................................................... 31
(a) Termination................................................................................... 31
(b) Effect of Termination......................................................................... 32
Section 10. Miscellaneous...................................................................................... 32
(a) Indemnification............................................................................... 32
(b) Consent to Amendments......................................................................... 33
(c) Restrictive Legend............................................................................ 33
(d) Survival of Representations and Warranties.................................................... 33
(e) Successors and Assigns; No Third Party........................................................ 33
(f) Notices....................................................................................... 33
(g) Descriptive Headings.......................................................................... 34
(h) Satisfaction Requirement...................................................................... 34
(i) Governing Law................................................................................. 34
(j) Entire Agreement.............................................................................. 34
(k) Severability.................................................................................. 34
</TABLE>
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Appendix 2(a)(i) Assets Contributed by Cheniere Energy, Inc.
Appendix 2(a)(ii) Liabilities Assumed by Gryphon Exploration Company
Appendix 3(a)(v) Required Consents
Appendix 3(a)(viii) Initial Stock Option Grants under the Gryphon Exploration
Company 2000 Stock Incentive Plan
Appendix 3(a)(ix) Former Cheniere Energy, Inc. Employees Joining Gryphon
Exploration Company
Appendix 5(d) Prospective Prospects/Contract Rights
GRYPHON EXPLORATION COMPANY
Contribution and Subscription Agreement
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Exhibit A Forms of Conveyance Documentation
Exhibit B Form of CHEX Note
Exhibit C Form of Call Notice
Exhibit D Form of Certificate of Incorporation of Gryphon Exploration
Company
Exhibit E Form of Certificate of Designations, Preferences and Rights of
Series A Convertible Preferred Stock of Gryphon Exploration
Company
Exhibit F Form of Amended and Restated Bylaws of Gryphon Exploration
Company
Exhibit G Form of Stockholders Agreement
Exhibit H Form of Gryphon Exploration Company 2000 Stock Incentive Plan
Exhibit I Form of Equity Cancellation Agreement
Exhibit J Form of Employment Agreement by and between Michael Harvey and
Gryphon Exploration Company
Exhibit K Form of Employment Agreement by and between Ron Krenzke and
Gryphon Exploration Company
Exhibit L Form of Contract Operating Agreement
Exhibit M Form of Opinion Letter from Counsel to Cheniere Energy, Inc. to
the Investors
GRYPHON EXPLORATION COMPANY
Contribution and Subscription Agreement
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<PAGE>
GRYPHON EXPLORATION COMPANY
CONTRIBUTION AND SUBSCRIPTION AGREEMENT
This CONTRIBUTION AND SUBSCRIPTION AGREEMENT dated as of September 15, 2000
(this "Agreement"), is entered into by and among Gryphon Exploration Company, a
Delaware corporation (the "Company"), and each of the other parties executing
this Agreement as of the date hereof (collectively, the "Investors").
WHEREAS, subject to terms and conditions of this Agreement, Cheniere
Energy, Inc. ("CHEX") has agreed to contribute certain assets to the Company in
exchange for the issuance of Common Stock of the Company to Cheniere-Gryphon
Management, Inc. ("CHEX Sub"), as designee of CHEX, and the assumption of
certain liabilities by the Company;
WHEREAS, subject to the terms and conditions of this Agreement, WPEP and
the Management Investors (each as defined herein) have agreed to contribute cash
to the Company in exchange for Preferred Stock of the Company; and
WHEREAS, the parties hereto agree that the contributions contemplated by
the foregoing clauses are intended to constitute a transaction described in
Section 351(a) of the Internal Revenue Code of 1986, as amended.
NOW, THEREFORE, in consideration of the premises, mutual covenants and
agreements hereinafter contained and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
Section 1. Definitions. For the purpose of this Agreement, and in addition to
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terms defined elsewhere in this Agreement, the following terms shall have the
following meanings. In addition, all terms of an accounting character not
specifically defined herein shall have the meanings assigned thereto by the
Financial Accounting Standards Board and generally accepted accounting
principles.
"Additional Capital Contribution" shall have the meaning set forth in
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Section 2(c) hereof.
"Affiliate" shall have the meaning set forth in the Stockholders Agreement.
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"Agreement" shall mean this Contribution and Subscription Agreement dated
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as of September 15, 2000.
"Approvals" shall mean any approvals, authorizations, grants of authority,
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consents, orders, qualifications, permits, licenses, variances, exemptions,
franchises, concessions, certificates, filings or registrations or any waivers
of the foregoing, or any notices, statements or other communications required to
be filed with, delivered to or obtained from any Governmental Entity or any
other Person.
GRYPHON EXPLORATION COMPANY
Contribution and Subscription Agreement
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"Assumed Liabilities" shall mean the obligations of CHEX to be assumed by
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the Company, as set forth in Appendix 2(a)(ii) hereto, and any other liabilities
expressly defined as Assumed Liabilities elsewhere in this Agreement.
"Board" means the board of directors of the Company.
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"Business Day" shall mean any day which is not a Saturday, Sunday or day on
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which banks are authorized by law to close in the State of Texas.
"Call Closing Date" shall have the meaning set forth in Section 2(d)
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hereof.
"Call Notice" shall have the meaning set forth in Section 2(d) hereof.
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"CHEX" shall mean Cheniere Energy, Inc.
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"CHEX Change of Control" shall have the meaning set forth in the
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Stockholders Agreement.
"CHEX Notes" shall have the meaning set forth in Section 2(a) hereof.
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"CHEX Sub" shall mean Cheniere-Gryphon Management, Inc.
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"Closing" shall mean the Initial Closing or any Subsequent Closing.
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"Closing Date" shall mean the Initial Closing Date or any Subsequent
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Closing Date.
"Commission" shall mean the United States Securities and Exchange
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Commission.
"Common Stock" means the common stock, par value $0.01 per share, of the
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Company.
"Company" shall mean Gryphon Exploration Company
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"Contracts" shall have the meaning set forth in Section 8(k) hereof.
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"Contributed Assets" shall mean the assets to be contributed by CHEX as set
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forth in Appendix 2(a)(i) hereto and any other assets expressly defined as
Contributed Assets elsewhere in this Agreement.
"Contribution" shall have the meaning set forth in Section 2(a)(i) hereof.
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"Customary Filings" shall mean rights to consent which require notices to,
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filings with, or other actions by Governmental Entities in connection with the
sale or conveyance of oil and gas leases or interests therein if they are
customarily obtained subsequent to the sale or conveyance.
"Defensible Title" shall mean title in and to the Contributed Assets that,
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subject to Permitted Encumbrances:
GRYPHON EXPLORATION COMPANY
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(a) entitles CHEX or, after the Initial Closing, the Company to
receive throughout the duration of the productive life of any lease (after
satisfaction of all royalties, overriding royalties, nonparticipating royalties,
net profits interests or other similar burdens on or measured by production of
oil and gas), not less than the "net revenue interest" share shown in Appendix
2(a)(i) of all oil, gas and/or other minerals produced, saved and marketed from
such lease except for prospective decreases in connection with those operations
in which CHEX or, after the Initial Closing, the Company may be a non-consenting
co-owner, prospective decreases resulting from the establishment or amendment of
pools or units, and except as otherwise set forth on Appendix 2(a)(i);
(b) obligates CHEX or, after the Initial Closing, the Company to bear
a percentage of the costs and expenses for the maintenance and development of,
and operations relating to, such lease not greater than the "working interest"
shown in Appendix 2(a)(i) without increase throughout the productive life
thereof, except as stated in Appendix 2(a)(i) and except increases resulting
from contribution requirements with respect to defaulting co-owners under
applicable operating agreements and increases that are accompanied by at least a
proportionate increase in CHEX's or, after the Initial Closing, the Company's
net revenue interest; and
(c) is free and clear of Liens, encumbrances, obligations or defects,
other than the Permitted Encumbrances.
"Director" means any member of the Board of the Company.
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"Effective Date" means August 1, 2000.
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"Eligible Investors" shall have the meaning set forth in Section 2(c)
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hereof.
"Environmental Laws" shall mean all federal, state and local laws and
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regulations relating to pollution or protection of human health or the
environment, including without limitation, laws relating to Releases or
threatened Releases of Hazardous Materials into the indoor or outdoor
environment (including, without limitation, ambient air, surface water, ground
water, land surface or subsurface strata) or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, Release,
disposal, transport or handling of Hazardous Materials and all laws and
regulations with regard to record keeping, notification, disclosure and
reporting requirements respecting Hazardous Materials.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
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"Excluded Liabilities" shall have the meaning set forth in Section
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2(a)(iii) hereof.
"Fairfield" means Fairfield Industries Incorporated.
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"Fairfield Agreement" means that certain Master License Agreement, dated
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June 9, 1999, between Fairfield and CHEX, as supplemented from time to time.
GRYPHON EXPLORATION COMPANY
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"Fully-Diluted Common Stock" shall have the meaning set forth in the
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Stockholders Agreement.
"Governmental Entity" shall mean any court or tribunal in any jurisdiction
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(domestic or foreign) or any public, governmental, or regulatory body, agency,
department, commission, board, bureau or other authority or instrumentality
(domestic or foreign).
"Hazardous Materials" shall mean all substances defined as Hazardous
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Substances, Oil, Pollutants or Contaminants in the National Oil and Hazardous
Substances Pollution Contingency Plan, 40 C.F.R. (S) 300.5, or defined as such
by, or regulated as such under, any Environmental Law, including without
limitation, PCBs, mercury and NORM, or which otherwise may be the basis for any
person (including, without limitation, any federal, state, local or foreign
government, and natural persons) to require cleanup, removal, treatment or
remediation.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of
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1976, as amended.
"Indebtedness" shall mean any obligation for borrowed money (including
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notes payable and drafts accepted representing extensions of credit whether or
not representing obligations for borrowed money).
"Initial Closing" shall have the meaning set forth in Section 2(h)(i)
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hereof.
"Initial Closing Date" shall have the meaning set forth in Section 2(h)(i)
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hereof.
"Initial Option Grants" shall have the meaning set forth in Section
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3(a)(viii) hereof.
"Investment Company Act" shall mean the Investment Company Act of 1940, as
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amended.
"Investors" shall mean CHEX, the Eligible Investors and the Management
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Investors.
"Key Geologists/Geophysicists" shall means those Persons marked with an
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asterisk on Appendix 3(a)(ix) hereto.
"Law" shall mean any statute, law, rule or regulation or any judgment,
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order, writ, injunction or decree of any Governmental Entity.
"Lien" shall mean any mortgage, pledge, security interest, encumbrance,
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lien or charge of any kind (including any agreement to give any of the
foregoing, any conditional sale or other title retention agreement, any lease in
the nature thereof, and the filing of or agreement to give any financing
statement or like instrument under the laws of any jurisdiction).
"Management Agreements" shall mean the Management Employment Agreements and
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the Management Purchase Agreement.
GRYPHON EXPLORATION COMPANY
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"Management Employment Agreements" shall have the meaning set forth in
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Section 3(a)(x) hereof.
"Management Investors" shall mean Michael Harvey and Ron Krenzke.
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"Material Adverse Change" shall mean any change, event or occurrence which
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has a Material Adverse Effect.
"Material Adverse Effect" shall mean any material adverse effect on the
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business, properties, prospects, assets or condition, financial or otherwise, of
the Company and its subsidiaries, taken as a whole, or, with respect to the
Initial Closing, on the Contributed Assets.
"MDCK" shall mean Mayor, Day, Caldwell & Keeton, L.L.P., counsel to CHEX.
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"Officer's Certificate" shall mean a certificate signed in the name of the
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Company, by an officer of the Company.
"Participation Notice" shall have the meaning set forth in Section 2(e)
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hereof.
"Person" shall have the meaning set forth in the Stockholders Agreement.
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"Permits" shall mean licenses, permits, variances, exemptions, orders,
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franchises, approvals and other authorizations of or from Governmental Entities.
"Permitted Encumbrances" shall mean:
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(a) lessors' royalties and any overriding royalties, reversionary
interests and other similar burdens to the extent that they do not, individually
or in the aggregate, reduce the Company's net revenue interest below that shown
in Appendix 2(a)(i) or increase the Company's working interest above that shown
in Appendix 2(a)(i) without a corresponding increase in the net revenue
interest;
(b) all leases, contracts, unit agreements, pooling agreements,
operating agreements, platform use agreements, and other contracts, agreements
and instruments applicable to the Contributed Assets, to the extent that they do
not, individually or in the aggregate, reduce the Company's net revenue
interests below that shown in Appendix 2(a)(i) or increase the Company's working
interest above that shown in Appendix 2(a)(i) without a corresponding increase
in the net revenue interest;
(c) Liens for taxes or assessments that are not yet delinquent or, if
delinquent, are being contested in good faith by appropriate actions;
(d) materialmen's, mechanic's, repairman's, employee's, contractor's,
operator's and other similar Liens or charges arising in the ordinary course of
business for amounts that are not
GRYPHON EXPLORATION COMPANY
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yet delinquent (including any amounts being withheld as provided by law), or if
delinquent, are being contested in good faith by appropriate actions;
(e) Customary Filings;
(f) rights of reassignment arising upon final intention to abandon or
release the Contributed Assets, or any of them;
(g) easements, rights-of-way, servitudes, permits, surface leases and
other rights in respect of surface operations arising or incurred in the
ordinary course of business;
(h) all rights reserved to or vested in any Governmental Entities to
control or regulate any of the Contributed Assets in any manner and all
obligations and duties under all applicable laws, rules and orders of any such
Governmental Entities or under any franchise, grant, license or permit issued by
any Governmental Entities;
(i) any matters shown on Appendix 2(a)(ii) to the extent that they do
not, individually or in the aggregate, reduce the Company's net revenue
interests below that shown in Appendix 2(a)(i) or increase the Company's working
interest above that shown in Appendix 2(a)(i) without a corresponding increase
in the net revenue interest;
(j) any other encumbrances, defects or irregularities that do not,
individually or in the aggregate, materially detract from the value of or
materially interfere with the use or ownership of the Contributed Assets subject
thereto or affected thereby and that would be accepted by a reasonably prudent
purchaser engaged in the business of owning and operating oil and gas
properties; and
(k) the Mortgage, Assignment, Security Agreement, Fixture Filing and
Financing Statement, dated as of September 1, 1999, from CHEX, as Mortgagor, to
EnCap Energy Capital Fund III, LP, as Mortgagee, recorded in Cameron Parish,
Louisiana on September 3, 1999 in Mortgage Book 245, File No. 261733, as amended
by that certain First Amendment to Mortgage, Assignment, Security Agreement,
Fixture Filing and Financing Statement recorded in Cameron Parish, Louisiana on
September 9, 1999 in Mortgage Book 245, File No. 2618017, as amended by that
certain Second Supplement and Amendment to Mortgage, Assignment, Security
Agreement, Fixture Filing and Financing Statement recorded in Cameron Parish,
Louisiana on October 26, 1999 in Mortgage Book 246, File No. 262290, and as
further amended by that certain Third Supplement and Amendment to Mortgage,
Assignment, Security Agreement, Fixture Filing and Financing Statement, dated as
of February 29, 2000 (as amended, the "Mortgage"), and Original Financing
Statement No. 261734 filed on September 3, 1999 with the Parish Clerk of Cameron
Parish, Louisiana, as amended (the "Financing Statement"); provided that,
insofar and only insofar as the Mortgage and Financing Statement cover the
Contributed Assets, the Mortgage and Financing Statement shall be released on or
before the Initial Closing Date.
"Petrie Parkman" shall mean Petrie Parkman & Co., Inc.
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GRYPHON EXPLORATION COMPANY
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"Preferred Stock" means the Series A Convertible Preferred Stock, par value
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$0.01 per share, of the Company.
"Pro Rata Portion" with respect to any Investor shall mean, as of the date
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of determination, 100% times a fraction, the numerator of which is the
Investor's ownership of the Company's Fully-Diluted Common Stock and the
denominator of which is the total amount of the Company's Fully-Diluted Common
Stock held by Eligible Investors.
"Proceedings" shall mean all proceedings, actions, claims, suits,
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investigations and inquiries by or before any arbitrator or Governmental Entity.
"Prospective Prospects/Contract Rights" shall have the meaning set forth in
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Section 5(d) hereof.
"Related Agreements" shall mean the Stockholders Agreement and the
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Management Agreements.
"Release" shall mean any release, spill, emission, discharge, leaking,
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pumping, injection, deposit, disposal, dispersal, leaching or migration into the
indoor or outdoor environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata) or into or out of
any property, including the movement of Hazardous Materials through or in air,
soil, surface water, groundwater or property.
"Required Consents" shall mean all approvals and consents required to be
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obtained by the Company, CHEX or CHEX Sub with respect to the consummation of
each of the transactions contemplated by this Agreement, including, without
limitation, those set forth on Appendix 3(a)(v) hereto.
"Required Holders" shall have the meaning set forth in the Stockholders
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Agreement.
"Securities Act" shall mean the Securities Act of 1933, as amended.
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"Shares" shall mean the shares of Preferred Stock and Common Stock.
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"Stock Option Plan" shall mean the Gryphon Exploration Company 2000 Stock
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Incentive Plan.
"Stockholder" shall have the meaning set forth in the Stockholders
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Agreement.
"Stockholders Agreement" shall mean the Stockholders Agreement among the
----------------------
Company and the Company's stockholders in the form attached hereto as Exhibit G,
as amended and in effect from time to time.
"Subsequent Closing" shall have the meaning set forth in Section 2(h)(ii)
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hereof.
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"Subsequent Financing" shall have the meaning set forth in Section 2(c)
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hereof.
"Target Blocks" shall have the meaning assigned to that term in the 2000
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Program Agreement dated March 1, 2000 between CHEX and Samson Offshore Company.
"Taxes" means all federal, state, county, local, foreign or other taxes,
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charges, fees, levies, imposts, duties, licenses or other governmental
assessments, together with any interest, penalties, additions to tax or
additional amounts imposed with respect thereto.
"WPEP" shall mean Warburg, Pincus Equity Partners, L.P., Warburg Pincus
----
Netherlands Equity Partners I, C.V., Warburg Pincus Netherlands Equity Partners
II, C.V. and Warburg Pincus Netherlands Equity Partners III, collectively;
provided, however, that any action to be taken by WPEP under this Agreement may
be taken by Warburg, Pincus Equity Partners, L.P. individually on behalf of the
other entities named in this definition.
"WPEP Cash" shall have the meaning set forth in Section 2(b) hereof.
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"Zydeco Agreement" shall mean that certain Exploration Agreement, dated
----------------
April 4, 1996, between Zydeco Exploration, Inc. and FX Energy, Inc. (now known
as Cheniere Energy Operating Co., Inc.), as amended.
Section 2. Issuance of Shares; Closings.
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(a) Initial Contributions by CHEX.
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(i) Contribution of Assets. Subject to the terms and
----------------------
conditions of this Agreement, at the Initial Closing, CHEX shall
contribute, convey, assign, transfer and deliver to the Company
all of its right, title and interest at the time of the Initial
Closing in and to the Contributed Assets (the "Contribution").
The Contribution will be effected by delivery by CHEX to the
Company of duly executed documents of conveyance in the form
attached hereto as Exhibit A together with such additional
assignments as may be required by Governmental Entities to effect
the assignment to the Company of CHEX's interest in the leases
included in the Contributed Assets.
(ii) Assumption of Liabilities. Subject to the terms and
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conditions of this Agreement, at the Initial Closing the Company
will assume the Assumed Liabilities.
(iii) Exclusion of Liabilities. Notwithstanding any other
------------------------
provision of this Agreement, the Company shall not assume or have
any liability hereunder with respect to any other liabilities or
obligations of CHEX not specifically included in the Assumed
Liabilities, whether known or unknown, liquidated or
unliquidated, contingent or fixed (the "Excluded Liabilities"),
including, without limitation:
(A) liabilities arising out of the business operation
of CHEX or its ownership of the Contributed Assets prior to
the Effective Date;
GRYPHON EXPLORATION COMPANY
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<PAGE>
(B) liabilities to the extent arising out of any
businesses operated and assets owned by CHEX other than the
Contributed Assets, whether incurred before or after the
Effective Date; and
(C) liabilities or obligations for CHEX to pay any
taxes of any kind or nature, including any interest or
penalties imposed with respect hereto, and including any
taxes incurred by CHEX arising out of its business operation
or its ownership of the Contributed Assets prior to the
Effective Date.
(iv) Initial Issuance of Common Stock to CHEX. In
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consideration for all of the foregoing, at the Initial Closing,
subject to the terms and conditions of this Agreement, the
Company will issue to CHEX 145,590 shares of Common Stock.
(v) Payment to CHEX; Issuance of the CHEX Notes. On the
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date hereof, WPEP shall deliver to CHEX, by wire transfer of
immediately available funds to an account or accounts designated
by CHEX, the amount of $2,000,000 in exchange for the execution
and delivery of a note, in the form attached hereto as Exhibit B,
in the original principal amount of $2,000,000. In addition, if
prior to the Initial Closing CHEX elects to participate in the
completion of a well on the Shark Prospect (as described in
Appendix 2(a)(i)), then CHEX shall notify WPEP of such election
and furnish WPEP a copy of an authorization for expenditure
("AFE") setting forth the estimated completion costs and CHEX's
proportionate share thereof. Upon receipt of such an AFE, WPEP,
within two (2) Business Days, shall either (A) notify CHEX of its
election not to participate in the well, in which case the well
shall not be included in the Contributed Assets or (B) deliver to
CHEX, by wire transfer of immediately available funds, an amount
equal to CHEX's share of the estimated completion costs as set
forth in the AFE and CHEX shall execute and deliver a note, in
the form attached hereto as Exhibit B, in the original principal
amount equal to such share of completion costs; provided that if
WPEP has notified CHEX within such two Business Day period that
it wishes to fund CHEX's share of the completion costs as set
forth in clause (B) hereof, but CHEX is unable to cause MDCK or
another counsel reasonably acceptable to WPEP to deliver a legal
opinion with respect to the note to be issued by CHEX (in form
and substance substantially similar to the legal opinion given by
MDCK on the date of this Agreement with respect to the original
CHEX Note), then CHEX may fund such obligations and, in such
case, the well will be included in the Contributed Assets subject
to the Company reimbursing CHEX at the Initial Closing for
completion costs for the well that have been incurred by CHEX
prior to the Initial Closing. The note referred to in this first
sentence of this paragraph and any note with respect to
completion costs are collectively referred to herein as the "CHEX
Notes." At the Initial Closing, CHEX will assign, and the Company
will assume, the CHEX Notes and the CHEX Notes will be included
in the definition of Assumed Liabilities.
GRYPHON EXPLORATION COMPANY
Contribution and Subscription Agreement
-9-
<PAGE>
(vi) Operating Fee. At the Initial Closing, the Company
-------------
hereby agrees to pay to CHEX an operating fee equal to (A) $50,000
plus (B) an additional $10,000 for each day from, and including,
September 1, 2000 to, and including, the Initial Closing Date. The
aggregate amount of this fee shall be delivered by the Company to CHEX
by wire transfer of immediately available funds on the Initial Closing
Date.
(b) Initial Cash Contributions by WPEP and the Management Investors.
---------------------------------------------------------------
(i) Cash Contributions. Subject to the terms and conditions
------------------
of this Agreement, at the Initial Closing, WPEP and the Management
Investors shall contribute as a capital contribution to the Company,
and the Company shall accept from the Investors, the following cash
contributions, where the term "WPEP Cash" shall mean $24,950,000 less
the principal amount of all CHEX Notes assumed by the Company pursuant
to Section 2(a)(v) hereof:
<TABLE>
<CAPTION>
Investor Cash Contribution
-------- -----------------
<S> <C>
Warburg, Pincus Equity Partners, L.P. WPEP Cash * 0.945
Warburg, Pincus Netherlands Equity Partners I, L.P. WPEP Cash * 0.03
Warburg, Pincus Netherlands Equity Partners II, L.P. WPEP Cash * 0.02
Warburg, Pincus Netherlands Equity Partners III, L.P. WPEP Cash * 0.005
Michael Harvey $25,000
Ron Krenzke $25,000
</TABLE>
Such contributions shall be made by wire transfer of immediately
available funds to an account or accounts designated by the Company in
writing at least two (2) Business Days prior to the Initial Closing.
In addition, at the Initial Closing, WPEP shall forgive all CHEX Notes
and any interest accrued thereunder.
(ii) Initial Issuance of Preferred Stock. In consideration of
-----------------------------------
the foregoing, at the Initial Closing, subject to the terms and
conditions of this Agreement, the Company will issue to WPEP and the
Management Investors the number of shares of Preferred Stock set forth
below:
<TABLE>
<CAPTION>
Shares of
Investor Preferred Stock
-------- ---------------
<S> <C>
Warburg, Pincus & Co., as nominee 24,950
Michael Harvey 25
Ron Krenzke 25
</TABLE>
(c) Subsequent Financings.
---------------------
(i) CHEX Sub and WPEP (the "Eligible Investors") shall each have
the option to purchase its Pro Rata Portion of up to 75,000 additional
shares of Preferred Stock at a purchase price of $1,000 per share as
called by the Company from time to time pursuant to a Call Notice
(defined below) delivered in accordance with
GRYPHON EXPLORATION COMPANY
Contribution and Subscription Agreement
-10-
<PAGE>
Section 2(d). Each closing of additional funds pursuant to this
Section 2(c) shall be referred to at times herein as a "Subsequent
Financing." The purchase price paid in any Subsequent Financing is
referred to at times herein as an "Additional Capital Contribution."
All Additional Capital Contributions shall be payable in cash and,
unless otherwise agreed to by the Board, shall be paid by the wire
transfer of immediately available United States dollars on or before
the applicable Call Closing Date (as defined below) to a bank account
designated by the Company prior to such Call Closing Date. With
respect to any Subsequent Financing, each of the Eligible Investors'
respective Pro Rata Portions shall be determined as of the date the
Board authorized the applicable Call Notice.
(ii) Notwithstanding Section 2(c)(i) above, each of the
Management Investors shall be required to purchase one-tenth of one
percent of WPEP's Pro Rata Portion of any Subsequent Financing in
which WPEP is participating. The obligation of each Management
Investor to purchase Shares pursuant to this Section 2(c)(ii) is
subject to such Management Investor being an "accredited investor" as
defined in Rule 501(a) under the Securities Act or the waiver of such
condition by the Company. No Management Investor shall be obligated
to purchase shares pursuant to this Section 2(c)(ii) if his respective
Management Employment Agreement has been terminated at the time of the
Subsequent Financing. To the extent that any Management Investor
purchases shares pursuant to this Section 2(c)(ii), WPEP's Pro Rata
Portion of the applicable Subsequent Financing shall be reduced.
(d) Call Notices.
------------
(i) With respect to any proposed Subsequent Financing under
Section 2(c), the Company shall provide each Investor a written
notice, substantially in the form attached hereto as Exhibit C (a
"Call Notice"), which shall (i) specify the date on which the Company
intends to close on the Subsequent Financing (each such date referred
to as a "Call Closing Date"); (ii) specify the total amount of the
Additional Capital Contribution being called and such Eligible
Investor's Pro Rata Portion thereof; (iii) specify the total number of
shares of Preferred Stock proposed to be issued (calculated on the
basis of a price of $1,000 per share of Preferred Stock) in exchange
for the Additional Capital Contributions; and (iv) include all
materials, if any, related to the Call Notice that were presented to
the Directors at the meeting at which such Call Notice was approved,
for the purpose of evaluating such Call Notice; provided, however,
that no materials shall be delivered to CHEX or WPEP, respectively, if
any Director designated by such Investor attended the meeting at which
the Call Notice was approved and received all materials related to the
Call Notice presented to Directors thereat.
GRYPHON EXPLORATION COMPANY
Contribution and Subscription Agreement
-11-
<PAGE>
(ii) Any Call Notice shall be delivered as follows:
(A) for any Subsequent Financing that is $10,000,000 or
less, the Company shall deliver the Call Notice no later than 40
days prior to the Call Closing Date;
(B) for any Subsequent Financing greater than $10,000,000,
the Company shall deliver the Call Notice no later than 90 days
prior to the Call Closing Date.
(e) Participation Notices. Upon Receipt of a Call Notice, each
---------------------
Eligible Investor shall provide written notice (a "Participation Notice")
indicating whether it will participate in the Subsequent Financing
referenced in such Call Notice to both the Company and the other Eligible
Investor as follows:
(i) for any Subsequent Financing that is $10,000,000 or less,
each Eligible Investor shall deliver the Investor Participation Notice
within 10 days of receiving the applicable Call Notice;
(ii) for any Subsequent Financing that is more than $10,000,000,
each Eligible Investor shall deliver the Investor Participation
Notices within 15 days of receiving the applicable Call Notice.
(iii) Notwithstanding Section 2(e)(ii) above, if an Eligible
Investor receives a Call Notice relating to a subsequent Financing
that is more than $10,000,000 and specifying that such Subsequent
Financing will fund a strategic acquisition of securities or assets or
a business that was formally brought to the attention of the Board at
least 15 days prior to the Board meeting at which such transaction is
(or was) to be approved, then the Investor shall provide notice of its
intention to participate within 5 days of receiving the applicable
Call Notice. In connection with any transaction governed by this
Section 2(e)(iii), the Company shall provide to CHEX and WPEP all
materials relating to such transaction presented to the Board if and
when they are so presented; provided, however, that no materials shall
be delivered to CHEX or WPEP, respectively, if any Director designated
by such Investor attended the meeting at which the Call Notice was
approved and received all materials related to the Call Notice
presented to Directors thereat.
Subject to the conditions set forth in Section 3(d) hereof,
Eligible Investors agreeing to participate in a Subsequent Financing shall
fund their committed portion of such Subsequent Financing on the Call
Closing Date set forth in the applicable Call Notice; provided, however,
that Eligible Investors agreeing to participate in a Subsequent Financing
described under Section 2(e)(iii) above shall fund their committed portion
of such Subsequent Financing at the closing of the strategic acquisition
referred to therein.
GRYPHON EXPLORATION COMPANY
Contribution and Subscription Agreement
-12-
<PAGE>
(f) Eligible Investor Non-Participation in a Subsequent Financing.
-------------------------------------------------------------
(i) To the extent that any Eligible Investor elects not to
participate in any Subsequent Financing, such Eligible Investor
acknowledges that its Pro Rata Portion of any future Subsequent
Financings may be affected.
(ii) In the event that any Eligible Investor elects not to
participate in a Subsequent Financing, then the other Eligible
Investor shall have the option to purchase the non-participating
Eligible Investor's Pro Rata Portion thereof. This option shall be
exercisable by written notice to the Company and the non-participating
Eligible Investor within 5 days of receiving the Participation Notice
indicating the non-participating Eligible Investor's intent not to
participate.
(iii) In the event that an Eligible Investor delivers a
Participation Notice indicating its intention to participate in a
Subsequent Financing to the Company and then fails to fund the
Subsequent Financing on the applicable Call Closing Date, such
Eligible Investor shall forfeit all rights to participate in any
future Subsequent Financings unless the failure to fund such
Subsequent Financing is (A) the result of a written agreement between
the Company and the participating Eligible Investors, (B) due to the
failure of any Investor condition to closing set forth in Section 3(d)
hereof, or (C) cured within 5 Business Days of the Company notifying
such Eligible Investor of its failure to fund.
(iv) If, at any time after a CHEX Change of Control, the Company
delivers a Call Notice in accordance with Section 2(d) above and CHEX
elects not to participate in the Subsequent Financing referenced
therein or fails to fund such Subsequent Financing on the applicable
Call Closing Date, CHEX shall forfeit all rights to participate in any
future Subsequent Financings.
(g) Limitation on Capital Calls. Any call for a Subsequent
---------------------------
Financing shall require approval by the Board. In no event shall a Call
Notice be made for an aggregate amount of less than Three Million Dollars
($3,000,000).
(h) Closings.
--------
(i) The initial issuance and delivery of the Shares to be
purchased by the Investors shall take place at a closing (the "Initial
Closing") to be held at the offices of Vinson & Elkins L.L.P. on such
date (the "Initial Closing Date") which shall be on the day which is
five (5) consecutive Business Days after the date on which the last of
the conditions set forth in Sections 3(a), 3(b), 3(c) and 4 is
fulfilled or waived or is capable of being fulfilled at the Initial
Closing or at such other time or place as the parties hereto shall
agree.
(ii) On each Call Closing Date, the Company will deliver to each
Investor participating in the applicable Subsequent Financing
certificates evidencing the
GRYPHON EXPLORATION COMPANY
Contribution and Subscription Agreement
-13-
<PAGE>
shares of Preferred Stock to be purchased by such Investor and
registered in the name of such Investor against receipt of the
purchase price therefor by wire transfer of immediately available
funds to the Company in an account designated by the Company prior to
such Call Closing Date (each such occurrence, a "Subsequent Closing").
(iii) At any Closing, WPEP shall have the option to have all
shares to be issued to WPEP registered in the name of Warburg, Pincus
& Co., as nominee. At the Initial Closing, CHEX shall transfer its
interest in the Company to CHEX Sub and CHEX hereby consents to the
Company issuing the securities issuable to CHEX pursuant to Section
2(a)(iv) above, and registering such securities in the name of, CHEX
Sub.
Section 3. Investors' Conditions of Initial Closing.
----------------------------------------
(a) Initial Closing Conditions of the Investors. Each Investors'
-------------------------------------------
obligation to acquire the Shares to be acquired by them hereunder on the
Initial Closing Date is subject to the satisfaction or waiver, on or before
the Initial Closing Date, of the conditions contained in this Section 3(a).
(i) Representations and Warranties. The representations and
------------------------------
warranties of the Company contained in this Agreement that are
qualified by reference to materiality or Material Adverse Effect shall
be true and correct, and any such representations and warranties that
are not so qualified shall be true and correct in all material
respects at and as of the Initial Closing Date, in each case as if
made at and as of such date, except that representations and
warranties made as of a specific date need be true only as of that
date.
(ii) Performance. The Company shall have performed in all
-----------
material respects all of its obligations under this Agreement required
to be performed by it on or prior to the Initial Closing Date.
(iii) Formation Documents and Stockholders Agreement. Each
----------------------------------------------
Investor shall have received an Officer's Certificate, dated the
Initial Closing Date, attaching (i) a true and complete copy of the
Company's Certificate of Incorporation, together with all amendments
thereto, as filed with the Secretary of State of the State of Delaware
in the form attached hereto as Exhibit D, (ii) a true and complete
copy of the Company's Certificate of Designations, Preferences and
Rights of Series A Convertible Preferred Stock, as filed with the
Secretary of State of the State of Delaware and in the form attached
hereto as Exhibit E, (iii) a true and complete copy of the Company's
Bylaws in effect on the date thereof in the form attached hereto as
Exhibit F, (iv) a true and complete copy of the Stockholders Agreement
in the form attached hereto as Exhibit G, (v) certificates of good
standing of the appropriate officials of the jurisdiction of formation
of the Company and of each state or other jurisdiction in which the
Company is qualified to transact business, and is transacting
GRYPHON EXPLORATION COMPANY
Contribution and Subscription Agreement
-14-
<PAGE>
business, except those other jurisdictions where the failure to be so
qualified would not have a Material Adverse Effect, and (vi)
resolutions of the Directors of the Company authorizing the execution
and delivery of this Agreement, the Stockholders Agreement and the
issuance of the Shares.
(iv) Compliance with Securities Laws. The offering and sale
-------------------------------
of the Shares under this Agreement shall have complied with all
applicable requirements of federal and state securities laws.
(v) No Adverse Action or Decision. There shall be no action,
-----------------------------
suit, investigation or proceeding, pending or to the Company's
knowledge threatened, against or affecting the Company or any of its
properties or rights, or any of its affiliates, associates, officers
or Directors, before any court, arbitrator or administrative or
governmental body which (i) seeks to restrain, enjoin, prevent the
consummation of or otherwise affect the transactions contemplated by
this Agreement or (ii) questions the validity or legality of any such
transaction or seeks to recover damages or to obtain other relief in
connection with any such transaction, and to the Company's knowledge
there shall be no valid basis for any such action, proceeding or
investigation.
(vi) Approvals and Consents. The Company shall have duly
----------------------
received all authorizations, consents, approvals, licenses,
franchises, permits and certificates, other than Customary Filings, by
or of all Governmental Entities necessary (including those required
under the HSR Act, if any) for the issuance of the Shares by the
Company and the consummation of the transactions contemplated hereby,
and all of the foregoing shall be in full force and effect at the
Initial Closing Date.
(vii) Board Nominees. The initial members of the Board
--------------
specified in the Stockholders Agreement shall have been appointed
Directors of the Company effective upon the Initial Closing.
(viii) Stock Option Plan. The Company shall have adopted the
-----------------
Stock Option Plan including the attached form of Stock Option
Agreement in the form attached hereto as Exhibit H and shall have
granted options thereunder as set forth on Appendix 3(a)(viii) hereto
(the "Initial Option Grants").
(ix) Cancellation of CHEX Securities. Each former employee of
-------------------------------
CHEX named on Appendix 3(a)(ix) hereto shall have entered into an
Option and Warrant Cancellation Agreement, substantially in the form
attached hereto as Exhibit I (a "Cancellation Agreement"), with CHEX
whereby all options, warrants and other equity interests in CHEX
granted by CHEX held by such individual have been cancelled (other
than 150,000 shares of Common Stock held by Ron Krenzke).
(x) Employment Agreements. The Company shall have entered
---------------------
into employment agreements (collectively, the "Management Employment
Agreements")
GRYPHON EXPLORATION COMPANY
Contribution and Subscription Agreement
-15-
<PAGE>
with Michael Harvey and Ron Krenzke, in the forms attached hereto as
Exhibit J and Exhibit K, respectively.
(xi) HSR Act Filings. The Company and the Investors shall
---------------
have filed all reports and submissions required under the HSR Act
concerning the transactions contemplated hereby and any waiting
periods related to such filings shall have expired or received early
termination.
(xii) Company Qualification. The Company shall be duly
---------------------
qualified to own and hold offshore federal and state of Louisiana oil
and gas leases.
(xiii) Contract Operating Agreement. The Company and CHEX shall
----------------------------
have entered into a Contract Operating Agreement substantially in the
form attached hereto as Exhibit L.
(xiv) Stockholders Agreement. The Company and the Investors
----------------------
shall have entered into the Stockholders Agreement in substantially
the form attached hereto as Exhibit G.
(b) WPEP's Initial Closing Conditions. In addition to the
---------------------------------
conditions set forth in Section 3(a) above, WPEP's obligation to acquire
the Shares to be acquired by it hereunder on the Initial Closing Date is
further subject to the satisfaction or waiver, on or before the Initial
Closing Date, of the conditions contained in this Section 3(b).
(i) Opinion of CHEX's Counsel. MDCK shall have delivered a
-------------------------
legal opinion dated the Initial Closing Date substantially in the form
attached hereto as Exhibit M to WPEP.
(ii) Representations and Warranties. The representations and
------------------------------
warranties of CHEX and CHEX Sub contained in this Agreement that are
qualified by reference to materiality shall be true and correct, and
any such representations and warranties that are not so qualified
shall be true and correct in all material respects at and as of the
Initial Closing Date, in each case as if made at and as of such date,
except that representations and warranties made as of a specific date
need be true only as of that date.
(iii) Performance. CHEX and CHEX Sub shall have performed in
-----------
all material respects all of its obligations under this Agreement
required to be performed by it on or prior to the Initial Closing
Date.
(iv) Corporate Documentation. WPEP shall have received all
-----------------------
such counterpart originals or certified or other copies of such
documents as they may reasonably request.
GRYPHON EXPLORATION COMPANY
Contribution and Subscription Agreement
-16-
<PAGE>
(v) Consents. WPEP shall have been furnished with evidence of
--------
all Required Consents, other than Customary Filings, the failure of
which to obtain could be reasonably expected, in the aggregate, to
result in a Material Adverse Effect, and each such Required Consent
shall be unconditional or be subject to conditions which have been
satisfied on or before the Initial Closing Date.
(c) CHEX's Initial Closing Conditions. In addition to the conditions
---------------------------------
set forth in Section 3(a) above, CHEX's obligation to acquire the Shares to
be acquired by it hereunder on the Initial Closing Date is further subject
to the satisfaction or waiver, on or before the Initial Closing Date, of
the conditions contained in this Section 3(c).
(i) Representations and Warranties. The representations and
------------------------------
warranties of WPEP contained in this Agreement shall be true and
correct in all material respects at and as of the Initial Closing
Date, in each case as if made at and as of such date, except that
representations and warranties made as of a specific date need be true
only as of that date.
(ii) Performance. WPEP shall have performed in all material
-----------
respects all of its obligations under this Agreement required to be
performed by it on or prior to the Initial Closing Date.
(iii) Corporate Documentation. CHEX shall have received all
-----------------------
such counterpart originals or certified or other copies of such
documents as they may reasonably request.
(d) Subsequent Closing Conditions. Each Eligible Investor's
-----------------------------
obligation to purchase shares of Preferred Stock on a Call Closing Date
shall be subject to the satisfaction or waiver, on or before each such Call
Closing Date, of the conditions contained in this Section 3(d).
(i) Except as specified in the applicable Call Notice, the
representations and warranties of the Company contained in Sections
6(a), (c), (d) and (e) of this Agreement that are qualified by
reference to materiality or Material Adverse Effect shall be true and
correct, and any such representations and warranties that are not so
qualified shall be true and correct in all material respects at and as
of the applicable Call Closing Date, in each case as if made at and as
of such date, except that representations and warranties made as of a
specific date need be true only as of that date.
(ii) The Company shall have performed in all material respects
all of its obligations under this Agreement required to be performed
by it on or prior to the applicable Call Closing Date.
(iii) In the event of a Subsequent Closing pursuant to a Call
Notice, any conditions specified in such Call Notice shall have been
satisfied.
GRYPHON EXPLORATION COMPANY
Contribution and Subscription Agreement
-17-
<PAGE>
(iv) As of the applicable Call Closing Date, the Company shall
not be in material violation of the its Certificate of Incorporation
or Bylaws or the Stockholders Agreement.
(v) As of the applicable Call Closing Date, there shall have
been no Material Adverse Change since the date of the applicable Call
Notice, except as specifically set forth in such Call Notice.
(vi) As of the applicable Call Closing Date, the authorizations,
consents, approvals, licenses, franchises, permits and certificates
necessary to be obtained or made, and all waiting periods required or
contemplated to expire, prior to the consummation of the transactions
to be effected on the applicable Call Closing Date described in this
Agreement under applicable federal, state or local laws, including the
HSR Act, or applicable laws of any foreign jurisdiction shall have
been obtained, made or expired, as the case may be, and all such
regulatory approvals shall be in full force and effect.
(vii) The Company shall have delivered to each participating
Eligible Investor an Officer's Certificate, dated the applicable Call
Closing Date, to the effect of clauses (i) through (vi) above.
Section 4. The Company's Conditions of Closing. The Company's obligation to
-----------------------------------
issue the Shares to any Investor hereunder at any Closing is subject to the
satisfaction or waiver, on or before the applicable Closing Date of the
conditions contained in this Section 4.
(a) Representations and Warranties. The representations and
------------------------------
warranties of such Investor purchasing Shares at such Closing contained in
Section 7 hereof shall be true in all material respects on and as of the
applicable Closing Date, and such Investor shall have delivered to the
Company an Officer's Certificate, dated the applicable Closing Date, to
such effect.
(b) Performance. Such Investor shall have performed in all material
-----------
respects all of its obligations under this Agreement required to be
performed by it on or prior to the applicable Closing Date.
(c) Approvals and Consents. The Company shall have duly received
----------------------
all authorizations, consents, approvals, licenses, franchises, permits and
certificates by or of Governmental Entities (including those required under
the HSR Act, if any) for the issuance of the Shares by the Company and the
consummation of the transactions contemplated hereby at the applicable
Closing Date.
Section 5. Covenants.
---------
GRYPHON EXPLORATION COMPANY
Contribution and Subscription Agreement
-18-
<PAGE>
(a) Cooperation, Approvals, Further Action. The Company and the each
--------------------------------------
of the Investors covenants and agrees to cooperate and use all commercially
reasonable efforts to take, or cause to be taken, all action and to do, or
cause to be done, all things necessary, proper or advisable to consummate
and make effective the transactions contemplated by this Agreement,
including cooperating fully with the other parties to obtain all Approvals
that may be necessary or which may be reasonably requested by the Company
or the Investors to consummate the transactions contemplated by this
Agreement and the Related Agreements. In case at any time after the date
hereof any further action is reasonably necessary or desirable to carry out
the purposes of this Agreement, the parties shall take all such necessary
action. Without limiting the foregoing, the parties hereto acknowledge that
CHEX is responsible for obtaining any Required Consents prior to the
Initial Closing and CHEX will agree to assist and cooperate with the
Company in obtaining any approvals of any Governmental Entities with
respect to the assignment of the oil and gas leases included in the
Contributed Assets.
(b) Closing Conditions; Adverse Effect. CHEX covenants and agrees,
----------------------------------
from the date hereof until the earlier of the Initial Closing Date or the
termination of this Agreement, not to take any action that will, or is
reasonably likely to, (i) cause any breach of the representations and
warranties of CHEX or CHEX Sub contained herein such that any condition to
the Initial Closing contained herein would not be satisfied or (ii)
adversely affect the Contributed Assets, in each case, without the prior
written consent of WPEP; provided, however, that such consent shall be
deemed given unless WPEP notifies CHEX to the contrary within 3 Business
Days of receipt of a written request therefor.
(c) HSR Act Compliance. Each of the parties hereto shall (i) file or
------------------
cause to be filed, as promptly as possible after the execution of this
Agreement, with the Federal Trade Commission and the United States
Department of Justice, all reports and other documents required to be filed
by such party under the HSR Act concerning the transactions contemplated
hereby and (ii) promptly comply or cause to be complied with the requests
by the Federal Trade Commission and the United States Department of Justice
for additional information concerning the transactions contemplated hereby,
in each case so that the waiting period applicable to this Agreement and
the transactions contemplated hereby under the HSR Act shall expire as soon
as practicable after the execution and delivery of this Agreement. Each
party hereto agrees to request, and to cooperate with any other party
requesting, early termination of any applicable waiting period under the
HSR Act. If after Initial Closing or and until the date at which the
shares of Preferred Stock purchased hereunder are fully converted in
accordance with their terms, further filings are required under the HSR Act
so that any Investor may acquire the shares of Common Stock underlying such
Preferred Stock or otherwise acquire securities pursuant to this Agreement
or the Related Agreements, the Company will upon written request of such
Investor, and the Investors will upon the written request of the Company,
(i) file or cause to be filed, as promptly as practicable after the receipt
of such notice and in no event later than 15 Business Days after the
receipt of such notice, with the Federal Trade Commission and the United
States Department of Justice, all reports and other documents required to
be filed by such party under the HSR Act concerning the transactions
contemplated in such notice, (ii)
GRYPHON EXPLORATION COMPANY
Contribution and Subscription Agreement
-19-
<PAGE>
promptly comply with or cause to be complied with any requests by the
Federal Trade Commission or the United States Department of Justice for
additional information so that the waiting period applicable thereto under
the HSR Act shall expire as soon as practicable, and (iii) cooperate with
the other parties hereto in requesting early termination of any applicable
waiting period under the HSR Act. The Company will reimburse any Investor
for any filing fees in connection with such filings by such Investor.
(d) Ongoing Negotiations. The Company and the Investors acknowledge
--------------------
that CHEX is currently in the process of negotiating with third
parties for the acquisition of the prospects/leases in, and for farmout
and/or farmin or other contract rights set forth in Appendix 5(d) hereto
(the "Prospective Prospects/Contract Rights"). If, prior to the date of
the Initial Closing, CHEX enters into any agreement regarding the
Prospective Prospects/Contract Rights or acquires any interest in any such
Prospective Prospects/Contract Rights or any interest in any oil or gas
lease or prospect currently being evaluated by CHEX, then CHEX will provide
to the Company and the other Investors written notice of such agreement or
acquisition and, if consented to by WPEP, (i) such agreement and/or
property acquired shall become part of the Contributed Assets hereunder to
be contributed to the Company hereunder (and the term "Contributed Assets"
shall be deemed to include such agreement and/or property), (ii) the
Company will assume the contractual liabilities associated with such
Prospective Prospects/Contract Rights (and the term "Assumed Liabilities"
shall be deemed to include such liabilities) and (iii) the Company will
reimburse CHEX at the Initial Closing for any out-of-pocket fees or
expenses (including any consideration paid) incurred in connection with
obtaining or acquiring such Prospective Prospects/Contract Rights;
provided, however, that with respect to the Prospective Prospects/Contract
Rights relating to West Cameron Block 43 and High Island Block 52, WPEP,
upon the approval of Michael Harvey, will not unreasonably withhold the
consent referenced above. In the event that no agreement and/or
acquisition (or contract for acquisition) with respect to any Prospective
Prospects/Contract Rights is completed by CHEX prior to the Closing, then
CHEX agrees that (i) the term "Contributed Assets" shall include all of its
rights to continue negotiations with respect to any such Prospective
Prospects/Contract Rights (and Appendix 2(a)(i) shall be revised
accordingly), (ii) the Company will have the right to enter into any
agreement resulting from such negotiations and (iii) for a period of two
years following the Initial Closing Date, neither CHEX nor any Affiliate of
CHEX (other than the Company and any of its subsidiaries) will engage in
any further negotiations regarding such Prospective Prospects/Contractual
Rights, acquire any interest in, or enter into any agreement with respect
to, such Prospective Prospects/Contract Rights. If, notwithstanding the
foregoing, in any transaction (a "Subject Transaction"), CHEX acquires an
interest in any Prospective Prospects/Contract Rights during such period
(an "Acquired Interest"), then within fourteen (14) days after such
acquisition, CHEX shall notify the Company in writing of such acquisition,
such notice to include (i) a description of such Acquired Interest, (ii)
the amount and type of consideration paid by CHEX for such Acquired
Interest, including a statement of the cash value of any consideration paid
by CHEX for such Acquired Interest other than cash, and (iii) a description
of any consideration paid by CHEX in the Subject Transaction and any
transactions directly related thereto that was not allocated to such
Acquired Interest. The cash value of any such consideration shall
GRYPHON EXPLORATION COMPANY
Contribution and Subscription Agreement
-20-
<PAGE>
be the "Acquisition Cost," unless within 15 days after receipt of CHEX's
notice, the Company notifies CHEX in writing that the Company in good faith
disagrees with either the value attributed to any non-cash consideration or
the allocation of any consideration between the Acquired Interest and any
other properties/interests involved in the Subject Transaction or any
transaction directly relating thereto. In such notice, the Company shall
designate an independent, nationally recognized petroleum engineering firm
to conduct an appraisal as to the fair valuation or allocation of such
consideration. The appraisal of the appraiser shall be binding on the
parties and shall be deemed the "Acquisition Cost". The Company and CHEX
shall split equally the cost of any such appraiser. The Company shall have
sixty (60) days after receipt of such notice (or after the receipt of an
appraisal referred to in the preceding sentence, if later), in which it may
elect to acquire such Acquired Interest from CHEX by tendering the
Acquisition Cost, and CHEX shall deliver executed and acknowledged
assignments of such Acquired Interest to the Company contemporaneously with
CHEX's receipt of such payment. If the Company does not tender the
Acquisition Cost for such Acquired Interest within such period, it shall be
deemed to have elected not to acquire such Acquired Interest, and CHEX
shall retain such Acquired Interest for its own account and shall have no
further obligation to the Company with respect thereto.
(e) Access; Confidentiality.
-----------------------
(i) At all times from and after the date hereof until the
Initial Closing, CHEX shall afford WPEP and its counsel and other
authorized representatives reasonable access to the properties,
employees and officers of CHEX and subsidiaries thereof and to all
books, accounts, tax returns, financial and other records, including
audit work papers, correspondence and contracts of every kind of CHEX
and any subsidiaries thereof, in each case, as related to the
Contributed Assets and WPEP may reasonably request to conduct due
diligence regarding the Contributed Assets.
(ii) WPEP shall, and shall cause its representatives to, hold
confidential all information relating to CHEX or any subsidiary
thereof it has received from CHEX or any of its representatives and
any information it receives after the date hereof from CHEX or its
representatives as a result of clause (i) above or WPEP's ownership of
Shares; provided, however, that the foregoing shall not apply to (A)
information that is or becomes generally available to the public other
than as a result of a disclosure by WPEP or any of its Affiliates or
representatives in violation of this Section 5(e)(ii), (B) information
that is or becomes available to WPEP or any of its representatives on
a nonconfidential basis from a source other than CHEX or its
Affiliates (other than the Company and any of its subsidiaries) or
representatives, provided that such source is not known by WPEP to be
bound by a confidentiality agreement with, or other obligation of
secrecy to, CHEX or any other party, or (C) information that is
required to be disclosed by WPEP or any of its representatives as a
result of any applicable Law; provided, further, however, that in the
event information is required to be disclosed pursuant to clause (C)
above, the Person proposing such disclosure shall provide CHEX to the
extent practicable an
GRYPHON EXPLORATION COMPANY
Contribution and Subscription Agreement
-21-
<PAGE>
opportunity, reasonably in advance of such disclosure, to review and
comment on the form and content of the proposed disclosure. The
provisions of this Section 5(e)(ii) shall terminate on the first
anniversary of the date that all shares of Preferred Stock purchased
hereunder have been converted in accordance with their terms.
(f) Additional Affirmative Covenants of the Company. All covenants
-----------------------------------------------
contained in this Section 5(f) shall be given independent effect. The
provisions of this Section 5(f) are for the benefit of Investors for so
long as they hold any Shares.
(i) Shares to be Reserved. The Company covenants that (i) all
---------------------
shares of Common Stock that may be issued upon the conversion of the
shares of Preferred Stock will, upon issuance and upon full payment
therefor, be validly issued, fully paid and nonassessable (except to
the extent specified in the Delaware General Corporation Law) and free
from all taxes, liens and charges (other than under the Stockholders
Agreement) with respect to the issuance thereof, (ii) during the
period within which the shares of Preferred Stock may be converted
into shares of Common Stock, the Company will at all times have
authorized and reserved a sufficient number of shares of Common Stock
to permit the conversion of the shares of Preferred Stock and (iii) so
long as any Investor has a subscription option under this Agreement,
the Company shall reserve and set aside a sufficient number of shares
of Preferred Stock issuable upon the making of any Additional Capital
Contribution.
(ii) Payment of Expenses. In the event the Initial Closing is
-------------------
consummated, the Company will (i) pay, or reimburse WPEP for the
payment of, all reasonable out-of-pocket expenses arising in
connection with the transactions and other agreements and instruments
contemplated by this Agreement with respect to the Initial Closing,
including the reasonable fees and expenses of WPEP's counsel, agents,
advisors and consultants, (ii) pay, or reimburse CHEX for the payment
of, up to $600,000 of fees and up to $20,000 of expenses of Petrie
Parkman pursuant to the agreement between CHEX and Petrie Parkman
previously delivered to the Company and WPEP and (iii) pay, or
reimburse CHEX for the payment of, up to $75,000 of legal fees and
expenses of MDCK arising in connection with the transactions and other
agreements and instruments contemplated by this Agreement with respect
to the Initial Closing. The Company will also pay any HSR Act filing
fees payable in connection with this Agreement.
(iii) Office Space. For a period of six months following the
------------
Initial Closing, the Company shall permit CHEX to continue to use, at
no cost, the office space currently occupied by CHEX to the extent and
in the manner presently used by the employees of CHEX that are
remaining with CHEX following the Initial Closing Date.
(iv) Override Programs. The parties hereto acknowledge that
-----------------
the Company shall assign to the Key Geologists/Geophysicists (in the
aggregate) who remain in the employ of the Company on November 1, 2001
a proportionally reduced
GRYPHON EXPLORATION COMPANY
Contribution and Subscription Agreement
-22-
<PAGE>
overriding royalty interest equal to 1% in each oil and gas lease
within the Target Blocks (A) acquired by the Company as a Contributed
Asset hereunder or (B) acquired by the Company through a farmin,
option or acquisition transaction entered into by the Company, to the
extent and only to the extent, such farmin, option or acquisition
transaction is entered into by the Company pursuant to a written
agreement prior to November 1, 2000. Such assignment shall be
effective as of the date of acquisition of the burdened lease by the
Company and each such overriding royalty interest shall be calculated
and paid on the same basis as the applicable lessor's royalty. The Key
Geologists/Geophysicists shall share any such overriding royalty
interest in equal proportions. No other overriding royalty interests
shall be granted by the Company to any of its directors, officers or
employees without the approval of the Company's board of directors.
(v) Company Qualification. The Company will take all actions
---------------------
necessary to become duly qualified to own, hold and operate offshore
and onshore federal and state oil and gas leases acquired at the
Initial Closing or thereafter and shall comply with all bonding
requirements to own, hold and operate such leases.
(vi) Payment to Fairfield. At the Initial Closing, the
--------------------
Company will pay to Fairfield the amount of $1,940,210.87, plus
interest at the rate of 12% per annum on $1,903,156.00 from August 24,
2000 to and including the Initial Closing Date.
(g) Additional Affirmative Covenants of CHEX. All covenants
----------------------------------------
contained herein shall be given independent effect. The provisions of this
Section 5(g) are for the benefit of the Company, WPEP and the Management
Investors.
(i) Financial Service. CHEX covenants that, for a period of six
-----------------
months after the consummation of the Initial Closing, it shall provide
to the Company, at no cost, financial services as the Company may
reasonably require, including accounting and cash management services.
Nothing herein shall obligate CHEX to provide records, financial
information or other information which is not kept or reported by CHEX
in the ordinary course of business except as may be required to comply
with the rules of the Commission in connection with any registered
public offering of capital stock of the Company. Further, nothing
herein shall require CHEX to install equipment, hire personnel, or
expand any systems or services beyond the level provided by CHEX as of
the date hereof.
(ii) Transfer Fees. CHEX covenants that is fully responsible
-------------
for any and all transfer fees required by this Agreement or arising as
a result of the transactions contemplated by this Agreement,
including, without limitation, any transfer fees payable to Fairfield
in connection with the assignment or transfer of the Fairfield
Agreement to the Company.
(iii) Taxes. CHEX acknowledges that the consideration received
-----
for the Contributed Assets includes amounts for any and all Texas,
Louisiana or other sales
GRYPHON EXPLORATION COMPANY
Contribution and Subscription Agreement
-23-
<PAGE>
and use taxes related to the Contributed Assets and CHEX hereby
covenants that it will pay all such amounts to the appropriate
government agency.
(iv) Shark Prospect. Prior to the Initial Closing, CHEX shall
--------------
cause the owners of the platform located on West Cameron Block 49 to
enter into a Production Handling Agreement with CHEX in a form
assignable to the Company, substantially in the form of Exhibit B to
the Second Amendment to Joint Operating Agreement, dated effective
December 1, 1999, between IP Petroleum Company, Inc., as Operator, and
Cheniere Energy, Inc., et al, as Non-Operators (the "JOA"), with
respect to production from the Shark Prospect (as such prospect is
described in Appendix 2(a)(i) hereto) and such Production Handling
Agreement shall be included in the definition of Contributed Assets.
CHEX further covenants that, in the event the Company determines that
additional production handling capacity is required for the Company's
interest in the Shark Prospect, upon request of the Company, CHEX will
propose and approve an "Expansion of Capacity," as defined in the JOA,
and the Company shall bear all costs, risk and expense of such
Expansion of Capacity, insofar as such costs are attributable to the
Shark Prospect, and indemnify and hold CHEX harmless from any loss or
liability in connection therewith
(h) Oil and Gas Lease OCS-G 21549. The parties agree that CHEX
-----------------------------
may, prior to the Initial Closing, assign to third parties up to an
undivided 25% working interest (with a corresponding decrease in CHEX's net
revenue interest) in Oil and Gas Lease OCS-G 21549, covering West Cameron
Block 307; provided that any interest retained therein and any proceeds of
such assignment shall be deemed Contributed Assets.
Section 6. Representations and Warranties of the Company. The Company
---------------------------------------------
represents and warrants to each Investor as of the Initial Closing Date that:
(a) Organization; Qualification and Authority. The Company is a
-----------------------------------------
corporation duly formed and validly existing in good standing under the
laws of the State of Delaware. The Company has been recently incorporated
and has not engaged in any activities other than those related to this
Agreement. Prior to the contributions to be made at the Initial Closing,
the Company has no subsidiaries. The Company is duly qualified to transact
business as a foreign corporation and is in good standing in each
jurisdiction in which the character of its properties or the nature of its
business makes such qualification necessary and in which the failure to so
qualify would have a Material Adverse Effect. Subject to Customary
Filings, the Company has the power to own its properties and to carry on
its business as it is now being conducted. The Company has all requisite
power and authority to enter into this Agreement and to issue and sell the
shares of Preferred Stock and Common Stock, and to issue Common Stock upon
conversion of the Preferred Stock and has the requisite power and authority
to carry out the transactions contemplated hereby to be performed by it,
and the execution, delivery and performance hereof have been duly
authorized by all necessary action. This Agreement and each other
agreement or instrument executed and delivered by the Company pursuant
hereto or in connection herewith constitutes the legal, valid and binding
obligations of the Company and, except as may be
GRYPHON EXPLORATION COMPANY
Contribution and Subscription Agreement
-24-
<PAGE>
affected by bankruptcy, insolvency, moratorium, reorganization and other
laws and judicial decisions affecting the rights of creditors generally and
general principles of equity, are enforceable against the Company in
accordance with their respective terms.
(b) Authorized Shares and Related Matters. As of the date of this
-------------------------------------
Agreement (i) the aggregate authorized Shares of the Company consists of
4,500,000 Shares, of which 4,000,000 are shares of Common Stock and 500,000
are shares of Preferred Stock; (ii) prior to the issuances contemplated
hereby, no shares of Preferred Stock are issued and outstanding and 10
shares of Common Stock are issued and outstanding; (iii) except for the
Initial Option Grants, the Company does not have outstanding any Shares or
other securities convertible into or exchangeable for any Shares, any
rights to subscribe for or to purchase or any options for the purchase of,
or any agreements providing for the issuance (contingent or otherwise) of,
or any calls, commitments or claims of any other character relating to the
issuance of, any Shares, or any securities convertible into or exchangeable
for any Shares (except as expressly provided in this Agreement, the
Stockholders Agreement or the Stock Option Plan); and (v) the Company is
not subject to any obligation (contingent or otherwise) to repurchase or
otherwise acquire or retire any Shares.
(c) Defaults; Outstanding Debt. The Company is not in violation of
--------------------------
and is not in default under (i) its Certificate of Incorporation or Bylaws
or the Stockholders Agreement, (ii) any Indebtedness, (iii) any indenture,
mortgage, lease, or any other contract, agreement or instrument to which
the Company or any subsidiary thereof is a party or by which it or any of
its properties are bound or affected, or (iv) with respect to any order,
writ, injunction or decree of any court or any federal, state, municipal or
other domestic department, commission, board, bureau, agency or
instrumentality, which default, in the case of (iii) above, would have a
Material Adverse Effect, and there exists no condition, event or act which
constitutes, or which after notice, lapse of time, or both, would
constitute, such a default under any of the foregoing.
(d) No Violation. The execution and delivery of this Agreement by
------------
the Company and the Investors do not, and the consummation by the Company
and the Investors of the agreements and transactions contemplated by this
Agreement (including the Contribution) will not, (i) conflict with, or
result in any violation of or default or loss of any benefit under, any
provision of the Certificate of Incorporation and Bylaws of the Company;
(ii) violate any permit, concession, grant, franchise, law, rule or
regulation, or any judgment, decree or order to which the Company or any
subsidiary thereof is a party or to which the Company or any subsidiary
thereof or any of their respective property is subject; or (iii) conflict
with, or result in a breach or violation of, or accelerate the performance
required by, the terms of any agreement, contract, indenture or other
instrument to which the Company or any subsidiary thereof is a party or to
which any of their respective property is subject, or constitute a default
or loss of any right thereunder or an event which, with the lapse of time
or notice or both, is likely to result in a default or loss of any right
thereunder or the creation of any Lien upon any of the assets or properties
of the Company or any subsidiary thereof, excepting in the case of clause
(iii) above, such conflicts, breaches, violations, accelerations, defaults,
losses or Liens as would not individually or in the aggregate have a
Material Adverse Effect.
GRYPHON EXPLORATION COMPANY
Contribution and Subscription Agreement
-25-
<PAGE>
(e) Offering of Shares. Based in part on the representations and
------------------
warranties of the Investors in Section 7, the offer, sale and issuance of
the Shares pursuant to this Agreement and the issuance of Common Stock upon
conversion of the Preferred Stock do not require registration of such
securities under the Securities Act or registration or qualification under
any applicable state "blue sky" or securities laws. The Company, directly
or indirectly, has not taken any action which would subject the issuance or
sale of any of the Shares to the provisions of Section 5 of the Securities
Act or violate the provisions of any securities, "blue sky" law or similar
law of any applicable jurisdiction.
Section 7. Representations, and Warranties of the Investors. Each Investor
------------------------------------------------
severally but not jointly, represents and warrants solely with respect to
itself to the Company and to the other Investors as of the Initial Closing Date
that:
(a) Investment Matters.
------------------
(i) it is acquiring the Preferred Stock and Common Stock solely
for its beneficial account, for investment purposes, and not with a
view to, or for resale in connection with, any distribution of the
Preferred Stock and Common Stock in violation of applicable securities
laws;
(ii) it understands that the Preferred Stock and Common Stock
have not been registered under the Securities Act or any state
securities laws by reason of specific exemptions under the provisions
thereof, the availability of which depend in part upon the bona fide
nature of its investment intent and upon the accuracy of its
representations made in this Section 7;
(iii) it understands that the Company is relying in part upon
the representations and agreements contained in this Section 7 for the
purpose of determining whether this transaction meets the requirements
for such exemptions;
(iv) it is an "accredited investor" as defined in Rule 501(a)
under the Securities Act;
(v) it has such knowledge, skill and experience in business,
financial and investment matters that it is capable of evaluating the
merits and risks of an investment in the Preferred Stock and Common
Stock;
(vi) it understands that the Preferred Stock and Common Stock
are "restricted securities" under applicable federal securities laws
and that the Securities Act and the rules of the Commission provide in
substance that it may dispose of the Preferred Stock and Common Stock
only pursuant to an effective registration statement under the
Securities Act or an exemption therefrom, and it understands that the
Company has no obligation or intention to register any of the
Preferred Stock, the Common Stock or securities issuable upon
conversion or exercise thereof,
-26-
<PAGE>
thereunder (except pursuant to the registration rights granted in the
Stockholders Agreement);
(vii) it has been furnished by the Company all information (or
provided access to all information) regarding the business and
financial condition of the Company, its expected plans for future
business activities, the attributes of the Preferred Stock and the
Common Stock and the merits and risks of an investment in the Shares
which it has requested or otherwise needs to evaluate the investment
in the Shares. In making the proposed investment decision, the
undersigned is relying solely on such information and on
investigations made by it and its representatives. The offer to sell
the Shares hereunder was communicated to the undersigned in such a
manner that it was able to ask questions of and receive answers from
the management of the Company concerning the terms and conditions of
the proposed transaction and that at no time was it presented with or
solicited by or through any leaflet, public promotional meeting,
television advertisement or any other form of general or public
advertising or solicitation;
(b) Authority.
---------
(i) it has full power and authority to enter into and perform
its obligations under this Agreement;
(ii) this Agreement has been duly authorized, executed and
delivered by a Person authorized to do so, constitutes the legal,
valid and binding obligation of such Investor and, except as may be
affected by bankruptcy, insolvency, moratorium, reorganization and
other laws and judicial decisions affecting the rights of creditors
generally and general principles of equity, is enforceable against
such Investors in accordance with its terms; and
(c) No Conflicts. The execution, delivery and performance by such
------------
Investor of this Agreement and the consummation by such Investor of the
transactions contemplated hereby will not, without the giving of notice or
the lapse of time, or both, (A) violate any provision of law, statute,
rule, or regulation to which such Investor is subject, (B) violate any
order, judgment, or decree applicable to such Investor, or (C) conflict
with, or result in a breach or default under, any term or condition of its
certificate of incorporation or bylaws, or partnership agreement or other
organizational document, as applicable, or any agreement or other
instrument to which such Investor is a party or by which such Investor is
bound.
Section 8. Representations and Warranties of CHEX. In addition to the
--------------------------------------
representations and warranties contained in Section 7 hereof, CHEX and, only to
the extent of representations and warranties related to itself, CHEX Sub
represent and warrant to the other Investors and the Company as of the Initial
Closing Date that:
(a) Organization; Qualification and Authority. Each of CHEX and
-----------------------------------------
CHEX Sub is a corporation duly formed and validly existing in good standing
under the laws of the State
GRYPHON EXPLORATION COMPANY
Contribution and Subscription Agreement
-27-
<PAGE>
of Delaware. Each of CHEX and CHEX Sub is duly qualified to transact
business as a foreign corporation and is in good standing in each
jurisdiction in which the character of its properties or the nature of its
business makes such qualification necessary and in which the failure to so
qualify would have a Material Adverse Effect. Each of CHEX and CHEX Sub has
the power to own its properties and to carry on its business as it is now
being conducted. Each of CHEX and CHEX Sub has all requisite power and
authority to enter into this Agreement and has the requisite power and
authority to carry out the transactions contemplated hereby to be performed
by it, and the execution, delivery and performance hereof have been duly
authorized by all necessary action. No approval of any CHEX stockholders is
required for consummation of the transactions contemplated by this
Agreement or the Related Agreements. This Agreement and each other
agreement or instrument executed and delivered by CHEX and CHEX Sub
pursuant hereto or in connection herewith constitutes the legal, valid and
binding obligations of CHEX and CHEX Sub, respectively, and, except as may
be affected by bankruptcy, insolvency, moratorium, reorganization and other
laws and judicial decisions affecting the rights of creditors generally and
general principles of equity, are enforceable against CHEX and CHEX Sub in
accordance with their respective terms.
(b) Defaults; Outstanding Debt. Neither CHEX nor CHEX Sub has
--------------------------
violated or is in default under (i) its Certificate of Incorporation or
Bylaws, (ii) any Indebtedness, (iii) any indenture, mortgage, lease, or any
other contract, agreement or instrument to which CHEX or CHEX Sub is a
party or by which it or any of its properties are bound or affected (other
than payment defaults under the Fairfield Agreement), or (iv) with respect
to any order, writ, injunction or decree of any court or any federal,
state, municipal or other domestic department, commission, board, bureau,
agency or instrumentality, which default, in the case of (ii), (iii) and
(iv) above, would have a Material Adverse Effect, and to CHEX's or CHEX
Sub's knowledge there exists no condition, event or act which constitutes,
or which after notice, lapse of time, or both, would constitute, such a
default under any of the foregoing.
(c) No Violation. The execution and delivery of this Agreement and
------------
the Related Agreements by CHEX and CHEX Sub does not, and the consummation
of the agreements and transactions contemplated by this Agreement and the
Related Agreements (including the Contribution) will not, (i) conflict
with, or result in any violation of or default or loss of any benefit
under, any provision of the Certificate of Incorporation and Bylaws of
CHEX, CHEX Sub or any subsidiary thereof; (ii) to CHEX's knowledge, violate
any permit, concession, grant, franchise, law, rule or regulation, or any
judgment, decree or order to which the CHEX, CHEX Sub or any subsidiary
thereof is a party or to which the Company or any subsidiary thereof or any
of their respective property is subject; or (iii) subject to receipt of the
Required Consents, conflict with, or result in a breach or violation of, or
accelerate the performance required by, the terms of any agreement,
contract, indenture or other instrument (including oil and gas leases) to
which CHEX, CHEX Sub or any subsidiary thereof is a party or to which any
of the Contributed Assets are subject, or constitute a default thereunder
or an event which, with the lapse of time or notice or both, is likely to
result in a default thereunder or the creation of any Lien upon any of the
assets or properties of CHEX, CHEX
GRYPHON EXPLORATION COMPANY
Contribution and Subscription Agreement
-28-
<PAGE>
Sub or any subsidiary thereof, excepting in the case of clauses (ii) and
(iii) above, such conflicts, breaches, violations, accelerations, defaults,
losses or Liens as would not individually or in the aggregate have a
Material Adverse Effect.
(d) Consents. Neither the nature of CHEX or CHEX Sub nor any of
--------
their respective businesses or properties, nor any relationship between
CHEX or CHEX Sub and any other Person is such as to require on behalf of
CHEX or CHEX Sub any consent, approval or authorization, other than
Customary Filings, of any court or administrative or governmental body in
connection with the valid execution, delivery and performance of this
Agreement or fulfillment of or compliance with the terms and provisions
hereof, other than Customary Filings and other filings which have been made
or consents obtained or are not required to be made until after the Initial
Closing Date.
(e) Investment Company Status. CHEX is not and, upon the
-------------------------
consummation of the transactions contemplated by this Agreement and the
Related Agreements, will not be, an "investment company" or a company
"controlled" by an "investment company" within the meaning of the
Investment Company Act.
(f) Taxes. All ad valorem, property, production, severance and
-----
similar taxes and assessments based on or measured by the ownership of
property or the production or removal of hydrocarbons or the receipt of
proceeds therefrom and relating to the Contributed Assets, to the extent
such taxes and assessments have become due and payable, have been timely
paid and all applicable tax returns required to be filed have been filed
and there are no material claims by any applicable taxing authority pending
against CHEX or any subsidiary applicable to the Contributed Assets.
(g) Compliance with Law. To the extent related to the Contributed
-------------------
Assets and except for matters which would not reasonably be expected to
have a Material Adverse Effect, CHEX and any subsidiary thereof (i) has
complied with, and is in compliance with, all applicable Laws (including
without limitation Laws relating to environmental matters, securities,
properties, production, sales, gathering and transportation of
hydrocarbons, occupational safety and health and product safety); (ii) has
not received any written notice, which has not been dismissed or otherwise
disposed of, that it has not so complied; (iii) has not been charged or, to
the knowledge of CHEX, formally threatened with or, to the knowledge of
CHEX, under investigation with respect to any violation of any applicable
Law; and (iv) is not a party to or subject to the provisions of any
judgment, order, writ, injunction, decree or award of any court,
arbitrator, board, panel or Governmental Entity.
(h) Proceedings. There are no Proceedings pending or, to the
-----------
knowledge of CHEX, threatened against CHEX or any of its subsidiaries
relating to the Contributed Assets or against any of the Contributed Assets
or affecting the Contributed Assets or the Company or any of the Company's
properties, at law or in equity, or before or by any Governmental Entity or
before any arbitration board or panel, wherever located.
GRYPHON EXPLORATION COMPANY
Contribution and Subscription Agreement
-29-
<PAGE>
(i) Environmental Matters. Except for matters that would not have
---------------------
a Material Adverse Effect: (i) the properties, operations and activities of
the Company and of CHEX with respect to the Contributed Assets are in
compliance with all applicable Environmental Laws; (ii) the Company and its
properties and operations and the Contributed Assets and the operations
thereon are not subject to any existing, pending or, to the knowledge of
CHEX, threatened Proceedings under any Environmental Law; (iii) to CHEX's
knowledge, all Permits, if any, required to be obtained or filed by CHEX
with respect to the Contributed Assets or by the Company in connection with
the business of the Company under any Environmental Law have been obtained
or filed and are valid and currently in full force and effect; (iv) there
has been no release of any Hazardous Material, pollutant or contaminant
into the environment by CHEX on or with respect to the Contributed Assets;
(v) to CHEX's knowledge, there has been no exposure of any Person or
property to any Hazardous Material, pollutant or contaminant in connection
with the properties, operations and activities related to the Contributed
Assets; and (vi) CHEX has made available to WPEP all internal and external
environmental audits and studies and all correspondence on substantial
environmental matters (in each case relevant to the Company or the
Contributed Assets) in the possession of CHEX.
(j) Title. CHEX has, and on the Initial Closing Date the Company
-----
will have, Defensible Title to the Contributed Assets subject to
conveyances pursuant to Section 5(h) hereof.
(k) Contracts. To CHEX's knowledge, the leases (including oil and
---------
gas leases), contracts, agreements, licenses and permits included in the
Contributed Assets (the "Contracts") are in full force and effect. CHEX is
not in breach or default (and, to the knowledge of CHEX, no situation
exists which with the passing of time or giving of notice would create a
breach or default) of its obligations under the Contracts (other than
payment defaults under the Fairfield Agreement) and neither the
Contribution nor the execution or delivery of this Agreement and the
Related Agreements or the consummation of the transactions contemplated by
this Agreement or the Related Agreements will result in a breach or default
of its obligations under the Contracts. To the knowledge of CHEX, no
breach or default by any third party (or situation which with the passage
of time or giving of notice would create a breach or default) exists. CHEX
has not received any notice of any claimed defaults, offsets or
cancellations from any lessors with respect to the Contributed Assets.
CHEX has provided WPEP with copies of all Contracts and any amendments
thereto.
(l) Permits. Except as would not have a Material Adverse Effect,
-------
and subject to Customary Filings, CHEX or one of its subsidiaries, as
applicable, has all Permits necessary or appropriate to own and operate the
Contributed Assets that it operates as presently being owned and operated,
and such Permits are in full force and effect, and, except as would not
have a Material Adverse Effect, to CHEX's knowledge, there have not been
any violations with respect to any such Permits. The execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby will not result in any revocation
GRYPHON EXPLORATION COMPANY
Contribution and Subscription Agreement
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<PAGE>
cancellation, suspension or modification of any such Permit except as would
not have a Material Adverse Effect.
(m) Consents, Preferential Rights, etc. Except as would not have a
----------------------------------
Material Adverse Effect, and other than the Required Consents set forth on
Appendix 3(a)(v) hereto, neither the Contribution nor the execution or
delivery of this Agreement and the Related Agreements, or the consummation
of the agreements and transactions contemplated by this Agreement and the
Related Agreements requires any consent, approval or waiver from any Person
for the assignment to the Company of the Contributed Assets including,
without limitation, with respect to any Contract, oil and gas lease, area
of mutual interest or seismic data that have not already been obtained (and
such consents or waivers that have been obtained do not contain any
requirements on the part of the Company or any Investor and are not
conditional upon any future event occurring except conditions satisfied on
or prior to Closing) and all preferential rights to purchase, rights of
first refusal and any similar rights affecting the Contributed Assets have
been waived.
(n) No Other Activities. Except as contemplated by this Agreement,
-------------------
the Company has not engaged in any material business activity.
Section 9. Termination.
-----------
(a) Termination. This Agreement may be terminated prior to the
-----------
Initial Closing:
(i) by the unanimous consent of CHEX and WPEP;
(ii) by CHEX in the event of a breach by WPEP of any
representation, warranty, covenant or agreement contained in this
Agreement which would give rise to the failure of a condition set
forth in Section 3(a) or 3(c) which cannot be cured or, if curable,
has not been cured within 15 days following receipt by the breaching
party of written notice of such breach;
(iii) by WPEP in the event of a breach by CHEX or the Company
of any representation, warranty, covenant or agreement contained in
this Agreement which would give rise to the failure of a condition set
forth in Section 3(a) or 3(b) which cannot be cured or, if curable,
has not been cured within 15 days following receipt by the breaching
party of written notice of such breach;
(iv) by CHEX or WPEP if a court of competent jurisdiction or
other Governmental Entity shall have issued an order, decree or ruling
or taken any other action (which order, decree or ruling the Company
and the Investors shall use all commercially reasonable efforts to
lift), in each case permanently restraining, enjoining, or otherwise
prohibiting the transactions contemplated by this Agreement, and such
order, decree, ruling or other action shall have become final and
nonappealable; provided, however, that the right to terminate this
Agreement under
GRYPHON EXPLORATION COMPANY
Contribution and Subscription Agreement
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<PAGE>
this clause (iv) shall not be available to any party whose breach of
this Agreement has been the cause of, or resulted in, such order,
decree, ruling or other action;
(v) by CHEX or WPEP if the Initial Closing shall not have
occurred within 45 days of the date hereof, provided, however, that
the right to terminate this Agreement under this clause (v) shall not
be available to any party whose breach of this Agreement has been the
cause of, or resulted in, the failure of the Initial Closing Date to
occur within such period.
(b) Effect of Termination. In the event of the termination of this
---------------------
Agreement, written notice thereof shall be given to all other parties
hereto by the terminating party specifying the provision pursuant to which
the termination is made, and this Agreement shall forthwith become null and
void, except for liability of a party arising out of willful breach of, or
misrepresentation under, this Agreement prior to such termination.
Section 10. Miscellaneous.
-------------
(a) Indemnification.
---------------
(i) Subject to the limitations set forth herein, CHEX hereby
agrees to indemnify and hold the Company harmless from and against any
liabilities, claims, losses, damages, costs and expenses of any kind
(including, without limitation, the reasonable fees and disbursements
of the Company's counsel in connection with any investigative,
administrative or judicial proceeding, whether or not the Company is
designated as a party thereto) that may be incurred by the Company,
relating to or arising out of (A) any breach of the representations
and warranties made by CHEX in Section 7 and Section 8 hereof, (B) any
operation of the assets of CHEX not contributed to the Company under
this Agreement, (C) any Excluded Liabilities, (D) ownership or
operation of the Contributed Assets prior to the Effective Date
including any liabilities arising with respect to such period (other
than payment defaults under the Fairfield Agreement), (E) the
arbitration award relating to the Zydeco Agreement, or (F) the failure
of CHEX to perform any covenant contained herein required to be
performed by CHEX.
(ii) THE PARTIES HERETO INTEND THAT THE INDEMNITIES SET FORTH IN
THIS SECTION 10(a) BE CONSTRUED AND APPLIED AS WRITTEN ABOVE
NOTWITHSTANDING ANY RULE OF CONSTRUCTION TO THE CONTRARY. WITHOUT
LIMITING THE FOREGOING, THE INDEMNITIES SHALL APPLY NOTWITHSTANDING
ANY STATE'S "EXPRESS NEGLIGENCE RULE" OR SIMILAR RULE THAT WOULD DENY
COVERAGE BASED ON AN INDEMNITEE'S SOLE, CONCURRENT OR CONTRIBUTORY
ACTIVE OR PASSIVE NEGLIGENCE OR GROSS NEGLIGENCE OR STRICT LIABILITY.
IT IS THE INTENT OF THE PARTIES THAT, TO THE EXTENT PROVIDED IN THIS
SECTION 10(a), THE INDEMNITIES SET FORTH HEREIN SHALL APPLY TO AN
INDEMNITEE'S SOLE, CONCURRENT OR CONTRIBUTORY ACTIVE OR PASSIVE
NEGLIGENCE, GROSS NEGLIGENCE OR STRICT LIABILITY. THE
GRYPHON EXPLORATION COMPANY
Contribution and Subscription Agreement
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<PAGE>
PARTIES AGREE THAT THIS PROVISION IS "CONSPICUOUS" FOR PURPOSES OF ALL
STATE LAWS.
The indemnification provided for in this Section 10(a) shall be
made by periodic payments of the amount thereof during the course of the
investigation or defense, as and when bills are received or expenses,
losses, damages or liabilities are incurred.
(b) Consent to Amendments. 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 Required Holders; provided, however, that in no
event shall any amendment impose any additional material obligation on any
party hereto without such party's written consent.
(c) Restrictive Legend. Each Share and any security issued in
------------------
exchange therefor shall bear the legend set forth in Section 7.4 of the
Stockholders Agreement.
(d) Survival of Representations and Warranties. All representations
------------------------------------------
and warranties contained herein or made in writing by or on behalf of any
party to this Agreement in connection herewith shall survive the execution
and delivery of this Agreement without limits, regardless of any
investigation made by or on behalf of any party; provided, however, that
the representations made in Sections 8(f) through (n) shall only survive
for eighteen months after the Effective Date.
(e) Successors and Assigns; No Third Party. All covenants and
--------------------------------------
agreements in this Agreement contained by or on behalf of the parties
hereto shall bind and inure to the benefit of the respective successors and
assigns of the parties hereto and, to the extent provided in this
Agreement, to the benefit of any future holders of Shares issued pursuant
to this Agreement. Subject to the foregoing and except as provided in
Section 10(a) and (b), nothing in this Agreement shall confer upon any
person or entity not a party to this Agreement, or the legal
representatives of such person or entity, any rights or remedies of any
nature or kind whatsoever under or by reason of this Agreement. No transfer
of Shares shall relieve any party of its obligations hereunder, if the
transferee of such Shares does not perform any assumed obligation.
Notwithstanding anything to the contrary contained herein, but subject to
Section 2(c)(ii) hereof, the right to participate in Subsequent Financings
pursuant to this Agreement is not transferable or assignable without the
prior written consent of the Company and each Eligible Investor.
(f) Notices. All communications provided for hereunder shall be
-------
personally delivered, sent via overnight delivery service, sent by
facsimile or sent by registered or certified mail and, if to the Investors,
addressed to each Investor at its address or facsimile number specified on
the signature page hereof or such other address or facsimile number as such
Investor may designate in writing from time to time and, if to the Company,
addressed to Gryphon Exploration Company, Attention: Michael Harvey, Two
Allen Center, 1200 Smith Street, Suite 1740, Houston, Texas 77002, or
such other address as the Company may designate in writing from time to
time. Communications personally delivered or sent
GRYPHON EXPLORATION COMPANY
Contribution and Subscription Agreement
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<PAGE>
via overnight delivery service or facsimile shall be deemed received when
delivered, and communication sent by registered or certified mail shall be
deemed to have been received on the fifth Business Day after the date of
such mailing.
(g) Descriptive Headings. The descriptive headings of the several
--------------------
Sections of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
(h) Satisfaction Requirement. If any agreement, certificate or
------------------------
other writing, or any action taken or to be taken, is by the terms of this
Agreement required to be satisfactory to the Investors, the determination
of such satisfaction shall be made collectively by the Investors in their
reasonable judgment exercised in good faith.
(i) Governing Law. This Agreement shall be construed and enforced
-------------
in accordance with, and the rights of the parties shall be governed by, the
law of the State of Texas, without giving effect to the choice of law or
conflicts principles thereof.
(j) Entire Agreement. This Agreement and the other writings
----------------
referred to herein or delivered pursuant hereto contain the entire
agreement among the parties with respect to the subject matter hereof and
supersede all prior and contemporaneous arrangements or understandings with
respect thereto.
(k) Severability. Any provision of this Agreement that is
------------
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and
any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other
jurisdiction.
GRYPHON EXPLORATION COMPANY
Contribution and Subscription Agreement
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have each executed this Agreement as
of the date first set forth above.
GRYPHON EXPLORATION COMPANY
By: _______________________________________
Name:
Title:
CHENIERE ENERGY, INC.
1200 Smith Street, Suite 1740
Houston, TX
By: _______________________________________
Name:
Title:
CHENIERE-GRYPHON MANAGEMENT, INC.
1200 Smith Street, Suite 1740
Houston, TX
By: _______________________________________
Name:
Title:
WARBURG, PINCUS EQUITY PARTNERS, L.P.
466 Lexington Avenue, 10th Floor
New York, New York 10017
By: Warburg Pincus & Co., its general partner
By: _______________________________________
Name:
Title: Partner
GRYPHON EXPLORATION COMPANY
Contribution and Subscription Agreement
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<PAGE>
WARBURG, PINCUS NETHERLANDS EQUITY PARTNERS I,
C.V.
466 Lexington Avenue, 10th Floor
New York, New York 10017
By: Warburg Pincus & Co., its general partner
By: _______________________________________
Name:
Title: Partner
WARBURG, PINCUS NETHERLANDS EQUITY PARTNERS II,
C.V.
466 Lexington Avenue, 10th Floor
New York, New York 10017
By: Warburg Pincus & Co., its general partner
By: _______________________________________
Name:
Title: Partner
WARBURG, PINCUS NETHERLANDS EQUITY PARTNERS III,
C.V.
466 Lexington Avenue, 10th Floor
New York, New York 10017
By: Warburg Pincus & Co., its general partner
By: _______________________________________
Name:
Title: Partner
GRYPHON EXPLORATION COMPANY
Contribution and Subscription Agreement
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<PAGE>
_______________________________________
MICHAEL HARVEY
_______________________________________
RON KRENZKE
GRYPHON EXPLORATION COMPANY
Contribution and Subscription Agreement
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