SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________ TO _________
Commission File No. 1-12334
FORTUNE NATURAL RESOURCES CORPORATION
(Exact Name of Registrant as specified in its charter)
Delaware 95-4114732
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Commerce Green, 515 W. Greens Rd.,
Suite 720, Houston, Texas 77067
(Address of Principal Executive Offices) (Zip Code)
281-872-1170
------------
Issuer's telephone number
Fortune Petroleum Corporation
------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No ___
Applicable only to corporate issuers:
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
12,123,917 as of June 30, 1997
----------------------------------------
<PAGE>
FORTUNE NATURAL RESOURCES CORPORATION
BALANCE SHEETS
<TABLE>
ASSETS
<CAPTION>
June 30, December 31,
1997 1996
------------ ------------
(Unaudited) (Audited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents .............................................. $ 3,259,000 $ 2,174,000
Accounts receivable .................................................... 470,000 695,000
Prepaid expenses ....................................................... 7,000 25,000
------------ ------------
Total Current Assets ............................................... 3,736,000 2,894,000
------------ ------------
PROPERTY AND EQUIPMENT:
Oil and gas properties, accounted for
using the full cost method ........................................... 25,000,000 23,079,000
Office and other ....................................................... 415,000 375,000
------------ ------------
25,415,000 23,454,000
Less--accumulated depletion, depreciation and amortization ............. (16,714,000) (12,545,000)
------------ ------------
8,701,000 10,909,000
------------ ------------
OTHER ASSETS:
Materials, supplies and other .......................................... 95,000 188,000
Debt issuance costs (net of accumulated
amortization of $274,000 and $238,000 at June 30, 1997
and December 31, 1996, respectively) ................................. 101,000 51,000
Restricted cash ........................................................ 0 2,293,000
------------ ------------
196,000 2,532,000
------------ ------------
TOTAL ASSETS ................................................................ $ 12,633,000 $ 16,335,000
============ ============
</TABLE>
<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
June 30, December 31,
1997 1996
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long term debt ...................................... $ 1,016,000 $ 2,253,000
Accounts payable ....................................................... 607,000 84,000
Accrued expenses ....................................................... 781,000 77,000
Royalties and working interests payable ................................ 56,000 103,000
Accrued interest ....................................................... 60,000 101,000
------------ ------------
Total Current Liabilities .......................................... 2,520,000 2,618,000
------------ ------------
LONG-TERM DEBT, net of current portion ..................................... 800,000 680,000
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $1.00 par value:
Authorized--2,000,000 shares
Issued and outstanding--None ....................................... 0 0
Common stock, $.01 par value :
Authorized--40,000,000 shares
Issued and outstanding 12,123,917 and 11,853,663 at June 30, 1997
and December 31, 1996, respectively ................................ 121,000 119,000
Capital in excess of par value ......................................... 30,269,000 29,273,000
Accumulated deficit .................................................... (21,077,000) (16,355,000)
------------ ------------
NET STOCKHOLDERS' EQUITY .................................................... 9,313,000 13,037,000
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .................................. $ 12,633,000 $ 16,335,000
============ ============
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
FORTUNE NATURAL RESOURCES CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Six Months Ended
----------------------------
June 30, June 30,
1997 1996*
------------- ------------
(Unaudited)
<S> <C> <C>
REVENUES
Sales of oil and gas, net of royalties ................................. $ 1,804,000 $ 1,819,000
Other income ........................................................... 106,000 119,000
------------ ------------
1,910,000 1,938,000
------------ ------------
COSTS AND EXPENSES
Production and operating ............................................... 736,000 780,000
Provision for depletion, depreciation and amortization ................. 969,000 630,000
Impairment to oil and gas properties ................................... 3,200,000 0
General and administrative ............................................. 1,012,000 1,061,000
Office relocation and severance ........................................ 0 110,000
Debt conversion expense ................................................ 316,000 0
Stock offering cost .................................................... 269,000 0
Interest ............................................................... 130,000 233,000
------------ ------------
6,632,000 2,814,000
------------ ------------
LOSS BEFORE PROVISION FOR INCOME TAXES ...................................... (4,722,000) (876,000)
PROVISION FOR INCOME TAXES .................................................. 0 0
------------ ------------
NET LOSS .................................................................... $ (4,722,000) $ (876,000)
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING ........................ 12,049,593 11,210,001
============ ============
NET LOSS PER COMMON SHARE ................................................... $ (0.39) $ (0.08)
============ ============
*Restated
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
FORTUNE NATURAL RESOURCES CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Three Months Ended
----------------------------
June 30, June 30,
1997 1996*
------------ ------------
(Unaudited)
<S> <C> <C>
REVENUES
Sales of oil and gas, net of royalties ................................. $ 691,000 $ 594,000
Other income ........................................................... 54,000 54,000
------------ ------------
745,000 648,000
------------ ------------
COSTS AND EXPENSES
Production and operating ............................................... 543,000 495,000
Provision for depletion, depreciation and amortization ................. 485,000 198,000
Impairment to oil and gas properties ................................... 3,000,000 0
General and administrative ............................................. 459,000 535,000
Office relocation and severance ........................................ 0 5,000
Stock offering cost .................................................... 155,000 0
Interest ............................................................... 62,000 113,000
------------ ------------
4,704,000 1,346,000
------------ ------------
LOSS BEFORE PROVISION FOR INCOME TAXES ...................................... (3,959,000) (698,000)
PROVISION FOR INCOME TAXES .................................................. 0 0
------------ ------------
NET LOSS .................................................................... $ (3,959,000) $ (698,000)
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING ........................ 12,123,918 11,250,922
============ ============
NET LOSS PER COMMON SHARE ................................................... $ (0.33) $ (0.06)
============ ============
*Restated
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
<TABLE>
FORTUNE NATURAL RESOURCES CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996
AND THE SIX MONTHS ENDED JUNE 30, 1997
<CAPTION>
Common Stock Capital in
-------------------------- Excess of Accumulated
Shares Amount Par Value Deficit Net
---------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE, January 1, 1996* ............... 11,139,709 $ 111,000 $ 27,228,000 $(15,025,000) $ 12,314,000
Common stock issued for
exercise of stock options ........... 46,150 1,000 114,000 0 115,000
Common stock issued for
exercise of warrants ................ 255,638 3,000 813,000 0 816,000
Common stock issued for
directors' fees ..................... 1,395 0 4,000 0 4,000
Common stock canceled and
stock issuance cost ................. (1,227) 0 (31,000) 0 (31,000)
Common stock issued for
stock offerings ..................... 412,000 4,000 1,145,000 0 1,149,000
Common stock returned to treasury ....... (2) 0 0 0 0
Net loss ................................ 0 0 0 (1,330,000) (1,330,000)
---------- ------------ ------------ ------------ ------------
BALANCE, December 31, 1996 .............. 11,853,663 $ 119,000 $ 29,273,000 $(16,355,000) $ 13,037,000
---------- ------------ ------------ ------------ ------------
Common stock issued for
exercise of stock options ........... 6,400 0 18,000 0 18,000
Common stock issued for
exercise of warrants ................ 45,000 0 89,000 0 89,000
Common stock issued in exchange
for debentures, net of offering costs 218,858 2,000 889,000 0 891,000
Common stock returned to treasury ....... (4) 0 0 0 0
Net loss ................................ 0 0 0 (4,722,000) (4,722,000)
---------- ------------ ------------ ------------ ------------
BALANCE, June 30, 1997 (unaudited) ...... 12,123,917 $ 121,000 $ 30,269,000 $(21,077,000) $ 9,313,000
========== ============ ============ ============ ============
*Restated
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
<TABLE>
FORTUNE NATURAL RESOURCES CORPORATION
STATEMENTS OF CASH FLOWS
<CAPTION>
For the Six Months Ended
--------------------------
June 30, June 30,
1997 1996*
----------- -----------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ............................................................... $(4,722,000) $ (876,000)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Common stock issued for directors' fees ............................ 0 4,000
Depletion, depreciation and amortization ........................... 969,000 630,000
Non-cash compensation expense ...................................... 42,000 0
Amortization of deferred financing cost ............................ 28,000 36,000
Impairment of oil and gas assets ................................... 3,200,000 0
Debt conversion expense ............................................ 316,000 0
Stock offering cost ................................................ 269,000 0
Changes in assets and liabilities:
Accounts receivable ................................................ 225,000 678,000
Prepaids ........................................................... 18,000 47,000
Accounts payable and accrued expenses .............................. 1,227,000 (144,000)
Royalties and working interest payable ............................. (47,000) (80,000)
Accrued interest ................................................... (41,000) (15,000)
----------- -----------
Net cash provided by operating activities .............................. 1,484,000 280,000
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for oil and gas properties ................................ (2,124,000) (1,328,000)
Restricted cash used ................................................... 138,000 122,000
Return of exploration venture restricted cash .......................... 2,154,000 0
Proceeds from sale of properties and equipment ......................... 203,000 1,961,000
Expenditures for other property and equipment and other assets ......... (129,000) (245,000)
----------- -----------
Net cash provided by investing activities .............................. 242,000 510,000
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long term debt ............................................ (450,000) (1,529,000)
Proceeds from issuance of common stock ................................. 103,000 902,000
Expenditures for debenture exchange and stock offering ................. (294,000) (27,000)
----------- -----------
Net cash used in financing activities .................................. (641,000) (654,000)
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS ................................... 1,085,000 136,000
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD .............................. 2,174,000 1,888,000
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD .................................... $ 3,259,000 $ 2,024,000
=========== ===========
Supplemental information:
Interest paid in cash .................................................. $ 103,000 $ 197,000
Non-cash transactions
Common stock issued or issuable as directors' fees ..................... 0 4,000
Common stock issued for conversion of debt ............................. 975,000 0
*Restated
</TABLE>
See accompanying notes to financial statements
6
<PAGE>
FORTUNE NATURAL RESOURCES CORPORATION
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
NOTES TO FINANCIAL STATEMENTS
June 30, 1997
(1) Line of Business and Summary of Significant Accounting Policies
and Procedures
The condensed financial statements at June 30, 1997, and for the three
months and six months then ended included herein have been prepared by Fortune
Natural Resources Corporation ("Fortune" or the "Company"), without audit,
pursuant to the Rules and Regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such Rules and Regulations, although
the Company believes that the disclosures are adequate to make the information
presented not misleading. These condensed financial statements should be read in
conjunction with the financial statements and the notes thereto included in the
Company's latest annual report on Form 10-K/A. Certain reclassifications have
been made to prior period amounts to conform to presentation in the current
period. In the opinion of the Company, the financial statements reflect all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the financial position of the Company as of June 30, 1997 and
December 31, 1996, the results of its operations for the three months and six
months ended June 30, 1997 and June 30, 1996, and cash flows for the six months
ended June 30, 1997 and 1996. The results of the operations for such interim
periods are not necessarily indicative of the results for the full year.
In the fourth quarter of 1996, the Company changed its method of
accounting for oil and gas operations from the successful efforts to the full
cost method. All prior year financial statements presented herein have been
restated to reflect the change.
The Company has in place a shareholder rights plan which is designed to
distribute preferred stock purchase rights to holders of the Company's Common
Stock in the event a person acquires beneficial ownership of fifteen percent or
more of the Company's stock or commences a tender offer which would result in
ownership of fifteen percent or more of such Common Stock. The plan, which
expires February 28, 2007, provides for the issuance of a fraction of a share of
a new series of junior preferred stock of the Company for each outstanding share
of the Company's stock. Depending on the circumstances, such new preferred stock
will enable the holders to either buy additional shares of the Company at a
discount or buy an interest in any acquiring entity.
(2) Long-Term Debt
At June 30, 1997, a summary of long-term debt is as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
----------- -----------
<S> <C> <C>
Convertible Subordinated Debentures of $1,725,000
(net of discount of $12,000 and $57,000) due
December 31, 1997, including interest of 10 1/2%
per annum paid semi-annually.................................... $ 1,016,000 $ 1,683,000
Bank One credit facility due October 1, 1997 including
interest at 1.5% over Bank One, Texas, NA's prime rate
payable monthly, refinanced in July 1997 (see below)............ 800,000 1,250,000
------------ -----------
Total long-term debt............................................... 1,816,000 2,933,000
Less current installments.......................................... 1,016,000 2,253,000
------------ -----------
Long-term debt, excluding current installments..................... $ 800,000 $ 680,000
============ ===========
</TABLE>
7
<PAGE>
The 10 1/2% Convertible Subordinated Debentures due December 31, 1997
bear an effective interest rate of 12.13% and are convertible into shares of the
Company's Common Stock, at a conversion price of $6.32 per share or 158 shares
per Debenture. On, February 26, 1997, the Company closed an Exchange Offer for
these Debentures which resulted in $697,000 ($680,000 net of discount) principal
amount of Debentures being converted to 218,858 shares of Common Stock. The
Company also issued 174,250 Common Stock Warrants to the Debentureholders who
exchanged their Debentures in connection with the Exchange Offer. The Common
Stock Warrants are exercisable for a period of three years, one-half at $4.00
per share and one-half at $5.00 per share. Subsequent to the conversion, the
remaining balance due on the Debentures at December 31, 1997 is $1,028,000.
Furthermore, the Company recorded a non-cash debt conversion expense of $316,000
during the first quarter of 1997. The non-cash debt conversion expense
represents the difference between the fair market value of all of the Common
Stock and Common Stock Warrants issued in connection with the Exchange Offer and
the fair market value of the lower number of Common Stock that could have been
issued upon the conversion of the Debentures under the Indenture prior to the
Exchange Offer. For purposes of calculating the non-cash debt conversion
expense, the Company valued the 218,858 shares of Common Stock issued in
connection with the Exchange Offer at $547,502 ($2.625 per share) based on the
closing price of the Common Stock on the American Stock Exchange on February 26,
1997. The Company estimated the value of the Common Stock Warrants issued to the
Debentureholders at $8,713 ($0.05 per warrant). As of December 31, 1996, the
Company classified, as long term liabilities, the portion, net of discount, of
the Debentures that were converted to Common Stock in the Exchange Offer.
The Bank One, Texas, N.A. ("Bank One") credit facility was a
reserve-base borrowing facility secured by substantially all of the Company's
oil and gas reserves. The Bank One facility contained various financial
covenants, was due October 1, 1997, bore interest at 1.5% over Bank One's prime
rate and required monthly principal payments of $75,000. On July 11, 1997, the
Company refinanced its debt under the Bank One credit facility by entering into
a $20 million credit facility with Credit Lyonnais New York Branch ("Credit
Lyonnais"). The Credit Lyonnais facility is due July 11, 1999, with a one-year
extension option. Under the new credit facility, the Company may initially
borrow up to a pre-determined borrowing base, for general corporate purposes at
either 1.25% above Credit Lyonnais' base rate or 4% above LIBOR. The initial
borrowing base, currently set at $2 million, was calculated based upon the
Company's December 31, 1996 oil and gas reserves and is subject to semi-annual
review. The Credit Lyonnais facility is secured by a mortgage on all of the
Company's existing proved oil and gas properties. Upon closing the credit
facility on July 11, 1997, Fortune transferred the $800,000 balance of its bank
debt to the Credit Lyonnais facility. Accordingly, the $800,000 debt balance has
been classified as long-term debt on the Company's June 30, 1997 balance sheet.
The Company is also required to pay a commitment fee of 0.5% on the unused
portion of the borrowing base. A portion of the borrowing base is reserved for
repayment of the Company's Convertible Subordinated Debentures, if necessary.
The Company's maturities of long-term debt over the next three years are
as follows:
Year Debt
-------- --------
1997 $ 1,016,000
1998 0
1999 800,000
------------
$ 1,816,000
============
(3) Income Tax Expense
No provision for income taxes was required for the three months and six
months ended June 30, 1997.
At June 30, 1997, the Company estimates it had cumulative net operating
loss carryforwards for federal income tax purposes of $15 million which are
significantly restricted under IRC Section 382. These carryforwards are
available to offset future federal taxable income, if any, with various
expirations through 2010. The Company is uncertain as to the recoverability of
the above deferred tax assets and has therefore applied a 100% valuation
allowance.
8
<PAGE>
The Company has available IRC Section 29 Tax Credits that may be used to
reduce or eliminate any corporate taxable income in future years. It is
uncertain at this time to what extent the Company will be able to utilize these
federal tax credits, as their utilization is dependent upon the amount, if any,
of future federal income tax incurred, after application of the Company's net
operating loss carryforwards.
(4) Legal Proceedings
There are no material pending legal proceedings involving any of the
Company's properties or which involve a claim for damages which exceed 10% of
the Company's current assets.
On April 16, 1996, Fortune was served with two lawsuits which had been
filed in the Federal District Court in New York by purchasers of Fortune Common
Stock in an offering in December 1995 under Regulation S. Under the terms of the
subscription agreement pursuant to which the plaintiffs acquired their shares,
each was entitled to receive additional shares of Fortune Common Stock if the
market price fell below a stated level during a specified period following the
40-day holding period prescribed by Regulation S. Fortune responded to the
suits, admitting that the stock price declined but alleged that suspicious
trading activity in Fortune stock occurred immediately prior to and during the
time period in which the additional-share allocation was computed. Fortune
believes that it has discovered evidence of active market manipulation in the
Common Stock by these plaintiffs; accordingly, it has commenced a countersuit
for damages suffered by the Company and its shareholders as a result of these
acts. Discovery is continuing in these actions and Fortune intends to continue
to vigorously defend its position in this litigation.
(5) Computation of Loss Per Share
Primary loss per common share is computed by dividing net loss by the
weighted average number of common and common equivalent shares outstanding.
Common equivalent shares are shares which may be issuable upon exercise of
outstanding stock options and warrants; however, they are not included in the
computation for the six months and three month period ended June 30, 1997 since
they would not have a dilutive effect on earnings per share.
Fully diluted earnings per common share are not presented, since the
conversion of the Company's 10 1/2% Convertible Subordinated Debentures would
have an anti-dilutive effect.
(6) Return of exploration venture restricted cash
On June 4, 1997, the Company exercised its right under the exploration
agreement between it and Zydeco Exploration, Inc. ("Zydeco") to have unexpended
capital contributions returned to Fortune. Under the terms of the February 13,
1995 agreement, Fortune contributed a total of $4,800,000 which was to be
expended for certain leasehold and seismic costs incurred by the venture within
the Transition Zone and Timbalier Trench areas of offshore Louisiana. Of that
total, $2,154,000 remained unspent as of June 4, 1997. This amount was returned
to Fortune in June 1997. Fortune will retain its current undivided 50% working
interest in each of the existing exploration projects that are currently subject
to the agreement. The Company's 50% working interest in each project is subject
to a proportionate reduction in the event that Zydeco expends additional funds
on such project.
(7) Impairment to oil and gas properties
In connection with requesting the return of unexpended funds from its
exploration venture with Zydeco, the Company reviewed for impairment its $4.3
million remaining unevaluated investment in the Zydeco exploration venture
properties. The $4.3 million investment includes the value of the Fortune Common
Stock that was issued in 1995 to acquire its interest in the exploration venture
as well as the funds that Fortune has incurred for leases and seismic in the
exploration venture. As a result of this review, Fortune impaired $2.6 million
of costs associated with the Zydeco exploration venture properties. The Company
also impaired its $300,000 remaining unevaluated investment in its New Mexico
properties. Furthermore, the Company's unsuccessful well at South
9
<PAGE>
Lake Arthur was charged to the evaluated property account in the second quarter
of 1997. As a result, the Company recorded an impairment to oil and gas
properties during the second quarter of 1997 of $3.0 million.
(8) Subsequent Events
On July 1, 1997, the Company's shareholders approved a change of
corporate name from Fortune Petroleum Corporation to Fortune Natural Resources
Corporation at the annual meeting of shareholders. Fortune Natural Resources
Corporation is the name under which the Company has been doing business in Texas
and Louisiana since it began operations in those states.
On July 17, 1997 Fortune was advised by a private Houston-based
independent oil and gas company which previously signed a letter of intent on
May 20, 1997, that it did not intend to acquire a farmout from Fortune of its
50% working interest in South Timbalier Block 47.
10
<PAGE>
FORTUNE NATURAL RESOURCES CORPORATION
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Comparisons of 1997 operating results to 1996.
During the three months and six months periods ended June 30, 1997,
Fortune had net losses of $3,959,000 and $4,722,000 compared to net losses of
$698,000 and $876,000 for the same 1996 periods. The increase in losses in 1997
is primarily attributable to the $316,000 non-cash debt conversion expense
incurred in connection with closing the Company's Exchange Offer on February 26,
1997 and the $3,200,000 non-cash impairments to oil and gas properties recorded
in 1997. (See Notes 2, 6 and 7 to the financial statements included herein.)
In spite of lower oil and gas prices, net oil and gas revenues increased
by $97,000 (16%) in the second quarter of 1997, compared to the same 1996
period. 1997 revenues were higher because they included revenues from the
Company's 1996 exploration discovery at East Bayou Sorrel which began producing
from permanent production facilities in January 1997. 1997 revenues were
adversely affected by shutting in the South Timbalier Block 76 well from March
24, 1997 to April 19, 1997 for a workover. However, the same well was also shut
in from April 29, 1996 to June 15, 1996 for another workover. Oil and gas prices
decreased 14% and 17% in the second quarter of 1997 vs. 1996, respectively.
Net oil and gas revenues in the first half of 1997 were comparable to
revenues for the same 1996 period. 1996 revenues included revenues from the
Company's California properties that were sold in February and March 1996 and a
higher ownership interest at South Timbalier Block 76 through March 1996. On
March 8, 1996, the Company sold 25% of its interest in the South Timbalier Block
76 for $940,000 pursuant to a preexisting arrangement. Both 1996 and 1997
revenues were adversely affected by the workovers discussed above. Offsetting
the above decreases was the commencement of production at East Bayou Sorrel from
permanent production facilities in January 1997. The first development well at
East Bayou Sorrel was completed and placed on permanent production facilities on
June 23, 1997 at 1,931 BOPD and 3.2 MMCFD. The Company has a 12.9% before-payout
working interest in this field. Oil production increased 33% during the first
half of 1997 vs. 1996 as a result of this discovery. Gas production decreased
19% during the first half of 1997 vs. 1996, primarily because of the sale of a
portion of South Timbalier Block 76, as discussed above.
Natural gas prices on the Company's production averaged $2.20 per MCF for
the second quarter of 1997 as compared to $2.66 per MCF for the same 1996
period. For the first half of 1997, the Company's natural gas prices averaged
$2.67 per MCF as compared to $2.61 per MCF for the same 1996 period. Oil prices
averaged $18.43 per barrel for the second quarter of 1997 compared to $21.37 per
barrel for the same 1996 period. For the first half of 1997, the Company's oil
prices averaged $19.76 per barrel as compared to $18.40 per barrel for the same
1996 period
Production and operating expense increased by $48,000 (10%) in the second
quarter of 1997 compared to 1996. Both 1996 and 1997 were adversely affected by
the workovers at South Timbalier Block 76 costing approximately $300,000 in 1996
and $400,000 in 1997. Production and operating expense in the first half of 1997
decreased by $44,000 (6%), compared to the same 1996 period. The decrease
results primarily from the Company's sale of its high operating cost California
properties in early 1996.
In the second quarter of 1997, general and administrative expense
decreased by $76,000 (14%) over 1996. In the first half of 1997, general and
administrative expense decreased by $49,000 (5%) over 1996. The Company incurred
non-recurring office relocation and severance cost of $110,000 in the first half
of 1996 in connection with the Company's move to Houston. In the first half of
1997, the Company expensed $269,000 of costs associated with a public offering
that the Company withdrew on April 25, 1997.
11
<PAGE>
Interest expense decreased by $51,000 (45%) for the second quarter of
1997 over 1996 due to the lower debt balance. Interest expense decreased by
$103,000 for the first half of 1997 vs. 1996 for the same reason. The Company's
provision for depletion, depreciation and amortization (DD&A) increased by
$287,000 (145%) in the second quarter of 1997 as compared to 1996 because of
higher property costs and lower proved reserves in 1997. DD&A increased in the
first half of 1997 vs. 1996 for the same reason. See note 7 to the financial
statements included herein for a discussion of the $3.2 million impairment to
oil and gas properties in 1997.
Liquidity and Capital Resources
Fortune's operating cash flow increased for the first half of 1997 to
$1,484,000 as compared to $280,000 for 1996. Lower production and operating,
general and administrative and interest expense in 1997, as discussed above, and
an increase in accounts payable and accrued liabilities contributed to the
increase. The Company's working capital increased to $1,216,000 at June 30, 1997
as compared to $276,000 at December 31, 1996. The significant increase in
working capital at June 30, 1997 primarily results from the return to the
Company of previously restricted cash and the refinancing of the credit
facility. In June 1997, Zydeco returned to the Company $2,154,000 of exploration
venture cash under the terms of the venture agreement, as discussed in Note 6 to
the financial statements. The cash was previously reported on the Company's
balance sheet as restricted cash in other assets. On July 11, 1997, the Company
refinanced its bank credit facility and extended the maturity of its $800,000 of
bank debt to July 11, 1999. Accordingly, the bank debt was reclassified to
long-term liabilities as of June 30, 1997. See note 2 to the financial
statements.
Fortune's internal liquidity and capital resources in the near term will
consist of working capital and cash flow from its oil and gas operations and
approximately $1.1 million of unused borrowing capacity under its new credit
facility.
Cash expenditures for oil and gas properties for the first half of 1997
were $2,124,000 as compared to $1,328,000 for 1996. The 1997 expenditures
include primarily the acquisition of an additional interest at East Bayou
Sorrel, an exploratory well at South Lake Arthur, a development well at East
Bayou Sorrel and seismic and land acquisition at Espiritu Santo Bay. Fortune's
net capital expenditures for 1997 are currently estimated to be approximately
$3.4 million for its exploration and development activities. The Company intends
to provide for these expenditures with its available cash and its cash flow from
operations. Should funds not be available to the Company as required for
participation in the projects, the Company can reduce its working interest share
of the projects. With respect to the Zydeco joint venture projects, the Company
can put all or part of its interest back to Zydeco for an overriding royalty and
after-payout working interest. Should the Company's working interest in
exploration projects be reduced, the Company would not derive as great a benefit
in the event of an exploration success.
Conditions outside of the Company's control influence the price it
receives for oil and gas. As of July 28, 1997, the Company was receiving
approximately $19.50 per barrel as an average price for its oil production and
$2.20 per MCF as an average price for its gas production.
In February 1997, the Financial Accounting Standards Board issued
Statement 128, "Earnings Per Share" (Statement 128). Statement 128 changes the
calculation and financial statement presentation of earnings per share.
Statement 128 requires the restatement of prior period earnings per share
amounts. The Statement will be effective for financial statements issued for
periods beginning after December 15, 1997. The Company does not believe that the
adoption of Statement 128 will have an impact on the loss per share information
presented herein.
Effective December 1997, the Company will be required to adopt Statement
of Financial Accounting Standards No. 129, "Disclosure of Information about
Capital Structure" ("SFAS 129"). SFAS 129 requires that all entities disclose in
summary form within the financial statement the pertinent rights and privileges
of the various securities outstanding. An entity is to disclose within the
financial statement the number of shares issued upon conversion, exercise, or
satisfaction of required conditions during at least the most recent annual
fiscal period and any subsequent interim period presented. Other special
provisions apply to preferred and redeemable stock. The Company will adopt SFAS
129 in the fourth quarter of 1997.
12
<PAGE>
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS 130"), which establishes standards for reporting and display of
comprehensive income and its components. The components of comprehensive income
refer to revenues, expenses, gains and losses that are excluded from net income
under current accounting standards, including foreign currency translation
items, minimum pension liability adjustments and unrealized gains and losses on
certain investments in debt and equity securities. SFAS 130 requires that all
items that are recognized under accounting standards as components of
comprehensive income be reported in a financial statement displayed in equal
prominence with the other financial statements; the total of other comprehensive
income for a period is required to be transferred to a component of equity that
is separately displayed in a statement of financial position at the end of an
accounting period. SFAS 130 is effective for both interim and annual periods
beginning after December 15, 1997.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"). SFAS 131 establishes standards for the way public enterprises are
to report information about operating segments in annual financial statements
and requires the reporting of selected information about operating segments in
interim financial reports issued to shareholders. It also establishes standards
for related disclosures about products and services, geographic areas, and major
customers. SFAS 131 is effective for periods beginning after December 15, 1997.
Forward Looking Statements
This Report on Form 10-Q contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933. Forward looking statements
include statements regarding: future oil and gas production and prices, future
exploration and development spending, future drilling and operating plans,
reserve and production potential of the Company's properties and prospects and
the Company's strategy. Actual events or results could differ materially from
those discussed in the forward-looking statements as a result of various factors
including, without limitation, the factors set forth below and elsewhere in this
10-Q, and in the Company's annual report on Form 10-K/A.
Exploration Risks. The business of exploring for and, to a lesser extent,
of acquiring and developing oil and gas properties is an inherently speculative
activity that involves a high degree of business and financial risk. Although
available geological and geophysical information can provide information with
respect to a potential oil or gas property, it is impossible to determine
accurately the ultimate production potential, if any, of a particular property
or well.
Dependence on a Limited Number of Wells. Over one-half of the Company's
oil and gas revenues, cash flow and proved oil and gas reserves is currently
accounted for by three wells, the South Timbalier Block 76 well and the East
Bayou Sorrel wells. Although the East Bayou Sorrel well only began producing in
December 1996, this field is expected to have a significant impact on 1997
operations. The South Timbalier Block 76 well was recently shut-in for repairs
and was shut-in for over two months during 1996 as the result of a mechanical
failure. A significant curtailment or loss of production from these wells for a
prolonged period before the Company could replace the reserves through new
discoveries or acquisitions would have a material adverse effect on the
Company's projected operating results and financial condition in 1997.
Volatility of Oil and Gas Prices. The Company's revenues, profitability
and future rate of growth are substantially dependent upon prevailing market
prices for natural gas and oil, which can be extremely volatile and in recent
years have been depressed by excess domestic and imported supplies.
Uncertainty of Estimates of Proved Reserves and Future Net Revenues.
There are numerous uncertainties inherent in estimating quantities of proved
reserves and in projecting future rates of production and timing of development
expenditures, including many factors beyond the control of the producer.
Estimating quantities of proved reserves is inherently imprecise. Such estimates
are based upon certain assumptions about future production levels, future
natural gas and crude oil prices and future operating costs made using currently
available geologic engineering and economic data, some or all of which may prove
to be incorrect over time.
13
<PAGE>
Operating and Weather Hazards. The cost and timing of drilling,
completing and operating wells is often uncertain. Drilling operations may be
curtailed, delayed or canceled as a result of a variety of factors, including
unexpected drilling conditions, equipment failures, accidents, adverse weather
conditions, encountering unexpected formations or pressures in drilling and
completion operations, corrosive or hazardous substances, mechanical failure of
equipment, blowouts, cratering and fires. These conditions could result in
damage or injury to, or destruction of, formations, producing facilities or
other property or could result in personal injuries, loss of life or pollution
of the environment.
Additional factors. Additional factors that could cause actual events to
vary from those discussed above and elsewhere in this report include, among
others: loss of key company personnel; adverse change in governmental
regulation; inability to obtain critical supplies and equipment, personnel and
consultants; and inability to access capital to pursue the Company's plans.
14
<PAGE>
FORTUNE NATURAL RESOURCES CORPORATION
PART II - OTHER INFORMATION
ITEM 2. Changes in Securities
The Company's board of directors unanimously adopted a shareholder rights
plan which is designed to distribute preferred stock purchase rights to holders
of the Company's Common Stock in the event a person acquires beneficial
ownership of fifteen percent or more of the Company's stock or commences a
tender offer which would result in ownership of fifteen percent or more of such
Common Stock.
The plan, which expires February 28, 2007, provides for the issuance of a
fraction of a share of a new series of junior preferred stock of the Company for
each outstanding share of the Company's stock. Depending on the circumstances,
such new preferred stock will enable the holders to either buy additional shares
of the Company at a discount or buy an interest in any acquiring entity.
ITEM 4. Submission of Matters to a Vote of Security Holders
The annual meeting of shareholders of the Company was held July 1, 1997.
The following matters were voted on at that meeting:
<TABLE>
<CAPTION>
Broker
Matter Votes in Favor Votes Opposed Abstain Non-Votes
- ---------------------------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Election of Tyrone J. Fairbanks
to Board of Directors 10,178,916 0 277,221 0
Election of Dean W. Drulias
to Board of Directors 10,180,149 0 275,988 0
Election of Daniel R. Shaughnessy
to Board of Directors 10,180,169 0 275,968 0
Name Change (1) 10,271,302 55,188 129,647 0
Power of Directors to Set
Board Size (2) 4,080,293 526,532 51,668 5,797,644
Restriction on Rights of
Shareholders to Call Meeting (3) 3,821,579 730,058 106,856 5,797,644
Adoption of 1998 Multi-Year
Stock Option Plan 3,295,291 1,172,877 190,325 5,797,644
Ratification of KPMG Peat Marwick
as Company Auditors 10,135,108 288,206 32,823 0
</TABLE>
1. A proposal to amend the Company's Certificate of Incorporation to change
the Company's name from Fortune Petroleum Corporation to Fortune Natural
Resources Corporation.
2. A proposal to amend the Company's Certificate of Incorporation to provide
that only the members of the Company's board of directors may change the
size of the Company's board. The proposal failed to collect the votes, an
absolute majority of shares outstanding, necessary for passage.
3. A proposal to amend the Company's Certificate of Incorporation to provide
that no action required to be taken by the Company's stockholders may be
taken without a meeting and to specifically prohibit stockholders from
taking any action by written consent. The proposal failed to collect the
votes, an absolute majority of shares outstanding, necessary for passage.
15
<PAGE>
ITEM 5.
On July 11, 1997, the Company refinanced its bank debt by entering into a
$20 million credit facility with Credit Lyonnais New York Branch. See Note 2 to
the financial statements included herein.
ITEM 6. Exhibits and Reports on Form 8-K
(a) EXHIBITS
Exhibit No. Description
----------- -------------------------------------------------------
3.1* Articles of Incorporation
3.2* Amendment to Articles of Incorporation
3.3* By-laws
4.1* Shareholder Rights Plan dated March 21, 1997
10.1* Credit Agreement between Fortune Natural Resources
Corporation and Credit Lyonnais New York Branch and
Certain Lenders dated July 11, 1997.
10.2* Employment Agreement dated June 1, 1997 by and between
Fortune and Tyrone J. Fairbanks
27.1* Financial Data Schedule
99.1 Notes to Financial Statements included in the
Registrant's Form 10-KSB filed for the fiscal year
ended December 31, 1995 incorporated herein by
reference.
(b) REPORTS ON FORM 8-K / 8K-A
A report on Form 8-K dated June 16, 1997 was filed with the Securities
and Exchange Commission (the "Commission") to report that Fortune exercised its
right under the February 13, 1995 exploration agreement between it and Zydeco
Exploration, Inc. to have all unexpended capital contributions returned to
Fortune.
*Filed herewith.
16
<PAGE>
FORTUNE NATURAL RESOURCES CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FORTUNE NATURAL RESOURCES CORPORATION
By: /s/ TYRONE J. FAIRBANKS
--------------------------------------
Tyrone J. Fairbanks
President and Chief Executive Officer
By: /s/ J. MICHAEL URBAN
--------------------------------------
J. Michael Urban
Vice President and Chief Financial
and Accounting Officer
Date: July 29, 1997
CERTIFICATE OF INCORPORATION
OF
FORTUNE NATURAL RESOURCES CORPORATION
THE UNDERSIGNED, in order to form a corporation for the purposes
hereinafter stated, under and pursuant to the provision of the General
Corporation Law of the State of Delaware, does hereby certify as follows:
ARTICLE I
NAME
----
The name of the Corporation is Fortune Natural Resources
Corporation.
ARTICLE II
REGISTERED OFFICE IN STATE AND REGISTERED AGENT
-----------------------------------------------
The address of the registered office of the Corporation in the
State of Delaware is 1209 Orange Street, in the City of Wilmington, County of
New Castle. The name of the Corporation's registered agent at such registered
office is The Corporation Trust Company.
ARTICLE III
PURPOSE
-------
The purpose for which the Corporation is organized is to engage
in any lawful act or activity for which corporations may be organized under the
General Corporation Law of the State of Delaware.
ARTICLE IV
CAPITAL STOCK
-------------
Section 1. The Corporation is authorized to issue two classes of
capital stock, designated Common Stock and Preferred Stock. The total number of
shares of stock which the Corporation shall have authority to issue if Forty-Two
Million (42,000,000), consisting of Forty Million (40,000,00) shares of common
stock, par value $.01 per share (the "Common Stock") and Two Million (2,000,000)
shares of preferred stock, par value $1.00 per share (the "Preferred Stock").
<PAGE>
Section 2. Authorized and unissued shares of Preferred Stock of
the Corporation may be issued from time to time in one or more series. The Board
of Directors is hereby authorized to issue such shares of Preferred Stock in
such series and to fix from time to time before issuance the number of shares to
be included in any series and the designation, relative powers, preferences and
rights, and the qualifications, limitations or restrictions of all shares of
such series. Without limiting the generality of the foregoing, as to each such
series of Preferred Stock, the Board of Directors is authorized to fix or to
alter the dividend rights, dividend rate, conversion rights, voting rights,
rights and terms of redemption (including sinking fund provisions), the
redemption price or prices, the liquidation preferences, rights to subscribe for
or purchase any securities of the Corporation or any other corporation, and the
number of shares constituting such series or any or all of them, all as shall be
determined from time to time by the Board of Directors and as shall be stated in
a resolution or resolutions providing for the issuance of such Preferred Stock.
The Board of Directors may increase or decrease the number of shares in any such
series after the issuance of shares of that series, but not below the number of
shares of such series then outstanding. Should the number of shares of any such
series be so decreased, the shares constituting such decrease shall resume the
status which they had prior to the adoption of the resolution originally fixing
the number of shares of such series.
Section 3. The number of authorized shares of Preferred Stock may
be increased or decreased (but not below the number of shares then outstanding)
by the affirmative vote of the holders of a majority of the stock of the
Corporation entitled to vote, with all such holders voting as a single class.
Section 4. No holder of shares of capital stock of the
Corporation shall, as such holder, have any right to purchase or subscribe for
any shares of the capital stock of the Corporation or any other security of the
Corporation which it may issue or sell (whether out of the number of shares
authorized by this Certificate of Incorporation, or out of any shares of the
capital stock of the Corporation acquired by it after the issuance thereof, or
otherwise) other than such right, if any, as the Board of Directors in its
discretion, may determine.
Section 5. The Corporation shall not issue any non-voting capital
stock.
Section 6. Each holder of Common Stock of the Corporation
entitled to vote shall have one vote for each share thereof held.
Section 7. The Corporation shall be entitled to treat the person
in whose name any share of its stock is registered as the owner thereof, for all
purposes, and shall not be bound to recognize any equitable or other claim to,
or interest in, such share on the part of any other person, whether or not the
Corporation shall have notice thereof, except as expressly provided by
applicable law.
ARTICLE V
PROVISIONS FOR DEFINING, LIMITING AND
REGULATING CERTAIN POWERS OF THE
CORPORATION AND OF THE DIRECTORS
--------------------------------
Section 1. All of the powers of the Corporations, insofar as the
same may be lawfully vested by this Certificate of Incorporation in the Board of
directors, are hereby conferred upon the Board of Directors of the Corporation.
Section 2. The number of directors of the Corporation shall be
fixed from time to time by or in the manner provided in the Bylaws of the
Corporation, but shall not be less than three. The directors shall be divided as
equally as the total number of directors will permit into three classes. At the
election of the first board of Directors, the directors of the first class shall
be elected for a term of one year; the directors of the second class for a term
of two years; and the directors of the third class for a term of three years. At
each annual election thereafter, the successors to the class of directors whose
terms shall expire that year shall be elected to hold office for the term of
three years, so that one-third of the Board of Directors shall be elected
annually.
Section 3. In furtherance and not in limitation of the powers
conferred by statute, the Board of directors is expressly authorized to adopt,
amend or repeal the Bylaws of the Corporation, except any particular Bylaw which
is specified as not subject to alternation or repeal by the Board of Directors.
Section 4. To the fullest extent permitted by the General
Corporation Law of the State of Delaware as the same exists or may hereafter be
amended, a director of the Corporation shall not be liable to the Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director.
Section 5. Any director or the entire board of directors of this
Corporation may be removed, with or without cause, by the holders of a majority
of the shares then entitled to vote at an election of directors; provided,
however, that if the shareholders are then entitled to vote in the election of
directors by cumulative voting, if less than the entire board is to be removed,
no director may be removed without cause if the votes cast against his or her
removal would be sufficient to elect the director if then cumulatively voted at
an election of the class of directors of which he or she is a part; and provided
further that whenever the holders of any class or series of capital stock are
entitled to elect one or more directors, the provisions of this Section shall
apply, in respect to the removal without cause of a director or directors so
elected, to the vote of the holders of the outstanding shares of that class or
series and not to the vote of the outstanding shares as a whole.
ARTICLE VI
AMENDMENTS
----------
The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute.
ARTICLE VII
The incorporator of the Corporation is Dan E. Pasquini, whose
mailing address is 1661 Lincoln Boulevard, Santa Monica, California 90404.
IN WITNESS WHEREOF, I have hereunto set my hand this 20th day of
May, 1987.
/s/ Dan E. Pasquini
---------------------------------
Dan E. Pasquini
Incorporator
STATE OF DELAWARE
CERTIFICATE OF AMENDMENT
OF CERTIFICATE OF INFORMATION
FORTUNE PETROLEUM CORPORATION
- --------------------------------------------------------------------------------
a corporation organized and existing under and by virtue of the General
Corporation Law of the State of Delaware.
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the board of Directors of FORTUNE PETROLEUM
CORPORATION resolutions were duly adopted setting forth a proposed amendment of
the Certificate of Incorporation of said corporation, declaring said amendment
to be advisable and calling a meeting of the stockholders of said corporation
for consideration thereof. The resolution setting forth the proposed amendment
is as follows:
RESOLVED, that the Certificate of Information of this corporation be amended by
changing the Article thereof numbered " I " so that, as amended, said Article
shall be and read as follows:
THE NAME OF THE CORPORATION IS FORTUNE NATURAL RESOURCES CORPORATION
- --------------------------------------------------------------------------------
SECOND: That thereafter, pursuant to resolution of its Board of Directors, an
annual meeting of the stockholders of said corporation was duly called and held
upon notice in accordance with Section 222 of the General Corporation Law of the
State of Delaware at which meeting the necessary number of shares as required by
statute were voted in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the provisions of
Section 242 of the General Corporation Law of the State of Delaware.
FOURTH: That the capital of said corporation shall not be reduced under or by
reason of said amendment.
IN WITNESS WHEREOF, said CORPORATION
-----------------------------------
has caused this certificate to be signed by
DEAN W. DRULIAS , an Authorized Officer,
- ------------------------------------------
This 1st day of July, 1997.
By: /s/ Dean W. Drulias
---------------------------
Dean W. Drulias
Secretary
FORTUNE NATURAL RESOURCES CORPORATION
(a Delaware Corporation)
BYLAWS
ARTICLE I
OFFICES
-------
Section 1.1. Registered Office.
-----------------
The registered office of Fortune Natural Resources Corporation
(the "Company") in the State of Delaware shall be located at the principal place
of business in that state of the corporation or individual acting as the
Company's registered agent in the State of Delaware.
Section 1.2. Principal Executive Office.
--------------------------
The principal executive office of the Company shall be located at
1661 Lincoln Boulevard, Santa Monica, California 90404.
Section 1.3. Other Offices.
-------------
The Company may have other offices, either within or without the
State of Delaware, at such place or places as the Board of Directors from time
to time may designate or the business of the Company may require.
ARTICLE II
MEETING OF STOCKHOLDERS
-----------------------
Section 2.1. Date, Time and Place.
--------------------
Meetings of stockholders of the Company shall be held on such
date and at such time and place, either within or without the State of Delaware,
as shall be designated by the Board of Directors and stated in the written
notice of the meeting or in a duly executed written waiver of notice of the
meeting.
Section 2.2. Annual Meetings.
---------------
Annual meetings of stockholders for the election of directors to
the Board of Directors and for the transaction of such other business as may be
stated in the written notice of the meeting or as may properly come before the
meeting shall be held on such date and at such time and place either within or
without the State of Delaware, as shall be designated by the Board of Directors
and stated in the written notice of the meeting or in a duly executed written
waiver of notice of the meeting.
1
<PAGE>
Section 2.3. Special Meetings.
----------------
Special meetings of stockholders for any purpose or purposes,
unless otherwise prescribed by the General Corporation Law of the State of
Delaware, the Certificate of Incorporation or these Bylaws, may be called by the
Board of Directors, the Chairman of the Board or the President. Special meetings
of stockholders shall be called by the Chairman of the Board or the Secretary at
the written request of stockholders holding a majority of the aggregate number
of shares of the common stock of the Company issued and outstanding and entitled
to vote at such meeting. Such written request shall state the purpose or
purposes for which the special meeting is called. The place, date and time of a
special meeting shall be fixed by the Board of Directors or the officer calling
the meeting and shall be stated in the written notice of such meeting, which
notice shall state the purpose or purposes for which the meeting is called.
Business transacted at a special meeting shall be confined to the purpose or
purposes stated in the written notice of meeting and matters germane thereto.
Section 2.4. Notice of Meetings.
------------------
Written notice of the place, date, and time of, and the general
nature of the business to be transacted at, a meeting of stockholders shall be
given to each stockholder of record entitled to vote at such meeting, in the
manner prescribed by Section 6.1 of these Bylaws, not less than ten (10) nor
more than sixty (60) days prior to the date of the meeting.
Section 2.5. Stockholder List.
----------------
The Secretary or other officer in charge of the stock ledger of
the Company shall prepare and make, at least ten (10) days prior to a meeting of
stockholders, a complete list of stockholders entitled to vote at the meeting,
arranged in alphabetical order, and showing the address of each stockholder and
the number of shares of stock of the Company registered in the name of each
stockholder. Such list shall be open to examination by any stockholder, for any
purpose germane to the meeting, during ordinary business hours, for a period of
at least ten (10) days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or, if not so specified, at the place where the meeting is to be
held. The list also shall be produced and kept at the place and time of the
meeting during the whole time thereof, and may be inspected by any stockholder
who is present.
Section 2.6. Voting Rights.
-------------
In order that the Company may determine the stockholders entitled
to notice of, and to vote at, a meeting of stockholders or at any adjournment(s)
thereof or to express consent or dissent to corporate action in writing without
a meeting, the Board of Directors may fix a record date in the manner prescribed
by Section 9.1 of these Bylaws. Each stockholder entitled to vote at a meeting
of stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for such
stockholder by proxy in the manner prescribed by Section 2.7 of these Bylaws.
Except as specifically provided otherwise by the General Corporation Law of the
State of Delaware, the Certificate of Incorporation, or these Bylaws, each
holder of common stock entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting
shall be entitled to one vote for each share of such stock registered in such
stockholder's name on the books and records of the Company as of the record
date.
2
<PAGE>
Section 2.7. Proxies.
-------
Each proxy shall be in writing and shall be executed by the
stockholder giving the proxy or by such stockholder's duly authorized attorney.
No proxy shall be voted or acted upon after three (3) years from its date,
unless the proxy expressly provides for a longer period. Unless and until voted,
every proxy shall be revocable at the pleasure of the person who executed it or
of his or her legal representative or assigns, except in those cases where an
irrevocable proxy permitted by the General Corporation Law of the State of
Delaware shall have been given.
Section 2.8. Quorum and Adjournment(s) of Meetings.
-------------------------------------
Except as specifically provided otherwise by the General
Corporation Law of the State of Delaware, the Certificate of Incorporation, or
these Bylaws, a majority of the aggregate number of shares of common stock
issued and outstanding and entitled to vote, present in person or represented by
proxy, shall constitute a quorum for the transaction of business at a meeting of
stockholders. If such majority shall not be present in person or represented by
proxy at a meeting of stockholders, the stockholders entitled to vote thereat,
present in person or represented by proxy, shall have the power to adjourn the
meeting from time to time until holders of the requisite number of shares of
stock entitled to vote at the meeting shall be present in person or represented
by proxy. When a meeting of stockholders is adjourned to another place, date, or
time, notice need not be given of the adjourned meeting if the place, date, and
time of such adjourned meeting are announced at the meeting at which the
adjournment is taken. At any such adjourned meeting at which a quorum shall be
present in person or represented by proxy, stockholders may transact any
business that might have been transacted at the meeting as originally noticed,
but only those stockholders entitled to vote at the meeting as originally
noticed shall be entitled to vote at any adjournment(s) thereof. If the
adjournment is for more than thirty (30) days, or if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
meeting.
Section 2.9. Required Vote.
-------------
Except as specifically provided otherwise by the General
Corporation Law of the State of Delaware, the Certificate of Incorporation, or
these Bylaws, the affirmative vote of a majority of the shares of common stock
present in person or represented by proxy at a meeting of stockholders at which
quorum is present and entitled to vote on the subject matter (including, but not
limited to, the election of directors to the Board of Directors) shall be the
act of the stockholders with respect to the matter voted upon.
Section 2.10. Notice of Stockholder Business and Nominations.
----------------------------------------------
(A) ANNUAL MEETINGS OF STOCKHOLDERS. (1) Nominations of persons
for election to the Board of Directors of the Corporation and the proposal of
business to be considered by the stockholders may be made at an annual meeting
of stockholders (a) pursuant to the Corporation's notice of meeting delivered
pursuant to Section 2.4 of these By-laws, (b) by or at the direction of the
Chairman of the Board of Directors or (c) by any stockholder of the Corporation
who is entitled to vote at the meeting, who complied with the notice procedures
set forth in clauses (2) and (3) of this paragraph (A) of this By-law and who
was a stockholder of record at the time such notice is delivered to the
Secretary of the Corporation.
3
<PAGE>
(2) For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to clause (c) of paragraph
(A)(1) of this By-law, the stockholder must have given timely notice thereof in
writing to the Secretary of the Corporation. To be timely, a stockholder's
notice shall be delivered to the Secretary at the principal executive offices of
the Corporation not less than sixty days nor more than ninety days prior to the
first anniversary of the preceding year's annual meeting; PROVIDED, HOWEVER,
that in the event that the date of the annual meeting is advanced by more than
twenty days, or delayed by more than sixty days, from such anniversary date,
notice by the stockholder to be timely must be so delivered not earlier than the
ninetieth day prior to such annual meeting and not later than the close of
business on the later of the sixtieth day prior to such annual meeting or the
tenth day following the day on which public announcement of the date of such
meetings if first made. Such stockholder's notice shall set forth (a) as to each
person whom the stockholder proposes to nominate for election or re-election as
a director all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected; (b) as to any other business desired to be brought before
the meeting, the reasons for conducting such business at the meeting and any
material interest in such business of such stockholder and the beneficial owner,
if any, on whose behalf the proposal is made; and (c) as to the stockholder
giving the notice and the beneficial owner, if any, on whose behalf the
nomination or proposal is made, the name and address of such stockholder, as
they appear on the Corporation's books, and of such beneficial owner and (ii)
the class and number of shares of the Corporation which are owned beneficially
and or record by such stockholder and such beneficial owner.
(3) Notwithstanding anything in the second sentence of
paragraph (A)(2) of this By-law to the contrary, in the event that the number of
directors to be elected to the Board of Directors of the Corporation is
increased and there is no public announcement naming all of the nominees for
director or specifying the size of the increased Board of Directors made by the
Corporation at least eighty days prior to the first anniversary of the preceding
year's annual meeting, a stockholder's notice required by this By-law shall also
be considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the close of
business on the tenth day following the day on which such public announcement is
first made by the Corporation.
(B) SPECIAL MEETINGS OF STOCKHOLDERS. Only such business shall be
conducted at a special meeting of stockholders as shall have been brought before
the meeting pursuant to the Corporation's notice of meeting pursuant to Section
2.4 of these By-laws. Nominations of persons for election to the Board of
Directors may be made at a special meeting of stockholders at which directors
are to be elected pursuant to the Corporation's notice of meeting by or at the
direction of the Board of Directors or by any stockholder of the Corporation who
is entitled to vote at the meeting, who complies with the notice procedures set
forth in this By-law and who is a stockholder of record at the time such notice
is delivered to the Secretary of the Corporation. Nominations by stockholders of
persons for election to the Board of Directors may be made at such a special
meeting of stockholders if the stockholder's notice as required by paragraph
(A)(2) of this By-law shall be delivered to the Secretary at the principal
executive offices of the Corporation not earlier than the ninetieth day prior to
such special meeting and not later than the close of business on the later of
the sixtieth day prior to such special meeting or the tenth day following the
day on which public announcement is first made of the date of the special
meeting and of the nominees proposed by the Board of Directors to be elected at
such meeting. In no event shall the public announcement of an adjournment of a
special meeting commence a new time period for the giving of a stockholder's
notice as described above.
4
<PAGE>
(C) GENERAL. (1) Only persons who are nominated in accordance
with the procedures set forth in this By-law shall be eligible to service as
director and only such business shall be conducted at a meeting of stockholders
as shall have been brought before the meeting in accordance with the procedures
set forth in this By-law. Except as otherwise provided by law, the Certificate
of Incorporation or these By-laws, the chairman of the meeting shall have the
power and duty to determine whether a nomination or any business proposed to be
brought before the meeting was made in accordance with the procedures set forth
in this By-law and, if any proposed nomination or business is not compliance
with this By-law, to declare that such defective proposal or nomination shall
disregarded.
(2) For purposes of this By-law "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the Corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this By-law,
a stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this By-law. Nothing in this By-law shall be deemed to affect any
rights of stockholders to request inclusion of proposals in the Corporation's
proxy statement pursuant to Rule 14a-8 under the Exchange Act.
ARTICLE III
DIRECTORS
---------
Section 3.1. Board of Directors.
------------------
The business and affairs of the Company shall be managed by, or
under the direction of, a Board of Directors. The Board of Directors may
exercise all such powers of the Company and do all such lawful acts and things
on its behalf as are not by the General Corporate Law of the State of Delaware,
the Certificate of Incorporation or these Bylaws directed or required to be
exercised or done by stockholders.
Section 3.2. Number, Election and Tenure.
---------------------------
The number of directors which shall constitute the whole Board of
Directors is hereby fixed at seven. In no event shall the total number of
directors which shall constitute the whole Board of Directors be fixed by the
Board of Directors at less than three (3). The Board of Directors shall not at
any time decrease the total number of directors which shall constitute the whole
Board of Directors if to do so would shorten the term of any incumbent director.
With the exception of the first Board of Directors which shall be
elected by the incorporator of the Company, and except as provided otherwise in
these Bylaws, directors shall be elected at the annual meeting of stockholders.
The directors shall be divided as equally as the total number of directors will
permit into three classes. At the election of the first Board of Directors, the
directors of the first class shall be elected for a term of one year; the
directors of the second class for a term of two years; and the directors of the
third class for a term of three years. A each annual election thereafter, the
successors to the class of directors whose term shall expire that year shall be
elected to hold office for the term of three years, so that one-third of the
Board of Directors shall be elected annually. Each director shall hold office
until the annual meeting of stockholders next succeeding his or her election or
appointment and until his or her successor is elected and qualified or until his
or her earlier resignation or removal.
5
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Section 3.3. Resignation and Removal.
-----------------------
Any director or member of a committee of the Board of Directors
may resign at any time upon written notice to the Board of Directors, the
Chairman of the Board, or the President. Unless specified otherwise in the
notice, such resignation shall take effect upon receipt of the notice by the
Board of Directors, the Chairman of the Board, or the President. The acceptance
of a resignation shall not be necessary to make it effective. Any director may
be removed, either with or without cause, as provided by the General Corporation
Law of the State of Delaware.
Section 3.4. Vacancies and Newly-Created Directorships.
-----------------------------------------
Vacancies occurring for any reason and newly-created
directorships resulting from an increase in the authorized number of directors
which shall constitute the whole Board of Directors, as fixed pursuant to
Section 3.2 of these Bylaws, shall be filled by the election of a new director
or directors at a special meeting of stockholders called for such purpose. Any
director so chosen shall hold office until the annual meeting of stockholders
next succeeding his or her selection or appointment and until his or her
successor shall be elected and qualified, or until his or her earlier
resignation or removal.
Section 3.5. Compensation.
------------
Each director on the Board of Directors and on any committee
thereof shall receive for services rendered as a director and committee member
such reasonable compensation, if any, as may be fixed from time to time by the
Board of Directors. The directors and committee members also may be paid their
reasonable expenses, if any, in attending meetings of the Board of Directors or
any committee thereof. Nothing in these Bylaws shall be construed to preclude
any director from serving the Company in any other capacity as an officer, agent
or otherwise and receiving compensation therefor.
ARTICLE IV
MEETING OF THE BOARD OF DIRECTORS
---------------------------------
Section 4.1. Date, Time and Place.
--------------------
Meetings of the Board of Directors shall be held on such date and
at such time and place, either within or without the State of Delaware, as shall
be determined by the Board of Directors pursuant to these Bylaws.
Section 4.2. Annual Meetings.
---------------
After the annual meeting of stockholders, the newly elected Board
of Directors may hold a meeting, on such date and at such time and place as
shall be determined by the Board of Directors for the purpose of organization,
election of officers and such other business that may properly come before the
meeting. Such meeting may be held without notice.
Section 4.3. Regular Meetings.
----------------
Regular meetings of the Board of Directors may be held without
notice on such date and at such time and place as shall be determined from time
to time by the Board of Directors.
6
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Section 4.4. Special Meetings.
----------------
Special meetings of the Board of Directors may be held at any
time upon the call of the Chairman of the Board, the President or the Secretary
by means of oral, telephonic, written telegraphic, cable or other similar
notice, duly given, delivered, sent or mailed to each director, in the manner
prescribed by Section 6.1 of these Bylaws. Special meetings of the Board of
Directors may be held at any time without notice if all of the directors are
present or if those directors not present waive notice of the meeting in writing
either before or after the date of the meeting.
Section 4.5. Quorum.
------
A majority of the whole Board of Directors as fixed pursuant to
Section 3.2 of these Bylaws shall constitute a quorum for the transaction of
business at a meeting of the Board of Directors. If a quorum shall not be
present at a meeting of the Board of Directors, the directors present thereat
may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
Section 4.6. Required Vote.
-------------
Except as specifically provided otherwise by the General
Corporation Law of the State of Delaware, the affirmative vote of a majority of
the directors present at a meeting of the Board of Directors at which a quorum
is present shall be the act of the Board of Directors with respect to the matter
voted upon.
Section 4.7. Action Without Meeting.
----------------------
Any action required or permitted to be taken at a meeting of the
Board of Directors, or committee thereof, may be taken by directors without a
meeting if all of the members of the Board of Directors, or committee thereof,
consent thereto in writing and such writing is filed with the minutes of
proceedings of the Board of Directors, or committee thereof.
Section 4.8. Telephone Meetings.
------------------
Members of the Board of Directors, or any committee thereof, may
participate in a meeting of the Board of Directors, or committee thereof, by
means of conference telephone or similar communications equipment by means of
which all of the members participating in the meeting can hear each other.
Participation by members of the Board of Directors, or any committee thereof, by
such means shall constitute presence in person of such members at such meeting.
7
<PAGE>
ARTICLE V
COMMITTEES OF THE BOARD OF DIRECTORS
------------------------------------
Section 5.1. Designation and Powers.
----------------------
The Board of Directors may designate one or more committees from
time to time in its discretion, by resolution passed by the affirmative vote of
a majority of the whole Board of Directors as fixed pursuant to Section 3.2 of
these Bylaws. Each committee shall consist of one or more of the directors on
the Board of Directors. The Board of Directors may designate one or more
directors as alternate members of any committee who may replace any absent or
disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not such
member or members constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent provided in the
resolution of the Board of Directors, shall have and may exercise all of the
powers and authority of the Board of Directors in the management of the business
and affairs of the Company and may authorize the corporate seal of the Company
affixed to all papers which may require it; but no such committee shall have the
power or authority in reference to amending the Certificate of Incorporation or
these Bylaws, adopting an agreement of merger or consolidation, recommending to
stockholders the sale, lease, or exchange of all or substantially all of the
Company's assets, or recommending to stockholders a dissolution of the Company
or a revocation of a dissolution; and, unless the resolution of the Board of
Directors expressly so provides, no such committee shall have the power or
authority to declare a dividend or to authorize the issuance of stock of the
Company or any class or series of stock. Each committee shall keep regular
minutes of its meetings and shall report the same to the Board of Directors when
requested to do so.
ARTICLE VI
NOTICES
-------
Section 6.1. Delivery of Notice.
------------------
Notices to stockholders and, except as permitted below, to
directors on the Board of Directors shall be in writing and may be delivered by
mail or by messenger. Notice by mail shall be deemed to be given at the time
when such notice is deposited in a United States post office or letter box,
enclosed in a postpaid sealed wrapper, and addressed to stockholder or director
at his respective address appearing on the books and records of the Company,
unless such stockholder or director shall have filed with the Secretary a
written request that notices intended for such stockholder or director be mailed
or delivered to some other address, in which case the notice shall be mailed to
or delivered at the address designated in such request. Notice by messenger
shall be deemed to be given when such notice is delivered to the address of a
stockholder or director as specified above. Notices to directors also may be
given orally in person or by telephone, or by telex, telegram, cable, or other
similar means, or by leaving the notice at the residence or usual place of
business of a director. Notice by oral communication, telex, telegram, cable, or
other similar means shall be deemed to be given upon dispatch of such notice.
Notice by messenger shall be deemed to be given when such notice is delivered to
a director's residence or usual place of business. Notices, requests, and other
communications required or permitted to be given or communicated to the Company
by the Certificate of Incorporation, these Bylaws, or any other agreement shall
be in writing and may be delivered by messenger, United States mail, telex,
telegram, cable, or other similar means. Notice to the Company shall be deemed
to be given upon actual receipt of such notice by the Company.
8
<PAGE>
Section 6.2. Waiver of Notice.
----------------
Whenever notice is required to be given by the General
Corporation law of the State of Delaware, the Certificate of Incorporation, or
these Bylaws, a written waiver of notice signed by the person entitled thereto,
whether before or after the time stated in the notice, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends the meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of stockholders, Board of Directors, or committee of
the Board of Directors need be specified in any written waiver of notice.
ARTICLE VII
OFFICERS
--------
Section 7.1. Officers.
--------
At its annual meeting, or at such other meeting as it may
determine, or by unanimous written consent of the directors without meeting, the
Board of Directors shall elect such officers as the Board of Directors from time
to time may designate or the business of the Company may require. The Chairman
of the Board shall be selected from among the directors on the Board of
Directors, but no other executive officer need be a member of the Board of
Directors. Any number of offices may be held by the same person.
Section 7.2. Other Officers and Agents.
-------------------------
The Board of Directors also may elect such other officers and
agents as the Board of Directors from time to time may determine to be
advisable. Such officers and agents shall serve for such terms, exercise such
powers, and perform such duties as shall be specified from time to time by the
Board of Directors.
Section 7.3. Tenure, Resignation, Removal and Vacancies.
------------------------------------------
Each officer of the Company shall hold his office until his or
her successor is elected and qualified, or until his or her earlier resignation
or removal; provided, that if the term of office of any officer elected pursuant
to Section 7.2 of these Bylaws shall have been fixed by the Bylaws or determined
by the Board of Directors or other governing body, such person shall cease to
hold office no later than the date of expiration of such term, regardless of
whether any other person shall have been elected or appointed to succeed such
person. Each officer shall hold his or her office until his or her successor is
elected and qualified or until his or her earlier resignation or removal. Any
officer elected by the Board of Directors may be removed at any time, with or
without cause, by the Board of Directors; provided, that any such removal shall
be without prejudice to the rights, if any, of the officer so employed under any
employment contract or other agreement with the Company. Any officer may resign
at any time upon written notice to the Board of Directors, the Chairman of the
Board, or the President. Unless specified otherwise in the notice, such
resignation shall take effect upon receipt of the notice by the Board of
Directors, the Chairman of the Board, or the President. The acceptance of the
resignation shall not be necessary to make it effective. Any vacancy occurring
in any office of the Company by death, resignation, removal, or otherwise shall
be filled by the Board of Directors and such successor or successors shall hold
office for such term as may be specified by the Board of Directors.
9
<PAGE>
Section 7.4. Compensation.
------------
The salaries or other compensation of officers and agents of the
Company elected by the Board of Directors shall be fixed from time to time by
the Board of Directors.
Section 7.5. Authority and Duties.
--------------------
All officers and agents, as between themselves and the Company,
shall have such authority and perform such duties in the management of the
Company as may be provided in these Bylaws and as generally pertain or are
necessarily incidental to the particular office or agency. In addition to the
powers and duties hereinafter specifically prescribed for certain officers of
the Company, the Board of Directors from time to time may impose or confer upon
any of the officers such additional duties and powers as the Board of Directors
may see fit, and the Board of Directors from time to time may impose or confer
any or all of the duties and powers hereinafter specifically prescribed for any
officer upon any other officer or officers. The Board of Directors may give
general authority to any officer to affix the corporate seal of the Company and
to attest the affixing by his or her signature.
Section 7.6. The Chairman of the Board.
-------------------------
The Chairman of the Board shall preside at all meetings of
stockholders and of the Board of Directors, and shall be a member of all
standing committees of the Board of Directors. The Chairman of the Board shall
have general management of the business of the Company, shall see that all
resolutions and orders of the Board of Directors are carried into effect, shall
vote, in the name of the Company, stock or securities in other corporations or
associations held by the Company unless another officer is designated by the
Board of Directors for that purpose, and in connection with all of the foregoing
shall be authorized to delegate to the President and the other officers such of
his or her powers and such of his or her duties as he or she may deem to be
advisable.
Section 7.7. The President.
-------------
The President shall have general and active management,
supervision, direction, and control of the business of the Company. He or she
shall assist the Chairman of the Board in the management of the Company and in
the absence or disability of or upon the delegation by the Chairman of the Board
he or she shall preside at all meetings of stockholders and of the Board of
Directors. He or she shall report from time to time to the Board of Directors
all matters within his or her knowledge which the interest of the Company may
require to be brought to the attention of the Board of Directors. The President
shall have the general powers and duties of supervision and management usually
vested in the office of president of a corporation and shall exercise such
powers and perform such duties as generally pertain or are necessarily
incidental to his or her office and shall have such other powers and perform
such other duties as may be specifically assigned to him or her from time to
time by the Board of Directors or the Chairman of the Board.
Section 7.8. The Vice President(s).
---------------------
The Vice President, if any be so appointed by the Board of
Directors, or if there be more than one, the Vice Presidents, shall perform such
duties as may be specifically assigned to them from time to time by the Board of
Directors, the Chairman of the Board, or the President. In case of the absence
or disability of the President, and if the Board of Directors, the Chairman of
the Board, or the President has so authorized, the Vice President, or if there
be more than one Vice President, such Vice President as the Board of Directors,
the Chairman of the Board, or the President shall designate, shall perform the
duties of the office of the President.
10
<PAGE>
Section 7.9. The Treasurer.
-------------
The Treasurer shall have the custody of the corporate funds and
securities and shall keep full and accurate accounts of receipts and
disbursements in books and records belonging to the Company. He or she shall
deposit all moneys and other valuable effects in the name and to the credit of
the Company in such depositories as may be designated by the Board of Directors
or any officer of the Company authorized by the Board of Directors to make such
designation. The Treasurer shall exercise such powers and perform such duties as
generally pertain or are necessarily incidental to his or her office and shall
perform such other duties as may be specifically assigned to him or her from
time to time by the Board of Directors, the Chairman of the Board, or the
President. The Treasurer shall disburse the funds of the Company as may be
ordered by the Board of Directors, the Chairman of the Board, or the President,
taking proper vouchers for such disbursements. He or she shall render to the
Chairman of the Board, the President, and the Board of Directors (at its regular
and special meetings), or whenever any of them may request it, an account of all
of his or her transactions as Treasurer and of the financial condition of the
Company. If required by the Board of Directors, he or she shall give the Company
a bond in such sum and with such surety or sureties as shall be satisfactory to
the Board of Directors for the faithful performance of the duties of his or her
office and for the restoration to the Company, in case of his or her death,
resignation, retirement, or removal from office, of all books, papers, vouchers,
moneys, and other property of whatever kind in his or her possession or under
his or her control belonging to the Company.
Section 7.10. The Assistant Treasurer(s).
--------------------------
The Assistant Treasurer, if any be so appointed by the Board of
Directors, or if there be more than one, the Assistant Treasurers, shall perform
such duties as may be specifically assigned to them from time to time by the
Board of Directors, the Chairman of the Board, or the President. In case of the
absence or disability of the Treasurer, and if the Board of Directors, the
Chairman of the Board, or the President has so authorized, the Assistant
Treasurer, or if there be more than one Assistant Treasurer, such Assistant
Treasurer as the Board of Directors, the Chairman of the Board, or the President
shall designate, shall perform the duties of the office of the Treasurer.
Section 7.11. The Secretary.
-------------
The Secretary shall attend all meetings of the Board of Directors
and all meetings of stockholders and record all votes and record the proceedings
of such meetings in a book to be kept for that purpose. He or she shall perform
like duties for any committees of the Board of Directors when required or
requested. He or she shall give, or cause to be given, notice of all meetings of
stockholders and, when necessary, of the Board of Directors. The Secretary shall
exercise such powers and perform such duties as generally pertain or are
necessarily incidental to his or her office and shall perform such other duties
as may be specifically assigned to him or her from time to time by the Board of
Directors, the Chairman of the Board, or the President. The Secretary shall have
custody of the corporate seal of the Company and he or she, or an Assistant
Secretary, if any, shall have authority to affix the corporate seal to any
instrument requiring it, and when so affixed it shall be attested by his or her
signature or by the signature of an Assistant Secretary.
Section 7.12. The Assistant Secretary(ies).
----------------------------
The Assistant Secretary, if any be so appointed by the Board of
Directors, or if there be more than one, the Assistant Secretaries, shall
perform such duties as may be specifically assigned to them from time to time by
the Board of Directors, the Chairman of the Board, or the President. In case of
the absence or disability of the Secretary, and if the Board of Directors, the
Chairman of the Board, or the President has so authorized, the Assistant
Secretary, or if there be more than one Assistant Secretary, such Assistant
Secretary as the Board of Directors, the Chairman of the Board or the President
shall designate, shall perform the duties of the office of the Secretary.
11
<PAGE>
ARTICLE VIII
CERTIFICATES OF STOCK
---------------------
Section 8.1. Form and Signature.
------------------
The stock certificates representing the stock of the Company
shall be in such form or forms not inconsistent with the General Corporation Law
of the State of Delaware, the Certificate of Incorporation and these Bylaws as
the Board of Directors shall approve from time to time. Stock certificates shall
be numbered, the certificates for the shares of stock to be numbered
consecutively, and shall be entered in the books and records of the Company as
such certificates are issued. No certificate shall be issued for any share until
the consideration therefor has been fully paid. Stock certificates shall exhibit
the holder's name, certify the class and series of stock and the number of
shares in such class and series of stock owned by the holder, and shall be
signed (a) by the Chairman of the Board, or any Vice Chairman of the Board, or
the President, or a Vice President, and (b) by the Treasurer, or any Assistant
Treasurer, or the Secretary, or any Assistant Secretary. Any or all of the
signatures on a stock certificate may be facsimiles. In case any officer,
transfer agent, or registrar who has signed or whose facsimile signature has
been placed on a certificate shall have ceased to be such officer, transfer
agent, or registrar before such certificate is issued, such certificate may be
issued by the Company with the same effect as if he or she were such officer,
transfer agent, or registrar on the date of issuance.
Section 8.2. Lost, Stolen or Destroyed Certificates.
--------------------------------------
The Board of Directors may direct that a new stock certificate be
issued in place of any certificate theretofore issued by the Company which is
alleged to have been lost, stolen, or destroyed, upon the making of an affidavit
of that fact by the person, or his or her legal representative, claiming the
certificate of stock to be lost, stolen, or destroyed. When authorizing such
issuance of a new certificate, the Board of Directors, in its discretion and as
a condition precedent to the issuance thereof, may require the owner of the
lost, stolen, or destroyed certificate, or his or her legal representative, to
advertise the same in such manner as the Board of Directors shall require and/or
to give the Company a bond in such sum as the Board of Directors shall direct as
indemnity against any claim that may be made against the Company, any transfer
agent, or any registrar on account of the alleged loss, theft, or destruction of
any such certificate or the issuance of such new certificate.
Section 8.3. Registration of Transfer.
------------------------
Shares of common stock of the Company shall be transferable only
upon the Company's books by the holders thereof in person or by their duly
authorized attorneys or legal representatives, and upon such transfer the old
certificates shall be surrendered to the Company by the delivery thereof to the
person in charge of the stock and transfer books and ledgers of the Company, or
to such other person as the Board of Directors may designate. Upon surrender to
the Company of a certificate for shares, duly endorsed or accompanied by proper
evidence of succession, assignment, or authority to transfer, the Company shall
issue a new certificate to the person entitled thereto, cancel the old
certificate, and record the transaction on its books and records.
12
<PAGE>
ARTICLE IX
GENERAL PROVISIONS
------------------
Section 9.1. Record Date.
-----------
In order that the Company may determine the stockholders entitled
to notice of, and to vote at, a meeting of stockholders, or to express consent
or dissent to corporate action in writing without meeting, or entitled to
receive payment of any dividend or other distribution or allotment of any
rights, or entitled to exercise any rights in respect of any change, conversion,
or exchange of stock, or for the purpose of any other lawful action, the Board
of Directors may fix, in advance, a record date which shall not be more than
sixty (60) nor less than ten (10) days prior to the date of such meeting nor
more than sixty (60) days prior to any other action. A determination of
stockholders of record entitled to notice of, and to vote at, a meeting of
stockholders shall apply to any adjournment(s) of such meeting; provided,
however, that the Board of Directors may, in its discretion, and shall, if
otherwise required by these Bylaws fix a new record date for the adjourned
meeting.
Section 9.2. Registered Stockholders.
-----------------------
Except as specifically provided otherwise by the General
Corporation Law of the State of Delaware, the Company shall be entitled to
recognize the exclusive right of a person registered on its books and records as
the owner of shares of stock of the Company to receive dividends and to vote as
such owner, shall be entitled to hold such person liable for calls and
assessments, and shall not be bound to recognize any equitable or other claim
to, or interest in, such stock on the part of any other person, whether or not
the Company shall have express or other notice thereof.
Section 9.3. Dividends.
---------
The Board of Directors may declare and pay dividends ratably,
share for share, on the Company's common stock in all sums so declared, out of
funds legally available therefor.
Section 9.4. Dividend Declarations.
---------------------
Dividends on the common stock of the Company may be declared
quarterly or semiannually as the Board of Directors may from time to time, in
its discretion, determine.
Section 9.5. Checks and Notes.
----------------
All checks and drafts on the bank accounts of the Company, all
bills of exchange and promissory notes of the Company, and all acceptances,
obligations, and other instruments for the payment of money drawn, signed, or
accepted by the Company shall be signed or accepted, as the case may be, by such
officer or officers, agent or agents, and in such manner as shall be thereunto
authorized from time to time by the Board of Directors or by officers of the
Company designated by the Board of Directors to make such authorization.
Section 9.6. Fiscal Year.
-----------
The fiscal year of the Company shall commence on January 1 and
end on December 31 of each year, unless otherwise fixed by resolution of the
Board of Directors.
13
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Section 9.7. Corporate Seal.
--------------
The Corporate seal shall be circular in form and shall have
inscribed thereon the name of the Company, the year of its organization, and the
words "Corporate Seal" and "Delaware." The seal may be used by causing it or a
facsimile thereof to be impressed, affixed or otherwise reproduced.
Section 9.8. Voting of Securities of Other Issuers.
-------------------------------------
In the event that the Company shall own and/or have power to vote
any securities (including, but not limited to, shares of stock) of any other
issuer, such securities shall be voted by the Chairman of the Board as provided
in Section 7.6 of these Bylaws, or by such other person or persons, to such
extent, and in such manner as may be determined by the Board of Directors. If
the Company shall be a general partner in any partnership, the acts of the
Company in such capacity may be approved by the Board of Directors and taken by
the officers as may be authorized or determined by the Board of Directors from
time to time.
Section 9.9. Transfer Agents.
---------------
The Board of Directors may make such rules and regulations as it
may deem expedient concerning the issuance, transfer, and registration of
securities (including, but not limited to, stock) of the Company. The Board of
Directors may appoint one or more transfer agents and/or one or more registrars
and may require all stock certificates and other certificates evidencing
securities of the Company to bear the signature of either or both.
Section 9.10. Books and Records.
-----------------
Except as specifically provided otherwise by the General
Corporation Law of the State of Delaware, the books and records of the Company
may be kept at such place or places, either within or without the State of
Delaware, as may be designated by the Board of Directors.
14
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ARTICLE X
INDEMNIFICATION
---------------
Section 10.1. Indemnification and Insurance.
-----------------------------
(a) Right to Indemnification. Each person who was or is a party
or is threatened to be made a party to or is involved in any action, suit or
proceedings, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer
of the Company or is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation or of a partnership, joint
venture, trust or other enterprise, including service with respect to employee
benefit plans, whether the basis of such proceeding is alleged action or
inaction in an official capacity or in any other capacity while serving as a
director, officer, employee or agent, shall be indemnified and held harmless by
the Company to the fullest extent permitted by the General Corporation Law of
the State of Delaware, as the same exists or may hereafter be amended, against
all costs, charges, expenses, liabilities and losses (including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid
in settlement) reasonably incurred or suffered by such person in connection
therewith and such indemnification shall continue as to a person who has ceased
to be a director, officer, employee or agent and shall inure to the benefit of
his or her heirs, executors and administrators; provided, however, that except
as provided in paragraph (b) hereof, the Company shall indemnify any such person
seeking indemnification in connection with a proceeding (or part thereof)
initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Company. The right to
indemnification conferred in this Section 10.1 shall be a contract right and
shall include the right to be paid by the Company the expenses incurred in
defending any such proceeding in advance of its final disposition; provided,
however, that, if the General Corporation Law of the State of Delaware requires,
the payment of such expenses incurred by a director or officer in his or her
capacity as a director or officer (and not in any other capacity in which
service was or is rendered by such person while a director or officer,
including, without limitation, service to an employee benefit plan) in advance
of the final disposition of a proceeding, shall be made only upon delivery to
the Company of an undertaking, by or on behalf of such director or officer, to
repay all amounts so advanced if it shall ultimately be determined that such
director or officer is not entitled to be indemnified under this Section 10.1 or
otherwise. The Company may, by action of its Board of Directors, provide
indemnification to employees and agents of the Corporation with the same scope
and effect as the foregoing indemnification of directors and officers.
(b) Right of Claimant to Bring Suit. If a claim under paragraph
(a) of this Section 10.1 is not paid in full by the Company within thirty days
after a written claim has been received by the Company, the claimant may at any
time thereafter bring suit against the Company to recover the unpaid amount of
the claim and, if successful in whole or in part, the claimant shall be entitled
to be paid also the expense of prosecuting such claim. It shall be a defense to
any such action (other than an action brought to enforce a claim for expenses
incurred in defending any proceeding in advance of its final disposition where
the required undertaking, if any is required, has been tendered to the Company)
that the claimant has failed to meet a standard of conduct which makes it
permissible under the General Corporation Law of the State of Delaware for the
Company to indemnify the claimant for the amount claimed. Neither the failure of
the Company (including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met such standard of conduct nor an actual determination
by the Company (including its Board of Directors, independent legal counsel, or
its stockholders) that the claimant has not met such standard of conduct, shall
be a defense to the action or create a presumption that the claimant has failed
to meet such standard of conduct.
15
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(c) Non-Exclusivity of Rights. The right to indemnification and
the payment of expenses incurred in defending a proceeding in advance of its
final disposition conferred in this Section 10.1 shall not be exclusive of any
other right which any person may have or hereafter acquire under any statute,
provision of the Certificate of Incorporation, bylaw, agreement, vote of
stockholders or disinterested directors or otherwise.
(d) Insurance. The Company may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
Company or another corporation, partnership, joint venture, trust or other
enterprise against any such expense, liability or loss, whether or not the
Company would have the power to indemnify such person against such expense,
liability or loss under the General Corporation Law of the State of Delaware.
(e) Expenses as a Witness. To the extent that any director,
officer, employee or agent of the Company is by reason of such position, or a
position with another entity at the request of the Company, a witness in any
action, suit or proceeding, he or she shall be indemnified against all costs and
expenses actually and reasonably incurred by him or her or on his or her behalf
in connection therewith.
(f) Indemnity Agreements. The Company may enter into agreements
with any director, officer, employee or agent of the Company providing for
indemnification to the full extent permitted by the General Corporation Law of
the State of Delaware.
ARTICLE XI
AMENDMENT TO THESE BYLAWS
-------------------------
Section 11.1. By the Stockholders.
-------------------
These Bylaws may be amended or repealed in whole or in part and
new Bylaws may be adopted by the affirmative vote of a majority of the aggregate
number of shares of the common stock issued and outstanding and entitled to vote
on the subject matter, present in person or represented by proxy at a meeting of
stockholders provided that notice thereof is stated in the written notice of the
meeting.
Section 11.2. By the Board of Directors.
-------------------------
These Bylaws may be amended or repealed in whole or in part and
new Bylaws may be adopted by a majority of the Board of Directors as provided by
Section 109(a) of the General Corporation Law of the State of Delaware and the
Certificate of Incorporation.
16
<PAGE>
CERTIFICATE OF SECRETARY OF FORTUNE NATURAL RESOURCES CORPORATION
(a Delaware corporation)
I hereby certify that I am the duly elected and acting Secretary
of said corporation and that the foregoing Bylaws, comprising 16 pages,
constitute the Bylaws of said corporation as duly adopted at a meeting of the
Board of Directors held on July 13, 1987.
/s/ Cecil O. Basenberg
---------------------------------
Cecil O. Basenberg,
Secretary
FORTUNE PETROLEUM CORPORATION
and
U.S. STOCK TRANSFER CORPORATION
RIGHTS AGREEMENT
Dated as of March 21, 1997
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
Section 1. Certain Definitions...............................................1
Section 2. Appointment of Rights Agent.......................................5
Section 3. Issue of Right Certificates.......................................5
Section 4. Form of Right Certificates........................................7
Section 5. Countersignature and Registration.................................7
Section 6. Transfer, Split Up, Combination and Exchange of Right
Certificates; Mutilated, Destroyed, Lost or Stolen Right
Certificates......................................................8
Section 7. Exercise of Rights, Purchase Price; Expiration Date of Rights.....8
Section 8. Cancellation and Destruction of Right Certificates...............10
Section 9. Availability of Shares of Preferred Stock........................10
Section 10. Preferred Stock Record Date......................................11
Section 11. Adjustment of Purchase Price, Number of Shares and Number
of Rights........................................................11
Section 12. Certificate of Adjusted Purchase Price or Number of Shares.......19
Section 13. Consolidation, Merger or Sale or Transfer of Assets or
Earning Power....................................................19
Section 14. Fractional Rights and Fractional Shares..........................22
Section 15. Rights of Action.................................................23
Section 16. Agreement of Right Holders.......................................24
Section 17. Right Certificate Holder Not Deemed a Stockholder................24
Section 18. Concerning the Rights Agent......................................24
Section 19. Merger or Consolidation or Change of Name of Rights Agent........25
Section 20. Duties of Rights Agent...........................................25
<PAGE>
Section 21. Change of Rights Agent...........................................27
Section 22. Issuance of New Right Certificates...............................28
Section 23. Redemption.......................................................28
Section 24. Exchange.........................................................29
Section 25. Notice of Certain Events.........................................30
Section 26. Notices..........................................................31
Section 27. Supplements and Amendments.......................................31
Section 28. Successors.......................................................32
Section 29. Benefits of this Agreement.......................................32
Section 30. Determinations and Actions by the Board of Directors.............32
Section 31. Severability.....................................................32
Section 32. Governing Law....................................................32
Section 33. Counterparts.....................................................33
Section 34. Descriptive Headings.............................................33
<PAGE>
RIGHTS AGREEMENT
----------------
Rights Agreement, dated as of March 21, 1997 ("Agreement"), between
Fortune Petroleum Corporation, a Delaware corporation (the "Company"), and U.S.
Stock Transfer Corporation, as Rights Agent (the "Rights Agent").
The Board of Directors of the Company has authorized and declared a
dividend of one preferred share purchase right (a "Right") for each share of
Common Stock (as hereinafter defined) of the Company outstanding as of the Close
of Business (as defined below) on April 3, 1997 (the "Record Date"), each Right
representing the right to purchase one one-thousandth (subject to adjustment) of
a share of Preferred Stock (as hereinafter defined), upon the terms and subject
to the conditions herein set forth, and has further authorized and directed the
issuance of one Right (subject to adjustment as provided herein) with respect to
each share of Common Stock that shall become outstanding between the Record Date
and the earlier of the Distribution Date and the Expiration Date (as such terms
are hereinafter defined); provided, however, that Rights may be issued with
respect to shares of Common Stock that shall become outstanding after the
Distribution Date and prior to the Expiration Date in accordance with Section
22.
Accordingly, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this Agreement, the
following terms have the meaning indicated:
(a) "Acquiring Person" shall mean any Person (as such term is
hereinafter defined) who or which shall be the Beneficial Owner (as such term is
hereinafter defined) of 15% or more of the shares of Common Stock then
outstanding, but shall not include an Exempt Person (as such term is hereinafter
defined); provided, however, that (i) if the Board of Directors of the Company
determines in good faith that a Person who would otherwise be an "Acquiring
Person" became such inadvertently (including, without limitation, because (A)
such Person was unaware that it beneficially owned a percentage of Common Stock
that would otherwise cause such Person to be an "Acquiring Person" or (B) such
Person was aware of the extent of its Beneficial Ownership of Common Stock but
had no actual knowledge of the consequences of such Beneficial Ownership under
this Agreement) and without any intention of changing or influencing control of
the Company, and if such Person as promptly as practicable divested or divests
itself of Beneficial Ownership of a sufficient number of shares of Common Stock
so that such Person would no longer be an "Acquiring Person," then such Person
shall not be deemed to be or to have become an "Acquiring Person" for any
purposes of this Agreement; (ii) if, as of the date hereof, any Person is the
Beneficial Owner of 15% or more of the shares of Common Stock outstanding, such
Person shall not be or become an "Acquiring Person" unless and until such time
as such Person shall become the Beneficial Owner of additional shares of Common
Stock (other than pursuant to a dividend or distribution paid or made by the
Company on the outstanding Common Stock in shares of Common Stock or pursuant to
a split or subdivision of the outstanding Common Stock),
1
<PAGE>
unless, upon becoming the Beneficial Owner of such additional shares of Common
Stock, such Person is not then the Beneficial Owner of 15% or more of the shares
of Common Stock then outstanding; and (iii) no Person shall become an "Acquiring
Person" as the result of an acquisition of shares of Common Stock by the Company
which, by reducing the number of shares outstanding, increases the proportionate
number of shares of Common Stock beneficially owned by such Person to 15% or
more of the shares of Common Stock then outstanding, provided, however, that if
a Person shall become the Beneficial Owner of 15% or more of the shares of
Common Stock then outstanding by reason of such share acquisitions by the
Company and shall thereafter become the Beneficial Owner of any additional
shares of Common Stock (other than pursuant to a dividend or distribution paid
or made by the Company on the outstanding Common Stock in shares of Common Stock
or pursuant to a split or subdivision of the outstanding Common Stock), then
such Person shall be deemed to be an "Acquiring Person" unless upon becoming the
Beneficial Owner of such additional shares of Common Stock such Person does not
beneficially own 15% or more of the shares of Common Stock then outstanding. For
all purposes of this Agreement, any calculation of the number of shares of
Common Stock outstanding at any particular time, including for purposes of
determining the particular percentage of such outstanding shares of Common Stock
of which any Person is the Beneficial Owner, shall be made in accordance with
the last sentence of Rule 13d-3(d)(1)(i) of the General Rules and Regulations
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as
in effect on the date hereof.
(b) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Exchange Act, as in effect on the date hereof.
(c) A Person shall be deemed the "Beneficial Owner" of, shall be
deemed to have "Beneficial Ownership" of and shall be deemed to "beneficially
own" any securities:
(i) which such Person or any of such Person's Affiliates or
Associates is deemed to beneficially own, directly or indirectly, within the
meaning of Rule l3d-3 of the General Rules and Regulations under the Exchange
Act as in effect on the date hereof;
(ii) which such Person or any of such Person's Affiliates or
Associates has (A) the right to acquire (whether such right is exercisable
immediately or only after the passage of time) pursuant to any agreement,
arrangement or understanding (other than customary agreements with and between
underwriters and selling group members with respect to a bona fide public
offering of securities), or upon the exercise of conversion rights, exchange
rights, rights, warrants or options, or otherwise; provided, however, that a
Person shall not be deemed the Beneficial Owner of, or to beneficially own, (x)
securities tendered pursuant to a tender or exchange offer made by or on behalf
of such Person or any of such Person's Affiliates or Associates until such
tendered securities are accepted for purchase, (y) securities which such Person
has a right to acquire upon the exercise of Rights at any time prior to the time
that any Person becomes an Acquiring Person or (z) securities issuable upon the
exercise of Rights from and after the time that any Person becomes an Acquiring
Person if such Rights were acquired by such Person or any of such Person's
Affiliates or Associates prior to the Distribution Date or pursuant to Section
3(a) or Section 22 hereof ("Original
2
<PAGE>
Rights") or pursuant to Section 11(i) or Section 11(n) with respect to an
adjustment to Original Rights; or (B) the right to vote pursuant to any
agreement, arrangement or understanding; provided, however, that a Person shall
not be deemed the Beneficial Owner of, or to beneficially own, any security by
reason of such agreement, arrangement or understanding if the agreement,
arrangement or understanding to vote such security (1) arises solely from a
revocable proxy or consent given to such Person in response to a public proxy or
consent solicitation made pursuant to, and in accordance with, the applicable
rules and regulations promulgated under the Exchange Act and (2) is not also
then reportable on Schedule 13D under the Exchange Act (or any comparable or
successor report); or
(iii) which are beneficially owned, directly or indirectly,
by any other Person and with respect to which such Person or any of such
Person's Affiliates or Associates has any agreement, arrangement or
understanding (other than customary agreements with and between underwriters and
selling group members with respect to a bona fide public offering of securities)
for the purpose of acquiring, holding, voting (except to the extent contemplated
by the proviso to Section 1(c)(ii)(B)) or disposing of such securities of the
Company;
provided, however, that no Person who is an officer, director or employee of an
Exempt Person shall be deemed, solely by reason of such Person's status or
authority as such, to be the "Beneficial Owner" of, to have "Beneficial
Ownership" of or to "beneficially own" any securities that are "beneficially
owned" (as defined in this Section l(c)), including, without limitation, in a
fiduciary capacity, by an Exempt Person or by any other such officer, director
or employee of an Exempt Person.
(d) "Business Day" shall mean any day other than a Saturday, a
Sunday or a day on which banking institutions in the State of Texas or the city
in which the principal office of the Rights Agent is located are authorized or
obligated by law or executive order to close.
(e) "Close of Business" on any given date shall mean 5:00 P.M.,
Houston, Texas time, on such date; provided, however, that if such date is not a
Business Day it shall mean 5:00 P.M., Houston, Texas time, on the next
succeeding Business Day.
(f) "Common Stock" when used with reference to the Company shall
mean the Common Stock, presently par value $.01 per share, of the Company.
"Common Stock" when used with reference to any Person other than the Company
shall mean the common stock (or, in the case of an unincorporated entity, the
equivalent equity interest) with the greatest voting power of such other Person
or, if such other Person is a subsidiary of another Person, the Person or
Persons which ultimately control such first-mentioned Person.
(g) "Common Stock Equivalents" shall have the meaning set forth in
Section 11(a)(iii) hereof.
(h) "Current Value" shall have the meaning set forth in Section 11
(a)(iii) hereof.
(i) "Distribution Date" shall have the meaning set forth in Section
3 hereof.
3
<PAGE>
(j) "Equivalent Preferred Shares" shall have the meaning set forth
in Section 11(b) hereof.
(k) "Exempt Person" shall mean the Company or any Subsidiary (as
such term is hereinafter defined) of the Company, in each case including,
without limitation, in its fiduciary capacity, or any employee benefit plan of
the Company or of any Subsidiary of the Company, or any entity or trustee
holding Common Stock for or pursuant to the terms of any such plan or for the
purpose of funding any such plan or funding other employee benefits for
employees of the Company or of any Subsidiary of the Company.
(l) "Exchange Ratio" shall have the meaning set forth in Section 24
hereof.
(m) "Expiration Date" shall have the meaning set forth in Section 7
hereof.
(n) "Flip-In Event" shall have the meaning set forth in Section 11
(a)(ii) hereof.
(o) "Final Expiration Date" shall have the meaning set forth in
Section 7 hereof.
(p) "NASDAQ" shall mean The NASDAQ Stock Market.
(q) "New York Stock Exchange" shall mean the New York Stock
Exchange, Inc.
(r) "Person" shall mean any individual, firm, corporation,
partnership, limited liability company, trust or other entity, and shall include
any successor (by merger or otherwise) to such entity.
(s) "Preferred Stock" shall mean the Series A Junior Participating
Preferred Stock, par value $1.00 per share, of the Company having the rights and
preferences set forth in the Form of Certificate of Designation attached to this
Agreement as Exhibit A.
(t) "Principal Party" shall have the meaning set forth in Section
13(b) hereof.
(u) "Redemption Date" shall have the meaning set forth in Section 7
hereof.
(v) "Redemption Price" shall have the meaning set forth in Section
23 hereof.
(w) "Right Certificate" shall have the meaning set forth in Section
3 hereof.
(x) "Securities Act" shall mean the Securities Act of 1933, as
amended.
(y) "Section 11(a)(ii) Trigger Date" shall have the meaning set
forth in Section 11(a)(iii) hereof.
(z) "Spread" shall have the meaning set forth in Section 11(a)(iii)
hereof.
4
<PAGE>
(aa) "Stock Acquisition Date" shall mean the first date of public
announcement (which, for purposes of this definition, shall include, without
limitation, a report filed pursuant to Section 13(d) of the Exchange Act) by the
Company or an Acquiring Person that an Acquiring Person has become such, or such
earlier date as a majority of the Board of Directors shall become aware of the
existence of an Acquiring Person.
(bb) "Subsidiary" of any Person shall mean any corporation or other
entity of which securities or other ownership interests having ordinary voting
power sufficient to elect a majority of the board of directors or other persons
performing similar functions are beneficially owned, directly or indirectly, by
such Person, and any corporation or other entity that is otherwise controlled by
such Person.
(cc) "Substitution Period" shall have the meaning set forth in
Section 11(a)(iii) hereof.
(dd) "Summary of Rights" shall have the meaning set forth in Section
3 hereof.
(ee) "Trading Day" shall have the meaning set forth in Section
11(d)(i) hereof.
Section 2. Appointment of Rights Agent. The Company hereby appoints
the Rights Agent to act as agent for the Company and the holders of the Rights
(who, in accordance with Section 3 hereof, shall prior to the Distribution Date
be the holders of Common Stock) in accordance with the terms and conditions
hereof, and the Rights Agent hereby accepts such appointment. The Company may
from time to time appoint such co-Rights Agents as it may deem necessary or
desirable.
Section 3. Issue of Right Certificates.
(a) Until the Close of Business on the earlier of (i) the tenth day
after the Stock Acquisition Date or (ii) the tenth Business Day (or such later
date as may be determined by action of the Board of Directors prior to such time
as any Person becomes an Acquiring Person) after the date of the commencement by
any Person (other than an Exempt Person) of, or of the first public announcement
of the intention of such Person (other than an Exempt Person) to commence, a
tender or exchange offer the consummation of which would result in any Person
(other than an Exempt Person) becoming the Beneficial Owner of shares of Common
Stock aggregating 15% or more of the Common Stock then outstanding (the earlier
of such dates being herein referred to as the "Distribution Date", provided,
however, that if either of such dates occurs after the date of this Agreement
and on or prior to the Record Date, then the Distribution Date shall be the
Record Date), (x) the Rights will be evidenced (subject to the provisions of
Section 3(b) hereof) by the certificates for Common Stock registered in the
names of the holders thereof and not by separate Right Certificates, and (y) the
Rights will be transferable only in connection with the transfer of Common
Stock. As soon as practicable after the Distribution Date, the Company will
prepare and execute, the Rights Agent will countersign and the Company will send
or cause to be sent (and the Rights Agent will, if requested, send) by
first-class, insured, postage-prepaid mail, to each record holder of Common
Stock as of the close of business on the Distribution Date (other than any
Acquiring
5
<PAGE>
Person or any Associate or Affiliate of an Acquiring Person), at the address of
such holder shown on the records of the Company, a Right Certificate, in
substantially the form of Exhibit B hereto (a "Right Certificate"), evidencing
one Right (subject to adjustment as provided herein) for each share of Common
Stock so held. As of the Distribution Date, the Rights will be evidenced solely
by such Right Certificates.
(b) On the Record Date, or as soon as practicable thereafter, the
Company will send a copy of a Summary of Rights to Purchase Shares of Preferred
Stock, in substantially the form of Exhibit C hereto (the "Summary of Rights"),
by first-class, postage-prepaid mail, to each record holder of Common Stock as
of the Close of Business on the Record Date (other than any Acquiring Person or
any Associate or Affiliate of any Acquiring Person), at the address of such
holder shown on the records of the Company. With respect to certificates for
Common Stock outstanding as of the Record Date, until the Distribution Date, the
Rights will be evidenced by such certificates registered in the names of the
holders thereof together with the Summary of Rights. Until the Distribution Date
(or, if earlier, the Expiration Date), the surrender for transfer of any
certificate for Common Stock outstanding on the Record Date, with or without a
copy of the Summary of Rights, shall also constitute the transfer of the Rights
associated with the Common Stock represented thereby.
(c) Certificates issued for Common Stock (including, without
limitation, upon transfer of outstanding Common Stock, disposition of Common
Stock out of treasury stock or issuance or reissuance of Common Stock out of
authorized but unissued shares) after the Record Date but prior to the earlier
of the Distribution Date and the Expiration Date shall have impressed on,
printed on, written on or otherwise affixed to them the following legend:
This certificate also evidences and entitles the holder hereof to
certain rights as set forth in a Rights Agreement between Fortune
Petroleum Corporation (the "Company") and U.S. Stock Transfer
Corporation, as Rights Agent, dated as of March 21, 1997 as the same
may be amended from time to time (the "Rights Agreement"), the terms
of which are hereby incorporated herein by reference and a copy of
which is on file at the principal executive offices of the Company.
Under certain circumstances, as set forth in the Rights Agreement,
such Rights will be evidenced by separate certificates and will no
longer be evidenced by this certificate. The Company will mail to
the holder of this certificate a copy of the Rights Agreement
without charge after receipt of a written request therefor. Under
certain circumstances, as set forth in the Rights Agreement, Rights
owned by or transferred to any Person who is or becomes an Acquiring
Person (as defined in the Rights Agreement) and certain transferees
thereof will become null and void and will no longer be
transferable.
With respect to such certificates containing the foregoing legend, until the
Distribution Date the Rights associated with the Common Stock represented by
such certificates shall be evidenced by such certificates alone, and the
surrender for transfer of any such certificate,
6
<PAGE>
except as otherwise provided herein, shall also constitute the transfer of the
Rights associated with the Common Stock represented thereby. In the event that
the Company purchases or otherwise acquires any Common Stock after the Record
Date but prior to the Distribution Date, any Rights associated with such Common
Stock shall be deemed canceled and retired so that the Company shall not be
entitled to exercise any Rights associated with the Common Stock which are no
longer outstanding.
Notwithstanding this paragraph (c), the omission of a legend shall
not affect the enforceability of any part of this Agreement or the rights of any
holder of the Rights.
Section 4. Form of Right Certificates. The Right Certificates (and
the forms of election to purchase shares and of assignment to be printed on the
reverse thereof) shall be substantially in the form set forth in Exhibit B
hereto and may have such marks of identification or designation and such
legends, summaries or endorsements printed thereon as the Company may deem
appropriate and as are not inconsistent with the provisions of this Agreement,
or as may be required to comply with any applicable law or with any rule or
regulation made pursuant thereto or with any rule or regulation of any stock
exchange or interdealer quotation system on which the Rights may from time to
time be listed or quoted, or to conform to usage. Subject to the provisions of
Sections 11, 13 and 22 hereof, the Right Certificates shall entitle the holders
thereof to purchase such number of one one-thousandths of a share of Preferred
Stock as shall be set forth therein at the price per one one-thousandth of a
share of Preferred Stock set forth therein (the "Purchase Price"), but the
number of such one one-thousandths of a share of Preferred Stock and the
Purchase Price shall be subject to adjustment as provided herein.
Section 5. Countersignature and Registration.
(a) The Right Certificates shall be executed on behalf of the
Company by the President of the Company, either manually or by facsimile
signature, shall have affixed thereto the Company's seal or a facsimile thereof
and shall be attested by the Secretary of the Company, either manually or by
facsimile signature. The Right Certificates shall be manually countersigned by
the Rights Agent and shall not be valid for any purpose unless countersigned. In
case any officer of the Company who shall have signed any of the Right
Certificates shall cease to be such officer of the Company before
countersignature by the Rights Agent and issuance and delivery by the Company,
such Right Certificates, nevertheless, may be countersigned by the Rights Agent
and issued and delivered by the Company with the same force and effect as though
the Person who signed such Right Certificates had not ceased to be such officer
of the Company; and any Right Certificate may be signed on behalf of the Company
by any Person who, at the actual date of the execution of such Right
Certificate, shall be a proper officer of the Company to sign such Right
Certificate, although at the date of the execution of this Agreement any such
Person was not such an officer.
(b) Following the Distribution Date, the Rights Agent will keep or
cause to be kept, at an office or agency designated for such purpose, books for
registration and transfer of the Right Certificates issued hereunder. Such books
shall show the names and addresses
7
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of the respective holders of the Right Certificates, the number of Rights
evidenced on its face by each of the Right Certificates and the date of each of
the Right Certificates.
Section 6. Transfer, Split Up, Combination and Exchange of Right
Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates.
(a) Subject to the provisions of Sections 7(e), 11(a)(ii), 13 and 14
hereof, at any time after the Distribution Date and prior to the Expiration
Date, any Right Certificate or Right Certificates may be transferred, split up,
combined or exchanged for another Right Certificate or Right Certificates,
entitling the registered holder to purchase a like number of one one-thousandths
of a share of Preferred Stock as the Right Certificate or Right Certificates
surrendered then entitled such holder to purchase. Any registered holder
desiring to transfer, split up, combine or exchange any Right Certificate or
Right Certificates shall make such request in writing delivered to the Rights
Agent, and shall surrender the Right Certificate or Right Certificates to be
transferred, split up, combined or exchanged at the office or agency of the
Rights Agent designated for such purpose. Thereupon the Rights Agent shall
countersign and deliver to the Person entitled thereto a Right Certificate or
Right Certificates, as the case may be, as so requested. The Company may require
payment of a sum sufficient to cover any tax or governmental charge that may be
imposed in connection with any transfer, split up, combination or exchange of
Right Certificates.
(b) Subject to the provisions of Section 11(a)(ii) hereof, at any
time after the Distribution Date and prior to the Expiration Date, upon receipt
by the Company and the Rights Agent of evidence reasonably satisfactory to them
of the loss, theft, destruction or mutilation of a Right Certificate, and, in
case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to them, and, at the Company's request, reimbursement to the
Company and the Rights Agent of all reasonable expenses incidental thereto, and
upon surrender to the Rights Agent and cancellation of the Right Certificate if
mutilated, the Company will make and deliver a new Right Certificate of like
tenor to the Rights Agent for delivery to the registered holder in lieu of the
Right Certificate so lost, stolen, destroyed or mutilated.
Section 7. Exercise of Rights, Purchase Price; Expiration Date of
Rights.
(a) Except as otherwise provided herein, the Rights shall become
exercisable on the Distribution Date, and thereafter the registered holder of
any Right Certificate may, subject to Section 11(a)(ii) hereof and except as
otherwise provided herein, exercise the Rights evidenced thereby in whole or in
part upon surrender of the Right Certificate, with the form of election to
purchase on the reverse side thereof duly executed, to the Rights Agent at the
office or agency of the Rights Agent designated for such purpose, together with
payment of the aggregate Purchase Price with respect to the total number of one
one-thousandths of a share of Preferred Stock (or other securities, cash or
other assets, as the case may be) as to which the Rights are exercised, at any
time which is both after the Distribution Date and prior to the time (the
"Expiration Date") that is the earliest of (i) the Close of Business on February
28, 2007 (the "Final Expiration Date"), (ii) the time at which the Rights are
redeemed as
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provided in Section 23 hereof (the "Redemption Date") or (iii) the time at which
such Rights are exchanged as provided in Section 24 hereof.
(b) The Purchase Price shall be initially $10.00 for each one
one-thousandth of a share of Preferred Stock purchasable upon the exercise of a
Right. The Purchase Price and the number of one one-thousandths of a share of
Preferred Stock or other securities or property to be acquired upon exercise of
a Right shall be subject to adjustment from time to time as provided in Sections
11 and 13 hereof and shall be payable in lawful money of the United States of
America in accordance with paragraph (c) of this Section 7.
(c) Except as otherwise provided herein, upon receipt of a Right
Certificate representing exercisable Rights, with the form of election to
purchase duly executed, accompanied by payment of the aggregate Purchase Price
for the shares of Preferred Stock to be purchased and an amount equal to any
applicable transfer tax required to be paid by the holder of such Right
Certificate in accordance with Section 9 hereof, in cash or by certified check,
cashier's check or money order payable to the order of the Company, the Rights
Agent shall thereupon promptly (i) (A) requisition from any transfer agent of
the Preferred Stock certificates for the number of shares of Preferred Stock to
be purchased and the Company hereby irrevocably authorizes its transfer agent to
comply with all such requests, or (B) requisition from the depositary agent
depositary receipts representing interests in such number of one one-thousandths
of a share of Preferred Stock as are to be purchased (in which case certificates
for the Preferred Stock represented by such receipts shall be deposited by the
transfer agent with the depositary agent) and the Company hereby directs the
depositary agent to comply with such request, (ii) when appropriate, requisition
from the Company the amount of cash to be paid in lieu of issuance of fractional
shares in accordance with Section 14 hereof, (iii) promptly after receipt of
such certificates or depositary receipts, cause the same to be delivered to or
upon the order of the registered holder of such Right Certificate, registered in
such name or names as may be designated by such holder and (iv) when
appropriate, after receipt, promptly deliver such cash to or upon the order of
the registered holder of such Right Certificate.
(d) Except as otherwise provided herein, in case the registered
holder of any Right Certificate shall exercise less than all of the Rights
evidenced thereby, a new Right Certificate evidencing Rights equivalent to the
exercisable Rights remaining unexercised shall be issued by the Rights Agent to
the registered holder of such Right Certificate or to his duly authorized
assigns, subject to the provisions of Section 14 hereof.
(e) Notwithstanding anything in this Agreement to the contrary,
neither the Rights Agent nor the Company shall be obligated to undertake any
action with respect to a registered holder of Rights upon the occurrence of any
purported transfer or exercise of Rights pursuant to Section 6 hereof or this
Section 7 unless such registered holder shall have (i) completed and signed the
certificate contained in the form of assignment or form of election to purchase
set forth on the reverse side of the Rights Certificate surrendered for such
transfer or exercise and (ii) provided such additional evidence of the identity
of the Beneficial Owner (or former Beneficial Owner) thereof as the Company
shall reasonably request.
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Section 8. Cancellation and Destruction of Right Certificates. All
Right Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or to any of its
agents, be delivered to the Rights Agent for cancellation or in canceled form,
or, if surrendered to the Rights Agent, shall be canceled by it, and no Right
Certificates shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Agreement. The Company shall deliver to the Rights
Agent for cancellation and retirement, and the Rights Agent shall so cancel and
retire, any other Right Certificate purchased or acquired by the Company
otherwise than upon the exercise thereof. The Rights Agent shall deliver all
canceled Right Certificates to the Company, or shall, at the written request of
the Company, destroy such canceled Right Certificates, and in such case shall
deliver a certificate of destruction thereof to the Company.
Section 9. Availability of Shares of Preferred Stock.
(a) The Company covenants and agrees that it will cause to be
reserved and kept available out of its authorized and unissued shares of
Preferred Stock or any shares of Preferred Stock held in its treasury, the
number of shares of Preferred Stock that will be sufficient to permit the
exercise in full of all outstanding Rights.
(b) So long as the shares of Preferred Stock issuable upon the
exercise of Rights may be listed or admitted to trading on any national
securities exchange, or quoted on NASDAQ, the Company shall use its best efforts
to cause, from and after such time as the Rights become exercisable, all shares
reserved for such issuance to be listed or admitted to trading on such exchange,
or quoted on NASDAQ, upon official notice of issuance upon such exercise.
(c) From and after such time as the Rights become exercisable, the
Company shall use its best efforts, if then necessary to permit the issuance of
shares of Preferred Stock upon the exercise of Rights, to register and qualify
such shares of Preferred Stock under the Securities Act and any applicable state
securities or "Blue Sky" laws (to the extent exemptions therefrom are not
available), cause such registration statement and qualifications to become
effective as soon as possible after such filing and keep such registration and
qualifications effective until the earlier of the date as of which the Rights
are no longer exercisable for such securities and the Expiration Date. The
Company may temporarily suspend, for a period of time not to exceed 90 days, the
exercisability of the Rights in order to prepare and file a registration
statement under the Securities Act and permit it to become effective. Upon any
such suspension, the Company shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended, as well as a public
announcement at such time as the suspension is no longer in effect.
Notwithstanding any provision of this Agreement to the contrary, the Rights
shall not be exercisable in any jurisdiction unless the requisite qualification
in such jurisdiction shall have been obtained and until a registration statement
under the Securities Act (if required) shall have been declared effective.
(d) The Company covenants and agrees that it will take all such
action as may be necessary to ensure that all shares of Preferred Stock
delivered upon exercise of Rights
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shall, at the time of delivery of the certificates therefor (subject to payment
of the Purchase Price), be duly and validly authorized and issued and fully paid
and nonassessable shares.
(e) The Company further covenants and agrees that it will pay when
due and payable any and all federal and state transfer taxes and charges which
may be payable in respect of the issuance or delivery of the Right Certificates
or of any shares of Preferred Stock upon the exercise of Rights. The Company
shall not, however, be required to pay any transfer tax which may be payable in
respect of any transfer or delivery of Right Certificates to a Person other
than, or the issuance or delivery of certificates or depositary receipts for the
Preferred Stock in a name other than that of, the registered holder of the Right
Certificate evidencing Rights surrendered for exercise or to issue or deliver
any certificates or depositary receipts for Preferred Stock upon the exercise of
any Rights until any such tax shall have been paid (any such tax being payable
by that holder of such Right Certificate at the time of surrender) or until it
has been established to the Company's reasonable satisfaction that no such tax
is due.
Section 10. Preferred Stock Record Date. Each Person in whose name
any certificate for Preferred Stock is issued upon the exercise of Rights shall
for all purposes be deemed to have become the holder of record of the shares of
Preferred Stock represented thereby on, and such certificate shall be dated, the
date upon which the Right Certificate evidencing such Rights was duly
surrendered and payment of the Purchase Price (and any applicable transfer
taxes) was made; provided, however, that if the date of such surrender and
payment is a date upon which the Preferred Stock transfer books of the Company
are closed, such Person shall be deemed to have become the record holder of such
shares on, and such certificate shall be dated, the next succeeding Business Day
on which the Preferred Stock transfer books of the Company are open. Prior to
the exercise of the Rights evidenced thereby, the holder of a Right Certificate
shall not be entitled to any rights of a holder of Preferred Stock for which the
Rights shall be exercisable, including, without limitation, the right to vote or
to receive dividends or other distributions, and shall not be entitled to
receive any notice of any proceedings of the Company, except as provided herein.
Section 11. Adjustment of Purchase Price, Number and Kind of Shares
and Number of Rights. The Purchase Price, the number of shares of Preferred
Stock or other securities or property purchasable upon exercise of each Right
and the number of Rights outstanding are subject to adjustment from time to time
as provided in this Section 11.
(a)(i) In the event the Company shall at any time after the date of
this Agreement (A) declare and pay a dividend on the Preferred Stock payable in
shares of Preferred Stock, (B) subdivide the outstanding Preferred Stock, (C)
combine the outstanding Preferred Stock into a smaller number of shares of
Preferred Stock or (D) issue any shares of its capital stock in a
reclassification of the Preferred Stock (including any such reclassification in
connection with a consolidation or merger in which the Company is the continuing
or surviving corporation), except as otherwise provided in this Section 11(a),
the Purchase Price in effect at the time of the record date for such dividend or
of the effective date of such subdivision, combination or reclassification, and
the number and kind of shares of capital stock issuable on such date, shall be
proportionately adjusted so that the holder of any Right exercised after
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such time shall be entitled to receive the aggregate number and kind of shares
of capital stock which, if such Right had been exercised immediately prior to
such date and at a time when the Preferred Stock transfer books of the Company
were open, the holder would have owned upon such exercise and been entitled to
receive by virtue of such dividend, subdivision, combination or
reclassification; provided, however, that in no event shall the consideration to
be paid upon the exercise of one Right be less than the aggregate par value of
the shares of capital stock of the Company issuable upon exercise of one Right.
(ii) Subject to Section 24 of this Agreement, in the event any
Person becomes an Acquiring Person (the first occurrence of such event being
referred to hereinafter as the "Flip-In Event"), then (A) the Purchase Price
shall be adjusted to be the Purchase Price in effect immediately prior to the
Flip-In Event multiplied by the number of one one-thousandths of a share of
Preferred Stock for which a Right was exercisable immediately prior to such
Flip-In Event, whether or not such Right was then exercisable, and (B) each
holder of a Right, except as otherwise provided in this Section 11(a)(ii) and
Section 11(a)(iii) hereof, shall thereafter have the right to receive, upon
exercise thereof at a price equal to the Purchase Price (as so adjusted), in
accordance with the terms of this Agreement and in lieu of shares of Preferred
Stock, such number of shares of Common Stock as shall equal the result obtained
by dividing the Purchase Price (as so adjusted) by 50% of the current per share
market price of the Common Stock (determined pursuant to Section 11(d) hereof)
on the date of such Flip-In Event; provided, however, that the Purchase Price
(as so adjusted) and the number of shares of Common Stock so receivable upon
exercise of a Right shall, following the Flip-In Event, be subject to further
adjustment as appropriate in accordance with Section 11(f) hereof.
Notwithstanding anything in this Agreement to the contrary, however, from and
after the Flip-In Event, any Rights that are beneficially owned by (x) any
Acquiring Person (or any Affiliate or Associate of any Acquiring Person), (y) a
transferee of any Acquiring Person (or any such Affiliate or Associate) who
becomes a transferee after the Flip-In Event or (z) a transferee of any
Acquiring Person (or any such Affiliate or Associate) who became a transferee
prior to or concurrently with the Flip-In Event pursuant to either (I) a
transfer from the Acquiring Person to holders of its equity securities or to any
Person with whom it has any continuing agreement, arrangement or understanding
regarding the transferred Rights or (II) a transfer which the Board of Directors
has determined is part of a plan, arrangement or understanding which has the
purpose or effect of avoiding the provisions of this paragraph, and subsequent
transferees of such Persons, shall be void without any further action and any
holder of such Rights shall thereafter have no rights whatsoever with respect to
such Rights under any provision of this Agreement. The Company shall use all
reasonable efforts to ensure that the provisions of this Section 11(a)(ii) are
complied with, but shall have no liability to any holder of Right Certificates
or other Person as a result of its failure to make any determinations with
respect to an Acquiring Person or its Affiliates, Associates or transferees
hereunder. From and after the Flip-In Event, no Right Certificate shall be
issued pursuant to Section 3 or Section 6 hereof that represents Rights that are
or have become void pursuant to the provisions of this paragraph, and any Right
Certificate delivered to the Rights Agent that represents Rights that are or
have become void pursuant to the provisions of this paragraph shall be canceled.
From and after the occurrence of an event specified in Section 13(a) hereof, any
Rights that theretofore have not been exercised pursuant to this Section
11(a)(ii) shall thereafter be exercisable only in accordance with Section 13 and
not pursuant to this Section 11(a)(ii).
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(iii) The Company may at its option substitute for a share of Common
Stock issuable upon the exercise of Rights in accordance with the foregoing
subparagraph (ii) a number of shares of Preferred Stock or fraction thereof such
that the current per share market price of one share of Preferred Stock
multiplied by such number or fraction is equal to the current per share market
price of one share of Common Stock. In the event that there shall not be
sufficient shares of Common Stock issued but not outstanding or authorized but
unissued to permit the exercise in full of the Rights in accordance with the
foregoing subparagraph (ii), the Board of Directors shall, to the extent
permitted by applicable law and any material agreements then in effect to which
the Company is a party (A) determine the excess (such excess, the "Spread") of
(1) the value of the shares of Common Stock issuable upon the exercise of a
Right in accordance with the foregoing subparagraph (ii) (the "Current Value")
over (2) the Purchase Price (as adjusted in accordance with the foregoing
subparagraph (ii)), and (B) with respect to each Right (other than Rights which
have become void pursuant to the foregoing subparagraph (ii)), make adequate
provision to substitute for the shares of Common Stock issuable in accordance
with the foregoing subparagraph (ii) upon exercise of the Right and payment of
the Purchase Price (as adjusted in accordance therewith), (1) cash, (2) a
reduction in such Purchase Price, (3) shares of Preferred Stock or other equity
securities of the Company (including, without limitation, shares or fractions of
shares of preferred stock which, by virtue of having dividend, voting and
liquidation rights substantially comparable to those of the shares of Common
Stock, are deemed in good faith by the Board of Directors to have substantially
the same value as the shares of Common Stock (such shares of Preferred Stock and
shares or fractions of shares of preferred stock are hereinafter referred to as
"Common Stock Equivalents")), (4) debt securities of the Company, (5) other
assets, or (6) any combination of the foregoing, having a value which, when
added to the value of the shares of Common Stock issued upon exercise of such
Right, shall have an aggregate value equal to the Current Value (less the amount
of any reduction in such Purchase Price), where such aggregate value has been
determined by the Board of Directors upon the advice of a nationally recognized
investment banking firm selected in good faith by the Board of Directors;
provided, however, that if the Company shall not make adequate provision to
deliver value pursuant to clause (B) above within thirty (30) days following the
Flip-In Event (the "Section 11(a) (ii) Trigger Date"), then the Company shall be
obligated to deliver, to the extent permitted by applicable law and any material
agreements then in effect to which the Company is a party, upon the surrender
for exercise of a Right and without requiring payment of such Purchase Price,
shares of Common Stock (to the extent available), and then, if necessary, such
number or fractions of shares of Preferred Stock (to the extent available) and
then, if necessary, cash, which shares and/or cash have an aggregate value equal
to the Spread. If, upon the occurrence of the Flip-In Event, the Board of
Directors shall determine in good faith that it is likely that sufficient
additional shares of Common Stock could be authorized for issuance upon exercise
in full of the Rights, then, if the Board of Directors so elects, the thirty
(30) day period set forth above may be extended to the extent necessary, but not
more than ninety (90) days after the Section 11(a) (ii) Trigger Date, in order
that the Company may seek stockholder approval for the authorization of such
additional shares (such thirty (30) day period, as it may be extended, is herein
called the "Substitution Period"). To the extent that the Company determines
that some action need be taken pursuant to the second and/or third sentence of
this Section 11(a)(iii), the Company (x) shall provide, subject to Section
11(a)(ii) hereof and the last sentence of this Section 11(a)(iii) hereof, that
such action shall apply
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uniformly to all outstanding Rights and (y) may suspend the exercisability of
the Rights until the expiration of the Substitution Period in order to seek any
authorization of additional shares and/or to decide the appropriate form of
distribution to be made pursuant to such second sentence and to determine the
value thereof. In the event of any such suspension, the Company shall issue a
public announcement stating that the exercisability of the Rights has been
temporarily suspended, as well as a public announcement at such time as the
suspension is no longer in effect. For purposes of this Section 11(a)(iii), the
value of the shares of Common Stock shall be the current per share market price
(as determined pursuant to Section 11(d)(i)) on the Section 11(a)(ii) Trigger
Date and the per share or fractional value of any "Common Stock Equivalent"
shall be deemed to equal the current per share market price of the Common Stock.
The Board of Directors of the Company may, but shall not be required to,
establish procedures to allocate the right to receive shares of Common Stock
upon the exercise of the Rights among holders of Rights pursuant to this Section
11(a)(iii).
(b) In case the Company shall fix a record date for the issuance of
rights, options or warrants to all holders of Preferred Stock entitling them
(for a period expiring within 45 calendar days after such record date) to
subscribe for or purchase Preferred Stock (or shares having the same rights,
privileges and preferences as the Preferred Stock ("equivalent preferred
shares")) or securities convertible into Preferred Stock or equivalent preferred
shares at a price per share of Preferred Stock or equivalent preferred shares
(or having a conversion price per share, if a security convertible into shares
of Preferred Stock or equivalent preferred shares) less than the then current
per share market price of the Preferred Stock (determined pursuant to Section
11(d) hereof) on such record date, the Purchase Price to be in effect after such
record date shall be determined by multiplying the Purchase Price in effect
immediately prior to such record date by a fraction, the numerator of which
shall be the number of shares of Preferred Stock and equivalent preferred shares
outstanding on such record date plus the number of shares of Preferred Stock and
equivalent preferred shares which the aggregate offering price of the total
number of shares of Preferred Stock and/or equivalent preferred shares so to be
offered (and/or the aggregate initial conversion price of the convertible
securities so to be offered) would purchase at such current market price, and
the denominator of which shall be the number of shares of Preferred Stock and
equivalent preferred shares outstanding on such record date plus the number of
additional shares of Preferred Stock and/or equivalent preferred shares to be
offered for subscription or purchase (or into which the convertible securities
so to be offered are initially convertible); provided, however, that in no event
shall the consideration to be paid upon the exercise of one Right be less than
the aggregate par value of the shares of capital stock of the Company issuable
upon exercise of one Right. In case such subscription price may be paid in a
consideration part or all of which shall be in a form other than cash, the value
of such consideration shall be as determined in good faith by the Board of
Directors of the Company, whose determination shall be described in a statement
filed with the Rights Agent. Shares of Preferred Stock and equivalent preferred
shares owned by or held for the account of the Company shall not be deemed
outstanding for the purpose of any such computation. Such adjustment shall be
made successively whenever such a record date is fixed; and in the event that
such rights, options or warrants are not so issued, the Purchase Price shall be
adjusted to be the Purchase Price which would then be in effect if such record
date had not been fixed.
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(c) In case the Company shall fix a record date for the making of a
distribution to all holders of the Preferred Stock (including any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation) of evidences of indebtedness
or assets (other than a regular quarterly cash dividend or a dividend payable in
Preferred Stock) or subscription rights or warrants (excluding those referred to
in Section 11(b) hereof), the Purchase Price to be in effect after such record
date shall be determined by multiplying the Purchase Price in effect immediately
prior to such record date by a fraction, the numerator of which shall be the
then current per share market price of the Preferred Stock (determined pursuant
to Section 11(d) hereof) on such record date, less the fair market value (as
determined in good faith by the Board of Directors of the Company whose
determination shall be described in a statement filed with the Rights Agent) of
the portion of the assets or evidences of indebtedness so to be distributed or
of such subscription rights or warrants applicable to one share of Preferred
Stock, and the denominator of which shall be such current per share market price
(determined pursuant to Section 11(d) hereof) of the Preferred Stock; provided,
however, that in no event shall the consideration to be paid upon the exercise
of one Right be less than the aggregate par value of the shares of capital stock
of the Company to be issued upon exercise of one Right. Such adjustments shall
be made successively whenever such a record date is fixed; and in the event that
such distribution is not so made, the Purchase Price shall again be adjusted to
be the Purchase Price which would then be in effect if such record date had not
been fixed.
(d)(i) Except as otherwise provided herein, for the purpose of any
computation hereunder, the "current per share market price " of any security (a
"Security " for the purpose of this Section 11(d)(i)) on any date shall be
deemed to be the average of the daily closing prices per share of such Security
for the 30 consecutive Trading Days (as such term is hereinafter defined)
immediately prior to such date; provided, however, that in the event that the
current per share market price of the Security is determined during a period
following the announcement by the issuer of such Security of (A) a dividend or
distribution on such Security payable in shares of such Security or securities
convertible into such shares, or (B) any subdivision, combination or
reclassification of such Security, and prior to the expiration of 30 Trading
Days after the ex-dividend date for such dividend or distribution, or the record
date for such subdivision, combination or reclassification, then, and in each
such case, the current per share market price shall be appropriately adjusted to
reflect the current market price per share equivalent of such Security. The
closing price for each day shall be the last sale price, regular way, or, in
case no such sale takes place on such day, the average of the closing bid and
asked prices, regular way, in either case as reported by the principal
consolidated transaction reporting system with respect to securities listed or
admitted to trading on the New York Stock Exchange or, if the Security is not
listed or admitted to trading on the New York Stock Exchange, as reported in the
principal consolidated transaction reporting system with respect to securities
listed on the principal national securities exchange on which the Security is
listed or admitted to trading or, if the Security is not listed or admitted to
trading on any national securities exchange, the last quoted price or, if not so
quoted, the average of the high bid and low asked prices in the over-the-counter
market, as reported by NASDAQ or such other system then in use, or, if on any
such date the Security is not quoted by any such organization, the average of
the closing bid and asked prices as furnished by a professional market maker
making a market in the Security selected by the Board of Directors of the
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Company. The term "Trading Day" shall mean a day on which the principal national
securities exchange on which the Security is listed or admitted to trading is
open for the transaction of business or, if the Security is not listed or
admitted to trading on any national securities exchange, a Business Day.
(ii) For the purpose of any computation hereunder, if the Preferred
Stock is publicly traded, the "current per share market price" of the Preferred
Stock shall be determined in accordance with the method set forth in Section
11(d)(i). If the Preferred Stock is not publicly traded but the Common Stock is
publicly traded, the "current per share market price" of the Preferred Stock
shall be conclusively deemed to be the current per share market price of the
Common Stock as determined pursuant to Section 11(d)(i) multiplied by the then
applicable Adjustment Number (as defined in and determined in accordance with
the Certificate of Designation for the Preferred Stock). If neither the Common
Stock nor the Preferred Stock is publicly traded, "current per share market
price" shall mean the fair value per share as determined in good faith by the
Board of Directors of the Company, whose determination shall be described in a
statement filed with the Rights Agent.
(e) No adjustment in the Purchase Price shall be required unless
such adjustment would require an increase or decrease of at least 1% in the
Purchase Price; provided, however, that any adjustments which by reason of this
Section 11(e) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment. All calculations under this Section
11 shall be made to the nearest cent or to the nearest one hundred-thousandth of
a share of Preferred Stock or one-hundredth of a share of Common Stock or other
share or security as the case may be. Notwithstanding the first sentence of this
Section 11(e), any adjustment required by this Section 11 shall be made no later
than the earlier of (i) three years from the date of the transaction which
requires such adjustment or (ii) the Expiration Date.
(f) If as a result of an adjustment made pursuant to Section 11(a)
hereof, the holder of any Right thereafter exercised shall become entitled to
receive any shares of capital stock of the Company other than the Preferred
Stock, thereafter the Purchase Price and the number of such other shares so
receivable upon exercise of a Right shall be subject to adjustment from time to
time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Preferred Stock contained in Sections 11(a),
11(b), 11(c), 11(e), 11(h), 11(i) and 11(m) hereof, as applicable, and the
provisions of Sections 7, 9, 10, 13 and 14 hereof with respect to the Preferred
Stock shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one one-thousandths of a
share of Preferred Stock purchasable from time to time hereunder upon exercise
of the Rights, all subject to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as provided
in Section 11(i), upon each adjustment of the Purchase Price as a result of the
calculations made
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in Sections 11(b) and 11(c), each Right outstanding immediately prior to the
making of such adjustment shall thereafter evidence the right to purchase, at
the adjusted Purchase Price, that number of one one-thousandth of a share of
Preferred Stock (calculated to the nearest one hundred-thousandth of a share of
Preferred Stock) obtained by (i) multiplying (x) the number of one
one-thousandths of a share purchasable upon the exercise of a Right immediately
prior to such adjustment by (y) the Purchase Price in effect immediately prior
to such adjustment of the Purchase Price and (ii) dividing the product so
obtained by the Purchase Price in effect immediately after such adjustment of
the Purchase Price.
(i) The Company may elect on or after the date of any adjustment of
the Purchase Price pursuant to Sections 11(b) or 11(c) hereof to adjust the
number of Rights, in substitution for any adjustment in the number of one
one-thousandths of a share of Preferred Stock purchasable upon the exercise of a
Right. Each of the Rights outstanding after such adjustment of the number of
Rights shall be exercisable for the number of one one-thousandths of a share of
Preferred Stock for which a Right was exercisable immediately prior to such
adjustment. Each Right held of record prior to such adjustment of the number of
Rights shall become that number of Rights (calculated to the nearest
one-hundredth) obtained by dividing the Purchase Price in effect immediately
prior to adjustment of the Purchase Price by the Purchase Price in effect
immediately after adjustment of the Purchase Price. The Company shall make a
public announcement of its election to adjust the number of Rights, indicating
the record date for the adjustment, and, if known at the time, the amount of the
adjustment to be made. Such record date may be the date on which the Purchase
Price is adjusted or any day thereafter, but, if the Right Certificates have
been issued, shall be at least 10 days later than the date of the public
announcement. If Right Certificates have been issued, upon each adjustment of
the number of Rights pursuant to this Section 11(i), the Company may, as
promptly as practicable, cause to be distributed to holders of record of Right
Certificates on such record date Right Certificates evidencing, subject to
Section 14 hereof, the additional Rights to which such holders shall be entitled
as a result of such adjustment, or, at the option of the Company, shall cause to
be distributed to such holders of record in substitution and replacement for the
Right Certificates held by such holders prior to the date of adjustment, and
upon surrender thereof, if required by the Company, new Right Certificates
evidencing all the Rights to which such holders shall be entitled after such
adjustment. Right Certificates so to be distributed shall be issued, executed
and countersigned in the manner provided for herein and shall be registered in
the names of the holders of record of Right Certificates on the record date
specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase Price
or the number of one one-thousandths of a share of Preferred Stock issuable upon
the exercise of a Right, the Right Certificates theretofore and thereafter
issued may continue to express the Purchase Price and the number of one
one-thousandths of a share of Preferred Stock which were expressed in the
initial Right Certificates issued hereunder.
(k) Before taking any action that would cause an adjustment reducing
the Purchase Price below the then par value, if any, of the fraction of
Preferred Stock or other shares of capital stock issuable upon exercise of a
Right, the Company shall take any corporate action which may, in the opinion of
its counsel, be necessary in order that the
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Company may validly and legally issue fully paid and nonassessable shares of
Preferred Stock or other such shares at such adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event issuing to the holder of any Right exercised after such record date the
Preferred Stock and other capital stock or securities of the Company, if any,
issuable upon such exercise over and above the Preferred Stock and other capital
stock or securities of the Company, if any, issuable upon such exercise on the
basis of the Purchase Price in effect prior to such adjustment; provided,
however, that the Company shall deliver to such holder a due bill or other
appropriate instrument evidencing such holder's right to receive such additional
shares upon the occurrence of the event requiring such adjustment.
(m) Anything in this Section 11 to the contrary notwithstanding, the
Company shall be entitled to make such adjustments in the Purchase Price, in
addition to those adjustments expressly required by this Section 11, as and to
the extent that it in its sole discretion shall determine to be advisable in
order that any consolidation or subdivision of the Preferred Stock, issuance
wholly for cash of any shares of Preferred Stock at less than the current market
price, issuance wholly for cash of Preferred Stock or securities which by their
terms are convertible into or exchangeable for Preferred Stock, dividends on
Preferred Stock payable in shares of Preferred Stock or issuance of rights,
options or warrants referred to hereinabove in Section 11(b), hereafter made by
the Company to holders of its Preferred Stock shall not be taxable to such
stockholders.
(n) Anything in this Agreement to the contrary notwithstanding, in
the event that at any time after the date of this Rights Agreement and prior to
the Distribution Date, the Company shall (i) declare and pay any dividend on the
Common Stock payable in Common Stock or (ii) effect a subdivision, combination
or consolidation of the Common Stock (by reclassification or otherwise than by
payment of a dividend payable in Common Stock) into a greater or lesser number
of shares of Common Stock, then, in each such case, the number of Rights
associated with each share of Common Stock then outstanding, or issued or
delivered thereafter, shall be proportionately adjusted so that the number of
Rights thereafter associated with each share of Common Stock following any such
event shall equal the result obtained by multiplying the number of Rights
associated with each share of Common Stock immediately prior to such event by a
fraction the numerator of which shall be the total number of shares of Common
Stock outstanding immediately prior to the occurrence of the event and the
denominator of which shall be the total number of shares of Common Stock
outstanding immediately following the occurrence of such event.
(o) The Company agrees that, after the earlier of the Distribution
Date or the Stock Acquisition Date, it will not, except as permitted by Sections
23, 24 or 27 hereof, take (or permit any Subsidiary to take) any action if at
the time such action is taken it is reasonably foreseeable that such action will
diminish substantially or eliminate the benefits intended to be afforded by the
Rights.
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Section 12. Certificate of Adjusted Purchase Price or Number of
Shares. Whenever an adjustment is made as provided in Section 11 or 13 hereof,
the Company shall promptly (a) prepare a certificate setting forth such
adjustment, and a brief statement of the facts accounting for such adjustment,
(b) file with the Rights Agent and with each transfer agent for the Common Stock
and the Preferred Stock a copy of such certificate and (c) mail a brief summary
thereof to each holder of a Right Certificate in accordance with Section 25
hereof (if so required under Section 25 hereof). The Rights Agent shall be fully
protected in relying on any such certificate and on any adjustment therein
contained and shall not be deemed to have knowledge of any such adjustment
unless and until it shall have received such certificate.
Section 13. Consolidation, Merger or Sale or Transfer of Assets or
Earning Power.
(a) In the event, directly or indirectly, at any time after the
Flip-In Event (i) the Company shall consolidate with or shall merge into any
other Person, (ii) any Person shall merge with and into the Company and the
Company shall be the continuing or surviving corporation of such merger and, in
connection with such merger, all or part of the Common Stock shall be changed
into or exchanged for stock or other securities of any other Person (or of the
Company) or cash or any other property, or (iii) the Company shall sell or
otherwise transfer (or one or more of its Subsidiaries shall sell or otherwise
transfer), in one or more transactions, assets or earning power aggregating 50%
or more of the assets or earning power of the Company and its Subsidiaries
(taken as a whole) to any other Person (other than the Company or one or more
wholly-owned Subsidiaries of the Company), then upon the first occurrence of
such event, proper provision shall be made so that: (A) each holder of a Right
(other than Rights which have become void pursuant to Section 11(a)(ii) hereof)
shall thereafter have the right to receive, upon the exercise thereof at the
Purchase Price (as theretofore adjusted in accordance with Section 11(a)(ii)
hereof), in accordance with the terms of this Agreement and in lieu of shares of
Preferred Stock or Common Stock of the Company, such number of validly
authorized and issued, fully paid, non-assessable and freely tradeable shares of
Common Stock of the Principal Party (as such term is hereinafter defined), not
subject to any liens, encumbrances, rights of first refusal or other adverse
claims, as shall equal the result obtained by dividing the Purchase Price (as
theretofore adjusted in accordance with Section 11(a)(ii) hereof) by 50% of the
current per share market price of the Common Stock of such Principal Party
(determined pursuant to Section 11(d) hereof) on the date of consummation of
such consolidation, merger, sale or transfer; provided, however, that the
Purchase Price (as theretofore adjusted in accordance with Section 11(a)(ii)
hereof) and the number of shares of Common Stock of such Principal Party so
receivable upon exercise of a Right shall be subject to further adjustment as
appropriate in accordance with Section 11(f) hereof to reflect any events
occurring in respect of the Common Stock of such Principal Party after the
occurrence of such consolidation, merger, sale or transfer; (B) such Principal
Party shall thereafter be liable for, and shall assume, by virtue of such
consolidation, merger, sale or transfer, all the obligations and duties of the
Company pursuant to this Rights Agreement; (C) the term "Company" shall
thereafter be deemed to refer to such Principal Party; and (D) such Principal
Party shall take such steps (including, but not limited to, the reservation of a
sufficient number of its shares of Common Stock in accordance with Section 9
hereof) in
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connection with such consummation of any such transaction as may be necessary to
assure that the provisions hereof shall thereafter be applicable, as nearly as
reasonably may be, in relation to the shares of its Common Stock thereafter
deliverable upon the exercise of the Rights; provided that, upon the subsequent
occurrence of any consolidation, merger, sale or transfer of assets or other
extraordinary transaction in respect of such Principal Party, each holder of a
Right shall thereupon be entitled to receive, upon exercise of a Right and
payment of the Purchase Price as provided in this Section 13(a), such cash,
shares, rights, warrants and other property which such holder would have been
entitled to receive had such holder, at the time of such transaction, owned the
Common Stock of the Principal Party receivable upon the exercise of a Right
pursuant to this Section 13(a), and such Principal Party shall take such steps
(including, but not limited to, reservation of shares of stock) as may be
necessary to permit the subsequent exercise of the Rights in accordance with the
terms hereof for such cash, shares, rights, warrants and other property.
(b) "Principal Party" shall mean:
(i) in the case of any transaction described in (i) or (ii)
of the first sentence of Section 13(a) hereof: (A) the Person that is the issuer
of the securities into which the shares of Common Stock are converted in such
merger or consolidation, or, if there is more than one such issuer, the issuer
the shares of Common Stock of which have the greatest aggregate market value of
shares outstanding, or (B) if no securities are so issued, (x) the Person that
is the other party to the merger, if such Person survives said merger, or, if
there is more than one such Person, the Person the shares of Common Stock of
which have the greatest aggregate market value of shares outstanding or (y) if
the Person that is the other party to the merger does not survive the merger,
the Person that does survive the merger (including the Company if it survives)
or (z) the Person resulting from the consolidation; and
(ii) in the case of any transaction described in (iii) of the
first sentence in Section 13(a) hereof, the Person that is the party receiving
the greatest portion of the assets or earning power transferred pursuant to such
transaction or transactions, or, if each Person that is a party to such
transaction or transactions receives the same portion of the assets or earning
power so transferred or if the Person receiving the greatest portion of the
assets or earning power cannot be determined, whichever of such Persons is the
issuer of Common Stock having the greatest aggregate market value of shares
outstanding;
provided, however, that in any such case described in the foregoing clause
(b)(i) or (b)(ii), if the Common Stock of such Person is not at such time or has
not been continuously over the preceding 12-month period registered under
Section 12 of the Exchange Act, then (1) if such Person is a direct or indirect
Subsidiary of another Person the Common Stock of which is and has been so
registered, the term "Principal Party" shall refer to such other Person, or (2)
if such Person is a Subsidiary, directly or indirectly, of more than one Person,
the Common Stock of all of which is and has been so registered, the term
"Principal Party" shall refer to whichever of such Persons is the issuer of
Common Stock having the greatest aggregate market value of shares outstanding,
or (3) if such Person is owned, directly or indirectly, by a joint venture
formed by two or more Persons that are not owned, directly or indirectly, by the
same Person, the rules set forth in clauses (1) and (2) above shall apply to
each of the
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owners having an interest in the venture as if the Person owned by the joint
venture was a Subsidiary of both or all of such joint venturers, and the
Principal Party in each such case shall bear the obligations set forth in this
Section 13 in the same ratio as its interest in such Person bears to the total
of such interests.
(c) The Company shall not consummate any consolidation, merger, sale
or transfer referred to in Section 13(a) hereof unless prior thereto the Company
and the Principal Party involved therein shall have executed and delivered to
the Rights Agent an agreement confirming that the requirements of Sections 13(a)
and (b) hereof shall promptly be performed in accordance with their terms and
that such consolidation, merger, sale or transfer of assets shall not result in
a default by the Principal Party under this Agreement as the same shall have
been assumed by the Principal Party pursuant to Sections 13(a) and (b) hereof
and providing that, as soon as practicable after executing such agreement
pursuant to this Section 13, the Principal Party will:
(i) prepare and file a registration statement under the
Securities Act, if necessary, with respect to the Rights and the securities
purchasable upon exercise of the Rights on an appropriate form, use its best
efforts to cause such registration statement to become effective as soon as
practicable after such filing and use its best efforts to cause such
registration statement to remain effective (with a prospectus at all times
meeting the requirements of the Securities Act) until the Expiration Date and
similarly comply with applicable state securities laws;
(ii) use its best efforts, if the Common Stock of the
Principal Party shall be listed or admitted to trading on the New York Stock
Exchange or on another national securities exchange, to list or admit to trading
(or continue the listing of) the Rights and the securities purchasable upon
exercise of the Rights on the New York Stock Exchange or such securities
exchange, or, if the Common Stock of the Principal Party shall not be listed or
admitted to trading on the New York Stock Exchange or a national securities
exchange, to cause the Rights and the securities receivable upon exercise of the
Rights to be authorized for quotation on NASDAQ or on such other system then in
use;
(iii) deliver to holders of the Rights historical financial
statements for the Principal Party which comply in all respects with the
requirements for registration on Form 10 (or any successor form) under the
Exchange Act; and
(iv) obtain waivers of any rights of first refusal or
preemptive rights in respect of the Common Stock of the Principal Party subject
to purchase upon exercise of outstanding Rights.
(d) In case the Principal Party has provision in any of its
authorized securities or in its certificate of incorporation or by-laws or other
instrument governing its corporate affairs, which provision would have the
effect of (i) causing such Principal Party to issue (other than to holders of
Rights pursuant to this Section 13), in connection with, or as a consequence of,
the consummation of a transaction referred to in this Section 13, shares of
Common Stock or Common Stock Equivalents of such Principal Party at less than
the then
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current market price per share thereof (determined pursuant to Section 11(d)
hereof) or securities exercisable for, or convertible into, Common Stock or
Common Stock Equivalents of such Principal Party at less than such then current
market price, or (ii) providing for any special payment, tax or similar
provision in connection with the issuance of the Common Stock of such Principal
Party pursuant to the provisions of Section 13, then, in such event, the Company
hereby agrees with each holder of Rights that it shall not consummate any such
transaction unless prior thereto the Company and such Principal Party shall have
executed and delivered to the Rights Agent a supplemental agreement providing
that the provision in question of such Principal Party shall have been canceled,
waived or amended, or that the authorized securities shall be redeemed, so that
the applicable provision will have no effect in connection with, or as a
consequence of, the consummation of the proposed transaction.
(e) The Company covenants and agrees that it shall not, at any time
after the Flip-In Event, enter into any transaction of the type described in
clauses (i) through (iii) of Section 13(a) hereof if (i) at the time of or
immediately after such consolidation, merger, sale, transfer or other
transaction there are any rights, warrants or other instruments or securities
outstanding or agreements in effect which would substantially diminish or
otherwise eliminate the benefits intended to be afforded by the Rights, (ii)
prior to, simultaneously with or immediately after such consolidation, merger,
sale, transfer or other transaction, the stockholders of the Person who
constitutes, or would constitute, the Principal Party for purposes of Section
13(b) hereof shall have received a distribution of Rights previously owned by
such Person or any of its Affiliates or Associates or (iii) the form or nature
of organization of the Principal Party would preclude or limit the
exercisability of the Rights.
Section 14. Fractional Rights and Fractional Shares.
(a) The Company shall not be required to issue fractions of Rights
or to distribute Right Certificates which evidence fractional Rights (except
prior to the Distribution Date in accordance with Section 11(n) hereof). In lieu
of such fractional Rights, there shall be paid to the registered holders of the
Right Certificates with regard to which such fractional Rights would otherwise
be issuable, an amount in cash equal to the same fraction of the current market
value of a whole Right. For the purposes of this Section 14(a), the current
market value of a whole Right shall be the closing price of the Rights for the
Trading Day immediately prior to the date on which such fractional Rights would
have been otherwise issuable. The closing price for any day shall be the last
sale price, regular way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New York Stock Exchange or,
if the Rights are not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction reporting system
with respect to securities listed on the principal national securities exchange
on which the Rights are listed or admitted to trading or, if the Rights are not
listed or admitted to trading on any national securities exchange, the last
quoted price or, if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by NASDAQ or such other
system then in use or, if on any such date the Rights are not quoted by any such
organization, the average of the closing bid and asked prices as furnished by a
professional market maker making a market in the Rights
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selected by the Board of Directors of the Company. If on any such date no such
market maker is making a market in the Rights, the fair value of the Rights on
such date as determined in good faith by the Board of Directors of the Company
shall be used.
(b) The Company shall not be required to issue fractions of
Preferred Stock (other than fractions which are integral multiples of one
one-thousandth of a share of Preferred Stock) or to distribute certificates
which evidence fractional shares of Preferred Stock (other than fractions which
are integral multiples of one one-thousandth of a share of Preferred Stock) upon
the exercise or exchange of Rights. Interests in fractions of Preferred Stock in
integral multiples of one one-thousandth of a share of Preferred Stock may, at
the election of the Company, be evidenced by depositary receipts, pursuant to an
appropriate agreement between the Company and a depositary selected by it;
provided, that such agreement shall provide that the holders of such depositary
receipts shall have all the rights, privileges and preferences to which they are
entitled as beneficial owners of the Preferred Stock represented by such
depositary receipts. In lieu of fractional shares of Preferred Stock that are
not integral multiples of one one-thousandth of a share of Preferred Stock, the
Company shall pay to the registered holders of Right Certificates at the time
such Rights are exercised or exchanged as herein provided an amount in cash
equal to the same fraction of the current market value of a whole share of
Preferred Stock (as determined in accordance with Section 14(a) hereof) for the
Trading Day immediately prior to the date of such exercise or exchange.
(c) The Company shall not be required to issue fractions of shares
of Common Stock or to distribute certificates which evidence fractional shares
of Common Stock upon the exercise or exchange of Rights. In lieu of such
fractional shares of Common Stock, the Company shall pay to the registered
holders of the Right Certificates with regard to which such fractional shares of
Common Stock would otherwise be issuable an amount in cash equal to the same
fraction of the current market value of a whole share of Common Stock (as
determined in accordance with Section 14(a) hereof) for the Trading Day
immediately prior to the date of such exercise or exchange.
(d) The holder of a Right by the acceptance of the Right expressly
waives his right to receive any fractional Rights or any fractional shares upon
exercise or exchange of a Right (except as provided above).
Section 15. Rights of Action. All rights of action in respect of
this Agreement, excepting the rights of action given to the Rights Agent under
Section 18 hereof, are vested in the respective registered holders of the Right
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Stock); and any registered holder of any Right Certificate (or, prior to
the Distribution Date, of the Common Stock), without the consent of the Rights
Agent or of the holder of any other Right Certificate (or, prior to the
Distribution Date, of the Common Stock), on his own behalf and for his own
benefit, may enforce, and may institute and maintain any suit, action or
proceeding against the Company to enforce, or otherwise act in respect of, his
right to exercise the Rights evidenced by such Right Certificate (or, prior to
the Distribution Date, such Common Stock) in the manner provided therein and in
this Agreement. Without limiting the foregoing or any remedies available to the
holders of Rights, it is specifically acknowledged that the holders of Rights
would not have an
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adequate remedy at law for any breach of this Agreement and will be entitled to
specific performance of the obligations under, and injunctive relief against
actual or threatened violations of, the obligations of any Person subject to
this Agreement.
Section 16. Agreement of Right Holders. Every holder of a Right, by
accepting the same, consents and agrees with the Company and the Rights Agent
and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be transferable
only in connection with the transfer of the Common Stock;
(b) after the Distribution Date, the Right Certificates are
transferable only on the registry books of the Rights Agent if surrendered at
the office or agency of the Rights Agent designated for such purpose, duly
endorsed or accompanied by a proper instrument of transfer; and
(c) the Company and the Rights Agent may deem and treat the Person
in whose name the Right Certificate (or, prior to the Distribution Date, the
Common Stock certificate) is registered as the absolute owner thereof and of the
Rights evidenced thereby (notwithstanding any notations of ownership or writing
on the Right Certificates or the Common Stock certificate made by anyone other
than the Company or the Rights Agent) for all purposes whatsoever, and neither
the Company nor the Rights Agent shall be affected by any notice to the
contrary.
Section 17. Right Certificate Holder Not Deemed a Stockholder. No
holder, as such, of any Right Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the Preferred Stock or any
other securities of the Company which may at any time be issuable on the
exercise or exchange of the Rights represented thereby, nor shall anything
contained herein or in any Right Certificate be construed to confer upon the
holder of any Right Certificate, as such, any of the rights of a stockholder of
the Company or any right to vote for the election of directors or upon any
matter submitted to stockholders at any meeting thereof, or to give or withhold
consent to any corporate action, or to receive notice of meetings or other
actions affecting stockholders (except as provided in this Agreement), or to
receive dividends or subscription rights, or otherwise, until the Rights
evidenced by such Right Certificate shall have been exercised or exchanged in
accordance with the provisions hereof.
Section 18. Concerning the Rights Agent.
(a) The Company agrees to pay to the Rights Agent reasonable
compensation for all services rendered by it hereunder and, from time to time,
on demand of the Rights Agent, its reasonable expenses and counsel fees and
other disbursements incurred in the administration and execution of this
Agreement and the exercise and performance of its duties hereunder. The Company
also agrees to indemnify the Rights Agent for, and to hold it harmless against,
any loss, liability or expense, incurred without negligence, bad faith or
willful misconduct on the part of the Rights Agent, for anything done or omitted
by the Rights
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Agent in connection with the acceptance and administration of this Agreement,
including the costs and expenses of defending against any claim of liability
arising therefrom, directly or indirectly.
(b) The Rights Agent shall be protected and shall incur no liability
for, or in respect of any action taken, suffered or omitted by it in connection
with, its administration of this Agreement in reliance upon any Right
Certificate or certificate for the Preferred Stock or Common Stock or for other
securities of the Company, instrument of assignment or transfer, power of
attorney, endorsement, affidavit, letter, notice, direction, consent,
certificate, statement or other paper or document believed by it to be genuine
and to be signed, executed and, where necessary, verified or acknowledged, by
the proper Person or Persons, or otherwise upon the advice of counsel as set
forth in Section 20 hereof.
Section 19. Merger or Consolidation or Change of Name of Rights
Agent.
(a) Any corporation into which the Rights Agent or any successor
Rights Agent may be merged or with which it may be consolidated, or any
corporation resulting from any merger or consolidation to which the Rights Agent
or any successor Rights Agent shall be a party, or any corporation succeeding to
the stock transfer or corporate trust powers of the Rights Agent or any
successor Rights Agent, shall be the successor to the Rights Agent under this
Agreement without the execution or filing of any paper or any further act on the
part of any of the parties hereto; provided, that such corporation would be
eligible for appointment as a successor Rights Agent under the provisions of
Section 21 hereof. In case at the time such successor Rights Agent shall succeed
to the agency created by this Agreement, any of the Right Certificates shall
have been countersigned but not delivered, any such successor Rights Agent may
adopt the countersignature of the predecessor Rights Agent and deliver such
Right Certificates so countersigned; and in case at that time any of the Right
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Right Certificates either in the name of the predecessor Rights
Agent or in the name of the successor Rights Agent; and in all such cases such
Right Certificates shall have the full force provided in the Right Certificates
and in this Agreement.
(b) In case at any time the name of the Rights Agent shall be
changed and at such time any of the Right Certificates shall have been
countersigned but not delivered, the Rights Agent may adopt the countersignature
under its prior name and deliver Right Certificates so countersigned; and in
case at that time any of the Right Certificates shall not have been
countersigned, the Rights Agent may countersign such Right Certificates either
in its prior name or in its changed name and in all such cases such Right
Certificates shall have the full force provided in the Right Certificates and in
this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Right Certificates,
by their acceptance thereof, shall be bound:
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(a) The Rights Agent may consult with legal counsel (who may be
legal counsel for the Company), and the opinion of such counsel shall be full
and complete authorization and protection to the Rights Agent as to any action
taken or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this Agreement
the Rights Agent shall deem it necessary or desirable that any fact or matter be
proved or established by the Company prior to taking or suffering any action
hereunder, such fact or matter (unless other evidence in respect thereof be
herein specifically prescribed) may be deemed to be conclusively proved and
established by a certificate signed by the President and the Secretary of the
Company and delivered to the Rights Agent; and such certificate shall be full
authorization to the Rights Agent for any action taken or suffered in good faith
by it under the provisions of this Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder to the Company and
any other Person only for its own negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of any of
the statements of fact or recitals contained in this Agreement or in the Right
Certificates (except its countersignature thereof) or be required to verify the
same, but all such statements and recitals are and shall be deemed to have been
made by the Company only.
(e) The Rights Agent shall not be under any responsibility in
respect of the validity of this Agreement or the execution and delivery hereof
(except the due execution hereof by the Rights Agent) or in respect of the
validity or execution of any Right Certificate (except its countersignature
thereof); nor shall it be responsible for any breach by the Company of any
covenant or condition contained in this Agreement or in any Right Certificate;
nor shall it be responsible for any change in the exercisability of the Rights
(including the Rights becoming void pursuant to Section 11(a)(ii) hereof) or any
adjustment in the terms of the Rights provided for in Sections 3, 11, 13, 23 and
24, or the ascertaining of the existence of facts that would require any such
change or adjustment (except with respect to the exercise of Rights evidenced by
Right Certificates after receipt of a certificate furnished pursuant to Section
12, describing such change or adjustment); nor shall it by any act hereunder be
deemed to make any representation or warranty as to the authorization or
reservation of any shares of Preferred Stock or other securities to be issued
pursuant to this Agreement or any Right Certificate or as to whether any shares
of Preferred Stock or other securities will, when issued, be validly authorized
and issued, fully paid and nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge
and deliver or cause to be performed, executed, acknowledged and delivered all
such further and other acts, instruments and assurances as may reasonably be
required by the Rights Agent for the carrying out or performing by the Rights
Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from any
person reasonably believed by the Rights Agent to be one of the President or the
Secretary of the Company, and to apply
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to such officers for advice or instructions in connection with its duties, and
it shall not be liable for any action taken or suffered by it in good faith in
accordance with instructions of any such officer or for any delay in acting
while waiting for those instructions. Any application by the Rights Agent for
written instructions from the Company may, at the option of the Rights Agent,
set forth in writing any action proposed to be taken or omitted by the Rights
Agent under this Agreement and the date on and/or after which such action shall
be taken or such omission shall be effective. The Rights Agent shall not be
liable for any action taken by, or omission of, the Rights Agent in accordance
with a proposal included in any such application on or after the date specified
in such application (which date shall not be less than five Business Days after
the date any officer of the Company actually receives such application unless
any such officer shall have consented in writing to an earlier date) unless,
prior to taking any such action (or the effective date in the case of an
omission), the Rights Agent shall have received written instructions in response
to such application specifying the action to be taken or omitted.
(h) The Rights Agent and any stockholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not Rights Agent
under this Agreement. Nothing herein shall preclude the Rights Agent from acting
in any other capacity for the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys or agents, and the Rights Agent shall not be answerable or
accountable for any act, default, neglect or misconduct of any such attorneys or
agents or for any loss to the Company resulting from any such act, default,
neglect or misconduct, provided reasonable care was exercised in the selection
and continued employment thereof.
(j) If, with respect to any Rights Certificate surrendered to the
Rights Agent for exercise or transfer, the certificate contained in the form of
assignment or the form of election to purchase set forth on the reverse thereof,
as the case may be, has not been completed to certify the holder is not an
Acquiring Person (or an Affiliate or Associate thereof), the Rights Agent shall
not take any further action with respect to such requested exercise or transfer
without first consulting with the Company.
Section 21. Change of Rights Agent. The Rights Agent or any
successor Rights Agent may resign and be discharged from its duties under this
Agreement upon 30 days' notice in writing mailed to the Company and to each
transfer agent of the Common Stock or Preferred Stock by registered or certified
mail, and, following the Distribution Date, to the holders of the Right
Certificates by first-class mail. The Company may remove the Rights Agent or any
successor Rights Agent upon 30 days' notice in writing, mailed to the Rights
Agent or successor Rights Agent, as the case may be, and to each transfer agent
of the Common Stock or Preferred Stock by registered or certified mail, and,
following the Distribution Date, to the holders of the Right Certificates by
first-class mail. If the Rights Agent shall resign or be removed or shall
otherwise become incapable of acting, the Company
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<PAGE>
shall appoint a successor to the Rights Agent. If the Company shall fail to make
such appointment within a period of 30 days after giving notice of such removal
or after it has been notified in writing of such resignation or incapacity by
the resigning or incapacitated Rights Agent or by the holder of a Right
Certificate (who shall, with such notice, submit his Right Certificate for
inspection by the Company), then the registered holder of any Right Certificate
may apply to any court of competent jurisdiction for the appointment of a new
Rights Agent. Any successor Rights Agent, whether appointed by the Company or by
such a court, shall be a corporation organized and doing business under the laws
of the United States or the laws of any state of the United States or the
District of Columbia, in good standing, having an office in the State of Texas,
which is authorized under such laws to exercise corporate trust or stock
transfer powers and is subject to supervision or examination by federal or state
authority and which has at the time of its appointment as Rights Agent a
combined capital and surplus of at least $50 million. After appointment, the
successor Rights Agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Rights Agent without
further act or deed; but the predecessor Rights Agent shall deliver and transfer
to the successor Rights Agent any property at the time held by it hereunder, and
execute and deliver any further assurance, conveyance, act or deed necessary for
the purpose. Not later than the effective date of any such appointment the
Company shall file notice thereof in writing with the predecessor Rights Agent
and each transfer agent of the Common Stock or Preferred Stock, and, following
the Distribution Date, mail a notice thereof in writing to the registered
holders of the Right Certificates. Failure to give any notice provided for in
this Section 21, however, or any defect therein, shall not affect the legality
or validity of the resignation or removal of the Rights Agent or the appointment
of the successor Rights Agent, as the case may be.
Section 22. Issuance of New Right Certificates. Notwithstanding any
of the provisions of this Agreement or of the Rights to the contrary, the
Company may, at its option, issue new Right Certificates evidencing Rights in
such forms as may be approved by its Board of Directors to reflect any
adjustment or change in the Purchase Price and the number or kind or class of
shares or other securities or property purchasable under the Right Certificates
made in accordance with the provisions of this Agreement. In addition, in
connection with the issuance or sale of Common Stock following the Distribution
Date and prior to the Expiration Date, the Company may with respect to shares of
Common Stock so issued or sold pursuant to (i) the exercise of stock options,
(ii) under any employee plan or arrangement, (iii) upon the exercise, conversion
or exchange of securities, notes or debentures issued by the Company or (iv) a
contractual obligation of the Company, in each case existing prior to the
Distribution Date, issue Rights Certificates representing the appropriate number
of Rights in connection with such issuance or sale.
Section 23. Redemption.
(a) The Board of Directors of the Company may, at any time prior to
the Flip-In Event, redeem all but not less than all the then outstanding Rights
at a redemption price of $.01 per Right, appropriately adjusted to reflect any
stock split, stock dividend or similar transaction occurring after the date
hereof (the redemption price being hereinafter referred to as the "Redemption
Price"). The redemption of the Rights may be made effective at such
28
<PAGE>
time, on such basis and with such conditions as the Board of Directors in its
sole discretion may establish. The Redemption Price shall be payable, at the
option of the Company, in cash, shares of Common Stock, or such other form of
consideration as the Board of Directors shall determine.
(b) Immediately upon the action of the Board of Directors ordering
the redemption of the Rights pursuant to paragraph (a) of this Section 23 (or at
such later time as the Board of Directors may establish for the effectiveness of
such redemption), and without any further action and without any notice, the
right to exercise the Rights will terminate and the only right thereafter of the
holders of Rights shall be to receive the Redemption Price. The Company shall
promptly give public notice of any such redemption; provided, however, that the
failure to give, or any defect in, any such notice shall not affect the validity
of such redemption. Within 10 days after such action of the Board of Directors
ordering the redemption of the Rights (or such later time as the Board of
Directors may establish for the effectiveness of such redemption), the Company
shall mail a notice of redemption to all the holders of the then outstanding
Rights at their last addresses as they appear upon the registry books of the
Rights Agent or, prior to the Distribution Date, on the registry books of the
transfer agent for the Common Stock. Any notice which is mailed in the manner
herein provided shall be deemed given, whether or not the holder receives the
notice. Each such notice of redemption shall state the method by which the
payment of the Redemption Price will be made.
Section 24. Exchange.
(a) The Board of Directors of the Company may, at its option, at any
time after the Flip-In Event, exchange all or part of the then outstanding and
exercisable Rights (which shall not include Rights that have become void
pursuant to the provisions of Section 11(a)(ii) hereof) for Common Stock at an
exchange ratio of one share of Common Stock per Right, appropriately adjusted to
reflect any stock split, stock dividend or similar transaction occurring after
the date hereof (such amount per Right being hereinafter referred to as the
"Exchange Ratio"). Notwithstanding the foregoing, the Board of Directors shall
not be empowered to effect such exchange at any time after an Acquiring Person
shall have become the Beneficial Owner of shares of Common Stock aggregating 50%
or more of the shares of Common Stock then outstanding. From and after the
occurrence of an event specified in Section 13(a) hereof, any Rights that
theretofore have not been exchanged pursuant to this Section 24(a) shall
thereafter be exercisable only in accordance with Section 13 and may not be
exchanged pursuant to this Section 24(a). The exchange of the Rights by the
Board of Directors may be made effective at such time, on such basis and with
such conditions as the Board of Directors in its sole discretion may establish.
(b) Immediately upon the effectiveness of the action of the Board of
Directors of the Company ordering the exchange of any Rights pursuant to
paragraph (a) of this Section 24 and without any further action and without any
notice, the right to exercise such Rights shall terminate and the only right
thereafter of a holder of such Rights shall be to receive that number of shares
of Common Stock equal to the number of such Rights held by such holder
multiplied by the Exchange Ratio. The Company shall promptly give public notice
of any
29
<PAGE>
such exchange; provided, however, that the failure to give, or any defect in,
such notice shall not affect the validity of such exchange. The Company shall
promptly mail a notice of any such exchange to all of the holders of the Rights
so exchanged at their last addresses as they appear upon the registry books of
the Rights Agent. Any notice which is mailed in the manner herein provided shall
be deemed given, whether or not the holder receives the notice. Each such notice
of exchange will state the method by which the exchange of the shares of Common
Stock for Rights will be effected and, in the event of any partial exchange, the
number of Rights which will be exchanged. Any partial exchange shall be effected
pro rata based on the number of Rights (other than Rights which have become void
pursuant to the provisions of Section 11(a)(ii) hereof) held by each holder of
Rights.
(c) The Company may at its option substitute, and, in the event that
there shall not be sufficient shares of Common Stock issued but not outstanding
or authorized but unissued to permit an exchange of Rights for Common Stock as
contemplated in accordance with this Section 24, the Company shall substitute to
the extent of such insufficiency, for each share of Common Stock that would
otherwise be issuable upon exchange of a Right, a number of shares of Preferred
Stock or fraction thereof (or equivalent preferred shares, as such term is
defined in Section 11(b)) such that the current per share market price
(determined pursuant to Section 11(d) hereof) of one share of Preferred Stock
(or equivalent preferred share) multiplied by such number or fraction is equal
to the current per share market price of one share of Common Stock (determined
pursuant to Section 11(d) hereof) as of the date of such exchange.
Section 25. Notice of Certain Events.
(a) In case the Company shall at any time after the earlier of the
Distribution Date or the Stock Acquisition Date propose (i) to pay any dividend
payable in stock of any class to the holders of its Preferred Stock or to make
any other distribution to the holders of its Preferred Stock (other than a
regular quarterly cash dividend), (ii) to offer to the holders of its Preferred
Stock rights or warrants to subscribe for or to purchase any additional shares
of Preferred Stock or shares of stock of any class or any other securities,
rights or options, (iii) to effect any reclassification of its Preferred Stock
(other than a reclassification involving only the subdivision or combination of
outstanding Preferred Stock), (iv) to effect the liquidation, dissolution or
winding up of the Company, or (v) to pay any dividend on the Common Stock
payable in Common Stock or to effect a subdivision, combination or consolidation
of the Common Stock (by reclassification or otherwise than by payment of
dividends in Common Stock), then, in each such case, the Company shall give to
each holder of a Right Certificate, in accordance with Section 26 hereof, a
notice of such proposed action, which shall specify the record date for the
purposes of such stock dividend, or distribution of rights or warrants, or the
date on which such liquidation, dissolution or winding up is to take place and
the date of participation therein by the holders of the Common Stock and/or
Preferred Stock, if any such date is to be fixed, and such notice shall be so
given in the case of any action covered by clause (i) or (ii) above at least 10
days prior to the record date for determining holders of the Preferred Stock for
purposes of such action, and in the case of any such other action, at least 10
days prior to the date of the taking of such proposed action or the date of
participation
30
<PAGE>
therein by the holders of the Common Stock and/or Preferred Stock, whichever
shall be the earlier.
(b) In case any event described in Section 11(a)(ii) or Section 13
shall occur then the Company shall as soon as practicable thereafter give to
each holder of a Right Certificate (or if occurring prior to the Distribution
Date, the holders of the Common Stock) in accordance with Section 26 hereof, a
notice of the occurrence of such event, which notice shall describe such event
and the consequences of such event to holders of Rights under Section 11(a)(ii)
and Section 13 hereof.
Section 26. Notices. Notices or demands authorized by this Agreement
to be given or made by the Rights Agent or by the holder of any Right
Certificate to or on the Company shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed (until another address is filed in
writing with the Rights Agent) as follows:
Fortune Petroleum Corporation
One Commerce Green
515 West Greens Road, Suite 720
Houston, TX 77067
Attention: Dean W. Drulias, General Counsel
Subject to the provisions of Section 21 hereof, any notice or demand authorized
by this Agreement to be given or made by the Company or by the holder of any
Right Certificate to or on the Rights Agent shall be sufficiently given or made
if sent by first-class mail, postage prepaid, addressed (until another address
is filed in writing with the Company) as follows:
U.S. Stock Transfer Corporation
1745 Gardena Avenue
Glendale, California 91204
Attention: Mr. James D. Hunter
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Right Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Company.
Section 27. Supplements and Amendments. Except as provided in the
penultimate sentence of this Section 27, for so long as the Rights are then
redeemable, the Company may in its sole and absolute discretion, and the Rights
Agent shall if the Company so directs, supplement or amend any provision of this
Agreement in any respect without the approval of any holders of the Rights. At
any time when the Rights are no longer redeemable, except as provided in the
penultimate sentence of this Section 27, the Company may, and the Rights Agent
shall, if the Company so directs, supplement or amend this Agreement without the
approval of any holders of Rights in order to (i) cure any ambiguity, (ii)
correct or supplement any provision contained herein which may be defective or
inconsistent with any other provision herein, (iii) shorten or lengthen any time
period hereunder, or (iv) change or
31
<PAGE>
supplement the provisions hereunder in any manner which the Company may deem
necessary or desirable; provided that no such supplement or amendment shall
adversely affect the interests of the holders of Rights as such (other than an
Acquiring Person or an Affiliate or Associate of an Acquiring Person), and no
such amendment may cause the Rights again to become redeemable or cause the
Agreement again to become amendable other than in accordance with this sentence.
Notwithstanding anything contained in this Agreement to the contrary, no
supplement or amendment shall be made which changes the Redemption Price. Upon
the delivery of a certificate from an appropriate officer of the Company which
states that the proposed supplement or amendment is in compliance with the terms
of this Section 27, the Rights Agent shall execute such supplement or amendment.
Section 28. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
Section 29. Benefits of this Agreement. Nothing in this Agreement
shall be construed to give to any Person other than the Company, the Rights
Agent and the registered holders of the Right Certificates (and, prior to the
Distribution Date, the Common Stock) any legal or equitable right, remedy or
claim under this Agreement; but this Agreement shall be for the sole and
exclusive benefit of the Company, the Rights Agent and the registered holders of
the Right Certificates (and, prior to the Distribution Date, the Common Stock).
Section 30. Determinations and Actions by the Board of Directors.
The Board of Directors of the Company shall have the exclusive power and
authority to administer this Agreement and to exercise the rights and powers
specifically granted to the Board of Directors of the Company or to the Company,
or as may be necessary or advisable in the administration of this Agreement,
including, without limitation, the right and power to (i) interpret the
provisions of this Agreement and (ii) make all determinations deemed necessary
or advisable for the administration of this Agreement (including, without
limitation, a determination to redeem or not redeem the Rights or to amend this
Agreement). All such actions, calculations, interpretations and determinations
(including, for purposes of clause (y) below, all omissions with respect to the
foregoing) that are done or made by the Board of Directors of the Company in
good faith, shall (x) be final, conclusive and binding on the Company, the
Rights Agent, the holders of the Rights, as such, and all other parties, and (y)
not subject the Board of Directors to any liability to the holders of the
Rights.
Section 31. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated.
Section 32. Governing Law. This Agreement and each Right Certificate
issued hereunder shall be deemed to be a contract made under the laws of the
State of Delaware and for all purposes shall be governed by and construed in
accordance with the laws of such State applicable to contracts to be made and
performed entirely within such State.
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<PAGE>
Section 33. Counterparts. This Agreement may be executed in any
number of counterparts and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
Section 34. Descriptive Headings. Descriptive headings of the
several Sections of this Agreement are inserted for convenience only and shall
not control or affect the meaning or construction of any of the provisions
hereof.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed, all as of the day and year first above written.
FORTUNE PETROLEUM CORPORATION
By: /s/ Tyrone J. Fairbanks
-----------------------
Name: Tyrone J. Fairbanks
Title: President and CEO
U.S. STOCK TRANSFER CORPORATION
as Rights Agent
By: /s/ James Hunter
-----------------------
Name: James Hunter
Title: Vice President and Assistant Secretary
34
<PAGE>
Exhibit A
FORM OF
CERTIFICATE OF DESIGNATION
of
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
of
FORTUNE PETROLEUM CORPORATION
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
Fortune Petroleum Corporation, a corporation organized and existing
under the General Corporation Law of the State of Delaware, in accordance with
the provisions of Section 103 thereof, DOES HEREBY CERTIFY:
That pursuant to the authority vested in the Board of Directors in
accordance with the provisions of the Certificate of Incorporation of the said
Corporation, the said Board of Directors on February 28, 1997 adopted the
following resolution creating a series of 5000 shares of Preferred Stock
designated as "Series A Junior Participating Preferred Stock":
RESOLVED, that pursuant to the authority vested in the Board
of Directors of this Corporation in accordance with the provisions
of the Certificate of Incorporation, a series of Preferred Stock,
par value $1.00 per share, of the Corporation be and hereby is
created, and that the designation and number of shares thereof and
the voting and other powers, preferences and relative,
participating, optional or other rights of the shares of such series
and the qualifications, limitations and restrictions thereof are as
follows:
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
1. DESIGNATION AND AMOUNT. There shall be a series of Preferred
Stock that shall be designated as "Series A Junior Participating Preferred
Stock," and the number of shares constituting such series shall be 5000. Such
number of shares may be increased or decreased by resolution of the Board of
Directors; provided, however, that no decrease shall reduce the number of shares
of Series A Junior Participating Preferred Stock to less than the number of
shares then issued and outstanding plus the number of shares issuable upon
exercise of outstanding rights, options or warrants or upon conversion of
outstanding securities issued by the Corporation.
2. DIVIDENDS AND DISTRIBUTION.
A-1
<PAGE>
(A) Subject to the prior and superior rights of the holders
of any shares of any class or series of stock of the Corporation ranking prior
and superior to the shares of Series A Junior Participating Preferred Stock with
respect to dividends, the holders of shares of Series A Junior Participating
Preferred Stock, in preference to the holders of shares of any class or series
of stock of the Corporation ranking junior to the Series A Junior Participating
Preferred Stock in respect thereof, shall be entitled to receive, when, as and
if declared by the Board of Directors out of funds legally available for the
purpose, quarterly dividends payable in cash on the last day of March, June,
September and December, in each year (each such date being referred to herein as
a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend
Payment Date after the first issuance of a share or fraction of a share of
Series A Junior Participating Preferred Stock, in an amount per share (rounded
to the nearest cent) equal to the greater of (a) $10 or (b) the Adjustment
Number (as defined below) times the aggregate per share amount of all cash
dividends, and the Adjustment Number times the aggregate per share amount
(payable in kind) of all non-cash dividends or other distributions other than a
dividend payable in shares of Common Stock or a subdivision of the outstanding
shares of Common Stock (by reclassification or otherwise), declared on the
Common Stock, par value $.01 per share, of the Corporation (the "Common Stock")
since the immediately preceding Quarterly Dividend Payment Date, or, with
respect to the first Quarterly Dividend Payment Date, since the first issuance
of any share or fraction of a share of Series A Junior Participating Preferred
Stock. The "Adjustment Number" shall initially be 1000. In the event the
Corporation shall at any time after March 21, 1997 (the "Rights Declaration
Date") (i) declare and pay any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such case
the Adjustment Number in effect immediately prior to such event shall be
adjusted by multiplying such Adjustment Number by a fraction the numerator of
which is the number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution
on the Series A Junior Participating Preferred Stock as provided in paragraph
(A) above immediately after it declares a dividend or distribution on the Common
Stock (other than a dividend payable in shares of Common Stock).
(C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Junior Participating Preferred Stock from the
Quarterly Dividend Payment Date next preceding the date of issue of such shares
of Series A Junior Participating Preferred Stock, unless the date of issue of
such shares is prior to the record date for the first Quarterly Dividend Payment
Date, in which case dividends on such shares shall begin to accrue from the date
of issue of such shares, or unless the date of issue is a Quarterly Dividend
Payment Date or is a date after the record date for the determination of holders
of shares of Series A Junior Participating Preferred Stock entitled to receive a
quarterly dividend and before such Quarterly Dividend Payment Date, in either of
which events such dividends shall begin to accrue and be cumulative from such
Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear
interest. Dividends paid on the shares of Series A Junior Participating
Preferred Stock in an amount less than the total amount of such dividends at the
time accrued
A-2
<PAGE>
and payable on such shares shall be allocated pro rata on a share-by-share basis
among all such shares at the time outstanding. The Board of Directors may fix a
record date for the determination of holders of shares of Series A Junior
Participating Preferred Stock entitled to receive payment of a dividend or
distribution declared thereon, which record date shall be no more than 60 days
prior to the date fixed for the payment thereof.
3. VOTING RIGHTS. The holders of shares of Series A Junior
Participating Preferred Stock shall have the following voting rights:
(A) Each share of Series A Junior Participating Preferred
Stock shall entitle the holder thereof to a number of votes equal to the
Adjustment Number on all matters submitted to a vote of the stockholders of the
Corporation.
(B) Except as required by law and by Section 10 hereof,
holders of Series A Junior Participating Preferred Stock shall have no special
voting rights and their consent shall not be required (except to the extent they
are entitled to vote with holders of Common Stock as set forth herein) for
taking any corporate action.
4. CERTAIN RESTRICTIONS.
(A) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Junior Participating Preferred Stock as
provided in Section 2 are in arrears, thereafter and until all accrued and
unpaid dividends and distributions, whether or not declared, on shares of Series
A Junior Participating Preferred Stock outstanding shall have been paid in full,
the Corporation shall not:
(i) declare or pay dividends on, make any other
distributions on, or redeem or purchase or otherwise acquire for consideration
any shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Junior Participating Preferred Stock;
(ii) declare or pay dividends on or make any other
distributions on any shares of stock ranking on a parity (either as to dividends
or upon liquidation, dissolution or winding up) with the Series A Junior
Participating Preferred Stock, except dividends paid ratably on the Series A
Junior Participating Preferred Stock and all such parity stock on which
dividends are payable or in arrears in proportion to the total amounts to which
the holders of all such shares are then entitled; or
(iii) purchase or otherwise acquire for consideration
any shares of Series A Junior Participating Preferred Stock, or any shares of
stock ranking on a parity with the Series A Junior Participating Preferred
Stock, except in accordance with a purchase offer made in writing or by
publication (as determined by the Board of Directors) to all holders of Series A
Junior Participating Preferred Stock, or to such holders and holders of any
such shares ranking on a parity therewith, upon such terms as the Board of
Directors, after consideration of the respective annual dividend rates and other
relative rights and preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable treatment among the
respective series or classes.
A-3
<PAGE>
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under paragraph (A) of
this Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
5. REACQUIRED SHARES. Any shares of Series A Junior Participating
Preferred Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired promptly after the acquisition thereof. All such
shares shall upon their retirement become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
to be created by resolution or resolutions of the Board of Directors, subject to
any conditions and restrictions on issuance set forth herein.
6. LIQUIDATION, DISSOLUTION OR WINDING UP. (A) Upon any liquidation,
dissolution or winding up of the Corporation, voluntary or otherwise, no
distribution shall be made to the holders of shares of stock ranking junior
(either as to dividends or upon liquidation, dissolution or winding up) to the
Series A Junior Participating Preferred Stock unless, prior thereto, the holders
of shares of Series A Junior Participating Preferred Stock shall have received
an amount per share (the "Series A Liquidation Preference") equal to the greater
of (i) $10 plus an amount equal to accrued and unpaid dividends and
distributions thereon, whether or not declared, to the date of such payment, or
(ii) the Adjustment Number times the per share amount of all cash and other
property to be distributed in respect of the Common Stock upon such liquidation,
dissolution or winding up of the Corporation.
(B) In the event, however, that there are not sufficient
assets available to permit payment in full of the Series A Liquidation
Preference and the liquidation preferences of all other classes and series of
stock of the Corporation, if any, that rank on a parity with the Series A Junior
Participating Preferred Stock in respect thereof, then the assets available for
such distribution shall be distributed ratably to the holders of the Series A
Junior Participating Preferred Stock and the holders of such parity shares in
proportion to their respective liquidation preferences.
(C) Neither the merger or consolidation of the Corporation
into or with another corporation nor the merger or consolidation of any other
corporation into or with the Corporation shall be deemed to be a liquidation,
dissolution or winding up of the Corporation within the meaning of this Section
6.
7. CONSOLIDATION, MERGER, ETC. In case the Corporation shall enter
into any consolidation, merger, combination or other transaction in which the
outstanding shares of Common Stock are exchanged for or changed into other stock
or securities, cash and/or any other property, then in any such case each share
of Series A Junior Participating Preferred Stock shall at the same time be
similarly exchanged or changed in an amount per share equal to the Adjustment
Number times the aggregate amount of stock, securities, cash and/or any other
property (payable in kind), as the case may be, into which or for which each
share of Common Stock is changed or exchanged.
A-4
<PAGE>
8. NO REDEMPTION. Shares of Series A Junior Participating Preferred
Stock shall not be subject to redemption by the Company.
9. RANKING. The Series A Junior Participating Preferred Stock shall
rank junior to all other series of the Preferred Stock as to the payment of
dividends and as to the distribution of assets upon liquidation, dissolution or
winding up, unless the terms of any such series shall provide otherwise, and
shall rank senior to the Common Stock as to such matters.
10. AMENDMENT. At any time that any shares of Series A Junior
Participating Preferred Stock are outstanding, the Restated Certificate of
Incorporation of the Corporation shall not be amended in any manner which would
materially alter or change the powers, preferences or special rights of the
Series A Junior Participating Preferred Stock so as to affect them adversely
without the affirmative vote of the holders of two-thirds of the outstanding
shares of Series A Junior Participating Preferred Stock, voting separately as a
class.
11. FRACTIONAL SHARES. Series A Junior Participating Preferred Stock
may be issued in fractions of a share that shall entitle the holder, in
proportion to such holder's fractional shares, to exercise voting rights,
receive dividends, participate in distributions and to have the benefit of all
other rights of holders of Series A Junior Participating Preferred Stock.
IN WITNESS WHEREOF, the undersigned has executed this Certificate
this __ day of March, 1997.
FORTUNE PETROLEUM CORPORATION
By:
Name:
Title:
A-5
<PAGE>
Exhibit B
Form of Right Certificate
Certificate No. R-______
NOT EXERCISABLE AFTER FEBRUARY 28, 2007 OR EARLIER IF REDEMPTION OR
EXCHANGE OCCURS. THE RIGHTS ARE SUBJECT TO REDEMPTION AT $.01 PER
RIGHT AND TO EXCHANGE ON THE TERMS SET FORTH IN THE RIGHTS
AGREEMENT. UNDER CERTAIN CIRCUMSTANCES, AS SET FORTH IN THE RIGHTS
AGREEMENT, RIGHTS OWNED BY OR TRANSFERRED TO ANY PERSON WHO IS OR
BECOMES AN ACQUIRING PERSON (AS DEFINED IN THE RIGHTS AGREEMENT) AND
CERTAIN TRANSFEREES THEREOF WILL BECOME NULL AND VOID AND WILL NO
LONGER BE TRANSFERABLE.
RIGHT CERTIFICATE
FORTUNE PETROLEUM CORPORATION
This certifies that ____________________________ or registered
assigns, is the registered owner of the number of Rights set forth above, each
of which entitles the owner thereof, subject to the terms, provisions and
conditions of the Rights Agreement, dated as of March 21, 1997, as the same may
be amended from time to time (the "Rights Agreement"), between Fortune Petroleum
Corporation, a Delaware corporation (the "Company"), and U.S. Stock Transfer
Corporation, as Rights Agent (the "Rights Agent"), to purchase from the Company
at any time after the Distribution Date (as such term is defined in the Rights
Agreement) and prior to 5:00 P.M., Houston, Texas time, on February 28, 2007 at
the office or agency of the Rights Agent designated for such purpose, or of its
successor as Rights Agent, one one-thousandth of a fully paid non-assessable
share of Series A Junior Participating Preferred Stock, par value $1.00 per
share (the "Preferred Stock"), of the Company at a purchase price of $10 per one
one-thousandth of a share of Preferred Stock (the "Purchase Price"), upon
presentation and surrender of this Right Certificate with the Form of Election
to Purchase duly executed. The number of Rights evidenced by this Rights
Certificate (and the number of one one-thousandths of a share of Preferred Stock
which may be purchased upon exercise hereof) set forth above, and the Purchase
Price set forth above, are the number and Purchase Price as of March 21, 1997,
based on the Preferred Stock as constituted at such date. As provided in the
Rights Agreement, the Purchase Price, the number of one one-thousandths of a
share of Preferred Stock (or other securities or property) which may be
purchased upon the exercise of the Rights and the number of Rights evidenced by
this Right Certificate are subject to modification and adjustment upon the
happening of certain events.
B-1
<PAGE>
This Right Certificate is subject to all of the terms, provisions
and conditions of the Rights Agreement, which terms, provisions and conditions
are hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Right Certificates. Copies of
the Rights Agreement are on file at the principal executive offices of the
Company and the above-mentioned office or agency of the Rights Agent. The
Company will mail to the holder of this Right Certificate a copy of the Rights
Agreement without charge after receipt of a written request therefor.
This Right Certificate, with or without other Right Certificates,
upon surrender at the office or agency of the Rights Agent designated for such
purpose, may be exchanged for another Right Certificate or Right Certificates of
like tenor and date evidencing Rights entitling the holder to purchase a like
aggregate number of shares of Preferred Stock as the Rights evidenced by the
Right Certificate or Right Certificates surrendered shall have entitled such
holder to purchase. If this Right Certificate shall be exercised in part, the
holder shall be entitled to receive upon surrender hereof another Right
Certificate or Right Certificates for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Certificate (i) may be redeemed by the Company at a redemption
price of $.01 per Right or (ii) may be exchanged in whole or in part for shares
of the Company's Common Stock, par value $.01 per share, or shares of Preferred
Stock.
No fractional shares of Preferred Stock or Common Stock will be
issued upon the exercise or exchange of any Right or Rights evidenced hereby
(other than fractions of Preferred Stock which are integral multiples of one
one-thousandth of a share of Preferred Stock, which may, at the election of the
Company, be evidenced by depository receipts), but in lieu thereof a cash
payment will be made, as provided in the Rights Agreement.
No holder of this Right Certificate, as such, shall be entitled to
vote or receive dividends or be deemed for any purpose the holder of the
Preferred Stock or of any other securities of the Company which may at any time
be issuable on the exercise or exchange hereof, nor shall anything contained in
the Rights Agreement or herein be construed to confer upon the holder hereof, as
such, any of the rights of a stockholder of the Company or any right to vote for
the election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders (except as
provided in the Rights Agreement) or to receive dividends or subscription
rights, or otherwise, until the Right or Rights evidenced by this Right
Certificate shall have been exercised or exchanged as provided in the Rights
Agreement.
B-2
<PAGE>
This Right Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the
Company and its corporate seal. Dated as of March 21, 1997.
FORTUNE PETROLEUM CORPORATION
By:__________________________________
[Title]
ATTEST:
- ------------------------------------
[Title]
Countersigned:
U.S. STOCK TRANSFER CORPORATION, as Rights Agent
By__________________________________
[Title]
B-3
<PAGE>
Form of Reverse Side of Right Certificate
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Right Certificate)
FOR VALUE RECEIVED _________________________ hereby sells, assigns and
transfers unto _________________________________________________________________
________________________________________________________________________________
(Please print name and address of transferee)
__________________________________________________________________________Rights
represented by this Right Certificate, together with all right, title and
interest therein, and does hereby irrevocably constitute and appoint
_________________ Attorney, to transfer said Rights on the books of the
within-named Company, with full power of substitution.
Dated: ____________________________
________________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by a bank, trust company, broker,
dealer or other eligible institution participating in a recognized signature
guarantee medallion program.
................................................................................
(To be completed)
The undersigned hereby certifies that the Rights evidenced by this
Right Certificate are not beneficially owned by, were not acquired by the
undersigned from, and are not being assigned to an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement).
________________________________
Signature
B-4
<PAGE>
Form of Reverse Side of Right Certificate - continued
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to exercise
Rights represented by the Rights Certificate)
To FORTUNE PETROLEUM CORPORATION:
The undersigned hereby irrevocably elects to exercise ________
Rights represented by this Right Certificate to purchase the shares of Preferred
Stock (or other securities or property) issuable upon the exercise of such
Rights and requests that certificates for such shares of Preferred Stock (or
such other securities) be issued in the name of:
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
If such number of Rights shall not be all the Rights evidenced by this Right
Certificate, a new Right Certificate for the balance remaining of such Rights
shall be registered in the name of and delivered to:
Please insert social security
or other identifying number
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
Dated: ___________________
________________________________
Signature
(Signature must conform to holder specified on Right Certificate)
Signature Guaranteed:
Signature must be guaranteed by a bank, trust company, broker,
dealer or other eligible institution participating in a recognized signature
guarantee medallion program.
B-5
<PAGE>
Form of Reverse Side of Right Certificate - continued
- --------------------------------------------------------------------------------
(To be completed)
The undersigned certifies that the Rights evidenced by this Right
Certificate are not beneficially owned by, and were not acquired by the
undersigned from, an Acquiring Person or an Affiliate or Associate thereof (as
defined in the Rights Agreement).
_________________________________
Signature
- --------------------------------------------------------------------------------
NOTICE
------
The signature in the Form of Assignment or Form of Election to
Purchase, as the case may be, must conform to the name as written upon the face
of this Right Certificate in every particular, without alteration or enlargement
or any change whatsoever.
In the event the certification set forth above in the Form of
Assignment or the Form of Election to Purchase, as the case may be, is not
completed, such Assignment or Election to Purchase will not be honored.
B-6
<PAGE>
Exhibit C
UNDER CERTAIN CIRCUMSTANCES, AS SET FORTH IN THE RIGHTS AGREEMENT,
RIGHTS OWNED BY OR TRANSFERRED TO ANY PERSON WHO IS OR BECOMES AN
ACQUIRING PERSON (AS DEFINED IN THE RIGHTS AGREEMENT) AND CERTAIN
TRANSFEREES THEREOF WILL BECOME NULL AND VOID AND WILL NO LONGER BE
TRANSFERABLE.
SUMMARY OF RIGHTS TO PURCHASE
SHARES OF PREFERRED STOCK OF
FORTUNE PETROLEUM CORPORATION
On March 21, 1997, the Board of Directors of Fortune Petroleum
Corporation (the "Company") declared a dividend of one preferred share purchase
right (a "Right") for each outstanding share of common stock, par value $.01 per
share, of the Company (the "Common Stock"). The dividend is payable on April 3,
1997 (the "Record Date") to the stockholders of record on that date. Each Right
entitles the registered holder to purchase from the Company one one-thousandth
of a share of Series A Junior Participating Preferred Stock, par value $1.00 per
share, of the Company (the "Preferred Stock") at a price of $10 per one
one-thousandth of a share of Preferred Stock (the "Purchase Price"), subject to
adjustment. The description and terms of the Rights are set forth in a Rights
Agreement dated as of March 21, 1997, as the same may be amended from time to
time (the "Rights Agreement"), between the Company and U.S. Stock Transfer
Corporation, as Rights Agent (the "Rights Agent").
Until the earlier to occur of (i) 10 days following a public
announcement that a person or group of affiliated or associated persons (with
certain exceptions, an "Acquiring Person") has acquired beneficial ownership of
15% or more of the outstanding shares of Common Stock or (ii) 10 business days
(or such later date as may be determined by action of the Board of Directors
prior to such time as any person or group of affiliated persons becomes an
Acquiring Person) following the commencement of, or announcement of an intention
to make, a tender offer or exchange offer the consummation of which would result
in the beneficial ownership by a person or group of 15% or more of the
outstanding shares of Common Stock (the earlier of such dates being called the
"Distribution Date"), the Rights will be evidenced, with respect to any of the
Common Stock certificates outstanding as of the Record Date, by such Common
Stock certificate together with a copy of this Summary of Rights.
The Rights Agreement provides that, until the Distribution Date (or
earlier expiration of the Rights), the Rights will be transferred with and only
with the Common Stock. Until the Distribution Date (or earlier expiration of the
Rights), new Common Stock certificates issued after the Record Date upon
transfer or new issuances of Common Stock will contain a notation incorporating
the Rights Agreement by reference. Until the Distribution Date (or earlier
expiration of the Rights), the surrender for transfer of any certificates for
shares of Common Stock outstanding as of the Record Date, even without such
notation or a copy of this Summary of Rights, will also constitute the transfer
of the Rights associated with the shares of Common Stock represented by such
certificate. As soon as practicable following the Distribution Date, separate
certificates evidencing the Rights ("Right Certificates") will be mailed to
holders of record of the Common Stock as of the close of business on the
Distribution Date and such separate Right Certificates alone will evidence the
Rights.
C-1
<PAGE>
The Rights are not exercisable until the Distribution Date. The
Rights will expire on February 28, 2007 (the "Final Expiration Date"), unless
the Final Expiration Date is advanced or extended or unless the Rights are
earlier redeemed or exchanged by the Company, in each case as described below.
The Purchase Price payable, and the number of shares of Preferred
Stock or other securities or property issuable, upon exercise of the Rights is
subject to adjustment from time to time to prevent dilution (i) in the event of
a stock dividend on, or a subdivision, combination or reclassification of, the
Preferred Stock, (ii) upon the grant to holders of the Preferred Stock of
certain rights or warrants to subscribe for or purchase Preferred Stock at a
price, or securities convertible into Preferred Stock with a conversion price,
less than the then-current market price of the Preferred Stock or (iii) upon the
distribution to holders of the Preferred Stock of evidences of indebtedness or
assets (excluding regular periodic cash dividends or dividends payable in
Preferred Stock) or of subscription rights or warrants (other than those
referred to above).
The number of outstanding Rights is subject to adjustment in the
event of a stock dividend on the Common Stock payable in shares of Common Stock
or subdivisions, consolidations or combinations of the Common Stock occurring,
in any such case, prior to the Distribution Date.
Shares of Preferred Stock purchasable upon exercise of the Rights
will not be redeemable. Each share of Preferred Stock will be entitled, when, as
and if declared, to a minimum preferential quarterly dividend payment of $10 per
share but will be entitled to an aggregate dividend of 1000 times the dividend
declared per share of Common Stock. In the event of liquidation, dissolution or
winding up of the Company, the holders of the Preferred Stock will be entitled
to a minimum preferential payment of $10 per share (plus any accrued but unpaid
dividends) but will be entitled to an aggregate payment of 1000 times the
payment made per share of Common Stock. Each share of Preferred Stock will have
1000 votes, voting together with the Common Stock. Finally, in the event of any
merger, consolidation or other transaction in which outstanding shares of Common
Stock are converted or exchanged, each share of Preferred Stock will be entitled
to receive 1000 times the amount received per share of Common Stock. These
rights are protected by customary antidilution provisions.
Because of the nature of the Preferred Stock's dividend,
liquidation and voting rights, the value of the one one-thousandth interest in a
share of Preferred Stock purchasable upon exercise of each Right should
approximate the value of one share of Common Stock.
C-2
<PAGE>
In the event that any person or group of affiliated or associated
persons becomes an Acquiring Person, each holder of a Right, other than Rights
beneficially owned by the Acquiring Person (which will thereupon become void),
will thereafter have the right to receive upon exercise of a Right that number
of shares of Common Stock having a market value of two times the exercise price
of the Right.
In the event that, after a person or group has become an
Acquiring Person, the Company is acquired in a merger or other business
combination transaction or 50% or more of its consolidated assets or earning
power are sold, proper provisions will be made so that each holder of a Right
(other than Rights beneficially owned by an Acquiring Person which will have
become void) will thereafter have the right to receive upon the exercise of a
Right that number of shares of common stock of the person with whom the Company
has engaged in the foregoing transaction (or its parent) that at the time of
such transaction have a market value of two times the exercise price of the
Right.
At any time after any person or group becomes an Acquiring Person
and prior to the earlier of one of the events described in the previous
paragraph or the acquisition by such Acquiring Person of 50% or more of the
outstanding shares of Common Stock, the Board of Directors of the Company may
exchange the Rights (other than Rights owned by such Acquiring Person which will
have become void), in whole or in part, for shares of Common Stock or Preferred
Stock (or a series of the Company's preferred stock having equivalent rights,
preferences and privileges), at an exchange ratio of one share of Common Stock,
or a fractional share of Preferred Stock (or other preferred stock) equivalent
in value thereto, per Right.
With certain exceptions, no adjustment in the Purchase Price will
be required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional shares of Preferred Stock or Common Stock
will be issued (other than fractions of Preferred Stock which are integral
multiples of one one-thousandth of a share of Preferred Stock, which may, at the
election of the Company, be evidenced by depositary receipts), and in lieu
thereof an adjustment in cash will be made based on the current market price of
the Preferred Stock or the Common Stock.
At any time prior to the time an Acquiring Person becomes such,
the Board of Directors of the Company may redeem the Rights in whole, but not in
part, at a price of $.01 per Right (the "Redemption Price"). The redemption of
the Rights may be made effective at such time, on such basis and with such
conditions as the Board of Directors in its sole discretion may establish.
Immediately upon any redemption of the Rights, the right to exercise the Rights
will terminate and the only right of the holders of Rights will be to receive
the Redemption Price.
For so long as the Rights are then redeemable, the Company may,
except with respect to the redemption price, amend the Rights Agreement in any
manner. After the Rights are no longer redeemable, the Company may, except with
respect to the redemption price, amend the Rights Agreement in any manner that
does not adversely affect the interests of holders of the Rights.
C-3
<PAGE>
Until a Right is exercised or exchanged, the holder thereof, as
such, will have no rights as a stockholder of the Company, including, without
limitation, the right to vote or to receive dividends.
A copy of the Rights Agreement has been filed with the Securities
and Exchange Commission as an Exhibit to a Registration Statement on Form 8-A. A
copy of the Rights Agreement is available free of charge from the Company. This
summary description of the Rights does not purport to be complete and is
qualified in its entirety by reference to the Rights Agreement, as the same may
be amended from time to time, which is hereby incorporated herein by reference.
C-4
CREDIT AGREEMENT
between
FORTUNE NATURAL RESOURCES CORPORATION
BORROWER
CREDIT LYONNAIS NEW YORK BRANCH
AGENT
and
CERTAIN LENDERS
LENDERS
July 11, 1997
<PAGE>
TABLE OF CONTENTS
SECTION 1. DEFINITIONS AND TERMS...........................................1
1.1 Definitions.....................................................1
1.2 Time References................................................10
1.3 Other References...............................................10
1.4 Accounting Principles..........................................10
SECTION 2. COMMITMENT.....................................................11
2.1 Revolving Facility.............................................11
2.2 Borrowing Procedure............................................11
2.3 Letters of Credit..............................................12
2.4 Borrowing Notices and LC Requests..............................14
2.5 Termination....................................................14
2.6 Borrowing Base Determinations..................................14
SECTION 3. TERMS OF PAYMENT...............................................16
3.1 Notes and Payments.............................................16
3.2 Interest and Principal Payments................................16
3.3 Interest Options...............................................17
3.4 Quotation of Rates.............................................17
3.5 Default Rate...................................................17
3.6 Interest Recapture.............................................17
3.7 Interest Calculations..........................................17
3.8 Maximum Rate...................................................17
3.9 Interest Periods...............................................18
3.10 Conversions....................................................18
3.11 Order of Application...........................................18
3.12 Sharing of Payments, Etc.......................................19
3.13 Offset.........................................................19
3.14 Booking Borrowings.............................................19
3.15 Basis Unavailable or Inadequate for LIBOR Rate.................19
3.16 Additional Costs...............................................20
3.17 Change in Laws.................................................21
3.18 Funding Loss...................................................21
3.19 Foreign Lenders, Participants, and Assignees...................21
SECTION 4. FEES...........................................................21
4.1 Treatment of Fees..............................................21
4.2 Fees to Agent and Affiliates...................................21
4.3 LC Fees........................................................22
SECTION 5. SECURITY.......................................................22
5.1 Guaranty.......................................................22
5.2 Collateral.....................................................22
5.3 Collateral Account.............................................23
5.4 Further Assurances.............................................24
5.5 Release of Collateral..........................................24
SECTION 6. CONDITIONS PRECEDENT...........................................24
SECTION 7. REPRESENTATIONS AND WARRANTIES.................................24
7.1 Purpose and Regulation U.......................................24
7.2 Corporate Existence, Good Standing, and Authority..............25
(i)
<PAGE>
7.3 Subsidiaries and Names.........................................25
7.4 Authorization and Contravention................................25
7.5 Binding Effect.................................................25
7.6 Financials and Existing Debt...................................25
7.7 Budget.........................................................26
7.9 Litigation.....................................................26
7.10 Taxes..........................................................26
7.11 Environmental Matters..........................................26
7.12 Employee Plans.................................................27
7.13 Properties; Liens..............................................27
7.14 Government Regulations.........................................28
7.15 Transactions with Affiliates...................................28
7.16 Debt...........................................................28
7.17 Leases.........................................................28
7.18 Labor Matters..................................................28
7.19 Intellectual Property..........................................28
7.20 Full Disclosure................................................28
7.21 Estimated Oil and Gas Reserves.................................29
7.22 Working Interest...............................................29
7.23 Net Revenue Interest...........................................29
7.24 Burdensome Contracts...........................................29
7.25 Regulatory Defects.............................................29
7.26 Agreements Affecting Mineral Interests.........................29
7.27 Locations of Business, Offices.................................29
SECTION 8. AFFIRMATIVE COVENANTS..........................................29
8.1 Certain Items Furnished........................................30
8.2 Use of Credit..................................................32
8.3 Books and Records..............................................32
8.4 Inspections....................................................32
8.5 Taxes..........................................................32
8.6 Payment of Obligation..........................................32
8.7 Expenses.......................................................32
8.8 Maintenance of Existence, Assets, and Business.................32
8.9 Insurance......................................................33
8.10 Environmental Matters..........................................33
8.11 Subsidiaries...................................................33
8.12 INDEMNIFICATION................................................33
8.13 Operations and Properties......................................34
8.14 Leases.........................................................34
8.15 Development and Maintenance....................................34
8.16 Maintenance of Liens...........................................34
SECTION 9. NEGATIVE COVENANTS.............................................35
9.1 Payroll Taxes..................................................35
9.2 Debt...........................................................35
9.3 Letters of Credit..............................................35
9.4 Liens..........................................................35
9.5 Employee Plans.................................................35
9.6 Transactions with Affiliates...................................35
9.7 Compliance with Laws and Documents.............................35
9.8 Loans, Advances, and Investments...............................36
9.9 Distributions..................................................36
(ii)
<PAGE>
9.10 Disposition of Assets..........................................36
9.11 Mergers, Consolidations, and Dissolutions......................36
9.12 Assignment.....................................................36
9.13 Fiscal Year and Accounting Methods.............................36
9.14 New Businesses.................................................36
9.15 Government Regulations.........................................36
9.16 Strict Compliance..............................................36
9.17 Alteration of Material Agreements..............................36
9.18 Operating Agreements...........................................37
9.19 Burdensome Contracts...........................................37
9.20 Marketing Contracts............................................37
SECTION 10. FINANCIAL COVENANTS............................................37
10.1 Current Ratio..................................................37
10.2 Fixed-Charge Coverage..........................................37
10.3 Coverage of Subordinated Debt..................................37
SECTION 11. DEFAULT........................................................37
11.1 Payment of Obligation..........................................37
11.2 Covenants......................................................37
11.3 Debtor Relief..................................................38
11.4 Judgments and Attachments......................................38
11.5 Government Action..............................................38
11.6 Misrepresentation..............................................38
11.7 Ownership of Companies.........................................38
11.8 Change of Control of Borrower..................................38
11.9 Other Funded Debt..............................................39
11.10 SEC Reporting Requirements.....................................39
11.11 Validity and Enforceability....................................39
11.12 LCs............................................................39
SECTION 12. RIGHTS AND REMEDIES............................................39
12.1 Remedies Upon Default..........................................39
12.2 Company Waivers. .............................................40
12.3 Performance by Agent...........................................40
12.4 Not in Control.................................................40
12.5 Course of Dealing..............................................40
12.6 Cumulative Rights..............................................40
12.7 Application of Proceeds........................................41
12.8 Certain Proceedings............................................41
12.9 Expenditures by Lenders........................................41
12.10 Diminution in Value of Collateral..............................41
SECTION 13. AGENT AND LENDERS..............................................41
13.1 Agent..........................................................41
13.2 Expenses.......................................................42
13.3 Proportionate Absorption of Losses.............................43
13.4 Delegation of Duties; Reliance.................................43
13.5 Limitation of Agent's Liability................................43
13.6 Default........................................................44
13.7 Collateral Matters.............................................44
13.8 Limitation of Liability........................................45
13.9 Relationship of Lenders........................................45
(iii)
<PAGE>
13.10 Benefits of Agreement..........................................45
SECTION 14. MISCELLANEOUS..................................................45
14.1 Nonbusiness Days...............................................45
14.2 Communications.................................................45
14.3 Form and Number of Documents...................................46
14.4 Exceptions to Covenants........................................46
14.5 Survival.......................................................46
14.6 Governing Law..................................................46
14.7 Invalid Provisions.............................................46
14.8 Amendments, Consents, Conflicts, and Waivers...................46
14.9 Multiple Counterparts..........................................47
14.10 Parties........................................................47
14.11 Venue, Service of Process, and Jury Trial......................48
14.12 ENTIRETY.......................................................49
SCHEDULES AND EXHIBITS
Schedule 2 - Lenders and Commitments
Schedule 6 - Closing Documents
Schedule 7.3 - Companies and Names
Schedule 7.9 - Litigation
Schedule 7.11 - Environmental Matters
Schedule 7.15 - Affiliate Transactions
Schedule 9.2 - Permitted Debt
Schedule 9.4 - Permitted Liens
Schedule 9.8 - Permitted Loans, Advances, and Investments
Exhibit A - Revolving Note
Exhibit B - Mortgaged Properties
Exhibit C - Form of Production Report
Exhibit D-1 - Borrowing Request
Exhibit D-2 - Conversion Notice
Exhibit D-3 - LC Request
Exhibit D-4 - Compliance Certificate
Exhibit E-1 - Opinion of Counsel to Companies
Exhibit E-2 - Opinion of Louisiana Counsel to Companies
Exhibit E-3 - Opinion of Texas Counsel to Companies
Exhibit F - Assignment and Assumption Agreement
(iv)
<PAGE>
CREDIT AGREEMENT
THIS AGREEMENT is entered into as of July 11, 1997, between
FORTUNE NATURAL RESOURCES CORPORATION, a Delaware corporation ("BORROWER")
formerly known as Fortune Petroleum Corporation, Lenders (defined below), and
CREDIT LYONNAIS NEW YORK BRANCH, a duly licensed branch under the New York
Banking Law of a foreign banking corporation organized under the laws of the
Republic of France, as agent for Lenders.
The Borrower and Bank One, Texas, National Association ("BANK ONE") have
previously entered into that certain Credit Agreement dated January 14, 1994,
(such Credit Agreement, as the same may have been heretofore amended, is herein
referred to as the "PRIOR CREDIT AGREEMENT"). The Borrower desires to obtain
refinancing of its existing obligations and indebtedness (the "EXISTING
INDEBTEDNESS") under the Prior Credit Agreement and the other Loan Documents (as
defined in the Prior Credit Agreement) and certain additional financing from the
Lenders. The Agent and the Lenders have agreed to provide such refinancing of
the Existing Indebtedness and additional financing in the maximum principal
amount not to exceed the lesser of $2,000,000 or the Borrowing Base (hereinafter
defined) on the terms and conditions provided herein. Bank One has executed and
delivered, contemporaneously herewith, the Bank One Assignment (hereinafter
defined) in favor of the Agent, for the benefit of the Lenders, resulting in the
Lenders being the current owners and holders of the Existing Indebtedness. The
Borrower, the Lenders and the Agent have agreed to amend and restate the Prior
Credit Agreement, in its entirety, as set forth below.
ACCORDINGLY, for adequate and sufficient consideration, Borrower,
Lenders, and Agent agree as follows:
SECTION 1. DEFINITIONS AND TERMS
1.1 Definitions. As used in the Loan Documents:
AFFILIATE of a Person means any other individual or entity who directly
or indirectly controls, is controlled by, or is under common control with that
Person. For purposes of this definition (a) "CONTROL," "CONTROLLED BY," and
"UNDER COMMON CONTROL WITH" mean possession, directly or indirectly, of power to
direct or cause the direction of management or policies (whether through
ownership of voting securities or other interests, by contract, or otherwise),
and (b) the Companies are "AFFILIATES" of each other.
AGENT means, at any time, Credit Lyonnais New York Branch, a duly
licensed branch under the New York Banking Law of a foreign banking corporation
organized under the laws of the Republic of France -- or its successor appointed
under SECTION 13 -- acting as "AGENT" for Lenders under the Loan Documents.
APPLICABLE MARGIN means, for any day, a margin of interest equal to
1.25% over the Base Rate, or 4.00% over the LIBOR Rate, as the case may be, that
is applicable when the Base Rate or LIBOR Rate, as applicable, is determined
under this agreement.
APPLICABLE PERCENTAGE means, for any day, a commitment fee percentage
applicable under SECTION 4.4, equal to 0.50%.
ASSIGNEE is defined in SECTION 14.10(C).
ASSIGNMENTS is defined in SECTION 14.10(C).
1
<PAGE>
BANK ONE ASSIGNMENT shall mean that certain Assignment of Notes, Liens,
Security Interests, Collateral Security and other Rights of even date herewith,
executed by Bank One, acting in its capacity as the Lender under the Prior
Credit Agreement, in favor of the Agent, for the benefit of the Banks, as the
same may be from time to time modified, amended or supplemented.
BASE RATE means, for any day, the greater of EITHER (a) the annual
interest rate most recently announced by Agent as its reference rate of interest
for short-term commercial loans in U.S. dollars to Domestic borrowers (which may
not necessarily represent the lowest or best rate actually charged to any
customer) in effect at its principal office in New York, New York, automatically
fluctuating upward and downward as specified in each announcement without
special notice to Borrower or any other Person, OR (b) the SUM of the
Federal-Funds Rate PLUS 0.5%.
BASE-RATE BORROWING means a Borrowing bearing interest at the SUM of the
Base Rate plus the Applicable Margin.
BORROWER is defined in the preamble to this agreement.
BORROWING means any amount disbursed under the Loan Documents by one or
more Lenders to or on behalf of Borrower under the Loan Documents, either as an
original disbursement of funds, a renewal, extension, or continuation of an
amount outstanding, or a payment under an LC.
BORROWING BASE shall mean the loan value of the Mortgaged Properties as
Lenders determine, in their sole discretion, from time to time pursuant to
SECTION 2.6 hereof.
BORROWING-BASE DEFICIENCY means any amount by which the limitation in
SECTION 2.2(C) is exceeded, whether because the Commitments for the Revolving
Facility have been fully or partially terminated or canceled, the Borrowing Base
has been reduced or for any other reason.
BORROWING DATE is defined in SECTION 2.2(A).
BORROWING REQUEST means a request, subject to SECTION 2.2(A),
substantially in the form of EXHIBIT D-1.
BUDGET is defined in SECTION 8.1(E).
BUSINESS DAY means any day, other than a Saturday or Sunday or legal
holiday, on which (i) commercial banks generally are open for business in New
York, New York and Houston, Texas and (ii) in the case of LIBOR Rate Borrowings,
dealings in eurodollar deposits are generally carried out in the London
interbank eurodollar market.
CAPITAL LEASE means any capital lease or sublease that is required by
GAAP to be capitalized on a balance sheet.
CAPITALIZATION means -- for any Person, at any time, and without
duplication -- the SUM of (a) its stockholders' equity PLUS (b) its Funded Debt.
CASH FLOW FROM OPERATIONS means, for any Person, for any period and
without duplication, Net Income plus or minus, as applicable, the net aggregate
amount of Non-Cash Adjustments.
CERCLA means the COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION AND
LIABILITY ACT OF 1980, 42 U.S.C. Sections 9601 ET SEQ.
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CLOSING DATE means the date agreed to by Borrower and Agent for the
initial Borrowing, which must be a Business Day occurring no later than July 11,
1997.
CODE means the INTERNAL REVENUE CODE OF 1986.
COLLATERAL is defined in SECTION 5.2.
COLLATERAL DOCUMENTS is defined in SECTION 5.2.
COMMITMENT means, at any time and for any Lender, the amounts stated
beside that Lender's name on the most-recently amended SCHEDULE 2 for the
Revolving Facility (which amount is subject to reduction and cancellation as
provided in this agreement).
COMMITMENT PERCENTAGE means, for any Lender, the proportion (stated as a
percentage) that its Commitment bears to the total Commitments of all Lenders.
COMMITMENT USAGE means, at any time, the SUM of (a) the Principal Debt
PLUS (b) the LC Exposure.
COMPANIES means, at any time, Borrower and each of its Subsidiaries.
COMPLIANCE CERTIFICATE means a certificate substantially in the form of
EXHIBIT D-4 and signed by a Responsible Officer.
CONVERSION NOTICE means a request, subject to SECTION 3.10,
substantially in the form of EXHIBIT D-2.
CURRENT FINANCIALS, unless otherwise specified means EITHER (i) the
Companies' consolidated Financials for the year ended December 31, 1996,
TOGETHER WITH the Companies' Financials for the three months ended on March 31,
1997, OR (ii) at any time after annual Financials are first delivered under
SECTION 8.1, the Companies' annual Financials then most recently delivered to
Lenders under SECTION 8.1(A), TOGETHER WITH the Companies' quarterly Financials
then most recently delivered to Lenders under SECTION 8.1(B).
DEBT means -- for any person, at any time, and without duplication --
the SUM of (a) all obligations required by GAAP to be classified upon that
Person's balance sheet as liabilities, (b) liabilities secured (or for which the
holder of the Debt has an existing Right, contingent or otherwise, to be so
secured) by any Lien existing on property owned or acquired by that Person, (c)
obligations that have been (or under GAAP should be) capitalized for financial
reporting purposes, PLUS (d) all guaranties, endorsements, and other contingent
obligations for Debt of others.
DEBTOR LAWS means the BANKRUPTCY CODE OF THE UNITED STATES OF AMERICA
and all other applicable liquidation, conservatorship, bankruptcy, moratorium,
rearrangement, receivership, insolvency, reorganization, suspension of payments,
or similar Laws affecting creditors' Rights.
DEFAULT is defined in SECTION 11.
DEFAULT RATE means, for any day, an annual interest rate equal from day
to day to the lesser of EITHER (a) the then-existing Base Rate PLUS 3.25% OR (b)
the Maximum Rate.
DETERMINING LENDERS means, at any time, any combination of Lenders
holding (directly or indirectly) AT LEAST EITHER (a) 60% of the total
Commitments while there is no Principal Debt or LC
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Exposure OR (b) 60% of the Principal Debt PLUS the LC Exposure while there is
any Principal Debt or LC Exposure.
DISTRIBUTION means, with respect to any shares of any capital stock or
other equity securities issued by a Person (a) the retirement, redemption,
purchase, or other acquisition for value of those securities, (b) the
declaration or payment of any dividend on or with respect to those securities,
(c) any loan or advance by that Person to, or other investment by that Person
in, the holder of any of those securities, and (d) any other payment by that
Person with respect to those securities.
DOMESTIC means, in respect of any Person, organized under the Laws of --
and domiciled in -- the United States of America or one of its states.
EMPLOYEE PLAN means an employee-pension-benefit plan covered by TITLE IV
of ERISA and established or maintained by any Company.
ENVIRONMENTAL INDEMNITY AGREEMENT means any agreement (including,
without limitation, insurance policies) by which a Restricted Company or
Predecessor is entitled to receive reimbursement or other payment on account of
any Environmental Liability OTHER THAN any agreements (a) in the nature of
environmental consulting or engineering agreements for professional services or
(b) the terms of which preclude that Company or Predecessor from asserting a
claim for reimbursement or other payment on account of any Environmental
Liability.
ENVIRONMENTAL INVESTIGATION means any health, safety, or environmental
site assessment, investigation, study, review, audit, compliance audit, or
compliance review conducted at any time or from time to time -- whether at the
request of Agent or any Lender, upon the order or request of any Tribunal, or at
the voluntary instigation of any Company -- concerning any Real Property or the
business operations or activities of any Company, including, without limitation
(a) air, soil, groundwater, or surface-water sampling and monitoring, (b)
repair, cleanup, remediation, or detoxification, (c) preparation and
implementation of any closure, remedial, spill, emergency, or other plans, and
(d) any health, safety, or environmental compliance audit or review.
ENVIRONMENTAL LAW means any applicable Law that relates to (a) the
condition of air, ground or surface water, soil, or other environmental media,
(b) the environment or natural resources, (c) safety or health, or (d) the
regulation of any contaminants, wastes, and Hazardous Substances, including,
without limitation, CERCLA, OSHA, the HAZARDOUS MATERIALS TRANSPORTATION ACT (49
U.S.C. Section 1801 ET SEQ.), the RESOURCE CONSERVATION AND RECOVERY ACT (42
U.S.C. Section 6901 ET SEQ.), the CLEAN WATER ACT (33 U.S.C. Section 1251 ET
SEQ.), the CLEAN AIR ACT (42 U.S.C. Section 7401 ET SEQ.), the TOXIC SUBSTANCES
CONTROL ACT (15 U.S.C. Section 2601 ET SEQ.), the FEDERAL INSECTICIDE,
FUNGICIDE, AND RODENTICIDE ACT (7 U.S.C. Section 136 ET SEQ.), the EMERGENCY
PLANNING AND COMMUNITY RIGHT-TO-KNOW ACT (42 U.S.C. Section 11001 ET SEQ.), the
SAFE DRINKING WATER ACT (42 U.S.C. Section 201 AND Section 300F ET SEQ.), the
RIVERS AND HARBORS ACT (33 U.S.C. Section 401 ET seq.), the OIL POLLUTION ACT
(33 U.S.C. Section 2701 ET SEQ.), analogous state and local Laws, and any
analogous future enacted or adopted Law, or (c) to the Release or threatened
Release of Hazardous Substances.
ENVIRONMENTAL LIABILITY means any liability, loss, fine, penalty,
charge, lien, damage, cost, or expense of any kind that results directly or
indirectly, in whole or in part (a) from the violation of any Environmental Law,
(b) from the Release or threatened Release of any Hazardous Substance, (c) from
removal, remediation, or other actions in response to the Release or threatened
Release of any Hazardous Substance, (d) from actual or threatened damages to
natural resources, (e) from the imposition of injunctive relief or other orders,
(f) from personal injury, death, or property damage which occurs as a result of
any Company's use, storage, handling, or the Release or threatened Release of
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a Hazardous Substance, or (g) from any Environmental Investigation performed at,
on, or for any Real Property.
ENVIRONMENTAL PERMIT means any permit, license, or other authorization
from any Tribunal that is required under any Environmental Law for the lawful
conduct of any business, process, or other activity.
ENVIRONMENTAL REPORT means any written or verbal report memorializing
any Environmental Investigation.
ERISA means the EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974.
FEDERAL-FUNDS RATE means, for any day, the annual rate (rounded upwards,
if necessary, to the nearest 0.01%) determined (which determination is
conclusive and binding, absent manifest error) by Agent to be equal to (a) the
weighted average of the rates on overnight federal-funds transactions with
member banks of the Federal Reserve System arranged by federal-funds brokers on
that day, as published by the Federal Reserve Bank of New York on the next
Business Day, or (b) if those rates are not published for any day, the average
of the quotations at approximately 10:00 a.m. received by Agent from three
federal-funds brokers of recognized standing selected by Agent in its sole
discretion.
FINANCIALS of a Person means balance sheets, profit and loss statements,
reconciliations of capital and surplus, and statements of cash flow prepared (a)
according to GAAP (subject to year end audit adjustments with respect to interim
Financials) and (b) except as stated in SECTION 1.4, in comparative form to
prior year-end figures or corresponding periods of the preceding fiscal year or
other relevant period, as applicable.
FOREIGN means, in respect of any Person, organized under the Laws of a
jurisdiction OTHER THAN -- or domiciled outside of -- the United States of
America or one of its states.
FUNDED DEBT means -- for any Person, at any time, and without
duplication -- the SUM of (a) the balance of any obligation for borrowed money,
PLUS (b) the total amount capitalized on the balance sheet of that Person with
respect to Capital Leases.
FUNDING LOSS means any loss, expense, or reduction in yield that any
Lender reasonably incurs because (a) Borrower fails or refuses (for any reason
whatsoever OTHER THAN a default by Agent or that Lender claiming that loss,
expense, or reduction in yield) to take any LIBOR-Rate Borrowing that it has
requested under this agreement, or (b) Borrower prepays or pays any LIBOR-Rate
Borrowing or converts any LIBOR-Rate Borrowing to a Borrowing of another Type,
in each case, other than on the last day of the applicable Interest Period.
GAAP means generally accepted accounting principles of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
the Financial Accounting Standards Board that are applicable from time to time.
HAZARDOUS SUBSTANCE means (a) any substance that is reasonably expected
to require, removal, remediation, or other response under any Environmental Law,
(b) any substance that is designated, defined or classified as a hazardous
waste, hazardous material, pollutant, contaminant, explosive, corrosive,
flammable, infectious, carcinogenic, mutagenic, radioactive, dangerous, or toxic
or hazardous substance under any Environmental Law, including, without
limitation, any hazardous substance within the meaning of ' 101(14) of CERCLA,
(c) petroleum, oil, gasoline, natural gas, fuel oil, motor oil, waste oil,
diesel fuel, jet fuel, and other petroleum hydrocarbons, (d) asbestos and
asbestos-containing materials in any form, (e) polychlorinated biphenyls, (f)
urea formaldehyde foam,
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or (g) any substance the presence of which on any Real Property either (i) poses
or threatens to pose a hazard to the health or safety of persons or to the
environment or (ii) could constitute a health or safety hazard to persons or the
environment if it emanated or migrated from the Real Property.
INTEREST EXPENSE means -- for any Person, for any period, and without
duplication -- all interest on Debt, whether paid in cash or accrued as a
liability and payable in cash during that period, including, without limitation,
the interest component of Capital Leases and any premium or penalty for
repayment, redemption, or repurchase of Debt.
INTEREST PERIOD is determined under SECTION 3.9.
ISSUING LENDER means any Lender, or any of its Affiliates, that issues
an LC under this agreement.
LAWS means all applicable statutes, laws, treaties, ordinances, rules,
regulations, orders, writs, injunctions, decrees, judgments, opinions, and
interpretations of any Tribunal.
LC means a documentary or standby letter of credit issued for the
account of Borrower by an Issuing Lender under this agreement and under an LC
Agreement.
LC AGREEMENT means a letter of credit application and agreement (in form
and substance satisfactory to Agent) submitted and executed by Borrower to the
Issuing Lender for an LC for the account of Borrower.
LC EXPOSURE means, without duplication, the SUM of (a) the total face
amount of all undrawn and uncancelled LCs PLUS (b) the total unpaid
reimbursement obligations of Borrower under drawings under any LC.
LC REQUEST means a request substantially in the form of EXHIBIT D-3.
LC SUBFACILITY means a subfacility of the Revolving Facility for the
issuance of LCs, as described in SECTION 2.3, under which the LC Exposure may
never (a) collectively exceed twenty percent (20%) of the Borrowing Base and (b)
TOGETHER WITH Principal Debt MAY NEVER EXCEED the lesser of EITHER (i) the total
Commitments OR (ii) the Borrowing Base.
LEASES shall have the meaning assigned to it in SECTION 7.17 hereof.
LENDER LIEN means any present or future first-priority Lien (subject
only to any applicable Permitted Lien) securing the Obligation and assigned,
conveyed, or granted to or created in favor of Agent for the benefit of Lenders.
LENDERS means the financial institutions -- including, without
limitation, Agent (possibly acting through one or more of its Affiliates for
LCs) in respect of its share of Borrowings and LCs -- named on SCHEDULE 2 or on
the most-recently-amended SCHEDULE 2, if any, delivered by Agent under this
agreement, and, subject to this agreement, their respective successors and
permitted assigns (but not any Participant who is not otherwise a party to this
agreement).
LIBOR RATE means, for a LIBOR-Rate Borrowing and for the relevant
Interest Period, the annual interest rate (rounded upward, if necessary, to the
nearest 0.01%) equal to the quotient obtained by DIVIDING (a) the rate displayed
on page 3750 on the Teleratesystem Incorporated Service (or such other page as
may replace such page on such service) at approximately 11:00 a.m. London time
two Business Days before the first day of that Interest Period in an amount
comparable to that
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LIBOR-Rate Borrowing and having a maturity approximately equal to that Interest
Period, BY (b) one MINUS the Reserve Requirement (expressed as a decimal)
applicable to the relevant Interest Period.
LIBOR-RATE BORROWING means a Borrowing bearing interest at the SUM of
the LIBOR Rate PLUS the Applicable Margin.
LIEN means any lien, mortgage, security interest, pledge, assignment,
charge, title retention agreement, or encumbrance of any kind and any other
arrangement for a creditor's claim to be satisfied from assets or proceeds prior
to the claims of other creditors or the owners.
LITIGATION means any action by or before any Tribunal.
LOAN DOCUMENTS means (a) this agreement, certificates and reports
delivered under this agreement, and exhibits and schedules to this agreement,
(b) the Notes, Collateral Documents, and all other agreements, documents, and
instruments in favor of Agent or Lenders (or Agent on behalf of Lenders) ever
delivered under this agreement or otherwise delivered in connection with all or
any part of the Obligation (OTHER THAN Assignments but including the Bank One
Assignment), (c) all LCs and LC Agreements, (d) the letter agreement described
in SECTION 4.2, and (e) all renewals, extensions, and restatements of, and
amendments and supplements to, any of the foregoing.
MATERIAL ADVERSE EVENT means any circumstance or event that,
individually or collectively, is reasonably expected to result in any (a)
material impairment of (i) the ability of Borrower to perform any of its payment
or other material obligations under any Loan Document, (ii) the Restricted
Companies as a whole to perform any of their payment or other material
obligations under any Loan Document, or (iii) the ability of Agent or any Lender
to enforce any of those obligations or any of their respective Rights under the
Loan Documents, (b) material and adverse effect on the financial condition of
the Companies as a whole as represented to Lenders in the Current Financials
most recently delivered before the date of this agreement or (c) Default or
Potential Default.
MAXIMUM AMOUNT and MAXIMUM RATE respectively mean, for a Lender, the
maximum non-usurious amount and the maximum non-usurious rate of interest that,
under applicable Law, that Lender is permitted to contract for, charge, take,
reserve, or receive on the Obligation.
MINERAL INTERESTS shall mean all present and future rights, titles and
interests that Borrower or any other Company may now have or hereafter acquire
in and to all (i) oil, gas and/or mineral leases, royalty and overriding royalty
interests, production payments, farm-out agreements, net profit interests and
mineral fee interests, (ii) present and future unitization, communication and
pooling arrangements (and all properties covered and units created thereby),
whether arising by contract or operation of law, which now or hereafter include
all or any part of the foregoing; and (iii) lands now or hereafter subject to
any of the foregoing.
MORTGAGED PROPERTIES shall mean all of Mineral Interests described in
the Collateral Documents and all related personal property and rights to
payments or proceeds thereon or therefrom, and all other properties in which
Borrower or any other Company has heretofore granted or purported to grant or
hereinafter grants or purports to grant to Agent, for the benefit of the
Lenders, a Lender Lien (including, without limitation, those assigned to Agent
by Bank One pursuant to, among other things, the Bank One Assignment) in
accordance with SECTION 5.2 hereof, in order to secure the Notes and the
Obligation.
MULTIEMPLOYER PLAN means a multiemployer plan as defined in SECTIONS
3(37) or 4001(A)(3) of ERISA or SECTION 414(F) of the Code to which any Company
(or any Person that, for purposes of TITLE IV of ERISA, is a member of
Borrower's controlled group or is under common control with
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Borrower within the meaning of SECTION 414 of the Code) is making, or has made,
or is accruing, or has accrued, an obligation to make contributions.
NET INCOME of any Person means that Person's profit or loss after
deducting its Tax expense.
NON-CASH ADJUSTMENTS means for any Person, for any period, and without
duplication, any adjustments to reconcile net income or loss to net cash
provided by or used in operating activities as reported in Borrower's Financials
for such period in its statement of cash flows, other than any changes in assets
and liabilities as reported in such Financials.
NOTES means one of the promissory notes substantially in the form of
Exhibit A.
OBLIGATION means all present and future (a) Debts, liabilities, and
obligations of any Company to Agent or any Lender and related to any Loan
Document, whether principal, interest, fees, costs, attorneys' fees, or
otherwise, (b) any Debts, liabilities, or obligations owed by any Company to any
Lender or its one or more Affiliates under any Swap Agreement, and (c) renewals,
extensions, and modifications of any of the foregoing.
OSHA means the OCCUPATIONAL SAFETY AND HEALTH ACT OF 1970, 29 U.S.C.
Section 651 ET SEQ.
PARTICIPANT is defined in SECTION 14.10(B).
PBGC means the Pension Benefit Guaranty Corporation.
PERMITTED DEBT means Debt described on SCHEDULE 9.2.
PERMITTED LIENS means the Liens described on SCHEDULE 9.4.
PERSON means any individual, entity, or Tribunal.
POTENTIAL DEFAULT means any event's occurrence or any circumstance's
existence that would -- upon any required notice, time lapse, or both -- become
a Default.
PREDECESSOR means any Person for whose obligations and liabilities any
Company is reasonably expected to be liable as the result of any merger, DE
FACTO merger, stock purchase, asset purchase or divestiture, combination, joint
venture, investment, reclassification, or other similar business transaction.
PRINCIPAL DEBT means, at any time, the unpaid principal balance of all
Borrowings.
PRO RATA and PRO RATA PART mean, at any time and for any Lender, the
proportion (stated as a percentage) that the Principal Debt owed to it bears to
the total Principal Debt owed to all Lenders.
REAL PROPERTY means any land, buildings, fixtures, and other
improvements to land now or in the future directly or indirectly owned by any
Restricted Company, leased to or otherwise operated by any Restricted Company,
or subleased by any Restricted Company to any other Person.
RELEASE means any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping, disposal,
migrating, or other movement into the air, ground or surface water, or soil.
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REPRESENTATIVES means representatives, officers, directors, employees,
accountants, attorneys, and agents.
RESERVE REPORT means each report delivered to the Agent by the Borrower
pursuant to SECTION 8.1(C).
RESERVE REQUIREMENT means, for any LIBOR-Rate Borrowing and for the
relevant Interest Period, the total reserve requirements (including all basic,
supplemental, emergency, special, marginal, and other reserves required by
applicable Law) applicable to eurocurrency fundings or liabilities as of the
first day of that Interest Period.
RESPONSIBLE OFFICER means Borrower's chairman, president, chief
executive officer, chief financial officer, or treasurer.
RESTRICTED COMPANY means Borrower and each Subsidiary of Borrower OTHER
THAN any Subsidiary that has no assets except its corporate name and conducts no
operations.
REVOLVING FACILITY means the revolving credit facility in the amount of
the total Commitments of the Lenders to make advances and issue letters of
credit in accordance with the terms and conditions of this agreement and
includes the LC Subfacility.
RIGHTS means rights, remedies, powers, privileges, and benefits.
SENIOR DEBT means, at any time, the Companies' consolidated Debt OTHER
THAN the Subordinated Debt.
SOLVENT means, as to any Person, that (a) the aggregate fair market
value of its assets exceeds its liabilities, (b) it has sufficient cash flow to
enable it to pay its Debts as they mature, and (c) it does not have unreasonably
small capital to conduct its businesses.
STATED-TERMINATION DATE means July 11, 1999.
SUBORDINATED DEBT means, at any time, (a) the Borrower's 10-1/2%
Convertible Subordinated Debentures not to exceed $1,028,000 in principal amount
outstanding, and (b) any Debt that (i) is used solely for the redemption and
repurchase of (and may never exceed) the Debt described in the immediately
preceding clause (a) and related, customary transactional expenses, (ii) is
subject to subordination, payment blockage, and standstill provisions at least
as favorable to Lenders as those applicable to the foregoing under this
agreement or otherwise, (iii) is subject to representations, covenants, events
of default and other provision not significantly more onerous to Borrower than
those applicable to the Debt being redeemed or repurchased, and (iv) does not
have any scheduled or mandatory principal or sinking fund payment due before the
Stated-Termination Date.
SUBSIDIARY of any Person means any entity of which more than 50% (in
number of votes) of the stock (or equivalent interests) is owned of record or
beneficially, directly or indirectly, by that Person.
SWAP AGREEMENT means any present or future, whether master or single,
agreement, document, or instrument providing for -- or constituting an agreement
to enter into -- an interest-rate, basis, or commodity swap; forward-rate
arrangement; commodity option; equity or equity-index swap or option; bond or
interest-rate option; forward-foreign-exchange arrangement; rate-cap, -collar,
or -floor arrangement; currency- or cross-currency-swap arrangement; swaption;
currency-option; or any similar arrangement.
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TANGIBLE-NET WORTH means -- at any time and for any Person -- the SUM of
(i) its stockholders' equity, PLUS (ii) amounts excluded from stockholders'
equity under GAAP relating to the establishment of an employee stock ownership
plan, MINUS (iii) the total (without duplication of deductions already made in
arriving at stockholders' equity) of the book value of all assets acquired after
the Closing Date that would be treated as intangible assets under GAAP,
including, without limitation, goodwill, trademarks, trade names, copyrights,
patents, and unamortized debt discount and expense.
TAXES means, for any Person, taxes, assessments, or other governmental
charges or levies imposed upon it, its income, or any of its properties,
franchises, or assets.
TERMINATION DATE means the earlier of EITHER (a) the Stated-Termination
Date OR (b) the effective date that Lenders' commitments to lend and issue LCs
under this agreement are fully canceled or terminated.
TRIBUNAL means any (a) local, state, territorial, federal, or foreign
judicial, executive, regulatory, administrative, legislative, or governmental
agency, board, bureau, commission, department, or other instrumentality, (b)
private arbitration board or panel, or (c) central bank.
TYPE means any type of Borrowing determined with respect to the
applicable interest option.
WORKING CAPITAL means -- for any Person and at any time -- the SUM of
(a) current assets MINUS (b) current liabilities.
1.2 Time References. Unless otherwise specified, in the Loan Documents
(a) time references (E.G., 11:00 a.m.) are to time in New York, New York, and
(b) in calculating a period from one date to another, the word "FROM" means
"FROM AND INCLUDING" and the word "TO" or "UNTIL" means "TO BUT EXCLUDING."
1.3 Other References. Unless otherwise specified, in the Loan Documents
(a) where appropriate, the singular includes the plural and VICE VERSA, and
words of any gender include each other gender, (b) heading and caption
references may not be construed in interpreting provisions, (c) monetary
references are to currency of the United States of America, (d) section,
paragraph, annex, schedule, exhibit, and similar references are to the
particular Loan Document in which they are used, (e) references to "TELECOPY,"
"FACSIMILE," "FAX," or similar terms are to facsimile or telecopy transmissions,
(f) references to "INCLUDING" mean including without limiting the generality of
any description preceding that word, (g) the rule of construction that
references to general items that follow references to specific items are limited
to the same type or character of those specific items is not applicable in the
Loan Documents, (h) references to any Person include that Person's heirs,
personal representatives, successors, trustees, receivers, and permitted
assigns, (i) references to any Law include every amendment or supplement to it,
rule and regulation adopted under it, and successor or replacement for it, and
(j) references to any Loan Document or other document include every renewal and
extension of it, amendment and supplement to it, and replacement or substitution
for it.
1.4 Accounting Principles. Unless otherwise specified, in the Loan
Documents (a) GAAP determines all accounting and financial terms and compliance
with financial covenants, (b) GAAP in effect on the date of this agreement
determines compliance with financial covenants, (c) otherwise, all accounting
principles applied in a current period must be comparable in all material
respects to those applied during the preceding comparable period, and (d) while
Borrower has any consolidated Subsidiaries (i) all accounting and financial
terms and compliance with reporting covenants must be on a consolidating and
consolidated basis, as applicable, and (ii) compliance with financial covenants
must be on a consolidated basis.
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SECTION 2. COMMITMENT. Subject to the provisions in the Loan Documents, each
Lender severally but not jointly agrees to extend credit to Borrower under the
Revolving Facility in accordance with the following provisions.
2.1 Revolving Facility. Each Lender severally but not jointly agrees to
lend to Borrower that Lender's Commitment Percentage of requested Borrowings
under the Revolving Facility which Borrower may borrow, repay, and reborrow
under this agreement SUBJECT TO the following conditions:
(a) Each Borrowing may only occur on a Business Day on or after
the Closing Date and before the Termination Date;
(b) Each Borrowing may only be $100,000 or a greater integral
multiple of $100,000 if a Base-Rate Borrowing or $500,000 or a greater
integral multiple of $100,000 if a LIBOR-Rate Borrowing;
(c) The Commitment Usage MAY NEVER EXCEED (i) at any time during
which any Subordinated Debt is outstanding, the difference of (x) the
lesser of either the total Commitments for the Revolving Facility or the
Borrowing Base, minus (y) $500,000.00, and (ii) at any other time, the
lesser of EITHER the total Commitments for the Revolving Facility OR the
Borrowing Base; and
(d) Subject to the other terms and conditions of this Agreement,
that portion of the Existing Indebtedness consisting of advances
outstanding under the Prior Credit Agreement shall be and be deemed to
constituted a Base-Rate Borrowing hereunder effective as of the Closing
Date.
2.2 Borrowing Procedure. The following procedures apply to Borrowings:
(a) Borrowing Request. Borrower may request a Borrowing by making
or delivering a Borrowing Request (that may be telephonic if confirmed
immediately in writing by 2:00 p.m. on the same Business Day) to Agent,
which is irrevocable and binding on Borrower, stating the Type, amount,
and Interest Period for each Borrowing and which must be received by
Agent no later than 11:00 a.m. on the (i) third Business Day before the
date on which funds are requested (the "BORROWING DATE") for any
LIBOR-Rate Borrowing, or (ii) Borrowing Date for any Base-Rate
Borrowing. Agent shall promptly notify each Lender of any Borrowing
Request.
(c) Funding. Each Lender shall remit its Commitment Percentage of
each requested Borrowing to Agent's principal office in New York, New
York, in funds that are available for immediate use by Agent by 1:00
p.m. on the applicable Borrowing Date. Subject to receipt of those
funds, Agent shall (unless to its actual knowledge any of the applicable
conditions precedent have not been satisfied by Borrower or waived by
the requisite Lenders under SECTION 14.8) make those funds available to
Borrower by (at Borrower's option) (i) wiring the funds to or for the
account of Borrower at the direction of Borrower or (ii) depositing the
funds in Borrower's account with Agent.
(c) Funding Assumed. Absent contrary written notice from a
Lender, Agent may assume that each Lender has made its Commitment
Percentage of the requested Borrowing available to Agent on the
applicable Borrowing Date, and Agent may, in reliance upon such
assumption (but shall not be required to), make available to Borrower a
corresponding amount. If a Lender fails to make its Commitment
Percentage of any requested Borrowing available to Agent on the
applicable Borrowing Date, Agent may recover the applicable amount on
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demand, (i) from that Lender TOGETHER WITH interest, commencing on the
Borrowing Date and ending on (but excluding) the date Agent recovers the
amount from that Lender, at an annual interest rate equal to the
Federal-Funds Rate, or (ii) if that Lender fails to pay its amount upon
demand, then from Borrower. No Lender is responsible for the failure of
any other Lender to make its Commitment Percentage of any Borrowing
available as required by SECTION 2.2(B); however, failure of any Lender
to make its Commitment Percentage of any Borrowing so available does not
excuse any other Lender from making its Commitment Percentage of any
Borrowing so available.
2.3 Letters of Credit.
(a) Conditions. Subject to the terms and conditions of this
agreement each Lender, if requested, agrees to issue LCs upon Borrower's
making or delivering an LC Request and delivering an LC Agreement, both
of which must be received by Agent and the Issuing Lender no later than
the third Business Day before the Business Day on which the requested LC
is to be issued, SO LONG AS (i) no LC may expire after the earlier to
occur of the first anniversary of its issuance date or three Business
Days before the Termination Date, (ii) the LC Exposure (after giving
effect to such requested LC) would not exceed twenty percent (20%) of
the Borrowing Base and (iii) the limitations in SECTIONS 2.1(C) are not
exceeded.
(b) Participation. Immediately upon an Issuing Lender's issuance
of any LC, that Issuing Lender shall be deemed to have sold and
transferred to each other Lender, and each other Lender shall be deemed
irrevocably and unconditionally to have purchased and received from that
Issuing Lender, without recourse or warranty, an undivided interest and
participation to the extent of such Lender's Commitment Percentage under
the Revolving Facility in the LC and all applicable Rights of that
Issuing Lender in the LC -- OTHER THAN Rights to receive certain fees
provided in SECTION 4.3 to be for that Issuing Lender's sole account.
(c) Reimbursement Obligation. To induce each Issuing Lender to
issue and maintain LCs, and to induce Lenders to participate in issued
LCs, Borrower agrees to pay or reimburse each Issuing Lender (i) on the
first Business Day after an Issuing Lender notifies Agent and Borrower
that it has made payment under an LC, the amount paid by that Issuing
Lender and (ii) within five Business Days after demand, the amount of
any additional fees Agent customarily charges for amending LCs
Agreements, for honoring drafts, and for taking similar action in
connection with letters of credit. If Borrower has not reimbursed that
Issuing Lender for any drafts paid by the date on which reimbursement is
required under this section, then Agent is irrevocably authorized to
fund Borrower's reimbursement obligations as a Base-Rate Borrowing under
the Revolving Facility if proceeds are available under the Revolving
Facility and if the conditions in this agreement for such a Borrowing
(OTHER THAN any notice requirements or minimum funding amounts) have, to
Agent's knowledge, been satisfied. The proceeds of that Borrowing shall
be advanced directly to that Issuing Lender to pay Borrower's unpaid
reimbursement obligations. If funds cannot be advanced under the
Revolving Facility, then Borrower's reimbursement obligation shall
constitute a demand obligation. Borrower's obligations under this
section are absolute and unconditional under any and all circumstances
and irrespective of any setoff, counterclaim, or defense to payment that
Borrower may have at any time against any Issuing Lender or any other
Person. From the date that an Issuing Lender pays a draft under a LC
until Borrower either reimburses or is obligated to reimburse that
Issuing Lender for that draft under this section, the amount of that
draft bears interest payable to that Issuing Lender at the rate then
applicable to Base-Rate Borrowings. From the due date of the respective
amounts due under this section, to the date paid (including any payment
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from proceeds of a Base-Rate Borrowing), unpaid reimbursement amounts
accrue interest that is payable on demand at the Default Rate.
(d) General. The applicable Issuing Lender shall promptly notify
Agent and Borrower of the date and amount of any draft presented for
honor under any LC (but failure to give notice will not affect
Borrower's obligations under this agreement). That Issuing Lender shall
pay the requested amount upon presentment of a draft unless presentment
on its face does not comply with the terms of the applicable LC. When
making payment, that Issuing Lender may disregard (i) any default or
potential default that exists under any other agreement and (ii)
obligations under any other agreement that have or have not been
performed by the beneficiary or any other Person (and that Issuing
Lender is not liable for any of those obligations). Borrower's
reimbursement obligations to that Issuing Lender and Lenders, and each
Lender's obligations to that Issuing Lender, under this section are
absolute and unconditional irrespective of, and that Issuing Lender is
not responsible for, (i) the validity, enforceability, sufficiency,
accuracy, or genuineness of documents or endorsements (even if they are
in any respect invalid, unenforceable, insufficient, inaccurate,
fraudulent, or forged), (ii) any dispute by any Company with or any
Company's claims, setoffs, defenses, counterclaims, or other Rights
against that Issuing Lender, any Lender, or any other Person, or (iii)
the occurrence of any Potential Default or Default. However, nothing in
this agreement constitutes a waiver of Borrower's Rights to assert any
claim or defense based upon the gross negligence or willful misconduct
of any Lender. The Issuing Lender shall promptly pay to Agent for Agent
to promptly distribute reimbursement payments received from Borrower to
all Lenders according to their Pro Rata Part of the Revolving Facility.
(e) Obligation of Lenders. If Borrower fails to reimburse an
Issuing Lender as provided in SECTION 2.3(C) by the date on which
reimbursement is due under that section, and funds cannot be advanced
under the Revolving Facility to satisfy the reimbursement obligations,
then Agent shall promptly notify each Lender of Borrower's failure, of
the date and amount paid, and of each Lender's Commitment Percentage of
the unreimbursed amount. Each Lender shall promptly and unconditionally
make available to Agent in immediately available funds its Commitment
Percentage of the unpaid reimbursement obligation, subject to the
limitations of SECTION 2.1(C). Funds are due and payable to Agent before
the close of business on the Business Day when Agent gives notice to
each Lender of Borrower's reimbursement failure (if notice is given
before 1:00 p.m.) or on the next succeeding Business Day (if notice is
given after 1:00 p.m.). All amounts payable by any Lender accrue
interest after the due date at the Federal-Funds Rate from the day the
applicable draft or draw is paid by Agent to (but not including) the
date the amount is paid by the Lender to Agent. Upon receipt of those
funds, Agent shall make them available to the Issuing Lender.
(f) Duties of Issuing Lender. Each Issuing Lender agrees with
each Lender that it will exercise and give the same care and attention
to each LC as it gives to its other letters of credit. Each Lender and
Borrower agree that, in paying any draft under any LC, no Issuing Lender
has any responsibility to obtain any document (OTHER THAN any documents
expressly required by the respective LC) or to ascertain or inquire as
to any document's validity, enforceability, sufficiency, accuracy, or
genuineness or the authority of any Person delivering it. Neither any
Issuing Lender nor its Representatives will be liable to any Lender or
any Company for any LC's use or for any beneficiary's acts or omissions.
Any action, inaction, error, delay, or omission taken or suffered by any
Issuing Lender or any of its Representatives in connection with any LC,
applicable drafts or documents, or the transmission, dispatch, or
delivery of any related message or advice, if in good faith and in
conformity with applicable Laws and in accordance with the standards of
care specified in the UNIFORM CUSTOMS AND PRACTICES FOR DOCUMENTARY
CREDITS (1993 REVISION), INTERNATIONAL CHAMBER OF COMMERCE PUBLICATION
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NO. 500 (as amended or modified), is binding upon the Companies and
Lenders and, except as provided in Section 2.4(e), does not place that
Issuing Lender or any of its Representatives under any resulting
liability to any Company or any Lender. Agent is not liable to any
Company or any Lender for any action taken or omitted, in the absence of
gross negligence or willful misconduct, by that Issuing Lender or its
Representative in connection with any LC.
(g) Cash Collateral. On the Termination Date and if requested by
Determining Lenders while a Default exists, Borrower shall provide
Agent, for the benefit of Lenders, cash collateral in an amount equal to
the then-existing LC Exposure.
(h) INDEMNIFICATION. BORROWER SHALL PROTECT, INDEMNIFY, PAY, AND
SAVE AGENT, EACH LENDER, AND THEIR RESPECTIVE REPRESENTATIVES HARMLESS
FROM AND AGAINST ANY AND ALL CLAIMS, DEMANDS, LIABILITIES, DAMAGES,
LOSSES, COSTS, CHARGES, AND EXPENSES (INCLUDING REASONABLE ATTORNEYS'
FEES) WHICH ANY OF THEM MAY INCUR OR BE SUBJECT TO AS A CONSEQUENCE OF
THE ISSUANCE OF ANY LC, ANY DISPUTE ABOUT IT, OR THE FAILURE OF ANY
ISSUING LENDER TO HONOR A DRAW REQUEST UNDER ANY LC AS A RESULT OF ANY
ACT OR OMISSION (WHETHER RIGHT OR WRONG) OF ANY PRESENT OR FUTURE
TRIBUNAL. HOWEVER, NO PERSON IS ENTITLED TO INDEMNITY UNDER THE
FOREGOING FOR ITS OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
(i) LC Agreements. Although referenced in any LC, terms of any
particular agreement or other obligation to the beneficiary are not
incorporated into this agreement in any manner. The fees and other
amounts payable with respect to each LC are as provided in this
agreement, drafts under each LC are part of the Obligation, only the
events specified in this agreement as a Default shall constitute a
default under any LC, and the terms of this agreement control any
conflict between the terms of this agreement and any LC Agreement.
2.4 Borrowing Notices and LC Requests. Each Borrowing Request (whether
telephonic or written) and LC Request constitutes a representation and warranty
by Borrower that as of the Borrowing Date or the date of issuance of the
requested LC, as the case may be, that all of the conditions precedent in
SECTION 6 have been satisfied.
2.5 Termination. Borrower may -- upon giving at least five Business Days
prior written and irrevocable notice to Agent -- terminate all or part of the
Revolving Facility. Each partial termination must be in an amount of not less
than $1,000,000 or a greater integral multiple of $1,000,000 and must be ratable
in accordance with each Lender's Commitment Percentage. At the time of any
termination, Borrower shall pay to Agent, for the account of each Lender, as
applicable, the amount of any Borrowing Base Deficiency then existing or which
would result after giving effect to such termination, all accrued and unpaid
fees under this agreement and, the interest attributable to the amount of that
reduction, and any related Funding Loss. Any part of the Commitments for the
Revolving Facility that are terminated may not be reinstated.
2.6 Borrowing Base Determinations.
(a) The Borrowing Base as of the Closing Date is acknowledged by
the Borrower, the Agent and the Lenders to be $2,000,000.00.
(b) The Borrowing Base shall be redetermined by the Lenders
semi-annually through the Termination Date, within ninety (90) days after each
December 31 and June 30, with the first such Borrowing Base redetermination
under this Agreement to be made on or before September 30, 1997 for the
Mortgaged Properties as of June 30, 1997, in accordance with the standard
engineering and lending policies and practices customary for loans of this
nature and on the basis of
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information supplied by the Borrower in compliance with the provisions of this
Agreement, including, without limitation, the Reserve Reports, and all other
information available to the Lenders. Notwithstanding the foregoing, the Lenders
may at their discretion make redeterminations of the Borrowing Base at any time
and from time to time, including, without limitation, upon the occurrence of any
sale, transfer, release or other disposition or loss or relinquishment of any
Collateral by the Borrower, provided, that nothing in this provision shall be
deemed to authorize any sale of any property prohibited pursuant to this
agreement or any other Loan Document. In addition to the determinations of the
Borrowing Base required pursuant to this SECTION 2.6(B) hereof, special
determinations thereof may at any time be requested by Borrower if it, in good
faith, (i) believes that events have occurred or conditions exist that could
increase the then current Borrowing Base by at least twenty-five percent (25%)
or (ii) desires to mortgage additional Mineral Interests to increase the
Borrowing Base by at least twenty-five percent (25%), and Borrower has tendered
to the Agent, to be distributed by Agent Pro Rata to each Lender, an engineering
fee in the amount of $5,000.00. Upon any such special determination of the
Borrowing Base, if requested by Agent, Borrower shall submit both (i) a current
report of a firm of independent petroleum engineers acceptable to Agent,
prepared in accordance with customary standards and procedures of the petroleum
industry which report shall (A) evaluate the Mineral Interests subject to such
redetermination (in the same manner as provided in this SECTION 2.6(B) for other
such redeterminations) and (B) be dated within sixty (60) days of such requested
redetermination, and, (ii) title opinions, environmental reports and other
information reasonably requested by and in form and substance acceptable to
Agent, for those additional Mineral Interests which Borrower desires to be
considered within the Borrowing Base. Adjustments to the Borrowing Base based
upon the addition of Mineral Interests shall not be effective prior to the date
of filing and recording of such Collateral Documents as required by Agent.
(c) Upon each borrowing base redetermination, the Agent shall
notify the Borrower verbally (confirming such notice promptly in writing) of
such determination, and the Borrowing Base so communicated to the Borrower shall
become effective upon such verbal notification and shall remain in effect until
the next subsequent Borrowing Base redetermination in accordance with the terms
hereof.
(d) The Borrowing Base shall represent the determination by the
Lenders, in their sole discretion and in accordance with their standard
engineering and lending policies and practices customary for loans of this
nature, of the value, for loan purposes, of the Collateral. Furthermore, the
Borrower acknowledges that the determination of the Borrowing Base contains an
equity cushion (market value in excess of loan value), which is acknowledged by
the Borrower to be essential for the adequate protection of the Lenders.
2.7 Extension of Termination Date. Unless the Termination Date shall
have occurred, Borrower may request the Lenders, by written notice to the Agent,
at least 90 but not more than 180 days prior to the then effective
Stated-Termination Date, to consent to a one-year extension of the Stated-
Termination Date to July 11, 2000. Each Lender shall, in its sole discretion,
determine whether to consent to such request and shall notify the Agent of its
determination within 30 days of such Lender's receipt of notice of such request.
If such request shall have been consented to by all the Lenders, the Agent shall
notify Borrower in writing of such consent, and such extension shall become
effective upon the delivery by Borrower to the Agent and each lender, on or
prior to the then effective Stated-Termination Date, of (i) a certificate of a
Responsible Officer of Borrower, dated such date, as to the accuracy, both
before and after giving effect to such proposed extension, of the
representations and warranties set forth in Section 7 and as to the absence,
both before and after giving effect to such proposed extension, of any Event of
Default or Potential Default and (ii) such other information, instruments,
reports and documents as Agent may reasonably request.
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SECTION 3. TERMS OF PAYMENT.
3.1 Notes and Payments.
(a) Notes. Principal Debt under the Revolving Facility is
evidenced by the Notes, one payable to each Lender in amount equal to
its Pro Rata Part of $20,000,000. Borrower understands, acknowledges and
agrees that the execution and delivery by Borrower of each Lender's Note
in such original principal amount does not imply or infer, and shall not
be construed to create, any obligation or commitment on the part of any
Lender to make any advances or issue or participate in any LC's in
excess of, in the aggregate, such Lender's Commitment; the higher amount
represented by such Lender's Note being for ease of administration only
in the event that the Lenders and the Borrower may hereafter agree, in
writing, to increase the commitments upon the request of Borrower and in
accordance with such terms and conditions as the Lenders may then
require after receipt of new and independent credit approvals by each
Lender, based upon such financial and engineering information, industry
trends and other economic conditions as each Lender, in the exercise of
its sole discretion, may deem appropriate at the time to evaluate such
request.
(b) Payment. Borrower must make each payment and prepayment on
the Obligation to Agent's principal office in New York, New York in
immediately available funds by 1:00 p.m. on the day due; otherwise, but
subject to SECTION 3.8, those funds continue to accrue interest as if
they were received on the next Business Day. Agent shall promptly pay to
each Lender the part of any payment or prepayment to which that Lender
is entitled under this agreement on the same day Agent receives the
funds from Borrower.
(c) Payment Assumed. Unless Agent has received notice from
Borrower prior to the date on which any payment is due under this
agreement that Borrower will not make that payment in full, Agent may
assume that Borrower has made the full payment due and Agent may, in
reliance upon that assumption, cause to be distributed to each Lender on
that date the amount then due to each Lender. If and to the extent
Borrower does not make the full payment due to Agent, each Lender shall
repay to Agent on demand the amount distributed to that Lender by Agent
together with interest for each day from the date that Lender received
payment from Agent until the date that Lender repays Agent (unless such
repayment is made on the same day as such distribution), at an interest
rate equal to the Federal-Funds Rate.
3.2 Interest and Principal Payments.
(a) Interest. Accrued interest on each LIBOR-Rate Borrowing is
due and payable on the last day of its respective Interest Period. If
any Interest Period for a LIBOR-Rate Borrowing is greater than three
months, then accrued interest is also due and payable on the date three
months after the commencement of the Interest Period. Accrued interest
on each Base-Rate Borrowing is due and payable on the last day of each
March, June, September, and December -- commencing on the first of those
dates that follows the Closing Date -- and on the Termination Date.
(b) Revolving Facility Principal. The Principal Debt under the
Revolving Facility is due and payable on the Termination Date. Before
that date, Borrower may at any time prepay, without penalty and in whole
or in part, the Principal Debt under the Revolving Facility SO LONG AS
(i) each voluntary partial prepayment must be in a principal amount not
less than $100,000 or a greater integral multiple of $100,000 and (ii)
Borrower shall pay any related Funding Loss upon demand. Conversions
under SECTION 3.10 are not prepayments.
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(c) Revolving Facility-Mandatory Prepayments. At any time a
Borrowing-Base Deficiency exists, Borrower shall make prepayments to
Agent (with any related Funding Loss) under the Revolving Facility so
that (i) such Borrowing Base Deficiency has been reduced by at least 50%
within 30 days after notice from Agent of the existence of such
Borrowing Base Deficiency, and (ii) such Borrowing-Base Deficiency no
longer exists by the sixtieth (60th) day after notice from the Agent of
the existence of such Borrowing Base Deficiency.
3.3 Interest Options. Except that the LIBOR Rate may not be
selected when a Default or Potential Default exists and except as otherwise
provided in this agreement, Borrowings bear interest at an annual rate equal to
the lesser of EITHER (a) the Base Rate plus the Applicable Margin or the LIBOR
Rate plus the Applicable Margin (in each case as designated or deemed designated
by Borrower), as the case may be, OR (b) the Maximum Rate. Each change in the
Base Rate and Maximum Rate is effective, without notice to Borrower or any other
Person, upon the effective date of change.
3.4 Quotation of Rates. Borrower may call Agent before delivering
a Borrowing Request to receive an indication of the interest rates then in
effect, but the indicated rates do not bind Agent or Lenders or affect the
interest rate that is actually in effect when Borrower makes a Borrowing request
or on the Borrowing Date.
3.5 Default Rate. If permitted by Law, all past-due Principal
Debt, Borrower's past-due payment and reimbursement obligations in connection
with LCs, and past-due interest accruing on any of the foregoing bears interest
from the date due (stated or by acceleration) at the Default Rate until paid,
regardless whether payment is made before or after entry of a judgment.
3.6 Interest Recapture. If the designated interest rate
applicable to any Borrowing exceeds the Maximum Rate, the interest rate on that
Borrowing is limited to the Maximum Rate, but any subsequent reductions in the
designated rate shall not reduce the interest rate thereon below the Maximum
Rate until the total amount of accrued interest equals the amount of interest
that would have accrued if that designated rate had always been in effect. If at
maturity (stated or by acceleration), or at final payment of the Notes, the
total interest paid or accrued is less than the interest that would have accrued
if the designated rates had always been in effect, then, at that time and to the
extent permitted by Law, Borrower shall pay an amount equal to the difference
between (a) the LESSER of the amount of interest that would have accrued if the
designated rates had always been in effect AND the amount of interest that would
have accrued if the Maximum Rate had always been in effect, and (b) the amount
of interest actually paid or accrued on the Notes.
3.7 Interest Calculations. Interest will be calculated on the
basis of actual number of days (including the first day but excluding the last
day) elapsed but computed as if each calendar year consisted of 360 days (unless
the calculation would result in an interest rate greater than the Maximum Rate
or in the case of interest on Base-Rate Borrowings in which event interest will
be calculated on the basis of a year of 365 or 366 days, as the case may be).
All interest rate determinations and calculations by Agent are conclusive and
binding absent manifest error.
3.8 Maximum Rate. Regardless of any provision contained in any
Loan Document, no Lender is entitled to contract for, charge, take, reserve,
receive, or apply, as interest on all or any part of the Obligation, any amount
in excess of the Maximum Rate, and, if Lenders ever do so, then any excess shall
be treated as a partial prepayment of principal and any remaining excess shall
be refunded to Borrower. In determining if the interest paid or payable exceeds
the Maximum Rate, Borrower and Lenders shall, to the maximum extent permitted
under applicable Law, (a) treat all Borrowings as but a single extension of
credit (and Lenders and Borrower agree that is the case and that provision in
this agreement for multiple Borrowings is for convenience only), (b)
characterize any
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nonprincipal payment as an expense, fee, or premium rather than as interest, (c)
exclude voluntary prepayments and their effects, and (d) amortize, prorate,
allocate, and spread the total amount of interest throughout the entire
contemplated term of the Obligation. However, if the Obligation are paid in full
before the end of their full contemplated term, and if the interest received for
its actual period of existence exceeds the Maximum Amount, Lenders shall refund
any excess (and Lenders may not, to the extent permitted by Law, be subject to
any penalties provided by any Laws for contracting for, charging, taking,
reserving, or receiving interest in excess of the Maximum Amount). If the Laws
of the State of Texas are applicable for purposes of determining the "MAXIMUM
RATE" or the "MAXIMUM AMOUNT," then those terms mean the "INDICATED RATE
CEILING" from time to time in effect under ARTICLE 5069-1.04, TITLE 79, REVISED
CIVIL STATUTES OF TEXAS, as amended. Borrower agrees that CHAPTER 15, SUBTITLE
79, REVISED CIVIL STATUTES OF TEXAS, 1925, as amended (which regulates certain
revolving credit loan accounts and revolving triparty accounts), does not apply
to the Obligation.
3.9 Interest Periods. When Borrower requests any LIBOR-Rate
Borrowing, Borrower may elect the applicable interest period (each an "INTEREST
PERIOD"), which may be, at Borrower's option, one, two, three, or six months for
LIBOR-Rate Borrowings, subject to SECTION 14.1 and the following conditions: (a)
the initial Interest Period for a LIBOR-Rate Borrowing commences on the
applicable Borrowing Date or conversion date, and each subsequent Interest
Period applicable to any Borrowing commences on the day when the next preceding
applicable Interest Period expires; (b) if any Interest Period for a LIBOR-Rate
Borrowing begins on a day for which no numerically corresponding Business Day in
the calendar month at the end of the Interest Period exists, then the Interest
Period ends on the last Business Day of that calendar month; (c) if Borrower is
required to pay any of a LIBOR-Rate Borrowing before the end of its Interest
Period in order to comply with the payment provisions of the Loan Documents,
Borrower shall also pay any related Funding Loss; and (d) no more than five
Interest Periods may be in effect at one time.
3.10 Conversions. Subject to the dollar limits of SECTION 2.1(B)
and provided that Borrower may not convert to or select a new Interest Period
for a LIBOR-Rate Borrowing at any time when a Default or Potential Default
exists, Borrower may (a) convert a LIBOR-Rate Borrowing on the last day of the
applicable Interest Period to a Base-Rate Borrowing, (b) convert a Base-Rate
Borrowing at any time to a LIBOR-Rate Borrowing, and (c) elect a new Interest
Period for a LIBOR-Rate Borrowing. That election may be made by telephonic
request to Agent no later than 10:00 a.m. on the third Business Day before the
conversion date or the last day of the Interest Period, as the case may be (for
conversion to a LIBOR-Rate Borrowing or election of a new Interest Period), and
no later than 10:00 a.m. on the last day of the Interest Period (for conversion
to a Base-Rate Borrowing). Borrower shall provide a Conversion Notice to Agent
no later than two days after the date of the conversion or election. Absent
Borrower's telephonic request for conversion or election of a new Interest
Period or if a Default or Potential Default exists, then, a LIBOR-Rate Borrowing
shall be deemed converted to a Base-Rate Borrowing effective when the applicable
Interest Period expires.
3.11 Order of Application.
(a) No Default. If no Default or Potential Default exists, any
payment shall be applied to the Obligation -- EXCEPT as otherwise
specifically provided in the Loan Documents -- in the order and manner
as Borrower directs.
(b) Default. If a Default or Potential Default exists or if
Borrower fails to give direction, any payment (including proceeds from the
exercise of any Rights) shall be applied in the following order: (i) To all fees
and expenses for which Agent or Lenders have not been paid or reimbursed in
accordance with the Loan Documents (and if such payment is less than all unpaid
or unreimbursed fees and expenses, then the payment shall be paid against unpaid
and unreimbursed fees and expenses in the order of incurrence or due date); (ii)
to accrued interest on the Principal Debt; (iii) to any LC reimbursement
obligations that are due and payable and that remain unfunded by any Borrowing
under the Revolving Facility; (iv) to the remaining Principal Debt in the order
as Determining Lenders may elect (but Determining Lenders agree to apply
proceeds in an order that will minimize any Funding Loss); (v) to the remaining
Obligation in the order and manner Determining Lenders deem appropriate; and
(vi) as a deposit with Agent, for the benefit of Lenders, as security for and
payment of any subsequent LC reimbursement obligations.
(c) Pro Rata. Each payment or prepayment shall be distributed to
each Lender in accordance with its Pro Rata Part of that payment or prepayment.
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3.12 Sharing of Payments, Etc. If any Lender obtains any payment or
prepayment with respect to the Obligation (whether voluntary, involuntary, or
otherwise, including, without limitation, as a result of exercising its Rights
under SECTION 3.13) that exceeds the part of that payment or prepayment that it
is then entitled to receive under the Loan Documents, then that Lender shall
purchase from the other Lenders participations that will cause the purchasing
Lender to share the excess payment or prepayment ratably with each other Lender.
If all or any portion of any excess payment or prepayment is subsequently
recovered from the purchasing Lender, then the purchase shall be rescinded and
the purchase price restored to the extent of the recovery. Borrower agrees that
any Lender purchasing a participation from another Lender under this section
may, to the fullest extent permitted by Law, exercise all of its Rights of
payment (including the Right of offset) with respect to that participation as
fully as if that Lender were the direct creditor of Borrower in the amount of
that participation.
3.13 Offset. If a Default exists, each Lender is entitled to exercise
(for the benefit of all Lenders in accordance with SECTION 3.12) the Rights of
offset and banker's Lien against each and every account and other property, or
any interest therein, that any Company may now or hereafter have with, or which
is now or hereafter in the possession of, that Lender to the extent of the full
amount of the Obligation owed (directly or participated) to it.
3.14 Booking Borrowings. To the extent permitted by Law, any Lender may
make, carry, or transfer its Borrowings at, to, or for the account of any of its
branch offices or the office or branch of any of its Affiliates. However, no
Affiliate or branch is entitled to receive any greater payment under SECTION
3.16 than the transferor Lender would have been entitled to receive with respect
to those Borrowings, and a transfer may not be made if, as a direct result of
it, SECTION 3.15 or 3.17 would apply to any of the Obligation. If any of the
conditions of SECTIONS 3.16 or 3.17 ever apply to a Lender, that Lender shall
carry or transfer its Borrowings at, to, or for the account of any of its branch
offices or the office or branch of any of its Affiliates SO LONG AS the transfer
is consistent with the other provisions of this section, does not create any
burden or adverse circumstance for that Lender that would not otherwise exist,
and eliminates the conditions of SECTIONS 3.16 or 3.17 as applicable.
3.15 Basis Unavailable or Inadequate for LIBOR Rate. If, on or before
any date when a LIBOR Rate is to be determined for a Borrowing, Agent reasonably
determines that the basis for determining the applicable rate is not available
or any Lender reasonably determines that the resulting rate does not accurately
reflect the cost to that Lender of making or converting Borrowings at that rate
for the applicable Interest Period, then Agent shall promptly notify Borrower
and Lenders of that determination (which is conclusive and binding on Borrower
absent manifest error) and the applicable Borrowing shall bear interest at the
SUM of the Base Rate PLUS the Applicable Margin. Until Agent notifies Borrower
that those circumstances no longer exist, Lenders' commitments under this
agreement to make, or to convert to, LIBOR-Rate Borrowings, as the case may be,
are suspended.
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3.16 Additional Costs. Each Lender severally and not jointly agrees to
notify Agent, the other Lenders, and Borrower within 180 days after it has
actual knowledge that any circumstances exist that would give rise to any
payment obligation by Borrower under CLAUSES (A) through (C) below. Although no
Lender shall have any liability to Agent, any other Lender, or any Company for
its failure to give that notice, Borrower is not obligated to pay any amounts
under those clauses that arise, accrue, or are imposed more than 180 days before
that notice to the extent it is applicable to those amounts. Any Lender
demanding payment of any additional costs under this section must generally be
making similar demand for similar additional costs under credit agreements to
which it is party that contain similar provisions to this section.
(a) Reserves. With respect to any or LIBOR-Rate Borrowing (i) if
any present or future Law imposes, modifies, or deems applicable (or if
compliance by any Lender with any requirement of any Tribunal results
in) any requirement that any reserves (including, without limitation,
any marginal, emergency, supplemental, or special reserves) be
maintained (OTHER THAN any reserve included in the Reserve Requirement),
and if (ii) those reserves reduce any sums receivable by that Lender
under this agreement or increase the costs incurred by that Lender in
advancing or maintaining any portion of any LIBOR-Rate Borrowing, then
(iii) that Lender (through Agent) shall deliver to Borrower a
certificate setting forth in reasonable detail the calculation of the
amount necessary to compensate it for its reduction or increase (which
certificate is conclusive and binding absent manifest error), and (iv)
Borrower shall pay that amount to that Lender within five Business Days
after demand. The provisions of and undertakings and indemnification in
this CLAUSE (A) survive the satisfaction and payment of the Obligation
and termination of this agreement.
(b) Capital Adequacy. With respect to any Commitment, Borrowing
or LC if any present or future Law regarding capital adequacy or
compliance by Agent (as issuer of LCs) or any Lender with any request,
directive, or requirement now existing or hereafter imposed by any
Tribunal regarding capital adequacy, or any change in its written
policies or in the risk category of this transaction, reduces the rate
of return on its capital as a consequence of its obligations under this
agreement to a level below that which it otherwise could have achieved
(taking into consideration its policies with respect to capital
adequacy) by an amount deemed by it to be material (and it may, in
determining the amount, utilize reasonable assumptions and allocations
of costs and expenses and use any reasonable averaging or attribution
method in apportioning such costs to its customers generally), then
(unless the effect is already reflected in the rate of interest then
applicable under this agreement) Agent or that Lender (through Agent)
shall notify Borrower and deliver to Borrower a certificate setting
forth in reasonable detail the calculation of the amount necessary to
compensate it (which certificate is conclusive and binding absent
manifest error), and Borrower shall pay that amount to Agent or that
Lender within five Business Days after demand. The provisions of and
undertakings and indemnification in this CLAUSE (B) shall survive the
satisfaction and payment of the Obligation and termination of this
agreement.
(c) Taxes. Subject to SECTION 3.19, any Taxes payable by Agent or
any Lender or ruled (by a Tribunal) payable by Agent or any Lender in
respect of this agreement or any other Loan Document shall, if permitted
by Law, be paid by Borrower, together with interest and penalties, if
any EXCEPT for Taxes payable on or measured by the overall net income of
Agent or that Lender (or Agent or that Lender, as the case may be,
TOGETHER WITH any other Person with whom Agent or that Lender files a
consolidated, combined, unitary, or similar Tax return) and except for
interest and penalties incurred as a result of the gross negligence or
willful misconduct of Agent or any Lender). Agent or that Lender
(through Agent) shall notify Borrower and deliver to Borrower a
certificate setting forth in reasonable detail the calculation of the
amount of payable Taxes, which certificate is conclusive and binding
(absent manifest error), and Borrower shall pay that amount to Agent for
its account or the account of that Lender, as the case may be within
five Business Days after demand. If Agent or that Lender subsequently
receives a refund of the Taxes paid to it by Borrower, then the
recipient shall promptly pay the refund to Borrower.
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3.17 Change in Laws. If any Law makes it unlawful for any Lender to make
or maintain LIBOR-Rate Borrowings, then that Lender shall promptly notify
Borrower and Agent, and (a) as to undisbursed funds, that requested Borrowing
shall be made as a Base-Rate Borrowing, and (b) as to any outstanding Borrowing
(i) if maintaining the Borrowing until the last day of the applicable Interest
Period is unlawful, the Borrowing shall be converted to a Base-Rate Borrowing as
of the date of notice, in which event Borrower will not be required to pay any
related Funding Loss, or (ii) if not prohibited by Law, the Borrowing shall be
converted to a Base-Rate Borrowing as of the last day of the applicable Interest
Period, or (iii) if any conversion will not resolve the unlawfulness, Borrower
shall promptly prepay the Borrowing, without penalty but with related Funding
Loss.
3.18 FUNDING LOSS. BORROWER SHALL INDEMNIFY EACH LENDER AGAINST, AND PAY
TO IT UPON DEMAND, ANY FUNDING LOSS OF THAT LENDER. WHEN ANY LENDER DEMANDS THAT
BORROWER PAY ANY FUNDING LOSS, THAT LENDER SHALL DELIVER TO BORROWER AND AGENT A
CERTIFICATE SETTING FORTH IN REASONABLE DETAIL THE BASIS FOR IMPOSING FUNDING
LOSS AND THE CALCULATION OF THE AMOUNT, WHICH CALCULATION IS CONCLUSIVE AND
BINDING ABSENT MANIFEST ERROR. THE PROVISIONS OF AND UNDERTAKINGS AND
INDEMNIFICATION IN THIS SECTION SURVIVE THE SATISFACTION AND PAYMENT OF THE
OBLIGATION AND TERMINATION OF THIS AGREEMENT.
3.19 Foreign Lenders, Participants, and Assignees. Each Lender,
Participant (by accepting a participation interest under this agreement), and
Assignee (by executing an Assignment) that is not organized under the Laws of
the United States of America or one of its states (a) represents to Agent and
Borrower that (i) no Taxes are required to be withheld by Agent or Borrower with
respect to any payments to be made to it in respect of the Obligation and (ii)
it has furnished to Agent and Borrower two duly completed copies of either U.S.
Internal Revenue Service FORM 4224, FORM 1001, FORM W-8, or any other form
acceptable to Agent and Borrower that entitles it to a complete exemption from
U.S. federal withholding Tax on all interest payments under the Loan Documents,
and (b) covenants to (i) provide Agent and Borrower a new FORM 4224, FORM 1001,
FORM W-8, or other form acceptable to Agent upon the expiration or obsolescence
according to Law of any previously delivered form, duly executed and completed
by it, entitling it to a complete exemption from U.S. federal withholding Tax on
all interest and fee payments under the Loan Documents, and (ii) comply from
time to time with all Laws with regard to the withholding Tax exemption. If any
of the foregoing is not true at any time or the applicable forms are not
provided, then Borrower and Agent (without duplication) may deduct and withhold
from interest and fee payments under the Loan Documents any Tax at the maximum
rate under the Code or other applicable Law, and amounts so deducted and
withheld shall be treated as paid to that Lender for all purposes under the Loan
Documents.
SECTION 4. FEES.
4.1 Treatment of Fees. The fees described in this SECTION 4 (a) are not
compensation for the use, detention, or forbearance of money, (b) are in
addition to, and not in lieu of, interest and expenses otherwise described in
this agreement, (c) are payable in accordance with SECTION 3.1, (d) are
non-refundable, and (e) to the fullest extent permitted by Law, bear interest,
if not paid when due, at the Default Rate.
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4.2 Fees to Agent and Affiliates. Borrower shall pay to Agent, and its
Affiliates as Agent may designate, the arrangement/structuring fee and borrowing
base fees described in the letter agreement (as it may be renewed, extended, or
modified) of even date herewith between Borrower and Agent. Those fees are
solely for the account of Agent and its Affiliates EXCEPT to the extent that
Agent may unilaterally agree in writing with any Lender in respect of the
sharing of such fees.
4.3 LC Fees. As an inducement for the issuance (including, without
limitation, the extension) of each LC, Borrower agrees to pay to the Issuing
Lender:
(a) For the account of each Lender according to each Lender's
Commitment Percentage on the day the fee is payable for a standby LC, an
issuance fee equal to the greater of (i) $300.00 or (ii) 1.875% per
annum, payable quarterly in arrears, of the average-face amount of that
LC during each applicable quarterly period.
(b) For the account of the Issuing Lender a fronting fee of
0.125% per annum of the face amount of the LC , payable on the date of
issuance.
4.4 Commitment Fee. From and after the Closing Date, Borrower shall pay
to Agent a commitment fee for Lenders according to each Lender's Commitment
Percentage. The fee is payable as it accrues on the last day of each March,
June, September, and December -- commencing on the first of those dates that
follows the date of this agreement -- and on the Termination Date. Each payment
of the fee is equal to the following, determined for the calendar quarter (or
portion of a calendar quarter commencing on the date of this agreement or ending
on the Termination Date) preceding and including the date it is due: From the
Closing Date until the Termination Date, the PRODUCT of (i) the Applicable
Percentage TIMES (ii) the amount by which (x) the lesser of the Borrowing Base
or the total Commitments exceeds (y) the SUM of the average-daily Principal Debt
under the Notes PLUS the average-daily LC Exposure, TIMES (iii) a fraction with
the number of days in the applicable quarter or portion of it as the numerator
and 360 as the denominator.
SECTION 5. SECURITY.
5.1 Guaranty. Borrower shall cause all of its present and future
Subsidiaries -- whether now existing or in the future formed or acquired as
permitted by the Loan Documents -- that are Restricted Companies and who own
Mineral Interests which are included in the determination of the Borrowing Base
to unconditionally guarantee the full payment and performance of the Obligation
by execution of a written guaranty agreement in form and substance satisfactory
to Agent.
5.2 Collateral. Borrower shall cause full payment and performance of the
Obligation to be secured by Lender Liens on all of the items and types of
property -- (TOGETHER WITH the additional collateral described in SECTIONS
2.3(G) and 5.3, if any, and the cash and non-cash proceeds of all of the
foregoing, the "COLLATERAL") -- described in the present and future Loan
Documents creating Lender Liens, including, without limitation:
(a) all of the Mineral Interests described in Exhibit B attached
hereto and the oil, gas and mineral production therefrom or attributable
thereto, and in all operating agreements and oil or gas purchase contracts (now
existing or hereafter arising) relating to the Mineral Interests and in related
personal properties, fixtures and other properties, pursuant to mortgages, deeds
of trust, assignments of production, security agreements, financing statements
and other documents satisfactory to Agent (said documents and any documents and
instruments from time to time amending or supplementing the same are herein
sometimes collectively called the "COLLATERAL DOCUMENTS"); and
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(b) all of the present and future issued and outstanding capital
stock or other equity securities issued by all of its present and future
Subsidiaries who are required to guarantee the payment and performance of the
Obligation pursuant to SECTION 5.1.
5.3 Collateral Account. In order to secure further the performance by
Borrower of the Obligation and to effect and facilitate Agent's right of offset,
immediately following Agent's request, Borrower shall execute such forms,
authorizations, documents and instruments, and do such other things, as Agent
shall request, in order to require that pipeline companies, operators of the
Mortgaged Properties and others (collectively, the "Purchasers") purchasing (or
acting as agents for, or making payments on behalf of, those purchasing) the
oil, gas and other minerals produced or to be produced from, or relating to, the
Mineral Interests deliver to a post office box number specified by Agent all
royalties, production payments, checks, cash, proceeds and monies now or
hereafter payable by the Purchasers (or any of them) on account of oil, gas or
other minerals produced from or relating to the Mineral Interests or otherwise
with respect to the Mineral Interests. Borrower agrees that all such royalties,
payments and monies delivered to such post office box shall be deposited by
Agent in a cash collateral account at Agent styled "Fortune Natural Resources
Corporation Production Account." After the occurrence of an Event of Default,
Borrower shall, upon receipt, deposit in the Fortune Natural Resources
Corporation Production Account all such royalties, payments and monies which
Borrower receives directly from the Purchasers. Borrower hereby irrevocably
authorizes and directs Agent to charge from time to time after the occurrence of
an Event of Default, the Fortune Natural Resources Corporation Production
Account and any other accounts of Borrower at Agent or any Lender for amounts
due to the Lenders hereunder and under the Notes. After the occurrence of an
Event of Default, Agent is hereby authorized, in its own name or the name of the
Borrower, to notify any or all parties obligated to Borrower with respect to the
Mineral Interests to make all payments due or to become due thereon directly to
the Agent, or such other person or officer as Agent may require whereupon the
power and authority of the Borrower to collect the same in the ordinary course
of its business shall be deemed to be immediately revoked and terminated. With
or without such general notification, after the occurrence of an Event of
Default, Agent may take or bring in Borrower's name or that of the Agent all
steps, actions, suits or proceedings deemed by the Agent necessary or desirable
to effect possession or collection of payments, may complete any contract or
agreement of the Borrower in any way related to any of the Mineral Interests,
may make allowances or adjustments related to the Mineral Interests, may
compromise any claims related to the Mineral Interests or may issue credit in
its own name or the name of the Borrower. Regardless of any provision hereof,
however, Agent shall never be liable for its failure to collect or for its
failure to exercise diligence in the collection, possession, or any transaction
concerning, all or part of the Mineral Interests or sums due or paid thereon,
nor shall it or they be under any obligation whatsoever to anyone by virtue of
its security interests and liens relating to the Mortgaged Properties.
The Agent is hereby authorized and empowered on behalf of the Borrower
to endorse the name of the Borrower upon any check, draft, instrument, receipt,
instruction or other document or items, including, but not limited to, all items
evidencing payment upon any indebtedness of any Person to the Borrower coming
into the Agent's possession, and to receive and apply the proceeds therefrom in
accordance with the terms hereof. The Agent is hereby granted an irrevocable
power of attorney, which is coupled with an interest, to execute all checks,
drafts, receipts, instruments, instructions or other documents, agreements or
items on behalf of the Borrower, either before or after demand of payment on the
Notes, as shall be deemed by the Agent to be necessary or advisable, in the sole
discretion of the Agent, to protect its security interests and liens in the
Mineral Interests or the repayment of the Obligation, and the Agent shall not
incur any liability in connection with or arising from its exercise of such
power of attorney.
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Borrower acknowledges that all funds so transferred into the Fortune
Natural Resources Corporation Production Account shall be the property Borrower
only and not subject to any claim by any party other than Agent, for the benefit
of the Lenders.
5.4 Further Assurances. Borrower covenants and agrees that the Lender
Liens otherwise described in SECTION 5.2 and, when required, SECTION 2.3(G) and
5.3 must be created and perfected as a condition to funding any Borrowings or
the issuance of any LC. Furthermore, Borrower shall -- and shall cause each
other appropriate Company to -- perform the acts, duly authorize, execute,
acknowledge, deliver, file, and record any additional writings, and pay all
filings fees and costs as Agent or Determining Lenders may reasonably deem
appropriate or necessary to perfect and maintain the Lender Liens and preserve
and protect the Rights of Agent and Lenders under any Loan Document.
5.5 Release of Collateral.
(a) Whenever no Lender has any commitment to extend credit under
any Loan Document and the Obligation has been fully paid and performed,
Agent shall, upon Borrower's written request and at Borrower's cost and
expense, cause the Lender Liens on all Collateral to be released.
(b) In connection with any sale or other disposition of assets
permitted by SECTION 9.10, Agent shall, upon Borrower's request and at
Borrower's cost and expenses, release the Lender Liens on the assets
sold or disposed of.
SECTION 6. CONDITIONS PRECEDENT. No Lender is obligated to fund the initial
Borrowing or issue any LC unless Agent has received all of the items described
in PART A on SCHEDULE 6. In addition, no Lender is obligated to fund (as opposed
to continue or convert) any Borrowing or issue any LC unless on the applicable
Borrowing Date, or issue date (and after giving effect to the requested
Borrowing or LC), as the case may be: (a) Agent (and the Issuing Lender, if
applicable) timely receives a Borrowing Request or LC Request (together with the
applicable LC Agreement), as the case may be; (b) the Issuing Lender receives
any applicable LC fee then due and payable; (c) all of the representations and
warranties of the Companies in the Loan Documents are true and correct in all
material respects (unless they speak to a specific date or are based on facts
which have changed by transactions contemplated or expressly permitted by this
agreement); (d) no Material Adverse Event, Default, or Potential Default exists;
(e) no Borrowing-Base Deficiency will exist after giving effect to the Borrowing
or LC issuance; and (f) no limitation in SECTION 2.1 OR 2.3 is exceeded. Each
Borrowing Request and LC Request, however delivered, constitutes Borrower's
representation and warranty that the conditions in CLAUSES (C) through (F) above
are satisfied. Upon Agent's or any Lender's reasonable request, Borrower shall
deliver to Agent or such Lender evidence substantiating any of the matters in
the Loan Documents that are necessary to enable Borrower to qualify for the
Borrowing or LC, as the case may be. Each condition precedent in this agreement
(including, without limitation, those on SCHEDULE 6) is material to the
transactions contemplated by this agreement, and time is of the essence with
respect to each condition precedent.
SECTION 7. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to
Agent and Lenders as follows:
7.1 Purpose and Regulation U.
(a) Borrower will use LCs for general corporate purposes and the
proceeds of the Revolving Facility for (i) refinancing the Existing
Indebtedness, and (ii) the Restricted Companies' working capital and
general corporate purposes.
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(b) No Company is engaged principally, or as one of its
important activities, in the business of extending credit for the
purpose of purchasing or carrying any "MARGIN STOCK" within the meaning
of REGULATION U of the Board of Governors of the Federal Reserve System,
as amended. No part of the proceeds of any LC draft or drawing or
Borrowing will be used, directly or indirectly, for a purpose that
violates any Law, including, without limitation, REGULATION U.
7.2 Corporate Existence, Good Standing, and Authority. Each Restricted
Company is duly organized, validly existing, and in good standing under the Laws
of its jurisdiction of incorporation. Except where not a Material Adverse Event,
each Restricted Company is duly qualified to transact business and is in good
standing as a foreign corporation in each jurisdiction where the nature and
extent of its business and properties require due qualification and good
standing (each of which jurisdictions is identified on SCHEDULE 6). Each
Restricted Company possesses all requisite authority and power to conduct its
business as is now being conducted and as proposed under the Loan Documents to
be conducted and to own and operate its assets as now owned and operated and as
proposed to be owned and operated under the Loan Documents.
7.3 Subsidiaries and Names. SCHEDULE 7.3 -- as supplemented from time to
time by written notice from Borrower to Agent and Lenders specifically referring
to that schedule and this section and reflecting changes to that schedule as a
result of transactions permitted by the Loan Documents -- describes (a) all of
Borrower's direct and indirect Subsidiaries, (b) all Restricted Companies, (c)
every name or trade name used by each Restricted Company during the five-year
period before the date of this agreement, and (d) every change of each
Subsidiary's name during the four-month period before the date of this
agreement. All of the outstanding shares of capital stock (or similar voting
interests) of Borrower's Subsidiaries are (a) duly authorized, validly issued,
fully paid, and nonassessable, (b) owned of record and beneficially as described
in that schedule or those writings, free and clear of any Liens, EXCEPT
Permitted Liens, and (c) not subject to any warrant, option, or other
acquisition Right of any Person or subject to any transfer restriction EXCEPT
restrictions imposed by securities Laws and general corporate Laws.
7.4 Authorization and Contravention. The execution and delivery by each
Restricted Company of each Loan Document to which it is a party and the
performance by it of its obligations under those Loan Documents (a) are within
its corporate power, (b) have been duly authorized by all necessary corporate
action, (c) require no action by or filing with any Tribunal (EXCEPT any action
or filing that has been taken or made on or before the Closing Date), (d) do not
violate any provision of its charter or bylaws, and (e) do not violate any
provision of Law applicable to it or any material agreement to which it is a
party EXCEPT violations that individually or collectively are not a Material
Adverse Event.
7.5 Binding Effect. Upon execution and delivery by all parties to it,
each Loan Document will constitute a legal and binding obligation of each
Restricted Company party to it, enforceable against it in accordance with that
Loan Document's terms EXCEPT as that enforceability may be limited by Debtor
Laws and general principles of equity.
7.6 Financials and Existing Debt. The Current Financials were prepared
in accordance with GAAP and present fairly, in all material respects, the
Companies' consolidated financial condition, results of operations, and cash
flows as of, and for the portion of the fiscal year ending on their dates
(subject only to normal year-end adjustments for interim statements). All
material liabilities of the Companies as of those dates are reflected in those
Current Financials or in the notes to them or have otherwise been disclosed to
Lenders in writing. Except for transactions directly related to, specifically
contemplated by, or expressly permitted by the Loan Documents (a) no material
adverse changes have occurred in the Companies' consolidated financial condition
from that shown in the Current Financials, and (b) no Company has incurred any
material liability EXCEPT Debt that is not prohibited by the Loan Documents.
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7.7 Budget. Although Borrower cannot assure Agent or Lenders that the
Budget will be achieved, the Budget is based upon reasonable assumptions, which
are consistent with each other and with all facts then known to Borrower and
which includes all other material assumptions necessary in order for the Budget
to not be misleading in any material respect.
7.8 Solvency. On each Borrowing Date and the date any LC is issued, each
Restricted Company is -- and after giving effect to the requested Borrowing or
LC will be -- Solvent.
7.9 Litigation. Except as disclosed on SCHEDULE 7.9 and matters covered
(subject to reasonable and customary deductible and retention) by insurance or
indemnification agreements (a) no Restricted Company is subject to, or aware of
the threat of, any Litigation that is reasonably likely to be determined
adversely to any Restricted Company and, if so adversely determined, is a
Material Adverse Event, and (b) no outstanding and unpaid judgments against any
Restricted Company exist.
7.10 Taxes. EXCEPT where not a Material Adverse Event (a) all Tax
returns of each Restricted Company required to be filed have been filed (or
extensions have been granted) before delinquency, and (b) all Taxes imposed upon
each Restricted Company that are due and payable have been paid before
delinquency except as being contested as permitted by SECTION 8.5.
7.11 Environmental Matters. EXCEPT as disclosed on SCHEDULE 7.11:
(a) No consent or other approval of -- or declaration or other
filing with -- any Tribunal is required under any Environmental Law in
connection with any transaction contemplated by the Loan Documents.
(b) EXCEPT where adequately covered by an Environmental Indemnity
Agreement or where not a Material Adverse Event, none of the following
are present at any Real Property (including, without limitation, the
Leases and the Mineral Interests) of any Restricted Company in violation
of any Environmental Law: (i) Any asbestos or asbestos-containing
material; (ii) any underground or aboveground storage tank or tank
system subject to regulation under any Environmental Law; or (iii) any
electrical or other fixtures or equipment containing polychlorinated
biphenyls.
(c) EXCEPT where adequately covered by an Environmental Indemnity
Agreement or where not a Material Adverse Event, no unreported Release
of any Hazardous Substance has occurred at or in the vicinity to any
Real Property (including, without limitation, the Leases and the Mineral
Interests) (i) in a quantity that requires any report or other notice to
any Tribunal under any Environmental Law or (ii) that has resulted or
that threatens to result in the presence of any Hazardous Substance in
the environment in a quantity, concentration, state, or other condition
that exceeds any applicable standard for the protection of human health
or the environment under any Environmental Law.
(d) EXCEPT where not a Material Adverse Event, no Real Property
(including, without limitation, the Leases and the Mineral Interests)
has been used for the storage (other than short-term storage not
requiring an Environmental Permit), treatment, or disposal of any
Hazardous Substance in any amounts that are reasonably likely to result
in any Environmental Liabilities or violation of any Environmental Law
while owned or operated by any Company or any Predecessor.
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(e) EXCEPT where adequately covered by an Environmental
Indemnity Agreement or where not a Material Adverse Event, no Restricted
Company or Predecessor is -- or has received any notice from any
Tribunal during the last five years that it is -- potentially liable for
any removal, remediation, or other response costs under any
Environmental Law as the result of the Release or threatened Release of
any Hazardous Substance.
(f) No Company knows of any material error or omission in any
Environmental Report delivered to Agent or any Lender.
7.12 Employee Plans. EXCEPT where not a Material Adverse Event (a) no
Employee Plan has incurred an "ACCUMULATED FUNDING DEFICIENCY" (as defined in
SECTION 302 of ERISA or SECTION 412 of the Code), (b) no Company has incurred
liability -- EXCEPT for liabilities for premiums that have been paid or that are
not past due -- under ERISA to the PBGC in connection with any Employee Plan,
(c) no Company has withdrawn in whole or in part from participation in a
Multiemployer Plan, (d) no Company has engaged in any "PROHIBITED TRANSACTION"
(as defined in SECTION 406 of ERISA or SECTION 4975 of the Code), (e) no
"REPORTABLE EVENT" (AS DEFINED IN SECTION 4043 of ERISA) has occurred, excluding
events for which the notice requirement is waived under applicable PBGC
regulations, (f) no Company or Affiliate of any Company has any liability under
or is subject to any Lien under ERISA or the Code to or on account of any
employee benefit plan, program, scheme, or arrangement established or maintained
by any Company or Affiliate of any Company or to which any Company or any
Affiliate of any Company contributes or had an obligation to contribute, (g)
each Employee Plan complies in all material respects, both in form and
operation, with ERISA and the Code, and (h) no Multiemployer Plan is in
reorganization within the meaning of Section 418 of the Code.
7.13 Properties; Liens. Each Restricted Company has indefeasible title
to the Mortgaged Properties and all of its other property reflected on the
Current Financials as being owned by it EXCEPT for property that is obsolete or
that has been disposed of in the ordinary course of business between the date of
the Current Financials and the date of this agreement or, with respect to its
property (other than the Mortgaged Properties), failure of such Restricted
Company to have such title would not constitute a Material Adverse Event, or,
after the date of this agreement, as permitted by SECTION 9.10 or SECTION 9.11.
No Lien exists on any property (including, without limitation, the Mortgaged
Properties) of any Company EXCEPT Permitted Liens. No Restricted Company is
party or subject to any agreement, instrument, or order which in any way
restricts any Restricted Company's ability to allow Liens to exist upon any of
its assets EXCEPT relating to Permitted Liens. The provisions of each Collateral
Document are effective to create in favor of the Agent for the ratable benefit
of the Lenders, a legal, valid and enforceable Lender Lien in all right, title
and interest of the Borrower in the Collateral described therein, which Lender
Liens shall constitute fully perfected first-priority Liens on all right, title
and interest of the Borrower in the Collateral described therein, subject only
to Permitted Liens. No orders of, proceedings pending before, or other
requirements of, the Federal Energy Regulatory Commission or any other Tribunal
exist which could result in the Borrower being required to refund any material
portion of the proceeds received or to be received from the sale of hydrocarbons
constituting part of the Mortgaged Properties. The Borrower (a) is not obligated
in any material respect by virtue of any prepayment made under any contract
containing a "take-or-pay" or "prepayment" provision or under any similar
agreement to deliver hydrocarbons produced from or allocated to any of the
Mortgaged Properties at some future date without receiving full payment therefor
at the time of delivery, and (b) has not produced gas, in any material amount,
subject to, and is, nor is any of the Mortgaged Properties, subject to balancing
rights of third parties or subject to balancing duties under governmental
requirements, except as to such matters for which the Borrower has established
monetary reserves adequate in an amount to satisfy such obligations and has
segregated such reserves from other accounts.
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7.14 Government Regulations. No Restricted Company is subject to
regulation under the INVESTMENT COMPANY ACT OF 1940, as amended, or the PUBLIC
UTILITY HOLDING COMPANY ACT OF 1935, as amended.
7.15 Transactions with Affiliates. EXCEPT for transactions with other
Restricted Companies and as otherwise disclosed on SCHEDULE 7.15, no Restricted
Company is a party to a material transaction with any of its Affiliates EXCEPT
transactions in the ordinary course of business and upon fair and reasonable
terms not materially less favorable than it could obtain or could become
entitled to in an arm's-length transaction with a Person that was not its
Affiliate.
7.16 Debt. No Restricted Company has any Debt EXCEPT Permitted Debt.
7.17 Leases. EXCEPT where not a Material Adverse Event (a) each
Restricted Company enjoys peaceful and undisturbed possession of all leases
necessary for the operation of its properties and assets, none of which contains
any unusual or burdensome provisions which might materially affect or impair the
operation of those properties and assets, and (b) all material leases under
which any Restricted Company is a lessee are in full force and effect, and no
default -- or event that, with notice, time lapse, or both, would become a
default -- exists. The leases which underlie or constitute part of the Mineral
Interests (the "Leases") are in full force and effect, and neither Borrower nor
any other person has defaulted on any of its obligations thereunder so as to
impair the value of such Leases.
7.18 Labor Matters. EXCEPT where not a Material Adverse Event (a) no
actual or threatened strikes, labor disputes, slow downs, walkouts, work
stoppages, or other concerted interruptions of operations that involve any
employees employed at any time in connection with the business activities or
operations at the Real Property exist, (b) hours worked by and payment made to
the employees of any Restricted Company or any Predecessor have not been in
violation of the FAIR LABOR STANDARDS ACT or any other applicable Laws
pertaining to labor matters, (c) all payments due from any Restricted Company
for employee health and welfare insurance, including, without limitation,
workers compensation insurance, have been paid or accrued as a liability on its
books, (d) the business activities and operations of each Company are in
compliance with OSHA and other applicable health and safety Laws.
7.19 Intellectual Property. EXCEPT where not a Material Adverse Event
(a) each Restricted Company owns or has the right to use all material licenses,
patents, patent applications, copyrights, service marks, trademarks, trademark
applications and trade names necessary to continue to conduct its businesses as
presently conducted by it and proposed to be conducted by it immediately after
the date of this agreement, (b) each Restricted Company is conducting its
business without infringement or claim of infringement of any license, patent,
copyright, service mark, trademark, trade name, trade secret or other
intellectual property right of others, and (c) no infringement or claim of
infringement by others of any material license, patent, copyright, service mark,
trademark, trade name, trade secret or other intellectual property of any
Restricted Company exists.
7.20 Full Disclosure. Each fact or condition relating to the Loan
Documents or any Restricted Company's financial condition, business, or property
that is a Material Adverse Event has been disclosed in writing to Agent. All
information previously furnished to Agent by or at the direction of a
Responsible Officer or the General Counsel of or the attorneys for Borrower in
connection with the Loan Documents was -- and all information furnished to Agent
in the future by or at the direction of a Responsible Officer or the General
Counsel of or the attorneys for Borrower will be -- true and accurate in all
material respects or based on reasonable estimates on the date the information
is stated or certified.
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7.21 Estimated Oil and Gas Reserves. Borrower has heretofore delivered
to Agent copies of all requested reports (prepared by independent consulting
engineers), which have been obtained by Borrower and concern the estimated oil
and gas reserves and future net revenues attributable to the Mineral Interests.
The statements of fact contained in said reports with respect to the character
and ownership of the Mineral Interests (including, without limitation, the
revenue interest and working interest of Borrower stated therein) and the other
factual data furnished by Borrower as a basis for the estimates set forth
therein are true and correct and do not omit any material fact necessary to make
said statements not misleading.
7.22 Working Interest. Borrower owns a "working interest" in each of the
Mortgaged Properties described in Exhibit B which is not greater than the
interest specified in the description of such property in Exhibit B, with the
term "working interest", as used herein, meaning the right to explore for, drill
and produce oil, gas or other minerals, whether such right is created by lease
or otherwise, and being equivalent to the proportionate part of the cost of
exploration, development and marketing of oil, gas and other minerals borne by
Borrower with respect to each respective property.
7.23 Net Revenue Interest. Borrower owns a "net revenue interest" in
each of the Mortgaged Properties described on Exhibit B which is not less than
the interest specified in the description of such property on Exhibit B, with
the term "net revenue interest", as used herein, meaning the proportionate share
of the production of oil, gas or other minerals to which Borrower is entitled
after deduction of all royalties, overriding royalties and other interests
payable from or measured by production.
7.24 Burdensome Contracts. Borrower is not a party to, or bound by, nor
are any of the Mineral Interests or other Mortgaged Properties subject to, any
contract which could reasonably result in a Material Adverse Event.
7.25 Regulatory Defects. As of the date hereof, Borrower has advised
Agent, in writing, of all regulatory defects of which Borrower has been advised
or has actual knowledge with respect to the ownership or operation of the
Mortgaged Properties. No such regulatory results in a Material Adverse Event or
affects Borrower's intended operation of any of the Mineral Interests or the
value of the sale of production therefrom.
7.26 Agreements Affecting Mineral Interests. Borrower has advised Agent
of, and delivered (to the extent requested by Agent) true and correct copies to
Agent of, all material operating agreements, pooling or unitization agreements,
sales or processing contracts, restrictions, preferential purchase right
agreements, farm-out, drilling and/or development agreements, pipeline
transportation agreements, gas purchase or other marketing agreements, Swap
Agreements and other material agreements which pertain to the Mineral Interests,
the operation thereof or the disposition of production attributable thereto.
7.27 Locations of Business, Offices. The principal place of business and
chief executive office of the Borrower is located at the address of the
Borrower, set forth next to its name on the signature pages hereof or at such
other location as the Borrower may have, by proper written notice hereunder,
advised the Agent and the Lenders, provided that such other location of the
Borrower is within a state in which appropriate financing statements from the
Borrower in favor of the Agent have been filed.
SECTION 8. AFFIRMATIVE COVENANTS. For so long as any Lender is committed to lend
or issue LCs under this agreement and until the Obligation has been fully paid
and performed, Borrower covenants and agrees with Agent and Lenders that,
without first obtaining Agent's written notice of Determining Lenders' consent
to the contrary:
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8.1 Certain Items Furnished. Borrower shall furnish the following to each
Lender:
(a) Annual Financials, Etc. Promptly after preparation but no
later than 90 days after the last day of each fiscal year of Borrower
Financials showing the Companies' consolidated financial condition and
results of operations as of, and for the year ended on, that last day,
accompanied by (i) the opinion, without material qualification, of
KPMG-Peat Marwick, L.L.P. or other firm of nationally-recognized
independent certified public accountants reasonably acceptable to
Determining Lenders, based on an audit using generally accepted auditing
standards, that the consolidated portion of those Financials were
prepared in accordance with GAAP and present fairly, in all material
respects, the Companies' consolidated financial condition and results of
operations, and (ii) a Compliance Certificate.
(b) Quarterly Financials, Etc. Promptly after preparation but no
later than 45 days after the last day of each of the first three fiscal
quarters of Borrower each year, Financials showing the Companies'
consolidated financial condition and results of operations for that
fiscal quarter and for the period from the beginning of the current
fiscal year to the last day of that fiscal quarter, accompanied by (i) a
Compliance Certificate.
(c) Reserve Report(s).
(1) The Borrower shall deliver to the Agent and each
Lender no later than March 31 of each year during the term of this
agreement, engineering reports in form and substance acceptable to the
Lenders prepared and certified by Huddleston & Company, Inc. or such
other nationally-recognized or regionally-recognized independent
consulting petroleum engineers acceptable to the Lenders setting forth
(i) the proven producing, non-producing and undeveloped oil and gas
reserves (separately classified as such) attributable to the Mortgaged
Properties as of December 31 of the year for which such reserve reports
are furnished, (ii) the aggregate present value determined on the basis
of stated pricing assumptions, of the future net income with respect to
such Mortgaged Properties, discounted at a stated per annum discount
rate, (iii) projections of the annual rate of production, gross income
and net income with respect to such reserves, and (iv) information with
respect to any "take or pay," "prepayment" and gas balancing liabilities
of the Borrower.
(2) The Borrower shall deliver to the Agent and each
Lender no later than September 30 of each year during the term of this
Agreement, a supplement to the most recent year-end Reserve Report,
satisfactory to the Agent, prepared by or under the supervision of the
chief petroleum engineer of the Borrower and containing an update of the
information described in Subsection 8.1(c)(1)(i)-(iv) to reflect changes
from the most recent year-end Reserve Report delivered pursuant to
Subsection 8.1(c)(1).
(3) Each of the reports provided pursuant to this Section
shall be submitted to the Agent and each Lender together a certificate
of a Responsible Officer certifying that such report is true and correct
in all material respects and stating the value of the Mortgaged
Properties as a percentage of all Mineral Interests based on the
information contained therein, and with additional data as the Agent or
any Lender may reasonably request concerning pricing, quantities of
production from the Mortgaged Properties, purchasers of production and
engineering and geological data.
(d) Production Information. Within 45 days after the last day of
each month hereafter, commencing with the month ending June 30, 1997, a
production and operations report in the form of Exhibit C hereto or such
other form from time to time submitted by Borrower and approved by Agent
and the Determining Lenders, duly completed and certified by a
Responsible Officer.
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(e) Annual Budget. Prior to each December 31 of each year during
the term of this agreement, commencing December 31, 1997, a budget for
the following fiscal year of the Borrower in form and substance
satisfactory to the Agent (the "Budget").
(f) Other Reports. Promptly after preparation and distribution,
accurate and complete copies of all reports and other material
communications about material financial matters or material corporate
plans or projections by or for any Company for distribution to any
Tribunal or any existing or potential creditor (i) including, without
limitation, each FORM 10-K, 10-Q, and S-8 filed with the Securities and
Exchange Commission but (ii) excluding (A) credit, trade, and other
reports prepared and distributed in the ordinary course of business, and
(B) information otherwise furnished to Agent and Lenders under this
agreement. Promptly upon Agent's request therefor, copies of (i) any
statements or other reports describing reserves, future income or value
attributable to any of the Mineral Interests and monthly production
reports filed with the Minerals Management Service by the operator of
any of the Mortgaged Properties; (ii) all material operating agreements,
pooling or unitization agreements, sales or processing contracts,
restrictions, preferential purchase right agreements, drilling and/or
development agreements, pipeline transportation agreements and other
material agreements which pertain to the Mineral Interests, the
operation thereof or the disposition of production attributable thereto;
and (iii) all reports, forms and other documents and data submitted by
Borrower to the United States Department of the Interior Bureau of Land
Management Minerals Management Service, the Louisiana Oil Conservation
Commission, United States Department of Energy, United States Federal
Energy Regulatory Commission or other Tribunal, concerning the operation
of, drilling of wells on, sale of production from, or the prices
received for the sale of production from, the Mineral Interests.
(g) Employee Plans. As soon as possible and within 30 days after
Borrower knows that any event which would constitute a reportable event
under SECTION 4043(B) of TITLE IV of ERISA with respect to any Company's
employee pension or other benefit plan subject to ERISA has occurred, or
that the PBGC has instituted or will institute proceedings under ERISA
to terminate that plan, deliver a certificate of a Responsible Officer
of Borrower setting forth details as to that reportable event and the
action which the Companies propose to take with respect to it, together
with a copy of any notice of that reportable event which may be required
to be filed with the PBGC, or any notice delivered by the PBGC
evidencing its intent to institute those proceedings or any notice to
the PBGC that the plan is to be terminated, as the case may be. For all
purposes of this section, Borrower is deemed to have all knowledge or
knowledge of all facts attributable to the plan administrator under
ERISA.
(h) Other Notices. Promptly after Borrower has knowledge of, but
in any event prior to five days after the occurrence of any of the
following events, notice of (i) the existence and status of any
Litigation that is reasonably likely to be adversely determined and, if
determined adversely to any Company, would be a Material Adverse Event,
(ii) any change in any material fact or circumstance represented or
warranted by any Company in any Loan Document, (iii) a Default or
Potential Default, specifying the nature thereof and what action the
Companies have taken, are taking, or propose to take or (iv) claims made
against any Restricted Company by any Person in excess of $100,000,
other than for accounts payable in the ordinary course of business.
(i) PART B on SCHEDULE 6. Promptly as they become available
(subject to the other requirements of this agreement), the items, if
any, described in PART B on SCHEDULE 6.
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(j) Other Information. Promptly when reasonably requested by
Agent or any Lender, such information (not otherwise required to be
furnished under this agreement) about any Company's business affairs,
assets, and liabilities.
8.2 Use of Credit. Borrower shall use LCs and the proceeds of Borrowings
only for the purposes represented in this agreement.
8.3 Books and Records. Each Company shall maintain books, records, and
accounts necessary to prepare Financials in accordance with GAAP.
8.4 Inspections. Upon reasonable request, each Company shall allow Agent
or any Lender (or their respective Representatives) to inspect any of its
properties, to review reports, files, and other records and to make and take
away copies, to conduct tests or investigations, and to discuss any of its
affairs, conditions, and finances with its other creditors, directors, officers,
employees, or representatives from time to time, during reasonable business
hours. Any reviews and investigations shall be limited to matters relevant to
the present or future financial condition of the Companies and their compliance
with -- or ability to comply with -- the Loan Documents.
8.5 Taxes. Each Restricted Company shall promptly pay when due any and
all Taxes EXCEPT Taxes that are being contested in good faith by lawful
proceedings diligently conducted, against which reserve or other provision
required by GAAP has been made, and in respect of which levy and execution of
any Lien has been and continues to be stayed.
8.6 Payment of Obligation. Each Restricted Company shall promptly pay
(or renew and extend) all of its material obligations as they become due (unless
the obligations are being contested in good faith by appropriate proceedings).
8.7 Expenses. Within ten Business Days after being presented with a
reasonably-detailed invoice, Borrower shall pay (a) all costs, fees, and
expenses paid or incurred by Agent incident to any Loan Document (including,
without limitation, the reasonable fees and expenses of Agent's counsel in
connection with the negotiation, preparation, delivery, and execution of the
Loan Documents and any related amendment, waiver, or consent), (b) all
out-of-pocket costs paid or incurred by the Lenders in connection with any
redetermination of the Borrowing Base pursuant to Section 2.6 other than the
regular, semi-annual redeterminations of the Borrowing Base described in the
first sentence of Section 2.6(b), (c) all other costs and expenses paid or
incurred by the Agent in connection with the normal, ongoing administration, of
this agreement and the other Loan Documents, including, without limitation,
independent insurance reviews or third party engineering support, in an
aggregate amount not to exceed in any year the sum of $5,000.00, and (d) all
reasonable costs and expenses incurred by Agent or any Lender in connection with
the enforcement of the obligations of any Restricted Company under the Loan
Documents or the exercise of any Rights under the Loan Documents (including,
without limitation, reasonable allocated costs of in-house counsel, other
reasonable attorneys' fees, and court costs), all of which are part of the
Obligation, bearing interest, if not paid when due at the Default Rate until
paid.
8.8 Maintenance of Existence, Assets, and Business. Each Restricted
Company shall (a) EXCEPT in connection with dispositions permitted under SECTION
9.10 and mergers and consolidations permitted under SECTION 9.11, maintain its
corporate existence and good standing in its state of incorporation, and (b) (i)
maintain its authority to transact business and good standing in all other
states where required or necessary for its business, (ii) maintain all licenses,
permits, and franchises (including, without limitation, Environmental Permits)
necessary for its business, and (iii) keep all of its assets that are useful in
and necessary to its business in good working order and condition (ordinary wear
and tear excepted) and make all necessary repairs and replacements.
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8.9 Insurance. Each Restricted Company shall, at its cost and expense,
maintain with financially sound, responsible, and reputable insurance companies
or associations -- or, as to workers' compensation or similar insurance, with an
insurance fund or by self-insurance authorized by the jurisdictions in which it
operates -- insurance concerning its properties and businesses against
casualties, risks and contingencies and of types and in amounts (and with
co-insurance and deductibles) as is customary in the case of similar businesses.
8.10 Environmental Matters. Each Restricted Company shall (a) operate
and manage its businesses, processes, and other activities in compliance with
all Environmental Laws, Environmental Permits, and Environmental Indemnity
Agreements and in a manner to avoid incurring Environmental Liabilities, to
prevent any Release of Hazardous Substances, and to minimize the risk of loss or
damage in the event of any Release of Hazardous Substances, (b) keep each
Environmental Indemnity Agreement in full force and effect according to its
terms, take all steps that may be necessary or appropriate to timely assert and
receive payment or all claims under it, and (to the extent that the material
remediation or indemnity protections or benefits provided by it would be
jeopardized) not consent to any modification or amendment of any Environmental
Indemnity Agreement or waive, compromise, settle, or otherwise release or
discharge any obligation or indemnity of any indemnitor or other obligor under
it, and (c) continuously and diligently carry out such removal, remedial, or
other response actions as may be necessary or appropriate (A) in respect of each
matter (whether or not disclosed on SCHEDULE 7.11) that constitutes
non-compliance with any Environmental Law and (B) to prevent or minimize
potential Environmental Liabilities from any of those matters (whether or not
disclosed on SCHEDULE 7.11) or any Release of Hazardous Substances.
8.11 Subsidiaries. In respect of each applicable present and future
Subsidiary (whether as a result of acquisition, creation, or otherwise),
Borrower shall cause such Subsidiary to promptly and fully comply with SECTION 5
and its capital stock or other equity securities to become subject to Lender
Liens as required by SECTION 5.2.
8.12 INDEMNIFICATION.
(a) BORROWER AND (PURSUANT TO ITS GUARANTY) EACH OTHER RESTRICTED
COMPANY SHALL, JOINTLY AND SEVERALLY INDEMNIFY AGENT AND LENDERS AND
THEIR RESPECTIVE PARENTS, SUBSIDIARIES, DIRECTORS, OFFICERS, EMPLOYEES,
REPRESENTATIVES, AGENTS, SUCCESSORS, ASSIGNS, AND ATTORNEYS
(COLLECTIVELY, THE "INDEMNIFIED PARTIES"), PROTECT AND DEFEND (WITH
COUNSEL ACCEPTABLE TO DETERMINING LENDERS) AGAINST, HOLD THEM HARMLESS
FROM AND AGAINST, AND ON DEMAND PAY OR REIMBURSE THEM FOR ANY AND ALL
LIABILITIES, OBLIGATION, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS,
SUITS, CLAIMS, AND PROCEEDINGS AND ALL COSTS, EXPENSES (INCLUDING,
WITHOUT LIMITATION, ALL REASONABLE ATTORNEYS' FEES AND LEGAL EXPENSES
WHETHER OR NOT SUIT IS BROUGHT), AND DISBURSEMENTS OF ANY KIND OR NATURE
(THE "INDEMNIFIED LIABILITIES") THAT MAY AT ANY TIME BE IMPOSED ON,
INCURRED BY, OR ASSERTED AGAINST THE INDEMNIFIED PARTIES, IN ANY WAY
RELATING TO OR ARISING OUT OF (I) ANY LOAN DOCUMENT, (II) ANY
TRANSACTION CONTEMPLATED BY ANY LOAN DOCUMENT, (III) ANY COLLATERAL,
(IV) ANY REAL PROPERTY (INCLUDING, WITHOUT LIMITATION, THE LEASES AND
MINERAL INTERESTS) OR OIL AND GAS PROPERTY, (V) ANY ENVIRONMENTAL
LIABILITY IN ANY WAY RELATED TO ANY COMPANY, PREDECESSOR, COLLATERAL,
REAL PROPERTY (INCLUDING, WITHOUT LIMITATION, THE LEASES AND MINERAL
INTERESTS) OIL AND GAS PROPERTY, OR ANY ACT, OMISSION, STATUS,
OWNERSHIP, OR OTHER RELATIONSHIP, CONDITION, OR CIRCUMSTANCE
CONTEMPLATED BY, CREATED UNDER, OR ARISING PURSUANT TO OR IN CONNECTION
WITH ANY LOAN DOCUMENT, OR (VI) ANY INDEMNIFIED PARTY'S SOLE OR
CONCURRENT ORDINARY NEGLIGENCE.
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(B) THE FOREGOING PROVISIONS (I) ARE NOT LIMITED IN AMOUNT, EVEN
IF THAT AMOUNT EXCEEDS THE AMOUNT OF THE OBLIGATION, (II) INCLUDE,
WITHOUT LIMITATION, REASONABLE FEES AND EXPENSES OF ATTORNEYS AND OTHER
COSTS OR EXPENSES OF LITIGATION OR OF PREPARING FOR LITIGATION, DAMAGES
OR INJURY TO PERSONS, PROPERTY, OR NATURAL RESOURCES ARISING UNDER ANY
STATUTORY OR COMMON LAW, PUNITIVE DAMAGES, FINES, AND OTHER PENALTIES,
AND LOSS OF VALUE OF ANY REAL PROPERTY OR COLLATERAL, (III) ARE NOT
AFFECTED BY ANY ACT OR OMISSION OF ANY TRIBUNAL OR OTHER THIRD PARTY, OR
THE SOURCE OR ORIGIN OF ANY HAZARDOUS SUBSTANCE, AND (IV) ARE NOT
AFFECTED BY ANY INDEMNIFIED PARTY'S INVESTIGATION, ACTUAL OR
CONSTRUCTIVE KNOWLEDGE, COURSE OF DEALING, OR WAIVER.
(c) However, no indemnified party has the right to be indemnified
under the loan documents for its own fraud, gross negligence, or willful
misconduct.
(d) The provisions of and undertakings and indemnification in
this section survive the foreclosure of any Lender Lien or any transfer
in lieu of that foreclosure, the sale or other transfer of any
Collateral or real property to any Person, the satisfaction of the
obligation, the termination of the Loan Documents, and the release of
any or all Lender Liens.
8.13 Operations and Properties. Each Restricted Company will act
prudently and in accordance with customary industry standards in managing or
operating its assets, properties, business and investments. Each Restricted
Company will keep in good working order and condition, ordinary wear and tear
excepted, all of its assets and properties which are necessary to the conduct of
its business, including without limitation all wells and equipment necessary or
useful in the operation of the Mineral Interests.
8.14 Leases. Each Restricted Company will pay and discharge promptly, or
cause to be paid and discharged promptly, all rentals, delay rentals, royalties,
overriding royalties, payments out of production and other indebtedness or
obligations accruing under, and perform or cause to be performed each and every
act, matter or thing required by each and all of, the Leases and all other
agreements and contracts constituting or affecting the Mineral Interests, and do
all other things necessary to keep unimpaired its rights thereunder and prevent
any forfeiture thereof or default thereunder, and operate or cause to be
operated such properties in a diligent, careful and efficient manner and in
compliance with all applicable proration and conservation laws and all
applicable rules and regulations of every Tribunal, whether state, federal,
municipal or other jurisdiction, from time to time constituted to regulate the
development and operations of oil and gas properties and the production and sale
of oil, gas and other hydrocarbons therefrom.
8.15 Development and Maintenance. Each Restricted Company will explore,
develop and maintain (or cause to be explored, developed and maintained) the
Leases, wells, units and acreage to which the Mineral Interests pertain in a
prudent manner, and as may be reasonably necessary for the prudent and
economical operation of (and in an effort to maximize the production capacity
of) such Leases, wells, units and acreage.
8.16 Maintenance of Liens. Each Restricted Company shall perform all
such acts and execute all such documents as Agent may reasonably request in
order to enable Agent to report, file and record every instrument that Agent may
deem necessary in order to perfect and maintain the Lender Liens in the
Mortgaged Properties and otherwise to preserve and protect the rights of the
Agent and the Lenders in and to the Collateral.
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SECTION 9. NEGATIVE COVENANTS. For so long as any Lender is committed to lend or
issue LCs under this agreement and until the Obligation has been fully paid and
performed, Borrower covenants and agrees with Agent and Lenders that, without
first obtaining Agent's written notice of Determining Lenders' consent to the
contrary:
9.1 Payroll Taxes. No Company may use any proceeds of any Borrowing to
pay the wages of employees unless a timely payment to or deposit with the United
States of America of all amounts of Tax required to be deducted and withheld
with respect to such wages is also made.
9.2 Debt. No Restricted Company may:
(a) Have any Debt EXCEPT Permitted Debt.
(b) Pay or cause to be paid any principal of, or any interest on,
any of its Debt EXCEPT (i) the Obligation, (ii) any of its other Senior
Debt if no Default or Potential Default exists, (iv) on any of the
Subordinated Debt if no Default or Potential Default exists and (v)
conversions of Subordinated Debt in accordance with its terms to equity
issued by Borrower.
(c) Amend or modify the terms of any of the Subordinated Debt to
any extent that (i) any of the applicable subordination, payment
blockage, or standstill provisions are less favorable to Lenders than
exist for the Subordinated Debt on the date of this agreement, (ii) the
applicable representations, covenants, events of default, and other
provisions are significantly more onerous to Borrower than exist for the
Subordinated Debt on the date of this agreement, or (iii) scheduled or
mandatory principal or sinking fund payment obligations before the
Stated-Termination Date are made applicable to any Subordinated Debt.
9.3 Letters of Credit. No Restricted Company may have issued for its
account -- or otherwise become obligated for any reimbursement obligations for
- -- any letter of credit EXCEPT LCs.
9.4 Liens. No Restricted Company may (a) create, incur, or suffer or
permit to be created or incurred or to exist any Lien upon any of its assets
except Permitted Liens or (b) enter into or permit to exist any arrangement or
agreement that directly or indirectly prohibits any Restricted Company from
creating or incurring any Lien on any of its assets EXCEPT the Loan Documents.
9.5 Employee Plans. No Restricted Company may permit any of the events
or circumstances described in SECTION 7.12 to exist or occur.
9.6 Transactions with Affiliates. No Restricted Company may enter into
any material transaction with any of its Affiliates EXCEPT (a) those described
on SCHEDULE 7.15, (b) transactions between one or more Restricted Companies, (c)
transactions permitted under SECTION 9.8, (d) transactions in the ordinary
course of business and upon fair and reasonable terms not materially less
favorable than it could obtain or could become entitled to in an arm's-length
transaction with a Person that was not its Affiliate, and (e) compensation
arrangements in the ordinary course of business with directors and officers of
the Companies.
9.7 Compliance with Laws and Documents. No Restricted Company may (a)
violate the provisions of any Laws (including, without limitation, Environmental
Laws) applicable to it or of any material agreement to which it is a party if
that violation alone, or when aggregated with all other violations, would be a
Material Adverse Event, (b) violate in any material respect any provision of its
charter or bylaws, or (c) repeal, replace, or amend any provision of its charter
or bylaws if that action would be a Material Adverse Event.
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9.8 Loans, Advances, and Investments. No Restricted Company may make any
loan, advance, extension of credit, or capital contribution to, make any
investment in, or purchase or commit to purchase any stocks or other securities
or evidences of Debt of, or interests in, any other Person EXCEPT those
described on SCHEDULE 9.8.
9.9 Distributions. No Restricted Company may declare, make, or pay any
Distribution EXCEPT Distributions paid in the form of additional common stock,
and distributions to any other Restricted Company.
9.10 Disposition of Assets. No Restricted Company may sell, assign,
lease, transfer, or otherwise dispose of any of its assets EXCEPT (a) sales and
dispositions of oil and gas production in the ordinary course of business for a
fair and adequate consideration, (b) sales of assets which are obsolete or are
no longer in use and which are not significant to the continuation of that
Restricted Company's business, (c) sales and dispositions from any Restricted
Company to any other Restricted Company, (d) dispositions of equipment where
substantially similar equipment has been or is being acquired, (e) dispositions
of other assets (other than Collateral) for an aggregate consideration not to
exceed, in any fiscal year, the GREATER of (i) $200,000.00, or (ii) ten percent
(10%) of the lesser of the total Commitments or the Borrowing Base in effect on
the last day of such fiscal year.
9.11 Mergers, Consolidations, and Dissolutions. No Restricted Company
may merge or consolidate with any other Person or dissolve EXCEPT:
(a) if no Default or Potential Default exists or will exist as a
result of it, any merger or consolidation (i) between Restricted
Companies (SO LONG AS, if Borrower is involved, it is the survivor); and
(b) dissolution of any Subsidiary if substantially all of its
assets have been conveyed to any Restricted Company.
9.12 Assignment. No Restricted Company may assign or transfer any of its
Rights, duties, or obligations under any of the Loan Documents.
9.13 Fiscal Year and Accounting Methods. No Restricted Company may
change its fiscal year for accounting purposes or any material aspect of its
method of accounting EXCEPT (i) for changes which do not affect, change or alter
the calculation of any of the financial or accounting terms (or any component
thereof) described in any of the financial covenants provided in Section 10 of
this agreement, or (ii) to conform any new Subsidiary's accounting methods to
Borrower's accounting methods.
9.14 New Businesses. No Restricted Company may engage in any business
EXCEPT the businesses in which it is presently engaged and any other reasonably
related business.
9.15 Government Regulations. No Restricted Company may conduct its
business in a way that it becomes regulated under the INVESTMENT COMPANY ACT OF
1940, as amended, or the PUBLIC UTILITY HOLDING COMPANY ACT OF 1935, as amended.
9.16 Strict Compliance. No Restricted Company may indirectly do anything
that it may not directly do under any covenant in any Loan Document.
9.17 Alteration of Material Agreements. Borrower will not consent to or
permit any material alterations, amendments, modifications, releases, waivers or
terminations of any material agreement to which it is a party.
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9.18 Operating Agreements. Borrower shall not enter into any operating
agreement or material amendment of existing operating agreement after the date
hereof covering any of the Mortgaged Properties.
9.19 Burdensome Contracts. Borrower shall not enter into, become bound
by, or subject the Mortgaged Properties to any contract or agreement which is
burdensome on Borrower or materially adversely affects the operation of the
Mortgaged Properties.
9.20 Marketing Contracts. Borrower shall not (without the prior written
consent of Determining Lender, which consent shall not be unreasonably withheld)
enter into any contract relating to the marketing of hydrocarbons or gas
production from the Mortgaged Properties, or terminate or amend any existing
such contracts, provided, however, Borrower may sell up to twenty percent (20%)
of its average daily production of hydrocarbons from the Mortgaged Properties
under sales contracts with terms less than twelve (12) months, provided such
hydrocarbons are not otherwise subject to Borrower's existing marketing
contracts.
SECTION 10. FINANCIAL COVENANTS. For so long as any Lender is committed to lend
or issue LCs under this agreement and until the Obligation has been fully paid
and performed, Borrower covenants and agrees with Agent and Lenders that,
without first obtaining Agent's written notice of Determining Lenders' consent
to the contrary, it may not directly or indirectly permit:
10.1 Current Ratio. The ratio -- determined at the end of each fiscal
quarter of Borrower -- of the Companies' consolidated current assets to current
liabilities (EXCLUDING current maturities of long term Funded Debt) to ever be
LESS than 1.00 to 1.00.
10.2 Fixed-Charge Coverage. The ratio -- determined as of (i) the fiscal
quarter of Borrower ending September 30, 1997 for the quarter then ended, (ii)
the fiscal quarter of Borrower ending December 31, 1997 for the two consecutive
quarters then ended, (iii) the fiscal quarter of Borrower ending March 31, 1998
for the three consecutive quarters then ended, and (iv) the last day of each
fiscal quarter thereafter (commencing June 30, 1998) of Borrower for the four
consecutive quarters then ended -- of the Companies' Cash Flow From Operations
to Interest Expense to ever be LESS THAN 3.00 TO 1.00:
10.3 Coverage of Subordinated Debt. The value of all investments of
Borrower permitted pursuant to paragraphs 1-8 on SCHEDULE 9.8, plus all cash on
hand, to be less than $500,000.00 at any time during which any Subordinated Debt
remains outstanding.
SECTION 11. DEFAULT. The term "DEFAULT" means the occurrence of any one or more
of the following:
11.1 Payment of Obligation. Borrower's failure or refusal to pay (a)
principal of any Note or any LC Exposure or any part thereof on or before the
date due or (b) any other part of the Obligation on or before five days after
the date due.
11.2 Covenants. Any Company's failure or refusal to punctually and
properly perform, observe, and comply with any covenant (OTHER THAN covenants to
pay the Obligation) applicable to it:
(a) In SECTIONS 8.1(G), 8.2 OR 9; or
(b) In SECTIONS 8.1, 8.3, 8.4, 8.8, 8.13, 8.14, OR 8.15, and that
failure or refusal continues for 30 days after the earlier of either any
Restricted Company knowing of it or any Restricted Company is notified
of it by Agent or any Lender; or
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(c) In any other provision of any Loan Document, and that
failure or refusal continues for 15 days after the earlier of EITHER any
Restricted Company knowing of it OR any Restricted Company is notified
of it by Agent or any Lender.
11.3 Debtor Relief. Any Restricted Company (a) is not Solvent, (b) fails
to pay its Debts generally as they become due, (c) voluntarily seeks, consents
to, or acquiesces in the benefit of any Debtor Relief Law, or (d) becomes a
party to or is made the subject of any proceeding provided for by any Debtor
Relief Law -- EXCEPT as a creditor or claimant -- that could suspend or
otherwise adversely affect the Rights of Agent or any Lender granted in the Loan
Documents (UNLESS, if the proceeding is involuntary, the applicable petition is
dismissed within 60 days after its filing).
11.4 Judgments and Attachments. Where the amounts in controversy or of
any judgments, as the case may be, not covered in full by adequate insurance
pursuant to policies acceptable to Agent, exceed -- from and after the Closing
Date and individually or collectively for all of the Restricted Companies -- the
greater of (i) 10% of the Borrowing Base or (ii) $200,000.00 (unless the payment
or satisfaction thereof would not result in Working Capital being less than
zero), the Restricted Companies fail (a) to have discharged, within 60 days
after its commencement, any attachment, sequestration, or similar proceeding
against any assets of any Restricted Company or (b) to pay any money judgment
against any Restricted Company within ten days before the date on which any
Restricted Company's assets may be lawfully sold to satisfy that judgment.
11.5 Government Action. Where EITHER it is a Material Adverse Event OR
the fair value of the assets involved exceed -- from and after the Closing Date
and individually or collectively for all of the Restricted Companies -- the
greater of (i) 10% of the Borrowing Base or (ii) $200,000.00, (a) a final
non-appealable order is issued by any Tribunal (including, but not limited to,
the United States Justice Department) seeking to cause any Company to divest a
significant portion of its assets under any antitrust, restraint of trade,
unfair competition, industry regulation, or similar Laws, or (b) any Tribunal
condemns, seizes, or otherwise appropriates, or takes custody or control of all
or any substantial portion of any Restricted Company's assets.
11.6 Misrepresentation. Any material representation or warranty made by
any Company in any Loan Document at any time proves to have been materially
incorrect when made.
11.7 Ownership of Companies. EXCEPT as a result of transactions
permitted by this agreement, one or more Restricted Companies fail to own,
beneficially and of record, with power to vote, 100% of the issued and
outstanding shares of capital stock of each other Restricted Company OTHER THAN
Borrower.
11.8 Change of Control of Borrower. The individuals who, as of the date
of this agreement, constitute the members of Borrower's board of directors (for
purposes of this SECTION 11.8, the "INCUMBENT BOARD") do not constitute or cease
for any reason to constitute at least 75% of:
(a) Borrower's board of directors; or
(b) The surviving corporation's board of directors in the event
of any merger or consolidation (if permitted by SECTION 9.11) involving
Borrower.
For purposes of this SECTION 11.8, any individual who becomes a member of the
board of directors under CLAUSES (A) OR (B) above, after the date of this
agreement and whose election, or nomination for election, was approved by a vote
of the individuals comprising at least 51% (but not less than four in number) of
the incumbent board -- OTHER THAN an election or nomination of an individual
whose initial assumption of office is in connection with an actual or threatened
election contest, as those terms are used in RULE 14A-11 of REGULATION 14A under
the SECURITIES AND EXCHANGE ACT OF 1934) -- shall be deemed to be a member of
the incumbent board.
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11.9 Other Funded Debt. In respect of any Funded Debt (OTHER THAN the
Obligation) (a) any Restricted Company fails to make any payment when due beyond
any applicable grace or cure period, or (b) any default or other event or
condition occurs or exists beyond the applicable grace or cure period, the
effect of which is to cause or to permit any holder of that Funded Debt to cause
- -- whether or not it elects to cause -- any of that Funded Debt to become due
before its stated maturity or regularly scheduled payment dates, or (c) any of
that Funded Debt is declared to be due and payable or required to be prepaid by
any Restricted Company before its stated maturity.
11.10 SEC Reporting Requirements. Borrower fails to comply with any
applicable reporting requirements of the SECURITIES EXCHANGE ACT OF 1934, as
amended, for which the failure to report would constitute a Material Adverse
Event.
11.11 Validity and Enforceability. Once executed, this agreement, any
Note, any LC Agreement, any Guaranty, any Collateral Document ceases to be in
full force and effect in any material respect or is declared to be null and void
or its validity or enforceability is contested in writing by any Restricted
Company party to it or any Restricted Company party to it denies in writing that
it has any further liability or obligations under it EXCEPT in accordance with
that document's express provisions or as the appropriate parties under SECTION
14.8 below may otherwise agree in writing.
11.12 LCs. Agent is served with, or becomes subject to, a court order,
injunction, or other process or decree restraining or seeking to restrain it
from paying any amount under any LC and EITHER (a) a drawing has occurred under
the LC, and Borrower has refused to reimburse the Issuing Lender for payment, OR
(b) the expiration date of the LC has occurred, but the Right of the beneficiary
to draw under the LC has been extended past the expiration date in connection
with the pendency of the related court action or proceeding, and Borrower has
failed to deposit with Agent cash collateral in an amount equal to the Issuing
Lender's maximum exposure under the LC.
SECTION 12. RIGHTS AND REMEDIES.
12.1 Remedies Upon Default.
(a) Debtor Relief. If a Default exists under SECTION 11.3, the
commitment to extend credit under this agreement automatically
terminates, the entire unpaid balance of the Obligation automatically
becomes due and payable without any action of any kind whatsoever.
(b) Other Defaults. If any Default exists, subject to the terms
of SECTION 13.5(B), Agent may (with the consent of, and must, upon the
request of, Determining Lenders), do any one or more of the following:
(i) If the maturity of the Obligation has not already been accelerated
under SECTION 12.1(A), declare the entire unpaid balance of all or any
part of the Obligation immediately due and payable, whereupon it is due
and payable; (ii) terminate the commitments of Lenders to extend credit
under this agreement; (iii) reduce any claim to judgment; (iv) demand
payment of an amount equal to the LC Exposure then existing and retain
as collateral for the LC Exposure any amounts received from any Company,
from any property of any Company, through offset, or otherwise; and (v)
exercise any and all other legal or equitable Rights afforded by the
Loan Documents, by applicable Laws, or in equity.
(c) Offset. If a Default exists, to the extent permitted by
applicable Law, each Lender may exercise the Rights of offset and
banker's lien against each and every account and other property, or any
interest therein, which any Restricted Company may now or hereafter have
with, or which is now or hereafter in the possession of, that Lender to
the extent of the full amount of the Obligation owed to that Lender.
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(d) Production Proceeds. Notify any and all purchasers of
production and take all other actions specified in SECTION 5.3 of this
agreement.
12.2 Company Waivers. To the extent permitted by Law, Borrower and
(pursuant to its Guaranty) each other Restricted Company waives presentment and
demand for payment, protest, notice of intention to accelerate, notice of
acceleration, and notice of protest and nonpayment, and agrees that its
liability with respect to all or any part of the Obligation is not affected by
any renewal or extension in the time of payment of all or any part of the
Obligation, by any indulgence, or by any release or change in any security for
the payment of all or any part of the Obligation.
12.3 Performance by Agent. If any Company's covenant, duty, or agreement
is not performed in accordance with the terms of the Loan Documents, Agent may,
while a Default exists, at its option (but subject to the approval of
Determining Lenders), perform or attempt to perform that covenant, duty, or
agreement on behalf of that Company (and any amount expended by Agent in its
performance or attempted performance is payable by the Companies, jointly and
severally, to Agent on demand, becomes part of the Obligation, and bears
interest at the Default Rate from the date of Agent's expenditure until paid).
However, Agent does not assume and shall never have, except by its express
written consent, any liability or responsibility for the performance of any
Company's covenants, duties, or agreements.
12.4 Not in Control. Nothing in any Loan Documents gives or may be
deemed to give to Agent or any Lender the Right to exercise control over any
Company's Real Property (including, without limitation, the Leases and the
Mineral Interests), other assets, affairs, or management or to preclude or
interfere with any Company's compliance with any Law or require any act or
omission by any Company that may be harmful to Persons or property. Any
"MATERIAL ADVERSE EVENT" or other materiality or substantiality qualifier of any
representation, warranty, covenant, agreement, or other provision of any Loan
Document is included for credit documentation purposes only and does not imply
or be deemed to mean that Agent or any Lender acquiesces in any non-compliance
by any Company with any Law, document, or otherwise or does not expect the
Companies to promptly, diligently, and continuously carry out all appropriate
removal, remediation, compliance, closure, or other activities required or
appropriate in accordance with all Environmental Laws. Agent's and Lenders'
power is limited to the Rights provided in the Loan Documents. All of those
Rights exist solely -- and may be exercised in manner calculated by Agent or
Lenders in their respective good faith business judgment -- to preserve and
protect the Collateral and to assure payment and performance of the Obligation.
12.5 Course of Dealing. The acceptance by Agent or Lenders of any
partial payment on the Obligation is not a waiver of any Default then existing.
No waiver by Agent, Determining Lenders, or Lenders of any Default is a waiver
of any other then-existing or subsequent Default. No delay or omission by Agent,
Determining Lenders, or Lenders in exercising any Right under the Loan Documents
impairs that Right or is a waiver thereof or any acquiescence therein, nor will
any single or partial exercise of any Right preclude other or further exercise
thereof or the exercise of any other Right under the Loan Documents or
otherwise.
12.6 Cumulative Rights. All Rights available to Agent, Determining
Lenders, and Lenders under the Loan Documents are cumulative of and in addition
to all other Rights granted to Agent, Determining Lenders, and Lenders at law or
in equity, whether or not the Obligation are due and payable and whether or not
Agent, Determining Lenders, or Lenders have instituted any suit for collection,
foreclosure, or other action in connection with the Loan Documents.
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12.7 Application of Proceeds. Any and all proceeds ever received by
Agent or Lenders from the exercise of any Rights pertaining to the Obligation
shall be applied to the Obligation according to SECTION 3.
12.8 Certain Proceedings. Borrower shall promptly execute and deliver,
or cause the execution and delivery of, all applications, certificates,
instruments, registration statements, and all other documents and papers Agent
or Determining Lenders reasonably request in connection with the obtaining of
any consent, approval, registration (OTHER THAN securities Law registrations),
qualification, permit, license, or authorization of any Tribunal or other Person
necessary or appropriate for the effective exercise of any Rights under the Loan
Documents. Because Borrower agrees that Agent's and Determining Lenders'
remedies at Law for failure of Borrower to comply with the provisions of this
section would be inadequate and that failure would not be adequately compensable
in damages, Borrower agrees that the covenants of this section may be
specifically enforced.
12.9 Expenditures by Lenders. Any sums spent by Agent or any Lender in
the exercise of any Right under any Loan Document is payable by the Companies to
Agent within five Business Days after demand, becomes part of the Obligation,
and bears interest at the Default Rate from the date spent until the date
repaid.
12.10 Diminution in Value of Collateral. Neither Agent nor any Lender
has any liability or responsibility whatsoever for any diminution in or loss of
value of any collateral now or in the future securing payment or performance of
any of the Obligation (OTHER THAN diminution in or loss of value caused by its
own gross negligence or willful misconduct).
SECTION 13. AGENT AND LENDERS.
13.1 Agent.
(a) Appointment. Each Lender appoints Agent (and Agent accepts
appointment) as its nominee and agent, in its name and on its behalf:
(i) To act as its nominee and on its behalf in and under all Loan
Documents; (ii) to arrange the means whereby its funds are to be made
available to Borrower under the Loan Documents; (iii) to take any action
that it properly requests under the Loan Documents (subject to the
concurrence of other Lenders as may be required under the Loan
Documents); (iv) to receive all documents and items to be furnished to
it under the Loan Documents; (v) to be the secured party, mortgagee,
beneficiary, recipient, and similar party in respect of any collateral
for the benefit of Lenders; (vi) to promptly distribute to it all
material information, requests, documents, and items received from
Borrower under the Loan Documents; (vii) to promptly distribute to it
its ratable part of each payment or prepayment (whether voluntary, as
proceeds of collateral upon or after foreclosure, as proceeds of
insurance thereon, or otherwise) in accordance with the terms of the
Loan Documents; and (viii) to deliver to the appropriate Persons
requests, demands, approvals, and consents received from it. However,
Agent may not be required to take any action that exposes it to personal
liability or that is contrary to any Loan Document or applicable Law.
(b) Successor. Agent may voluntarily resign and shall resign
upon the request of Determining Lenders for cause (I.E., Agent is
continuing to fail to perform its responsibilities as Agent under the
Loan Documents). If the initial or any successor Agent ever ceases to be
a party to this agreement or if the initial or any successor Agent ever
resigns (whether voluntarily or at the request of Determining Lenders),
then Determining Lenders shall (which, if no Default or Potential
Default exists, is subject to Borrower's approval that may not be
unreasonably withheld) appoint the successor Agent from among Lenders
(OTHER THAN the resigning Agent). If Determining Lenders fail to appoint
a successor Agent within 30 days after the resigning Agent has given
notice of resignation or Determining Lenders have removed the resigning
Agent, then the resigning Agent may, on behalf of Lenders, appoint a
successor Agent, which must be a commercial bank having a combined
capital and surplus of at least $1,000,000,000 (as shown on its most
recently published statement of condition). Upon its acceptance of
appointment as successor Agent, the successor Agent succeeds to and
becomes vested with all of the Rights of the prior Agent, and the prior
Agent is discharged from its duties and obligations of Agent under the
Loan Documents (but, when used in connection with LCs issued and
outstanding before the appointment of the successor Agent, "AGENT" shall
continue to refer solely to the prior Agent -- but, any LCs issued or
renewed after the appointment of any successor Agent shall be issued or
renewed by the successor Agent), and each Lender shall execute the
documents that any Lender, the resigning or removed Agent, or the
successor Agent reasonably request to reflect the change. After any
Agent's resignation or removal as Agent under the Loan Documents, the
provisions of this section inure to its benefit as to any actions taken
or not taken by it while it was Agent under the Loan Documents.
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(c) Rights as Lender. Agent, in its capacity as a Lender, has the
same Rights under the Loan Documents as any other Lender and may
exercise those Rights as if it were not acting as Agent. The term
"LENDER", unless the context otherwise indicates, includes Agent.
Agent's resignation or removal does not impair or otherwise affect any
Rights that it has or may have in its capacity as an individual Lender.
Each Lender and Borrower agree that Agent is not a fiduciary for Lenders
or for Borrower but is simply acting in the capacity described in this
agreement to alleviate administrative burdens for Borrower and Lenders,
that Agent has no duties or responsibilities to Lenders or Borrower
except those expressly set forth in the Loan Documents, and that Agent
in its capacity as a Lender has the same Rights as any other Lender.
(d) Other Activities. Agent or any Lender may now or in the
future be engaged in one or more loan, letter of credit, leasing, or
other financing transactions with Borrower, act as trustee or depositary
for Borrower, or otherwise be engaged in other transactions with
Borrower (collectively, the "OTHER ACTIVITIES") not the subject of the
Loan Documents. Without limiting the Rights of Lenders specifically set
forth in the Loan Documents, neither Agent nor any Lender is responsible
to account to the other Lenders for those other activities, and no
Lender shall have any interest in any other Lender's activities, any
present or future guaranties by or for the account of Borrower that are
not contemplated by or included in the Loan Documents, any present or
future offset exercised by Agent or any Lender in respect of those other
activities, any present or future property taken as security for any of
those other activities, or any property now or hereafter in Agent's or
any other Lender's possession or control that may be or become security
for the obligations of Borrower arising under the Loan Documents by
reason of the general description of indebtedness secured or of property
contained in any other agreements, documents, or instruments related to
any of those other activities (but, if any payments in respect of those
guaranties or that property or the proceeds thereof is applied by Agent
or any Lender to reduce the Obligation, then each Lender is entitled to
share ratably in the application as provided in the Loan Documents).
13.2 Expenses. Each Lender shall pay its Pro Rata Part of any reasonable
expenses (including, without limitation, court costs, reasonable attorneys' fees
and other costs of collection) incurred by Agent (while acting in such capacity)
in connection with any of the Loan Documents if Agent is not reimbursed from
other sources within 30 days after incurrence. Each Lender is entitled to
receive its Pro Rata Part of any reimbursement that it makes to Agent if Agent
is subsequently reimbursed from other sources.
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13.3 Proportionate Absorption of Losses. Except as otherwise provided in
the Loan Documents, nothing in the Loan Documents gives any Lender any advantage
over any other Lender insofar as the Obligation is concerned or relieves any
Lender from ratably absorbing any losses sustained with respect to the
Obligation (except to the extent unilateral actions or inactions by any Lender
result in Borrower or any other obligor on the Obligation having any credit,
allowance, setoff, defense, or counterclaim solely with respect to all or any
part of that Lender's Pro Rata Part of the Obligation).
13.4 Delegation of Duties; Reliance. Lenders may perform any of their
duties or exercise any of their Rights under the Loan Documents by or through
Agent, and Lenders and Agent may perform any of their duties or exercise any of
their Rights under the Loan Documents by or through their respective
Representatives. Agent, Lenders, and their respective Representatives (a) are
entitled to rely upon (and shall be protected in relying upon) any written or
oral statement believed by it or them to be genuine and correct and to have been
signed or made by the proper Person and, with respect to legal matters, upon
opinion of counsel selected by Agent or that Lender (but nothing in this CLAUSE
(A) permits Agent to rely on (i) oral statements if a writing is required by
this agreement or (ii) any other writing if a specific writing is required by
this agreement), (b) are entitled to deem and treat each Lender as the owner and
holder of its portion of the Obligation for all purposes until, written notice
of the assignment or transfer is given to and received by Agent (and any
request, authorization, consent, or approval of any Lender is conclusive and
binding on each subsequent holder, assignee, or transferee of or Participant in
that Lender's portion of the Obligation until that notice is given and
received), (c) are not deemed to have notice of the occurrence of a Default
unless a responsible officer of Agent, who handles matters associated with the
Loan Documents and transactions thereunder, has actual knowledge or Agent has
been notified by a Lender or Borrower, and (d) are entitled to consult with
legal counsel (including counsel for Borrower), independent accountants, and
other experts selected by Agent and are not liable for any action taken or not
taken in good faith by it in accordance with the advice of counsel, accountants,
or experts.
13.5 Limitation of Agent's Liability.
(a) Exculpation. Neither Agent nor any of its Representatives
will be liable for any action taken or omitted to be taken by it or them
under the Loan Documents in good faith and believed by it or them to be
within the discretion or power conferred upon it or them by the Loan
Documents or be responsible for the consequences of any error of
judgment (except for fraud, gross negligence, or willful misconduct),
and neither Agent nor any of its representatives has a fiduciary
relationship with any Lender by virtue of the Loan Documents (but
nothing in this agreement negates the obligation of Agent to account for
funds received by it for the account of any Lender).
(b) Indemnity. Unless indemnified to its satisfaction against
loss, cost, liability, and expense, Agent may not be compelled to do any
act under the Loan Documents or to take any action toward the execution
or enforcement of the powers thereby created or to prosecute or defend
any suit in respect of the Loan Documents. If Agent requests
instructions from Lenders, or Determining Lenders, as the case may be,
with respect to any act or action in connection with any Loan Document,
Agent is entitled to refrain (without incurring any liability to any
Person by so refraining) from that act or action unless and until it has
received instructions. In no event, however, may Agent or any of its
Representatives be required to take any action that it or they determine
could incur for it or them criminal or onerous civil liability. Without
limiting the generality of the foregoing, no Lender has any right of
action against Agent as a result of Agent's acting or refraining from
acting under this agreement in accordance with instructions of
Determining Lenders.
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(c) Reliance. Agent is not responsible to any Lender or any
Participant for, and each Lender represents and warrants that it has not
relied upon Agent in respect of, (i) the creditworthiness of any Company
and the risks involved to that Lender, (ii) the effectiveness,
enforceability, genuineness, validity, or the due execution of any Loan
Document (EXCEPT by Agent), (iii) any representation, warranty,
document, certificate, report, or statement made therein (EXCEPT by
Agent) or furnished thereunder or in connection therewith, (iv) the
adequacy of any collateral now or hereafter securing the Obligation or
the existence, priority, or perfection of any Lien now or hereafter
granted or purported to be granted on the collateral under any Loan
Document, or (v) observation of or compliance with any of the terms,
covenants, or conditions of any Loan Document on the part of any
Company. EACH LENDER AGREES TO INDEMNIFY AGENT AND ITS REPRESENTATIVES
AND HOLD THEM HARMLESS FROM AND AGAINST (BUT LIMITED TO SUCH LENDER'S
COMMITMENT PERCENTAGE OF) ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES,
DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, REASONABLE
EXPENSES, AND REASONABLE DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER
THAT MAY BE IMPOSED ON, ASSERTED AGAINST, OR INCURRED BY THEM IN ANY WAY
RELATING TO OR ARISING OUT OF THE LOAN DOCUMENTS OR ANY ACTION TAKEN OR
OMITTED BY THEM UNDER THE LOAN DOCUMENTS IF AGENT AND ITS
REPRESENTATIVES ARE NOT REIMBURSED FOR SUCH AMOUNTS BY ANY COMPANY.
ALTHOUGH AGENT AND ITS REPRESENTATIVES HAVE THE RIGHT TO BE INDEMNIFIED
UNDER THIS AGREEMENT FOR ITS OR THEIR OWN ORDINARY NEGLIGENCE, AGENT AND
ITS REPRESENTATIVES DO NOT HAVE THE RIGHT TO BE INDEMNIFIED UNDER THIS
AGREEMENT FOR ITS OR THEIR OWN FRAUD, GROSS NEGLIGENCE, OR WILLFUL
MISCONDUCT.
13.6 Default. While a Default exists, Lenders agree to promptly confer
in order that Determining Lenders or Lenders, as the case may be, may agree upon
a course of action for the enforcement of the Rights of Lenders. Agent is
entitled to act or refrain from taking any action (without incurring any
liability to any Person for so acting or refraining) unless and until it has
received instructions from Determining Lenders. In actions with respect to any
Company's property, Agent is acting for the ratable benefit of each Lender.
13.7 Collateral Matters.
(a) Each Lender authorizes and directs Agent to enter into the
Loan Documents for the Lender Liens and agrees that any action taken by
Agent concerning any Collateral (with the consent or at the request of
Determining Lenders) in accordance with any Loan Document, that Agent's
exercise (with the consent or at the request of Determining Lenders) of
powers concerning the Collateral in any Loan Document, and that all
other reasonably incidental powers are authorized and binding upon all
Lenders.
(b) Agent is authorized on behalf of all Lenders, without the
necessity of any notice to or further consent from any Lender, from time
to time before a Default or Potential Default, to take any action with
respect to any Collateral or Loan Documents related to Collateral that
may be necessary to perfect and maintain perfected the Lender Liens upon
the Collateral.
(c) Except to use the same standard of care that it ordinarily
uses for collateral for its sole benefit, Agent has no obligation
whatsoever to any Lender or to any other Person to assure that the
Collateral exists or is owned by any Company or is cared for, protected,
or insured or has been encumbered or that the Lender Liens have been
properly or sufficiently or lawfully created, perfected, protected, or
enforced or are entitled to any particular priority.
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(d) Agent shall exercise the same care and prudent judgment with
respect to the Collateral and the Loan Documents as it normally and
customarily exercises in respect of similar collateral and security
documents.
(e) Lenders irrevocably authorize Agent, at its option and in its
discretion, to release any Lender Lien upon any Collateral (i) upon full
payment of the Obligation, (ii) constituting property being disposed of
as permitted under any Loan Document, (iii) constituting property in
which no Company owned any interest at the time the Lender Lien was
granted or at any time after that, (iv) constituting property leased to
any Company under a lease that has expired or been terminated in a
transaction permitted under the Loan Documents or is about to expire and
that has not been, and is not intended by that Company to be, renewed,
(v) consisting of an instrument evidencing Debt pledged to Agent (for
the benefit of Lenders), if the underlying Debt has been paid in full,
or (vi) if approved, authorized, or ratified in writing by Lenders. Upon
request by Agent at any time, Lenders shall confirm in writing Agent's
authority to release particular types or items of Collateral under this
CLAUSE (E).
13.8 Limitation of Liability. No Lender or any Participant will incur
any liability to any other Lender or Participant except for acts or omissions in
bad faith, and neither Agent nor any Lender or Participant will incur any
liability to any other Person for any act or omission of any other Lender or any
Participant.
13.9 Relationship of Lenders. The Loan Documents do not create a
partnership or joint venture among Agent and Lenders or among Lenders.
13.10 Benefits of Agreement. None of the provisions of this section
inure to the benefit of any Company or any other Person EXCEPT Agent and
Lenders. Therefore, no Company or any other Person is responsible or liable for,
entitled to rely upon, or entitled to raise as a defense -- in any manner
whatsoever -- the failure of Agent or any Lender to comply with these
provisions.
SECTION 14. MISCELLANEOUS.
14.1 Nonbusiness Days. Any payment or action that is due under any Loan
Document on a non-Business Day may be delayed until the next-succeeding Business
Day (but interest shall continue to accrue on any applicable payment until
payment is in fact made) unless the payment concerns a LIBOR-Rate Borrowing, in
which case if the next-succeeding Business Day is in the next calendar month,
then such payment shall be made on the next-preceding Business Day.
14.2 Communications. Unless otherwise specifically provided, whenever
any Loan Document requires or permits any consent, approval, notice, request, or
demand from one party to another, communication must be in writing (which may be
by telex or fax) to be effective and shall be deemed to have been given (a) if
by telex, when transmitted to the appropriate telex number and the appropriate
answer back is received, (b) if by fax, when transmitted to the appropriate fax
number (and all communications sent by fax must be confirmed promptly thereafter
by telephone; but any requirement in this parenthetical shall not affect the
date when the fax shall be deemed to have been delivered), (c) if by mail, on
the third Business Day after it is enclosed in an envelope and properly
addressed, stamped, sealed, and deposited in the appropriate official postal
service, or (d) if by any other means, when actually delivered. Until changed by
notice pursuant to this agreement, the address (and fax number) for Borrower and
Agent is stated beside their respective signatures to this agreement and for
each Lender is stated beside its name on SCHEDULE 2.
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14.3 Form and Number of Documents. The form, substance, and number of
counterparts of each writing to be furnished under this agreement must be
satisfactory to Agent and its counsel.
14.4 Exceptions to Covenants. No Company may take or fail to take any
action that is permitted as an exception to any of the covenants contained in
any Loan Document if that action or omission would result in the breach of any
other covenant contained in any Loan Document.
14.5 Survival. All covenants, agreements, undertakings, representations,
and warranties made in any of the Loan Documents survive all closings under the
Loan Documents and, except as otherwise indicated, are not affected by any
investigation made by any party.
14.6 Governing Law. Unless otherwise stated in any Loan Document, the
laws of the State of New York and of the United States of America govern the
Rights and duties of the parties to the Loan Documents and the validity,
construction, enforcement, and interpretation of the Loan Documents.
14.7 Invalid Provisions. Any provision in any Loan Document held to be
illegal, invalid, or unenforceable is fully severable; the appropriate Loan
Document shall be construed and enforced as if that provision had never been
included; and the remaining provisions shall remain in full force and effect and
shall not be affected by the severed provision. Agent, Lenders, and each Company
party to the affected Loan Document agree to negotiate, in good faith, the terms
of a replacement provision as similar to the severed provision as may be
possible and be legal, valid, and enforceable.
14.8 Amendments, Consents, Conflicts, and Waivers.
(a) Determining Lenders. Unless otherwise specifically provided
(i) the provisions of this agreement may be amended, modified, or
waived, only by an instrument in writing executed by Borrower, Agent,
and Determining Lenders and supplemented only by documents delivered or
to be delivered in accordance with the express terms of this agreement,
and (ii) the other Loan Documents may only be the subject of an
amendment, modification, or waiver that has been approved by Determining
Lenders and Borrower.
(b) All Lenders. Any amendment to or consent or waiver under this
agreement or any Loan Document that purports to accomplish any of the
following must be by an instrument in writing executed by Borrower and
Agent and executed (or approved, as the case may be) by each Lender: (i)
Extends the due date or decreases the amount of any scheduled payment or
amortization of the Obligation beyond the date specified in the Loan
Documents; (ii) decreases any rate or amount of interest, fees, or other
sums payable to Agent or Lenders under this agreement (except such
reductions as are contemplated by this agreement); (iii) changes the
definition of "COMMITMENT," "COMMITMENT PERCENTAGE," "DETERMINING
LENDERS," and "PRO RATA PART" or the definition of "BORROWING BASE" (iv)
increases any one or more Lenders' Commitment; (v) waives compliance
with, amends, or fully or partially releases -- EXCEPT as expressly
provided by the Loan Documents or when a Company merges into another
Person or dissolves when specifically permitted in the Loan Documents --
any Guaranty or Collateral; (vi) change the requirement that any
redetermination of the Borrowing Base be approved and consented to by
all of the Lenders; or (vii) changes this CLAUSE (B) or any other matter
specifically requiring the consent of all Lenders under this agreement.
(c) Agency Fees. Any amendment or consent or waiver with respect
to fees payable solely to Agent under a separate letter agreement must
be executed in writing only by Agent and Borrower.
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(d) Conflicts. Any conflict or ambiguity between the terms and
provisions of this agreement and terms and provisions in any other Loan
Document is controlled by the terms and provisions of this agreement.
(e) Waivers. No course of dealing or any failure or delay by
Agent, any Lender, or any of their respective Representatives with
respect to exercising any Right of Agent or any Lender under this
agreement operates as a waiver thereof. A waiver must be in writing and
signed by Agent and Lenders (or Determining Lenders, if permitted under
this agreement) to be effective, and a waiver will be effective only in
the specific instance and for the specific purpose for which it is
given.
14.9 Multiple Counterparts. Any Loan Document may be executed in a
number of identical counterparts with the same effect as if all signatories had
signed the same document. All counterparts must be construed together to
constitute one and the same instrument.
14.10 Parties.
(a) Parties Bound. Each Loan Document binds and inures to the
parties to it, any intended beneficiary of it, and each of their
respective successors and permitted assigns. No Company may assign or
transfer any Rights or obligations under any Loan Document without first
obtaining all Lenders' consent, and any purported assignment or transfer
without Lenders' consent is void. No Lender may transfer, pledge,
assign, sell any participation in, or otherwise encumber its portion of
the Obligation EXCEPT as permitted by CLAUSES (B) or (C) below.
(b) Participations. Any Lender may (subject to the provisions of
this section, in accordance with applicable Law, in the ordinary course
of its business, and at any time) sell to one or more Persons (each a
"PARTICIPANT") participating interests in its portion of the Obligation.
The selling Lender remains a "LENDER" under the Loan Documents, the
Participant does not become a "LENDER" under the Loan Documents, and the
selling Lender's obligations under the Loan Documents remain unchanged.
The selling Lender remains solely responsible for the performance of its
obligations and remains the holder of its share of the Principal Debt
for all purposes under the Loan Documents. Borrower and Agent shall
continue to deal solely and directly with the selling Lender in
connection with that Lender's Rights and obligations under the Loan
Documents, and each Lender must retain the sole right and responsibility
to enforce due obligations of the Companies. Participants have no Rights
under the Loan Documents EXCEPT as provided below. Subject to the
following, each Lender may obtain (on behalf of its Participants) the
benefits of SECTION 3 with respect to all participations in its part of
the Obligation outstanding from time to time SO LONG AS Borrower is not
obligated to pay any amount in excess of the amount that would be due to
that Lender under SECTION 3 calculated as though no participations have
been made. No Lender may sell any participating interest under which the
Participant has any Rights to approve any amendment, modification, or
waiver of any Loan Document EXCEPT as to matters in SECTION 14.8(B)(I)
and (II).
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(c) Assignments. Each Lender may make assignments to the Federal
Reserve Bank. Each Lender may also assign to one or more assignees (each
an "ASSIGNEE") all or any part of its Rights and obligations under the
Loan Documents SO LONG AS (i) the assignor Lender and Assignee execute
and deliver to Agent and Borrower for their consent and acceptance (that
may not be unreasonably withheld in any instance and is not required if
the Assignee is an Affiliate of the assigning Lender) an assignment and
assumption agreement in substantially the form of EXHIBIT F (an
"ASSIGNMENT") and pay to Agent a processing fee of $2,500, (ii) the
assignment is for an identical percentage of the assignor Lender's
Rights and obligations under the Term Loan and the Revolving Facility,
(iii) the assignment must be for a minimum total Commitment of
$1,000,000 and the assigning Lender must retain a minimum total
Commitment of $1,000,000, (iv) after giving effect to such proposed
assignment, there would not be more than four (4) Lenders, and (v) the
conditions for that assignment set forth in the applicable Assignment
are satisfied. The EFFECTIVE DATE in each Assignment must (unless a
shorter period is agreeable to Borrower and Agent) be at least five
Business Days after it is executed and delivered by the assignor Lender
and the Assignee to Agent and Borrower for acceptance. Once that
Assignment is accepted by Agent and Borrower, and subject to all of the
following occurring, then, on and after the EFFECTIVE DATE stated in it
(i) the Assignee automatically becomes a party to this agreement and, to
the extent provided in that Assignment, has the Rights and obligations
of a Lender under the Loan Documents, (ii) the assignor Lender, to the
extent provided in that Assignment, is released from its obligations to
fund Borrowings under this agreement and its reimbursement obligations
under this agreement and, in the case of an Assignment covering all of
the remaining portion of the assignor Lender's Rights and obligations
under the Loan Documents, that Lender ceases to be a party to the Loan
Documents, (iii) Borrower shall execute and deliver to the assignor
Lender and the Assignee the appropriate Notes in accordance with this
agreement following the transfer, (iv) upon delivery of the Notes under
CLAUSE (III) preceding, the assignor Lender shall return to Borrower all
Notes previously delivered to that Lender under this agreement, and (v)
SCHEDULE 2 is automatically deemed to be amended to reflect the name,
address, telecopy number, and Commitment of the Assignee and the
remaining Commitment (if any) of the assignor Lender, and Agent shall
prepare and circulate to Borrower and Lenders an amended SCHEDULE 2
reflecting those changes.
14.11 Venue, Service of Process, and Jury TrialVenue, Service of
Process, and Jury Trial. BORROWER AND (PURSUANT TO ITS GUARANTY) EACH RESTRICTED
COMPANY, IN EACH CASE FOR ITSELF AND ITS SUCCESSORS AND ASSIGNS, IRREVOCABLY (A)
SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS IN NEW
YORK, (B) WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION THAT IT
MAY NOT OR IN THE FUTURE HAVE TO THE LAYING OF VENUE OF ANY LITIGATION ARISING
OUT OF OR IN CONNECTION WITH ANY LOAN DOCUMENT AND THE OBLIGATION BROUGHT IN THE
COURTS OF THE STATE OF NEW YORK, OR IN THE UNITED STATES COURTS LOCATED IN THE
BOROUGH OF MANHATTAN, (C) WAIVES ANY CLAIMS THAT ANY LITIGATION BROUGHT IN ANY
OF THE FOREGOING COURTS HAS BEEN BROUGHT IN AN INCONVENIENT FORUM, (D) CONSENTS
TO THE SERVICE OF PROCESS OUT OF ANY OF THOSE COURTS IN ANY LITIGATION BY THE
MAILING OF COPIES OF THAT PROCESS BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED,
POSTAGE PREPAID, BY HAND DELIVERY, OR BY DELIVERY BY A NATIONALLY-RECOGNIZED
COURIER SERVICE, AND SERVICE SHALL BE DEEMED COMPLETE UPON DELIVERY OF THE LEGAL
PROCESS AT ITS ADDRESS FOR PURPOSES OF THIS AGREEMENT, (E) AGREES THAT ANY LEGAL
PROCEEDING AGAINST ANY PARTY TO ANY LOAN DOCUMENT ARISING OUT OF OR IN
CONNECTION WITH THE LOAN DOCUMENTS OR THE OBLIGATION MAY BE BROUGHT IN ONE OF
THE FOREGOING COURTS, AND (F) WAIVES TO THE FULLEST EXTENT PERMITTED BY LAW, ITS
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUR OF ANY LOAN DOCUMENT. The scope of each of the foregoing waivers is
intended to be all encompassing of any and all disputes that may be filed in any
court and that relate to the subject matter of this transaction, including,
without limitation, contract claims, tort claims, breach of duty claims, and all
other common law and statutory claims. BORROWER AND (PURSUANT TO ITS GUARANTY)
EACH OTHER RESTRICTED COMPANY ACKNOWLEDGES THAT THESE WAIVERS ARE A MATERIAL
INDUCEMENT TO AGENT'S AND EACH LENDER'S AGREEMENT TO ENTER INTO A BUSINESS
RELATIONSHIP, THAT AGENT AND EACH LENDER HAS ALREADY RELIED ON THESE WAIVERS IN
ENTERING INTO THIS AGREEMENT, AND THAT AGENT AND EACH LENDER WILL CONTINUE TO
RELY ON EACH OF THESE WAIVERS IN RELATED FUTURE DEALINGS. BORROWER AND (PURSUANT
TO ITS GUARANTY) EACH OTHER RESTRICTED COMPANY FURTHER WARRANTS AND REPRESENTS
THAT IT HAS REVIEWED THESE WAIVERS WITH ITS LEGAL COUNSEL, AND THAT IT KNOWINGLY
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AND VOLUNTARILY AGREES TO EACH WAIVER FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
The waivers in this section are irrevocable, meaning that they may not be
modified either orally or in writing, and these waivers apply to any future
renewals, extensions, amendments, modifications, or replacements in respect of
the applicable Loan Document. In connection with any Litigation, this agreement
may be filed as a written consent to a trial by the court.
14.12 ENTIRETY. THE LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN
BORROWER, LENDERS, AND AGENT AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
REMAINDER OF PAGE INTENTIONALLY BLANK.
SIGNATURE PAGES FOLLOW.
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EXECUTED as of the date first stated above.
Address for notices:
One Commercial Green FORTUNE NATURAL RESOURCES CORPORATION,
515 W. Greens Road, Suite 720 formerly known as Fortune Petroleum
Houston, Texas 77067 Corporation,
Attention: Mr. J. Michael Urban AS BORROWER
Vice President and
Chief Financial Officer
By: /s/ Tyrone J. Fairbanks
----------------------------------
Fax: 713-872-1213 Name: Tyrone J. Fairbanks
Title: President
CREDIT LYONNAIS NEW YORK BRANCH,
1000 Louisiana St., Suite 5360 AS AGENT AND A LENDER
Houston, Texas 77002
Attention: Mr. John M. Falbo
Vice President and
Group Manager By: /s/ Jacques Yves Mulliez
----------------------------------
Fax: 713-751-0307 Name: Jacques Yves Mulliez
Title: Senior Vice President
EMPLOYMENT AGREEMENT
This Employment Agreement is made effective as of June 1, 1997, by and
between Fortune Petroleum Corporation, a Delaware corporation ("Employer") and
Tyrone J. Fairbanks ("Employee").
WHEREAS, prior to the date hereof, Employee served in the employ of
Employer in the capacity of president and chief executive officer pursuant to an
employment agreement dated July 1, 1994; and
WHEREAS, the parties desire to abrogate their earlier Employment
Agreement and their respective rights and duties thereunder in favor of the
terms and conditions set forth herein; and
WHEREAS, Employer's Board of Directors desires to recognize Employee's
continuing importance to the ongoing operations of Employer, the value of his
continuing participation in those operations, and desires to provide an
incentive and inducement for Employee to continue in his present capacity,
notwithstanding the possibility of a change of control or ownership of Employer;
and
WHEREAS, Employee is willing, on the terms and conditions set forth
herein, to continue in the employ of Employer for the terms set forth herein.
NOW, THEREFORE, in consideration of the foregoing, and of the mutual and
dependent covenants hereinafter set forth, and other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties hereto
agree as follows:
1. EMPLOYMENT AND DUTIES
---------------------
Employer hereby employs Employee on the terms and conditions hereinafter
set forth as its president and chief executive officer, or such other executive
capacity as the Board of Directors may from time to time prescribe, and Employee
hereby accepts such employment upon such terms and conditions for the period
hereinafter fixed. Employee shall not be required to spend any extended periods
outside the immediate area surrounding Employer's headquarter's office, except
that Employee agrees to make routine business trips of reasonable duration for
the benefit of Employer and its business and in the discharge of Employee's
duties hereunder.
2. PERFORMANCE
-----------
Employee agrees to devote substantially all of his business time and
efforts to the performance of his duties as an executive of Employer as
specified from time to time by the Board of Directors of Employer. During the
term of this Agreement, Employee shall not engage in any business that is
competitive with Employer, either through ownership (other than ownership of
securities of publicly held corporations of which Employee owns less than 5% of
any class of outstanding securities) or as a director, officer, agent, employee
or consultant.
3. BONUS
-----
Employer agrees to award Employee a one-time bonus in the amount of
Thirty-Five Thousand Dollars ($35,000.00) upon entering into this Agreement.
Such bonus shall be paid one-half upon execution of this Agreement and one-half
on January 2, 1998.
<PAGE>
4. TERM
----
The period of employment hereunder shall commence on the date hereof and
shall terminate May 31, 2000 (the "Termination Date"), provided, however, that
the term hereof shall be automatically extended on the tenth day of each and
every calendar month during the term of this Agreement for an additional
calendar month so that at the beginning of each and every month during the term
of this Agreement there shall be remaining a term of three (3) years. The
foregoing notwithstanding, either party hereto may deliver to the other a
written notice of termination, to be effective (A) on the Termination Date if
delivered more than six (6) months prior to the Termination Date or (B) the
first day of the calendar month next following six (6) months from the date of
such delivery, if such delivery occurs at any time after a date six (6) months
prior to the Termination Date.
5. COMPENSATION AND EXPENSES
-------------------------
For all services to be rendered by Employee hereunder, Employer agrees
to pay Employee, in a manner consistent with the payment of other employees of
Employer, the sum of One Hundred Sixty Thousand Dollars ($160,000.00) ("Base
Compensation") per year subject to all legally required deductions. Base
Compensation shall be increased by five percent (5%) of Base Compensation per
year for each year of the term hereof. In addition to such annual compensation,
and provided Employee is in the employ of Employer on May 31 of the year in
which the bonus is to be paid, Employer shall award to Employee the additional
performance-based compensation as computed in accordance with the provisions of
Exhibit "A", attached hereto and incorporated herein. Employee shall also be
entitled to participate in other bonus and option plans which may be awarded
from time to time in the absolute discretion of the Board of Directors. Employee
shall also be reimbursed for reasonable expenses incurred on behalf of Employer
upon presentation to Employer of a reasonably detailed statement of the expenses
for which reimbursement is claimed.
6. VACATION
--------
Employee shall have the right to four (4) weeks of vacation each year
from his duties as herein described. During such vacation period, the
compensation payable to Employee pursuant to the provisions hereof shall
continue. Employee's exercise of his rights hereunder shall be consistent with
all policies of Employer relating to the use of vacation time.
7. BENEFITS
--------
Employee shall be provided with an automobile appropriate for his
executive capacity with Employer. Employer shall pay all costs and expenses of
maintaining said automobile, including upkeep, gasoline, and insurance. Employer
shall also continue in force the executive disability policy previously obtained
on behalf of Employee.
In addition to the compensation provided for herein, Employee will also
be entitled to participate in all benefits of employment generally available to
all other executives of Employer on a commensurate basis as may be offered from
time to time by Employer to its other employees similarly situated in
experience, including, without limitation, group health, disability, and life
insurance benefits and participation in any incentive compensation, bonus,
pension, profit sharing, and stock option plans established by Employer.
2
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8. PROPRIETARY INFORMATION
-----------------------
Employee will not at any time disclose or use, except in the pursuit of
the business of Employer and any subsidiary thereof, any proprietary information
of Employer without regard to whether such information is embodied in writing or
some other physical form. For purposes of this Agreement, the phrase
"proprietary information of Employer" means all information which is known only
to employees of Employer or its subsidiaries or others in a confidential
relationship with Employer and relates to specific technical matters or specific
business matters of Employer.
Employee will not at any time remove from the premises of Employer,
except in the pursuit of the business of Employer, any document, component,
device, record, or other information of Employer, such documents, components,
devices, records, or other information, whether developed by Employee or other
employees of Employer, being the exclusive property of Employer.
9. TERMINATION AND DISABILITY
--------------------------
(A) Employer reserves the right, at its option, to terminate this
Agreement on written notice to Employee in the event Employee (i) is convicted
of a felony or crime involving moral turpitude, (ii) misappropriates funds of
Employer, or (iii) materially breaches of any of the provisions hereof or fails
to materially comply with directives of Employer's board of directors, where
said breach or failure has not been cured within thirty (30) days from the date
of written notice of such breach or failure. In the event of such termination,
Employee agrees, for a subsequent period of one year, to refrain from hiring and
to use his best efforts to cause any entity with which he is affiliated to
refrain from hiring any individual in the employ of Employer on the date of such
termination.
(B) This Agreement shall terminate upon the occurrence of (i) completion
of the term of this Agreement, when a notice of such termination is delivered,
in writing, by either party to the other, pursuant to Section 4, above; (ii)
Employee's death; (iii) the conditions specified in Section 9(A) above; or (iv)
inability of Employee, because of physical or mental disability, to perform
efficiently all of the duties of his employment hereunder for an aggregate of
six (6) months during any twelve (12) month period.
(C) During the period of any such disability as referred to in Section
9(B)(iv), and until employment hereunder is terminated pursuant to its
provisions, Employee shall be entitled to all compensation and other benefits to
which he would otherwise be entitled hereunder had such disability not occurred,
less the aggregate amount of any payments under either disability insurance
policies maintained by Employer or programs of federal or state governments.
Employee agrees to apply for all payments to which he is entitled under said
policies or programs. Employee shall give Employer notice of any disability
hereunder and the receipt of all payments received from said policies or
programs.
(D) Upon termination of Employee's employment hereunder, Employer shall
have no further obligation to Employee.
(E) In the event that, within two years following a change in control,
this Agreement is terminated by either Employer or Employee for any reason,
either voluntary or involuntary, other than for the reasons set forth in Section
9(A), above, Employee shall be entitled to receive a single payment equal to two
(2) years' Base Compensation at the rate provided for in Section 5 above, as
amended from time to time by the Board of Directors, and in effect on the date
of termination. For the purposes of this Agreement, a change in control shall be
deemed to have occurred if, as the result of a tender offer, exchange offer,
merger, consolidation, sale of assets, acquisition of assets, or contested
election of directors, or any combination of the foregoing (a "Transaction"),
the persons who were directors of Employer immediately prior to the Transaction
shall cease to constitute at least two-thirds of the membership of the Board of
Directors of, or of any parent of, or successor to, Employer within two years
after the Transaction.
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<PAGE>
In addition, in the event of such termination within two years of a
change of control, (i) the rights of Employee under any applicable retirement,
profit sharing, or stock option plan of Employer shall continue to be governed
by the terms of such plans in existence as of the date of termination, except
that the exercise price of all shares covered by options which are vested in
Employee as of the date of termination shall be reduced to the par value of
Employer's stock, (ii) any amounts due and owing by Employee to Employer
pursuant those two promissory notes each dated January 2, 1996 shall be forgiven
without payment of any kind by Employee, and (iii) Employee shall be entitled to
participate, on substantially the same basis as was provided to Employee prior
to termination, in Employer's group health plans or arrangements for employees
and dependents on a basis commensurate with Employer's employees similarly
situated in experience until Employee shall reach age 65. In the event Employee
cannot qualify for group health coverage, Employer shall provide Employee
individual family coverage on substantially the same basis as was provided to
Employee prior to termination.
In the event of termination of this Agreement under the circumstances
described in this Section 9(E), the arrangements provided for by this Agreement,
by any stock option or other agreement between Employer or any of its
subsidiaries and Employee in effect at the time and by any other applicable plan
of Employer or any of its subsidiaries, including participation in Employer's
group health plans or arrangements as specified in this Section 9(E), will
constitute the entire obligation of Employer to Employee and performance thereof
will constitute full settlement of any claim that Employee might otherwise asset
against Employer on account of such termination.
10. CONSULTATIVE SERVICES
---------------------
Upon termination, as provided in Section 9(B)(i) hereof, of the initial
period of this Agreement or of any extension thereof, Employer agrees to engage
Employee as a consultant for a period of two (2) years after such termination
for the annual sum of forty percent (40%) of the Base Compensation received by
Employee for his last year of employment. Employee agrees to render advisory and
consultative services for said period. Upon termination of such initial
consulting period or any extension thereof, the consulting arrangement set forth
in this Section 10 shall be extended automatically upon the same terms and
conditions for a period of one (1) year, unless written notice of intent not to
so extend is delivered by either party to the other at least thirty (30) days
prior to the expiration of such initial or extended period. As a consultant,
Employee will be acting in the capacity of an independent contractor and not as
an employee of Employer. As an independent contractor, Employee will not receive
any of the benefits described in Section 7 of this Agreement. However, Employer
agrees to provide Employee an office and normal office services and to reimburse
Employee for reasonable expenses incurred on behalf of Employer upon the terms
and conditions set forth in Section 5 hereof.
11. INDEMNITY
---------
To the extent permitted by applicable law, Employer agrees to indemnify
Employee and hold him harmless for any acts or decisions made by him in good
faith while performing services for Employer, and shall maintain coverage for
him under liability insurance policies now in effect or hereafter obtained
during the term of this Agreement covering the other officers and directors of
Employer. Employer shall pay all expenses, including reasonable attorney's fees
and the amounts of court approved settlements, actually incurred by Employee in
connection with the defense of any action, suit, or proceeding, and in
connection with any appeal thereon, which has been or which may be brought
against Employee by reason of Employee's services as a director, officer or
agent of Employer or subsidiary thereof.
4
<PAGE>
12. NOTICE
------
Unless otherwise directed in writing, any and all notices to Employer
referred to herein shall be sufficient if furnished in writing, sent by
certified mail to the following address:
Fortune Petroleum Corporation
One Commerce Green
515 W. Greens Road, Suite 720
Houston, Texas 77067
and to Employee:
Tyrone J. Fairbanks
125 Grogans Point Road
The Woodlands, Texas 77380
13. ASSIGNMENT
----------
The rights and benefits of Employer under this Agreement shall only be
transferable by Employer to successors of Employer pursuant to a corporate
reorganization such as a merger or sale of substantially all of the assets of
Employer, and all covenants and agreements hereunder shall inure to the benefit
of, and be enforceable by or against, said successors-in-interest; provided,
however, that Employer shall not enter into a merger or consolidation with and
into another corporation which results in the termination of Employer's separate
corporate existence unless effective provisions shall have been made with the
surviving corporation for the continued employment of Employee generally upon
the same terms and conditions set forth in this Agreement. Notwithstanding any
such provisions, Employee shall be entitled to the rights set forth in Section
9(E), above.
This Agreement is personal to Employee and cannot be assigned, nor may
duties of Employee hereunder be delegated. Any attempted assignment or
delegation by Employee shall render this Agreement null and void at the option
of Employer.
14. BINDING EFFECT
--------------
The terms, conditions, covenants, and agreements set forth herein shall
inure to the benefit of, and be binding upon, the heirs, administrators,
successors, and assigns of each of the parties hereto and upon any corporation,
entity, or person with which any of the parties hereto may become merged,
consolidate, combined, or otherwise affiliated.
15. WAIVER
------
The waiver of either party of a breach of any provision of this
Agreement by the other party shall not operate or be construed as the waiver of
any subsequent breach of such other party.
16. ATTORNEYS' FEES
---------------
In the event that any action is brought to enforce the terms of this
Agreement, the prevailing party shall be entitled to an award of reasonable
attorney's fees and costs.
5
<PAGE>
17. ENTIRE AGREEMENT
----------------
This Agreement represents the entire agreement between the parties
hereto, and other or prior understandings, agreements, and contracts are hereby
canceled without further liability whatsoever as to either party.
18. AMENDMENT
---------
This Agreement shall not be altered or modified except by further
written agreement between the parties.
19. CHOICE OF LAW
-------------
This Agreement shall be interpreted, construed, and applied according to
the laws of the State of Texas applicable to contracts made and performed within
such State.
IN WITNESS WHEREOF, the parties hereto have entered into this Agreement
as of the date first above written.
FORTUNE PETROLEUM CORPORATION
By: /s/ Dean W. Drulias
-------------------------------------
DEAN W. DRULIAS
Executive Vice President
/s/ Tyrone J. Fairbanks
-------------------------------------
TYRONE J. FAIRBANKS
6
<PAGE>
EXHIBIT "A"
The initial annual performance bonus as determined hereunder shall be
paid July 1, 1998 and shall be equal to one percent (1%) of the "Calculation
Value Increase", defined as the difference obtained by deducting (i) one hundred
ten percent (110%) of the average of the closing price of Employer's common
stock on the AMEX consolidated market for each trading day in May 1997,
multiplied by the total number of common shares outstanding on the last trading
day of such month (the "Base Value") from (ii) the average of the closing price
of Employer's common stock on the AMEX consolidated market for each trading day
in May 1998, multiplied by the total number of common shares outstanding on the
last trading day of such month (the "Calculation Value"). Each subsequent annual
performance bonus shall be paid on July 1 of each succeeding calendar year, and
shall be based on the Calculation Value Increase as computed above, deducting
from the Calculation Value for the month of May nearest the bonus payment date
the Calculation Value for the next-preceding month of May.
At no time during the term hereof shall the subtrahend in any bonus
calculation be less than the greater of either the largest Calculation Value
previously determined hereunder or the Base Value. Any Calculation Value
Increase determined hereunder shall be reduced by the gross proceeds realized by
Employer, if any, as the result of all new issuances of common stock shares of
Employer during the twelve-month period ending on the last day of May
immediately preceding the bonus payment date, whether realized by the exercise
of stock options or purchase warrants, equity offering, asset acquisition, or
otherwise. No annual performance bonus shall be payable hereunder for any year
in which the Calculation Value Increase is zero or a negative number. The amount
of any annual performance bonus payable hereunder shall not exceed the Base
Compensation paid Employee in the calendar year immediately prior to the year in
which the bonus is payable.
In the event Employer's net income from continuing operations, adjusted
by adding back any non-cash expenses and deducting any non-cash income, where
non-cash expenses and income shall include, but not be limited to, deferred
income taxes; depreciation, depletion and amortization; impairment to oil and
gas properties; non-cash debt conversion expense; non-cash compensation expense;
gain or loss from sale of property and equipment; and other adjustments to
reconcile Employer's net income or loss to net cash provided by or used in
operating activities as reported in the Employer's statements of cash flow
prepared in accordance with generally accepted accounting principles, other than
changes in assets and liabilities ("EBITDA") for the year ended December 31
immediately prior to the date on which the annual performance bonus is to be
paid equals or exceeds, by a multiple of at least twenty (20), the bonus
calculated hereunder, the bonus shall be paid entirely in cash. To the extent
EBITDA at such date is less than twenty (20) times the bonus so calculated, such
bonus shall be paid in cash and stock, with the stock portion being paid in the
same proportion as (i) twenty (20) minus the actual multiple of the bonus to be
paid which EBITDA represents bears to (ii) ten (10); i.e, 20 minus the actual
multiple, all divided by 10. Such stock shall be valued at the per share price
used to determine the Calculation Value for the month of May nearest the
applicable annual performance bonus payment date. The foregoing notwithstanding,
Employer's board of directors shall retain the discretion to increase the cash
and reduce the stock portions of any such bonus. Employer shall withhold and
promptly pay to all appropriate tax agencies applicable taxes on the stock
portion of such bonus at Employee's highest marginal tax rate and shall remit to
Employee the number of shares of common stock calculated net of such
withholding.
Any terms used but not defined herein shall have the meaning ascribed to
them in the employment agreement to which this exhibit is attached.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 3,259
<SECURITIES> 0
<RECEIVABLES> 470
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,736
<PP&E> 25,415
<DEPRECIATION> (16,714)
<TOTAL-ASSETS> 12,633
<CURRENT-LIABILITIES> 2,520
<BONDS> 0
0
0
<COMMON> 121
<OTHER-SE> 9,192
<TOTAL-LIABILITY-AND-EQUITY> 12,633
<SALES> 1,804
<TOTAL-REVENUES> 1,910
<CGS> 0
<TOTAL-COSTS> 738
<OTHER-EXPENSES> 969
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 130
<INCOME-PRETAX> (4,722)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,722)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,722)
<EPS-PRIMARY> (0.39)
<EPS-DILUTED> (0.39)
</TABLE>
